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, 2017~~March 31, 2019.

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

Commission file number 1-12616

SUN COMMUNITIES ~~INC.~~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[ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. (Check one):



Large accelerated filer [ X ]	Accelerated filer [ ]	Non-accelerated filer [ ]
Smaller reporting company [ ]	Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

Number of shares of Common Stock, $0.01 par value per share, outstanding as of ~~October 17, 2017: 79,342,536~~April 18, 2019: 86,505,876

INDEX




PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:
	Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 (Unaudited) and December 31, ~~2016~~2018	31
	Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (Unaudited)	42
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (Unaudited)	3
	Consolidated Statement of Stockholders’ Equity (Unaudited)	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited)	5
	Notes to Consolidated ~~Statement of Stockholders’ Equity for the~~Financial Statements ~~Nine Months Ended September 30, 2017 (Unaudited)~~	6
	~~Consolidated Statements of Cash Flows for the~~ ~~Nine Months Ended September 30, 2017 and 2016 (Unaudited)~~	7
	~~Notes to Consolidated Financial Statements~~	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2830
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5044
Item 4.	Controls and Procedures	5044

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	5045
Item 1A.	Risk Factors	5045
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5245
Item 6.	Exhibits	53
	~~Signatures~~	5445
	Exhibit Index	5546
	Signatures	46

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

SUN COMMUNITIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited - ~~dollars~~ in thousands, except per share amounts)


	(unaudited) September 30, 2017			December 31, 2016			(unaudited) March 31, 2019			December 31, 2018
ASSETS
Land	$	1,079,708		$	1,051,536		$	1,279,306		$	1,201,945
Land improvements and buildings	5,024,937			4,825,043			5,899,149			5,586,250
Rental homes and improvements	516,618			489,633			585,994			571,661
Furniture, fixtures and equipment	140,894			130,127			208,177			201,090
Investment property	6,762,157			6,496,339			7,972,626			7,560,946
Accumulated depreciation	(1,188,332		)	(1,026,858		)	(1,501,370		)	(1,442,630		)
Investment property, net (including $50,655 and $88,987 for consolidated variable interest entities at September 30, 2017 and December 31, 2016; see Note 6)	5,573,825			5,469,481
Investment property, net (including $314,669 and $308,171 for consolidated variable interest entities at March 31, 2019 and December 31, 2018; see Note 8)							6,471,256			6,118,316
Cash and cash equivalents	137,448			8,164			21,946			50,311
Marketable securities							50,501			49,037
Inventory of manufactured homes	25,741			21,632			52,993			49,199
Notes and other receivables, net	145,760			81,179			179,814			160,077
Collateralized receivables, net	134,015			143,870			101,938			106,924
Other assets, net (including $1,638 and $3,054 for consolidated variable interest entities at September 30, 2017 and December 31, 2016; see Note 6)	141,047			146,450
Other assets, net (including $22,369 and $19,809 for consolidated variable interest entities at March 31, 2019 and December 31, 2018; see Note 8)							220,214			176,162
TOTAL ASSETS	$	6,157,836		$	5,870,776		$	7,098,662		$	6,710,026
LIABILITIES
Mortgage loans payable (including $42,177 and $62,111 for consolidated variable interest entities at September 30, 2017 and December 31, 2016; see Note 6)	$	2,822,640		$	2,819,567
Mortgage loans payable (including $43,913 and $44,172 for consolidated variable interest entities at March 31, 2019 and December 31, 2018; see Note 8)							$	2,879,017		$	2,815,957
Secured borrowings on collateralized receivables	134,884			144,477			102,676			107,731
Preferred Equity - Sun NG RV Resorts LLC - mandatorily redeemable (fully attributable to consolidated variable interest entities; See Note 8)							35,249			35,277
Preferred OP units - mandatorily redeemable	45,903			45,903			34,663			37,338
Lines of credit	—			100,095			396,512			128,000
Distributions payable	56,520			51,896			66,887			63,249
Other liabilities (including $1,258 and $1,998 for consolidated variable interest entities at September 30, 2017 and December 31, 2016; see Note 6)	291,074			279,667
Advanced reservation deposits and rent							151,860			133,698
Other liabilities (including $21,049 and $6,914 for consolidated variable interest entities at March 31, 2019 and December 31, 2018; see Note 8)							179,461			157,862
TOTAL LIABILITIES	3,351,021			3,441,605			3,846,325			3,479,112
Commitments and contingencies
Series A-4 preferred stock, $0.01 par value. Issued and outstanding: 1,085 shares at September 30, 2017 and 1,681 shares at December 31, 2016	32,414			50,227
Commitments and contingencies (see Note 17)
Series A-4 preferred stock, $0.01 par value. Issued and outstanding:1,063 shares at March 31, 2019 and December 31, 2018							31,739			31,739
Series A-4 preferred OP units	10,832			16,717			9,784			9,877
STOCKHOLDERS’ EQUITY
Series A preferred stock, $0.01 par value. Issued and outstanding: 3,400 shares at September 30, 2017 and December 31, 2016	34			34
Common stock, $0.01 par value. Authorized: 180,000 shares; Issued and outstanding: 79,341 shares at September 30, 2017 and 73,206 shares at December 31, 2016	793			732
Series D preferred OP units							51,738			—
Equity Interests - NG Sun LLC (fully attributable to consolidated variable interest entities; See Note 8)							22,167			21,976
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value. Authorized: 180,000 shares; Issued and outstanding:86,463 shares at March 31, 2019 and 86,357 shares at December 31, 2018							865			864
Additional paid-in capital	3,810,930			3,321,441			4,398,641			4,398,949
Accumulated other comprehensive income (loss)	1,531			(3,181		)
Accumulated other comprehensive loss							(3,006		)	(4,504		)
Distributions in excess of accumulated earnings	(1,117,228		)	(1,023,415		)	(1,317,605		)	(1,288,486		)
Total Sun Communities, Inc. stockholders’ equity	2,696,060			2,295,611
Noncontrolling interests:
Total Sun Communities, Inc. stockholders' equity							3,078,895			3,106,823
Noncontrolling interests
Common and preferred OP units	63,668			69,598			51,816			53,354
Consolidated variable interest entities	3,841			(2,982		)	6,198			7,145
Total noncontrolling interests	67,509			66,616			58,014			60,499
TOTAL STOCKHOLDERS’ EQUITY	2,763,569			2,362,227
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,157,836		$	5,870,776
TOTAL STOCKHOLDERS' EQUITY							3,136,909			3,167,322
TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY							$	7,098,662		$	6,710,026

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited - dollars in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2019			2018
REVENUES
Income from real property	$	198,263		$	184,324		$	560,778		$	453,560		$	216,779		$	197,211
Revenue from home sales	33,197			31,211			91,319			81,987			39,618			34,900
Rental home revenue	12,757			12,031			37,774			35,696			13,971			13,020
Ancillary revenues	17,017			16,446			32,086			28,442
Ancillary revenue													8,482			6,568
Interest	5,920			4,705			15,609			13,322			4,800			5,316
Brokerage commissions and other revenues, net	1,091			984			2,978			2,137			3,680			960
Total revenues	268,245			249,701			740,544			615,144			287,330			257,975
EXPENSES
Property operating and maintenance	59,249			57,089			159,861			125,357			57,909			51,630
Real estate taxes	13,053			12,384			39,322			32,122			15,330			13,836
Cost of home sales	25,094			21,935			67,999			58,803			29,277			26,571
Rental home operating and maintenance	6,775			6,350			16,821			17,637			4,788			5,227
Ancillary expenses	9,993			9,449			21,719			18,697			7,101			5,383
Home selling expenses	3,290			2,643			9,391			7,240			3,324			3,290
General and administrative	18,267			16,575			56,188			46,910			21,887			19,757
Transaction costs	2,167			4,191			6,990			27,891
Catastrophic weather related charges, net													782			(2,213		)
Depreciation and amortization	64,232			61,483			189,719			159,565			76,556			66,437
Extinguishment of debt	—			—			759			—
Loss on extinguishment of debt													653			196
Interest	32,085			33,800			95,765			88,522			34,014			31,138
Interest on mandatorily redeemable preferred OP units	790			789			2,361			2,363
Interest on mandatorily redeemable preferred OP units / equity													1,094			619
Total expenses	234,995			226,688			666,895			585,107			252,715			221,871
Income before other items	33,250			23,013			73,649			30,037
Catastrophic weather related charges	(7,756		)	—			(8,124		)	—
Other income, net	3,345			—			5,340			—
Current tax benefit / (expense)	38			(283		)	(133		)	(567		)
Income Before Other Items													34,615			36,104
Remeasurement of marketable securities													267			—
Other income / (expense), net													1,898			(2,617		)
Income / (loss) from nonconsolidated affiliates													344			(59		)
Current tax expense													(214		)	(174		)
Deferred tax benefit	81			—			745			—			217			347
Income from affiliate transactions	—			500			—			500
Net income	28,958			23,230			71,477			29,970
Less: Preferred return to preferred OP units	(1,112		)	(1,257		)	(3,482		)	(3,793		)
Net Income													37,127			33,601
Less: Preferred return to preferred OP units / equity													(1,323		)	(1,080		)
Less: Amounts attributable to noncontrolling interests	(1,776		)	(879		)	(4,179		)	(460		)	(1,041		)	(2,094		)
Net income attributable to Sun Communities, Inc.	26,070			21,094			63,816			25,717
Less: Preferred stock distributions	(1,955		)	(2,197		)	(6,233		)	(6,748		)
Net Income Attributable to Sun Communities, Inc.													34,763			30,427
Less: Preferred stock distribution													(432		)	(441		)
Net income attributable to Sun Communities, Inc. common stockholders	$	24,115		$	18,897		$	57,583		$	18,969		$	34,331		$	29,986
Weighted average common shares outstanding:
Basic	78,369			68,655			75,234			63,716			85,520			78,855
Diluted	78,808			69,069			75,846			64,146			86,033			79,464
Earnings per share (See Note 12):
Earnings per share (Refer to Note 14):
Basic	$	0.31		$	0.27		$	0.76		$	0.30		$	0.40		$	0.38
Diluted	$	0.31		$	0.27		$	0.76		$	0.30		$	0.40		$	0.38

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited - dollars in thousands)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2017		2016			2017		2016			2019		2018
Net income	$	28,958	$	23,230		$	71,477	$	29,970		$	37,127	$	33,601
Foreign currency translation adjustment	2,648		(5,227		)	4,977		(5,226		)	1,575		(1,861		)
Total comprehensive income	31,606		18,003			76,454		24,744			38,702		31,740
Less: Comprehensive income attributable to noncontrolling interests	1,912		553			4,444		110			1,118		2,005
Comprehensive income attributable to Sun Communities, Inc.	$	29,694	$	17,450		$	72,010	$	24,634		$	37,584	$	29,735

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

~~FOR THE NINE MONTHS ENDED~~ ~~SEPTEMBER 30, 2017~~

(Unaudited - dollars in thousands)

7.125% Series A Cumulative Redeemable Preferred Stock
Common
Stock
Additional Paid-in Capital Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income / (Loss) Non-controlling Interests Total Stockholders’ Equity
Balance at December 31, 2016 $ 34
$ 732
$ 3,321,441
$ (1,023,415 ) $ (3,181 ) $ 66,616
$ 2,362,227
Issuance of common stock and common OP units, net —
59
484,499
—
—
2,001
486,559
Conversion of OP units —
1
3,240
—
—
(3,008 ) 233
Conversion of Series A-4 preferred stock —
1
4,719
—
—
—
4,720
Redemption of Series A-4 preferred stock —
—
(3,867 ) —
—
—
(3,867 )
Redemption of Series A-4 OP units —
—
(2,571 ) —
—
—
(2,571 )
Share-based compensation - amortization and forfeitures —
—
9,670
223
—
—
9,893
Acquisition of noncontrolling interests —
—
(6,201 ) —
—
6,101
(100 )
Foreign currency exchange —
—
—
—
4,712
265
4,977
Net income —
—
—
67,298
—
3,991
71,289
Distributions —
—
—
(161,334 ) —
(8,457 ) (169,791 )
Balance at September 30, 2017 $ 34
$ 793
$ 3,810,930
$ (1,117,228 ) $ 1,531
$ 67,509
$ 2,763,569



				Stockholders’ Equity
	Temporary Equity			Common Stock		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Accumulated Other Comprehensive Income / (Loss)			Non-controlling Interests			Total Stockholders’ Equity
Balance at December 31, 2018	$	63,592		$	864	$	4,398,949		$	(1,288,486	)	$	(4,504	)	$	60,499		$	3,167,322
Issuance of common stock and common OP units, net	—			1		(4,322		)	—			—			—			(4,321		)
Conversion of OP units	—			—		280			—			—			(280		)	—
Share-based compensation - amortization and forfeitures	—			—		3,719			74			—			—			3,793
Issuance of Series D OP Units	51,930			—		—			—			—			—			—
Foreign currency translation	—			—		—			—			1,498			77			1,575
Net income	178			—		—			36,086			—			863			36,949
Distributions	(272		)	—		15			(65,279		)	—			(3,145		)	(68,409		)
Balance at March 31, 2019	$	115,428		$	865	$	4,398,641		$	(1,317,605	)	$	(3,006	)	$	58,014		$	3,136,909



				Stockholders’ Equity
	Temporary Equity			Common Stock		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Accumulated Other Comprehensive Income / (Loss)			Non-controlling Interests			Total Stockholders’ Equity
Balance at December 31, 2017	$	43,066		$	797	$	3,758,533		$	(1,162,001	)	$	1,102		$	65,256		$	2,663,687
Issuance of common stock and common OP units, net	—			2		(3,298		)	—			—			—			(3,296		)
Conversion of OP units	(60		)	—		342			—			—			(283		)	59
Share-based compensation - amortization and forfeitures	—			—		3,489			90			—			—			3,579
Foreign currency translation	—			—		—			—			(1,772		)	(89		)	(1,861		)
Net income	71			—		—			31,507			—			2,023			33,530
Distributions	(171		)	—		—			(57,159		)	—			(2,888		)	(60,047		)
Balance at March 31, 2018	$	42,906		$	799	$	3,759,066		$	(1,187,563	)	$	(670	)	$	64,019		$	2,635,651

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - dollars in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2019			2018
OPERATING ACTIVITIES:
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	223,348		$	190,279		$	103,141		$	80,905
INVESTING ACTIVITIES:
Investment in properties	(203,233		)	(159,923		)	(114,804		)	(68,524		)
Acquisitions of properties, net of cash acquired	(70,328		)	(1,473,368		)	(279,302		)	(2,384		)
Proceeds from affiliate transactions	—			500
Proceeds from dispositions of assets and depreciated homes, net	6,592			3,755			11,788			5,312
Proceeds from disposition of properties	—			88,696
Issuance of notes and other receivables	(2,480		)	(1,411		)
Purchases of notes receivable							—			(893		)
Other investing activities							—			(1,925		)
Repayments of notes and other receivables	1,764			852			1,030			679
Investments in nonconsolidated affiliates							(11,195		)	(783		)
NET CASH USED FOR INVESTING ACTIVITIES	(267,685		)	(1,540,899		)	(392,483		)	(68,518		)
FINANCING ACTIVITIES:
Issuance and associated costs of common stock, OP units, and preferred OP units, net	457,638			748,959
Net proceeds from stock option exercise	—			149
Issuance of common stock, OP units, and preferred OP units, net							(4,321		)	(3,296		)
Redemption of Series B-3 preferred OP units							(2,675		)	(4,105		)
Borrowings on lines of credit	575,351			474,738			1,428,948			302,355
Payments on lines of credit	(675,695		)	(441,738		)	(1,160,436		)	(201,853		)
Proceeds from issuance of other debt	85,081			900,781			265,000			—
Payments on other debt	(72,024		)	(141,490		)	(200,892		)	(43,883		)
Prepayment penalty on debt	(759		)	—			—			(196		)
Redemption of Series A-4 preferred stock and OP units	(24,698		)	—
Proceeds received from return of prepaid deferred financing costs							1,618			—
Distributions to stockholders, OP unit holders, and preferred OP unit holders	(165,937		)	(141,018		)	(65,145		)	(56,881		)
Payments for deferred financing costs	(5,589		)	(24,911		)	(1,000		)	(605		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	173,368			1,375,470			261,097			(8,464		)
Effect of exchange rate changes on cash and cash equivalents	253			(107		)
Net change in cash and cash equivalents	129,284			24,743
Cash and cash equivalents, beginning of period	8,164			45,086
Cash and cash equivalents, end of period	$	137,448		$	69,829
Effect of exchange rate changes on cash, cash equivalents and restricted cash							158			(8		)
Net change in cash, cash equivalents and restricted cash							(28,087		)	3,915
Cash, cash equivalents and restricted cash, beginning of period							62,262			23,509
Cash, cash equivalents and restricted cash, end of period (See Note 16)							$	34,175		$	27,424


	Nine Months Ended September 30,					Three Months Ended March 31,
	2017			2016		2019			2018
SUPPLEMENTAL INFORMATION:
Cash paid for interest (net of capitalized interest of $1,981 and $378 respectively)	$	92,362		$	91,346
Cash paid for interest (net of capitalized interest of $1,357 and $1,184 respectively)						$	32,711		$	30,402
Cash paid for interest on mandatorily redeemable debt	$	2,361		$	2,363	$	1,094		$	619
Cash (refunds) paid for income taxes	$	(53	)	$	612
Cash paid (refunds) for income taxes						$	(60	)	$	135
Noncash investing and financing activities:
Reduction in secured borrowing balance	$	17,674		$	14,718	$	5,055		$	5,105
Change in distributions declared and outstanding	$	4,527		$	9,527	$	3,536		$	3,337
Conversion of common and preferred OP units	$	3,240		$	2,033	$	280		$	342
Conversion of Series A-4 preferred stock	$	4,720		$	11,503
Noncash investing and financing activities at the date of acquisition:
Acquisitions - Common stock and OP units issued	$	28,410		$	225,000
Acquisitions - debt assumed	$	4,592		$	—
Acquisitions - receivable due from seller	$	5,000		$	—
Acquisitions - contingent consideration liability	$	—		$	9,830
Acquisitions - Series D preferred interest						$	51,930		$	—
Acquisitions - Escrow						$	4,035		$	—

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Sun Communities, Inc., a Maryland corporation, and all wholly-owned or majority-owned and controlled subsidiaries, including Sun Communities Operating Limited Partnership (the “Operating Partnership”) and Sun Home Services, Inc. (“SHS”) are referred to herein as the “Company,” “us,” “we,” and “our.”

We follow accounting standards set by the Financial Accounting Standards Board (“FASB”). FASB sets generally accepted accounting principles (“GAAP”), which we follow to ensure that we consistently report our financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (“ASC”).

These unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and in accordance with GAAP. Pursuant to the SEC rules and regulations we present interim disclosures and certain information and footnote disclosures as required. Accordingly, the unaudited Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited Consolidated Financial Statements reflect, in the opinion of management, all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of the interim financial statements. All intercompany transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements in order to conform to current period presentation.

The results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 as filed with the SEC on February ~~23, 2017~~21, 2019 (the “~~2016~~“2018 Annual Report”). These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our ~~2016~~2018 Annual Report.

2. ~~Real Estate Acquisitions~~Revenue

~~2017 Acquisitions~~Disaggregation of Revenue

~~In September 2017,~~The following tables details our revenue by major source (in thousands):



	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	Real Property Operations		Home Sales and Rentals		Consolidated		Real Property Operations		Home Sales and Rentals		Consolidated
REVENUE
Income from real property	$	216,779	$	—	$	216,779	$	197,211	$	—	$	197,211
Revenue from home sales	—		39,618		39,618		—		34,900		34,900
Rental home revenue	—		13,971		13,971		—		13,020		13,020
Ancillary revenues	8,482		—		8,482		6,568		—		6,568
Interest	4,800		—		4,800		5,316		—		5,316
Brokerage commissions and other revenues, net	3,680		—		3,680		960		—		960
Total revenue	$	233,741	$	53,589	$	287,330	$	210,055	$	47,920	$	257,975

Revenue Recognition Policies and Performance Obligations

On January 1, 2018, we ~~acquired three age-restricted manufactured home~~adopted FASB Accounting Standards Update (“~~MH”~~ASU”) ~~communities: Lazy J Ranch,~~2014-09 “Revenue from Contracts with ~~220 sites~~Customers” and the other related ASUs and amendments to the codification (collectively “ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in ~~Arcata, California; Ocean West,~~an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. A five-step transactional analysis is required to determine how and when to recognize revenue. ASC 606 applies to all contracts with ~~130 sites~~customers, except those that are within the scope of other topics in ~~McKinleyville, California; and Caliente Sands, with 118 sites in Cathedral City, California.~~

~~In July 2017, we acquired Pismo Dunes RV Resort (“Pismo Dunes”), an age-restricted recreational vehicle (“RV”) community with 331 sites located in Pismo Beach, California.~~

~~In June 2017, we acquired Arbor Woods (“Arbor Woods”), a MH community with 458 sites located in Superior Township, Michigan.~~

~~In May 2017, we acquired Sunset Lakes RV Resort (“Sunset Lakes”), a RV resort with 498 sites located in Hillsdale, Illinois.~~

~~In March 2017, we acquired Far Horizons 49er Village RV Resort Inc. (“49er Village”), a RV resort with 328 sites located in Plymouth, California.~~the FASB accounting standards codification.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As a real estate owner and operator, the majority of our revenue is derived from site and home leases that are accounted for pursuant to ASC 842 “Leases.” For transactions in the scope of ASC 606, we recognize revenue when control of goods or services transfers to the customer, in the amount that we expect to receive for the transfer of goods or provision of services. The adoption of ASC 606 did not result in any change to our accounting policies for revenue recognition. Accordingly, retrospective application to prior periods or a cumulative catch-up adjustment was unnecessary.

Income from real property - Residents in our communities lease the site on which their home is located, and either own or lease their home. Lease revenues for sites and homes fall under the scope of ASC 842, and are accounted for as operating leases with straight-line recognition. Resident leases are generally for one-year or month-to-month terms, and are renewable by mutual agreement from us and the resident, or in some cases, as provided by jurisdictional statute. Income from real property includes site leases for annual MH residents which are within the scope of ASC 842. Annual recreational vehicle (“RV”) site leases with residents are also included within the scope of ASC 842 and revenue is recorded within Income from real property. Non-lease components of our site lease contracts, which are primarily provision of utility services, are accounted for with the site lease as a single lease under ASC 842. Additionally, we include collections of real estate taxes from residents within Income from real property. The site rental associated with a transient RV resident stay is accounted for under ASC 842 and is recorded within Income from real property.

Revenue from home sales - Our taxable REIT subsidiary, SHS, sells manufactured homes (“MH”) to current and prospective residents in our communities. Prior to adoption of ASC 606, we recognized revenue for home sales pursuant to ASC 605 “Revenue Recognition,” as manufactured homes are tangible personal property that can be located on any land parcel. Manufactured homes are not permanent fixtures or improvements to the underlying real estate, and were therefore not considered to be subject to the guidance in ASC 360-20 “Real Estate Sales” by the Company. In accordance with the core principle of ASC 606, we recognize revenue from home sales at the time of closing when control of the home transfers to the customer. After closing of the sale transaction, we have no remaining performance obligation.

Rental home revenue - is comprised of rental agreements whereby we lease homes to residents in our communities. We account for these revenues under ASC 842.

Ancillary revenues - are primarily composed of proceeds from restaurant, golf, merchandise and other activities at our RV communities and are included in the scope of ASC 606. Short-term vacation home rentals are included within ancillary revenues and within the scope of ASC 842. Revenues are recognized at point of sale when control of the good or service transfers to the customer and our performance obligation is satisfied. In addition, ancillary revenues include the leasing of short term vacation rentals. Sales and other taxes that we collect concurrent with revenue-producing activities are excluded from the transaction price.

Interest income - is earned primarily on our notes and collateralized receivables, which includes installment loans for manufactured homes purchased by the Company from loan originators and transferred loans that previously did not meet the requirements for sale accounting. Interest income on these receivables is accrued based on the unpaid principal balances of the underlying loans on a level yield basis over the life of the loans. Interest income is not in the scope of ASC 606. Refer to Notes 4, “Collateralized Receivables and Transfers of Financial Assets” and 5, “Notes and Other Receivables” for additional information.

Broker commissions and other revenues, net - is primarily comprised of brokerage commissions for sales of manufactured homes, where we act as agent and arrange for a third party to transfer a manufactured home to a customer within one of our communities. Brokerage commission revenues are recognized on a net basis at closing, when the transaction is completed and our performance obligations have been fulfilled. Loan loss reserve expenses for our collateralized receivables and notes receivables are also included herein. Refer to Notes 4, “Collateralized Receivables and Transfers of Financial Assets” and 5, “Notes and Other Receivables” for additional information regarding our loan loss reserves.

Contract Balances

As of March 31, 2019 and December 31, 2018, we had $18.0 million and $16.1 million, respectively, of receivables from contracts with customers. Receivables from contracts with customers are presented as a component of Notes and other receivables on our Consolidated Balance Sheets. These receivables represent balances owed to us for previously completed performance obligations for sales of manufactured homes. Due to the nature of our revenue from contracts with customers, we do not have material contract assets or liabilities that fall under the scope of ASC 606.

3. Real Estate Acquisitions

2019 Acquisitions

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In 2019 we acquired the following communities:

Community Name

Type

Sites

Development Sites

State

Month Acquired

Massey’s Landing RV

291

—

February

Shelby Properties⁽¹⁾

1,308

—

February

Buena Vista

400

—

February

Country Village Estates ⁽²⁾

518

—

January

Hid’n Pines RV

321

—

January

Hacienda del Rio

MH (Age-Restricted)

730

January

Total

3,568

⁽¹⁾ Contains two MH communities.

⁽²⁾ In conjunction with the acquisition, we issued Series D Preferred Operating Partnership (“OP”) Units. As of March 31, 2019, 488,958 Series D Preferred OP Units were outstanding.

The following table summarizes the amounts of assets acquired net of liabilities assumed at the acquisition date and the consideration paid for the acquisitions completed in ~~2017~~the three months ended March 31, 2019 (in thousands):


At Acquisition Date(1)	Lazy J Ranch ⁽¹⁾		Ocean West ⁽¹⁾		Caliente Sands ⁽¹⁾		Pismo Dunes ⁽¹⁾			Arbor Woods ⁽¹⁾		Sunset Lakes ⁽¹⁾		49er Village ⁽¹⁾		Total			Massey's Landing			Shelby Properties			Buena Vista			Country Village		Hid'n Pines			Hacienda del Rio			Total
Investment in property	$	14,300	$	9,673	$	8,850	$	21,260		$	15,725	$	7,835	$	12,890	$	90,533		$	20,000		$	85,969		$	20,221		$	62,784	$	10,680		$	111,971		$	311,625
Notes receivable	—		—		—		—			23		—		—		23
Inventory of manufactured homes	—		—		21		—			465		—		—		486			—			2,011			439			—		—			15			2,465
In-place leases	—		—		—		660			730		210		110		1,710
In-place leases and other intangible assets																			—			6,520			1,590			2,020		70			3,280			13,480
Other assets (liabilities), net																			(446		)	(1,015		)	(93		)	31		(233		)	(237		)	(1,993		)
Total identifiable assets acquired net of liabilities assumed	$	14,300	$	9,673	$	8,871	$	21,920		$	16,943	$	8,045	$	13,000	$	92,752		$	19,554		$	93,485		$	22,157		$	64,835	$	10,517		$	115,029		$	325,577


Consideration
Cash	$	14,300	$	5,081	$	8,871	$	—		$	14,943	$	8,045	$	13,000	64,240
Equity	—		—		—		26,410			2,000		—		—		28,410
Liabilities assumed	—		4,592		—		510			—		—		—		5,102
Receivable due from seller	—		—		—		(5,000		)	—		—		—		(5,000		)
Cash and escrow																			$	19,554		$	93,485		$	22,157		$	12,905	$	10,517		$	115,029		$	273,647
Series D Preferred OP units																			—			—			—			51,930		—			—			51,930
Total consideration	$	14,300	$	9,673	$	8,871	$	21,920		$	16,943	$	8,045	$	13,000	$	92,752		$	19,554		$	93,485		$	22,157		$	64,835	$	10,517		$	115,029		$	325,577

⁽¹⁾ The purchase price allocations ~~for Lazy J Ranch, Ocean West, Caliente Sands, Pismo Dunes, Arbor Woods, Sunset Lakes, and 49er Village~~ are preliminary and may be adjusted as final ~~costs and~~ valuations are determined.

As of March 31,2019, the Company has incurred $5.1 million of additional capitalized transaction costs which have been allocated among the various categories above.

During the quarter, the Company entered into a four year Temporary Occupancy and Use Permit with the Port of San Diego to operate an RV resort located in Chula Vista, CA until such time as a new RV resort is constructed in the area. Concurrent with the transaction, we purchased tangible personal property from the prior owner of the RV resort for $0.3 million.

Refer to Note 19, “Subsequent Events,” for information regarding real estate acquisition activity after March 31, 2019.

The total amount of ~~total~~ revenues and net income included in the Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 related to the acquisitions completed in ~~2017~~2019 are set forth in the following table (in thousands):



	Three Months Ended March 31, 2019
	(unaudited)
Total revenues	$	3,764
Net income	$	1,317

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017
(unaudited) (unaudited)
Total revenues $ 3,178
$ 4,493
Net income $ 935
$ 1,418

The following unaudited pro forma financial information presents the results of our operations for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, as if the properties acquired in ~~2017~~2019 had been acquired on January 1, ~~2016.~~2018. The unaudited pro forma results reflect certain adjustments for items that are not expected to have a continuing impact, such as adjustments for transaction costs incurred, management fees, and purchase accounting.

The information presented below has been prepared for comparative purposes only and does not purport to be indicative of either future results of operations or the results of operations that would have actually occurred had the ~~acquisitions~~acquisition been consummated on January 1, ~~2016~~2018 (in thousands, except per-share data):



	Three Months Ended March 31,
	(unaudited)
	2019		2018
Total revenues	$	289,253	$	263,706
Net income attributable to Sun Communities, Inc. common stockholders	$	34,885	$	31,732
Net income per share attributable to Sun Communities, Inc. common stockholders - basic	$	0.41	$	0.40
Net income per share attributable to Sun Communities, Inc. common stockholders - diluted	$	0.41	$	0.40

Three Months Ended September 30, Nine Months Ended September 30,
(unaudited) (unaudited)
2017 2016 2017 2016
Total revenues $ 272,214
$ 255,580
$ 746,299
$ 623,840
Net income attributable to Sun Communities, Inc. common stockholders $ 25,337
$ 20,660
$ 59,176
$ 21,246
Net income per share attributable to Sun Communities, Inc. common stockholders - basic $ 0.32
$ 0.30
$ 0.79
$ 0.33
Net income per share attributable to Sun Communities, Inc. common stockholders - diluted $ 0.32
$ 0.30
$ 0.78
$ 0.33

2018 Acquisitions

In 2018 we acquired the following communities:

Community Name

Type

Sites

Development Sites

State

Month Acquired

Leaf Verde RV Resort

376

—

October

Archview

114

August

Petoskey KOA

210

—

August

The Sands RV and Golf Resort

RV (Age Restricted)

507

—

July

Sun NG RV Resorts LLC ⁽¹⁾⁽²⁾

2,700

940

Various

June

Silver Creek

264

176

June

Highway West ⁽¹⁾

536

—

UT & OR

June

Compass RV

175

—

May

Total

4,882

1,166

⁽¹⁾Highway West and Sun NG RV Resorts LLC are comprised of 4 RV and 10 RV resorts, respectively.

⁽²⁾Refer to Note 8, “Consolidated Variable Interest Entities,” Note 9, “Debt and Lines of Credit,” and Note 10, “Equity and Temporary Equity” in our accompanying Consolidated Financial Statements for additional information.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Additionally, during~~The following table summarizes the ~~three months ended June 30, 2017, we~~amounts of assets acquired ~~Carolina Pines RV Resort, an undeveloped parcel~~net of ~~land (“Carolina Pines” formerly known as Bear Lake), near Myrtle Beach, South Carolina, for $5.9 million. This land parcel has been entitled~~liabilities assumed at the acquisition date and ~~zoned to build a 775 site RV resort.~~

~~Transaction costs of $2.2 million and $4.2 million have been incurred~~the consideration paid for the ~~three months ended September 30, 2017 and 2016, respectively. For the~~ ~~nine months ended September 30, 2017~~ ~~and 2016, transactions costs were $7.0 million and $27.9 million, respectively. These costs are presented as “Transaction costs” in our Consolidated Statements of Operations.~~

~~2016 Acquisitions~~

In June 2016, we acquired all of the issued and outstanding shares of common stock of Carefree Communities Inc. (“Carefree”) through the Operating Partnership for an aggregate purchase price of $1.68 billion. Carefree owned 103 MH and RV communities, comprising over 27,000 sites.

At the closing, we issued 3,329,880 shares of common stock at $67.57 per share (or $225.0 million in common stock) to the seller and the Operating Partnership paid the balance of the purchase price in cash. Approximately $1.0 billion of the cash payment was applied simultaneously to repay debt on the properties owned by Carefree. The Operating Partnership funded the cash portion of the purchase price in part with proceeds from debt financings as described in Note 7, “Debt and Lines of Credit” and net proceeds of $385.4 million from an underwritten public offering of 6,037,500 shares of common stock at a price of $66.50 per share in March 2016.

~~We have allocated the “investment in property” balances for Carefree to the respective balance sheet line items upon completion of a purchase price allocation in accordance with the FASB ASCTopic 805~~ ~~- Business Combinations,~~ ~~as set forth in the table below (in thousands):~~

At Acquisition Date Carefree
Investment in property $ 1,670,981
Ground leases 33,270
In-place leases 35,010
Deferred tax liability (23,637 )
Other liabilities (15,665 )
Inventory of manufactured homes 13,521
Below market lease (29,340 )
Total identifiable assets acquired and liabilities assumed $ 1,684,140

Consideration

Cash and equity $ 1,684,140

~~Additionally, during 2016, we acquired seven RV resorts and one MH community for total consideration of $89.7 million. We added 1,677 sites in six states as a result of these acquisitions.~~

~~The amount of revenue and net income included in the Consolidated Statements of Operations for the three and nine months ended September 30, 2017 related to the Carefree acquisition and other~~ acquisitions completed ~~during 2016 is set forth~~ in ~~the following table~~2018 (in thousands):



At Acquisition Date	Leaf Verde		Archview		Petoskey KOA		Sands		Sun NG Resorts			Silver Creek		Highway West		Compass		Total
Investment in property	$	11,587	$	14,550	$	8,730	$	13,790	$	240,649		$	7,250	$	36,500	$	13,930	$	346,986
In-place leases and other intangible assets	60		—		270		460		16,339			—		—		70		17,199
Debt assumed	—		—		—		—		(3,120		)	—		—		—		(3,120		)
Other liabilities, net	—		—		—		—		(11,990		)	—		—		—		(11,990		)
Total identifiable assets acquired net of liabilities assumed	$	11,647	$	14,550	$	9,000	$	14,250	$	241,878		$	7,250	$	36,500	$	14,000	$	349,075

Consideration
Cash	$	11,647	$	14,550	$	9,000	$	14,250	$	184,625		$	7,250	$	36,500	$	14,000	$	291,822
Preferred Equity - Sun NG Resorts	—		—		—		—		35,277			—		—		—		35,277
Equity Interests - NG Sun LLC	—		—		—		—		21,976			—		—		—		21,976
Total consideration	$	11,647	$	14,550	$	9,000	$	14,250	$	241,878		$	7,250	$	36,500	$	14,000	$	349,075

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017
(unaudited) (unaudited)
Revenue $ 55,034
$ 156,021
Net income $ 3,987
$ 17,013

In 2018, we acquired the following land for expansion / development:



Name	Location	Type	Expansion / Development Sites	Cost (millions)		Month Acquired
Ocean West	McKinleyville, CA	MH	26	$	0.2	December
Water Oak Country Club Estates	Lady Lake, FL	MH	296	$	1.9	November
Oak Crest	Austin, TX	MH	220	$	4.2	October
Pecan Park	Jacksonville, FL	RV	158	$	1.3	September
Smith Creek Crossing	Granby, CO	MH	310	$	0.9	September
Apple Carr	Egelston, MI	MH	121	$	0.2	May
River Run Ranch	Granby, CO	MH / RV	1,144	$	5.3	May
		Total	2,275	$	14.0

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

34. Collateralized Receivables and Transfers of Financial Assets

We previously completed various transactions with an unrelated entity involving our notes receivable under which we received cash proceeds in exchange for relinquishing our right, title, and interest in certain notes receivable. We have no further obligations or rights with respect to the control, management, administration, servicing, or collection of the installment notes receivable. However, we are subject to certain recourse provisions requiring us to purchase the underlying homes collateralizing such notes, in the event of a note default and subsequent repossession of the home by the unrelated entity. The recourse provisions are considered to be a form of continuing involvement, and therefore these transferred loans did not meet the requirements for sale accounting. We continue to recognize these transferred loans on our balance sheet and refer to them as collateralized receivables. The proceeds from the transfer have been recognized as a secured borrowing.

In the event of a note default and subsequent repossession of a manufactured home by the unrelated entity, the terms of the agreement require us to repurchase the manufactured home. Default is defined as the failure to repay the installment note receivable according to contractual terms. The repurchase price is calculated as a percentage of the outstanding principal balance of the collateralized receivable, plus any outstanding late fees, accrued interest, legal fees, and escrow advances associated with the installment note receivable. The percentage used to determine the repurchase price of the outstanding principal balance on the

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

installment note receivable is based on the number of payments made on the note. In general, the repurchase price is determined as follows:



Number of Payments	Repurchase Percentage
Fewer than or equal to 15	100	%
Greater than 15 but fewer than 64	90	%
Equal to or greater than 64 but fewer than 120	65	%
120 or more	50	%

The transferred assets have been classified as ~~“Collateralized~~Collateralized receivables, ~~net”~~net and the cash proceeds received from these transactions have been classified as ~~“Secured~~Secured borrowings on collateralized ~~receivables”~~receivables within the Consolidated Balance Sheets. The balance of the collateralized receivables was ~~$134.0~~$101.9 million (net of allowance of ~~$0.9~~$0.7 million) and ~~$143.9~~$106.9 million (net of allowance of ~~$0.6~~$0.8 million) as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. The receivables have a weighted average interest rate and maturity of ~~10.0~~9.9 percent and ~~15.5~~13.9 years as of ~~September 30, 2017,~~March 31, 2019, and ~~10.0~~9.9 percent and ~~15.7~~14.1 years as of December 31, ~~2016.~~2018.

The outstanding balance on the secured borrowing was ~~$134.9~~$102.7 million and ~~$144.5~~$107.7 million as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.

The collateralized receivables earn interest income, and the secured borrowings accrue interest expense at the same interest rates. The amount of interest income and expense recognized was ~~$3.3~~$2.4 million and ~~$3.5~~$2.8 million for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016, respectively, and $9.9 million and $10.3 million for the nine months ended September 30, 2017 and 2016,~~2018, respectively.

The balances of the collateralized receivables and secured borrowings ~~fluctuate. The balances increase as additional notes receivable are transferred and exchanged for cash proceeds. The balances~~ are reduced as the related collateralized receivables are collected from the customers, or as the underlying collateral is repurchased. The change in the aggregate gross principal balance of the collateralized receivables is as follows (in thousands):



	Three Months Ended March 31, 2019
Beginning balance	$	107,731
Principal payments and payoffs from our customers	(3,109		)
Principal reduction from repurchased homes	(1,946		)
Total activity	(5,055		)
Ending balance	$	102,676

Nine Months Ended
September 30, 2017
Beginning balance $ 144,477
Financed sales of manufactured homes 8,081
Principal payments and payoffs from our customers (9,233 )
Principal reduction from repurchased homes (8,441 )
Total activity (9,593 )
Ending balance $ 134,884

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table sets forth the allowance for the collateralized receivables as of ~~September 30, 2017~~March 31, 2019 (in thousands):



	Three Months Ended March 31, 2019
Beginning balance	$	(807	)
Lower of cost or market write-downs	45
Decrease to reserve balance	24
Total activity	69
Ending balance	$	(738	)

Nine Months Ended
September 30, 2017
Beginning balance $ (607 )
Lower of cost or market write-downs 699
Increase to reserve balance (961 )
Total activity (262 )
Ending balance $ (869 )

4.5. Notes and Other Receivables

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



	March 31, 2019		December 31, 2018
Installment notes receivable on manufactured homes, net	$	109,256	$	112,798
Other receivables, net	70,558		47,279
Total notes and other receivables, net	$	179,814	$	160,077

September 30, 2017 December 31, 2016
Installment notes receivable on manufactured homes, net $ 97,990
$ 59,320
Other receivables, net 47,770
21,859
Total notes and other receivables, net $ 145,760
$ 81,179

Installment Notes Receivable on Manufactured Homes

~~The~~

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our investment in installment notes of ~~$98.0~~$109.3 million (net of allowance of ~~$0.2~~$0.7 million) and ~~$59.3~~$112.8 million (net of allowance of ~~$0.2~~$0.7 million) as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, are collateralized by manufactured homes. The notes represent financing ~~provided by us~~ to purchasers of manufactured homes primarily located in our communities and require monthly principal and interest payments. The notes have a net weighted average interest rate (net of servicing costs) and maturity of ~~8.2~~8.0 percent and ~~17.0~~16.4 years as of ~~September 30, 2017,~~March 31, 2019, and ~~8.3~~8.0 percent and ~~16.0~~16.6 years as of December 31, ~~2016.~~2018, respectively.

The change in the aggregate gross principal balance of the installment notes receivable is as follows (in thousands):



	Three Months Ended March 31, 2019
Beginning balance	$	113,495
Investment in installment notes	63
Principal payments and payoffs from customers	(1,653		)
Principal reduction from repossessed homes	(1,994		)
Total activity	(3,584		)
Ending balance	$	109,911

Nine Months Ended
September 30, 2017
Beginning balance $ 59,525
Financed sales of manufactured homes 44,711
Acquired notes 23
Principal payments and payoffs from our customers (4,465 )
Principal reduction from repossessed homes (1,593 )
Total activity 38,676
Ending balance $ 98,201

Allowance for Losses for Installment Notes Receivable

The following table sets forth the allowance change for the installment notes receivable as follows (in thousands):



	Three Months Ended March 31, 2019
Beginning balance	$	(697	)
Lower of cost or market write-downs	57
Increase to reserve balance	(15		)
Total activity	42
Ending balance	$	(655	)

Nine Months Ended
September 30, 2017
Beginning balance $ (205 )
Lower of cost or market write-downs 97
Increase to reserve balance (103 )
Total activity (6 )
Ending balance $ (211 )

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Other Receivables

As of ~~September 30, 2017~~March 31, 2019, other receivables were comprised of amounts due from: residents for rent, utility charges, fees and ~~water and sewer usage~~other pass through charges of ~~$7.2 million (net of allowance of $1.4 million);~~$13.0 million; home sale proceeds of ~~$13.1~~$18.0 million; insurance receivables of ~~$19.1 million; $5.0~~$18.5 million ~~due from the sellers of Pismo Dunes (refer to Note 2, “Real Estate Acquisitions” for additional information);~~ and other receivables of ~~$3.4~~$21.1 million. As of December 31, ~~2016~~2018, other receivables were comprised of amounts due from: residents for rent, utility charges, fees and ~~water and sewer usage~~other pass through charges of ~~$6.0~~$7.1 million (net of allowance of $1.5 million); home sale proceeds of ~~$11.6~~$16.1 million; and insurance ~~receivables of $2.3 million;~~ and other receivables of ~~$2.0~~$24.1 million.


5.6.	Intangible Assets

Our intangible assets include ~~ground leases,~~ in-place leases, franchise ~~fees~~agreements and other intangible ~~assets from acquisitions.~~assets. These intangible assets are recorded in ~~“Other~~Other assets, ~~net”~~net on the Consolidated Balance Sheets. In accordance with ASC 842, below market leases are now classified as a right of use asset.

The gross carrying amounts, and accumulated amortization are as follows (in thousands):



		March 31, 2019					December 31, 2018
Intangible Asset	Useful Life	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
In-place leases	7 years	117,544		(62,740		)	103,547		(59,068		)
Franchise agreements and other intangible assets	7-20 years	16,944		(2,146		)	16,641		(1,942		)
Total		$	134,488	$	(64,886	)	$	120,188	$	(61,010	)

September 30, 2017 December 31, 2016
Intangible Asset Useful Life Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Ground leases 8-57 years $ 33,270
$ (1,371 ) $ 33,270
$ (600 )
In-place leases 7 years 99,954
(42,090 ) 98,235
(31,796 )
Franchise fees and other intangible assets 15 years 1,880
(1,432 ) 1,880
(1,155 )
Total $ 135,104
$ (44,893 ) $ 133,385
$ (33,551 )

Total amortization expenses related to the intangible assets are as follows (in thousands):



	Three Months Ended March 31,
Intangible Asset	2019		2018
In-place leases	3,672		3,490
Franchise agreements and other intangible assets	205		19
Total	$	3,877	$	3,509

Three Months Ended
September 30, Nine Months Ended
September 30,
Intangible Asset 2017 2016 2017 2016
Ground leases $ 257
$ 368
$ 771
$ 368
In-place leases 3,478
3,824
10,322
8,142
Franchise fees and other intangible assets 19
129
277
387
Total $ 3,754
$ 4,321
$ 11,370
$ 8,897

We anticipate amortization expense for our intangible assets to be as follows for the next five years (in thousands):



	Year
	Remainder of 2019		2020		2021		2022		2023
Estimated expense	$	11,850	$	14,144	$	13,752	$	9,151	$	5,776

Year
Remainder of 2017 2018 2019 2020 2021
Estimated expense $ 3,819
$ 14,514
$ 13,598
$ 11,870
$ 11,478

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Investment in Affiliates

Investments in joint ventures that are not consolidated, nor investments recorded at cost, are accounted for using the equity method of accounting as prescribed in FASB ASC Topic 323, “Investments - Equity Method and Joint Ventures.”

RezPlot Systems LLC (“Rezplot”) - In January 2019, the Company acquired a 50 percent ownership interest in RezPlot, a software technology company. As of March 31, 2019 we had a $5.3 million investment in RezPlot which is recorded within Other assets, net on the Consolidated Balance Sheets. During the three months ended March 31, 2019, we recognized $0.2 million loss in the Income / (loss) from nonconsolidated affiliates on the Consolidated Statement of Operations related to our ownership interest.

Sungenia JV - In November 2018, the Company and Ingenia Communities Group entered into a joint venture (“JV”) to establish and grow a manufactured housing community development program in Australia. We hold a 50 percent interest in the JV entity. As of March 31, 2019 and December 31, 2018, we had a $2.2 million and $0.7 million investment in the JV which is recorded within Other assets, net on the Consolidated Balance Sheets. During the three months ended March 31, 2019 we recognized less than $0.1 million loss in the Income / (loss) from nonconsolidated affiliates on the Consolidated Statement of Operations related to our ownership interest.

GTSC LLC (“GTSC”) - At March 31, 2019, we had a 40 percent ownership interest in GTSC which engages in acquiring, holding and selling loans secured, directly or indirectly, by manufactured homes located in communities of Sun Communities. Our investment in GTSC as of March 31, 2019 and December 31, 2018 was $37.9 million and $29.8 million, respectively, and is recorded within Other assets, net on the Consolidated Balance Sheets. During the three months ended March 31, 2019 and March 31, 2018, there was $0.5 million net gain and $0.1 million net loss, respectively, in the Income / (loss) from nonconsolidated affiliates on the Consolidated Statement of Operations related to our ownership interest.

Origen Financial Services, LLC (“OFS LLC”) - At March 31, 2019 and 2018, we had a 22.9 percent ownership interest in OFS LLC. As of both March 31, 2019 and December 31, 2018 our investment in OFS LLC was $0.1 million respectively and is recorded within Other assets, net on the Consolidated Balance Sheets. During the three months ended March 31, 2019 and March 31, 2018, we recognized less than $0.1 million and no income, respectively, in Income / (loss) from nonconsolidated affiliates on the Consolidated Statement of Operations.

8. Consolidated Variable Interest Entities

In 2016, we adopted (“ASU 2015-02”) Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 modified the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. We evaluated the application of ASU 2015-02 and concluded that no change was required to our accounting for interests in less than wholly-owned Joint ventures. However, the Operating Partnership now meets the criteria as a VIE. Our significant asset is our investment in the Operating Partnership, and consequently, substantially all of our assets and liabilities represent those assets and liabilities of the Operating Partnership. We are the sole general partner and generally have the power to manage and have complete control over the Operating Partnership and the obligation to absorb its losses or the right to receive its benefits. Accordingly, we consolidate the Operating Partnership under this new guidance.

Effective June 1, 2018, the Company acquired a majority interest in Sun NG RV Resorts LLC (“Sun NG Resorts”), which is comprised of ten RV resorts and one ground up RV development with 2,700 RV sites and an additional 940 sites available for development. The Company purchased an 80 percent interest in Sun NG Resorts for $61.6 million through Sun NG LLC; the remaining 20 percent interest of $15.4 million is held by NG Sun LLC, an unrelated third-party. Sun paid additional consideration of $123.3 million, consisting of a $1.8 million preferred equity investment and a $121.5 million temporary loan to Sun NG Resorts.

We consolidate Sun NG Resorts under the guidance set forth in FASB ASC Topic 810 “Consolidation.” We concluded that Sun NG Resorts is a variable interest entity where we are the primary beneficiary, as we have power to direct the significant activities, absorb the significant losses and receive the significant benefits from the entity. Refer to Note 3, “Real Estate Acquisitions,” Note 9, “Debt and Lines of Credit,” and Note 10, “Equity and Temporary Equity” for additional information.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We consolidate Rudgate Village SPE, LLC; Rudgate Clinton SPE, LLC; and Rudgate Clinton Estates SPE, LLC (collectively, “Rudgate”) as a ~~variable interest entity (“VIE”).~~VIE. We evaluated our arrangement with this property under the guidance set forth in FASB ASC Topic 810 “Consolidation.” We concluded that Rudgate qualified as a VIE where we are the primary beneficiary, as we have power to direct the significant activities, absorb the significant losses and receive the significant benefits from the entity.

During the three months ended June 30, 2017, we acquired the noncontrolling equity interests in Wildwood Mobile Home Park (“Wildwood”) held by third parties for total consideration of $0.1 million. Prior to this acquisition, we consolidated Wildwood as a VIE. The acquisition resulted in the Company owning a 100.0 percent controlling interest in Wildwood, and was deemed a VIE reconsideration event. We concluded that Wildwood was no longer a VIE.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table summarizes the assets and liabilities included in our Consolidated Balance Sheets after eliminations (in thousands):



	March 31, 2019		December 31, 2018
ASSETS
Investment property, net	$	314,669	$	308,171
Other assets, net	22,369		19,809
Total Assets	$	337,038	$	327,980

LIABILITIES AND OTHER EQUITY
Debt	$	43,913	$	44,172
Preferred Equity - Sun NG Resorts - mandatorily redeemable	35,249		35,277
Other liabilities	21,049		6,914
Total Liabilities	100,211		86,363
Equity Interests - NG Sun LLC	22,167		21,976
Noncontrolling interests	6,198		7,145
Total Liabilities and Other Equity	$	128,576	$	115,484

September 30, 2017 December 31, 2016
ASSETS
Investment property, net $ 50,655
$ 88,987
Other assets 1,638
3,054
Total Assets $ 52,293
$ 92,041

LIABILITIES AND STOCKHOLDERS’ EQUITY
Debt $ 42,177
$ 62,111
Other liabilities 1,258
1,998
Noncontrolling interests 3,841
(2,982 )
Total Liabilities and Stockholders’ Equity $ 47,276
$ 61,127

Investment property, net and other assets, net related to the consolidated VIEs comprised approximately ~~0.8~~4.7 percent and ~~1.6~~4.9 percent of our consolidated total assets at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. Debt, Preferred Equity and other liabilities comprised approximately ~~1.3~~2.6 percent and ~~1.9~~2.6 percent of our consolidated total liabilities at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively. Equity Interests and Noncontrolling interests related to the consolidated VIEs, on an absolute basis, comprised less than 1.0 percent of our consolidated total ~~stockholder’s~~ equity at ~~September 30, 2017~~March 31, 2019 and ~~less than 1.0 percent~~ at December 31, ~~2016~~.2018, respectively.

9. Debt and Lines of Credit

The following table sets forth certain information regarding debt including premiums, discounts and deferred financing costs (in thousands):

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Carrying Amount
Weighted Average
Years to Maturity

Weighted Average
Interest Rates
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Collateralized term loans - FNMA $ 1,032,621
$ 1,046,803
5.8 6.6 4.4 % 4.3 %
Collateralized term loans - Life Companies 949,970
888,705
12.5 12.2 3.9 % 3.9 %
Collateralized term loans - CMBS 452,311
492,294
5.2 5.6 5.1 % 5.2 %
Collateralized term loans - FMCC 387,738
391,765
7.1 7.9 3.9 % 3.9 %
Secured borrowings 134,884
144,477
15.5 15.7 10.0 % 10.0 %
Lines of credit —
100,095
0.0 3.6 — % 2.1 %
Preferred OP units - mandatorily redeemable 45,903
45,903
4.8 5.4 6.9 % 6.9 %
Total debt $ 3,003,427
$ 3,110,042
8.4 8.5 4.6 % 4.5 %



	Carrying Amount				Weighted Average Years to Maturity		Weighted Average Interest Rates
	March 31, 2019		December 31, 2018		March 31, 2019	December 31, 2018	March 31, 2019		December 31, 2018
Collateralized term loans - Life Companies	$	1,330,591	$	1,259,158	16.7	14.4	4.0	%	3.9	%
Collateralized term loans - FNMA	765,391		770,417		4.9	5.1	4.4	%	4.4	%
Collateralized term loans - CMBS	403,878		405,702		3.8	4.1	5.1	%	5.1	%
Collateralized term loans - FMCC	379,157		380,680		5.6	5.9	3.9	%	3.9	%
Secured borrowings	102,676		107,731		14.2	14.4	9.9	%	9.9	%
Lines of credit	396,512		128,000		2.1	2.3	3.7	%	3.8	%
Preferred Equity - Sun NG Resorts - mandatorily redeemable	35,249		35,277		3.5	3.8	6.0	%	6.0	%
Preferred OP units - mandatorily redeemable	34,663		37,338		4.8	4.7	6.5	%	6.6	%
Total debt	$	3,448,117	$	3,124,303	9.3	9.0	4.4	%	4.5	%

~~Collateralized Term Loans~~

In September 2017, in connection with the Ocean West acquisition, we assumed a $4.6 million collateralized term loan with Fannie Mae, with an interest rate of 4.34 percent and a remaining term of 9.8 years.

In June 2017, we entered into a $77.0 million collateralized term loan which bears interest at a rate of 4.16 percent amortizing over a 25 term. We also repaid a $3.9 million collateralized term loan with an interest rate of 6.54 percent that was due to mature on August 31, 2017. As a result of the repayment transaction, we recognized a loss on extinguishment of debt of $0.3 million in our Consolidated Statements of Operations.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Collateralized Term Loans

During the ~~first quarter~~three months ended March 31, 2019, we completed a $265.0 million 25-year term loan transaction which carries an interest rate of ~~2017,~~4.17 percent. Concurrently, we ~~defeased an $18.9~~repaid a $186.8 million ~~collateralized~~ term loan with an interest rate of ~~6.49~~3.83 percent ~~that~~which was due to mature ~~on August 1, 2017, releasing one encumbered community. As a result of the transaction, we~~in January 2030. We recognized a loss on extinguishment of debt of ~~$0.5~~$0.7 million as a result of the repayment transaction in our Consolidated ~~Statements~~Statement of Operations. ~~In addition,~~

During the three months ended December 31, 2018, we repaid a ~~$10.0~~term loan of $10.2 million with an interest rate of 5.66 percent. The loan was due to mature on February 28, 2019. Concurrently, we entered into a $21.7 million collateralized term loan with a 4.10 percent fixed interest rate and 20-year term.

During the three months ended September 30, 2018, we entered into a $228.0 million collateralized term loan with a 4.10 percent fixed rate and a 20-year term. During the three months ended September 30, 2018, we repaid one collateralized term loan of $30.5 million with an interest rate of ~~5.57~~6.34 percent, ~~that~~releasing one encumbered community, which was due to mature March 1, 2019. We recognized a loss on extinguishment of debt of $0.9 million as a result of the repayment transaction in our Consolidated Statement of Operations.

During the three months ended June 30, 2018 we repaid three collateralized term loans totaling $177.7 million with a weighted average interest rate of 4.53 percent, releasing 11 encumbered communities. One loan was due to mature on August 1, 2018 and two loans were due to mature on May 1, ~~2017, releasing an additional encumbered community.~~2023. We recognized a loss on extinguishment of debt of $1.5 million as a result of the repayment transaction.

~~During~~In the ~~fourth~~first quarter of ~~2016,~~2018, we repaid ~~a total of $79.1 million aggregate principal of~~four collateralized term loans ~~that~~totaling $24.4 million with a weighted average interest rate of 6.36 percent, releasing three encumbered communities. The loans were due to mature ~~during 2017, releasing 10 encumbered communities. Also in the fourth quarter~~on March 1, 2019. We recognized a loss on extinguishment of ~~2016, we entered into~~debt of $0.2 million as a ~~promissory note for $58.5 million that bears interest at a rate of 3.33 percent and has a seven-year term. The repayment~~result of the ~~note is interest only for the entire term.~~repayment transactions.

In September 2016, 15 subsidiaries of the Operating Partnership each entered into a promissory note for total borrowings of $139.0 million with PNC Bank, as lender (the “Freddie Mac Financing”). Five of the notes totaling $70.2 million bear interest at a rate of 3.93 percent and have ten-year terms. The remaining ten notes totaling $68.8 million bear interest at a rate of 3.75 percent and have seven-year terms. The Freddie Mac Financing provides for principal and interest payments to be amortized over 30 years.

Proceeds from the Freddie Mac Financing described above and the underwritten registered public equity offering in September 2016 described in Note 8, “Equity and Mezzanine Securities,” were utilized to repay $62.1 million in mortgage loans and $300.0 million on our revolving loan under our senior revolving credit facility (refer to ~~Lines of Credit~~ ~~below for additional information regarding the A&R Facility).~~

In June 2016, 17 subsidiaries of the Operating Partnership entered into a Master Credit Facility Agreement with Regions Bank, as lender. Pursuant to credit agreement, Regions Bank loaned a total of $338.0 million under a senior secured credit facility, comprised of two ten-year term loans in the amount of $300.0 million and $38.0 million, respectively (collectively the “Fannie Mae Financing”). The $300.0 million term loan bears interest at 3.69 percent and the $38.0 million term loan bears interest at 3.67 percent for a blended rate of 3.69 percent. The Fannie Mae Financing provides for principal and interest payments to be amortized over 30 years.

The Fannie Mae Financing is secured by mortgages encumbering 17 MH communities comprised of real and personal property owned by the borrowers. Additionally, the Company and the Operating Partnership have provided a guaranty of the non-recourse carve-out obligations of the borrowers under the Fannie Mae Financing.

Additionally, in June 2016, three subsidiaries of the Operating Partnership entered into mortgage loan documents (the “NML Loan Documents”) with The Northwestern Mutual Life Insurance Company (“NML”). Pursuant to the NML Loan Documents, NML made three portfolio loans to the subsidiary borrowers in the aggregate amount of $405.0 million. NML loaned $162.0 million under a ten-year term loan to two of the subsidiary borrowers (the “Portfolio A Loan”). The Portfolio A Loan bears interest at 3.53 percent and is secured by deeds of trust encumbering seven MH communities and one RV community. NML also loaned $163.0 million under a 12-year term loan (the “Portfolio B Loan”) to one subsidiary which is also a borrower under the Portfolio A Loan. The Portfolio B Loan bears interest at 3.71 percent and is secured by deeds of trust and a ground lease encumbering eight MH communities. NML also loaned $80.0 million under a 12-year term loan (the “Portfolio C Loan” and, collectively, with the Portfolio A Loan and the Portfolio B Loan, the “NML Financing”) to one subsidiary borrower. The Portfolio C Loan bears interest at 3.71 percent and is secured by a mortgage encumbering one RV community. The MH and RV communities noted above that secure the NML Financing were acquired as part of the Carefree transaction.

The NML Financing is generally non-recourse, however, the borrowers under the NML Financing and the Operating Partnership are responsible for certain customary non-recourse carveouts. In addition, the NML Financing will be fully recourse to the subsidiary borrowers and the Operating Partnership if: (a) the borrowers violate the prohibition on transfer covenants set forth in the loan documents; or (b) a voluntary bankruptcy proceedings is commenced by the borrowers or an involuntary bankruptcy, liquidation, receivership or similar proceeding has commenced against the borrowers and remains undismissed for a period of 90 days.

Proceeds from the Fannie Mae Financing and NML Financing were primarily used to fund the cash portion of the Carefree acquisition. Refer to Note 2, “Real Estate Acquisitions” for additional information.

The collateralized term loans totaling ~~$2.8~~$2.9 billion as of ~~September 30, 2017,~~March 31, 2019, are secured by ~~192~~185 properties comprised of ~~76,078~~72,964 sites representing approximately ~~$3.4~~$3.2 billion of net book value.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Secured Borrowing

See Note 3,4, “Collateralized Receivables and Transfers of Financial Assets,” for information regarding our collateralized receivables and secured borrowing transactions.

Preferred OP Units - mandatorily redeemable

~~Included in preferred~~Preferred OP units isat March 31, 2019 and December 31, 2018 include $34.7 million of Aspen preferred OP units issued by the Operating ~~Partnership which, as~~Partnership. As of ~~September 30, 2017,~~March 31, 2019, these units are convertible indirectly into ~~468,923~~430,260 shares of our common stock. Subject to certain limitations, at any time prior to January 1, 2024, the holder of each Aspen preferred OP unit at its option may convert such Aspen preferred OP unit into: (a) if the market price of our common stock is $68.00 per share or less, 0.397 common OP units; or (b) if the market price of our common stock is greater than $68.00 per share, the number of common OP units is determined by dividing (i) the sum of (A) $27.00 plus (B) 25 percent of the amount by which the market price of our common stock exceeds $68.00 per share, by (ii) the ~~per-share~~per share market price of our common stock. The current preferred distribution rate is 6.5 percent. On January 2, 2024, we are required to redeem all Aspen preferred OP units that have not been converted to common OP units.

Preferred OP units also include $2.7 million of Series B-3 preferred OP units at December 31, 2018, which are not convertible. In January 2019, we redeemed all remaining 26,750 Series B-3 preferred OP units. The weighted average redemption price per unit, which included accrued and unpaid distributions, of $100.153424. In the aggregate, we paid $2.7 million to redeem these units.

Preferred Equity - Sun NG Resorts - mandatorily redeemable

In June 2018, in connection with the investment in Sun NG Resorts, $35.3 million of mandatorily redeemable Preferred Equity (“Preferred Equity - Sun NG Resorts”) was purchased by unrelated third parties. The Preferred Equity - Sun NG Resorts carries a preferred rate of return of 6.0 percent per annum. The Preferred Equity - Sun NG Resorts has a seven-year term and can be redeemed in the fourth quarter of 2022 at the holders’ option. The Preferred Equity - Sun NG Resorts as of March 31, 2019 was

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$35.2 million. Refer to Note 3, “Real Estate Acquisitions,” Note 8, “Consolidated Variable Interest Entities,” and Note 10, “Equity and Temporary Equity” for additional information.

Lines of Credit

In April 2017, we amended and restated our credit agreement (the “A&R Credit Agreement”) with Citibank, N.A. (“Citibank”) and certain other lenders. Pursuant to the A&R Credit Agreement, we ~~have~~entered into a senior revolving credit facility with Citibank and certain other lenders in the amount of $650.0 million, comprised of a $550.0 million revolving loan and a $100.0 million term loan (the “A&R Facility”). We repaid the term loan in full on September 7, 2018 and are unable to reborrow on the term loan. The A&R Credit Agreement has a four-year term ending April 25, 2021, which can be extended for two additional six-month periods at our option, subject to the satisfaction of certain conditions as defined in the credit agreement. The ~~credit agreement~~A&R Credit Agreement also provides for, subject to the satisfaction of certain conditions, additional commitments in an amount not to exceed $350.0 million. If additional borrowings are made pursuant to any such additional commitments, the aggregate borrowing limit under the A&R Facility may be increased up to ~~$1.0 billion.~~$900.0 million.

The A&R Facility bears interest at a floating rate based on the Eurodollar rate plus a margin that is determined based on our leverage ratio calculated in accordance with the ~~credit agreement,~~A&R Credit Agreement, which margin can range from 1.35 percent to 2.20 percent for the revolving ~~loan and 1.30 percent to 2.15 percent for the term~~ loan. As of ~~September 30, 2017,~~March 31, 2019, the margin based on our leverage ratio was 1.35 percent ~~and 1.30 percent~~ on the revolving ~~and term loans, respectively.~~loan. We had no$393.0 million borrowings on the revolving loan ~~or term loan~~ as of ~~September 30, 2017. We may borrow up to $100.0 million on the term loan on or before June 1, 2018.~~March 31, 2019.

The A&R Facility replaced our $450.0 million credit facility (the “Previous Facility”), which was scheduled to mature on August 19, 2019. At December 31, 2016, under the Previous Facility, we had $42.3 million in borrowings on the revolving loan and $58.0 million in borrowings on the term loan totaling $100.3 million with a weighted average interest rate of 2.14 percent.

The A&R Facility provides ~~and the Previous Facility provided,~~ us with the ability to issue letters of credit. Our issuance of letters of credit does not increase our borrowings outstanding under our line of credit, but does reduce the borrowing amount available. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, approximately ~~$3.8~~$3.9 million ~~and~~ ~~$4.6 million, respectively,~~ of availability was used to back standby letters of credit.

We have a $12.0 million manufactured home floor plan facility renewable indefinitely until our lender provides us at least a twelve month notice of their intent to terminate the agreement. The interest rate is 100 basis points over the greater of the prime rate as quoted in the Wall Street Journal on the first business day of each month or 6.0 percent. At ~~September 30, 2017~~March 31, 2019, the effective interest rate was 7.0 percent. The outstanding balance was $3.5 million as of March 31, 2019 and zero as of ~~September 30, 2017 and $2.8 million as of~~ December 31, ~~2016~~2018.

Covenants

Pursuant to the terms of the A&R Facility, we are subject to various financial and other covenants. The most restrictive of our debt agreements place limitations on secured borrowings and contain minimum fixed charge coverage, leverage, distribution, and net worth requirements. At ~~September 30, 2017,~~March 31, 2019, we were in compliance with all covenants.

In addition, certain of our subsidiary borrowers own properties that secure loans. These subsidiaries are consolidated within our accompanying Consolidated Financial Statements, however, each of these subsidiaries’ assets and credit are not available to satisfy the debts and other obligations of the Company, any of its other subsidiaries or any other person or entity.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8.10. Equity and ~~Mezzanine Securities~~Temporary Equity

~~Public Equity Offerings~~

In May 2017, we closed an underwritten registered public offering of 4,830,000 shares of common stock at a gross price of $86.00 per share. Proceeds from the offering were $408.9 million after deducting expenses related to the offering. We utilized proceeds from the offering to fully repay borrowings outstanding on our senior revolving credit facility, redeem certain preferred securities, and fund acquisition activities. We intend to utilize the remaining proceeds to fund possible future acquisitions, redeem preferred stock and for working capital and general corporate purposes.

In September 2016, we closed an underwritten registered public offering of 3,737,500 shares of common stock at a gross price of $76.50 per share. Proceeds from the offering were $283.6 million after deducting expenses related to the offering, which were used to repay borrowings outstanding on the revolving loan under our senior revolving credit facility.

~~In June 2016, at the closing of the Carefree acquisition, we issued the seller 3,329,880 shares of our common stock at an issuance price of $67.57 per share or $225.0 million in common stock.~~

In March 2016, we closed an underwritten registered public offering of 6,037,500 shares of common stock at a price of $66.50 per share. Net proceeds from the offering of $385.4 million after deducting discounts and expenses related to the offering, were used to fund a portion of the purchase price for Carefree.

At the Market Offering Sales Agreement

In July 2017, we entered into a new at the market offering sales agreement (the “Sales Agreement”) with BMO Capital Markets Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Robert W. Baird & Co. Incorporated, Fifth Third Securities, Inc., RBC Capital Markets, LLC, BTIG, LLC, Jefferies LLC, Credit Suisse Securities (USA) LLC and Samuel A. Ramirez & Company, Inc. (each, a “Sales Agent;” certain sales agents

(collectively, the “Sales Agents”), whereby we may offer and sell shares of our common stock, having an aggregate offering price of up to $450.0 million, from time to time through the Sales Agents. The Sales Agents are entitled to compensation in an agreed amount not to exceed 2.0 percent of the gross price per share for any shares sold from time to time under the Sales Agreement.

~~Concurrent with entry into~~ Through March 31, 2019, we have sold shares of our common stock for gross proceeds of $163.8 million under the Sales Agreement, our prior agreement dated June 17, 2015, with BMO Capital Markets Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc., (the “Prior Agreement”) was terminated. The Prior Agreement had an aggregate offering price of up to $250.0 million. We did not incur any penalties in connection with termination of the Prior Agreement.

~~Issuances~~ There were no issuances of common stock under the ~~Prior~~Sales Agreement during ~~2017 were as follows:~~2019.

Quarter Ended Common Stock Issued Weighted Average Sales Price Net Proceeds ($ millions)
June 30, 2017 400,000
$ 85.01
$ 33.6
March 31, 2017 280,502
$ 76.47
$ 21.2

Issuance of ~~Common Stock and Common~~Series D Preferred OP Units - Temporary Equity

In ~~September 2017,~~February 2019, we issued ~~298,900 shares of common stock totaling $26.4 million~~488,958 Series D Preferred OP Units in connection with the acquisition of ~~Pismo Dunes.~~Country Village Estates. The Series D preferred OP units have a stated issuance price of $100.00 per OP Unit and carry a preferred return of 3.75 percent until the second anniversary of the issuance date. Commencing with the second anniversary of the issuance date, the Series D Preferred OP Units carry a preferred return of 4.0 percent. Commencing with the first anniversary of the issuance date, each Series D Preferred OP Unit can be exchanged for 0.8 shares of SUI stock at the holder’s option. The holders may require redemption in cash after the fifth anniversary of the Series D issuance date or upon the holder’s death. Refer to Note 3, “Real Estate Acquisitions”.

Equity Interests - NG Sun LLC - Temporary Equity

In June ~~2017, we issued a total of 23,311 common OP units for total consideration of $2.0 million~~2018, in connection with ~~acquisition activity.~~the investment in Sun NG Resorts, unrelated third parties purchased $6.5 million of Series B preferred equity interests and $15.4 million of common equity interest in Sun NG Resorts (herein jointly referred to as “Equity Interest - NG Sun LLC”). The Series B preferred equity interests carry a preferred return at a rate that, at any time, is equal to the interest rate on Sun NG Resorts’ indebtedness at such time. The current rate of return is 5.0 percent. The Equity Interests - NG Sun LLC do not have a fixed maturity date and can be redeemed in the fourth quarter of 2022 at the holders’ option. Sun NG LLC, our subsidiary, has the right during certain periods each year, with or without cause, or for cause at any time, to elect to buy NG Sun LLC’s interest. During a limited period in 2022, NG Sun LLC has the right to put its interest to Sun NG LLC. If either party exercises their option, the property management agreement will be terminated and the Company is required to purchase the remaining interests of NG Sun LLC and the property management agreement at fair value. Refer to Note 3, “Real Estate Acquisitions,” Note 8, “Consolidated Variable Interest Entities,” and Note 9, “Debt and Lines of Credit” for additional information.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Conversions

Subject to certain limitations, holders can convert certain series of stock and OP units to shares of our common stock at any time. ~~Conversions~~Below is the activity of conversions during the ~~nine month periods~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018:



		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Series	Conversion Rate	Units/Shares Converted	Common Stock	Units/Shares Converted	Common Stock
Common OP unit	1	6,533	6,533	6,777	6,777
Series A-1 preferred OP unit	2.439	3,950	9,633	3,700	9,023
Series A-4 preferred OP unit	0.4444	—	—	2,373	1,054

Cash Distributions

Cash Distributions for the three months ended March 31, 2019 were as follows:



Cash Distributions	Record Date	Payment Date	Distribution per Share		Total Distribution (thousands)
Common Stock, Common OP units and Restricted Stock	3/29/2019	4/15/2019	$	0.75	$	66,886
Series A-4 Preferred Stock	3/15/2019	4/1/2019	$	0.40625	$	432

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
Series Conversion Rate Units/Shares Converted Common Stock Units/Shares Converted Common Stock
Common OP unit 1
25,238
25,238
24,896
24,896
Series A-1 preferred OP unit 2.439
18,319
44,676
11,490
28,021
Series A-4 preferred OP unit 0.4444
9,000
3,996
12,389
5,505
Series A-4 preferred stock 0.4444
158,036
70,238
385,242
171,218
Series C preferred OP unit 1.11
16,806
18,651
7,000
7,768

~~Dividends~~

~~Dividend distributions for the quarter ended September 30, 2017 were as follows:~~

Dividend Record Date Payment Date Distribution per Share Total Distribution (thousands)
Common Stock, Common OP units and Restricted Stock 9/29/2017 10/16/2017 $ 0.67
$ 55,006
Series A Preferred Stock 9/29/2017 10/16/2017 $ 0.4453125
$ 441
Series A-4 Preferred Stock 9/15/2017 10/2/2017 $ 0.40625
$ 1,514

~~Redemptions~~

If certain change of control transactions occur or if our common stock ceases to be listed or quoted on an exchange or quotation system, then at any time after November 26, 2019, we or the holders of shares of Series A-4 Preferred Stock and Series A-4 preferred OP units may cause all or any of those shares or units to be redeemed for cash at a redemption price equal to the sum of (i) the greater of (x) the amount that the redeemed shares of Series A-4 Preferred Stock and Series A-4 preferred OP units would have received in such transaction if they had been converted into shares of our common stock immediately prior to such transaction, or (y) $25.00 per share, plus (ii) any accrued and unpaid distributions thereon to, but not including, the redemption date.

In June 2017, we redeemed 438,448 shares of Series A-4 Cumulative Convertible Preferred Stock and 200,000 shares of Series A-4 preferred OP units from Green Courte Real Estate Partners III, LLC, GCP Fund III REIT LLC and GCP Fund III Ancillary Holding, LLC (collectively, the “Green Courte Entities”) for total consideration of $24.7 million. Accrued dividends totaling $0.2 million were also paid in connection with the redemptions. The Green Courte Entities and other affiliates were the sellers of the American Land Lease portfolio which we acquired in 2014 and 2015.

Repurchase Program

In November 2004, our Board of Directors authorized us to repurchase up to 1,000,000 shares of our common stock. We have 400,000 common shares remaining in the repurchase ~~program.~~program as of March 31, 2019. No common shares were repurchased ~~under this buyback program~~ during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 or ~~2016.~~2018. There is no expiration date specified for the buyback program.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

9.11. Share-Based Compensation

~~We have~~As of March 31, 2019, we had two share-based compensation plans; the Sun Communities, Inc. 2015 Equity Incentive Plan (“2015 Equity Incentive Plan”) and the First Amended and Restated 2004 Non-Employee Director Option Plan (“2004 Non-Employee Director Option Plan”). ~~During~~We believe granting equity awards will provide certain executives, key employees and directors additional incentives to promote our financial success, and promote employee and director retention by providing an opportunity to acquire or increase the ~~nine~~direct proprietary interest of those individuals in our operations and future.

The following table shows details on grants of equity awards during the three months ended ~~September 30, 2017, shares were granted as follows:~~March 31, 2019:



Grant Period	Type	Plan	Shares Granted	Grant Date Fair Value Per Share			Vesting Type	Vesting Anniversary	Percentage

2019	Executive Officers	2015 Equity Incentive Plan	44,000	$	115.39	(1)	Time Based	20.0% annually over 5 years
2019	Executive Officers	2015 Equity Incentive Plan	66,000	$	86.71	(2)	Market Condition	3rd	100.0	%
2019	Directors	2004 Non-Employee Director Option Plan	18,000	$	113.68	(1)	Time Based	3rd	100.0	%

Grant Period Type Plan Shares Granted Grant Date Fair Value Per Share Vesting Type Vesting Anniversary Percentage

Q3 2017 Directors 2004 Non-Employee Director Option Plan 1,300
$ 87.11
⁽¹⁾
Time Based August 11, 2020 100.0 %

Q2 2017 Key Employees 2015 Equity Incentive Plan 2,500
$ 84.18
⁽¹⁾
Time Based April 24, 2019 35.0 %
April 24, 2020 35.0 %
April 24, 2021 20.0 %
April 24, 2022 5.0 %
April 24, 2023 5.0 %

Q1 2017 Executive Officers 2015 Equity Incentive Plan 100,000
$ 79.30
⁽²⁾
Time Based March 14, 2020 20.0 %
March 14, 2021 30.0 %
March 14, 2022 35.0 %
March 14, 2023 10.0 %
March 14, 2024 5.0 %

Q1 2017 Executive Officers 2015 Equity Incentive Plan 100,000
$ 79.30
⁽²⁾
Market & Performance Conditions Multiple tranches through March 2022

Q1 2017 Directors 2004 Non-Employee Director Option Plan 15,600
$ 79.02
⁽¹⁾
Time Based February 8, 2020 100.0 %

⁽¹⁾The fair value of the ~~grant was~~grants were determined by using the average closing price of our common stock on the ~~date~~dates the shares were issued.

⁽²⁾Share-based compensation for restricted stock awards with ~~performance~~market conditions is measured based on an estimate of shares expected to vest. We estimate the fair value of share-based compensation for restricted stock with market conditions using a Monte Carlo simulation. At the grant date our common stock price was $115.39. Based on the Monte Carlo simulation we expect 75.1% of the 66,000 shares to vest.

Options

During the ~~nine~~three months ended ~~September 30, 2017 and 2016,~~March 31, 2019, 1,500 ~~and 9,349~~ shares of common stock ~~respectively,~~ were issued in connection with the exercise of stock options ~~and the~~with net proceeds ~~received~~of less than $0.1 million. There were no stock option exercises during ~~both periods were $0.1 million.~~the three months ended March 31, 2018.

Vesting

The vesting requirements for ~~186,771~~108,435 restricted shares granted to our executives, directors and employees were satisfied during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019.

1012. Segment Reporting

We group our operating segments into reportable segments that provide similar products and services. Each operating segment has discrete financial information evaluated regularly by our chief operating decision maker in evaluating and assessing performance. We have two reportable segments: (i) Real Property Operations and (ii) Home Sales and Rentals. The Real Property Operations segment owns, operates, ~~develops, or~~ has an interest in a portfolio, ofand develops MH communities and RV communities, and is in the business of acquiring, operating, and expanding MH and RV communities. The Home Sales and Rentals segment offers ~~MH and RV park model~~manufactured home sales and leasing services to tenants and prospective tenants of our communities.

Transactions between our segments are eliminated in consolidation. Transient RV revenue is included in the Real Property Operations segment revenues and is expected to approximate ~~$77.8~~$129.7 million annually. ~~This transient~~Transient RV revenue was recognized ~~27.2 percent,~~ 20.2 ~~percent, and 36.9~~ percent in the first ~~second, and third quarters, respectively,~~quarter, and is expected to be ~~15.7~~23.0 percent, 41.5 percent, and 15.3 percent in the second, third, and fourth ~~quarter. In 2016, transient~~quarters, respectively. Transient revenue was ~~$58.2 million.~~$106.2 million for the year ended December 31, 2018. We recognized ~~17.5~~20.7 percent in the first quarter, ~~18.7~~20.3 percent in the second quarter, ~~45.2~~42.6 percent in the third quarter, and ~~18.6~~16.4 percent in the fourth quarter.

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
Real Property Operations Home Sales and Rentals Consolidated Real Property Operations Home Sales and Rentals Consolidated
Revenues $ 215,280
$ 45,954
$ 261,234
$ 200,770
$ 43,242
$ 244,012
Operating expenses/Cost of sales 82,295
31,869
114,164
78,922
28,285
107,207
Net operating income/Gross profit 132,985
14,085
147,070
121,848
14,957
136,805
Adjustments to arrive at net income / (loss):
Interest and other revenues, net 7,011
—
7,011
5,689
—
5,689
Home selling expenses —
(3,290 ) (3,290 ) —
(2,643 ) (2,643 )
General and administrative (15,677 ) (2,590 ) (18,267 ) (14,309 ) (2,266 ) (16,575 )
Transaction costs (2,153 ) (14 ) (2,167 ) (4,171 ) (20 ) (4,191 )
Depreciation and amortization (48,624 ) (15,608 ) (64,232 ) (47,323 ) (14,160 ) (61,483 )
Interest (32,082 ) (3 ) (32,085 ) (33,797 ) (3 ) (33,800 )
Interest on mandatorily redeemable preferred OP units (790 ) —
(790 ) (789 ) —
(789 )
Catastrophic weather related charges (7,718 ) (38 ) (7,756 ) —
—
—
Other income, net 3,345
—
3,345
—
—
—
Current tax benefit / (expense) 210
(172 ) 38
(242 ) (41 ) (283 )
Deferred tax benefit 81
—
81
—
—
—
Income from affiliate transactions —
—
—
500
—
500
Net income / (loss) 36,588
(7,630 ) 28,958
27,406
(4,176 ) 23,230
Less: Preferred return to preferred OP units 1,112
—
1,112
1,257
—
1,257
Less: Amounts attributable to noncontrolling interests 2,174
(398 ) 1,776
1,133
(254 ) 879
Net income / (loss) attributable to Sun Communities, Inc. 33,302
(7,232 ) 26,070
25,016
(3,922 ) 21,094
Less: Preferred stock distributions 1,955
—
1,955
2,197
—
2,197
Net income / (loss) attributable to Sun Communities, Inc. common stockholders $ 31,347
$ (7,232 ) $ 24,115
$ 22,819
$ (3,922 ) $ 18,897



	Three Months Ended March 31, 2019									Three Months Ended March 31, 2018
	Real Property Operations			Home Sales and Rentals			Consolidated			Real Property Operations			Home Sales and Rentals			Consolidated
Revenues	$	225,261		$	53,589		$	278,850		$	203,779		$	47,920		$	251,699
Operating expenses/Cost of sales	80,340			34,065			114,405			70,849			31,798			102,647
Net operating income/Gross profit	144,921			19,524			164,445			132,930			16,122			149,052
Adjustments to arrive at net income / (loss):
Interest and other revenues, net	8,480			—			8,480			6,276			—			6,276
Home selling expenses	—			(3,324		)	(3,324		)	—			(3,290		)	(3,290		)
General and administrative	(19,234		)	(2,653		)	(21,887		)	(17,187		)	(2,570		)	(19,757		)
Depreciation and amortization	(58,245		)	(18,311		)	(76,556		)	(50,508		)	(15,929		)	(66,437		)
Loss on extinguishment of debt	(653		)	—			(653		)	(196		)	—			(196		)
Interest	(34,010		)	(4		)	(34,014		)	(31,134		)	(4		)	(31,138		)
Interest on mandatorily redeemable preferred OP units / equity	(1,094		)	—			(1,094		)	(619		)	—			(619		)
Catastrophic weather related charges, net	(782		)	—			(782		)	2,357			(144		)	2,213
Remeasurement of marketable securities	267			—			267			—			—			—
Income / (loss) from nonconsolidated affiliates	—			344			344			—			(59		)	(59		)
Other income / (expense), net	1,860			38			1,898			(2,616		)	(1		)	(2,617		)
Current tax expense	(122		)	(92		)	(214		)	(96		)	(78		)	(174		)
Deferred tax benefit	217			—			217			347			—			347
Net income / (loss)	41,605			(4,478		)	37,127			39,554			(5,953		)	33,601
Less: Preferred return to preferred OP units / equity	1,323			—			1,323			1,080			—			1,080
Less: Amounts attributable to noncontrolling interests	1,259			(218		)	1,041			2,394			(300		)	2,094
Net income / (loss) attributable to Sun Communities, Inc.	39,023			(4,260		)	34,763			36,080			(5,653		)	30,427
Less: Preferred stock distributions	432			—			432			441			—			441
Net income / (loss) attributable to Sun Communities, Inc. common stockholders	$	38,591		$	(4,260	)	$	34,331		$	35,639		$	(5,653	)	$	29,986



	March 31, 2019								December 31, 2018
	Real Property Operations				Home Sales and Rentals		Consolidated		Real Property Operations		Home Sales and Rentals		Consolidated
Identifiable assets:
Investment property, net	$	5,929,030			$	542,226	$	6,471,256	$	5,586,444	$	531,872	$	6,118,316
Cash and cash equivalents	(7,233		)		29,179		21,946		24,343		25,968		50,311
Marketable securities	50,501			—	—		50,501		49,037		—		49,037
Inventory of manufactured homes	—				52,993		52,993		—		49,199		49,199
Notes and other receivables, net	163,362				16,452		179,814		145,673		14,404		160,077
Collateralized receivables, net	101,938				—		101,938		106,924		—		106,924
Other assets, net	165,743				54,471		220,214		140,027		36,135		176,162
Total assets	$	6,403,341			$	695,321	$	7,098,662	$	6,052,448	$	657,578	$	6,710,026

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Real Property Operations Home Sales and Rentals Consolidated Real Property Operations Home Sales and Rentals Consolidated
Revenues $ 592,864
$ 129,093
$ 721,957
$ 482,002
$ 117,683
$ 599,685
Operating expenses/Cost of sales 220,902
84,820
305,722
176,176
76,440
252,616
Net operating income/Gross profit 371,962
44,273
416,235
305,826
41,243
347,069
Adjustments to arrive at net income / (loss):
Interest and other revenues, net 18,587
—
18,587
15,459
—
15,459
Home selling expenses —
(9,391 ) (9,391 ) —
(7,240 ) (7,240 )
General and administrative (49,082 ) (7,106 ) (56,188 ) (40,300 ) (6,610 ) (46,910 )
Transaction costs (7,001 ) 11
(6,990 ) (27,990 ) 99
(27,891 )
Depreciation and amortization (144,143 ) (45,576 ) (189,719 ) (118,296 ) (41,269 ) (159,565 )
Extinguishment of debt (759 ) —
(759 ) —
—
—
Interest (95,754 ) (11 ) (95,765 ) (88,512 ) (10 ) (88,522 )
Interest on mandatorily redeemable preferred OP units (2,361 ) —
(2,361 ) (2,363 ) —
(2,363 )
Catastrophic weather related charges (8,075 ) (49 ) (8,124 ) —
—
—
Other income, net 5,341
(1 ) 5,340
—
—
—
Current tax expense 145
(278 ) (133 ) (445 ) (122 ) (567 )
Deferred tax benefit 745
—
745
—
—
—
Income from affiliate transactions —
—
—
500
—
500
Net income / (loss) 89,605
(18,128 ) 71,477
43,879
(13,909 ) 29,970
Less: Preferred return to preferred OP units 3,482
—
3,482
3,793
—
3,793
Less: Amounts attributable to noncontrolling interests 5,163
(984 ) 4,179
1,392
(932 ) 460
Net income / (loss) attributable to Sun Communities, Inc. 80,960
(17,144 ) 63,816
38,694
(12,977 ) 25,717
Less: Preferred stock distributions 6,233
—
6,233
6,748
—
6,748
Net income / (loss) attributable to Sun Communities, Inc. common stockholders $ 74,727
$ (17,144 ) $ 57,583
$ 31,946
$ (12,977 ) $ 18,969

September 30, 2017 December 31, 2016
Real Property Operations Home Sales and Rentals Consolidated Real Property Operations Home Sales and Rentals Consolidated
Identifiable assets:
Investment property, net $ 5,112,302
$ 461,523
$ 5,573,825
$ 5,019,165
$ 450,316
$ 5,469,481
Cash and cash equivalents 124,434
13,014
137,448
3,705
4,459
8,164
Inventory of manufactured homes —
25,741
25,741
—
21,632
21,632
Notes and other receivables, net 132,748
13,012
145,760
68,901
12,278
81,179
Collateralized receivables, net 134,015
—
134,015
143,870
—
143,870
Other assets, net 137,303
3,744
141,047
143,650
2,800
146,450
Total assets $ 5,640,802
$ 517,034
$ 6,157,836
$ 5,379,291
$ 491,485
$ 5,870,776

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~11.~~ 13. Income Taxes

We have elected to be taxed as a real estate investment trust (“REIT”) pursuant to Section 856(c) of the Internal Revenue Code of 1986, as amended (“Code”). In order for us to qualify as a REIT, at least 95 percent of our gross income in any year must be derived from qualifying sources. In addition, a REIT must distribute annually at least 90 percent of its REIT taxable income (calculated without any deduction for dividends paid and excluding capital gain) to its stockholders and meet other tests.

Qualification as a REIT involves the satisfaction of numerous requirements (on an annual and quarterly basis) established under highly technical and complex Code provisions for which there are limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. In addition, frequent changes occur in the area of REIT taxation which requires us 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, 2017~~March 31, 2019.

As a REIT, we generally will not be subject to United States (“U.S.”) federal income taxes at the corporate level on the ordinary taxable income we distribute to our stockholders as dividends. If we fail to qualify as a REIT in any taxable year, our taxable income could be subject to U.S. federal income tax at regular corporate ~~rates (including any applicable alternative minimum tax).~~rates. Even if we qualify as a REIT, we may be subject to certain state and local income taxes as well as U.S. federal income and excise taxes on our undistributed income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal, state, and local income taxes. The Company is also subject to local income taxes in Canada as a result of the acquisition of Carefree in 2016. We do not provide for withholding taxes on our undistributed earnings from our Canadian subsidiaries as they are reinvested and will continue to be reinvested indefinitely outside of the U.S.

Our taxable REIT subsidiaries are subject to U.S. federal income taxes as well as state and local income and franchise taxes. In addition, our Canadian subsidiaries are subject to income tax in Canada.

Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced, if necessary, by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence. Our temporary differences primarily relate to net operating loss carryforwards, depreciation and basis differences between tax and U.S. GAAP on our Canadian investments. ~~Generally,~~Our deferred tax assets that have a full valuation ~~allowances are recorded against all U.S. federal~~allowance relate to our taxable REIT subsidiaries (“TRS”) business. Net deferred tax ~~assets. For~~liabilities of $20.3 million for Canadian ~~purposes, a deferred tax liability of $22.5 million has~~entities have been recorded in relation to a corporate ~~entity~~entities and included in “Other liabilities” in our Consolidated Balance Sheets as of ~~September 30, 2017.~~March 31, 2019. Net deferred tax liabilities of $21.6 million (Canada) and $0.1 million (U.S.) have been recorded in relation to corporate entities and included in “Other liabilities” in our Consolidated Balance Sheets as of March 31, 2018. There are no U.S. federal deferred tax assets or liabilities included in our Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

We had no unrecognized tax benefits as of ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018. We do not expect significant ~~increases or decreases~~changes in tax positions that would result in unrecognized tax benefits ~~due to changes in tax positions~~ within one year of ~~September 30, 2017.~~March 31, 2019.

We recorded a current tax ~~benefit~~expense for federal, state, and Canadian income taxes of ~~approximately $0.1 million, and current tax expense of $0.3~~$0.2 million for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016, respectively, and $0.1 million and $0.6 million of~~a current tax expense ~~for the nine months ended September 30, 2017 and 2016, respectively.~~

~~We recorded $0.1~~of approximately $0.2 million ~~and $0.7 million of deferred tax benefit in our Consolidated Statements of Operations~~ for the three months ~~and nine~~ended March 31, 2018.

For the three months ended ~~September 30, 2017, respectively. There was no~~March 31, 2019 and 2018, we recorded a deferred tax benefit ~~or expense recorded for the three months or nine months ended September 30, 2016.~~of $0.2 million and $0.3 million, respectively.

~~SHS is currently under audit by the Internal Revenue Service for the tax year 2015.~~

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~12.~~ 14. Earnings Per Share

We have outstanding stock options, unvested restricted common shares, ~~Series A Preferred Stock,~~ and Series A-4 Preferred Stock, and our Operating Partnership has: outstanding common OP units; Series A-1 preferred OP units; Series A-3 preferred OP units; Series A-4 preferred OP units; Series C preferred OP units; Series D preferred OP units; and Aspen preferred OP Units, which, if converted or exercised, may impact dilution.

Computations of basic and diluted earnings ~~/ (loss)~~ per share were as follows (in thousands, except per share data):



	Three Months Ended March 31,
Numerator	2019			2018
Net income attributable to common stockholders	$	34,331		$	29,986
Allocation to restricted stock awards	(437		)	(303		)
Basic earnings: Net income attributable to common stockholders after allocation	33,894			29,683
Allocation to restricted stock awards	437			303
Diluted earnings: Net income attributable to common stockholders after allocation	$	34,331		$	29,986

Denominator
Weighted average common shares outstanding	85,520			78,855
Add: dilutive stock options	1			2
Add: dilutive restricted stock	512			607
Diluted weighted average common shares and securities	86,033			79,464
Earnings per share available to common stockholders after allocation:
Basic	$	0.40		$	0.38
Diluted	$	0.40		$	0.38

Three Months Ended September 30, Nine Months Ended September 30,
Numerator 2017 2016 2017 2016
Net income attributable to common stockholders $ 24,115
$ 18,897
$ 57,583
$ 18,969
Allocation to restricted stock awards (189 ) (135 ) (461 ) (22 )
Basic earnings: Net income attributable to common stockholders after allocation 23,926
18,762
57,122
18,947
Allocation to restricted stock awards 189
135
461
22
Diluted earnings: Net income attributable to common stockholders after allocation $ 24,115
$ 18,897
$ 57,583
$ 18,969

Denominator
Weighted average common shares outstanding 78,369
68,655
75,234
63,716
Add: dilutive stock options 2
8
2
10
Add: dilutive restricted stock 437
406
610
420
Diluted weighted average common shares and securities 78,808
69,069
75,846
64,146
Earnings per share available to common stockholders after allocation:
Basic $ 0.31
$ 0.27
$ 0.76
$ 0.30
Diluted $ 0.31
$ 0.27
$ 0.76
$ 0.30

We have excluded certain convertible securities from the computation of diluted earnings per share because the inclusion of these securities would have been anti-dilutive for the periods presented. The following table presents the outstanding securities that were excluded from the computation of diluted earnings per share as of ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (in thousands):



	As of March 31,
	2019	2018
Common OP units	2,719	2,739
Series A-4 preferred stock	1,063	1,085
Series A-3 preferred OP units	40	40
Series A-1 preferred OP units	328	342
Series D preferred OP units	489	—
Aspen preferred OP units	1,284	1,284
Series A-4 preferred OP units	410	422
Series C preferred OP units	314	316
Total securities	6,647	6,228

As of September 30,
2017 2016
Common OP units 2,757
2,838
Series A-1 preferred OP units 349
376
Series A-3 preferred OP units 40
40
Series A-4 preferred OP units 425
743
Series A-4 preferred stock 1,085
1,682
Series C preferred OP units 316
333
Aspen preferred OP units 1,284
1,284
Total securities 6,256
7,296

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13. ~~Derivative Instruments and Hedging Activities~~

Our objective in using interest rate derivatives is to manage exposure to interest rate movements thereby minimizing the effect of interest rate changes and the effect it could have on future cash flows. Interest rate caps are used to accomplish this objective. We do not enter into derivative instruments for speculative purposes nor do we have any swaps in a hedging arrangement.

~~The following table provides the terms of our interestrate derivative contracts that were in effect as of~~ ~~September 30, 2017~~:

Type Purpose Effective Date Maturity Date
Notional
(in millions)
Based on Variable Rate Cap Rate Spread Effective Fixed Rate
Cap Cap Floating Rate 4/1/2015 4/1/2018 $ 150.1
3 Month LIBOR 3.1690% 9.0000% —% N/A
Cap Cap Floating Rate 10/3/2016 5/1/2023 $ 9.6
3 Month LIBOR 3.9690% 11.0200% —% N/A

~~In accordance with ASC Topic 815, “Derivatives and Hedging,~~”derivative instruments are recorded at fair value in “Other assets, net” or “Other liabilities” on the Consolidated Balance Sheets. As of September 30, 2017 and December 31, 2016, the fair value of our derivatives was zero.

1415. Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, accounts and notes receivable, accounts payable, derivative instruments, and debt.

ASC Topic 820 “Fair Value Measurements and Disclosures,” requires disclosure regarding determination of fair value for assets and liabilities and establishes a hierarchy under which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumption. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:

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

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

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The following methods and assumptions were used in order to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

~~Derivative Instruments~~Marketable Securities

In November 2018, we purchased marketable securities on the Australian Securities Exchange (“ASX”) for total consideration of $54 million US. The ~~derivative instruments~~marketable securities held by us accounted for under the ASC 321 “Investment Equity Securities” are ~~interest rate cap agreements for~~measured at fair value. Any change in fair value is recognized in the Consolidated Statement of Operations in Remeasurement of marketable securities in accordance with ASU 2016-01 “Financial Instruments - Overall (Subtopic 825-10): Recognition and measurement of financial assets and financial liabilities.” The fair value is measured by the quoted unadjusted share price of which ~~quoted market prices are indirectly available. For those derivatives, we use model-derived valuations in which all significant inputs and significant value drivers are observable~~is readily available in active markets ~~provided by brokers or dealers to determine the fair value of derivative instruments on a recurring basis~~ (Level 2)1). ~~Refer to Note~~ 13~~, “Derivative Instruments and Hedging Activities.”~~

Installment Notes Receivable on Manufactured Homes

The net carrying value of the installment notes receivable on manufactured homes estimates the fair value as the interest rates in the portfolio are comparable to current prevailing market rates (Level 2). Refer to Note 45, “Notes and Other Receivables.”

~~SUN COMMUNITIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Long-Term Debt and Lines of Credit

The fair value of long-term debt (excluding the secured borrowing) is based on the estimates of management and on rates currently quoted, rates currently prevailing for comparable loans, and instruments of comparable maturities (Level 2). Refer to Note 7,9, “Debt and Lines of Credit.”

Collateralized Receivables and Secured Borrowings

The fair value of these financial instruments offset each other as our collateralized receivables represent a transfer of financial assets and the cash proceeds received from these transactions have been classified as a secured borrowing on the Consolidated Balance Sheets. The net carrying value of the collateralized receivables estimates the fair value as the interest rates in the portfolio are comparable to current prevailing market rates (Level 2). Refer to Note 3,4, “Collateralized Receivables and Transfers of Financial Assets.”

Financial Liabilities

We estimate the fair value of our contingent consideration liability based on discounting of future cash flows using market interest rates and adjusting for non-performance risk over the remaining term of the liability (Level 2).

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair market values due to the short-term nature of these instruments.

The table below sets forth our financial assets and liabilities that required disclosure of fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2019. The table presents the carrying values and fair values of our financial instruments as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, that were measured using the valuation techniques described above (in thousands). The table excludes other financial instruments such as cash and cash equivalents, accounts receivable, and accounts payable as the carrying values associated with these instruments approximate fair value since their maturities are less than one year.



	March 31, 2019				December 31, 2018
Financial assets	Carrying Value		Fair Value		Carrying Value		Fair Value
Marketable securities	$	50,501	$	50,501	$	49,037	$	49,037
Installment notes receivable on manufactured homes, net	$	109,256	$	109,256	$	112,798	$	112,798
Collateralized receivables, net	$	101,938	$	101,938	$	106,924	$	106,924
Financial liabilities
Debt (excluding secured borrowings)	$	2,948,929	$	2,906,358	$	2,888,572	$	2,757,649
Secured borrowings	$	102,676	$	102,676	$	107,731	$	107,731
Lines of credit	$	396,512	$	396,512	$	128,000	$	128,000
Other liabilities (contingent consideration)	$	4,702	$	4,702	$	4,640	$	4,640

September 30, 2017 December 31, 2016
Financial assets Carrying Value Fair Value Carrying Value Fair Value
Installment notes receivable on manufactured homes, net $ 97,990
$ 97,990
$ 59,320
$ 59,320
Collateralized receivables, net 134,015
134,015
143,870
143,870
Financial liabilities
Debt (excluding secured borrowings) $ 2,868,543
$ 2,837,449
$ 2,865,470
$ 2,820,680
Secured borrowings 134,884
134,884
144,477
144,477
Lines of credit —
—
100,095
98,640
Other liabilities (contingent consideration) 11,115
11,115
10,011
10,011

~~15.~~ 16. Recent Accounting Pronouncements

Recent Accounting Pronouncements - Adopted

In ~~May 2017,~~February 2016, the FASB issued ~~Accounting Standards Update (“ASU”) 2017-09~~ ~~“Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.”~~ ~~This update provides clarity and reduces diversity~~ASC 2016-02 codified in ~~practice and cost and complexity when applying~~ASC Topic 842, Leases, which amends the guidance in former ASC Topic ~~718, regarding a change~~840, Leases. On January 1, 2019, we adopted ASC 2016-02. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for those leases classified as operating leases and disclose key information about leasing arrangements. As amended by ASU 2018-11, comparative reporting periods are presented in accordance with Topic 840, while periods subsequent to the effective date are presented in accordance with Topic 842. The Company elected the package of practical expedients, which permits the Company not to reassess expired or existing contracts containing a lease, the lease classification for expired or existing contracts, initial direct costs for any existing leases. The Company elected not to allocate lease obligation between lease and non-lease components of our agreements for both leases where we are a lessor and leases where we are a lessee. The Company did not elect the hindsight practical expedient, which permits the company to use hindsight in determining the lease terms ~~or conditions~~and impairment implications. The Company did not elect to use a portfolio approach in the valuation of ROU assets and corresponding liabilities. Some ROU assets include an extension option, which is included in the ROU assets and liabilities only if we are reasonably certain to exercise.

Lessor Accounting

Our income from real property and rental home revenue streams are derived from rental agreements where we are the lessor. Our recognition of rental revenue remains mainly consistent with previous guidance, apart from the narrower definition of initial direct costs that can be capitalized. Our leases with customers are classified as operating leases and rental revenue is recognized on a share-based payment award. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that year. We will apply this guidance to modifications that occur on or afterstraight-line basis over the ~~effective date.~~customer lease term.

~~In January 2017, the FASB issued ASU 2017-01~~ ~~“Business Combinations (Topic 805): Clarifying the Definition of a Business.”~~ ~~This update clarifies~~ASC 842 limits the definition of initial direct costs to only the incremental costs of signing a ~~business with~~lease. Internal sales employees’ compensation, payroll-related fringe benefits, certain legal fees rendered prior to the ~~objective~~execution of ~~adding guidance to assist entities with evaluating whether transactions should~~a lease, negotiation costs, advertising and other origination effort costs no longer meet the definition of initial direct costs under the new standard, and will be accounted for as ~~acquisitions (or disposals)~~general and administrative expense in our condensed consolidated statements of ~~assets or businesses.~~operations. ASC 842 permits the capitalization of direct commission costs. The ~~definition~~application of ASC 842 resulted in an immaterial impact on the statement of consolidated operations.

Lease income from tenants is recognized on a ~~business affects many areas~~straight-line basis over the terms of ~~accounting including acquisitions, disposals, goodwill,~~the relevant lease agreement and ~~consolidation. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods~~is included within ~~that year, with early application allowed for certain transactions. Upon adoption~~income from real property, rental home revenue and ancillary revenue on the Consolidated Statements of ~~this standard, we expect that a majority of our future property acquisitions will be considered asset acquisitions.~~Operations.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the resident is placed on non-accrual status and revenue is recognized when cash payments are received.

Lessee Accounting

We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for executive office spaces, ground leases at certain communities, and certain equipment leases. The ROU asset and ROU liabilities are included within Other assets, net and Other liabilities on the Consolidated Balance Sheets.

For operating leases with a term greater than one year, the company recognizes the ROU assets and liabilities related to the lease payments on the Consolidated Balance Sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. The ROU assets represent our right to use the underlying assets for the term of the lease and the lease liabilities represent our obligation to make lease payments arising for the agreements. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. The ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus unamortized initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The ROU asset is periodically reduced by impairment losses. As of March 31, 2019, we have not encountered any impairment losses. Variable lease payments, except for the ones that depend on index or rate, are excluded from the calculation of the ROU assets and lease liabilities and are recognized as variable lease expense in the consolidated Statement of Operations in the period in which they are incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. The Lease liability costs are amortized over the straight-line method over the term of the lease. Operating leases with a term of less than one year are recognized as a lease expense over the term of the lease, with no asset or liability recognized on the Consolidated Balance Sheets.

Finance leases where we are the lessee are included in Other assets, net and Other liabilities on our Consolidated Balance Sheets. The lease liabilities are initially measured in the same manner as operating leases and are subsequently measured at amortized cost using the effective interest method. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For finance leases the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to us, or we are reasonably certain to exercise an option to purchase the underlying asset. In ~~November 2016,~~those cases, the ~~FASB issued~~ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability. ROU assets are periodically reduced by impairment losses. As of March 31, 2019, we have not encountered any impairment losses. Refer to Refer to Note 18, “Leases,” for information regarding leasing activities.

On January 1, 2018, we adopted ASU 2014-09 “Revenue from Contracts with Customers (Topic 606).” Refer to Note 2, “Revenue” for information regarding our adoption of this guidance.

On January 1, 2018, we adopted ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business” and now capitalize direct acquisition related costs as part of the purchase price of asset acquisitions. Under previous guidance, substantially all of our property acquisitions were accounted for as business combinations with identifiable assets and liabilities measured at fair value, and acquisition related costs expensed as incurred.

On January 1, 2018, we adopted ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash.” This update ~~requires~~required inclusion of restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ~~The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that year. Upon adoption of this guidance, we will include~~

Our restricted cash consists of amounts primarily held in deposit for tax, insurance and repair escrows held by lenders in accordance with certain debt agreements. Restricted cash is included as a component of Other assets, net on the Consolidated Balance Sheets. Changes in restricted cash ~~equivalents within the reconciliation of the net change~~are reported in ~~cash and cash equivalents on~~ our Consolidated Statements of Cash ~~Flows. Restricted~~Flows as operating, investing or financing activities based on the nature of the underlying activity.

The following table reconciles our beginning-of-period and end-of-period balances of cash, cash equivalents and restricted cash ~~equivalents, which are included within Other assets, net in our Consolidated Balance Sheets, were $19.9 million and $17.1 million at September 30, 2017 and December 31, 2016, respectively.~~for the periods shown (in thousands):

SUN COMMUNITIES, INC.

~~In October 2016, the FASB issued ASU 2016-16~~ ~~“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”~~ This update requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that year. Upon adoption of this standard, there will be no material impact to our Consolidated Financial Statements.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~In August 2016, the FASB issued ASU 2016-15~~ ~~“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”~~ This update addresses eight specific cash flow issues with the objective of reducing existing diversity in practice. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that year. Upon adoption of this standard, there will be no material impact to our Consolidated Financial Statements.



	March 31, 2019		December 31, 2018		March 31, 2018		December 31, 2017
Cash and cash equivalents	$	21,946	$	50,311	$	15,153	$	10,127
Restricted cash	12,229		11,951		12,271		13,382
Cash, cash equivalents and restricted cash	$	34,175	$	62,262	$	27,424	$	23,509

Recent Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments.” This update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are in the initial phases of evaluating how this guidance will impact our accounting policies regarding assessment of, and allowance for, loan losses.

~~In March 2016, the FASB issued ASU 2016-09 “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~” The amendments in this update are intended to simplify several aspects of the accounting for share-based payments. We adopted these amendments as of January 1, 2017. The main provisions of this update regarding excess tax benefits did not have an impact on our Consolidated Financial Statements due to our status as a REIT for taxation purposes. We have elected to continue estimating the number of shares expected to vest in order to determine compensation cost, and were previously classifying, as financing activity, cash paid by us for employee taxes when shares were withheld to cover minimum statutory requirements.

~~In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).~~” The core principle of this update is that a lessee should recognize the assets and liabilities that arise from leases while the accounting by a lessor is largely unchanged from that applied under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Our income from real property and rental home revenue streams is derived from rental agreements where we are the lessor. As noted above, the lessor accounting model is largely unchanged by this update. We are the lessee in other arrangements, primarily for our executive offices, ground leases at five communities, and certain equipment. We are currently evaluating our inventory of such leases to determine which will require recognition of right of use assets and corresponding lease liabilities, and the related disclosure requirements thereto.

~~In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)~~” (“ASU 2014-09”). The objective of this amendment is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this amendment, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. This amendment applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. An entity should apply the amendments using either the full retrospective approach or retrospectively with a cumulative effect of initially applying the amendments recognized at the date of initial application. In July 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We anticipate adopting ASU 2014-09 and the related updates subsequently issued by the FASB in January 2018, via the modified retrospective approach. Applicability of the standard updates to our revenue streams and other considerations are summarized below.

~~Income from real property~~ ~~- is derived from rental agreements whereby we lease land to residents in our communities. We account for the lease components of these rental agreements pursuant to ASC 840~~ ~~“Leases”~~ ~~and the non-lease components under ASC 605~~ ~~“Revenue Recognition.”~~

~~Revenue from home sales~~ ~~- is recognized pursuant to ASC 605~~ ~~“Revenue Recognition,”~~ as the manufactured homes are tangible personal property that can be located on any parcel of land. The manufactured homes are not permanent fixtures or improvements to the underlying real estate, and are therefore not considered by us to be subject to the guidance in ASC 360-20 ~~“Real Estate Sales.”~~

~~Rental home revenue~~ ~~- is comprised of rental agreements whereby we lease homes to residents in our communities. We account for these revenues pursuant to ASC 840~~ ~~“Leases.”~~

~~Ancillary revenues~~ ~~- are primarily comprised of restaurant, golf, merchandise and other activities at our RV communities. These revenues are recognized pursuant to ASC 605~~ ~~“Revenue Recognition,”~~ ~~at point of sale to customers as our performance obligations are then satisfied.~~

~~Interest income~~ - on our notes receivable will continue to be recognized as revenue, but presented separately from revenue from contracts with customers, as interest income is not in the scope of ASU 2014-09 and the related updates subsequently issued by the FASB.

~~Broker commissions and other revenues, net~~ ~~- is primarily comprised of (i) brokerage commissions that we account for on a net basis pursuant to ASC 605~~ ~~“Revenue Recognition,”~~ ~~as our performance obligation is to arrange for a third party to transfer a home to a customer; and (ii) notes receivable loss reserves.~~

As detailed above, our revenues from home sales, ancillary revenues, and broker commissions will be in the scope of the new guidance. Upon adoption, we will present contract assets and liabilities, as applicable, when one party to a transaction has performed and the other has not. Further, we will expand our disclosures regarding these revenue streams, as applicable, to discuss our contract balances and performance obligations and satisfaction thereof. Adoption of this standard will have no material impact to our Consolidated Financial Statements.

1617. Commitments and Contingencies

Legal Proceedings

We are involved in various legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have a material adverse impact on our results of operations or financial condition.

~~17.~~ ~~Subsequent Event~~18. Leases

~~On October 4, 2017, we entered into a Second Amendment to Rights Agreement (the “Amendment”), which amended the Rights Agreement dated June 2, 2008,~~Lessee accounting:

Future minimum lease payments under non-cancellable leases as ~~amended, between the Company and Computershare Trust Company, N.A., as the rights agent. The Amendment accelerated the scheduled expiration date~~ of the ~~rights issued pursuant~~quarter ended March 31, 2019 where we are the lessee include:



	Operating Leases			Finance Leases
2019 (excluding the three months ended March 31, 2019)	$	1,766		$	112
2020	2,397			120
2021	2,446			120
2022	2,483			120
2023	2,509			120
Thereafter	13,725			4,060
Total undiscounted lease payments	$	25,326		$	4,652
Less: Imputed interest	(6,213		)	(539		)
Total lease liabilities	$	19,113		$	4,113

ROU assets and lease liabilities from operating lease as included within other assets, net and other liabilities in the Consolidated Balance Sheet were $47.7 million and $19.1 million, respectively, as of March 31, 2019. ROU assets from below market leases included within other assets, net in the Consolidated Balance Sheet was $29.1 as of December 31, 2018. No lease liabilities for operating leases were recognized as of December 31, 2018.

ROU assets and lease liabilities from finance lease as included within land and other liabilities in the Consolidated Balance Sheets were $4.1 million respectively as of March 31, 2019. Capital lease assets and liabilities from finance lease as included within land and other liabilities in the Consolidated Balance Sheets were $4.1 million respectively as of December 31, 2018.

Lease expense, as included in our consolidated statement of operations for the respective periods and additional information regarding lease terms are as follows (in thousands except*):

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	March 31, 2019				March 31, 2018
Lease expense				Lease expense
Finance lease expense:				Capital lease expense:
Amortization of right - of-use assets	$	18		Amortization of lease	$	18
Interest on lease liabilities	26			Interest on lease liabilities	26
Operating lease expense	822			Operating lease expense	851
Variable lease expense	319			Below market ground lease amortization expense	223
Total lease expense	1,185				267

Other information				Other information
Cash paid for amounts included in the measurement of lease liabilities				Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow used for operating leases	450			Operating cash flow used for operating leases	549
Financing cash flow used for finance leases	8			Financing cash flow used for finance leases	8
Right of use asset obtained (land) in exchange for new finance lease liabilities	4,116

	March 31, 2019				December 31, 2018
Right of use asset obtained in exchange for new operating lease liabilities	18,775
Right of use asset obtained relative to below market operating leases	28,930			Below market ground lease intangibles asset	29,118
Total right of use asset from operating leases	47,705

Weighted - average remaining lease term - finance leases (in years)*	5.25
Weighted - average remaining lease term - operating leases (in years)*	13.56
Weighted - average discount rate - finance leases (annual)*	2.50		%
Weighted - average discount rate - operating leases (annual)*	4.11		%

As of the quarter ended March 31, 2019, we have an additional executive office space operating lease that has not yet commenced of $2.9 million. The lease will commence in November 2019 with a lease term of seven years.

Related Party Leases: Lease of Executive Offices. Gary A. Shiffman, together with certain of his family members, indirectly owns an equity interest of approximately 28.1 percent in American Center LLC, the entity from which we lease office space for our principal executive offices. Each of Brian M. Hermelin, Ronald A. Klein and Arthur A. Weiss indirectly owns a less than one percent interest in American Center LLC. Mr. Shiffman is our Chief Executive Officer and Chairman of the Board. Each of Mr. Hermelin, Mr. Klein and Mr. Weiss is a director of the Company. Under this agreement, we lease approximately 103,100 rentable square feet of permanent space. The initial term of the lease is until October 31, 2026, and the average gross base rent is $18.55 per square foot until October 31, 2019 with graduated rental increases thereafter. Each of Mr. Shiffman, Mr. Hermelin, Mr. Klein and Mr. Weiss may have a conflict of interest with respect to his obligations as our officer and/or director and his ownership interest in American Center LLC.

Lessor Accounting:

We are not the lessor for any finance leases as of March 31, 2019. Over 99% of our operating leases where we are the lessor are either month to month or for a time period not to exceed one year. As of the reporting date, future minimum lease payments would

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

not exceed twelve months. Similarly, over 95% of our investment property, net on the Consolidated balance sheets, and related depreciation amounts, relate to assets whereby we are the lessor under an operating lease.

19. Subsequent Events

Subsequent to the ~~Rights Agreement, commonly referred to as~~quarter ended March 31, 2019, we acquired a “poison pill,” (the “Rights”) from June 9, 2018 to October 4, 2017. At the time of the termination of the Rights Agreement, all of the Rights distributed to holders of the Company’s common stock pursuant to the Rights Agreement expired and are no longer outstanding.RV community located in New Hampshire for $2.7 million.

On October 13, 2017, we announced a notice of redemption to the holders of our 7.125% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”), which we have elected to redeem on November 14, 2017. Holders of the Series A Preferred Stock will receive cash in the amount of $25.00, plus all accrued and unpaid dividends, which is equal to an aggregate payment of $25.143490 per share. In the aggregate, we will pay $85.5 million to redeem all of the Series A Preferred stock. As of September 30, 2017, there were 3,400,000 shares of Series A Preferred Stock outstanding. After the redemption, no Series A Preferred Stock will remain outstanding.

We have evaluated our Consolidated Financial Statements for subsequent events through the date that this Form 10-Q was issued.

~~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 Notes filed herewith, along with our ~~2016~~2018 Annual Report. Capitalized terms are used as defined elsewhere in this Quarterly Report on Form 10-Q.

OVERVIEW

We are a fully integrated, self-administered and self-managed REIT. As of ~~September 30, 2017,~~March 31, 2019, we owned and operated or ~~had~~held an interest in a portfolio of ~~348~~379 developed properties located in 2931 states throughout the U.S. and one province in Canada, including ~~229~~235 MH communities, 89113 RV communities, and 3031 properties containing both MH and RV sites.

We have been in the business of acquiring, operating, developing, and expanding MH and RV communities since 1975. We lease individual sites with utility access for placement of manufactured homes and RVs to our customers. We are also engaged through SHS in the marketing, selling, and leasing of new and pre-owned homes to current and future residents in our communities. The operations of SHS support and enhance our occupancy levels, property performance, and cash flows.

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 ~~2016~~2018 Annual Report.

NON-GAAP FINANCIAL MEASURES

In addition to the results reported in accordance with GAAP in our “Results of Operations” below, we have provided information regarding net operating income (“NOI”) and funds from operations (“FFO”) as supplemental performance measures. We believe NOI and FFO are appropriate measures given their wide use by and relevance to investors and analysts following the real estate industry. NOI provides a measure of rental operations and does not factor in depreciation, amortization and non-property specific expenses such as general and administrative expenses. FFO, reflecting the assumption that real estate values rise or fall with market conditions, principally adjusts for the effects of GAAP depreciation/amortization of real estate assets. In addition, NOI and FFO are commonly used in various ratios, pricing multiples/yields and returns and valuation calculations used to measure financial position, performance and value.

NOI is derived from revenues minus property operating expenses and real estate taxes. NOI ~~does not represent cash generated from~~is a non-GAAP financial measure that we believe is helpful to investors as a supplemental measure of operating ~~activities in accordance with~~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 measure when evaluating performance and growth of particular properties and/or groups of properties. The principal limitation of NOI is that it excludes depreciation, amortization, interest expense and non-property specific expenses such as general and administrative expenses, all of which are significant costs. Therefore, NOI is a measure of the operating performance of our properties rather than of the Company overall.

We believe that GAAP ~~and~~net income (loss) is the most directly comparable measure to NOI. NOI should not be considered to be an alternative to GAAP net income (loss) ~~(determined in accordance with GAAP)~~ as an indication of ~~the Company’s~~our financial performance or ~~to be an alternative to~~GAAP cash flow from operating activities ~~(determined in accordance with GAAP)~~ as a measure of ~~the Company’s~~our liquidity; nor is it indicative of funds available for ~~the Company’s~~our cash needs, including ~~its~~our ability to make cash distributions. ~~The Company believes that net income (loss) is the most directly comparable GAAP measurement to NOI.~~ Because of the inclusion of items such as interest, depreciation, and amortization, the use of GAAP net income (loss) as a performance measure is limited as these items may not accurately reflect the actual change in market value of a property, in the case of depreciation and in the case of interest, may not necessarily be linked to the operating performance of a real estate asset, as it is often incurred at a parent company level and not at a property level. The Company believes that NOI is helpful to investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. The Company uses NOI as a key management tool when evaluating performance and growth of particular properties and/or groups of properties. The principal limitation of NOI is that it excludes depreciation, amortization interest expense and non-property specific expenses such as general and administrative expenses, all of which are significant costs. Therefore, NOI is a measure of the operating performance of the properties of the Company rather than of the Company overall.

FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as GAAP net income (loss) ~~computed in accordance with GAAP,~~, excluding gains ~~or losses~~(or losses) from sales of depreciable operating property, plus real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. ~~The Company considers~~ FFO ~~to be~~is a non-GAAP financial measure that management believes is a useful supplemental measure ~~for reviewing comparative~~of our operating ~~and financial performance because, by~~performance. By excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates).

~~SUN COMMUNITIES, INC.~~

, FFO provides

~~FFO provides~~

a performance measure that, when compared ~~period over period,~~period-over-period, reflects the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not readily apparent from GAAP net income (loss). Management believes ~~that~~ the use of FFO has been beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. FFO is computed in accordance with the Company’s interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. The CompanyWe also ~~uses~~use FFO excluding ~~certain items, which excludes~~ certain gain and loss items that management considers unrelated to the operational and financial performance of our core ~~business.~~business (“Core FFO”). We believe that ~~this~~Core FFO provides ~~investors with another financial~~enhanced comparability for investor evaluations of period-over-period results.

We believe that GAAP net income (loss) is the most directly comparable measure to FFO. The principal limitation of ~~our operating~~FFO is that it does not replace GAAP net income (loss) as a performance ~~that is more comparable when evaluating period over period results.~~

measure or GAAP cash flow from operations as a liquidity measure. Because FFO excludes significant economic components of GAAP net income (loss) including depreciation and amortization, FFO should be used as ~~an adjunct~~a supplement to GAAP net income (loss) and not as an alternative to net income (loss). The principal limitation of FFO is that it does not represent cash flow from operations as defined by GAAP and is a supplemental measure of performance that does not replace net income (loss) as a measure of performance or net cash provided by operating activities as a measure of liquidity. In addition,it. Further, FFO is not intended as a measure of a REIT’s ability to meet debt principal repayments and other cash requirements, nor as a measure of working capital. FFO ~~only provides investors with an additional performance measure that, when combined with measures computed~~is calculated in accordance with ~~GAAP such as net income (loss), cash flow from operating activities, investing activities and financing activities, provide investors with an indication~~our interpretation of ~~our ability to service debt and to fund acquisitions and other expenditures. Other REITs may use different methods for calculating FFO, accordingly, our FFO~~standards established by NAREIT, which may not be comparable to FFO reported by other ~~REITs.~~REITs that interpret the NAREIT definition differently.

~~SUN COMMUNITIES, INC.~~

RESULTS OF OPERATIONS

We report operating results under two segments: Real Property Operations and Home Sales and Rentals. The Real Property Operations segment owns, operates, develops, or has an interest in, a portfolio of MH and RV communities throughout the U.S. and in Canada, and is in the business of acquiring, operating, and expanding MH and RV communities. The Home Sales and Rentals segment offers MH and RV park model sales and leasing services to tenants and prospective tenants of our communities. We evaluate segment operating performance based on NOI and gross profit. Refer to Note ~~10,~~12, “Segment Reporting,” in our accompanying Consolidated Financial Statements for additional information.

COMPARISON OF THE THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2019 AND ~~2016~~2018

SUMMARY STATEMENTS OF OPERATIONS

The following table summarizes our consolidated financial results and reconciles net income to NOI for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (in thousands):


	Three Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2019			2018
Net income attributable to Sun Communities, Inc., common stockholders:	$	24,115		$	18,897		$	34,331		$	29,986
Other revenues	(7,011		)	(5,689		)	(8,480		)	(6,276		)
Home selling expenses	3,290			2,643			3,324			3,290
General and administrative	18,267			16,575			21,887			19,757
Transaction costs	2,167			4,191
Depreciation and amortization	64,232			61,483			76,556			66,437
Catastrophic weather related charges, net							782			(2,213		)
Loss on extinguishment of debt							653			196
Interest expense	32,875			34,589			35,108			31,757
Catastrophic weather related charges	7,756			—
Other income, net	(3,345		)	—
Current tax benefit / (expense)	(38		)	283
Remeasurement of marketable securities							(267		)	—
Other (income) / expense, net							(1,898		)	2,617
(Income) / loss from nonconsolidated affiliates							(344		)	59
Current tax expense							214			174
Deferred tax benefit	(81		)	—			(217		)	(347		)
Income from affiliate transactions	—			(500		)
Preferred return to preferred OP units	1,112			1,257
Preferred return to preferred OP units / equity							1,323			1,080
Amounts attributable to noncontrolling interests	1,776			879			1,041			2,094
Preferred stock distributions	1,955			2,197
Preferred stock distribution							432			441
NOI / Gross profit	$	147,070		$	136,805		$	164,445		$	149,052


	Three Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2019			2018
Real Property NOI	$	125,961		$	114,851		$	143,540		$	131,745
Rental Program NOI	22,060			21,213			26,061			24,102
Home Sales NOI / Gross profit	8,103			9,276			10,341			8,329
Ancillary NOI / Gross profit	7,024			6,997			1,381			1,185
Site rent from Rental Program (included in Real Property NOI) ⁽¹⁾	(16,078		)	(15,532		)	(16,878		)	(16,309		)
NOI / Gross profit	$	147,070		$	136,805		$	164,445		$	149,052

⁽¹⁾ The renter’s monthly payment includes the site rent and an amount attributable to the leasing of the home. The site rent is reflected in the Real Property Operations segment. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated with implementation of the Rental Program, and to assess the overall growth and performance of Rental Program and financial impact on our operations.

~~SUN COMMUNITIES, INC.~~

REAL PROPERTY OPERATIONS – TOTAL PORTFOLIO

The following tables reflect certain financial and other information for our Total Portfolio as of and for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018:


	Three Months Ended September 30,									Three Months Ended March 31,
Financial Information (in thousands)	2017		2016		Change			% Change		2019		2018		Change			% Change
Income from real property	$	198,263	$	184,324	$	13,939		7.6	%	$	216,779	$	197,211	$	19,568		9.9	%
Property operating expenses:
Payroll and benefits	19,168		18,436		732			4.0	%	18,871		15,658		3,213			20.5	%
Legal, taxes, and insurance	1,921		1,475		446			30.2	%	2,384		2,482		(98		)	(3.9	)%
Utilities	23,765		21,710		2,055			9.5	%	24,428		22,553		1,875			8.3	%
Supplies and repair	7,701		7,394		307			4.2	%	6,354		5,256		1,098			20.9	%
Other	6,694		8,074		(1,380		)	(17.1	)%	5,872		5,681		191			3.4	%
Real estate taxes	13,053		12,384		669			5.4	%	15,330		13,836		1,494			10.8	%
Property operating expenses	72,302		69,473		2,829			4.1	%	73,239		65,466		7,773			11.9	%
Real Property NOI	$	125,961	$	114,851	$	11,110		9.7	%	$	143,540	$	131,745	$	11,795		9.0	%


	As of September 30,									As of March 31,
Other Information	2017			2016			Change			2019			2018			Change
Number of properties	348			339			9			379			350			29

MH occupancy	95.2		%							95.4		%
RV occupancy	100.0		%							100.0		%
MH & RV blended occupancy ⁽¹⁾	96.2		%	96.2		%	—		%	96.4		%	95.8		%	0.6		%

Sites available for development	10,389			10,425			(36		)	11,246			9,345			1,901

Monthly base rent per site - MH	$	528		$	511		$	17		$	565		$	543		$	22
Monthly base rent per site - RV ⁽²⁾	$	430		$	419		$	11		$	457		$	436		$	21
Monthly base rent per site - Total	$	507		$	491		$	16		$	526		$	505		$	21


⁽¹⁾	Overall occupancy ~~(percent)~~percentage includes MH and annual RV sites, and excludes transient RV sites.


⁽²⁾	Monthly base rent pertains to annual RV sites and excludes transient RV sites.

The ~~$11.1~~$11.8 million increase in Real Property NOI consists of ~~$3.9 million from newly acquired properties and $7.2~~$9.5 million from Same Communities as detailed ~~below.~~below and $2.3 million from acquired properties.

~~SUN COMMUNITIES, INC.~~

REAL PROPERTY OPERATIONS – SAME ~~COMMUNITY~~COMMUNITIES

A key management tool used when evaluating performance and growth of our properties is a comparison of our Same Communities. Same Communities consist of properties owned and operated ~~throughout 2017 and 2016.~~since January 1, 2018. The Same Community data may change from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions, or unique situations. The Same Community data in this Form 10-Q includes all properties which we have owned and operated continuously since January 1, ~~2016. All communities from the American Land Lease portfolio acquisition are included within Same Communities.~~2018.

In order to evaluate the growth of the Same Communities, management has classified certain items differently than our GAAP statements. The reclassification difference between our GAAP statements and our Same Community portfolio is the reclassification of water and sewer revenues from income from real property to utilities. A significant portion of our utility charges are re-billed to our residents. We ~~reclassify these amounts~~have reclassified $8.4 million and $8.1 million for the three months ended March 31, 2019 and 2018, respectively, to reflect the utility expenses associated with our Same Community portfolio net of recovery.

The following tables reflect certain financial and other information for our Same Communities as of and for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~:

2018. The amounts in the table below reflect constant currency for comparative purposes. Canadian currency figures included within the three months ended March 31, 2018 have been translated at 2019 exchange rates:


	Three Months Ended September 30,									Three Months Ended March 31,
Financial Information (in thousands)	2017		2016		Change			% Change		2019		2018		Change			% Change
Income from real property(1)	$	144,589	$	136,137	$	8,452		6.2	%	$	199,084	$	187,826	$	11,258		6.0	%
Property operating expenses:
Payroll and benefits	13,070		12,596		474			3.8	%	16,421		15,534		887			5.7	%
Legal, taxes, and insurance	1,325		1,178		147			12.5	%	2,191		2,471		(280		)	(11.3	)%
Utilities	8,961		8,821		140			1.6	%	14,434		14,463		(29		)	(0.2	)%
Supplies and repair	5,702		5,862		(160		)	(2.7	)%	5,719		5,159		560			10.9	%
Other	4,078		3,955		123			3.1	%	4,455		4,688		(233		)	(5.0	)%
Real estate taxes	9,631		9,148		483			5.3	%	14,590		13,766		824			6.0	%
Property operating expenses	42,767		41,560		1,207			2.9	%	57,810		56,081		1,729			3.1	%
Real Property NOI	$	101,822	$	94,577	$	7,245		7.7	%	$	141,274	$	131,745	$	9,529		7.2	%


	As of September 30,									As of March 31,
Other Information	2017			2016			Change			2019			2018			Change
Number of properties	231			231			—			345			345			—

MH occupancy ⁽¹⁾⁽²⁾	96.7		%							97.6		%
RV occupancy ⁽¹⁾⁽²⁾	100.0		%							100.0		%
MH & RV blended occupancy ^{(1) (2)}	97.2		%	95.6		%	1.6		%
MH & RV blended occupancy ^{(2) (3)}										98.2		%	96.1		%	2.1		%

Sites available for development	6,003			7,177			(1,174		)	7,296			7,602			(306		)

Monthly base rent per site - MH	$	514		$	497		$	17		$	565		$	543		$	22
Monthly base rent per site - RV ⁽³⁾⁽⁴⁾	$	448		$	433		$	15		$	457		$	434		$	23
Monthly base rent per site - Total	$	506		$	489		$	17		$	541		$	519		$	22


⁽¹⁾	The Company adopted ASC 842, the new leasing standard, as of January 1, 2019 which required the reclassification of bad debt expense from Property operating expense to Income from real property. To assist with comparability within Same Community results, bad debt expense has been reclassified to be shown as a reduction of Income from real property for all periods presented.


⁽²⁾	The occupancy percentage includes MH and annual RV sites, and excludes recently completed but vacant expansion sites and transient RV sites.


⁽²⁾⁽³⁾	The occupancy percentage for ~~2016~~2018 has been adjusted to reflect incremental growth period-over-period from filled MH expansion sites and the conversion of transient RV sites to annual RV sites.


⁽³⁾⁽⁴⁾	Monthly base rent pertains to annual RV sites and excludes transient RV sites.

~~Real property~~The 7.2 percent growth in NOI ~~growth of 7.7 percent~~ is primarily due to increased Income from real property of ~~$8.5~~$11.3 million, or ~~6.2~~6.0 percent. The ~~6.2~~6.0 percent increase is primarily attributable to ~~the 1.6~~a 2.1 percent increase in occupancy ~~3.5~~and a 4.2 percent increase in total monthly base

rent per site ~~and a 1.1 percent~~when compared to the same period in 2018. The increase in ~~transient and other revenue. This increase~~Income from real property was partially offset by a ~~$1.2~~$1.7 million, or ~~2.9~~3.1 percent, increase in Property operating expenses, primarily attributable to increases in ~~payroll~~Payroll and benefits, ~~expenses,~~Real estate taxes, and ~~real estate taxes.~~Supplies and repair.

~~SUN COMMUNITIES, INC.~~

HOME SALES AND RENTALS

We purchase new homes and acquire pre-owned and repossessed manufactured homes, generally located within our communities, from lenders, dealers, and former residents to sell or lease to current and prospective residents.

The following table reflects certain financial and statistical information for our Home Sales Program for the three months ended March 31, 2019 and 2018 (in thousands, except for average selling prices and statistical information):



	Three Months Ended March 31,
Financial Information	2019			2018			Change			% Change
New home sales	$	15,381		$	11,893		$	3,488		29.3	%
Pre-owned home sales	24,237			23,007			1,230			5.3	%
Revenue from home sales	39,618			34,900			4,718			13.5	%

New home cost of sales	13,146			10,197			2,949			28.9	%
Pre-owned home cost of sales	16,131			16,374			(243		)	(1.5	)%
Cost of home sales	29,277			26,571			2,706			10.2	%
NOI / Gross profit	$	10,341		$	8,329		$	2,012		24.2	%

Gross profit – new homes	$	2,235		$	1,696		$	539		31.8	%
Gross margin % – new homes	14.5		%	14.3		%	0.2		%
Average selling price – new homes	$	123,048		$	112,198		$	10,850		9.7	%

Gross profit – pre-owned homes	$	8,106		$	6,633		$	1,473		22.2	%
Gross margin % – pre-owned homes	33.4		%	28.8		%	4.6		%
Average selling price – pre-owned homes	$	36,013		$	31,473		$	4,540		14.4	%

Statistical Information
Home sales volume:
New home sales	125			106			19			17.9	%
Pre-owned home sales	673			731			(58		)	(7.9	)%
Total homes sold	798			837			(39		)	(4.7	)%

Gross profit for new and pre-owned home sales increased $0.5 million and $1.5 million, respectively, in the three months ended March 31, 2019 as compared to the same period in 2018. The increase for new home sales is primarily the result of higher new home sales volumes coupled with a 9.7 percent increase in average selling price in the three months ended March 31, 2019 as compared to the same period in 2018. The gross profit increase for pre-owned home sales is primarily the result of a 14.4 percent increase in average selling price in the three months ended March 31, 2019 as compared to the same period in 2018.

The following table reflects certain financial and other information for our Rental Program as of and for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (in thousands, except for statistical information):


	Three Months Ended September 30,									Three Months Ended March 31,
Financial Information	2017		2016		Change			% Change		2019		2018		Change			% Change
Revenues:
Rental home revenue	$	12,757	$	12,031	$	726		6.0	%	$	13,971	$	13,020	$	951		7.3	%
Site rent from Rental Program ⁽¹⁾	16,078		15,532		546			3.5	%	16,878		16,309		569			3.5	%
Rental Program revenue	28,835		27,563		1,272			4.6	%	30,849		29,329		1,520			5.2	%
Expenses
Commissions	891		551		340			61.7	%
Expenses:
Repairs and refurbishment	3,306		3,349		(43		)	(1.3	)%	2,304		2,314		(10		)	(0.4	)%
Taxes and insurance	1,546		1,446		100			6.9	%	1,864		1,546		318			20.6	%
Marketing and other	1,032		1,004		28			2.8	%
Other										620		1,367		(747		)	(54.6	)%
Rental Program operating and maintenance	6,775		6,350		425			6.7	%	4,788		5,227		(439		)	(8.4	)%
Rental Program NOI	$	22,060	$	21,213	$	847		4.0	%	$	26,061	$	24,102	$	1,959		8.1	%

Other Information
Number of occupied rentals, end of period	10,960		10,797		163			1.5	%	11,170		11,074		96			0.9	%
Investment in occupied rental homes, end of period	$	482,591	$	453,521	$	29,070		6.4	%	$	547,844	$	504,402	$	43,442		8.6	%
Number of sold rental homes	286		286		—			—	%	210		234		(24		)	(10.3	)%
Weighted average monthly rental rate, end of period	$	908	$	879	$	29		3.3	%	$	963	$	913	$	50		5.5	%

⁽¹⁾

The renter’s monthly payment includes the site rent and an amount attributable to ~~the leasing of the home.~~rental home lease. The site rent is reflected in the Real Property Operations segment. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated with implementation of the Rental Program, and assess the overall growth and performance of the Rental Program and financial impact to our operations.

Rental ~~program~~Program NOI increased ~~4.0~~by 8.1 percent for the three months ended March 31, 2019 as compared to the same period in 2018. The increase is due to an increase in Rental Program revenues of ~~4.6~~5.2 percent, or ~~$1.3~~$1.5 million, ~~partially offset by an increase in operating and maintenance expenses of 6.7 percent, or $0.4 million. The increase in revenues~~which is primarily attributable to a ~~3.3~~5.5 percent increase in the weighted average monthly rental rate, ~~and~~combined with a ~~1.5 percent increase in the number of occupied rentals. The increase in operating and maintenance expenses~~decrease of $0.4 million ~~is primarily the result of increased commissions and increased taxes and insurance expenditures~~ in ~~the three months ended September 30, 2017 as compared to the same period in 2016.~~expenses.

~~SUN COMMUNITIES, INC.~~

We purchase new homes and acquire pre-owned and repossessed manufactured homes, generally located within our communities, from lenders, dealers, and former residents to lease or sell to current and prospective residents.

~~The following table reflects certain financial and statistical information for our Home Sales Program for the~~ ~~three months ended September 30, 2017~~ ~~and~~ ~~2016~~ ~~(in thousands, except for average selling prices and statistical information):~~

Three Months Ended September 30,
Financial Information 2017 2016 Change % Change
New home sales $ 10,331
$ 9,391
$ 940
10.0 %
Pre-owned home sales 22,866
21,820
1,046
4.8 %
Revenue from home sales 33,197
31,211
1,986
6.4 %

New home cost of sales 8,699
7,896
803
10.2 %
Pre-owned home cost of sales 16,395
14,039
2,356
16.8 %
Cost of home sales 25,094
21,935
3,159
14.4 %
NOI / Gross profit $ 8,103
$ 9,276
$ (1,173 ) (12.7 )%

Gross profit – new homes $ 1,632

$ 1,495
$ 137
9.2 %
Gross margin % – new homes 15.8 %
15.9 % (0.1 )%

Average selling price – new homes $ 101,284

$ 90,298
$ 10,986
12.2 %

Gross profit – pre-owned homes $ 6,471

$ 7,781
$ (1,310 ) (16.8 )%
Gross margin % – pre-owned homes 28.3 %
35.7 % (7.4 )%

Average selling price – pre-owned homes $ 32,526

$ 27,585
$ 4,941
17.9 %

Statistical Information
Home sales volume:
New home sales 102

104
(2 ) (1.9 )%
Pre-owned home sales 703

791
(88 ) (11.1 )%
Total homes sold 805
895
(90 ) (10.1 )%

Gross profit on new home sales increased by 9.2 percent, primarily as a result of a 12.2 percent increase in the average selling price of news homes, partially offset by a 1.9 percent decrease in new home sales volumes.

Gross profit on pre-owned home sales decreased by 16.8 percent, primarily as a result of a 11.1 percent decrease in pre-owned home sales volumes as compared to the third quarter of 2016, which had elevated sales due to extensive inventory purchased in the Carefree acquisition.

~~SUN COMMUNITIES, INC.~~

OTHER ITEMS - STATEMENTS OF OPERATIONS

The following table summarizes other income and expenses for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (amounts in thousands):


	Three Months Ended September 30,										Three Months Ended March 31,
	2017		2016			Change			% Change		2019			2018			Change			% Change
Ancillary revenues, net	$	7,024	$	6,997		$	27		0.4	%	$	1,381		$	1,185		$	196		16.5	%
Interest income	$	5,920	$	4,705		$	1,215		25.8	%	$	4,800		$	5,316		$	(516	)	(9.7	)%
Brokerage commissions and other revenues, net	$	1,091	$	984		$	107		10.9	%	$	3,680		$	960		$	2,720		283.3	%
Home selling expenses	$	3,290	$	2,643		$	647		24.5	%	$	3,324		$	3,290		$	34		1.0	%
General and administrative expenses	$	18,267	$	16,575		$	1,692		10.2	%	$	21,887		$	19,757		$	2,130		10.8	%
Transaction costs	$	2,167	$	4,191		$	(2,024	)	(48.3	)%
Depreciation and amortization	$	64,232	$	61,483		$	2,749		4.5	%	$	76,556		$	66,437		$	10,119		15.2	%
Loss on extinguishment of debt											$	653		$	196		$	457		233.2	%
Interest expense	$	32,875	$	34,589		$	(1,714	)	(5.0	)%	$	35,108		$	31,757		$	3,351		10.6	%
Catastrophic weather related charges	$	7,756	$	—		$	7,756		N/A
Other income, net	$	3,345	$	—		$	3,345		N/A
Current tax benefit / (expense)	$	38	$	(283	)	$	321		113.4	%
Catastrophic weather related charges, net											$	782		$	(2,213	)	$	2,995		(135.3	)%
Other income / (expense), net											$	1,898		$	(2,617	)	$	4,515		172.5	%
Income / (loss) from nonconsolidated affiliates											$	344		$	(59	)	$	403		683.1	%
Current tax expense											$	(214	)	$	(174	)	$	(40	)	(23.0	)%
Deferred tax benefit	$	81	$	—		$	81		N/A		$	217		$	347		$	(130	)	(37.5	)%
Income from affiliate transactions	$	—	$	500		(500		)	100.0	%

Interest income -for the three months ended ~~September 30, 2017, increased~~March 31, 2019, decreased primarily due to ~~an increase in our installment notes receivables, partially offset by~~ a decrease in our ~~collateralized~~interest bearing receivables ~~as compared to September 30, 2016.~~

~~Home selling expenses~~ ~~increased primarily due to increased commissions on home sales in the three months ended September 30, 2017,~~ as compared to the same period in ~~2016. Homes sold during the three months ended September 30, 2017 had higher average selling prices than in the same period in 2016, which resulted in higher commissions.~~

~~General and administrative expenses~~ ~~increased primarily due to additional employee related costs as headcount increased in connection with our growth through acquisitions.~~

~~Transaction costs~~ relate to diligence and other expenses incurred in connection with our acquisitions. These costs were lower in the three months ended September 30, 2017 as compared to the same period in 2016, due to the acquisition of Carefree in June 2016.2018. Refer to Note ~~2, “Real Estate Acquisitions,~~4, “Collateralized Receivables and Transfers of Financial Assets,” ~~in our accompanying Consolidated Financial Statements for additional information.~~

~~Depreciation~~ and ~~amortization~~ ~~increased as a result of our acquisitions in 2017~~Note 5, “Notes and ~~the three months ended December 31, 2016. Refer to Note 2, "Real Estate Acquisitions,"~~Other Receivables” of our accompanying Consolidated Financial Statements for additional information.

~~Interest expense~~ ~~decreased~~Brokerage commissions and other revenues, net - for the three months ended March 31, 2019, increased primarily due to ~~repayment~~an increase in dividend income of ~~all borrowings on our revolving loan and term loan under our Previous Facility during~~$0.9 million for the three months ended ~~June 30, 2017.~~March 31, 2019, primarily due to our investment in marketable securities, as compared to the same period in 2018, in addition to $0.4 million in business interruption insurance proceeds related to Hurricane Irma.

General and administrative expenses - for the three months ended March 31, 2019, increased primarily due to an increase in wages, taxes,incentives and deferred compensation expenses as compared to the same period in 2018.

Depreciation and amortization - increased as a result of our recent property acquisitions and ongoing expansion and development activities. Refer to Note 7,3, “Real Estate Acquisitions” of our accompanying Consolidated Financial Statements for additional information.

Interest Expense - for the three months ended March 31, 2019, increased primarily due to an increase in mortgage loans outstanding and a higher line of credit balance for the quarter ended March 31, 2019 as compared to 2018. Refer to Note 9, “Debt and Lines of Credit,” in our accompanying Consolidated Financial Statements for additional information.

Catastrophic weather related charges, net - On In September ~~10,~~ 2017, Hurricane Irma ~~hit Florida as a Category 4 hurricane and~~ impacted ~~121 of~~ our communities in Florida and ~~three in~~ Georgia. We recognized charges totaling $23.1 million comprised of $12.7 million for debris and tree removal, common area repairs and minor flooding damage, as well as $10.4 million for impaired assets at three communities containing 190 total sites located in the Florida Keys. These charges, which include management’s best estimate of the total repair expense the Company will incur, were partially offset by estimated insurance recoveries of $15.3 million. The net charges of $7.8 million have been classified as “Catastrophic weather related charges” in the Consolidated Statements of Operations in our accompanying Consolidated Financial Statements. Expected insurance recoveries for loss of revenue and redevelopment costs greater than the impairment charge related to the three Florida Key communities cannot be estimated at this time and are excluded from the insurance recovery estimate recorded at September 30, 2017. The Company maintains property, casualty, flood and business interruption insurance for its community portfolio, subject to customary deductibles and limits.

~~SUN COMMUNITIES, INC.~~

~~Other income, net~~ ~~for~~During the three months ended ~~September 30, 2017, is~~March 31, 2018, we recorded a $2.2 million net favorable adjustment primarily as a result of incremental losses where deductibles were previously met, and refinements to previous recovery estimates as damage losses were attributed to specific asset deductible categories.

Other income / (expense), net - in the three months ended March 31, 2019, was primarily comprised of a foreign currency translation gain of ~~$3.4~~$2.0 million partially offset by a contingent liability re-measurement of $0.1 ~~million.~~

~~Income from affiliate transactions~~ million, as compared to a foreign currency translation loss of ~~$0.5~~$2.5 million in the three months ended September 30, 2016, was due to the sale of our entire interest in Origen Financial, Inc. (“Origen”). Prior to the sale, the carrying value of our investment in Origen was zero.

~~SUN COMMUNITIES, INC.~~

~~COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016~~

~~SUMMARY STATEMENTS OF OPERATIONS~~

~~The following table summarizes our consolidated financial results and reconciles net income to NOI for the~~ ~~nine months ended September 30, 2017~~ ~~and~~ ~~2016~~ ~~(in thousands):~~

Nine Months Ended September 30,
2017 2016
Net income attributable to Sun Communities, Inc., common stockholders: 57,583
18,969
Other revenues (18,587 ) (15,459 )
Home selling expenses 9,391
7,240
General and administrative 56,188
46,910
Transaction costs 6,990
27,891
Depreciation and amortization 189,719
159,565
Extinguishment of debt 759
—
Interest expense 98,126
90,885
Catastrophic weather related charges 8,124
—
Other income, net (5,340 ) —
Current tax expense 133
567
Deferred tax benefit (745 ) —
Income from affiliate transactions —
(500 )
Preferred return to preferred OP units 3,482
3,793
Amounts attributable to noncontrolling interests 4,179
460
Preferred stock distributions 6,233
6,748
NOI / Gross profit $ 416,235
$ 347,069

Nine Months Ended September 30,
2017 2016
Real Property NOI $ 361,595
$ 296,081
Rental Program NOI 68,759
64,223
Home Sales NOI / Gross profit 23,320
23,184
Ancillary NOI / Gross profit 10,367
9,745
Site rent from Rental Program (included in Real Property NOI) ⁽¹⁾
(47,806 ) (46,164 )
NOI / Gross profit $ 416,235
$ 347,069

~~SUN COMMUNITIES, INC.~~

~~REAL PROPERTY OPERATIONS – TOTAL PORTFOLIO~~

~~The following tables reflect certain financial and other information for our Total Portfolio as of and for the~~ ~~nine months ended September 30, 2017~~ ~~and 2016:~~

Nine Months Ended September 30,
Financial Information (in thousands) 2017 2016 Change % Change
Income from Real Property $ 560,778
$ 453,560
$ 107,218
23.6 %
Property operating expenses:
Payroll and benefits 51,140
40,572
10,568
26.1 %
Legal, taxes, and insurance 5,339
4,387
952
21.7 %
Utilities 63,641
48,841
14,800
30.3 %
Supplies and repair 19,712
15,074
4,638
30.8 %
Other 20,029
16,483
3,546
21.5 %
Real estate taxes 39,322
32,122
7,200
22.4 %
Property operating expenses 199,183
157,479
41,704
26.5 %
Real Property NOI $ 361,595
$ 296,081
$ 65,514
22.1 %

As of September 30,
Other Information 2017 2016 Change
Number of properties 348
339
9

MH occupancy 95.2 %
RV occupancy 100.0 %
MH & RV blended occupancy ⁽¹⁾
96.2 % 96.2 % — %

Sites available for development 10,389
10,425
(36 )

Monthly base rent per site - MH $ 528
$ 511
$ 17
Monthly base rent per site - RV ⁽²⁾
$ 430
$ 419
$ 11
Monthly base rent per site - Total $ 507
$ 491
$ 16


⁽¹⁾	~~Overall occupancy (%) includes MH and annual RV sites, and excludes transient RV sites.~~


⁽²⁾	~~Weighted average rent pertains to annual RV sites and excludes transient RV sites.~~

~~The $65.5 million increase in Real Property NOI consists of $47.0 million from newly acquired properties and $18.5 million from Same Communities as detailed below.~~

~~SUN COMMUNITIES, INC.~~

~~REAL PROPERTY OPERATIONS – SAME COMMUNITY~~

~~The following tables reflect certain financial and other information for our Same Communities as of and for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~:

Nine Months Ended September 30,
Financial Information (in thousands) 2017 2016 Change % Change
Income from real property $ 404,353

$ 381,979
$ 22,374
5.9 %
Property operating expenses:
Payroll and benefits 34,780

33,407
1,373
4.1 %
Legal, taxes, and insurance 4,073

3,895
178
4.6 %
Utilities 22,905

22,082
823
3.7 %
Supplies and repair 14,712

14,474
238
1.6 %
Other 10,550

10,412
138
1.3 %
Real estate taxes 29,104

27,943
1,161
4.2 %
Property operating expenses 116,124
112,213
3,911
3.5 %
Real Property NOI $ 288,229
$ 269,766
$ 18,463
6.8 %

As of September 30,
Other Information 2017 2016 Change
Number of properties 231
231
—

MH occupancy ⁽¹⁾
96.7 %
RV occupancy ⁽¹⁾
100.0 %
MH & RV blended occupancy ^{(1) (2)}
97.2 % 95.6 % 1.6 %

Sites available for development 6,003
7,177
(1,174 )

Monthly base rent per site - MH $ 514
$ 497
$ 17
Monthly base rent per site - RV ⁽³⁾
$ 448
$ 433
$ 15
Monthly base rent per site - Total $ 506
$ 489
$ 17


⁽¹⁾	~~The occupancy percentage includes MH and annual RV sites, and excludes recently completed but vacant expansion sites and transient RV sites.~~


⁽²⁾	~~The occupancy percentage for 2016 has been adjusted to reflect incremental growth period-over-period from filled expansion sites and the conversion of transient RV sites to annual RV sites.~~


⁽³⁾	~~Monthly base rent pertains to annual RV sites and excludes transient RV sites.~~

Real property NOI growth of 6.8 percent is primarily due to increased Income from real property of $22.4 million, or 5.9 percent. The 5.9 percent increase is attributable to the 1.6 percent increase in occupancy, 3.5 percent increase in total monthly base rent per site, and a 0.8 percent increase in transient and other revenue. This increase was partially offset by a ~~$3.9~~contingent liability re-measurement of $0.1 million ~~or 3.5 percent, increase in Property operating expenses, primarily attributable to increases in payroll and benefits expenses, and real estate taxes.~~

~~SUN COMMUNITIES, INC.~~

~~HOME SALES AND RENTALS~~

~~The following table reflects certain financial and other information for our Rental Program as of and for the~~ ~~nine months ended September 30, 2017~~ ~~and~~ ~~2016~~ ~~(in thousands, except for statistical information):~~

Nine Months Ended September 30,
Financial Information 2017 2016 Change % Change
Rental home revenue $ 37,774
$ 35,696
$ 2,078
5.8 %
Site rent from Rental Program ⁽¹⁾
47,806
46,164
1,642
3.6 %
Rental Program revenue 85,580
81,860
3,720
4.5 %
Expenses
Commissions 1,902
1,710
192
11.2 %
Repairs and refurbishment 7,950
9,288
(1,338 ) (14.4 )%
Taxes and insurance 4,489
4,178
311
7.4 %
Marketing and other 2,480
2,461
19
0.8 %
Rental Program operating and maintenance 16,821
17,637
(816 ) (4.6 )%
Rental Program NOI $ 68,759
$ 64,223
$ 4,536
7.1 %

Other Information
Number of occupied rentals, end of period 10,960
10,797
163
1.5 %
Investment in occupied rental homes, end of period $ 482,591
$ 453,521
$ 29,070
6.4 %
Number of sold rental homes 828
858
(30 ) (3.5 )%
Weighted average monthly rental rate, end of period $ 908
$ 879
$ 29
3.3 %

⁽¹⁾

The renter’s monthly payment includes the site rent and an amount attributable to the leasing of the home. The site rent is reflected in the Real Property Operations segment. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated with implementation of the Rental Program, and assess the overall growth and performance of the Rental Program and financial impact to our operations.

Rental program NOI increased 7.1 percent due to an increase in revenues of 4.5 percent, or $3.7 million, combined with a decrease in operating and maintenance expenses of 4.6 percent, or $0.8 million. The increase in revenues is attributable to a 3.3 percent increase in the weighted average monthly rental rate and a 1.5 percent increase in the number of occupied rentals. The decrease in operating and maintenance expenses of $0.8 million is primarily the result of decreased repairs and refurbishment partially offset by increased taxes and insurance and commissions in the nine months ended September 30, 2017 as compared toduring the same period in ~~2016.~~2018.

~~SUN COMMUNITIES, INC.~~

~~The following table reflects certain financial and statistical information for our Home Sales Program for the~~ ~~nine months ended September 30, 2017~~ ~~and~~ ~~2016~~ ~~(in thousands, except for average selling prices and statistical information):~~

Nine Months Ended September 30,
Financial Information 2017 2016 Change % Change
New home sales $ 24,760
$ 20,472
$ 4,288
21.0 %
Pre-owned home sales 66,559
61,515
5,044
8.2 %
Revenue from homes sales 91,319
81,987
9,332
11.4 %

New home cost of sales 21,044
17,513
3,531
20.2 %
Pre-owned home cost of sales 46,955
41,290
5,665
13.7 %
Cost of home sales 67,999
58,803
9,196
15.6 %
NOI / Gross profit $ 23,320
$ 23,184
$ 136
0.6 %

Gross profit – new homes $ 3,716
$ 2,959
$ 757
25.6 %
Gross margin % – new homes 15.0 %
14.5 % 0.5 %

Average selling price – new homes $ 95,598

$ 89,397
$ 6,201
6.9 %

Gross profit – pre-owned homes $ 19,604
$ 20,225
$ (621 ) (3.1 )%
Gross margin % – pre-owned homes 29.5 %
32.9 % (3.4 )%

Average selling price – pre-owned homes $ 30,630

$ 28,205
$ 2,425
8.6 %

Statistical Information
Home sales volume:
New home sales 259
229
30
13.1 %
Pre-owned home sales 2,173
2,181
(8 ) (0.4 )%
Total homes sold 2,432
2,410
22
0.9 %

Gross profit on new home sales increased 25.6 percent in the nine months ended September 30, 2017, as compared to the same period in 2016. This increase is primarily the result of a 13.1 percent increase in new home sales volumes combined with a 6.9 percent increase in the average selling price of new homes.

~~Gross profit on pre-owned home sales decreased 3.1 percent due to lower margins.~~

~~SUN COMMUNITIES, INC.~~

~~OTHER ITEMS - STATEMENTS OF OPERATIONS~~

~~The following table summarizes other income and expenses for the nine months ended September 30, 2017 and 2016 (amounts in thousands):~~

Nine Months Ended September 30,
2017 2016 Change % Change
Ancillary revenues, net $ 10,367
$ 9,745
$ 622
6.4 %
Interest income $ 15,609
$ 13,322
2,287
17.2 %
Brokerage commissions and other revenues, net $ 2,978
$ 2,137
841
39.4 %
Home selling expenses $ 9,391
$ 7,240
2,151
29.7 %
General and administrative expenses $ 56,188
$ 46,910
9,278
19.8 %
Transaction costs $ 6,990
$ 27,891
(20,901 ) (74.9 )%
Depreciation and amortization $ 189,719
$ 159,565
30,154
18.9 %
Extinguishment of debt $ 759
$ —
759
N/A
Interest expense $ 98,126
$ 90,885
7,241
8.0 %
Catastrophic weather related charges $ 8,124
$ —
8,124
N/A
Other income, net $ 5,340
$ —
5,340
N/A
Current tax expense $ (133 ) $ (567 ) 434
76.5 %
Deferred tax benefit $ 745
$ —
745
N/A
Income from affiliate transactions $ —
$ 500
(500 ) 100.0 %

~~Ancillary revenues, net~~ ~~increased primarily due to an increase in RV vacation rental income in the nine months ended September 30, 2017, as compared to the same period in 2016.~~

~~Interest income~~ for the nine months ended September 30, 2017, increased primarily due to an increase in our installment notes receivables, partially offset by a decrease in our collateralized receivables, as compared to September 30, 2016.

~~Brokerage commissions and other revenues~~ ~~increased primarily due to a higher number of brokered homes sold in the nine months ended September 30, 2017, as compared to the same period in 2016.~~

~~Home selling expenses~~ increased primarily due to increased commissions on home sales in the nine months ended September 30, 2017 as compared to the same period in 2016. There was a higher volume of new homes sold, coupled with higher average selling prices for both new and used, in the nine months ended September 30, 2017, as compared to the same period in 2016, which resulted in higher commissions.

~~General and administrativeexpenses~~ ~~increased primarily due to additional employee related costs as headcount increased in connection with our growth through acquisitions.~~

~~Transaction costs~~ relate to diligence and other expenses incurred in connection with our acquisitions. These costs were significantly lower in the nine months ended September 30, 2017, as compared to the same period in 2016, due to the acquisition of Carefree in June 2016. Refer to Note 2, “Real Estate Acquisitions,” in our accompanying Consolidated Financial Statements for additional information.

~~Depreciation and amortizationexpenses~~ increased as a result of our acquisition of Carefree in June 2016, and other acquisitions. Refer to Note 2, “Real Estate Acquisitions,” of our accompanying Consolidated Financial Statements for additional information.

~~Extinguishment of debt~~ for the nine months ended September 30, 2017, is comprised of $0.5 million in connection with defeasement of an $18.9 million collateralized term loan and $0.3 million in connection with repayment of a $3.9 million collateralized term loan. Refer to Note 7, “Debt and Lines of Credit,” in our accompanying Consolidated Financial Statements for additional information.

~~Interest expense~~ increased primarily due to incremental borrowings of $338.0 million, $405.0 million and $197.5 million in connection with our Fannie Mae Financing, NML Financing and Freddie Mac Financing arrangements, respectively. Refer to Note 7, “Debt and Lines of Credit,” in our accompanying Consolidated Financial Statements for additional information.

~~SUN COMMUNITIES, INC.~~

~~Catastrophic weather related charges~~ ~~- refer above to~~ ~~Results of Operations - Other Items - Statements of Operations~~ ~~for the three months ended September 30, 2017.~~

~~Other income, net for the nine months ended September 30, 2017, is comprised of a foreign currency translation gain of $6.4 million, partially offset by contingent liability re-measurement of $1.1 million.~~

~~Deferred tax benefit~~ for the nine months ended September 30, 2017, was recognized in connection with certain of our communities acquired in the Carefree transaction that are subject to Canadian income tax. Refer to Note 11, “Income Taxes,” in our accompanying Consolidated Financial Statements for additional information.

~~Income from affiliate transactions~~ of $0.5 million in the nine months ended September 30, 2016, was due to the sale of our entire interest in Origen Financial, Inc. (“Origen”). Prior to the sale, the carrying value of our investment in Origen was zero.

~~SUN COMMUNITIES, INC.~~

FUNDS FROM OPERATIONS

The following table reconciles net income to FFO data for diluted purposes for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (in thousands, except per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2019			2018
Net income attributable to Sun Communities, Inc. common stockholders	$	24,115		$	18,897		$	57,583		$	18,969
Net income attributable to Sun Communities, Inc. common stockholders:													$	34,331		$	29,986
Adjustments:
Depreciation and amortization	64,484			61,809			190,143			159,225			76,712			66,646
Remeasurement of marketable securities													(267		)	—
Amounts attributable to noncontrolling interests	1,608			685			3,710			255			723			1,889
Preferred return to preferred OP units	578			616			1,750			1,858			527			553
Preferred distribution to Series A-4 preferred stock	441			683			1,666			—			432			441
Gain on disposition of assets, net	(4,309		)	(4,667		)	(11,342		)	(12,226		)	(5,679		)	(4,539		)
FFO attributable to Sun Communities, Inc. common stockholders and dilutive convertible securities ⁽¹⁾	86,917			78,023			243,510			168,081			106,779			94,976
Adjustments:
Transaction costs	2,167			4,191			6,990			27,891
Other acquisition related costs⁽²⁾	343			1,467			2,712			1,467			160			135
Extinguishment of debt	—			—			759			—
Catastrophic weather related charges	7,756			—			8,124			—
Other income, net	(3,345		)	—			(5,340		)	—
Income from affiliate transactions	—			(500		)	—			(500		)
Loss on extinguishment of debt													653			196
Catastrophic weather related charges, net													782			(2,213		)
Loss of earnings - catastrophic weather related ⁽³⁾													—			325
Other (income) / expense, net													(1,898		)	2,617
Debt premium write-off	—			—			(438		)	—			—			(782		)
Deferred tax benefit	(81		)	—			(745		)	—			(217		)	(347		)
FFO attributable to Sun Communities, Inc. common stockholders and dilutive convertible securities excluding certain items ⁽¹⁾	$	93,757		$	83,181		$	255,572		$	196,939
Core FFO attributable to Sun Communities, Inc. common stockholders and dilutive convertible⁽¹⁾													$	106,259		$	94,907

Weighted average common shares outstanding - basic:	78,369			68,655			75,234			63,716			85,520			78,855
Add:
Common stock issuable upon conversion of stock options	2			8			2			10			1			2
Restricted stock	437			406			610			437			512			607
Common OP units	2,761			2,856			2,758			2,861			2,722			2,741
Common stock issuable upon conversion of Series A-4 preferred stock													472			482
Common stock issuable upon conversion of Series A-3 preferred OP units													75			75
Common stock issuable upon conversion of Series A-1 preferred OP units	858			920			877			932			803			836
Common stock issuable upon conversion of Series A-3 preferred OP units	75			75			75			75
Common stock issuable upon conversion of Series A-4 preferred stock	482			747			620			—
Weighted average common shares outstanding - fully diluted	82,984			73,667			80,176			68,031			90,105			83,598

FFO attributable to Sun Communities, Inc. common stockholders and dilutive convertible securities per share - fully diluted	$	1.05		$	1.06		$	3.04		$	2.47		$	1.19		$	1.14
FFO attributable to Sun Communities, Inc. common stockholders and dilutive convertible securities per share excluding certain items - fully diluted	$	1.13		$	1.13		$	3.19		$	2.89
Core FFO attributable to Sun Communities, Inc. common stockholders and dilutive convertible securities per share - fully diluted													$	1.18		$	1.14

⁽¹⁾The effect of certain anti-dilutive convertible securities is excluded from these items.


⁽²⁾	These costs represent ~~first year~~the expenses incurred to bring recently acquired properties up to ~~the Company's~~our operating standards, including items such as tree trimming and painting costs that ~~did~~do not meet ~~the Company's~~our capitalization policy.


⁽³⁾	Adjustment represents estimated loss of earnings in excess of the applicable business interruption deductible in relation to our three Florida Keys communities that were impaired by Hurricane Irma which had not yet been received from our insurer.

~~SUN COMMUNITIES, INC.~~

LIQUIDITY AND CAPITAL RESOURCES

Our principal liquidity demands have historically been, and are expected to continue to be, distributions to our stockholders and the unit holders of the Operating Partnership, ~~property acquisitions,~~ capital improvement of properties, the purchase of new and pre-owned homes, property acquisitions, development and expansion of properties, and debt repayment.

~~During the~~ ~~nine months ended September 30, 2017, we acquired seven communities and one undeveloped parcel of land. See Note 2, “Real Estate Acquisitions”in our accompanying Consolidated Financial Statements for additional information regarding our acquisitions in 2017.~~ Subject to market conditions, we intend to continue to ~~look for~~identify opportunities to expand our development pipeline and acquire existing communities. We finance ~~the~~ acquisitions through available cash, secured financing, draws on our lines of credit, the assumption of existing debt on properties, and the issuance of ~~certain~~ equity securities. We will continue to evaluate acquisition opportunities that meet our ~~criteria~~criteria. Refer to Note 3, “Real Estate Acquisitions” in our accompanying Consolidated Financial Statements for ~~acquisition.~~information regarding recent community acquisitions.

We also intend to continue to strengthen our capital and liquidity positions by focusing on our core fundamentals, which are generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs. We intend to meet our liquidity requirements through available cash balances, cash flows generated from operations, draws on our lines of credit, ~~facility,~~ and the use of debt and equity offerings under our shelf registration statement. Refer to Note 7,9, “Debt and Lines of Credit” and Note 8,10, “Equity and ~~Mezzanine Securities”~~Temporary Equity” in our accompanying Consolidated Financial Statements for additional information.

Our capital expenditures include expansion and development, lot modifications, recurring capital expenditures and rental home purchases. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, expansion and development activities of ~~$55.9~~$51.2 million and ~~$34.3~~$24.6 million, respectively, related to costs consisting primarily of construction of sites and other costs necessary to complete home site improvements.

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, lot modification expenditures were ~~$18.1~~$5.6 million and ~~$13.8~~$5.1 million, respectively. These expenditures improve asset quality in our communities and are incurred when an existing home is removed and the site is prepared for a new home (more often than not, a multi-sectional home). These activities, which are mandated by strict manufacturer’s installation requirements and state building codes, include items such as new foundations, driveways, and utility upgrades.

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, recurring capital expenditures of ~~$12.6~~$5.3 million and ~~$13.3~~$3.3 million, respectively, related to our continued commitment to the upkeep of our properties.

We invest in the acquisition of homes intended for the Rental Program. Expenditures for these investments depend upon ~~market conditions~~the condition of the markets for repossessions and new home sales, ~~repossessions and~~as well as rental homes. We finance certain of our new home purchases with a $12.0 million manufactured home floor plan facility. Our ability to purchase homes ~~intended~~ for sale or rent may be limited by cash received from third-party financing of our home sales, available manufactured home floor plan financing and working capital available on our lines of credit.

~~SUN COMMUNITIES, INC.~~

Our cash flow activities are summarized as follows (in thousands):


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2019			2018
Net Cash Provided by Operating Activities	$	223,348		$	190,279		$	103,141		$	80,905
Net Cash Used for Investing Activities	$	(267,685	)	$	(1,540,899	)	$	(392,483	)	$	(68,518	)
Net Cash Provided by Financing Activities	$	173,368		$	1,375,470		$	261,097		$	(8,464	)
Effect of Exchange Rate on Cash and Cash Equivalents	$	253		$	(107	)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash							$	158		$	(8	)

Cash, ~~and~~ cash equivalents ~~increased~~and restricted cash decreased by ~~$129.2~~$28.1 million from ~~$8.2~~$62.3 million as of December 31, ~~2016,~~2018, to ~~$137.4~~$34.2 million as of ~~September 30, 2017.~~March 31, 2019.

Operating Activities

Net cash provided by operating activities increased by ~~$33.0~~$22.2 million from ~~$190.3~~$80.9 million for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2018 to ~~$223.3~~$103.1 million for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019.

Our net cash flows provided by operating activities from continuing operations may be adversely impacted by, among other things: (a) the market and economic conditions in our current markets generally, and specifically in metropolitan areas of our current markets; (b) lower occupancy and rental rates of our properties; (c) increased operating costs, such as wage and benefit costs, insurance premiums, real estate taxes and utilities, that cannot be passed on to our tenants; (d) decreased sales of manufactured homes; and (e) current volatility in economic conditions and the financial markets. See “Risk Factors” in Part I, Item 1A of our ~~2016~~2018 Annual Report.

Investing Activities

Net cash used for investing activities was ~~$267.7~~$392.5 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, compared to ~~$1.5 billion~~$68.5 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2018. Refer to Note 2, “~~Real~~3, “Real Estate ~~Acquisitions~~”Acquisitions” in our accompanying Consolidated Financial Statements for additional information.

Financing Activities

Net cash provided by financing activities was ~~$173.4~~$261.1 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, compared to ~~$1.4 billion~~net cash provided by financing activities of $8.5 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2018. Refer to Note 7, “~~Debt~~9, “Debt and Lines of ~~Credit~~”Credit” and Note 8,10, “Equity and ~~Mezzanine Securities”~~Temporary Equity” in our accompanying Consolidated Financial Statements for additional information.

Financial Flexibility

In July 2017, we entered into ~~a new Sales Agreement~~an at the market offering sales agreement (the “Sales Agreement”) with certain sales agents (collectively, the “Sales Agents”), whereby we may offer and sell shares of our common stock, having an aggregate offering price of up to $450.0 million, from time to time through the Sales Agents. The Sales Agents are entitled to compensation in an agreed amount not to exceed 2.0 percent of the gross price per share for any shares sold from time to time under the Sales Agreement. ~~The~~Through March 31, 2019, we have sold shares of our common stock for gross proceeds of $163.8 million under the Sales ~~Agreement replaced our Prior Agreement, which had an aggregate offering price of up to $250.0 million.~~Agreement.

In April 2017, we ~~entered into~~amended and restated our credit agreement (the “A&R Credit Agreement”) with Citibank, N.A. (“Citibank”) and certain other lenders. Pursuant to the A&R Credit Agreement, we entered into a senior revolving credit facility with Citibank and certain other lenders ~~for our A&R Facility,~~ in the amount of $650.0 million, comprised of a $550.0 million revolving loan and a $100.0 million term loan (the “A&R Facility”). We repaid the term loan in full on September 7, 2018 and we are unable to reborrow on the term loan. The A&R Credit Agreement has a four-year term ending April 25, 2021, which can be extended for two additional six-month periods at our option, subject to the satisfaction of certain conditions as defined in the ~~credit agreement.~~A&R Credit Agreement. The ~~credit agreement~~A&R Credit Agreement also provides for, subject to the satisfaction of certain conditions, additional commitments in an amount not to exceed $350.0 million. If additional borrowings are made pursuant to any such additional commitments, the aggregate borrowing limit under the A&R Facility may be increased up to ~~$1.0 billion.~~$900.0 million.

~~SUN COMMUNITIES, INC.~~

~~loan~~ as of September 30, 2017, as total borrowings of $229.0 million were repaid with proceeds from our public equity offering during the quarter ended June 30, 2017. We may borrow up to $100.0 million on the term loan on or before June 1, 2018.March 31, 2019.

The A&R Facility replaced our $450.0 million Previous Facility, which was scheduled to mature on August 19, 2019. At the time of closing of the A&R Facility, there were $220.8 million in borrowings under the Previous Facility. At December 31, 2016, under the Previous Facility, we had $42.3 million in borrowings on the revolving loan and $58.0 million in borrowings on the term loan totaling $100.3 million with a weighted average interest rate of 2.14 percent.

The A&R Facility provides ~~and the Previous Facility provided,~~ us with the ability to issue letters of credit. Our issuance of letters of credit does not increase our borrowings outstanding under our line of credit, but does reduce the borrowing amount available. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, approximately ~~$3.8 million and $4.6~~$3.9 million of availability was used to back standby letters of credit.

Pursuant to the terms of the A&R Facility, we are subject to various financial and other covenants. We are currently in compliance with these covenants. The most restrictive financial covenants for the A&R Facility are as follows:

Covenant Requirement As of September 30, 2017
Maximum Leverage Ratio <65.0% 34.3%
Minimum Fixed Charge Coverage Ratio >1.40 2.62
Minimum Tangible Net Worth 2,491,250 $3,997,391
Maximum Dividend Payout Ratio <95.0% 64.1%



Covenant	Requirement	As of March 31, 2019
Maximum Leverage Ratio	<65%	33.0%
Minimum Fixed Charge Coverage Ratio	>1.40	3.00
Minimum Tangible Net Worth	>2,918,046	$4,734,859
Maximum Dividend Payout Ratio	<95.0%	59.0%

We anticipate meeting our long-term liquidity requirements, such as scheduled debt maturities, large property acquisitions, expansion and development of communities, and Operating Partnership unit redemptions through the issuance of certain debt or equity securities and/or the collateralization of our properties. At ~~September 30, 2017,~~March 31, 2019, we had ~~156~~195 unencumbered properties, of which 61 support the borrowing base for our ~~$650.0~~$550.0 million ~~line of credit. We will utilize available cash on hand to redeem all 3,400,000 outstanding shares of our Series A Preferred Stock on November 14, 2017. Refer to Note 17,~~ “~~Subsequent Events~~”revolving loan in our ~~accompanying Consolidated Financial Statements for additional information.~~A&R Facility.

From time to time, we may also issue shares of our capital stock, issue equity units in our Operating Partnership, obtain debt financing, or sell selected assets. Our ability to finance our long-term liquidity requirements in such a manner will be affected by numerous economic factors affecting the MH and RV ~~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. When it becomes necessary for us to approach the credit markets, the volatility in those markets could make borrowing more difficult to secure, more expensive, or effectively unavailable. See “Risk Factors” in Part I, Item 1A of our ~~2016~~2018 Annual Report and in Part II, Item 1A of this 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.

~~SUN COMMUNITIES, INC.~~

~~Contractual Cash Obligations~~

Our primary long-term liquidity needs are principal payments on outstanding indebtedness. As of September 30, 2017, our outstanding contractual obligations, including interest expense, were as follows:

Payments Due By Period
(in thousands)
Contractual Cash Obligations ⁽¹⁾
Total Due <1 year 1-3 years 3-5 years After 5 years

Collateralized term loans - FNMA $ 1,017,385
$ 4,750
$ 118,437
$ 226,728
$ 667,470
Collateralized term loans - Life Company 950,726
5,157
53,349
62,874
829,346
Collateralized term loans - CMBS 451,743
1,982
17,476
138,016
294,269
Collateralized term loans - FMCC 390,270
1,480
12,317
13,305
363,168
Secured borrowings 134,884
1,354
11,969
14,090
107,471
Lines of credit —
—
—
—
—
Preferred OP units - mandatorily redeemable 45,903
3,670
7,570
—
34,663
Total principal payments $ 2,990,911
$ 18,393
$ 221,118
$ 455,013
$ 2,296,387

Interest expense ⁽²⁾
$ 855,169
$ 33,321
$ 245,932
$ 217,539
$ 358,377
Operating leases 58,646
3,198
6,803
6,986
41,659
Total contractual obligations $ 3,904,726
$ 54,912
$ 473,853
$ 679,538
$ 2,696,423

⁽¹⁾ ~~Our contractual cash obligations exclude debt premiums/discounts.~~

⁽²⁾Our contractual cash obligation related to interest expense is calculated based on the current debt levels, rates and maturities as of September 30, 2017 (excluding secured borrowings), and actual payments required in future periods may be different than the amounts included above. Perpetual securities include one year of interest expense in After 5 years.

As of ~~September 30, 2017,~~March 31, 2019, our net debt to enterprise value ~~approximated 28.3~~was approximately 24.1 percent (assuming conversion of all common OP units, Series A-1 preferred OP units, Series A-3 preferred OP units, Series A-4 preferred OP units, Series C preferred OP units and Series CD preferred OP units to shares of common stock). Our debt has a weighted average maturity of approximately ~~8.4~~9.3 years and a weighted average interest rate of ~~4.6~~4.4 percent.

~~SUN COMMUNITIES, INC.~~

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of the ~~United States~~ Securities Act of 1933, as amended (the “Securities Act”), and the ~~United States~~ Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements will be subject to the safe harbors created thereby. For this purpose, any statements contained in this filing that relate to expectations, beliefs, projections, future plans and strategies, trends or prospective events or developments and similar expressions concerning matters that are not historical facts are deemed to be forward-looking statements. Words such ~~as:~~as “forecasts,” “intends,” “intend,” “intended,” “goal,” “estimate,” “estimates,” “expects,” “expect,” “expected,” “project,” “projected,” “projections,” “plans,” “predicts,” “potential,” “seeks,” “anticipates,” “anticipated,” “should,” “could,” “may,” “will,” “designed to,” “foreseeable future,” “believe,” “believes,” “scheduled,” “guidance” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements reflect our current views with respect to future events and financial performance, but involve known and unknown risks and uncertainties, both general and specific to the matters discussed in this filing. These risks and uncertainties may cause our actual results to be materially different from any future results expressed or implied by such forward-looking statements. In addition to the risks disclosed under “Risk Factors” in Part I, Item IA, contained in our ~~2016~~2018 Annual Report and Item 8.01 in our Current Report on Form 8-K filed February 22, 2019, and our other filings with the SEC, such risks and uncertainties include, but are not limited to:

changes in general economic conditions, the real estate industry, and the markets in which we operate;

difficulties in our ability to evaluate, finance, complete and integrate acquisitions, developments and expansions successfully;

our liquidity and refinancing demands;

our ability to obtain or refinance maturing debt;

our ability to maintain compliance with covenants contained in our debt facilities;

availability of capital;

~~change~~changes in foreign currency exchange rates, ~~specifically~~including between the U.S. dollar and each of the Canadian and the Australian dollar;

our ability to maintain rental rates and occupancy levels;

our failure to maintain effective internal control over financial reporting and disclosure controls and procedures;

increases in interest rates and operating costs, including insurance premiums and real property taxes;

risks related to natural ~~disasters;~~disasters such as hurricanes, earthquakes, floods and wildfires;

general volatility of the capital markets and the market price of shares of our capital stock;

our failure to maintain our status as a REIT;

changes in real estate and zoning laws and regulations;

legislative or regulatory changes, including changes to laws governing the taxation of REITs;

litigation, judgments or settlements;

competitive market forces;

the ability of manufactured home buyers to obtain financing; and

the level of repossessions by manufactured home lenders.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference into this filing, whether as a result of new information, future events, changes in our expectations or otherwise, except as required by law.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All written and oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by these cautionary statements.

~~SUN COMMUNITIES, INC.~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in market factors such as interest rates, foreign currency exchange rates, commodity prices, and equity prices.

Interest Rate Risk

Our principal market risk exposure is interest rate risk. We mitigate this risk by maintaining prudent amounts of leverage, minimizing capital costs, and interest expense while continuously evaluating all available debt and equity resources and following established risk management policies and procedures, which include the periodic use of derivatives. Our primary strategy in entering into derivative contracts is to minimize the variability that interest rate changes could have on our future cash flows. From time to time, we employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt. We do not enter into derivative instruments for speculative purposes.

We have two interest rate cap agreements with a total notional amount of $159.7 million as of September 30, 2017. The first interest rate cap agreement has a cap rate of 9.00 percent, a notional amount of $150.1 million and a termination date of April 2018. The second interest rate cap agreement has a cap rate of 11.02 percent, a notional amount of $9.6 million and a termination date of May 2023.

Our ~~remaining~~ variable rate debt totaled ~~$153.7~~$396.5 million and $294.8 million as of ~~September 30, 2017,~~March 31, 2019 and 2018, respectively, and bears interest at Prime or various LIBOR rates. If Prime or LIBOR increased or decreased by 1.0 percent, ~~we believe~~ our interest expense ~~for the nine months ended September 30, 2017,~~ would have increased or decreased by approximately ~~$1.9~~$0.7 million and $0.6 million for the three months ended March 31, 2019 and 2018, respectively, based on the ~~$250.7~~$290.3 million and $260.1 million average ~~balance~~balances outstanding under our variable rate debt ~~facilities.~~facilities, respectively.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the risk that fluctuations in currencies against the U.S. dollar will negatively impact our results of operations. We are exposed to foreign currency exchange rate risk as a result of remeasurement and translation of the assets and liabilities of our Canadian properties, and our Australian equity investment and joint venture into U.S. dollars. Fluctuations in foreign currency exchange rates can therefore create volatility in our results of operations and may adversely affect our financial condition.

At March 31, 2019 and December 31, 2018, our stockholder’s equity included $146.6 million and $141.4 million from our Canadian subsidiaries and Australian equity investments, respectively, which represented 4.7 percent and 4.6 percent of total stockholder’s equity, respectively. Based on our sensitivity analysis, a 10.0 percent strengthening of the U.S. dollar against the Canadian and Australian dollar would have caused a reduction of $14.7 million and $14.1 million to our total stockholder’s equity at March 31, 2019 and December 31, 2018, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (pursuant to Rules 13a-15(e) or 15d-15(e) of the Exchange Act) at ~~September 30, 2017.~~March 31, 2019. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017.~~March 31, 2019.

Changes in internal control over financial reporting

There have not been any changes in our internal control over financial reporting during the three months ended ~~September 30, 2017~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~We are involved~~Refer to “Legal Proceedings” in ~~various legal proceedings arising~~Part 1 - Item 1 - Note 17, “Commitments and Contingencies” in ~~the ordinary course of business. All such proceedings, taken together, are not expected to have a material adverse impact on~~ our ~~results of operations or financial condition.~~accompanying Consolidated Financial Statements.

~~SUN COMMUNITIES, INC.~~

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors described in Part 1, Item 1A., “Risk Factors,” in our ~~2016~~2018 Annual Report, and Item 8.01 in our Current Report on Form 8-K filed February 22, 2019, which could materially affect our business, financial condition or future results. There have been no material changes to the disclosure on these matters set forth in the ~~2016~~2018 Annual ~~Report.~~Report and the Current Report on Form 8-K.

The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phaseout LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect the Company’s results or operations, cash flows and liquidity. With such uncertainty, we cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks. If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, we may need to amend certain contracts and cannot predict what alternative rate or benchmark would be negotiated. This may result in an increase to our interest expense.

~~SUN COMMUNITIES, INC.~~

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

~~Issuer Purchases~~Holders of ~~Equity Securities~~our OP units have converted the following units during the three months ended March 31, 2019:

~~In November 2004, our Board~~



		Three Months Ended March 31, 2019
Series	Conversion Rate	Units/Shares Converted	Common Stock
Common OP unit	1	6,533	6,533
Series A-1 preferred OP unit	2.439	3,950	9,633

All of ~~Directors authorized us to repurchase up to 1,000,000~~the above shares of ~~our~~ common ~~stock. We have 400,000 common shares remaining~~stock were issued in private placements in reliance on Section 4(a)(2) of the ~~repurchase program.~~Securities Act of 1933, as amended, including Regulation D promulgated thereunder. No ~~common shares~~underwriters were ~~repurchased under this buyback program during the~~ ~~nine months ended September 30, 2017. There is no expiration date specified for the buyback program.~~used in connection with any of such issuances.

~~SUN COMMUNITIES, INC.~~

ITEM 6. EXHIBITS

Refer to “Exhibit Index.”

EXHIBIT INDEX



Exhibit No.	Description	Method of Filing
10.1	Fourth Amended and Restated Agreement of Limited Partnership of Sun Communities Operating Limited Partnership dated January 31, 2019	Incorporated by reference to Sun Communities, Inc.’s Current Report on Form 8-K filed February 5, 2019
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.~~2002.	Filed herewith
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.	Filed herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith
101.INS	XBRL Instance Document	~~Filed herewith~~ The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith

~~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.




Dated: ~~October 24, 2017~~April 25, 2019	By:	/s/ Karen J. Dearing
		Karen J. Dearing, Chief Financial Officer and Secretary (Duly authorized officer and principal financial officer)

~~SUN COMMUNITIES, INC.~~

~~EXHIBIT INDEX~~



~~Exhibit No.~~	~~Description~~	~~Method of Filing~~
~~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.~~	~~Filed herewith~~
~~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~~.	~~Filed herewith~~
~~32.1~~	~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~	~~Filed herewith~~
~~101.INS~~	~~XBRL Instance Document~~	~~Filed herewith~~
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~	~~Filed herewith~~
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~	~~Filed herewith~~
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~	~~Filed herewith~~
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~	~~Filed herewith~~
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~	~~Filed herewith~~



	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
	(unaudited)		(unaudited)
Total revenues	$	3,178	$	4,493
Net income	$	935	$	1,418



At Acquisition Date	Carefree
Investment in property	$	1,670,981
Ground leases	33,270
In-place leases	35,010
Deferred tax liability	(23,637		)
Other liabilities	(15,665		)
Inventory of manufactured homes	13,521
Below market lease	(29,340		)
Total identifiable assets acquired and liabilities assumed	$	1,684,140

Consideration
Cash and equity	$	1,684,140



	Nine Months Ended
	September 30, 2017
Beginning balance	$	144,477
Financed sales of manufactured homes	8,081
Principal payments and payoffs from our customers	(9,233		)
Principal reduction from repurchased homes	(8,441		)
Total activity	(9,593		)
Ending balance	$	134,884



	Year
	Remainder of 2017		2018		2019		2020		2021
Estimated expense	$	3,819	$	14,514	$	13,598	$	11,870	$	11,478



Quarter Ended	Common Stock Issued	Weighted Average Sales Price		Net Proceeds ($ millions)
June 30, 2017	400,000	$	85.01	$	33.6
March 31, 2017	280,502	$	76.47	$	21.2



		Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
Series	Conversion Rate	Units/Shares Converted	Common Stock	Units/Shares Converted	Common Stock
Common OP unit	1	25,238	25,238	24,896	24,896
Series A-1 preferred OP unit	2.439	18,319	44,676	11,490	28,021
Series A-4 preferred OP unit	0.4444	9,000	3,996	12,389	5,505
Series A-4 preferred stock	0.4444	158,036	70,238	385,242	171,218
Series C preferred OP unit	1.11	16,806	18,651	7,000	7,768



Dividend	Record Date	Payment Date	Distribution per Share		Total Distribution (thousands)
Common Stock, Common OP units and Restricted Stock	9/29/2017	10/16/2017	$	0.67	$	55,006
Series A Preferred Stock	9/29/2017	10/16/2017	$	0.4453125	$	441
Series A-4 Preferred Stock	9/15/2017	10/2/2017	$	0.40625	$	1,514



	Three Months Ended September 30, 2017									Three Months Ended September 30, 2016
	Real Property Operations			Home Sales and Rentals			Consolidated			Real Property Operations			Home Sales and Rentals			Consolidated
Revenues	$	215,280		$	45,954		$	261,234		$	200,770		$	43,242		$	244,012
Operating expenses/Cost of sales	82,295			31,869			114,164			78,922			28,285			107,207
Net operating income/Gross profit	132,985			14,085			147,070			121,848			14,957			136,805
Adjustments to arrive at net income / (loss):
Interest and other revenues, net	7,011			—			7,011			5,689			—			5,689
Home selling expenses	—			(3,290		)	(3,290		)	—			(2,643		)	(2,643		)
General and administrative	(15,677		)	(2,590		)	(18,267		)	(14,309		)	(2,266		)	(16,575		)
Transaction costs	(2,153		)	(14		)	(2,167		)	(4,171		)	(20		)	(4,191		)
Depreciation and amortization	(48,624		)	(15,608		)	(64,232		)	(47,323		)	(14,160		)	(61,483		)
Interest	(32,082		)	(3		)	(32,085		)	(33,797		)	(3		)	(33,800		)
Interest on mandatorily redeemable preferred OP units	(790		)	—			(790		)	(789		)	—			(789		)
Catastrophic weather related charges	(7,718		)	(38		)	(7,756		)	—			—			—
Other income, net	3,345			—			3,345			—			—			—
Current tax benefit / (expense)	210			(172		)	38			(242		)	(41		)	(283		)
Deferred tax benefit	81			—			81			—			—			—
Income from affiliate transactions	—			—			—			500			—			500
Net income / (loss)	36,588			(7,630		)	28,958			27,406			(4,176		)	23,230
Less: Preferred return to preferred OP units	1,112			—			1,112			1,257			—			1,257
Less: Amounts attributable to noncontrolling interests	2,174			(398		)	1,776			1,133			(254		)	879
Net income / (loss) attributable to Sun Communities, Inc.	33,302			(7,232		)	26,070			25,016			(3,922		)	21,094
Less: Preferred stock distributions	1,955			—			1,955			2,197			—			2,197
Net income / (loss) attributable to Sun Communities, Inc. common stockholders	$	31,347		$	(7,232	)	$	24,115		$	22,819		$	(3,922	)	$	18,897



	Nine Months Ended September 30, 2017									Nine Months Ended September 30, 2016
	Real Property Operations			Home Sales and Rentals			Consolidated			Real Property Operations			Home Sales and Rentals			Consolidated
Revenues	$	592,864		$	129,093		$	721,957		$	482,002		$	117,683		$	599,685
Operating expenses/Cost of sales	220,902			84,820			305,722			176,176			76,440			252,616
Net operating income/Gross profit	371,962			44,273			416,235			305,826			41,243			347,069
Adjustments to arrive at net income / (loss):
Interest and other revenues, net	18,587			—			18,587			15,459			—			15,459
Home selling expenses	—			(9,391		)	(9,391		)	—			(7,240		)	(7,240		)
General and administrative	(49,082		)	(7,106		)	(56,188		)	(40,300		)	(6,610		)	(46,910		)
Transaction costs	(7,001		)	11			(6,990		)	(27,990		)	99			(27,891		)
Depreciation and amortization	(144,143		)	(45,576		)	(189,719		)	(118,296		)	(41,269		)	(159,565		)
Extinguishment of debt	(759		)	—			(759		)	—			—			—
Interest	(95,754		)	(11		)	(95,765		)	(88,512		)	(10		)	(88,522		)
Interest on mandatorily redeemable preferred OP units	(2,361		)	—			(2,361		)	(2,363		)	—			(2,363		)
Catastrophic weather related charges	(8,075		)	(49		)	(8,124		)	—			—			—
Other income, net	5,341			(1		)	5,340			—			—			—
Current tax expense	145			(278		)	(133		)	(445		)	(122		)	(567		)
Deferred tax benefit	745			—			745			—			—			—
Income from affiliate transactions	—			—			—			500			—			500
Net income / (loss)	89,605			(18,128		)	71,477			43,879			(13,909		)	29,970
Less: Preferred return to preferred OP units	3,482			—			3,482			3,793			—			3,793
Less: Amounts attributable to noncontrolling interests	5,163			(984		)	4,179			1,392			(932		)	460
Net income / (loss) attributable to Sun Communities, Inc.	80,960			(17,144		)	63,816			38,694			(12,977		)	25,717
Less: Preferred stock distributions	6,233			—			6,233			6,748			—			6,748
Net income / (loss) attributable to Sun Communities, Inc. common stockholders	$	74,727		$	(17,144	)	$	57,583		$	31,946		$	(12,977	)	$	18,969



Covenant	Requirement	As of September 30, 2017
Maximum Leverage Ratio	<65.0%	34.3%
Minimum Fixed Charge Coverage Ratio	>1.40	2.62
Minimum Tangible Net Worth	2,491,250	$3,997,391
Maximum Dividend Payout Ratio	<95.0%	64.1%



			Payments Due By Period
			(in thousands)
Contractual Cash Obligations ⁽¹⁾	Total Due		<1 year		1-3 years		3-5 years		After 5 years

Collateralized term loans - FNMA	$	1,017,385	$	4,750	$	118,437	$	226,728	$	667,470
Collateralized term loans - Life Company	950,726		5,157		53,349		62,874		829,346
Collateralized term loans - CMBS	451,743		1,982		17,476		138,016		294,269
Collateralized term loans - FMCC	390,270		1,480		12,317		13,305		363,168
Secured borrowings	134,884		1,354		11,969		14,090		107,471
Lines of credit	—		—		—		—		—
Preferred OP units - mandatorily redeemable	45,903		3,670		7,570		—		34,663
Total principal payments	$	2,990,911	$	18,393	$	221,118	$	455,013	$	2,296,387

Interest expense ⁽²⁾	$	855,169	$	33,321	$	245,932	$	217,539	$	358,377
Operating leases	58,646		3,198		6,803		6,986		41,659
Total contractual obligations	$	3,904,726	$	54,912	$	473,853	$	679,538	$	2,696,423