Sun Communities, Inc. Reports 2012 Second Quarter Results

NEWS RELEASE
July 26, 2012

Sun Communities, Inc. Reports 2012 Second Quarter Results

Southfield, MI, July 26, 2012 - Sun Communities, Inc. (NYSE: SUI) (the "Company"), a real estate investment trust ("REIT") that owns and operates manufactured housing and recreational vehicle communities, today reported its second quarter results.

Highlights: Three Months Ended June 30, 2012 vs. June 30, 2011

"Our business is strong and growing stronger.  We are positioned well to increase both revenues and occupancy in the core portfolio and recent acquisitions.  In 2013 we expect to reach an overall portfolio occupancy of 90%", said Gary A. Shiffman, Chairman and CEO.  "Our commitment is to acquire properties to which we can continue to deploy management's strengths and systems to generate additional long-term growth and value", Shiffman added.

Net Income (Loss) Attributable to Common Stockholders

Net income attributable to common stockholders for the second quarter of 2012 was $1.7 million, or $0.06 per diluted common share, compared with net loss of $(0.9) million, or $(0.04) per diluted common share, for the second quarter of 2011.  Net income attributable to common stockholders for the six months ended June 30, 2012 was $7.0 million, or $0.27 per diluted common share, compared with net income of $1.5 million, or $0.07 per diluted common share, for the six months ended June 30, 2011.

Acquisitions

Subsequent to quarter end the Company acquired Blazing Star, a recreational vehicle community with 260 sites located in San Antonio, Texas, for a purchase price of $7.1 million, comprised of $4.1 million of assumed debt and $3.0 million of cash.

Also, the Company entered into two letters of intent with regard to seven high-quality Michigan properties totaling 4,350 sites, with approximate occupancy of 87 percent. The transactions are anticipated to close in the third quarter of 2012.

Five of the properties will be acquired for a total of approximately $86.0 million cash and the assumption of $15.7 million of debt. The Company will also be purchasing certain homes and sales contracts.

For two properties totaling 1,598 sites, Sun will be providing approximately $14.7 to $16.7 million of subordinated mezzanine financing to approximately $43.0 to $45.0 million of senior debt.  Contemporaneously, Sun will enter into a Management Agreement on these two properties.

The consummation of these transactions is subject to the execution of definitive agreements and customary closing conditions, including lender approval for the assumption of debt. As a result, there can be no assurances as to the actual closing or the timing of any closing.

"We are extremely pleased at the opportunity to acquire five and manage two of these high quality manufactured housing communities.  I have passed by and watched these assets my entire career due to their strategic metropolitan "A" locations.  After multiple discussions over a twenty year period, the timing is right and the opportunity has finally presented itself.  Given Michigan's strengthening economy and management's skill set, I would expect to see these communities returning to 95% occupancy in the near term by adding 350 incremental revenue producing sites over 12 to 18 months. The high occupancies reflect the fact that these communities have not had any rental increases in the past three to four years and are at below market rents, providing enhanced opportunity for rental growth and strong upside", Shiffman stated.

Guidance

The Company updates 2012 FFO guidance to $3.20 - $3.27 per Share.

 (1) Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (loss) (computed in accordance with generally accepted accounting principles "GAAP"), excluding gains (or losses) from sales of depreciable operating property, plus real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure that management believes is a useful supplemental measure of the Company's operating performance. Management generally considers FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not readily apparent from net 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.

Because FFO excludes significant economic components of net income (loss) including depreciation and amortization, FFO should be used as an adjunct to net income (loss) and not as an alternative to net income (loss). The principal limitation of FFO is that it does not represent cash flow from operations as defined by GAAP and is a supplemental measure of performance that does not replace net income (loss) as a measure of performance or net cash provided by operating activities as a measure of liquidity. In addition, FFO is not intended as a measure of a REIT's ability to meet debt principal repayments and other cash requirements, nor as a measure of working capital. FFO only provides investors with an additional performance measure.

 (2) Investors in and analysts following the real estate industry utilize NOI as a supplemental performance measure. NOI is derived from revenues minus property operating expenses and real estate taxes. NOI does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (loss) (determined in accordance with GAAP) as an indication of the Company's financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity; nor is it indicative of funds available for the Company's cash needs, including its ability to make cash distributions. The Company believes that net income (loss) is the most directly comparable GAAP measurement to NOI. Net income (loss) includes interest and depreciation and amortization which often have no effect on the market value of a property and therefore limit its use as a performance measure. In addition, such expenses are often incurred at a parent company level and therefore are not necessarily linked to the performance of a real estate asset. 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, and therefore, NOI is a measure of the operating performance of the properties of the Company rather than of the Company overall.

Forward Looking Statements
This press release contains various "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the Company intends that such forward-looking statements will be subject to the safe harbors created thereby. Forward-looking statements can be identified by words such as "will," "may," "could," "expect," "anticipate," "believes," "intends," "should," "plans," "estimates," "approximate", "guidance" and similar expressions in this press release that predict or indicate future events and trends and that do not report historical matters.  

These forward-looking statements reflect the Company's current views with respect to future events and financial performance, but involve known and unknown risks, uncertainties, and other factors, some of which are beyond our control. These risks, uncertainties, and other factors may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Such risks and uncertainties include national, regional and local economic climates, the ability to maintain rental rates and occupancy levels, competitive market forces, changes in market rates of interest, the ability of manufactured home buyers to obtain financing, the level of repossessions by manufactured home lenders and those risks and uncertainties referenced under the headings entitled "Risk Factors" contained in our 2011 Annual Report, andthe Company's other periodicfilings with the Securities and Exchange Commission.

The forward-looking statements contained in this press release speak only as of the date hereof and the Company expressly disclaims any obligation to provide public updates, revisions or amendments to any forward- looking statements made herein to reflect changes in the Company's assumptions, expectations of future events, or trends.

Consolidated Balance Sheets
(in thousands, except per share amounts)

	(Unaudited)       June 30, 2012				December 31, 2011
ASSETS
Investment property, net	$	1,236,337			$	1,196,606
Cash and cash equivalents	4,499				5,857
Inventory of manufactured homes	4,396				5,832
Notes and other receivables	121,908				114,884
Other assets	45,179				44,795
TOTAL ASSETS	$	1,412,319			$	1,367,974
LIABILITIES
Debt	$	1,286,156			$	1,268,191
Lines of credit	24,631				129,034
Other liabilities	71,673				71,404
TOTAL LIABILITIES	$	1,382,460			$	1,468,629
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued	$	-			$	-
Common stock, $0.01 par value, 90,000 shares authorized   (June 30, 2012 and December 31, 2011, 28,273 and 23,612 shares issued, respectively)	283				236
Additional paid-in capital	714,052				555,981
Accumulated other comprehensive loss	(735		)		(1,273		)
Distributions in excess of accumulated earnings	(644,220		)		(617,953		)
Treasury stock, at cost  (June 30, 2012 and December 31, 2011, 1,802 shares)	(63,600		)		(63,600		)
Total Sun Communities, Inc. stockholders' equity (deficit)	5,780				(126,609		)
Noncontrolling interests:
A-1 preferred OP units	45,548				45,548
Common OP units	(21,469		)		(19,594		)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)	29,859				(100,655		)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	1,412,319			$	1,367,974

 

 

Consolidated Statements of Operations
(in thousands, except per share amounts)

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
REVENUES
Income from real property	$	61,507			$	52,264			$	125,803			$	106,100
Revenue from home sales	11,439				8,146				21,052				16,381
Rental home revenue	6,511				5,427				12,802				10,757
Ancillary revenues, net	92				109				355				403
Interest	2,655				2,291				5,060				4,359
Other income (loss), net	175				25				435				(24		)
Total revenues	82,379				68,262				165,507				137,976
COSTS AND EXPENSES
Property operating and maintenance	17,168				13,994				33,194				27,452
Real estate taxes	4,936				4,098				9,808				8,213
Cost of home sales	8,971				6,401				16,744				12,892
Rental home operating and maintenance	4,148				3,754				7,972				7,427
General and administrative - real property	5,182				4,833				10,240				9,311
General and administrative - home sales and rentals	2,238				1,952				4,447				3,925
Acquisition related costs	423				1,151				587				1,400
Depreciation and amortization	21,067				18,121				40,935				34,800
Interest	16,781				15,225				33,578				30,631
Interest on mandatorily redeemable debt	833				829				1,674				1,655
Total expenses	81,747				70,358				159,179				137,706
Income (loss) before income taxes and distributions from affiliates	632				(2,096		)		6,328				270
(Provision) benefit for state income taxes	(53		)		259				(106		)		128
Distributions from affiliates	1,900				850				2,650				1,200
Net income (loss)	2,479				(987		)		8,872				1,598
Less:  Preferred return to A-1 preferred OP units	579				51				1,158				51
Less:  Amounts attributable to noncontrolling interests	237				(148		)		674				37
Net income (loss) attributable to Sun Communities, Inc. common stockholders	$	1,663			$	(890	)		$	7,040			$	1,510
Weighted average common shares outstanding:
Basic	26,469				21,090				26,028				21,068
Diluted	26,485				21,090				26,045				23,146
Earnings (loss) per share:
Basic	$	0.06			$	(0.04	)		$	0.27			$	0.07
Diluted	$	0.06			$	(0.04	)		$	0.27			$	0.07
Dividends per common share:	$	0.63			$	0.63			$	1.26			$	1.26

Reconciliation of Net Income (Loss) to FFO⁽¹⁾
(in thousands, except per share amounts)

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
Net income (loss) attributable to Sun Communities, Inc. common stockholders	$1,663				$(890		)		$7,040				$1,510
Adjustments:
Preferred return to A-1 preferred OP units	579				51				1,158				51
Amounts attributable to noncontrolling interests	237				(148		)		674				37
Depreciation and amortization	21,318				18,448				41,433				35,467
Benefit for state income taxes (3)	-				(398		)		-				(407		)
Gain on disposition of assets, net	(1,101		)		(710		)		(1,897		)		(1,518		)
Funds from operations ("FFO") (1)	22,696				16,353				48,408				35,140
Adjustments:
Acquisition related costs	423				1,151				587				1,400
Funds from operations excluding acquisition costs	$	23,119			$	17,504			$	48,995			$	36,540
Weighted average common shares outstanding:	26,469				21,090				26,028				21,068
Add:
OP Units	2,071				2,075				2,072				2,077
Restricted stock	-				238				-				-
Common stock issuable upon conversion of A-1 preferred OP units	1,111				98				1,111				49
Common stock issuable upon conversion of stock options	16				17				17				9
Weighted average common shares outstanding - fully diluted	29,667				23,518				29,228				23,203
Funds from operations per share - fully diluted	$	0.77			$	0.70			$	1.66			$	1.51
Funds from operations per Share excluding acquisition costs - fully diluted	$	0.78			$	0.74			$	1.68			$	1.57

 (3) The state income tax benefit for the period ended June 30, 2011  represents the reversal of the Michigan Business Tax expense previously excluded from FFO in a prior period.

Statement of Operations - Same Site
(in thousands except for Other Information)

	Three Months Ended June 30,												Six Months Ended June 30,
	2012			2011			Change			% Change			2012			2011			Change			% Change
REVENUES:
Income from real property	$51,071			$48,799			$2,272			4.7	%		$104,415			$99,463			$4,952			5.0	%
PROPERTY OPERATING EXPENSES:
Payroll and benefits	3,942			3,902			40			1.0	%		7,749			7,693			56			0.7	%
Legal, taxes, & insurance	602			841			(239	)		(28.4	)%		1,185			1,542			(357	)		(23.2	)%
Utilities	2,786			2,784			2			0.1	%		5,770			5,915			(145	)		(2.5	)%
Supplies and repair	2,643			2,283			360			15.8	%		4,171			3,726			445			11.9	%
Other	1,208			1,121			87			7.8	%		2,700			2,341			359			15.3	%
Real estate taxes	4,076			4,039			37			0.9	%		8,124			8,154			(30	)		(0.4	)%
Property operating expenses	15,257			14,970			287			1.9	%		29,699			29,371			328			1.1	%
NET OPERATING INCOME ("NOI")(2)	$35,814			$33,829			$1,985			5.9	%		$74,716			$70,092			$4,624			6.6	%

	As of June 30,
	2012				2011				Change
OTHER INFORMATION
Number of properties	136				136				-
Developed sites	47,782				47,677				105
Occupied sites (4)	39,663				38,928				735
Occupancy % (4)(5)	86.6		%		84.5		%		2.1		%
Weighted average monthly rent per site (6)	$	432			$	420			$	12
Weighted average monthly rent per site - Permanent RV (6)	$	434			$	425			$	9
Sites available for development	5,255				5,439				(184		)

(4) Occupied sites and occupancy % include manufactured housing and permanent recreational vehicle sites, and exclude seasonal recreational vehicle sites.
(5) Occupancy % excludes completed but vacant expansion sites.
(6) Weighted average rent pertains to manufactured housing and permanent recreational vehicle sites and excludes seasonal recreational vehicle sites.

Rental Program Summary
(in thousands except for *)

	Three Months Ended June 30,															Six Months Ended June 30,
	2012				2011				Change				% Change			2012				2011				Change				% Change
REVENUES:
Rental home revenue	$	6,511			$	5,427			$	1,084			20.0	%		$12,802				$10,757				$	2,045			19.0	%
Site rent included in income from real property	9,482				7,745				1,737				22.4	%		18,527				15,317				3,210				21.0	%
Rental program revenue	15,993				13,172				2,821				21.4	%		31,329				26,074				5,255				20.2	%
EXPENSES:
Commissions	545				472				73				15.5	%		1,078				944				134				14.2	%
Repairs and refurbishment	2,033				1,785				248				13.9	%		3,879				3,591				288				8.0	%
Taxes and insurance	828				815				13				1.6	%		1,633				1,551				82				5.3	%
Marketing and other	742				682				60				8.8	%		1,382				1,341				41				3.1	%
Rental program operating and maintenance	4,148				3,754				394				10.5	%		7,972				7,427				545				7.3	%
NET OPERATING INCOME ("NOI") (2)	$	11,845			$	9,418			$	2,427			25.8	%		$	23,357			$	18,647			$	4,710			25.3	%
Occupied rental home information as of June 30, 2012 and 2011:
Number of occupied rentals, end of period*																7,699				6,444				1,255				19.5	%
Investment in occupied rental homes																$	264,956			$	213,602			$	51,354			24.0	%
Number of sold rental homes*																469				416				53				12.7	%
Weighted average monthly rental rate*																$	767			$	747			$	20			2.7	%

 

Acquisitions Summary
(amounts in thousands except for statistical data)