UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2009.~~March 31, 2010.

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

Commission file number 1-12616

SUN COMMUNITIES, INC.

(Exact Name of Registrant as Specified in its Charter)

Maryland		38-2730780
(State of Incorporation)		(I.R.S. Employer Identification No.)
27777 Franklin Rd.
Suite 200
Southfield, Michigan		48034
(Address of Principal Executive Offices)		(Zip Code)

(248) 208-2500

(Registrant’s telephone number, including area code)

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 [ ] No [ ]

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 [ ]

Accelerated filer [ X ]

Non-accelerated filer [ ]

Smaller reporting company [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [ X ]

Number of shares of Common Stock, $0.01 par value per share, outstanding

as of ~~September 30, 2009: 18,794,736~~

March 31, 2010: 18,987,149

SUN COMMUNITIES, INC.

INDEX

		Pages
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Consolidated Balance Sheets ─ ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008~~2009	3
	Consolidated Statements of Operations ─ Periods Ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~	4
	Consolidated Statements of Comprehensive ~~Loss~~Income ─ Periods Ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~	5
	Consolidated Statement of Stockholders’ Deficit ─ ~~Nine~~Three Months Ended ~~September 30, 2009~~March 31, 2010	5
	Consolidated Statements of Cash Flows ─ ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2824
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4435
Item 4.	Controls and Procedures	4536
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	4637
Item 1A.	Risk Factors	4637
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
~~Item 4.~~	~~Submission of Matters to a Vote of Security Holders~~	4637
Item 6.	Exhibits	4738
	Signatures	4839

SUN COMMUNITIES, INC.

CONSOLIDATED BALANCE SHEETS

AS OF ~~SEPTEMBER 30, 2009~~MARCH 31, 2010 AND DECEMBER 31, ~~2008~~2009

(In thousands, except per share amounts)

	(Unaudited)
	March 31, 2010			December 31, 2009
ASSETS
Investment property, net	$	1,052,973		$	1,064,305
Cash and cash equivalents		8,054			4,496
Inventory of manufactured homes		2,698			3,934
Investment in affiliates		827			1,646
Notes and other receivables		77,945			74,030
Other assets		30,832			32,954
TOTAL ASSETS	$	1,173,329		$	1,181,365


LIABILITIES
Debt	$	1,157,962		$	1,159,442
Lines of credit		98,525			94,465
Other liabilities		35,178			38,766
TOTAL LIABILITIES		1,291,665			1,292,673

Commitments and contingencies

STOCKHOLDERS’ DEFICIT
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued	$	-		$	-
Common stock, $0.01 par value, 90,000 shares authorized (March 31, 2010 and December 31, 2009, 20,789 and 20,635 shares issued respectively)		208			206
Additional paid-in capital		467,146			463,811
Officer's notes		(3,217	)		(5,028	)
Accumulated other comprehensive loss		(2,246	)		(1,858	)
Distributions in excess of accumulated earnings		(508,890	)		(498,370	)
Treasury stock, at cost (March 31, 2010 and December 31, 2009, 1,802 shares)		(63,600	)		(63,600	)
Total Sun Communities, Inc. stockholders' deficit		(110,599	)		(104,839	)
Noncontrolling interests		(7,737	)		(6,469	)
TOTAL STOCKHOLDERS’ DEFICIT		(118,336	)		(111,308	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,173,329		$	1,181,365

(Unaudited)
September 30, 2009 December 31, 2008
ASSETS
Investment property, net

$
1,072,850

$
1,099,020

Cash and cash equivalents

5,079

6,162

Inventory of manufactured homes

3,683

3,342

Investment in affiliates

2,428

3,772

Notes and other receivables

69,781

57,481

Other assets

35,384

37,152

Assets of discontinued operations

-

70

TOTAL ASSETS

$
1,189,205

$
1,206,999

LIABILITIES

Debt

$
1,155,646

$
1,139,152

Lines of credit

88,883

90,419

Other liabilities

40,133

37,240

Liabilities of discontinued operations

-

70

TOTAL LIABILITIES

1,284,662

1,266,881

Commitments and contingencies

STOCKHOLDERS’ DEFICIT

Preferred stock, $0.01 par value, 10,000 shares authorized, none issued

$
-

$
-

Common stock, $0.01 par value, 90,000 shares authorized (September 30, 2009 and December 31, 2008, 20,597 and 20,313 shares issued respectively)

206

203

Additional paid-in capital

463,608

459,847

Officer's notes

(5,163
)

(8,334
)
Accumulated other comprehensive loss

(2,108
)

(2,851
)
Distributions in excess of accumulated earnings

(483,666
)

(445,147
)
Treasury stock, at cost (September 30, 2009 and December 31, 2008, 1,802 shares)

(63,600
)

(63,600
)
Total Sun Communities, Inc. stockholders' deficit

(90,723
)

(59,882
)
Noncontrolling interest

(4,734
)

-

TOTAL STOCKHOLDERS’ DEFICIT

(95,457
)

(59,882
)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$
1,189,205

$
1,206,999

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2010 AND 2009 ~~AND 2008~~

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Three Months Ended March 31,
	2009			2008			2009			2008			2010			2009
REVENUES
Income from real property	$	48,597		$	47,788		$	148,093		$	145,792		$	52,007		$	50,999
Revenue from home sales		8,433			7,933			24,112			24,204			8,037			7,461
Rental home revenue		5,062			5,186			15,449			15,318			5,079			5,200
Ancillary revenues, net		4			35			261			349			226			195
Interest		1,554			1,129			4,194			2,741			1,796			1,272
Other income (loss)		(258	)		(816	)		(161	)		2,884
Other income, net														272			157
Total revenues		63,392			61,255			191,948			191,288			67,417			65,284

COSTS AND EXPENSES
Property operating and maintenance		13,249			12,469			38,641			36,857			13,040			12,605
Real estate taxes		3,848			3,844			12,150			12,183			4,180			4,184
Cost of home sales		6,046			6,073			17,313			18,893			6,244			5,423
Rental home operating and maintenance		3,864			4,135			12,423			11,566			3,623			4,537
General and administrative - real property		3,687			3,691			12,753			12,546			3,490			4,166
General and administrative - home sales and rentals		1,890			1,676			5,532			5,003			1,933			1,826
Georgia flood damage		800			-			800			-
Depreciation and amortization		15,841			16,025			47,960			48,097			16,573			16,204
Interest		15,109			15,361			44,093			45,311			15,105			14,245
Interest on mandatorily redeemable debt		839			847			2,509			2,535			817			835
Total expenses		65,173			64,121			194,174			192,991			65,005			64,025

Loss before income taxes and equity loss from affiliates		(1,781	)		(2,866	)		(2,226	)		(1,703	)
Provision for state income tax		(103	)		(141	)		(382	)		(34	)
Equity loss from affiliates		(854	)		(1,486	)		(1,344	)		(14,036	)
Loss from continuing operations		(2,738	)		(4,493	)		(3,952	)		(15,773	)
Income (loss) from discontinued operations		177			(274	)		(155	)		(785	)
Net loss		(2,561	)		(4,767	)		(4,107	)		(16,558	)
Less: income (loss) attributable to noncontrolling interest		(526	)		726			(690	)		(602	)
Net loss attributable to Sun Communities, Inc.	$	(2,035	)	$	(5,493	)	$	(3,417	)	$	(15,956	)
Income before income taxes and equity income (loss) from affiliates														2,412			1,259
Provision for state income taxes														(132	)		(133	)
Equity income (loss) from affiliates														(819	)		27
Income from continuing operations														1,461			1,153
Loss from discontinued operations														-			(172	)
Net income														1,461			981
Less: amounts attributable to noncontrolling interests														124			104
Net income attributable to Sun Communities, Inc. common stockholders													$	1,337		$	877

Amounts attributable to Sun Communities, Inc. common stockholders:
Income from continuing operations, net of state income taxes													$	1,337		$	1,031
Loss from discontinued operations, net of state income taxes														-			(154	)
Net income attributable to Sun Communities, Inc. common stockholders													$	1,337		$	877

Weighted average common shares outstanding:
Basic		18,513			18,213			18,437			18,151			18,842			18,511
Diluted		18,513			18,213			18,437			18,151			20,984			20,698

Basic and diluted loss per share:
Basic and diluted earnings (loss) per share:
Continuing operations	$	(0.12	)	$	(0.28	)	$	(0.18	)	$	(0.84	)	$	0.07		$	0.06
Discontinued operations		0.01			(0.02	)		(0.01	)		(0.04	)		-			(0.01	)
Basic and diluted loss per share	$	(0.11	)	$	(0.30	)	$	(0.19	)	$	(0.88	)
Basic and diluted earnings per share													$	0.07		$	0.05

Cash dividends per common share:	$	0.63		$	0.63		$	1.89		$	1.89		$	0.63		$	0.63

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS, CONTINUED~~COMPREHENSIVE INCOME

FOR THE PERIODS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2010 AND 2009 ~~AND 2008~~

(In thousands)

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Amounts attributable to Sun Communities, Inc. common stockholders:
Loss from continuing operations, net of state income taxes

$
(2,193
)

$
(5,190
)

$
(3,278
)

$
(15,200
)
Income (loss) from discontinued operations, net of state income taxes

158

(303
)

(139
)

(756
)
Loss attributable to Sun Communities, Inc.

$
(2,035
)

$
(5,493
)

$
(3,417
)

$
(15,956
)

~~SUN COMMUNITIES, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS~~

~~FOR THE PERIODS ENDED SEPTEMBER 30, 2009 AND 2008~~

~~(In thousands)~~

~~(Unaudited)~~

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net loss

$
(2,561
)

$
(4,767
)

$
(4,107
)

$
(16,558
)
Unrealized gain (loss) on interest rate swaps

(494
)

4

832

(64
)
Total comprehensive loss

(3,055
)

(4,763
)

(3,275
)

(16,622
)
Less: Comprehensive income (loss) attributable to the noncontrolling interest

(324
)

733

(347
)

(604
)
Comprehensive loss attributable to Sun Communities, Inc.

$
(2,731
)

$
(5,496
)

$
(2,928
)

$
(16,018
)

	Three Months Ended March 31,
	2010			2009
Net income	$	1,461		$	981
Unrealized loss on interest rate swaps		(432	)		(4	)
Total comprehensive income		1,029			977
Less: amounts attributable to noncontrolling interests		80			104
Comprehensive income attributable to Sun Communities, Inc. common stockholders	$	949		$	873

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2009~~MARCH 31, 2010

(In thousands, except per share amounts)

(Unaudited)

Common Stock Additional Paid-in Capital Officer's Notes Accumulated Other Comprehensive Loss Distributions in Excess of Accumulated Earnings Treasury Stock Total Sun Communities Stockholders' Deficit Non-controlling Interest Total Stock-holders' Deficit
Balance as of December 31, 2008
$ 203 $ 459,847 $ (8,334 ) $ (2,851 ) $ (445,147 ) $ (63,600 ) $ (59,882 ) $ - $ (59,882 )
Issuance of common stock, net
3 1,506 - - - - 1,509 - 1,509
Stock-based compensation - amortization and forfeitures
- 2,255 - - 14 - 2,269 - 2,269
Net loss
- - - - (3,417 ) - (3,417 ) (690 ) (4,107 )
Unrealized gain on interest rate swaps
- - - 743 - - 743 89 832
Repayment of officer's notes
- - 3,171 - - - 3,171 - 3,171
Cash distributions declared of $1.89 per share
- - - - (35,116 ) - (35,116 ) (4,133 ) (39,249 )
Balance as of September 30, 2009
$ 206 $ 463,608 $ (5,163 ) $ (2,108 ) $ (483,666 ) $ (63,600 ) $ (90,723 ) $ (4,734 ) $ (95,457 )

	Common Stock		Additional Paid-in Capital		Officer's Notes			Accumulated Other Comprehensive Loss			Distributions in Excess of Accumulated Earnings			Treasury Stock			Total Sun Communities Stockholders' Deficit			Non-controlling Interest			Total Stockholders' Deficit
Balance as of December 31, 2009	$	206	$	463,811	$	(5,028	)	$	(1,858	)	$	(498,370	)	$	(63,600	)	$	(104,839	)	$	(6,469	)	$	(111,308	)
Issuance of common stock, net		2		3,093		-			-			-			-			3,095			-			3,095
Stock-based compensation - amortization and forfeitures		-		242		-			-			8			-			250			-			250
Net income		-		-		-			-			1,337			-			1,337			124			1,461
Unrealized loss on interest rate swaps and cap		-		-		-			(388	)		-			-			(388	)		(44	)		(432	)
Repayment of officer's notes		-		-		1,811			-			-			-			1,811			-			1,811
Cash distributions declared of $0.63 per share		-		-		-			-			(11,865	)		-			(11,865	)		(1,348	)		(13,213	)
Balance as of March 31, 2010	$	208	$	467,146	$	(3,217	)	$	(2,246	)	$	(508,890	)	$	(63,600	)	$	(110,599	)	$	(7,737	)	$	(118,336	)

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2010 AND 2009 ~~AND 2008~~

(In thousands)

(Unaudited)

								Three Months Ended March 31,
	2009			2008				2010			2009
OPERATING ACTIVITIES:
Net loss	$	(4,107	)	$	(16,558	)
Net income								$	1,461		$	981
Less: Loss from discontinued operations, net of tax		(155	)		(785	)			-			(172	)
Loss from continuing operations		(3,952	)		(15,773	)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
Gain from land dispositions		(90	)		(3,336	)
Income from continuing operations									1,461			1,153
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:							Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Gain on disposal of other assets and depreciated homes, net		(3,643	)		(2,502	)			(849	)		(1,327	)
Gain on valuation of derivative instruments		(5	)		(2	)
Loss (gain) on valuation of derivative instruments									6			(3	)
Stock compensation expense		2,335			1,696				289			418
Depreciation and amortization		51,342			51,137				17,206			16,789
Amortization of deferred financing costs		1,228			1,145				430			395
Equity loss from affiliates		1,344			14,036
Change in notes receivables from financed sales of inventory homes, net of repayments		(2,554	)		(3,226	)
Equity (income) loss from affiliates, net									819			(27	)
Change in notes receivable from financed sales of inventory homes, net of repayments									(1,381	)		(1,038	)
Change in inventory, other assets and other receivables, net		(3,746	)		(6,445	)			1,866			3,046
Change in accounts payable and other liabilities		3,119			4,010				(3,005	)		(862	)
Net cash provided by operating activities of continuing operations		45,378			40,740				16,842			18,544
Net cash used for operating activities of discontinued operations		(438	)		(351	)			-			(162	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		44,940			40,389				16,842			18,382

INVESTING ACTIVITIES:
Investment in properties		(30,321	)		(32,316	)			(8,745	)		(10,070	)
Investment in affiliate		-			(500	)
Proceeds related to dispositions of land		172			6,508				-			2
Proceeds related to disposition of other assets and depreciated homes, net		455			342				333			314
Payment of notes receivable and officer's notes, net		6,930			1,692
Reduction of notes receivable and officer's notes, net									2,035			3,422
NET CASH USED FOR INVESTING ACTIVITIES		(22,764	)		(24,274	)			(6,377	)		(6,332	)

FINANCING ACTIVITIES:
Issuance (redemption) of common stock and OP units, net		1,509			(459	)
Issuance and associated costs of common stock and OP units, net									2,311			(131	)
Borrowings on lines of credit		106,197			88,785				33,473			39,406
Payments on lines of credit		(107,733	)		(102,612	)			(29,413	)		(41,378	)
Payments to retire preferred operating partnership units									(925	)		-
Proceeds from issuance of notes payable and other debt		40,231			52,549				4,347			7,593
Payments on notes payable and other debt		(23,737	)		(13,538	)			(3,470	)		(4,064	)
Payments for deferred financing costs		(477	)		(338	)			(17	)		(10	)
Distributions to stockholders and OP unit holders		(39,249	)		(39,093	)			(13,213	)		(13,040	)
NET CASH USED FOR FINANCING ACTIVITIES		(23,259	)		(14,706	)			(6,907	)		(11,624	)
					-
Net increase (decrease) in cash and cash equivalents		(1,083	)		1,409
Net increase in cash and cash equivalents									3,558			426
Cash and cash equivalents, beginning of period		6,162			5,415				4,496			6,162
Cash and cash equivalents, end of period	$	5,079		$	6,824			$	8,054		$	6,588

SUPPLEMENTAL INFORMATION:
Cash paid for interest	$	39,545		$	42,990			$	13,140		$	12,368
Cash paid for interest on mandatorily redeemable debt	$	2,509		$	2,587			$	817		$	834
Cash paid for state income taxes	$	526		$	249			$	-		$	-
Noncash investing and financing activities:
Unrealized gain (loss) on interest rate swaps	$	832		$	(64	)
Unrealized loss on interest rate swaps								$	(432	)	$	(4	)
Reduction in secured borrowing balance								$	1,432		$	770
Receivable for issuance of stock								$	784		$	-

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

These unaudited interim Consolidated Financial Statements of Sun Communities, Inc., a Maryland corporation, and all ~~majority-owned~~wholly-owned or ~~wholly-owned~~majority-owned and controlled subsidiaries, including Sun Communities Operating Limited Partnership (the “Operating Partnership”), SunChamp LLC (“SunChamp”), and Sun Home Services, Inc. (“SHS”), have been prepared pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations and in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 as filed with the SEC on March ~~13, 2009,~~11, 2010, as amended on March 30, ~~2009~~2010 (the ~~“2008~~“2009 Annual Report”).

Reference in this report to Sun Communities, Inc., “we”, “our” ~~and~~, “us” and the “Company” refer to Sun Communities, Inc. and its subsidiaries, unless the context indicates otherwise.

The accompanying Consolidated Financial Statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature.

We completed the sale of our cable television services business during the third quarter ended September 30, 2009. The cable television services business has been classified and presented as discontinued operations in the Consolidated Financial Statements and related notes. See Note 2 for additional information.

The following Notes to Consolidated Financial Statements present interim disclosures as required by the SEC. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our ~~2008~~2009 Annual Report, with the exception of the impact of our adoption in the first quarter of 2009 of the following accounting standards: Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which is now included within the FASB Accounting Standards Codification TM (“ASC”) Topic 810, Consolidation; and FASB Staff Position Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”, which is included within ASC Topic 260, Earnings Per Share. See Recent Accounting Pronouncements in Note 17 for further information on our adoption of these accounting standards.Report.

Certain reclassifications have been made to prior periods’ financial statements in order to conform to current period presentation.

2.Discontinued Operations

We had investments in certain land improvements and equipment that provided cable television services to certain communities within the Real Property Operations segment. ~~In December~~During the fourth quarter of 2008, we determined that the cable television assets could not provide the necessary return on investment to justify the capital investment required to keep up with the technological advances in the offered ~~product. In the fourth quarter of fiscal 2008, we~~product and subsequently announced our intention to exit the cable television service ~~business and recorded a $4.1 million impairment charge on the cable television assets. This impairment charge was recognized in accordance with ASC Topic 360, Plant Property and Equipment.~~

business. We completed the sale of the cable television services business during the third quarter ~~ended September 30,~~of 2009. Cash proceeds from this sale were $0.3 million, resulting in a net gain on sale of ~~$0.2 million, which is recorded in loss from discontinued operations. In accordance with ASC Topic 205, Presentation~~$0.1 million. The results of ~~Financial Statements,~~ the cable television service business ~~has~~for the prior periods have been presented as a discontinued operation in the Consolidated Financial ~~Statements for all periods presented.~~Statements.

The following tables set forth certain summarized financial information of the discontinued operation (in thousands):

	Three Months Ended
	March 31,
	2010		2009
Total revenues	$	-	$	183
Total expenses		-		(355	)
Loss from discontinued operations		-		(172	)
Less: amounts attributable to noncontrolling interest		-		(18	)
Loss from discontinued operations attributable to Sun Communities, Inc. common stockholders	$	-	$	(154	)

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	~~Discontinued Operations, continued~~

~~The following tables set forth certain summarized financial information of the discontinued operation (in thousands):~~

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Total revenues

$
268

$
178

$
623

$
573

Total expenses

(91
)

(452
)

(778
)

(1,358
)
Income (loss) from discontinued operations

177

(274
)

(155
)

(785
)
Less: Income (loss) attributable to noncontrolling interest

19

29

(16
)

(29
)
Income (loss) from discontinued operations attributable to Sun Communities, Inc. common stockholders

$
158

$
(303
)

$
(139
)

$
(756
)

September 30, 2009 December 31, 2008
ASSETS
Accounts receivable, net

$
-

$
16

Other assets

-

54

Total assets

$
-

$
70

LIABILITIES

Accounts payable

$
-

$
16

Deferred income

-

38

Other liabilities

-

16

Total liabilities

$
-

$
70

3.	Investment Property

The following table sets forth certain information regarding investment property (in thousands):

	September 30, 2009			December 31, 2008			March 31, 2010			December 31, 2009
Land	$	116,266		$	116,292		$	116,266		$	116,266
Land improvements and buildings		1,184,893			1,177,362			1,184,827			1,183,613
Rental homes and improvements		199,677			194,649			203,337			203,435
Furniture, fixtures, and equipment		34,523			34,050			35,579			35,400
Land held for future development		26,986			26,986			26,986			26,986
Investment property		1,562,345			1,549,339			1,566,995			1,565,700
Less: Accumulated depreciation		(489,495	)		(450,319	)		(514,022	)		(501,395	)
Investment property, net	$	1,072,850		$	1,099,020		$	1,052,973		$	1,064,305

Land improvements and buildings consist primarily of infrastructure, roads, landscaping, clubhouses, maintenance buildings and amenities.

In May 2010, we entered into an agreement to acquire a manufactured home community located in San Antonio, Texas with 225 developed and 61 partially undeveloped sites for approximately $2.8 million, excluding closing costs. We expect to fund this acquisition using cash on hand and borrowings under our revolving credit facility, if necessary. The purchase of this property is contingent upon completion of our due diligence and other customary closing conditions; accordingly, we can provide no assurance that we will purchase this property.

In September ~~21,~~ 2009, a flood caused substantial damage to our property, Countryside Village of Atlanta, located in Lawrenceville, Georgia. We ~~are still in the preliminary stages of assessing the damage to our property. We~~ have comprehensive insurance coverage for both property damage and business interruption, subject to deductibles and certain limitations. WeThe claim remains under review and we believe the cost of the damage sustained from the flooding will be in excess of our insurance deductible. We ~~have~~ recorded a charge of $0.8 million associated with the ~~flooding.~~flooding in the third quarter of 2009. This charge represents our deductible, net of expected insurance recoveries for the replacement of assets that exceed the net book value of assets damaged in the flood.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.	~~Secured Borrowing and Collateralized Receivables~~Transfers of Financial Assets

We have completed various transactions involving our installment notes ~~since the third quarter of fiscal 2008. We~~and during 2010 we have received a total of ~~$49.2~~$4.3 million of cash proceeds in exchange for relinquishing our right, title and interest in the installment notes. We have no further obligations or rights with respect to the control, management, administration, servicing, or collection of the installment notes.

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. The recourse provisions are considered to be a form of continuing involvement, and we have recorded these transactions as a transfer of financial ~~assets in accordance with ASC Topic 860, Transfers and Servicing.~~ assets.

In the event of note default, and subsequent repossession of a manufactured home, the terms of the agreement require us to repurchase the manufactured home. Default is defined as the failure to repay the installment note according to contractual terms. The repurchase price is calculated as a percentage of the outstanding principal balance of the installment note, plus any outstanding late fees, accrued interest, legal fees, and escrow advances associated with the installment note. The percentage used to determine the repurchase price of the outstanding principal balance on the installment note is based on the number of payments made on the note. In general, the repurchase price is determined as follows:

Number of Payments	Recourse %
Less than or equal to 15		~~100%~~100	%
Greater than 15 but less than 64	~~90%~~	90	%
64 or more		~~65%~~65	%

The transferred assets have been classified as collateralized receivables in Notes and Other Receivables (see Note 5) and the cash proceeds received from these transactions have been classified as a secured borrowing in Debt (see Note 7) within the Consolidated Balance Sheets. The ~~net~~ balance of the collateralized receivables was ~~$44.9~~$55.1 million (net of allowance of $0.2 million) and ~~$26.1~~$52.2 million (net of allowance of $0.2 million) as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, respectively. ~~The collateralized receivables are presented net of allowance for losses of $0.1 million as of September 30, 2009 and December 31, 2008.~~ The outstanding balance on the secured borrowing was ~~$45.0~~$55.3 million and ~~$26.2~~$52.4 million as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, respectively.

The balances of the collateralized receivables and secured borrowings fluctuate. The balances increase as additional installment notes are transferred and exchanged for cash proceeds. The balances are reduced as the related installment notes 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 as of December 31, 2008	$	26,211
Beginning balance as of December 31, 2009				$	52,368
Financed sales of manufactured homes		21,690			4,347
Principal payments and payoffs from our customers		(1,439	)		(801	)
Repurchases		(1,406	)		(631	)
Total activity		18,845			2,915
Ending balance as of September 30, 2009	$	45,056
Ending balance as of March 31, 2010				$	55,283

The collateralized receivables earn interest income and the secured borrowings accrue ~~borrowing costs~~interest expense at the same interest rates. The amount of interest income and expense recognized was ~~$1.2~~$1.5 million and $0.7 million for the three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. ~~The amount of interest income and expense recognized was $2.8 million and $0.7 million for the nine months ended September 30, 2009 and 2008, respectively.~~

~~For federal tax purposes, we treat these transfers of collateralized receivables as sales of financial assets.~~

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.	Notes and Other Receivables

The following table sets forth certain information regarding notes and other receivables (in thousands):

	September 30, 2009		December 31, 2008		March 31, 2010		December 31, 2009
Installment notes receivable on manufactured homes, net	$	16,407	$	21,232	$	14,136	$	12,627
Collateralized receivables, net (see Note 4)		44,913		26,159		55,111		52,201
Other receivables, net		8,461		10,090		8,698		9,202
Total notes and other receivables, net	$	69,781	$	57,481	$	77,945	$	74,030

Installment Notes Receivable on Manufactured Homes

The installment notes of ~~$16.4~~$14.1 million (net of allowance of $0.1 million) and ~~$21.2~~$12.6 million (net of allowance of $0.1 million) as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, respectively, are collateralized by manufactured homes. The ~~installment notes are presented net of allowance for losses of $0.1 million as of September 30, 2009 and December 31, 2008. The installment~~ notes represent financing provided by us to purchasers of manufactured homes generally located in our ~~communities.~~communities and require monthly principal and interest payments. The ~~installment~~ notes ~~receivable~~ have ~~interest payable monthly at~~ a net weighted average interest rate and a maturity of ~~7.8~~7.4 percent and ~~12.8~~12.1 years as of March 31, 2010, and ~~7.6~~7.4 percent and ~~13.8~~12.4 years ~~at September 30, 2009 and~~as of December 31, ~~2008, respectively.~~2009.

Collateralized Receivables

~~We have completed various~~Certain transactions involving our installment notes since the third quarter of fiscal 2008. We have received a total of $49.2 million of cash proceeds in exchange for relinquishing our right, title and interest in the installment notes. These transactions were recorded as a transfer of financial ~~assets. The transferred~~ assets ~~have been~~(see Note 4) and classified as collateralized receivables. The receivables ~~with~~have a ~~net~~ balance of ~~$44.9~~$55.1 million (net of allowance of $0.2 million) and ~~$26.1~~$52.2 million (net of allowance of $0.2 million) as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, respectively. The ~~collateralized receivables are presented net of allowance for losses of $0.1 million as of September 30, 2009 and December 31, 2008. The collateralized~~ receivables have ~~interest payable monthly at~~ a net weighted average interest rate and maturity of ~~10.8~~11.1 percent and 13.6 years as of March 31, 2010, and 10.9 percent and 13.8 years ~~and 10.1 percent and 14.0 years,~~ as of ~~September 30, 2009 and~~ December 31, ~~2008, respectively. See Note 4 for additional information.~~2009.

Allowance for Losses for Collateralized and Installment Notes Receivable

We are generally able to recover our investment in uncollectible notes receivable by repurchasing the homes that collateralized these notes ~~receivables,~~receivable and then selling or leasing these homes to potential residents in our communities. Although our experience supports a high recovery rate for repossessed homes, we believe there is some degree of uncertainty about recoverability of our investment in these repossessed homes. We have established a loan loss reserve ~~that estimates~~to record our estimated unrecoverable costs associated with these repossessed homes. We estimate our unrecoverable costs to be the repurchase price plus repair and remarketing costs that exceed the estimated selling price of the home being repossessed. A historical average of this excess cost is calculated based on prior repossessions and applied to our estimated annual future repossessions to create the allowance for installment notes and collateralized receivables. The allowance for losses for collateralized and installment notes receivable was ~~$0.2~~approximately $0.3 million as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008.~~2009, respectively.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.	Notes and Other Receivables, continued

Other Receivables

Other receivables were comprised of amounts due from residents of ~~$1.6~~$1.2 million (net of allowance of $0.2 million), home sale proceeds of $3.0 million, an employee loan of $0.4 million, insurance receivables of $0.7 million, and rebates and other receivables of $3.4 million as of March 31, 2010. Other receivables were comprised of amounts due from residents of $1.5 million (net of allowance of $0.2 million), home sale proceeds of $3.4 million, an employee loan of $0.5 million, insurance receivables of ~~$0.4~~$0.9 million, and rebates and other receivables of $2.6 million as of September 30, 2009. Other receivables were comprised of amounts due from residents of $1.6 million (net of allowance of $0.3 million), home sale proceeds of $3.7 million, an employee loan of $0.5 million, insurance receivables of $0.3 million, and rebates and other receivables of $4.0$2.9 million as of December 31, ~~2008.~~2009.

Officer’s Notes

Officer’s notes, presented as a portion of the stockholders’ deficit in the balance sheet, are 10 year, LIBOR + 1.75% notes, with a minimum and maximum interest rate of 6% and 9%, respectively. The following table sets forth certain information regarding officer’s notes as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008~~2009 (in thousands except for ~~shares~~common stock and OP units):

	September 30, 2009						December 31, 2008						March 31, 2010						December 31, 2009
			Secured by						Secured by						Secured by						Secured by
Promissory Notes	Outstanding Principal Balance		Common Stock		Common OP Units		Outstanding Principal Balance		Common Stock		Common OP Units		Outstanding Principal Balance		Common Stock		Common OP Units		Outstanding Principal Balance		Common Stock		Common OP Units
Secured - $1.3 million	$	597		36,711		-	$	963		59,263		-	$	372		22,874		-	$	581		35,756		-
Secured - $6.6 million		3,031		81,515		58,643		4,894		131,591		94,669		1,889		50,790		36,539		2,952		79,395		57,118
Secured - $1.0 million		469		43,397		-		757		70,057		-		292		27,040		-		457		42,268		-
Subtotal secured notes		4,097		161,623		58,643		6,614		260,911		94,669		2,553		100,704		36,539		3,990		157,419		57,118

Unsecured - $1.0 million		469		-		-		757		-		-		292		-		-		457		-		-
Unsecured - $1.3 million		597		-		-		963		-		-		372		-		-		581		-		-
Subtotal unsecured notes		1,066		-		-		1,720		-		-		664		-		-		1,038		-		-
Total promissory notes	$	5,163		161,623		58,643	$	8,334		260,911		94,669	$	3,217		100,704		36,539	$	5,028		157,419		57,118

The officer’s personal liability on the secured promissory notes is limited to all accrued interest on such notes plus fifty percent of the deficiency, if any, after application of the proceeds from the sale of the secured shares and/or the secured units to the then outstanding principal balance of the promissory notes. The value of secured ~~shares~~common stock and secured OP Units total approximately ~~$4.7~~$3.5 million based on the closing price of our shares on the New York Stock Exchange of ~~$21.52~~$25.20 as of ~~September 30, 2009.~~March 31, 2010. The unsecured notes are fully recourse to the officer.

Total interest received was $0.1 million for the three months ended ~~September 30, 2009~~March 31, 2010 and ~~2008. Total interest received was $0.2 million and $0.4 million for the nine months ended September 30, 2009 and 2008, respectively.~~

2009. The reduction in the aggregate principal balance of these notes was ~~$3.2~~$1.8 million and ~~$0.3~~$2.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. The terms of the officer’s notes ~~are~~require that the remaining balance is due ~~in two remaining installments~~ on December 31, ~~2009 and~~ 2010.

6.	Investment in Affiliates

Origen Financial, LLC. (“LLC”)

In ~~October 2003,~~August 2008, we entered into an agreement with four unrelated companies (“Members”) to form a new limited liability company. We contributed cash of approximately $0.5 million toward the formation of the LLC. The LLC purchased ~~5,000,000 shares of common stock~~the origination platform of Origen Financial, Inc. (“Origen”). ~~We own approximately 19 percent~~The purpose of ~~Origen as~~the venture is to originate manufactured housing installment contracts for its Members thereby eliminating the need for us to become licensed to originate loans in each of ~~September 30, 2009, and our investment is accounted for using~~ the ~~equity method of accounting.~~ 18 states in which we do business.

As of ~~September 30,~~March 31, 2010, we had an ownership interest in the LLC of 25 percent. In December 2009, we concluded that our investment in ~~Origen had a market~~the LLC was not recoverable due to operating losses, liquidity concerns, and declining revenue trends and recorded an other than temporary impairment charge to reduce the carrying value of ~~approximately $8.0 million based on a quoted market closing price of $1.60 per share from~~our investment to zero. We are not obligated to fund the ~~“Pink Sheet Electronic OTC Trading System”.~~

LLC and no longer record equity losses. We recorded a $0.1 million loss associated with our ~~estimated~~ equity allocation of the ~~reported losses from Origen of $0.8 million and $1.2 million~~LLC’s financial results for the three ~~and nine~~ months ended September 30, 2009, respectively. We recorded equity losses from Origen of $1.5 million and $14.1 million for the three and nine months ended September 30, 2008, respectively. These equity losses included other than temporary impairment charges of $1.3 million and $8.1 million for the three and nine months ended September 30, 2008, respectively.

March 31, 2009.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.	Investment in Affiliates, continued

Origen

In October 2003, we purchased 5,000,000 shares of common stock of Origen. As of March 31, 2010, we had an ownership interest in Origen of approximately 19 percent, and the carrying value of our investment was $0.8 million. Our investment in Origen had a market value of approximately $8.4 million based on a quoted market closing price of $1.67 per share from the “Pink Sheet Electronic OTC Trading System” as of March 31, 2010.

We recorded our equity allocation of the anticipated loss from Origen of $0.8 million for the three months ended March 31, 2010. We recorded our equity allocation of the reported income from Origen of $0.1 million for the three months ended March 31, 2009.

Summarized ~~consolidated~~ financial information offor Origen ~~at September 30, 2009 and 2008~~ is presented ~~below~~ before elimination of inter-company transactions (amounts in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenues

$
19,791

$
23,469

$
62,538

$
69,199

Less:

Expenses

24,119

32,517

68,810

88,765

Loss on sale of loans

-

-

-

22,377

Loss from continuing operations

(4,328
)

(9,048
)

(6,272
)

(41,943
)
Income from discontinued operations

-

7,875

-

11,004

Net loss

$
(4,328
)

$
(1,173
)

$
(6,272
)

$
(30,939
)

	Three Months Ended
	March 31,
	2010			2009
Revenues	$	19,615		$	22,815
Expenses		23,862			22,302
Net income	$	(4,247	)	$	513

In August 2008, we entered into an agreement with four unrelated companies (“Members”) to form a new limited liability company, Origen Financial Services, LLC (the “LLC”). We contributed cash of $0.5 million toward the formation of the limited liability company. The LLC purchased the origination platform of Origen. The purpose of the venture is to originate manufactured housing installment contracts for its Members thereby eliminating the need for us to become licensed to originate loans in each of the 18 states in which we do business. We own 25.0 percent of the LLC as of September 30, 2009, and the investment is accounted for using the equity method of accounting. We recorded an insignificant amount of income (loss) associated with our equity allocation of the LLC’s financial results for the three months ended September 30, 2009 and 2008, respectively. We recorded losses of $0.1 million associated with our equity allocation of the LLC’s financial results for the nine months ended September 30, 2009.Our equity allocation of the LLC’s financial results was insignificant for the nine months ended September 30, 2008.

7.	Debt and Lines of Credit

The following table sets forth certain information regarding debt (in thousands):

September 30, 2009 December 31, 2008
Collateralized term loans - CMBS, due July 1, 2011-2016 interest at 4.9-5.3% as of September 30, 2009 and December 31, 2008.

$
473,254

$
478,907

Collateralized term loans - FNMA, due May 1, 2014 and January 1, 2015, interest at 3.2 – 5.2% and 4.5 - 5.2% as of September 30, 2009 and December 31, 2008, respectively.

374,562

377,651

Preferred OP Units, redeemable at various dates from December 1, 2009 through January 5, 2014, average interest at 6.8% as of September 30, 2009 and December 31, 2008.

48,947

49,447

Secured borrowing, maturing at various dates from April 30, 2010 through November 24, 2031, average interest at 10.8% and 10.1% as of September 30, 2009 and December 31, 2008, respectively (see Note 4).

45,056

26,211

Mortgage notes, other, maturing at various dates from April 1, 2012 through May 1, 2017, average interest at 5.3% and 5.4% as of September 30, 2009 and December 31, 2008, respectively.

213,827

206,936

Total debt

$
1,155,646

$
1,139,152

	Principal Outstanding				Weighted Average Years to Maturity				Weighted Average Interest Rates
	March 31, 2010		December 31, 2009		March 31, 2010		December 31, 2009		March 31, 2010			December 31, 2009
Collateralized term loans - CMBS	$	469,252	$	471,299		4.3		4.6		5.1	%		5.1	%
Collateralized term loans - FNMA		372,407		373,501		4.2		4.4		4.1	%		4.1	%
Preferred OP Units		48,022		48,947		11.0		3.7		6.8	%		6.8	%
Secured borrowing (see Note 4)		55,283		52,368		13.5		13.8		11.1	%		10.9	%
Mortgage notes, other		212,998		213,327		5.4		5.6		5.1	%		5.2	%
Total debt	$	1,157,962	$	1,159,442		5.2		5.1		5.2	%		5.1	%

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.	Debt and Lines of Credit, continued

Collateralized Term Loans

The collateralized term loans totaling ~~$473.3~~$841.7 million as of ~~September 30, 2009,~~March 31, 2010, are secured by 87 properties ~~comprising~~comprised of ~~31,211~~31,245 sites representing approximately ~~$543.4~~$532.8 million of net book value.

We ~~recently~~ exercised our option to extend the due date of approximately $152.4 million of secured, variable rate borrowings to May 1, 2014. In connection with this extension, the lender increased the facility fee resulting in an increase of the effective interest rate on the borrowings, which resulted in higher interest expense. We do not believe that the lender had the right to increase the facility fee and have reserved all of our rightsassociated with ~~respect to the increased fee. We are considering all of our available remedies to challenge the validity of the increased fee.~~this borrowing. See Note 16 for additional information.

Preferred OP Units

~~Our Operating Partnership had $13.7~~We redeemed $0.9 million and $0.5 million of Series B-3 Preferred OP Units in the three months ended March 31, 2010 and 2009, respectively.

Our Operating Partnership had $35.8 million of convertible Preferred OP Units that were redeemable ~~at various dates from December 1, 2009 through~~ January 1, ~~2011.~~2014. In ~~October 2008,~~February 2010, our Operating Partnership completed a ~~three~~ten year extension on the redemption ~~dates for $11.9 million of these units; the remaining $1.8 million of these units mature in accordance~~date associated with the ~~original agreement.~~

~~In January 2009, we redeemed $0.5~~$35.8 million convertible Preferred OP Units. The Preferred OP Units provided for an annual preferred rate that was the greater of the ~~$1.8 million~~10 year U.S. Treasury bond yield in effect as of January 2nd each calendar year plus, a spread of 239 basis points or 6.5 percent, but no greater than 8.6 percent. In connection with the ~~Series B-3~~extension, the maximum annual preferred rate on the Preferred OP ~~Units.~~Units was increased to 9.0 percent from 8.6 percent. These Preferred OP Units are convertible into 526,212 common shares based on a conversion price of $68 per share.

Secured Borrowing

Since the third quarter of fiscal 2008, we have completed various transactions involving our installment notes. These transactions were recorded as a transfer of financial assets, and the cash proceeds related to these transactions were recorded as a secured borrowing. See Note 4 for additional information regarding our collateralized receivables and secured borrowing transactions.

Mortgage Notes

The mortgage notes totaling ~~$213.8~~$213.0 million as of ~~September 30, 2009,~~March 31, 2010, are collateralized by 19 communities ~~comprising~~comprised of ~~6,387~~6,388 sites representing approximately ~~$184.4~~$180.8 million of net book value.

During June 2009, we completed a financing of $18.5 million with Bank of America. The loan has a three year term. The interest rate is 400 basis points over LIBOR, with a minimum rate of 5.0 percent (effective rate 5.0 percent at September 30, 2009). Proceeds of $11.2 million were used to repay mortgage notes that matured in June 2009. The remaining proceeds were used to pay down our unsecured line of credit.

Lines of Credit

We have an unsecured revolving line of credit facility with a maximum borrowing capacity of $115.0 million, subject to certain borrowing base calculations. The outstanding balance on the line of credit was $94.5 million and $89.1 million as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008 was $84.3 million and $85.8 million,~~2009, respectively. In addition, ~~$3.3~~$4.0 million of availability was used to back standby letters of credit as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008.~~2009. Borrowings under the line of credit bear an interest rate of LIBOR plus 165 basis points, or ~~prime~~Prime plus 40 basis points at our option. Prime means for any month, the prevailing “prime rate” as quoted in the Wall Street ~~Journal on last day of such calendar month.~~Journal. The weighted average interest rate on the outstanding borrowings was 1.9 percent as of ~~September 30, 2009.~~March 31, 2010. The borrowings under the line of credit mature October 1, 2011, assuming the election of a one year extension that is available at our discretion. As of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008, $27.4~~2009, $16.5 million and ~~$25.9~~$21.9 million, respectively, were available to be drawn under the facility based on the calculation of the borrowing base at each date.

In March 2009, we entered into a $10.0 million manufactured home floor plan facility. The floor plan facility ~~has~~initially had a committed term of one ~~year; thereafter, advances are discretionary and terms are subject~~year. In February 2010, the floor plan facility was renewed indefinitely until our lender provides us 12 month notice of their intent to ~~change.~~terminate the agreement. The interest rate is 100 basis points over the greater of ~~prime~~Prime or 6.0 percent (effective rate 7.0 percent at ~~September 30, 2009)~~March 31, 2010). Prime means the prevailing “prime rate” as quoted in the Wall Street Journal on the first business day of each month. The outstanding balance was $4.0 million and $5.4 million as of ~~September 30, 2009 was $4.6 million.~~

~~Our previous $40.0 million floor plan facility matured on~~ March ~~1, 2009. As of~~31, 2010 and December 31, ~~2008, the outstanding balance on the floor plan was $4.6 million.~~2009, respectively.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.	Debt and Lines of Credit, continued

As of ~~September 30, 2009,~~March 31, 2010, the total of maturities and amortization of debt and lines of credit during the next five years, are as follows (in thousands):

	Maturities and Amortization By Year														Maturities and Amortization By Year
	Total Due		Remainder of 2009		2010		2011		2012		2013		After 5 years		Total Due		2010		2011		2012		2013		2014		After 5 years
Lines of credit	$	88,883	$	-	$	4,583	$	84,300	$	-	$	-	$	-	$	98,525	$	-	$	98,525	$	-	$	-	$	-	$	-
Mortgage loans payable:
Maturities		988,123		-		-		103,708		31,623		26,816		825,976		987,950		-		103,708		31,518		26,812		480,881		345,031
Principal amortization		73,520		3,479		14,060		13,865		13,030		13,230		15,856		66,707		10,590		13,921		13,051		13,268		8,461		7,416
Preferred OP Units		48,947		470		825		-		4,300		3,345		40,007		48,022		370		-		4,300		3,345		4,225		35,782
Secured borrowing		45,056		428		1,823		2,010		2,216		2,360		36,219		55,283		1,583		2,306		2,553		2,758		3,010		43,073
Total	$	1,244,529	$	4,377	$	21,291	$	203,883	$	51,169	$	45,751	$	918,058	$	1,256,487	$	12,543	$	218,460	$	51,422	$	46,183	$	496,577	$	431,302

The most restrictive of our debt agreements place limitations on secured and unsecured borrowings and contain minimum ~~debt service~~fixed charge coverage, leverage, distribution and net worth requirements. As of ~~September 30, 2009,~~March 31, 2010, we were in compliance with all covenants.

8.	~~Share-Based Compensation~~

At the Annual Meeting of Stockholders held on July 29, 2009, the stockholders approved the Sun Communities, Inc. Equity Incentive Plan (“2009 Equity Plan”). The 2009 Equity Plan had been adopted by the Board and was effective upon approval by our stockholders. The 2009 Equity Plan replaced the Sun Communities, Inc. Stock Option Plan adopted in 1993, amended and restated in 1996 and 2000. The 2009 Equity Plan terminates automatically July 29, 2019. The maximum number of shares of common stock that may be issued under the 2009 Equity Plan is 950,000 shares.

The purpose of the 2009 Equity Plan was to provide certain key employees additional incentive to promote our financial success and to provide an incentive which we may use to induce able persons to enter into or remain in the employment of the Company or a Subsidiary by providing such persons an opportunity to acquire or increase his or her direct proprietary interest in the operations and future of the Company.

On July 29, 2009, we issued 80,000 shares of restricted stock to our officers under the 2009 Equity Plan. The awards vest ratably over a six year period beginning on the fourth anniversary of the grant date, and have a fair value of $14.95 per share. The fair value was determined by using the closing share price of our common stock on the date the grant was issued.

Additionally, on July 29, 2009, we issued 10,500 director options under our 2004 Non-Employee Director Option Plan. The weighted average fair value of the options issued is estimated on the date of the grant using the Binomial (lattice) option pricing model, with the following weighted average assumptions used for the grants in the period indicated:

July 2009 Award
Estimated fair value per share of options granted:

$
1.66

Assumptions:

Annualized dividend yield

16.90
%
Common stock price volatility

32.70
%
Risk-free rate of return

3.24
%
Expected option terms (in years)

7.3

In September 2009, we filed a registration statement on Form S-8 with the SEC. The Form S-8 registered the remaining 870,000 that are issuable under the 2009 Equity Plan. The Form S-8 also registered 100,000 shares of common stock that are issuable under the 2004 Non-Employee Director Option Plan.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

9.	Stockholders’ Deficit

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 ~~2009~~2010 or ~~2008.~~2009. There is no expiration date specified for the buyback program.

~~In March 2009, our Operating Partnership issued 110,444~~ Common OP ~~Units to Water Oak, Ltd.~~Unit holders can convert their Common OP units into an equivalent number of shares of common stock at any time. During ~~2009,~~2010, holders of Common OP Units converted ~~119,806~~25,005 units to common stock.

The vesting requirements for ~~67,598~~16,800 restricted shares granted to our employees were satisfied during the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2010.

Our shelf registration ~~for up to $300.0 million of common stock, preferred stock and debt securities expired December 31, 2008. In March 2009, we filed a new shelf registration~~ statement on Form S-3 ~~with the SEC to replace the previous shelf registration~~ for a proposed offering of up to $300.0 million of our common stock, preferred stock and debt ~~securities. The~~securities was declared effective with the SEC ~~declared the new shelf registration effective~~ in May 2009.

We ~~registered 1.6 million~~entered into a sales agreement to issue and sell up to 1,600,000 shares of common stock ~~for sale~~from time to time pursuant to ~~a sales agreement that we entered into with Brinson Patrick Securities Corporation.~~our effective shelf registration statement on Form S-3. Sales under the agreement commenced ~~on August 27, 2009 and 100,000~~during the third quarter of 2009. We issued 131,953 shares of common stock ~~were sold as~~during the three months ended March 31, 2010. We issued an additional 18,047 shares of ~~September 30, 2009.~~common stock on April 1, 2010. The 150,000 shares of common stock were sold at the prevailing market price of our common stock at the time of each sale with a weighted average sale price of ~~$19.98. We~~$24.66. During 2010, we received net proceeds of approximately ~~$1.9~~$3.6 million ~~during~~related to the ~~quarter ended September 30, 2009 from the sales of these shares~~issuance of common stock. The proceeds were placed in an investment account as of March 31, 2010 and subsequently used to pay down our unsecured line of credit. We have 1,350,000 shares remaining and we may continue to sell shares of common stock under this program from time to time based on market conditions, although we are not under any obligation to sell shares.

On April 23, 2010, aggregate dividends, distributions and dividend equivalents of $13.3 million were made to common stockholders, common OP unitholders, and restricted stockholders of record on April 13, 2010.

~~10.~~9.

Other Income

The components of other income are summarized as follows (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Brokerage commissions

$
107

$
114

$
380

$
474

Gain on sale of land

94

33

90

3,336

Loss on disposition of assets, net

(454
)

(615
)

(565
)

(528
)
Other, net

(5
)

(348
)

(66
)

(398
)
Total other income (loss)

$
(258
)

$
(816
)

$
(161
)

$
2,884

	Three Months Ended
	March 31,
	2010			2009
Brokerage commissions	$	139		$	135
Gain (loss) on disposition of assets, net		(118	)		17
Other, net		251			5
Total other income, net	$	272		$	157

1514

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~11.~~10.

Segment Reporting

Our consolidated operations can be segmented into Real Property Operations and Home Sales and Rentals. Transactions between our segments are ~~recorded at cost.~~eliminated in consolidation. Seasonal recreational vehicle revenue is included in Real Property Operations’ revenues and is approximately $5.5 million annually. This seasonal revenue is recognized approximately 50% in the first quarter, 6.5% in both the second and third quarters and 37% in the fourth quarter of each fiscal year.

A presentation of segment financial information is summarized as follows (amounts in thousands):

Three Months Ended September 30, 2009 Three Months Ended September 30, 2008
Real Property Operations Home Sales and Home Rentals Consolidated Real Property Operations Home Sales and Home Rentals Consolidated
Revenues

$
48,597

$
13,495

$
62,092

$
47,788

$
13,119

$
60,907

Operating expenses/Cost of sales

17,097

9,910

27,007

16,313

10,208

26,521

Net operating income/gross profit

31,500

3,585

35,085

31,475

2,911

34,386

Adjustments to arrive at net income (loss):

Other revenues

1,308

(8
)

1,300

317

31

348

General and administrative

(3,687
)

(1,890
)

(5,577
)

(3,691
)

(1,676
)

(5,367
)
Georgia flood damage

(800
)

-

(800
)

-

-

-

Depreciation and amortization

(11,045
)

(4,796
)

(15,841
)

(11,314
)

(4,711
)

(16,025
)
Interest expense

(15,876
)

(72
)

(15,948
)

(16,103
)

(105
)

(16,208
)
Equity income (loss) from affiliates, net

(836
)

(18
)

(854
)

(1,500
)

14

(1,486
)
Provision for state income taxes

(103
)

-

(103
)

(141
)

-

(141
)
Income (loss) from continuing operations

461

(3,199
)

(2,738
)

(957
)

(3,536
)

(4,493
)
Income (loss) from discontinued operations

177

-

177

(274
)

-

(274
)
Net income (loss)

638

(3,199
)

(2,561
)

(1,231
)

(3,536
)

(4,767
)
Less: Net income (loss) attributable to noncontrolling interest

(189
)

(337
)

(526
)

435

291

726

Net income (loss) attributable to Sun Communities, Inc.

$
827

$
(2,862
)

$
(2,035
)

$
(1,666
)

$
(3,827
)

$
(5,493
)

	Three Months Ended March 31, 2010									Three Months Ended March 31, 2009
	Real Property Operations			Home Sales and Home Rentals			Consolidated			Real Property Operations			Home Sales and Home Rentals			Consolidated
Revenues	$	52,007		$	13,116		$	65,123		$	50,999		$	12,661		$	63,660
Operating expenses/Cost of sales		17,220			9,867			27,087			16,789			9,960			26,749
Net operating income/Gross profit		34,787			3,249			38,036			34,210			2,701			36,911
Adjustments to arrive at net income (loss):
Other revenues		2,073			221			2,294			1,429			195			1,624
General and administrative		(3,490	)		(1,933	)		(5,423	)		(4,166	)		(1,826	)		(5,992	)
Depreciation and amortization		(11,274	)		(5,299	)		(16,573	)		(11,120	)		(5,084	)		(16,204	)
Interest expense		(15,838	)		(84	)		(15,922	)		(15,015	)		(65	)		(15,080	)
Equity income (loss) from affiliates, net		(819	)		-			(819	)		99			(72	)		27
Provision for state income tax		(132	)		-			(132	)		(133	)		-			(133	)
Income (loss) from continuing operations		5,307			(3,846	)		1,461			5,304			(4,151	)		1,153
Loss from discontinued operations		-			-			-			(172	)		-			(172	)
Net income (loss)		5,307			(3,846	)		1,461			5,132			(4,151	)		981
Less: Net income (loss) attributable to noncontrolling interest		519			(395	)		124			547			(443	)		104
Net income (loss) attributable to Sun Communities, Inc.	$	4,788		$	(3,451	)	$	1,337		$	4,585		$	(3,708	)	$	877

	March 31, 2010						December 31, 2009
	Real Property Operations		Home Sales and Home Rentals		Consolidated		Real Property Operations		Home Sales and Home Rentals			Consolidated
Identifiable assets:
Investment property, net	$	913,277	$	139,696	$	1,052,973	$	922,094	$	142,211		$	1,064,305
Cash and cash equivalents		7,471		583		8,054		4,616		(120	)		4,496
Inventory of manufactured homes		-		2,698		2,698		-		3,934			3,934
Investment in affiliate		827		-		827		1,646		-			1,646
Notes and other receivables		74,302		3,643		77,945		69,625		4,405			74,030
Other assets		28,288		2,544		30,832		30,624		2,330			32,954
Total assets	$	1,024,165	$	149,164	$	1,173,329	$	1,028,605	$	152,760		$	1,181,365

1615

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.	~~Segment Reporting, continued~~

Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
Real Property Operations Home Sales and Home Rentals Consolidated Real Property Operations Home Sales and Home Rentals Consolidated
Revenues

$
148,093

$
39,561

$
187,654

$
145,792

$
39,522

$
185,314

Operating expenses/Cost of sales

50,791

29,736

80,527

49,040

30,459

79,499

Net operating income/gross profit

97,302

9,825

107,127

96,752

9,063

105,815

Adjustments to arrive at net income (loss):

Other revenues

4,046

248

4,294

4,924

1,050

5,974

General and administrative

(12,753
)

(5,532
)

(18,285
)

(12,546
)

(5,003
)

(17,549
)
Georgia flood damage

(800
)

-

(800
)

-

-

-

Depreciation and amortization

(33,318
)

(14,642
)

(47,960
)

(34,173
)

(13,924
)

(48,097
)
Interest expense

(46,379
)

(223
)

(46,602
)

(47,618
)

(228
)

(47,846
)
Equity income (loss) from affiliates, net

(1,211
)

(133
)

(1,344
)

(14,050
)

14

(14,036
)
Provision for state income taxes

(382
)

-

(382
)

(34
)

-

(34
)
Income (loss) from continuing operations

6,505

(10,457
)

(3,952
)

(6,745
)

(9,028
)

(15,773
)
Loss from discontinued operations

(155
)

-

(155
)

(785
)

-

(785
)
Net income (loss)

6,350

(10,457
)

(4,107
)

(7,530
)

(9,028
)

(16,558
)
Less: Net income (loss) attributable to noncontrolling interest

418

(1,108
)

(690
)

(274
)

(328
)

(602
)
Net income (loss) attributable to Sun Communities, Inc.

$
5,932

$
(9,349
)

$
(3,417
)

$
(7,256
)

$
(8,700
)

$
(15,956
)

September 30, 2009 December 31, 2008
Real Property Operations Home Sales and Home Rentals Consolidated Real Property Operations Home Sales and Home Rentals Consolidated
Identifiable assets:
Investment property, net

$
931,565

$
141,285

$
1,072,850

$
954,196

$
144,824

$
1,099,020

Cash and cash equivalents

4,126

953

5,079

6,138

24

6,162

Inventory of manufactured homes

-

3,683

3,683

-

3,342

3,342

Investment in affiliate

2,089

339

2,428

3,300

472

3,772

Notes and other receivables

65,439

4,342

69,781

52,697

4,784

57,481

Other assets

33,216

2,168

35,384

34,744

2,408

37,152

Assets of discontinued operations

-

-

-

70

-

70

Total assets

$
1,036,435

$
152,770

$
1,189,205

$
1,051,145

$
155,854

$
1,206,999

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~12.~~

Derivative Instruments and Hedging Activities

Our ~~objectives~~objective in using interest rate derivatives ~~are~~is to ~~add stability to interest expense,~~ manage exposure to interest rate movements thereby minimizing the effect of interest rate changes and ~~minimize~~ the ~~variability that changes in interest rates~~effect it could have on future cash flows. Interest rate swaps and caps are used to accomplish this objective. We require hedging derivative instruments to be highly effective in reducing the risk exposure that they are designated to hedge. We formally designate any instrument that meets these hedging criteria as a hedge at the inception of the derivative contract.

As of ~~September 30, 2009,~~March 31, 2010, we had four derivative contracts consisting of three interest rate swap agreements with a total notional amount of $70.0 million and an interest rate cap agreement with a notional amount of $152.4 million. We generally employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt and to cap the maximum interest rate on certain variable rate borrowings. We do not enter into derivative instruments for speculative purposes.

The following table provides the terms of our interest rate derivative contracts that were in effect as of ~~September 30, 2009:~~March 31, 2010:

Type	Purpose	Effective Date	Maturity Date	Notional (in millions)	Based on	Variable Rate	Fixed Rate	Spread	Effective Fixed Rate	Purpose	Effective Date	Maturity Date	Notional (in millions)	Based on	Variable Rate	Fixed Rate	Spread	Effective Fixed Rate
Swap	Floating to Fixed Rate	09/04/02	07/03/12	25.0	3 Month LIBOR	0.5875%	4.7000%	2.0000%	6.7000%	Floating to Fixed Rate	09/04/02	07/03/12	25.0	3 Month LIBOR	0.2506%	4.7000%	2.0000%	6.7000%
Swap	Floating to Fixed Rate	01/02/09	01/02/14	20.0	3 Month LIBOR	0.5950%	2.1450%	2.0000%	4.1450%	Floating to Fixed Rate	01/02/09	01/02/14	20.0	3 Month LIBOR	0.2506%	2.1450%	2.0000%	4.1450%
Swap	Floating to Fixed Rate	02/13/09	02/13/11	25.0	1 Month LIBOR	0.2438%	1.5700%	2.0500%	3.6200%	Floating to Fixed Rate	02/13/09	02/13/11	25.0	1 Month LIBOR	0.2300%	1.5700%	2.0500%	3.6200%
Cap	Cap Floating Rate	04/28/09	05/01/12	152.4	3 Month LIBOR	0.6013%	11.0000%	0.0000%	N/A	Cap Floating Rate	04/28/09	05/01/12	152.4	3 Month LIBOR	0.2901%	11.0000%	0.0000%	N/A

Our financial derivative instruments are designated and qualify as cash flow hedges and the effective portion of the gain or loss on such hedges are reported as a component of accumulated other comprehensive ~~loss~~income (loss) in our Consolidated Balance Sheets. To the extent that the hedging relationship is not effective, the ineffective portion is recorded in interest expense. Hedges that received designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as through the hedging period.

~~In accordance with ASC Topic 815, Derivatives and Hedging, we~~We have recorded the fair value of our derivative instruments designated as cash flow hedges on the balance sheet. See Note 1614 for information on the determination of fair value for the derivative instruments. The following table summarizes the fair value of derivative instruments included in our Consolidated Balance Sheets as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008~~2009 (in thousands):

Asset Derivatives Liability Derivatives
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Derivatives designated as hedging instruments under ASC Topic 815 September 30, 2009 December 31, 2008 September 30, 2009 December 31, 2008
Interest rate swaps and cap agreement
Other assets

$
305

$
-

Other liabilities

$
2,333

$
2,865

Total derivatives designated as hedging instruments under SFAS 133

$
305

$
-

$
2,333

$
2,865

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments		March 31, 2010		December 31, 2009			March 31, 2010		December 31, 2009
Interest rate swaps and cap agreement	Other assets	$	4	$	379	Other liabilities	$	2,187	$	2,123
Total derivatives designated as hedging instruments		$	4	$	379		$	2,187	$	2,123

These valuation adjustments will only be realized under certain situations. For example, if we terminate the swaps prior to maturity or if the derivatives fail to qualify for hedge accounting, then we would need to amortize amounts currently included in other comprehensive ~~loss~~income (loss) into interest expense over the terms of the derivative contracts. We do not intend to terminate the swaps prior to maturity and, therefore, the net of valuation adjustments through the various maturity dates will approximate zero, unless the derivatives fail to qualify for hedge accounting.

1816

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~12.~~11.

Derivative Instruments and Hedging Activities, continued

Our hedges were highly effective and had minimal effect on income. The following table summarizes the impact of derivative instruments for the three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008~~respectively, as recorded in the Consolidated Statements of Operations (in thousands):

Derivatives in ASC Topic 815 cash flow hedging Amount of Gain or (Loss) Recognized in OCI (Effective Portion) Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30,
2009 2008 2009 2008 2009 2008
Interest rate swaps and cap agreement

$
(494
)

$
4

Interest expense

$
-

$
-

Interest expense

$
(7
)

$
-

Total

$
(494
)

$
4

Total

$
-

$
-

Total

$
(7
)

$
-

~~The following table summarizes the impact of derivative instruments for the nine months ended September 30, 2009 and 2008 as recorded in the Consolidated Statements of Operations (in thousands):~~

Derivatives in ASC Topic 815 cash flow hedging	Amount of Gain or (Loss) Recognized in OCI (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivatives in cash flow hedging																Amount of Gain or (Loss) Recognized in OCI (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Nine Months Ended September 30,						Nine Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,							Three Months Ended March 31,					Three Months Ended March 31,
	2009		2008				2009		2008			2009		2008		2010			2009				2010		2009			2010			2009
Interest rate swaps and cap agreement	$	832	$	(64	)	Interest expense	$	-	$	-	Interest expense	$	5	$	2	$	(432	)	$	(4	)	Interest expense	$	-	$	-	Interest expense	$	(6	)	$	3
Total	$	832	$	(64	)	Total	$	-	$	-	Total	$	5	$	2	$	(432	)	$	(4	)	Total	$	-	$	-	Total	$	(6	)	$	3

Certain of our derivative instruments contain provisions that require us to provide ongoing collateralization on derivative instruments in a liability position. As of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, we had collateral deposits recorded in other assets of ~~$3.0 million and $4.4 million, respectively.~~$3.2 million.

~~13.~~12.

Income Taxes

We have elected to be taxed as a real estate investment trust (“REIT”) as defined under Section 856(c) of the Internal Revenue Code of 1986 (“Code”), as amended. In order for us to qualify as a REIT, at least ninety-five percent (95%) of our gross income in any year must be derived from qualifying sources. In addition, a REIT must distribute at least ninety percent (90%) of its REIT ordinary taxable income to its stockholders.

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 requires us to continually monitor our tax status. We analyzed the various REIT tests and confirmed that we continued to qualify as a REIT for the quarter ended ~~September 30, 2009.~~March 31, 2010.

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 will be subject to U.S. federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if we qualify as a REIT, we may be subject to certain state and local income taxes and to U.S. federal income and excise taxes on our undistributed income.

1917

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~13.~~12.

Income Taxes, continued

SHS, our taxable REIT subsidiary, is subject to U.S. federal income taxes. 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 depreciation. A federal deferred tax asset of $1.0 million is included in other assets in our Consolidated Balance Sheets as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008.~~2009.

We had no unrecognized tax benefits as ~~defined by ASC Topic 740, Income Taxes, as~~ of ~~September 30, 2009~~March 31, 2010 and ~~2008.~~2009. We expect no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of ~~September 30, 2009.~~March 31, 2010.

We classify certain state taxes as income taxes for financial reporting ~~purposes in accordance with ASC Topic 740, Income Taxes.~~purposes. We record the Michigan Business Tax and Texas Margin Tax as income taxes in our financial statements. ~~The provision for state income taxes was approximately $0.1 million for the three months ended September 30, 2009 and 2008, respectively.~~ We recorded a provision for state income taxes of approximately ~~$0.4~~$0.1 million ~~and a nominal amount in~~for the ~~nine~~three months ended ~~September 30, 2009~~March 31, 2010 and ~~2008, respectively.~~2009.

A deferred tax liability is included in our Consolidated Balance Sheets of ~~$0.5~~$0.4 million, as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, in relation to the Michigan Business Tax. No deferred tax liability is recorded in relation to the Texas Margin Tax as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008.~~2009.

We and our subsidiaries are subject to income taxes in the U.S. and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. Federal, State and Local, examinations by tax authorities before 2005.

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 ~~nine~~three months ended ~~September 30, 2009.~~

~~14.~~

~~Noncontrolling Interests in Consolidated Financial Statements~~

In December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51”, which is included within ASC Topic 810, Consolidation. The updated guidance in ASC Topic 810 nullified the consolidation guidance in ASC Topic 974. The updated guidance within ASC Topic 810 was effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which apply retrospectively. We applied the updated provisions of ASC Topic 810 beginning January 1, 2009. ASC Topic 810 required that losses be allocated to the noncontrolling interest even when such allocation results in a deficit balance, reducing the losses attributed to the controlling interest.

Certain partners in our consolidated subsidiaries receive dividend distributions on a 1:1 ratio to the dividend distributions provided to common shareholders. During fiscal year 2008, these partners’ net equity position declined below zero due to accumulated distributions in excess of allocated accumulated earnings (losses). Prior to the adoption of the updated guidance within ASC Topic 810, we would have been required to record the deficit balance to the Consolidated Statements of Operations as a charge to noncontrolling interest dividend distributions.

Additionally, the noncontrolling interests in our consolidated partnerships receive an allocation of their proportionate share of these consolidated subsidiaries’ net losses, even when the allocation results in a deficit balance, reducing the losses attributed to the controlling interest. The dividend distributions and the noncontrolling interests’ proportionate share of net losses were recorded as a deficit balance to the equity position of the noncontrolling interest in our Consolidated Balance Sheets as of September 30, 2009.

The provisions of ASC Topic 810 require that if an entity’s results are different due to the adoption of the new guidance that the entity must disclose selected pro forma financial information as if the deficit balance was recorded as a charge to our Consolidated Statements of Operations.

March 31, 2010.

2018

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~14.~~13.

~~Noncontrolling Interests in Consolidated Financial Statements, continued~~

~~Our proforma results for the three and nine months ended September 30, 2009 are as follows (in thousands):~~

Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2009
Loss from continuing operations

$
(2,738
)

$
(3,952
)
Income (loss) from discontinued operations

177

(155
)
Net loss

(2,561
)

(4,107
)
Noncontrolling interest dividend distributions

(1,377
)

(4,133
)
Net loss attributable to Sun Communities, Inc.

$
(3,938
)

$
(8,240
)

Basic and diluted weighted average common shares outstanding

18,513

18,437

Basic and diluted loss per share

$
(0.21
)

$
(0.45
)

~~15.~~

~~Loss~~Earnings Per Share

We have outstanding stock options and unvested restricted shares, and our Operating Partnership has Common OP Units, and convertible Preferred OP Units, which if converted or exercised, may impact dilution. ~~On January 1, 2009, we adopted FSP EITF 03-6-1, which is included within ASC Topic 260, Earnings Per Share, which addressed whether instruments granted in share-based payment transactions were~~Our unvested restricted shares qualify as participating securities ~~prior to vesting~~ and ~~therefore, needed to be~~are included in the earnings allocation inof computing basic earnings per share (“EPS”) under the two-class method. Our unvested restricted shares qualified as participating securities as defined by ASC Topic 260. We adjusted our calculation of basic and diluted earnings per share (“EPS”) to conform to the updated guidance provided in ASC Topic 260, which also required retrospective application for all periods presented. The updated guidance within ASC Topic 260 did not affect per share amounts for the three and nine months ended September 30, 2009 and 2008, because we reported net losses in these periods. Loss per share for the year may not equal the sum of the fiscal quarters’ loss per share due to changes in basic and diluted shares outstanding.

Computations of basic and diluted ~~loss per share~~EPS from continuing operations were as follows (in thousands, expect per share data):

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Numerator
Net loss from continuing operations attributable to common stockholders

$
(2,193
)

$
(5,190
)

$
(3,278
)

$
(15,200
)

Denominator

Basic weighted average common shares outstanding

18,513

18,213

18,437

18,151

Add: dilutive securities

-

-

-

-

Diluted weighted average common shares

18,513

18,213

18,437

18,151

Basic and diluted loss per share from continuing operations available to common stockholders

$
(0.12
)

$
(0.28
)

$
(0.18
)

$
(0.84
)

	Three Months Ended
	March 31,
Numerator	2010		2009
Basic earnings: net income from continuing operations attributable to common stockholders	$	1,337	$	1,031
Add: net income attributable to noncontrolling interests of operating partnership		153		122
Diluted earnings: net income from continuing operations available to common stockholders and unitholders	$	1,490	$	1,153

Denominator
Weighted average common shares outstanding		18,665		18,330
Weighted average unvested restricted stock outstanding		177		181
Basic weighted average common shares and unvested restricted stock outstanding		18,842		18,511
Add: dilutive securities		2,142		2,187
Diluted weighted average common shares and securities		20,984		20,698

Basic and diluted earnings per share from continuing operations available to common stockholders	$	0.07	$	0.06

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~15.~~

~~Loss Per Share, continued~~

We excluded securities from the computation of diluted EPS because the inclusion of these securities would have been anti-dilutive for the periods presented. The following table presents the number of outstanding potentially dilutive securities that were excluded from the computation of diluted EPS as of ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ (amounts in thousands):

	September 30,				March 31,
	2009		2008		2010		2009
Stock options		214		222		131		205
Unvested restricted stock		188		192
Common OP Units		2,178		2,287
Convertible Preferred OP Units		526		526		526		526
Total securities		3,106		3,227		657		731

The figures above represent the total number of potentially dilutive securities, and do not reflect the incremental impact to the number of diluted weighted average shares outstanding that would be computed if the impact to us had been dilutive to the calculation of ~~earnings (loss) per share~~EPS available to common stockholders.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~16.~~14.

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. 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 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 swaps and cap agreements for which quoted market prices are indirectly available. For those derivatives, we use model-derived valuations in which all observable inputs and significant value drivers are observable in active markets provided by brokers or dealers to determine the fair values of derivative instruments on a recurring basis.

Installment Notes on Manufactured Homes

The net carrying value of the installment notes on manufactured homes reasonably estimates the fair value of the underlying collateral (manufactured home) which would be placed into service for use in our Rental ~~Program.~~Program or held for sale.

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 and rates currently prevailing for comparable loans and instruments of comparable maturities.

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 in the Consolidated Balance ~~Sheets~~Sheets.

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.

2220

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~16.~~14.

Fair Value of Financial Instruments, continued

The table below sets forth our financial assets and liabilities that required disclosure of their fair values on a recurring basis as of ~~September 30, 2009.~~March 31, 2010. The table presents the carrying values and fair values of our financial instruments as of ~~September 30,~~March 31, 2010 and December 31, 2009 that were measured using the valuation techniques described above. The table does not include financial instruments with maturities less than one year because the carrying values associated with these instruments approximate fair value.

	September 30, 2009				March 31, 2010				December 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Derivative instruments	$	305	$	305	$	4	$	4	$	379	$	379
Installment notes on manufactured homes		16,407		16,407
Collateralized receivables		44,913		-
Installment notes on manufactured homes, net						14,136		14,136		12,627		12,627
Collateralized receivables, net						55,111		-		52,201		-

Financial liabilities
Derivative instruments	$	2,333	$	2,333	$	2,187	$	2,187	$	2,123	$	2,123
Long term debt (excluding secured borrowing)		1,110,590		1,063,319		1,102,679		1,061,726		1,107,074		1,057,326
Secured borrowing		45,056		-		55,283		-		52,368		-
Lines of credit		88,883		88,883		98,525		98,525		94,465		94,465

~~ASC Topic 820, Fair Value Measurements and Disclosures, establishes~~We use a fair value hierarchy established by FASB guidance that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

Level 1—Quoted unadjusted prices for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.

Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by us.

The table below sets forth, by level, our financial assets and liabilities that were required to be carried at fair value in the Consolidated Balance Sheets as of ~~September 30, 2009.~~

Total Fair Value Level 1 Level 2 Level 3
Assets
Derivative instruments

$
305

$
-

$
305

$
-

Total assets

$
305

$
-

$
305

$
-

Liabilities

Derivative instruments

$
2,333

$
-

$
2,333

$
-

Total liabilities

$
2,333

$
-

$
2,333

$
-

March 31, 2010.

Assets	Total Fair Value		Level 1		Level 2		Level 3
Derivative instruments	$	4	$	-	$	4	$	-
Total assets	$	4	$	-	$	4	$	-

Liabilities
Derivative instruments	$	2,187	$	-	$	2,187	$	-
Total liabilities	$	2,187	$	-	$	2,187	$	-

2321

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~17.~~15.

Recent Accounting Pronouncements

Accounting Standards Adopted in ~~2009~~

In February 2008, the FASB issued Staff Position No. FAS 157-2 which provided for a one-year deferral of the effective date of SFAS No. 157, “Fair Value Measurements” which is included within ASC Topic 820, Fair Value Measurements and Disclosures, for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. The adoption of ASC Topic 820 as it pertains to non-financial assets and liabilities did not have an impact on our results of operations or financial position as we have not elected the fair value option for any or our non-financial assets or liabilities.

In December 2007, the FASB issued Statement No. 141R (revised 2007), “Business Combinations”, which is included within ASC Topic 805, Business Combinations. The updated guidance within ASC Topic 805 significantly changed the accounting for business combinations. Under ASC Topic 805, an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. ASC Topic 805 changed the accounting treatment for certain specific acquisition related items and also included a substantial number of new disclosure requirements. ASC Topic 805 was effective for business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. We will apply ASC Topic 805 prospectively to business combinations for which the acquisition date is on or after January 1, 2009.

In December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51”, which is included within ASC Topic 810, Consolidation. The updated guidance within ASC Topic 810 established new standards that govern the accounting for and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Also, the updates to ASC Topic 810 required that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the Consolidated Financial Statements; (2) losses be allocated to the noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; (4) upon a loss of control, any gain or loss on the interest sold be recognized in earnings; and (5) the noncontrolling interest’s share be recorded at the fair value of net assets acquired, plus its share of goodwill. The updates to ASC Topic 810 were effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which apply retrospectively. The adoption of the updated guidance within ASC Topic 810 impacted the presentation of noncontrolling interest in our Consolidated Financial Statements and related notes. See Note 14 for additional information regarding the impact of adopting the updated guidance within ASC Topic 810 on our results of operations and financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, which is included within ASC Topic 815, Derivatives and Hedging. The updated guidance within ASC Topic 815 provided for enhanced disclosures about how and why an entity uses derivatives and how and where those derivatives and related hedged items are reported in the entity’s financial statements. The statement was effective for fiscal years and interim periods beginning after November 15, 2008. Because the updated guidance within ASC Topic 815 impacted the disclosure requirements, and not the accounting treatment for derivative instruments and related hedged items, the adoption of the updated guidance did not impact our results of operations or financial condition. See Note 12 for disclosures regarding our derivative instruments and hedging activities.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”, which is included within ASC Topic 350, Intangibles – Goodwill and Other. The updated guidance within ASC Topic 350 amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The updated guidance in ASC Topic 350 is intended to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure the fair value of the asset. The updated guidance is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, and is applied prospectively to intangible assets acquired after the effective date. We will apply the updated guidance within ASC Topic 350 prospectively to material intangible assets for which the acquisition date is on or after January 1, 2009. Disclosure requirements are applied prospectively to all material intangible assets recognized as of, and subsequent to, the effective date.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~17.~~

~~Recent Accounting Pronouncements, continued~~

In May 2008 the FASB ratified FSP No. APB 14-1, “Accounting for Convertible Debt Instruments that May be Settled in Cash Upon Conversion (Including Partial Cash Settlement)”, which is included in ASC Topic 470, Debt, which required issuers of convertible debt securities within its scope to separate these securities into a debt component and an equity component, resulting in the debt component being recorded at fair value without consideration given to the conversion feature. Issuance costs were also allocated between the debt and equity components. The updated guidance within ASC Topic 470 required that convertible debt within its scope reflect a company’s nonconvertible debt borrowing rate when interest expense is recognized. The updated guidance within ASC Topic 470 was effective fiscal years and interim periods beginning after December 15, 2008, and applies retrospectively to all prior periods. The adoption the updated guidance within ASC Topic 470 did not have an impact on our results of operations or financial condition because the conversion feature associated with our convertible debt instrument does not provide for any cash settlement.

In June 2008, the FASB issued FSP No. Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”, which is included within ASC Topic 260, EPS. The updated guidance within ASC Topic 260 clarified that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of EPS under the two-class method. The updated guidance within ASC Topic 260 was effective for fiscal years beginning after December 15, 2008 and required that all presented prior-period EPS data to be adjusted retrospectively. The adoption of the updated guidance within ASC Topic 260 did not have a significant impact on our results of operations or financial condition, but resulted in a change to the calculation of basic and diluted EPS. See Note 15 for additional information regarding the impact of adopting the updated guidance within ASC Topic 260 on the calculation of EPS.

In November 2008, the Emerging Issues Task Force issued EITF No. 08-6, “Equity Method Investment Accounting Considerations”, which is included in ASC Topic 323, Investments – Equity Method and Joint Ventures. The updated guidance within ASC Topic 323 addressed how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in an investment from the equity method to the cost method. The updated guidance within ASC Topic 323 was effective for fiscal years and interim periods beginning after December 15, 2008 and is applied prospectively. Earlier application was prohibited. The adoption of the updated guidance within ASC Topic 323 did not have any impact on our results of operations or financial condition.

In December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46R-8, “Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities: An Amendment to FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, which is included in ASC Topic 860, Transfers and Servicing. The updated guidance in ASC Topic 860 required public entities to provide additional disclosures about transfers of financial assets. It also required public enterprises to provide additional disclosures about their involvement with variable interest entities (“VIEs”). Additionally, it required certain disclosures to be provided by a public enterprise that is a sponsor that has a variable interest in a VIE and an enterprise that holds a significant variable interest in a qualified special-purpose entity (“QSPE”) but was not the transferor of financial assets to the QSPE. The disclosures were intended to provide greater transparency to financial statement users about a transferor’s continuing involvement with transferred financial assets and enterprise’s involvement with VIEs. The updated guidance within ASC Topic 860 was effective for the first reporting period ending after December 15, 2008. Because the updated guidance within ASC Topic 860 impacted the disclosure (and not the accounting treatment) for transferred financial assets and consolidation of VIES, the adoption of this updated guidance did not have an impact on our results of operations or financial condition. See Note 4 for disclosures regarding our transfer of financial assets and related secured borrowing obligation.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”, which is included in ASC Topic 825, Financial Instruments. The updated guidance with ASC Topic 825 related to fair value disclosures for any financial instruments that were not currently reflected on the balance sheet at fair value. Prior to the issuance of the updated guidance, fair values for these assets and liabilities were only disclosed once a year. The updated guidance within ASC Topic 825 required these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The updated guidance within ASC Topic 825 was effective for interim periods ending after June 15, 2009 and applies prospectively. Because the updated guidance impacted the disclosure requirements, and not the accounting treatment for the fair value of financial instruments, the adoption of updated guidance within ASC Topic 825 did not impact our results of operations or financial condition. See Note 16 for disclosures regarding the fair value of financial instruments.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~17.~~

~~Recent Accounting Pronouncements, continued~~

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which is included in ASC Topic 855, Subsequent Events. ASC Topic 855 established principles and requirements for evaluating and reporting subsequent events and distinguishes which subsequent events should be recognized in the financial statements versus which subsequent events should be disclosed in the financial statements. ASC Topic 855 also required disclosure of the date through which subsequent events are evaluated by management. ASC Topic 855 was effective for interim periods ending after June 15, 2009 and applies prospectively. Because ASC Topic 855 impacted the disclosure requirements, and not the accounting treatment for subsequent events, the adoption of ASC Topic 855 did not impact our results of operations or financial condition. See Note 19 for disclosures regarding our subsequent events.

~~In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification~~ TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”, which is included within ASC Topic 105, Generally Accepted Accounting Principles. ASC Topic 105 modified the hierarchy to include only two levels of GAAP: authoritative and non-authoritative. All of the content included in the FASB Accounting Standards Codification TM will be considered authoritative. ASC Topic 105 is not intended to amend GAAP but codifies previous accounting literature. ASC Topic 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. ASC Topic 105 became effective for our third quarter 2009 Consolidated Financial Statements and we have changed the referencing of authoritative accounting literature to conform to the Codification.

~~Accounting Standards to be Adopted~~2010

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140” ~~(“SFAS 166”)~~, which is ~~pending inclusion~~included in ~~the Codification. SFAS 166~~ASC Topic 860, Transfers and Servicing. The updated guidance in ASC Topic 860 removes the concept of a QSPE and eliminates the exception for QSPEs from consolidation guidance. In addition, ~~SFAS 166 establishes~~it also established specific conditions for reporting a transfer of a portion of a financial asset as a sale. If the transfer does not meet established sale conditions, sale accounting can be achieved only if the transferor transfers an entire financial asset or a group of entire financial assets and surrenders control over the entire transferred asset(s). ~~SFAS 166~~The updated guidance in ASC Topic 860 is effective for fiscal years beginning after November 15, 2009. ~~We are currently evaluating the potential impact, if any,~~The adoption of the ~~adoption of SFAS 166~~updated guidance within ASC Topic 860 did not have any impact on our results of operations or financial condition.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” ~~(“SFAS 167”)~~, which is ~~pending inclusion~~included in ~~the Codification. This Statement amends FIN 46(R) to require~~ASC Topic 810, Consolidation. The updated guidance in ASC Topic 810 requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics, among others: (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity, or the right to receive benefits from the entity, that could potentially be significant to the VIE. Under ~~SFAS 167,~~the updated guidance in ASC Topic 810, ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE are required. ~~SFAS 167~~The updated guidance in ASC Topic 810 is effective as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009. ~~We are currently evaluating the potential impact, if any,~~The adoption of the ~~adoption of SFAS 167~~updated guidance within ASC Topic 810 did not have any impact on our results of operations or financial ~~condition.~~condition as we do not currently have an unconsolidated VIE.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~18.~~16.

Commitments and Contingencies

On or about November 19, 2009, we, Sun Secured Financing LLC, Aspen-Ft. Collins Limited Partnership, Sun Secured Financing Houston Limited Partnership, Sun Communities Finance, LLC, Sun Holly Forest LLC and Sun Saddle Oak LLC (collectively, the “Plaintiffs”) filed suit against ARCS Commercial Mortgage Co., L.P., PNC ARCS, LLC, and the Federal National Mortgage Association (collectively, the “Defendants”) in the United States District Court for the District of Columbia as Case No. 1:09-cv-02162. The essence of the dispute is whether the terms of a commercial credit facility permitted Defendants to increase the Variable Facility Fee applicable to the outstanding variable rate loans in conjunction with an extension of the credit facility (and, if so, whether the Defendants properly exercised that right). As of April 29, 2009, the Plaintiffs have been paying the increased Variable Facility Fee. The Plaintiffs seek a judgment for the amount paid above the original Variable Facility Fee from April 29, 2009 to the date of judgment and an order that the Variable Facility Fee shall be returned to the original rate of 58 basis points on a going forward basis through the end of the extension period. The Defendants have filed a motion to dismiss the lawsuit, which motion has been fully briefed by the parties. Oral argument has not yet been scheduled.

On April 9, 2003, T.J. Holdings, LLC (“TJ Holdings”), a member of Sun/Forest, LLC (“Sun/Forest”) (which, in turn, owns an equity interest in SunChamp), filed a complaint against us, SunChamp, certain other of our affiliates, including two of our directors, in the Superior Court of Guilford County, North Carolina. The complaint alleges that the defendants wrongfully deprived the plaintiff of economic opportunities that they took for themselves in contravention of duties allegedly owed to the plaintiff and purports to claim damages of $13.0 million plus an unspecified amount for punitive damages. We believe the complaint and the claims threatened therein have no merit and will defend it vigorously. These proceedings were stayed by the Superior Court of Guilford County, North Carolina in 2004 pending final determination by the Circuit Court of Oakland County, Michigan as to whether the dispute should be submitted to arbitration and the conclusion of all appeals therefrom. On March 13, 2007, the Michigan Court of Appeals issued an order compelling arbitration of all claims brought in the North Carolina case. TJ Holdings has filed an application for review in the Michigan Supreme Court which has been denied and, accordingly, the North Carolina case is permanently stayed. TJ Holdings ~~has now~~had filed an arbitration demand in Southfield, Michigan based on the same claims. We intend to vigorously defend against the allegations.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~19.~~

~~Subsequent Events~~

We are involved in various other legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have ~~evaluated~~a material adverse impact on our results of operations or financial ~~statements through the date the financial statements were issued, November 6, 2009, for subsequent events.~~

§	On October 23, 2009, aggregate dividends, distributions and dividend equivalents of $13.1 million were made to common stockholders, common OP unitholders, and restricted stockholders of record on October 13, 2009.

On October 30, 2009, we completed a transaction of $5.0 million involving our installment notes. This transaction was recorded as a transfer of financial assets, and the cash proceeds related to this transaction were recorded as a secured borrowing. See Note 4 for additional information regarding our collateralized receivables and secured borrowing transactions.

condition.

2723

SUN COMMUNITIES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 the notes thereto, along with our ~~2008~~2009 Annual Report. Capitalized terms are used as defined elsewhere in this Form 10-Q.

OVERVIEW

We are a self-administered and self-managed real estate investment trust, or REIT. We own, operate, and develop manufactured housing communities concentrated in the midwestern, southern, and southeastern United States. We are fully integrated real estate companies which, together with our affiliates and predecessors, have been in the business of acquiring, operating, and expanding manufactured housing communities since 1975. As ~~September 30, 2009,~~of March 31, 2010, we owned and operated a portfolio of 136 properties located in 18 states (the “Properties” or “Property”), including 124 manufactured housing communities, 4 recreational vehicle communities, and 8 properties containing both manufactured housing and recreational vehicle sites. As of ~~September 30, 2009,~~March 31, 2010, the Properties contained an aggregate of ~~47,587~~47,566 developed sites comprised of ~~42,301~~42,299 developed manufactured home sites and ~~5,286~~5,267 recreational vehicle sites and an ~~additional 5,583~~approximately 6,000 manufactured home sites suitable for development. We lease individual parcels of land (“sites”) with utility access for placement of manufactured homes (“MHs”) and recreational vehicles (“RVs”) to our customers. The Properties are designed to offer affordable housing to individuals and families, while also providing certain amenities.

We are 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.

SIGNIFICANT ACCOUNTING POLICIES

We have identified significant accounting policies that, as a result of the judgments, uncertainties, and complexities of the underlying accounting standards and operations involved could result in material changes to our financial condition or results of operations under different conditions or using different assumptions. Details regarding significant accounting policies are described fully in our ~~2008~~2009 Annual Report.

~~Recent Accounting Pronouncements~~

We adopted several new accounting standards in the year beginning January 1, 2009. The adoption of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which is now included within the FASB Accounting Standards Codification TM (“ASC”) Topic 810, Consolidation, impacted our results of operations and financial condition. This updated guidance resulted in the presentation of noncontrolling interest, previously referred to as minority interest, be reported as a separate component of equity in our Consolidated Financial Statements, and that losses be allocated to the noncontrolling interest even if the allocation resulted in a deficit balance. See Note 14 in the Notes to Consolidated Financial Information for additional information regarding the impact of adopting this guidance on our results of operations and financial position.

2824

SUN COMMUNITIES, INC.

SUPPLEMENTAL MEASURES

In addition to the results reported in accordance with ~~accounting principles generally accepted in the United States (GAAP),~~GAAP, we have provided information regarding Net Operating Income (“NOI”) in the following tables. NOI is derived from revenues minus property operating expenses and real estate taxes. We use NOI as the primary basis to evaluate the performance of our operations. A reconciliation of NOI to net income ~~(loss)~~ attributable to Sun Communities, Inc. is included in “Results of Operations” below.

We believe that NOI is helpful to investors and analysts as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. We use NOI as a key management tool when evaluating performance and growth 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, and therefore, NOI is a measure of the operating performance of our properties rather than of the ~~company~~Company overall. We believe that these costs included in net income ~~(loss)~~ often have no effect on the market value of our property and therefore limit its use as a performance measure. In addition, such expenses are often incurred at a parent company level and therefore are not necessarily linked to the performance of a real estate asset.

NOI should not be considered a substitute for the reported results prepared in accordance with GAAP. NOI should not be considered as an alternative to net income ~~(loss)~~ as an indicator of our financial performance, or to cash flows as a measure of liquidity; nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. NOI, as determined and presented by us, may not be comparable to related or similarly titled measures reported by other companies.

We also provide information regarding Funds From Operations (“FFO”). A definition of FFO and a reconciliation of FFO to net ~~loss attributable to Sun Communities, Inc. to FFO~~income are included in the presentation of FFO in “Results of Operations” following the “Comparison of the ~~Nine~~Three Months ended ~~September 30, 2009~~March 31, 2010 and ~~2008”~~2009”.

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, and develops manufactured housing communities concentrated in the midwestern, southern, and southeastern United States and is in the business of acquiring, operating, and expanding manufactured housing communities. The Home Sales and Rentals segment offers manufactured home sales and leasing services to tenants and prospective tenants of our communities. We evaluate segment operating performance based on NOI.

The accounting policies of the segments are the same as those applied in the Consolidated Financial Statements, except for the use of NOI. We may allocate certain common costs, primarily corporate functions, between the segments differently than we would for stand alone financial information prepared in accordance with GAAP. These allocated costs include expenses for shared services such as information technology, finance, communications, legal, and human resources. We do not allocate interest expense and certain other corporate costs not directly associated with the segments’ NOI.

2925

SUN COMMUNITIES, INC.

COMPARISON OF THE THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2010 AND 2009 ~~AND 2008~~

REAL PROPERTY OPERATIONS - SAME SITE

A key management tool we use when evaluating performance and growth of ~~particular~~our properties is a comparison of Same Site communities. Same Site communities consist of properties owned and operated for the same period in both years for the three months ended March 31, 2010 and 2009. Our Same Site portfolio is equal to our total portfolio for the three months ended March 31, 2010 and 2009. The Same Site data may change from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions, or unique situations. The following tables reflect certain financial and other information for particular properties owned and operated for the same period in both years as of and for the three months ended September 30, 2009 and 2008:

Three Months Ended
September 30,
Financial Information (in thousands) 2009 2008 Change % Change
Income from Real Property

$
45,915

$
45,221

$
694

1.5
%
Property operating expenses:

Payroll and benefits

4,302

3,824

478

12.5
%
Legal, taxes, & insurance

706

693

13

1.9
%
Utilities

2,641

2,472

169

6.8
%
Supplies and repair

2,100

2,121

(21
)

-1.0
%
Other

818

792

26

3.3
%
Real estate taxes

3,848

3,844

4

0.1
%
Property operating expenses

14,415

13,746

669

4.9
%
Real Property NOI

$
31,500

$
31,475

$
25

0.1
%

As of September 30,
Other Information 2009 2008 Change
Number of properties 136 136 -
Developed sites

47,587

47,608

(21
)
Occupied sites (1)
37,954 37,846 108
Occupancy % (2)

82.3
%

82.2
%

0.1
%
Average monthly rent per site (2)

$
402

$
390

$
12

Sites available for development

5,583

6,074

(491
)

~~(1)~~

~~Occupied sites include manufactured housing and permanent recreational vehicle sites, and exclude seasonal recreational vehicle sites.~~

~~(2)~~

~~Occupancy % and average rent relates only to manufactured housing sites, and excludes permanent and seasonal recreational vehicle sites.~~

NOI remained stable due to increased revenue of $0.7 million, offset by increased expenses of $0.7 million. Income from real property consists of manufactured home and recreational vehicle site rent, and miscellaneous other property revenues. Revenue from our manufactured home and recreational vehicle portfolio increased by $0.8 million due to an average rental rate increase of 2.9 percent, and an increase in the number of occupied home sites. Our miscellaneous other property revenues decreased by $0.1 million due to a decrease in cable television revenue sharing agreements which expired in 2008.

The growth in property operating expenses of $0.7 million was due to two main factors. Payroll and benefits increased by $0.5 million due to increased health insurance costs. Utility costs, primarily related to water, electricity charges, and rubbish removal, increased $0.2 million due to increased rates on these services. Other property operating expenses related to supplies, repairs, legal fees, real estate taxes, property and casualty insurance, and administrative costs (such as postage and advertising) remained relatively flat.

~~As indicated above, the Same Site data is an analytical measure used by management to determine the performance and growth of our communities on a year over year basis.~~ In order to evaluate the growth of the Same Site ~~portfolio,~~communities, management has classified certain items differently than our GAAP statements. ~~There are two primary~~The reclassification ~~differences~~difference between our GAAP statements and our Same Site ~~portfolio. The first~~portfolio is the reclassification of water and sewer revenues from income from real property to utilities. A significant portion of our utility charges are re-billed to our residents. We reclassify these amounts to reflect the utility expenses associated with our Same Site portfolio net of recovery.

The following tables reflect certain financial and other information for our Same Site communities as of and for the three months ended March 31, 2010 and 2009:

	Three Months Ended
	March 31,
Financial Information (in thousands)	2010		2009		Change			% Change
Income from Real Property	$	49,134	$	48,439	$	695			1.4	%
Property operating expenses:
Payroll and benefits		3,823		3,693		130			3.5	%
Legal, taxes, & insurance		610		774		(164	)		-21.2	%
Utilities		3,479		3,509		(30	)		-0.9	%
Supplies and repair		1,300		1,194		106			8.9	%
Other		955		875		80			9.1	%
Real estate taxes		4,180		4,184		(4	)		-0.1	%
Property operating expenses		14,347		14,229		118			0.8	%
Real Property NOI	$	34,787	$	34,210	$	577			1.7	%

	As of March 31,
Other Information	2010			2009			Change
Number of properties		136			136			-
Developed sites		47,566			47,605			(39	)
Occupied sites (1)		38,177			37,877			300
Occupancy % (1)		83.9	%		83.3	%		0.6	%
Weighted average monthly rent per site (2)	$	407		$	397		$	10
Sites available for development		5,588			5,583			5

(1)	Occupied sites and occupancy % include manufactured housing and permanent recreational vehicle sites, and exclude seasonal recreational vehicle sites.

(2)	Average rent relates only to manufactured housing sites, and excludes permanent and seasonal recreational vehicle sites.

Real Property NOI increased by $0.6 million from $34.2 million to $34.8 million, or 1.7 percent. The growth in NOI is primarily due to increased revenues. Income from real property revenues consist of manufactured home and recreational vehicle site rent, and miscellaneous other property revenues. Income from real property revenues increased $0.7 million, from $48.4 million to $49.1 million, or 1.4 percent. The growth in income from real property was due to a combination of factors. Revenue from our manufactured home and recreational vehicle portfolio increased by $0.7 million due to average rental rate increases of 2.6 percent and due to the increased number of occupied home sites. This growth in revenue was partially offset by rent concessions offered to new residents and current residents who convert from home renters to home owners.

Property operating expenses increased $0.1 million, from $14.2 million to $14.3 million, or 0.8 percent. Payroll and benefits increased by $0.1 million due to increased wages from annual merit raises, and increased health benefit and workers compensation expense. Supplies and repair expenses increased by $0.1 million due to increased landscape maintenance costs. Other property operating expenses increased by $0.1 million due to increased administrative costs for postage, office supplies, and other general office charges. These costs were partially offset by decreased legal fees (related to delinquency and other property matters) and decreased insurance charges of $0.2 million.

3026

SUN COMMUNITIES, INC.

HOME SALES AND RENTALS

We acquire pre-owned and repossessed manufactured homes ~~that are generally~~located within our communities from lenders and dealers at substantial discounts. We lease or sell these value priced homes to current and prospective residents. We also purchase new homes to lease and sell to current and prospective residents. The programs we have established for our customers to lease or buy new and pre-owned homes have helped to stabilize portfolio occupancy.

The ~~following table reflects certain financial and other information for our~~ Rental Program ~~as of~~has proven to be an effective response to the adverse factors we faced during the industry downturn and ~~for the three months ended September 30, 2009 and 2008 (in thousands, except for certain items marked with *):~~

Three Months Ended
September 30,
Financial Information 2009 2008 Change % Change
Rental home revenue

$
5,062

$
5,186

$
(124
)

-2.4
%
Site rent from Rental Program (1)

6,738

6,150

588

9.6
%
Rental Program revenue

11,800

11,336

464

4.1
%
Expenses

Payroll and commissions

556

524

32

6.1
%
Repairs and refurbishment

1,761

2,011

(250
)

-12.4
%
Taxes and insurance

777

701

76

10.8
%
Marketing and other

770

899

(129
)

-14.3
%
Rental Program operating and maintenance

3,864

4,135

(271
)

-6.6
%
Rental Program NOI

$
7,936

$
7,201

$
735

10.2
%

Other Information

Number of occupied rentals, end of period*

5,749

5,449

300

5.5
%
Investment in occupied rental homes

$
180,118

$
166,735

$
13,383

8.0
%
Number of sold rental homes*

185

151

34

22.5
%
Weighted average monthly rental rate*

$
726

$
733

$
(7
)

-1.0
%

~~(1)~~ ~~The renter’s monthly payment includes the site~~now draws nearly 15,000 applications per year to 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 growth and performance of the Rental Program.

NOI increased $0.7 million from $7.2 million to $7.9 million, or 10.2 percent due to increased revenues of approximately $0.5 million, while expenses decreased by approximately $0.2 million. Revenues increased primarily due to an increase in the number of occupied rental homes in our properties. The program has replaced the ~~Rental Program as indicated in the table above. Repair and refurbishment costs decreased by $0.2 million due~~independent dealer network, a majority of which were forced to ~~a decrease in the number~~go out of moveouts in the Rental Program. Marketing and other costs decreased by $0.1 million primarily due to a decrease in bad debt expense. These cost savings were slightly offset by increased taxes and insurance expenses of $0.1 million as these costs generally increase as the number of homes in the Rental Program increase.

~~SUN COMMUNITIES, INC.~~

The following table reflects certain financial and statistical information for our Home Sales Program for the three months ended September 30, 2009 and 2008 (in thousands, except for statistical information):

Three Months Ended
September 30,
Financial Information 2009 2008 Change % Change
New home sales

$
1,525

$
2,075

$
(550
)

-26.5
%
Pre-owned home sales

6,908

5,858

1,050

17.9
%
Revenue from homes sales

8,433

7,933

500

6.3
%

New home cost of sales

1,265

1,894

(629
)

-33.2
%
Pre-owned home cost of sales

4,781

4,179

602

14.4
%
Cost of home sales

6,046

6,073

(27
)

-0.4
%

NOI / Gross profit

$
2,387

$
1,860

$
527

28.3
%

Gross profit – new homes

260

181

79

43.6
%
Gross margin % – new homes

17.0
%

8.7
%

8.3
%

Gross profit – pre-owned homes

2,127

1,679

448

26.7
%
Gross margin % – pre-owned homes

30.8
%

28.7
%

2.1
%

Statistical Information

Home sales volume:

New home sales

21

30

(9
)

-30.0
%
Pre-owned home sales

272

221

51

23.1
%
Total homes sold

293

251

42

16.7
%

Gross profit from home sales increased by $0.5 million, or 28.3 percent, due to improved profit margins and an increase in the number of total homes sold. Gross profit increased by $0.1 million from new home sales and $0.4 million from pre-owned home sales.

The gross profit margin on new home sales increased 8.3 percent from 8.7 percent to 17.0 percent. Although the volume of new home sales decreased by 30.0 percent, the combination of higher average sale prices and lower average costs resulted in $0.1 million of increased overall gross profit.

The gross profit margin on pre-owned home sales increased 2.1 percent from 28.7 percent to 30.8 percent. Pre-owned home sales include the sale of homes that have been utilized in our Rental Program. The cost basis of a rental home is depreciated, therefore, the gross profit margin on the sale of these homes increases the longer the home has been in the Rental Program. An increase in the volume of rental home sales is the primary reason for the overall increase in pre-owned home sales, therefore, the principal contributor to the increase in gross profit on pre-owned home sales.

~~SUN COMMUNITIES, INC.~~

~~OTHER INCOME STATEMENT ITEMS~~

~~Other revenues~~ include other income (loss), interest income, and ancillary revenues, net. Other revenues increased by $1.0 million, from $0.3 million to $1.3 million, or 333.3 percent. This increase was due to increased interest income of $0.5 million, reduced fees of $0.3 million associated with the transfer of our installment receivables servicing contract to a new service provider in the prior year, along with reduced losses of $0.2 associated with asset dispositions that occurred in the prior year. The increase in interest income was primarily due to the additional installment notes recognized in association with the transfer of financial assets that are recorded as collateralized receivables in the Consolidated Balance Sheets. The interest income on these collateralized receivables is offset by the same amount of interest expense recognized on the secured debt recorded in association with this transaction. See Note 4 – Secured Borrowing and Collateralized Receivables for additional information.

~~General and administrative~~ costs increased by $0.2 million, from $5.4 million to $5.6 million, or 3.7 percent due to increased salary and other compensation costs of $0.3 million, partially offset by a decrease in legal and other expenses of $0.1 million.

~~Georgia flood damage~~ ~~charges were recorded~~business during the ~~period. On September 21, 2009, a flood caused substantial damage~~early part of the decade, which formerly directed potential residents to our property, Countryside Village of Atlanta, located in Lawrenceville. We are still in the preliminary stages of assessing the damage to our property. We have comprehensive insurance coverage for both property damage and business interruption, subject to deductibles and certain limitations. We believe the cost of the damage sustained from the flooding will be in excess of our insurance deductible. We have recorded a charge of $0.8 million associated with the flooding. This charge represents our deductible, net of expected insurance recoveries for the replacement of assets that exceed the net book value of assets damaged in the flood.

~~Depreciation and amortization~~ ~~costs decreased by $0.2 million, from $16.0 million to $15.8 million, or 1.3 percent primarily due to the reduction of amortization expenses associated with promotional costs and other depreciation.~~

~~Interest expense~~ on debt, including interest on mandatorily redeemable debt, decreased by $0.3 million, from $16.2 million to $15.9 million, or 1.9 percent due to a reduction in expense of $0.7 million mostly related to lower interest rates charged on variable rate debt, partially offset by an increase in expense of $0.4 million associated with our secured borrowing arrangements. The interest expense on our secured borrowing is offset completely by the interest income recognized on our collateralized receivables. See Note 4 – Secured Borrowing and Collateralized Receivables in our Notes to Consolidated Financial Statements included herein for additional information.

~~Equity loss from affiliates~~ decreased by $0.6 million, from a loss of $1.5 million to a loss of $0.9 million. We recorded an other than temporary impairment charge of $1.3 million for our affiliate, Origen, in the third quarter of 2008.

~~SUN COMMUNITIES, INC.~~

~~The following is a summary of our consolidated financial results which were discussed in more detail in the preceding paragraphs (in thousands):~~

Three Months Ended
September 30,
2009 2008
Revenues

$
62,092

$
60,907

Operating expenses/Cost of sales

27,007

26,521

NOI/gross profit

35,085

34,386

Adjustments to arrive at net loss:

Other revenues

1,300

348

General and administrative

(5,577
)

(5,367
)
Georgia flood damage

(800
)

-

Depreciation and amortization

(15,841
)

(16,025
)
Interest expense

(15,948
)

(16,208
)
Equity loss from affiliates

(854
)

(1,486
)
Provision for state income taxes

(103
)

(141
)
Loss from continuing operations

(2,738
)

(4,493
)
Income (loss) from discontinued operations

177

(274
)
Net loss

(2,561
)

(4,767
)
Less: Net income (loss) attributable to noncontrolling interest

(526
)

726

Net loss attributable to Sun Communities, Inc.

$
(2,035
)

$
(5,493
)

~~SUN COMMUNITIES, INC.~~

~~COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008~~

~~REAL PROPERTY OPERATIONS - SAME SITE~~

A key management tool we use when evaluating performance and growth of particular properties is a comparison of Same Site communities. The Same Site data may change from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions, or unique situations. The following tables reflect certain financial and other information for particular properties owned and operated for the same period in both years as of and for the nine months ended September 30, 2009 and 2008:

Nine Months Ended
September 30,
Financial Information (in thousands) 2009 2008 Change % Change
Income from Real Property

$
140,405

$
138,488

$
1,917

1.4
%
Property operating expenses:

Payroll and benefits

11,757

11,264

493

4.4
%
Legal, taxes, & insurance

2,370

2,154

216

10.0
%
Utilities

9,150

8,679

471

5.4
%
Supplies and repair

5,351

5,319

32

0.6
%
Other

2,325

2,137

188

8.8
%
Real estate taxes

12,150

12,183

(33
)

-0.3
%
Property operating expenses

43,103

41,736

1,367

3.3
%
Real Property NOI

$
97,302

$
96,752

$
550

0.6
%

As of September 30,
Other Information 2009 2008 Change
Number of properties

136

136

-

Developed sites 47,587 47,608 (21 )
Occupied sites (1)

37,954

37,846

108

Occupancy % (2)
82.3 % 82.2 % 0.1 %
Average monthly rent per site (2)

$
402

$
390

$
12

Sites available for development

5,583

6,074

(491
)

~~(1)~~

~~Occupied sites include manufactured housing and permanent recreational vehicle sites, and exclude seasonal recreational vehicle sites.~~

~~(2)~~

~~Occupancy % and average rent relates only to manufactured housing sites, and excludes permanent and seasonal recreational vehicle sites.~~

NOI increased by $0.6 million from $96.7 million to $97.3 million, or 0.6 percent due to increased revenue of $1.9 million, partially offset by increased expenses of $1.3 million. Income from real property consists of manufactured home and recreational vehicle site rent, and miscellaneous other property revenues. Revenue from our manufactured home and recreational vehicle portfolio increased by $2.3 million due to an average rental rate increase of 3.0 percent and an increase in the number of occupied home sites. Our miscellaneous other property revenues decreased by $0.4 million primarily due to a decrease in revenue from cable television revenue sharing agreements which expired in 2008.

The growth in real property operating expenses of $1.3 million was due to several factors. Payroll and benefits increased by $0.5 million primarily due to increased health insurance costs. Property and casualty insurance increased by $0.2 million due to an increase in reserves for current claims. Utility costs, primarily related to water, electricity charges, and rubbish removal, increased $0.5 million due to increased rates on these services. Other expenses related to administrative costs, such as advertising and office expenses, increased by approximately $0.1 million. Other property operating expenses related to supplies, repairs, and real estate taxes remained relatively flat.

As indicated above, the Same Site data is an analytical measure used by management to determine the performance and growth of our communities on a year over year basis. In order to evaluate the growth of the Same Site portfolio, management has classified certain items differently than our GAAP statements. There are two primary reclassification differences between our GAAP statements and our Same Site portfolio. The first is the reclassification of water and sewer revenues from income from real property to utilities. A significant portion of our utility charges are re-billed to our residents. We reclassify these amounts to reflect the utility expenses associated with our Same Site portfolio, net of recovery.

~~SUN COMMUNITIES, INC.~~

~~HOME SALES AND RENTALS~~

We acquire pre-owned and repossessed manufactured homes that are generally within our communities from lenders and dealers at substantial discounts. We lease or sell these value priced homes to current and prospective residents. We also purchase new homes to lease and sell to current and prospective residents. The programs we have established for our customers to lease or buy new and pre-owned homes have helped to stabilize portfolio occupancy.properties.

The following table reflects certain financial and other information for our Rental Program as of and for the ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ (in thousands, except for certain items marked with *):

	Nine Months Ended										Three Months Ended
	September 30,										March 31,
Financial Information	2009		2008		Change			% Change			2010		2009		Change			% Change
Rental home revenue	$	15,449	$	15,318	$	131			0.9	%	$	5,079	$	5,200	$	(121	)		-2.3	%
Site rent from Rental Program (1)		19,861		18,278		1,583			8.7	%		7,016		6,450		566			8.8	%
Rental Program revenue		35,310		33,596		1,714			5.1	%		12,095		11,650		445			3.8	%
Expenses
Payroll and commissions		1,935		1,601		334			20.9	%		500		783		(283	)		-36.1	%
Repairs and refurbishment		5,729		5,380		349			6.5	%		1,604		1,991		(387	)		-19.4	%
Taxes and insurance		2,323		2,094		229			10.9	%		783		770		13			1.7	%
Marketing and other		2,436		2,491		(55	)		-2.2	%		736		993		(257	)		-25.9	%
Rental Program operating and maintenance		12,423		11,566		857			7.4	%		3,623		4,537		(914	)		-20.1	%
Rental Program NOI	$	22,887	$	22,030	$	857			3.9	%	$	8,472	$	7,113	$	1,359			19.1	%

Other Information
Number of occupied rentals, end of period*		5,749		5,449		300			5.5	%		5,950		5,698		252			4.4	%
Investment in occupied rental homes	$	180,118	$	166,735	$	13,383			8.0	%	$	188,697	$	177,755	$	10,942			6.2	%
Number of sold rental homes*		531		443		88			19.9	%		178		168		10			6.0	%
Weighted average monthly rental rate*	$	726	$	733	$	(7	)		-1.0	%	$	729	$	730	$	(1	)		-0.1	%

(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 growth and performance of the Rental Program.

~~Net operating income from the~~ Rental Program NOI increased ~~$0.9~~$1.4 million from ~~$22.0~~$7.1 million to ~~$22.9~~$8.5 million or ~~3.9~~19.1 percent due to increased revenues of ~~$1.7~~approximately $0.5 million ~~offset by increased~~and decreased expenses of ~~$0.8~~$0.9 million. Revenues increased ~~$1.7~~approximately $0.5 million primarily due to the increased number of residents participating in the Rental Program as indicated in the table above.

The ~~growth~~decline in operating and maintenance expenses of ~~$0.8~~$0.9 million was due to several factors. Commissions ~~increased~~decreased by $0.3 million due to ~~an increase in~~a realignment of the ~~number~~commission plan that decreased the amount of commission paid on new and renewed ~~leases on which commissions were paid. Total repair~~leases. Expenses associated with repairs and refurbishment ~~costs increased~~decreased by ~~$0.3~~$0.4 million, primarily due to ~~an increase~~a decline in the ~~number of homes and moveouts in the Rental Program. Taxes and insurance expenses increased by $0.2 million as these costs generally increase as the number of homes in the Rental Program increase.~~average cost associated with preparing a previously leased home for a new occupant. Marketing and other costs decreased ~~slightly~~by approximately $0.2 million due to reductions in bad debt expense, ~~offset by increased~~ advertising, ~~expenses.~~

.and utility expenses associated with unoccupied rental homes.

3627

SUN COMMUNITIES, INC.

The following table reflects certain financial and statistical information for our Home Sales Program for the ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ (in thousands, except for statistical information):

	Nine Months Ended												Three Months Ended
	September 30,												March 31,
Financial Information	2009			2008			Change			% Change			2010			2009			Change			% Change
New home sales	$	3,877		$	7,275		$	(3,398	)		-46.7	%	$	897		$	1,288		$	(391	)		-30.4	%
Pre-owned home sales		20,235			16,929			3,306			19.5	%		7,140			6,173			967			15.7	%
Revenue from homes sales		24,112			24,204			(92	)		-0.4	%		8,037			7,461			576			7.7	%

New home cost of sales		3,298			6,456			(3,158	)		-48.9	%		774			1,116			(342	)		-30.6	%
Pre-owned home cost of sales		14,015			12,437			1,578			12.7	%		5,470			4,307			1,163			27.0	%
Cost of home sales		17,313			18,893			(1,580	)		-8.4	%		6,244			5,423			821			15.1	%

NOI / Gross profit	$	6,799		$	5,311		$	1,488			28.0	%	$	1,793		$	2,038		$	(245	)		-12.0	%

Gross profit – new homes		579			819			(240	)		-29.3	%		123			172			(49	)		-28.5	%
Gross margin % – new homes		14.9	%		11.3	%					3.6	%		13.7	%		13.4	%					0.3	%

Gross profit – pre-owned homes		6,220			4,492			1,728			38.5	%		1,670			1,866			(196	)		-10.5	%
Gross margin % – pre-owned homes		30.7	%		26.5	%					4.2	%		23.4	%		30.2	%					-6.8	%

Statistical Information
Home sales volume:
New home sales		55			101			(46	)		-45.5	%		15			19			(4	)		-21.1	%
Pre-owned home sales		756			641			115			17.9	%		310			229			81			35.4	%
Total homes sold		811			742			69			9.3	%		325			248			77			31.0	%

~~Gross profit~~Home Sales NOI decreased by $0.2 million, from ~~home sales increased by $1.5~~$2.0 million to $1.8 million, or ~~28.0~~12.0 percent primarily due to ~~improved~~reduced profit margins ~~and an increase in the number of total homes sold. Gross profit from~~on pre-owned ~~home sales increased by $1.7 million, offset by decreased gross profit from new home sales of $0.2 million.~~homes.

The gross profit margin on new home sales increased ~~3.6~~0.3 percent from ~~11.3~~13.4 percent to ~~14.9~~13.7 percent. Although the gross profit margin ~~has~~slightly increased due to increased average sale prices on Florida homes, the overall gross profit on new home sales ~~declined by $0.2 million. The decline in new home sales profit was~~decreased primarily due to a ~~45.5~~21.1 percent decline in sales volume.

The gross profit margin on pre-owned home sales ~~increased 4.2~~decreased 6.8 percent from ~~26.5~~30.2 percent to ~~30.7~~23.4 percent. Pre-owned home sales include the sale of homes that have been utilized in our Rental Program. The ~~cost basis of a rental home is depreciated, therefore, the gross profit margin on the sale of these homes increases the longer the home has been in the Rental Program. An increase in the volume~~average selling price of rental ~~home~~homes has decreased, which in turn, has helped to increase overall sales ~~is the primary reason for the overall increase in~~volume of pre-owned home sales ~~therefore, the principal contributor~~by 35.4 percent which was done in order to ~~the increase in gross profit on pre-owned~~meet our goal of converting our home ~~sales.~~renters to home owners, allowing us to stabilize portfolio revenues.

3728

SUN COMMUNITIES, INC.

OTHER INCOME STATEMENT ITEMS

Other revenues include other income, ~~(loss),~~ interest income, and ancillary revenues, net. Other revenues ~~decreased~~increased by ~~$1.7~~$0.7 million, from ~~$6.0~~$1.6 million to ~~$4.3~~$2.3 million, or ~~28.3~~43.8 percent. This ~~decrease~~increase was primarily due to reduced income realized from a gain on sale of land and other assets of $3.3 million, along with decreased commission and ancillary revenue of $0.2 million, offset by reduced fees of $0.3 million associated with the transfer of our installment receivables servicing contract to a new service provider in the prior year and increased interest income of ~~$1.5 million.~~$0.5 million and certain fees of $0.2 million received related to property easements. The increase in interest income was primarily due to the additional installment notes receivable recognized in association with the transfer of financial assets that are recorded as collateralized receivables in the Consolidated Balance Sheets. The interest income on these collateralized receivables is offset by the same amount of interest expense recognized on the secured ~~debt~~borrowing recorded in association with this transaction. See Note 4 – ~~Secured Borrowing and Collateralized Receivables~~Transfers of Financial Assets for additional information.

~~General~~Real Property general and administrative costs decreased by $0.7 million, from $4.2 million to $3.5 million, or 16.7 percent due to decreased compensation costs of $0.1 million and decreased tax expense of $0.7 million, partially offset by increased consulting fees of $0.1 million. The compensation cost decreased due to reduced amortization of deferred compensation associated with certain restricted stock awards which fully vested in the prior year. The decreased tax expense includes the reversal of a provision for $0.7 million related to the Michigan Department of Treasury public notice dated February 5, 2010, and reversed on March 31, 2010, regarding the filing methodology for federally disregarded single member limited liability companies under the former Michigan Single Business Tax. The provision included an estimated tax liability for several single member limited liability companies for the years 1997-2007, whose taxable income was included in our consolidated Michigan Single Business Tax returns for those years.

Home Sales and Rentals general and administrative costs increased by ~~$0.8~~$0.1 million, from ~~$17.5~~$1.8 million to ~~$18.3~~$1.9 million, or ~~4.6~~5.6 percent due to increased salary and other compensation costs of $1.0 million, partially offset by a decrease in legal and other expenses of $0.2 million. The compensation cost increase includes increased amortization of deferred compensation related to the vesting of restricted stock in May 2009.

~~Georgia flood damage~~ charges were recorded during the period. On September 21, 2009, a flood caused substantial damage to our property, Countryside Village of Atlanta, located in Lawrenceville. We are still in the preliminary stages of assessing the damage to our property. We have comprehensive insurance coverage for both property damage and business interruption, subject to deductibles and certain limitations. We believe the cost of the damage sustained from the flooding will be in excess of our insurance deductible. We have recorded a charge of $0.8 million associated with the flooding. This charge represents our deductible, net of expected insurance recoveries for the replacement of assets that exceed the net book value of assets damaged in the flood.commission costs.

Depreciation and amortization costs ~~decreased~~increased by ~~$0.1~~$0.4 million, from ~~$48.1~~$16.2 million to ~~$48.0~~$16.6 million, or 2.5 percent due to ~~decreased amortization of promotions and other depreciation of $0.7 million offset by an increase in~~increased depreciation on investment property for use in our Rental Program of ~~$0.6~~$0.2 million and by increased amortization of promotions and other depreciation of $0.2 million.

Interest expense on debt, including interest on mandatorily redeemable debt, ~~decreased~~increased by ~~$1.2~~$0.8 million, from ~~$47.8~~$15.1 million to ~~$46.6~~$15.9 million, or ~~2.5~~5.3 percent due to increased expense associated with the increase in our FNMA facility fee of $0.5 million and our secured borrowing arrangements of $0.8 million, partially offset by a reduction in expense of ~~$3.3~~$0.5 million primarily due to lower interest rates charged on variable rate ~~debt, partially offset by increased expense of $2.1 million associated with our secured borrowing arrangements.~~debt. The interest expense on our secured borrowing is offset completely by the interest income recognized on our collateralized receivables. See Note 4 – ~~Secured Borrowing and Collateralized Receivables in our Notes to Consolidated~~Transfers of Financial ~~Statements included herein.~~Assets for additional information.

Equity loss from affiliates ~~decreased~~increased by ~~$12.7~~$0.8 million, from ~~a loss~~income of $14.0 million to loss of $1.3 million. Our affiliate, Origen, reported losses in the first nine months of 2008 which included charges for impairment, loan loss reserves, and loss on sale of loan portfolio. Additionally, we recorded an other than temporary impairment charge of $8.1 million in the prior year.

~~Provision for state income taxes~~ ~~increased by $0.4 million, from~~ a nominal amount to ~~an expense~~a loss of ~~$0.4~~$0.8 million due to ~~a change in the effective tax rate used to calculate the deferred tax liability related to the Michigan Business Tax and utilization~~our equity allocation of ~~investment tax credits, which reduced tax expense in 2008.~~Origen’s reported losses.

3829

SUN COMMUNITIES, INC.

The following is a summary of our consolidated financial results which were discussed in more detail in the preceding paragraphs (in thousands):

	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2009			2008			2010			2009
Revenues	$	187,654		$	185,314		$	65,123		$	63,660
Operating expenses/Cost of sales		80,527			79,499			27,087			26,749
NOI/gross profit		107,127			105,815			38,036			36,911
Adjustments to arrive at net loss:
Other revenues		4,294			5,974			2,294			1,624
General and administrative		(18,285	)		(17,549	)		(5,423	)		(5,992	)
Georgia flood damage		(800	)
Depreciation and amortization		(47,960	)		(48,097	)		(16,573	)		(16,204	)
Interest expense		(46,602	)		(47,846	)		(15,922	)		(15,080	)
Equity loss from affiliates		(1,344	)		(14,036	)
Equity income from affiliates								(819	)		27
Provision for state income taxes		(382	)		(34	)		(132	)		(133	)
Loss from continuing operations		(3,952	)		(15,773	)
Income from continuing operations								1,461			1,153
Loss from discontinued operations		(155	)		(785	)		-			(172	)
Net loss		(4,107	)		(16,558	)
Less: Net loss attributable to noncontrolling interest		(690	)		(602	)
Net loss attributable to Sun Communities, Inc.	$	(3,417	)	$	(15,956	)
Net income								1,461			981
Less: amounts attributable to noncontrolling interest								124			104
Net income attributable to Sun Communities, Inc. common stockholders							$	1,337		$	877

FUNDS FROM OPERATIONS

We provide information regarding FFO as a supplemental measure of operating performance. FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance 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. Due to the variety among owners of identical assets in similar condition (based on historical cost accounting and useful life estimates), we believe excluding gains and losses related to sales of previously depreciated operating real estate assets, and excluding real estate asset depreciation and amortization, provides a better indicator of our operating performance. FFO is a useful supplemental measure of our operating performance because it reflects the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not readily apparent from net income. 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. Management, the investment community, and banking institutions routinely use FFO, together with other measures, to measure operating performance in our industry. Further, management uses FFO for planning and forecasting future periods.

Because FFO excludes significant economic components of net income including depreciation and amortization, FFO should be used as an adjunct to net income (loss) and not as an alternative to net income. 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 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. Management also uses an Adjusted Funds from Operations (“Adjusted FFO”) non-GAAP financial measure, which excludes certain gain and loss items that management considers unrelated to the operational and financial performance of our core business. Other ~~REITS~~REITs may use different methods for calculating FFO and Adjusted FFO and, accordingly, our FFO and Adjusted FFO may not be comparable to other REITs.

3930

SUN COMMUNITIES, INC.

The following table reconciles net ~~loss~~income to FFO and calculates FFO data for both basic and diluted purposes for the ~~periods~~three months ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008:~~

~~RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS~~

~~FOR THE PERIODS ENDED September 30, 2009 AND 2008~~

~~(Amounts in~~(in thousands, except for per share/OP unit amounts)

~~(Unaudited)~~:

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2009			2008			2009			2008			2010			2009
Net loss	$	(2,561	)	$	(4,767	)	$	(4,107	)	$	(16,558	)
Net income													$	1,461		$	981
Adjustments:
Depreciation and amortization		16,329			16,667			49,364			49,930			17,034			16,621
Benefit for state income taxes (1)		(42	)		(7	)		(55	)		(405	)		(11	)		(13	)
Gain on disposition of assets, net		(1,237	)		(569	)		(3,933	)		(5,838	)		(849	)		(1,328	)
Funds from operations (FFO)	$	12,489		$	11,324		$	41,269		$	27,129		$	17,635		$	16,261

Weighted average Common Shares/OP Units outstanding:
Basic		20,856			20,504			20,787			20,448			20,981			20,698
Diluted		20,856			20,571			20,787			20,499			20,984			20,698

FFO per weighted average Common Share/OP Unit - Basic	$	0.60		$	0.55		$	1.99		$	1.33		$	0.84		$	0.79
FFO per weighted average Common Share/OP Unit - Diluted	$	0.60		$	0.55		$	1.99		$	1.32		$	0.84		$	0.79

The table below adjusts FFO to exclude ~~equity loss from affiliate (Origen Inc.), severance charges, and Georgia flood damage charges~~certain items as detailed below (in ~~thousands).~~thousands, except for per share/OP unit amounts):

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2009			2008			2009			2008			2010			2009
Net loss	$	(2,561	)	$	(4,767	)	$	(4,107	)	$	(16,558	)
Net income													$	1,461		$	981
Michigan Business tax reversal														(740	)		-
Equity affiliate adjustment		836			1,500			1,211			14,050			819			(99	)
Severance charges		-			-			-			888
Georgia flood damage		800			-			800			-
Adjusted net loss		(925	)		(3,267	)		(2,096	)		(1,620	)
Adjusted net income														1,540			882
Depreciation and amortization		16,329			16,667			49,364			49,930			17,034			16,621
Benefit for state income taxes (1)		(42	)		(7	)		(55	)		(405	)		(11	)		(13	)
Gain on disposition of assets, net		(1,237	)		(569	)		(3,933	)		(5,838	)		(849	)		(1,328	)
Adjusted funds from operations (FFO)	$	14,125		$	12,824		$	43,280		$	42,067		$	17,714		$	16,162

Adjusted FFO per weighted average Common Share/OP Unit - Diluted	$	0.68		$	0.62		$	2.08		$	2.05		$	0.84		$	0.78

~~(1)~~ ~~The tax benefit for the periods ended September 30,~~(1) The tax benefit for the periods ended March 31, 2010 and 2009 ~~and 2008~~ represents the reversal of a tax provision for potential taxes payable on the sale of company assets related to the enactment of the Michigan Business Tax. These taxes do not impact Funds from Operations and would be payable from prospective proceeds of such sales.

4031

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 unitholders of the Operating Partnership, capital improvements of properties, the purchase of new and pre-owned homes, property acquisitions, development and expansion of properties, and debt repayment.

We expect to meet our short-term liquidity requirements through working capital provided by operating activities and through borrowings on our lines of credit. We consider these resources to be adequate to meet ~~all~~our operating requirements, including recurring capital improvements, routinely amortizing debt and other normally recurring expenditures of a capital nature, payment of dividends to our stockholders to maintain qualification as a REIT in accordance with the ~~Internal Revenue~~ Code, and payment of distributions to our Operating Partnership’s unitholders. Due to the limited amount of taxable income that we have reported for the past few years, dividend payments to shareholders and unitholders of our Operating Partnership have been largely discretionary rather than required to maintain qualification as a REIT.

From time to time, we evaluate acquisition opportunities that meet our criteria for acquisition. Should such investment opportunities arise in ~~2009,~~2010, we will finance the acquisitions ~~though~~through secured financing, debt and/or equity venture capital, the assumption of existing debt on the properties or the issuance of certain equity securities. ~~The difficulty in obtaining financing in the current credit markets may make the acquisition of properties unlikely.~~

WeDuring the three months ended March 31, 2010, we have invested ~~approximately $20.8~~$1.8 million related to the acquisition of homes intended for ~~our~~the Rental Program ~~during the nine months ended September 30, 2009.~~net of proceeds from third party financing from homes sales. Expenditures for ~~2009~~2010 will be dependent upon the condition of the markets for repossessions and new home sales, as well as rental homes. We have a $10.0 million 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 floor plan financing and working capital available on our unsecured line of credit.

Cash and cash equivalents ~~decreased~~increased by ~~$1.1~~$3.6 million from ~~$6.2~~$4.5 million atas of December 31, ~~2008,~~2009, to ~~$5.1~~$8.1 million ~~at September 30, 2009.~~as of March 31, 2010. Net cash provided by operating activities from continuing operations ~~increased~~decreased by ~~$4.7~~$1.7 million from ~~$40.7~~$18.5 million for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 to ~~$45.4~~$16.8 million for the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2010.

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 ~~Item 1A of~~ our ~~2008~~2009 Annual Report.

We have an unsecured revolving line of credit facility with a maximum borrowing capacity of $115.0 million, subject to certain borrowing base calculations. The outstanding balance on the line of credit ~~at September 30, 2009~~as of March 31, 2010 and December 31, ~~2008~~2009 was ~~$84.3~~$94.5 million and ~~$85.8~~$89.1 million, respectively. In addition, ~~$3.3~~$4.0 million of availability ~~was~~were used to back standby letters of credit as of ~~September 30, 2009~~March 31, 2010 and December 31, ~~2008.~~2009. Borrowings under the line of credit bear an interest rate of LIBOR plus 165 basis points, or ~~prime~~Prime plus 40 basis points. We have the option to borrow at either rate. The effective weighted average interest rate on the outstanding borrowings was 1.9 percent as of ~~September 30, 2009.~~March 31, 2010. As of March 31, 2010, $16.5 million was available to be drawn under the facility based on the calculation of the borrowing base. During 2010, the highest balance on the line of credit was $102.3 million. The borrowings under the line of credit mature October 1, 2011, assuming an election of a one-year extension that is available at our discretion. AsIf we are unable to refinance our facility, we cannot be sure we will be able to secure alternative financing on satisfactory terms or at all. If the revolving facility matures without renewal, replacement, or extension, our borrowing capacity would immediately be reduced by $115.0 million and it would adversely impact our business, results of ~~September 30, 2009, $27.4 million was available~~operation and financial condition. We are evaluating options to ~~be drawn under~~renew, replace, or amend the ~~facility based on the calculation of the borrowing base. During 2009, the highest balance on the line of credit was $105.0 million.~~facility. Although the unsecured revolving line of credit is a committed facility, the financial failure of one or more of the participating financial institutions may reduce the amount of available credit for use by us.

The line of credit facility contains various leverage, ~~debt service~~fixed charge coverage, net worth maintenance and other customary covenants all of which were complied with as of ~~September 30, 2009.~~March 31, 2010. The most limiting covenants contained in the line of credit are the distribution coverage and ~~debt service~~fixed charge coverage ratios. The distribution coverage covenant requires that distributions be no more than 90 percent of funds from operations as defined in the terms of the line of credit agreement. The ~~debt service~~fixed charge coverage ratio covenant requires a minimum ratio of 1.45:1. As of ~~September 30, 2009,~~March 31, 2010, the distribution coverage was ~~83.7~~80.8 percent and the ~~debt service~~fixed charge coverage ratio was ~~1.70:~~1.72:1.

4132

SUN COMMUNITIES, INC.

The sub-prime credit crisis and ensuing decline in credit availability have caused turmoil in US and foreign markets. Many industries with no direct involvement with sub-prime lending, securitizations, home building, or mortgages have suffered share price declines as economic uncertainty has derailed investor confidence. While many of our fundamentals and those of the manufactured housing industry have been improving over recent years, the current economic downturn and the lack of liquidity in the lending environment have generally resulted in a reduction of the availability of financing and higher borrowing costs which may result in us not being able to successfully extend, refinance or repay our ~~share price~~debt. Although base interest rates have generally decreased relative to their levels prior to the disruptions in the financial markets, the tightening of credit markets has ~~suffered.~~affected the credit risk spreads charged over base interest rates on, and the availability of, mortgage loan financing. For us, this is the most relevant consequence of this financial ~~turmoil is the uncertainty~~turmoil. Since we carry a substantial amount of ~~the availability~~debt, it may limit our ability to obtain additional financing; and in planning for, or reacting to, changes in our business and our industry. It also renders us more vulnerable to general adverse economic and industry conditions and requires us to dedicate a significant portion of ~~new secured credit, floor plan financing, credit for refinancing properties, and the limited credit availability on~~ our ~~current unsecured line of credit.~~cash flow to service our debt. We believe this risk is somewhat mitigated because we have adequate working capital provided by operating activities as noted above and we have only limited debt maturities until July 2011. We are evaluating options to renew, replace, or amend our debt agreements. Specifically, our debt maturities (excluding normal amortization payments and assuming the election of certain extension provisions which are at our discretion) for ~~2009~~2010 through ~~2013~~2014 are as follows:

~~Remaining 2009~~2010	$~~0.5~~0.4 million
~~2010~~	~~$0.8 million and any balance outstanding on the floor plan facility~~
2011	$103.7 million and any balance outstanding on the unsecured line of credit or the floor plan facility
2012	$~~35.9~~35.8 million
2013	$30.2 million
2014	$485.1 million

We anticipate meeting our long-term liquidity requirements, such as scheduled debt maturities, large property acquisitions, and Operating Partnership unit redemptions through the issuance of certain equity securities and/or the collateralization of our properties. We currently have 30 unencumbered properties with an estimated market value of ~~$196.9~~$215.7 million, 29most of which support the borrowing base for our $115.0 million unsecured line of credit. As of ~~September 30, 2009,~~March 31, 2010, the borrowing base was in excess of $115.0 million by ~~$13.7~~$20.5 million, which would allow us to remove properties from the borrowing base at our discretion for collateralization. From time to time, we may also issue shares of our capital stock or preferred stock, issue equity units in our Operating Partnership, utilize debt and/or equity venture capital, 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 manufactured housing 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. If it were to become necessary for us to approach the credit markets, the current volatility in the credit markets could make borrowing more difficult to secure and more expensive. See “Risk Factors” in Item 1A of our ~~2008~~2009 Annual Report. 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.

As of ~~September 30, 2009,~~March 31, 2010, our debt to total market capitalization approximated ~~73.4~~70.3 percent (assuming conversion of all Common Operating Partnership Units to shares of common stock). The debt has a weighted average maturity of approximately ~~5.3~~4.9 years and a weighted average interest rate of 4.9 percent.

Capital expenditures for the ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009 ~~and 2008~~ included recurring capital expenditures of ~~$5.4~~$0.9 million and ~~$5.8~~$1.3 million, respectively. We are committed to the continued upkeep of our Properties and therefore do not expect a significant decline in our recurring capital expenditures during ~~2009.~~2010.

Net cash used for investing activities was ~~$22.8~~$6.4 million for the ~~nine~~three months ended ~~September 30, 2009,~~March 31, 2010, compared to ~~$24.3~~$6.3 million for the ~~nine~~three months ended ~~September 30, 2008.~~March 31, 2009. The difference is due to decreased investment in property of ~~$2.0~~$1.3 million offset by decreased ~~investment in affiliates of $0.5 million, and increased~~ principal repayment on an officer’s note and other notes receivable of ~~$5.2 million, offset by a $6.2 million decrease in cash received from the disposition on land and other assets.~~$1.4 million.

Net cash used for financing activities was ~~$23.3~~$6.9 million for the ~~nine~~three months ended ~~September 30, 2009,~~March 31, 2010, compared to ~~$14.7~~$11.6 million for the ~~nine~~three months ended ~~September 30, 2008.~~March 31, 2009. The difference is due to ~~a $10.2~~increased net proceeds received from the issuance of additional shares of $2.4 million, ~~increase in~~increased net borrowings on the lines of credit of $6.1 million, partially offset by reduced proceeds received from the issuance of debt of $3.3 million, increased repayments on notes payable and other debt ~~reduced proceeds~~ of ~~$12.3 million received from the issuance of debt, increased costs associated with transactions related to our debt of $0.2~~$0.3 million, and increased distributions to our stockholders and OP unitholders of $0.2 million, partially offset by a $12.3 million net increase in borrowings on the lines of credit and increase of $2.0 million associated with the net proceeds received from the issuance of additional shares.million.

4233

SUN COMMUNITIES, INC.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains various “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, 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 prospective events or developments are deemed to be forward-looking statements. Words such as “believes,” “forecasts,” “anticipates,” “intends,” “plans,” “expects,” “may”, “will” and similar expressions are intended to identify forward-looking statements. 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. Such risks and uncertainties include the national, regional and local economic climates, the ability to maintain rental rates and occupancy levels, competitive market forces, changes in market rates of interest, the ability of manufactured home buyers to obtain financing, the level of repossessions by manufactured home lenders and those risks and uncertainties referenced under the headings entitled “Risk Factors” contained in our ~~2008~~2009 Annual Report, and our filings with the SEC. The forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date hereof and we expressly disclaim any obligation to provide public updates, revisions or amendments to any forward-looking statements made herein to reflect changes in our expectations of future events.

4334

SUN COMMUNITIES, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 ~~in interest rates~~ could have on our future cash flows. We generally employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt. We do not enter into derivative instruments for speculative purposes.

We have four derivative contracts consisting of three interest rate swap agreements with a total notional amount of $70.0 million, and an interest rate cap agreement with a notional amount of $152.4 million as of ~~September 30, 2009.~~March 31, 2010. The first swap agreement fixes $25.0 million of variable rate borrowings at 6.70 percent through July 2012. The second swap agreement ~~entered into in January 2009,~~ fixes $20.0 million of variable rate borrowings at 4.15 percent through January 2014. The third swap agreement ~~entered into in February 2009,~~ fixes $25.0 million of variable rate borrowing at 3.62 percent through February 2011 and is based upon 30-day LIBOR. ~~In April 2009, we entered into a new~~We have an interest cap agreement with a cap rate of 11.0 percent, a notional amount of $152.4 million, and a termination date of May 1, 2012. Each of these derivative contracts is based upon 90-day LIBOR unless otherwise noted.

Our remaining variable rate debt totals ~~$238.3~~$247.4 million and ~~$222.8~~$194.4 million as of ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively, which bear interest at ~~prime,~~Prime, various LIBOR or Fannie Mae Discounted Mortgage Backed Securities (“DMBS”) rates. If ~~prime,~~Prime, LIBOR, or DMBS increased or decreased by 1.0 percent during the ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ we believe our interest expense would have increased or decreased by approximately ~~$1.6~~$0.6 million and $0.5 million based on the ~~$216.0~~$248.2 million and ~~$216.5~~$209.7 million average balances outstanding under our variable rate debt facilities for the ~~nine~~three months ended ~~September 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. A portion of our variable debt is floating on DMBS rates. If the credit markets tighten, and there are fewer or no buyers of this security, the interest rate may be negatively impacted resulting in higher interest expense.

4435

SUN COMMUNITIES, INC.

ITEM 4. CONTROLS AND PROCEDURES

(a)

Under the supervision and with the participation of our management, including the Chief Executive Officer, Gary A. Shiffman, and Chief Financial Officer, Karen J. Dearing, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to ensure that information we are required to disclose in our filings with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information we are required to disclose in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)

There have been no changes in our internal control over financial reporting during the quarterly period ended ~~September 30, 2009~~March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4536

SUN COMMUNITIES, INC.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 1816 of the Consolidated Financial Statements contained herein.

ITEM 1A. RISK FACTORS

You should review our Annual Report on Form 10-K for the year ended December 31, ~~2008,~~2009, which contains a detailed description of risk factors that may materially affect our business, financial condition, or results of operations. There are no material changes to the disclosure on these matters set forth in such Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

In November 2004, the 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 ~~2009.~~the three months ended March 31, 2010. There is no expiration date specified for the buyback program.

Recent Sales of Unregistered Securities

~~In March 2009,~~Holders of our ~~Operating Partnership issued 110,444 Common OP Units to Water Oak, Ltd. During 2009, holders of~~ Common OP Units have converted ~~119,806~~25,005 units to common ~~stock.~~stock during 2010.

All of the above partnership units and shares of common stock were issued in private placements in reliance on Section 4(2) of the Securities Act of 1933, as amended, including Regulation D promulgated there under. No underwriters were used in connection with any of such issuances.

Use of Proceeds from Sales of Registered Securities

We ~~received net proceeds of approximately $1.9 million from the sale of 100,000~~issued 131,953 shares of common stock during the ~~quarter~~three months ended ~~September 30, 2009.~~March 31, 2010. We issued an additional 18,047 shares of common stock on April 1, 2010. During 2010, we received net proceeds of approximately $3.6 million related to the issuance of common stock. The proceeds were placed in an investment account as of March 31, 2010 and subsequently used to pay down our unsecured line of credit.

~~ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~

On July 29, 2009, the Company held its Annual Meeting of Shareholders. At the meeting, three directors were elected to serve until the 2012 Annual Meeting of Shareholders or until their respective successors are duly elected and qualified. The results of the election appear below:

Nominees

For

% of Shares
Voted

Withheld

% of Shares
Voted

Ted J. Simon 13,327,856 75.8% 4,252,572 24.2%
Paul D. Lapides 13,328,331 75.8% 4,252,097 24.2%
Robert H. Naftaly 13,365,739 76.0% 4,214,689 24.0%

~~In addition, the Company received approval for the Sun Communities, Inc. Equity Incentive Plan at the Annual Meeting of Shareholders. The results of the vote appear below:~~

For

% of Shares
Voted

Against
% of Shares Voted

Abstain

% of Shares
Voted

9,404,479 74.0% 3,256,812 25.7% 41,219 0.3%

4637

SUN COMMUNITIES, INC.

ITEM 6. EXHIBITS

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

4738

SUN COMMUNITIES, INC.

SIGNATURES

Pursuant to the requirements 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.

	SUN COMMUNITIES, INC.
Dated: ~~November~~May 6, ~~2009~~2010	By:	/s/ Karen J. Dearing
		Karen J. Dearing, Chief Financial Officer and Secretary (Duly authorized officer and principal financial officer)

4839

	September 30, 2009		December 31, 2008
Collateralized term loans - CMBS, due July 1, 2011-2016 interest at 4.9-5.3% as of September 30, 2009 and December 31, 2008.	$	473,254	$	478,907
Collateralized term loans - FNMA, due May 1, 2014 and January 1, 2015, interest at 3.2 – 5.2% and 4.5 - 5.2% as of September 30, 2009 and December 31, 2008, respectively.		374,562		377,651
Preferred OP Units, redeemable at various dates from December 1, 2009 through January 5, 2014, average interest at 6.8% as of September 30, 2009 and December 31, 2008.		48,947		49,447
Secured borrowing, maturing at various dates from April 30, 2010 through November 24, 2031, average interest at 10.8% and 10.1% as of September 30, 2009 and December 31, 2008, respectively (see Note 4).		45,056		26,211
Mortgage notes, other, maturing at various dates from April 1, 2012 through May 1, 2017, average interest at 5.3% and 5.4% as of September 30, 2009 and December 31, 2008, respectively.		213,827		206,936
Total debt	$	1,155,646	$	1,139,152

	July 2009 Award
Estimated fair value per share of options granted:	$	1.66
Assumptions:
Annualized dividend yield		16.90	%
Common stock price volatility		32.70	%
Risk-free rate of return		3.24	%
Expected option terms (in years)		7.3

	Three Months Ended September 30, 2009									Three Months Ended September 30, 2008
	Real Property Operations			Home Sales and Home Rentals			Consolidated			Real Property Operations			Home Sales and Home Rentals			Consolidated
Revenues	$	48,597		$	13,495		$	62,092		$	47,788		$	13,119		$	60,907
Operating expenses/Cost of sales		17,097			9,910			27,007			16,313			10,208			26,521
Net operating income/gross profit		31,500			3,585			35,085			31,475			2,911			34,386
Adjustments to arrive at net income (loss):
Other revenues		1,308			(8	)		1,300			317			31			348
General and administrative		(3,687	)		(1,890	)		(5,577	)		(3,691	)		(1,676	)		(5,367	)
Georgia flood damage		(800	)		-			(800	)		-			-			-
Depreciation and amortization		(11,045	)		(4,796	)		(15,841	)		(11,314	)		(4,711	)		(16,025	)
Interest expense		(15,876	)		(72	)		(15,948	)		(16,103	)		(105	)		(16,208	)
Equity income (loss) from affiliates, net		(836	)		(18	)		(854	)		(1,500	)		14			(1,486	)
Provision for state income taxes		(103	)		-			(103	)		(141	)		-			(141	)
Income (loss) from continuing operations		461			(3,199	)		(2,738	)		(957	)		(3,536	)		(4,493	)
Income (loss) from discontinued operations		177			-			177			(274	)		-			(274	)
Net income (loss)		638			(3,199	)		(2,561	)		(1,231	)		(3,536	)		(4,767	)
Less: Net income (loss) attributable to noncontrolling interest		(189	)		(337	)		(526	)		435			291			726
Net income (loss) attributable to Sun Communities, Inc.	$	827		$	(2,862	)	$	(2,035	)	$	(1,666	)	$	(3,827	)	$	(5,493	)

	Nine Months Ended September 30, 2009									Nine Months Ended September 30, 2008
	Real Property Operations			Home Sales and Home Rentals			Consolidated			Real Property Operations			Home Sales and Home Rentals			Consolidated
Revenues	$	148,093		$	39,561		$	187,654		$	145,792		$	39,522		$	185,314
Operating expenses/Cost of sales		50,791			29,736			80,527			49,040			30,459			79,499
Net operating income/gross profit		97,302			9,825			107,127			96,752			9,063			105,815
Adjustments to arrive at net income (loss):
Other revenues		4,046			248			4,294			4,924			1,050			5,974
General and administrative		(12,753	)		(5,532	)		(18,285	)		(12,546	)		(5,003	)		(17,549	)
Georgia flood damage		(800	)		-			(800	)		-			-			-
Depreciation and amortization		(33,318	)		(14,642	)		(47,960	)		(34,173	)		(13,924	)		(48,097	)
Interest expense		(46,379	)		(223	)		(46,602	)		(47,618	)		(228	)		(47,846	)
Equity income (loss) from affiliates, net		(1,211	)		(133	)		(1,344	)		(14,050	)		14			(14,036	)
Provision for state income taxes		(382	)		-			(382	)		(34	)		-			(34	)
Income (loss) from continuing operations		6,505			(10,457	)		(3,952	)		(6,745	)		(9,028	)		(15,773	)
Loss from discontinued operations		(155	)		-			(155	)		(785	)		-			(785	)
Net income (loss)		6,350			(10,457	)		(4,107	)		(7,530	)		(9,028	)		(16,558	)
Less: Net income (loss) attributable to noncontrolling interest		418			(1,108	)		(690	)		(274	)		(328	)		(602	)
Net income (loss) attributable to Sun Communities, Inc.	$	5,932		$	(9,349	)	$	(3,417	)	$	(7,256	)	$	(8,700	)	$	(15,956	)

	As of September 30,
Other Information	2009			2008			Change
Number of properties		136			136			-
Developed sites		47,587			47,608			(21	)
Occupied sites (1)		37,954			37,846			108
Occupancy % (2)		82.3	%		82.2	%		0.1	%
Average monthly rent per site (2)	$	402		$	390		$	12
Sites available for development		5,583			6,074			(491	)

Nominees	For	% of Shares Voted	Withheld	% of Shares Voted
Ted J. Simon	13,327,856	75.8%	4,252,572	24.2%
Paul D. Lapides	13,328,331	75.8%	4,252,097	24.2%
Robert H. Naftaly	13,365,739	76.0%	4,214,689	24.0%

For		% of Shares Voted		Against		% of Shares Voted		Abstain		% of Shares Voted
9,404,479		74.0%		3,256,812		25.7%		41,219		0.3%