Annual Reports

 
Quarterly Reports

  • 10-Q (Apr 30, 2014)
  • 10-Q (Oct 29, 2013)
  • 10-Q (Jul 25, 2013)
  • 10-Q (Apr 25, 2013)
  • 10-Q (Oct 29, 2012)
  • 10-Q (Oct 25, 2012)

 
8-K

 
Other

Sun Communities 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. 10-Q
  3. Ex-10.3
  4. Ex-31.1
  5. Ex-31.2
  6. Ex-32.1
  7.  
sui09302011_10q.htm

 
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, 2011.
 
or

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


Commission file number 1-12616

SUN COMMUNITIES, INC.
(Exact Name of Registrant as Specified in its Charter)


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

(248) 208-2500
 (Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [ X ]  No [   ]

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

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

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

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

Yes [   ]  No [ X ]


Number of shares of Common Stock, $0.01 par value per share, outstanding
as of September 30, 2011:  21,703,287






 
 
 
 
 

 

SUN COMMUNITIES, INC.

INDEX

   
Pages
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited):
 
 
 
Consolidated Balance Sheets ─ September 30, 2011 and  December 31, 2010
 
3
 
Consolidated Statements of Operations ─ Periods Ended September 30, 2011 and 2010
 
4
 
Consolidated Statements of Comprehensive Income (Loss) ─ Periods Ended September 30, 2011 and 2010
 
5
 
Consolidated Statement of Stockholders’ Deficit ─ Nine Months Ended September 30, 2011
 
5
 
Consolidated Statements of Cash Flows ─ Nine Months Ended September 30, 2011 and 2010
 
6
 
Notes to Consolidated Financial Statements
 
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
24
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
40
Item 4.
Controls and Procedures
 
40
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
41
Item 1A.
Risk Factors
 
41
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds 
 
41
Item 6.
Exhibits
 
42
 
Signatures
 
43








 
2

 

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SUN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
 (In thousands, except per share amounts)

   
(Unaudited)
       
   
September 30, 2011
   
December 31, 2010
 
ASSETS
           
Investment property, net
 
$
1,169,414
   
$
1,032,326
 
Cash and cash equivalents
   
4,741
     
8,420
 
Inventory of manufactured homes
   
3,862
     
2,309
 
Notes and other receivables
   
105,065
     
88,807
 
Other assets
   
45,541
     
30,829
 
TOTAL ASSETS
 
$
1,328,623
   
$
1,162,691
 
                 
                 
LIABILITIES
               
Debt
 
$
1,252,132
   
$
1,163,612
 
Lines of credit
   
104,333
     
94,527
 
Other liabilities
   
44,573
     
36,936
 
TOTAL LIABILITIES
 
$
1,401,038
   
$
1,295,075
 
                 
Commitments and contingencies
               
                 
STOCKHOLDERS’ DEFICIT
               
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued
 
$
-
   
$
-
 
        Common stock, $0.01 par value, 90,000 shares authorized   (September 30, 2011 and December 31, 2010, 23,505 and 21,716 shares issued respectively)
   
235
     
217
 
Additional paid-in capital
   
551,926
     
495,331
 
Accumulated other comprehensive loss
   
(1,641
)
   
(2,226
)
Distributions in excess of accumulated earnings
   
(588,338
)
   
(549,625
)
Treasury stock, at cost  (September 30, 2011 and December 31, 2010, 1,802 shares)
   
(63,600
)
   
(63,600
)
Total Sun Communities, Inc. stockholders' deficit
   
(101,418
)
   
(119,903
)
Noncontrolling interests:
               
Preferred OP units
   
45,548
     
-
 
Common OP units
   
(16,545
)
   
(12,481
)
                 
TOTAL STOCKHOLDERS’ DEFICIT
   
(72,415
)
   
(132,384
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
1,328,623
   
$
1,162,691
 



See accompanying Notes to Consolidated Financial Statements.










 
3

 
 
 

SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
 (In thousands, except per share amounts)
(Unaudited)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
REVENUES
                       
Income from real property
 
$
58,251
   
$
50,169
   
$
164,351
   
$
152,124
 
Revenue from home sales
   
8,115
     
7,324
     
24,496
     
24,959
 
Rental home revenue
   
5,650
     
5,135
     
16,407
     
15,266
 
Ancillary revenues, net
   
31
     
35
     
434
     
369
 
Interest
   
2,430
     
2,036
     
6,789
     
5,805
 
Other income, net
   
246
     
10
     
222
     
462
 
Total revenues
   
74,723
     
64,709
     
212,699
     
198,985
 
                                 
COSTS AND EXPENSES
                               
Property operating and maintenance
   
16,354
     
13,942
     
43,806
     
40,087
 
Real estate taxes
   
4,504
     
3,813
     
12,717
     
12,176
 
Cost of home sales
   
6,357
     
5,320
     
19,249
     
18,797
 
Rental home operating and maintenance
   
4,253
     
4,164
     
11,680
     
11,381
 
General and administrative - real property
   
5,138
     
3,408
     
14,449
     
12,525
 
General and administrative - home sales and rentals
   
2,109
     
1,873
     
6,034
     
5,659
 
Acquisition related costs
   
121
     
-
     
1,521
     
-
 
Depreciation and amortization
   
18,748
     
17,132
     
53,548
     
50,655
 
Interest
   
16,626
     
15,668
     
47,257
     
46,228
 
Interest on mandatorily redeemable debt
   
834
     
826
     
2,489
     
2,462
 
Total expenses
   
75,044
     
66,146
     
212,750
     
199,970
 
                                 
Loss before income taxes and equity income (loss) from affiliates
   
(321
)
   
(1,437
)
   
(51
)
   
(985
)
Provision for state income taxes
   
(150
)
   
(143
)
   
(22
)
   
(404
)
Equity income (loss) from affiliates
   
450
     
(69
)
   
1,650
     
(1,646
)
Net (loss) income
   
(21
)
   
(1,649
)
   
1,577
     
(3,035
)
Less:  Preferred return to preferred OP units
   
585
     
-
     
636
     
-
 
Less:  Amounts attributable to common noncontrolling interests
   
(233
)
   
(246
)
   
(196
)
   
(520
)
Net (loss) income attributable to Sun Communities, Inc. common stockholders
 
$
(373
)
 
$
(1,403
)
 
$
1,137
   
$
(2,515
)
                                 
Weighted average common shares outstanding:
                               
Basic
   
21,366
     
19,323
     
21,039
     
19,006
 
Diluted
   
21,366
     
19,323
     
23,343
     
19,006
 
                                 
(Loss) earnings per share:
                               
Basic
 
$
(0.02
)
 
$
(0.07
)
 
$
0.05
   
$
(0.13
)
Diluted
 
$
(0.02
)
 
$
(0.07
)
 
$
0.05
   
$
(0.13
)
                                 
Cash dividends per common share:
 
$
0.63
   
$
0.63
   
$
1.89
   
$
1.89
 


See accompanying Notes to Consolidated Financial Statements.

 
4

 
 
 

SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
 (In thousands)
(Unaudited)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Net (loss) income
 
$
(21
)
 
$
(1,649
)
 
$
1,577
   
$
(3,035
)
Unrealized gain (loss) on interest rate swaps
   
222
     
(261
)
   
644
     
(1,018
)
Total comprehensive income (loss)
   
201
     
(1,910
)
   
2,221
     
(4,053
)
Less: Comprehensive loss attributable to the noncontrolling interests
   
(212
)
   
(273
)
   
(137
)
   
(624
)
Comprehensive income (loss) attributable to Sun Communities, Inc. common stockholders
 
$
413
   
$
(1,637
)
 
$
2,358
   
$
(3,429
)



SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
 (In thousands)
(Unaudited)

   
Common Stock
   
Additional Paid-in Capital
   
Accumulated Other Comprehensive Loss
   
Distributions in Excess of Accumulated Earnings
   
Treasury Stock
   
Total Sun Communities Stockholders' Deficit
   
Non-controlling Interest
   
Total Stockholders' Deficit
 
Balance as of December 31, 2010
 
$
217
   
$
495,331
   
$
(2,226
)
 
$
(549,625
)
 
$
(63,600
)
 
$
(119,903
)
 
$
(12,481
)
 
$
(132,384
)
Issuance of common stock from exercise of options, net
   
-
     
716
     
-
     
-
     
-
     
716
     
-
     
716
 
Issuance and associated costs of common stock, net
   
18
     
54,715
     
-
     
-
     
-
     
54,733
     
-
     
54,733
 
Issuance of preferred OP units
   
-
     
-
     
-
     
-
     
-
     
-
     
45,548
     
45,548
 
Share-based compensation - amortization and forfeitures
   
-
     
1,164
     
-
     
57
     
-
     
1,221
     
-
     
1,221
 
Net income (loss)
   
-
     
-
     
-
     
1,773
     
-
     
1,773
     
(196
)
   
1,577
 
Unrealized gain on interest rate swaps
   
-
     
-
     
585
     
-
     
-
     
585
     
59
     
644
 
Cash distributions
   
-
     
-
     
-
     
(40,543
)
   
-
     
(40,543
)
   
(3,927
)
   
(44,470
)
Balance as of September 30, 2011
 
$
235
   
$
551,926
   
$
(1,641
)
 
$
(588,338
)
 
$
(63,600
)
 
$
(101,418
)
 
$
29,003
   
$
(72,415
)



See accompanying Notes to Consolidated Financial Statements.




 
5

 
 
 

SUN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
 (In thousands)
(Unaudited)

   
Nine Months Ended September 30,
 
   
2011
   
2010
 
OPERATING ACTIVITIES:
           
Net income (loss)
 
$
1,577
   
$
(3,035
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
(Gain) loss on valuation of derivative instruments
   
(7
)
   
16
 
Stock compensation expense
   
1,273
     
1,593
 
Depreciation and amortization
   
52,819
     
49,103
 
Amortization of deferred financing costs
   
1,289
     
1,248
 
Equity loss from affiliates, net
   
-
     
1,646
 
Change in notes receivable from financed sales of inventory homes, net of repayments
   
(3,876
)
   
(3,343
)
Change in inventory, other assets and other receivables, net
   
(6,642
)
   
(877
)
Change in accounts payable and other liabilities
   
(74
)
   
(4,316
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
   
46,359
     
42,035
 
                 
INVESTING ACTIVITIES:
               
Investment in properties
   
(61,725
)
   
(34,255
)
Acquisitions
   
(51,503
)
   
-
 
Proceeds related to disposition of assets and depreciated homes, net
   
494
     
691
 
Reduction of notes receivable and officer's notes, net
   
1,232
     
3,223
 
NET CASH USED FOR INVESTING ACTIVITIES
   
(111,502
)
   
(30,341
)
                 
FINANCING ACTIVITIES:
               
Issuance and associated costs of common stock, OP units, and preferred OP units, net
   
54,733
     
20,686
 
Net proceeds from stock option exercise
   
716
     
48
 
Distributions to stockholders, OP unit holders, and preferred OP unit holders
   
(44,470
)
   
(40,040
)
Payments to retire preferred OP units
   
-
     
(925
)
Borrowings on lines of credit
   
150,018
     
103,773
 
Payments on lines of credit
   
(140,212
)
   
(106,328
)
Proceeds from issuance of other debt
   
177,459
     
21,877
 
Payments on other debt
   
(133,484
)
   
(10,407
)
Payments for deferred financing costs
   
(3,296
)
   
(168
)
NET CASH PROVIDED (USED) FOR FINANCING ACTIVITIES
   
61,464
     
(11,484
)
                 
Net (decrease) increase in cash and cash equivalents
   
(3,679
)
   
210
 
Cash and cash equivalents, beginning of period
   
8,420
     
4,496
 
Cash and cash equivalents, end of period
 
$
4,741
   
$
4,706
 
                 
SUPPLEMENTAL INFORMATION:
               
Cash paid for interest
 
$
41,496
   
$
39,959
 
Cash paid for interest on mandatorily redeemable debt
 
$
2,491
   
$
2,462
 
Cash paid for state income taxes
 
$
539
   
$
492
 
Noncash investing and financing activities:
               
Unrealized gain (loss) on interest rate swaps
 
$
644
   
$
(1,018
)
Reduction in secured borrowing balance
 
$
7,853
   
$
5,228
 
Acquisitions - preferred OP units issued
 
$
45,548
   
$
-
 
Acquisitions - debt assumed
 
$
52,398
   
$
-
 
Acquisitions - other noncash consideration
 
$
1,343
   
$
-
 


See accompanying Notes to Consolidated Financial Statements.


 
6

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.      Basis of Presentation

These unaudited interim Consolidated Financial Statements of Sun Communities, Inc., a Maryland corporation, and all wholly-owned or majority-owned  and controlled subsidiaries, including Sun Communities Operating Limited Partnership (the “Operating Partnership”), SunChamp LLC (“SunChamp”), and Sun Home Services, Inc. (“SHS”), have been prepared pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations and in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC on February 24, 2011, as amended on March 31, 2011 (the “2010 Annual Report”).

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

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

The following Notes to Consolidated Financial Statements present interim disclosures as required by the SEC. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our 2010 Annual Report.

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

 
2.
Real Estate Acquisitions

In June 2011, we closed on the acquisition of Kentland Communities (“Kentland”), comprising 17 manufactured home communities and 1 recreational vehicle community.  The 18 communities acquired are located in western Michigan and comprise 5,437 developed sites.  We believe the addition of Kentland complements our existing portfolio and enhances our long-term growth opportunities.

In May 2011, we acquired Orange City RV Resort (“Orange City”), a Florida recreational vehicle community comprising 525 developed sites.  We believe the addition of Orange City to our portfolio creates an excellent growth opportunity as well as creating a new recreational vehicle presence for us geographically.

Acquisition related costs of approximately $1.5 million have been incurred as of September 30, 2011 and are presented as “Acquisition related costs” in our Consolidated Statements of Operations.

During the third quarter of 2011, we completed the purchase price allocation for the Kentland and Orange City acquisitions made during the second quarter of 2011. Some of the amounts previously estimated have changed during the measurement period. The changes in estimates included an increase in investment property of $0.1 million, an increase in in-place leases of $0.1 million, an increase in other assets of $0.2 million, an increase in other liabilities of $0.3 million, a decrease in assumed debt of $0.1 million, and an increase in cash consideration of $0.2 million.  The measurement period adjustments represent updates made to the purchase price allocation based on revisions applied to valuation estimates subsequent to the quarter of acquisition and the initial accounting. There were no significant adjustments to our Consolidated Statements of Operations.

At an auction on September 28, 2011, we successfully bid $0.4 million for a manufactured home community containing approximately 250 sites in Tyrone Township, MI purchased from the State of Michigan.  We anticipate the deed will be transferred and we will take control of operations in November 2011.


 
7

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


2.   Real Estate Acquisitions, continued

The following table summarizes the final amounts of the assets acquired and liabilities assumed recognized at the acquisition dates and the consideration paid for Kentland and Orange City:

At Acquisition Date
     
Investment in property
 
$
137,688
 
Inventory of manufactured homes
   
1,150
 
Notes
   
3,542
 
In-place leases
   
9,210
 
Other assets
   
1,269
 
Other liabilities
   
(2,067
)
Assumed debt
   
(52,398
)
         
Total identifiable assets and liabilities assumed
 
$
98,394
 
         
         
 Consideration
       
         
Cash
 
$
29,916
 
POP units
   
45,548
 
New debt proceeds
   
22,930
 
         
Fair value of total consideration transferred
 
$
98,394
 

 As of September 30, 2011, the total residual value of the acquired in-place leases above is $8.9 million. The amortization period is 7 years.

The results of operations of Kentland and Orange City are included in the Consolidated Statements of Operations beginning on their acquisition dates of June 2011 and May 2011, respectively. The following unaudited pro forma financial information presents the results of our operations for the nine months ended September 30, 2011 and 2010 as if the properties were acquired on January 1, 2010. The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of either the results of operations that would have actually occurred had these transactions occurred on January 1, 2010 or the future results of operations (in thousands, except per-share data).

   
Nine Months Ended
 
   
September 30,
 
   
2011
   
2010
 
Total revenues
 
$
224,978
   
$
217,751
 
Net income (loss) attributable to Sun Communities, Inc. shareholders
 
$
2,797
   
$
(549
)
Net income (loss) per share attributable to Sun Communities, Inc. shareholders - basic
   
0.13
     
(0.03
)
Net income (loss) per share attributable to Sun Communities, Inc. shareholders - diluted
   
0.12
     
(0.03
)


The amount of Kentland and Orange City’s revenue and net income included in the Consolidated Statements of Operations for the nine months ended September 30, 2011 is set forth in the following table:

   
Revenue
   
Net Income
 
Actual from acquisition date to September 30, 2011
 
$
6,312
   
$
1,199
 



 
8

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
3.
Investment Property

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

   
September 30, 2011
   
December 31, 2010
 
Land
 
$
125,201
   
$
116,837
 
Land improvements and buildings
   
1,330,311
     
1,190,761
 
Rental homes and improvements
   
235,270
     
209,824
 
Furniture, fixtures, and equipment
   
37,390
     
36,716
 
Land held for future development
   
25,702
     
26,406
 
Investment property
   
1,753,874
     
1,580,544
 
Accumulated depreciation
   
(584,460
)
   
(548,218
)
Investment property, net
 
$
1,169,414
   
$
1,032,326
 

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

See Note 2 for details on recent acquisitions.

 
4.
Transfers of Financial Assets

We have completed various transactions involving our installment notes and during 2011 we have received a total of $15.9 million of cash proceeds in exchange for relinquishing our right, title and interest in the installment notes. We have no further obligations or rights with respect to the control, management, administration, servicing, or collection of the installment notes.

However, we are subject to certain repurchase obligations requiring us to purchase the underlying homes collateralizing such notes, in the event of a note default and subsequent repossession of the home.  The repurchase provisions are considered to be a form of continuing involvement, and we have recorded these transactions as a transfer of financial assets.

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

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

The transferred assets have been classified as collateralized receivables in Notes and Other Receivables (see Note 5) and the cash proceeds received from these transactions have been classified as a secured borrowing in Debt and Lines of Credit (see Note 7) within the Consolidated Balance Sheets.  The balance of the collateralized receivables was $78.8 million (net of allowance of $0.5 million) and $71.0 million (net of allowance of $0.2 million) as of September 30, 2011 and December 31, 2010, respectively.  The outstanding balance on the secured borrowing was $79.3 million and $71.3 million as of September 30, 2011 and December 31, 2010, respectively.


 
9

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
4.
Transfers of Financial Assets, continued

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

Beginning balance as of December 31, 2010
 
$
71,278
 
Financed sales of manufactured homes
   
15,851
 
Principal payments and payoffs from our customers
   
(3,288
)
Repurchases
   
(4,565
)
Total activity
   
7,998
 
Ending balance as of  September 30, 2011
 
$
79,276
 

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 $2.1 million and $1.8 million for the three months ended September 30, 2011 and 2010, respectively.  The amount of interest income and expense recognized was $6.1 million and $5.0 million for the nine months ended September 30, 2011 and 2010, respectively.  

 
5.
Notes and Other Receivables

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

   
September 30, 2011
   
December 31, 2010
 
Installment notes receivable on manufactured homes, net
 
$
13,671
   
$
9,420
 
Collateralized receivables, net (see Note 4)
   
78,822
     
71,020
 
Other receivables, net
   
12,572
     
8,367
 
Total notes and other receivables
 
$
105,065
   
$
88,807
 

Installment Notes Receivable on Manufactured Homes

The installment notes of $13.7 million (net of allowance of $0.1 million) and $9.4 million (net of allowance of $0.1 million) as of September 30, 2011 and December 31, 2010, respectively, are collateralized by manufactured homes. The notes represent financing provided by us to purchasers of manufactured homes generally located in our communities and require monthly principal and interest payments.  This also includes the notes receivable that were purchased in the Kentland acquisition.  See Note 2 for more information.  The notes have a net weighted average interest rate and maturity of 7.8 percent and 10.2 years as of September 30, 2011, and 7.0 percent and 11.1 years as of December 31, 2010.

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

Beginning balance as of December 31, 2010
 
$
9,466
 
Financed sales of manufactured homes
   
2,566
 
Acquired notes (see Note 2)
   
3,542
 
Principal payments and payoffs from our customers
   
(1,099
)
Repurchases
   
(703
)
Total activity
   
4,306
 
Ending balance as of  September 30, 2011
 
$
13,772
 



 
10

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
5.
Notes and Other Receivables, continued

Collateralized Receivables

Certain transactions involving our installment notes were recorded as a transfer of financial assets (see Note 4) and classified as collateralized receivables.  The receivables have a balance of $78.8 million (net of allowance of $0.5 million) and $71.0 million (net of allowance of $0.2 million) as of September 30, 2011 and December 31, 2010, respectively.  The receivables have a net weighted average interest rate and maturity of 11.2 percent and 13.2 years as of September 30, 2011, and 11.3 percent and 13.4 years as of December 31, 2010.

Allowance for Losses for Collateralized and Installment Notes Receivable

We are generally able to recover our investment in uncollectible notes receivable by repurchasing the homes that collateralized these notes receivable and then selling or leasing these homes to potential residents in our communities.  Although our experience supports a high recovery rate for repossessed homes, we believe there is some degree of uncertainty about recoverability of our investment in these repossessed homes.  When an account becomes 60 days delinquent, we stop accruing interest on the account.  We have established a loan loss reserve to record our estimated unrecoverable costs associated with these repossessed homes.  We estimate our unrecoverable costs to be the repurchase price plus repair and remarketing costs that exceed the estimated selling price of the home being repossessed.  A historical average of this excess cost is calculated based on prior repossessions and applied to our estimated annual future repossessions to create the allowance for installment notes and collateralized receivables.  The allowance for losses for collateralized and installment notes receivable was approximately $0.6 million and $0.3 million as of September 30, 2011 and December 31, 2010, respectively.

Other Receivables

Other receivables were comprised of amounts due from residents for rent and water usage of $2.0 million (net of allowance of $0.3 million), home sale proceeds of $3.3 million, insurance receivables of $1.0 million, and rebates and other receivables of $6.3 million as of September 30, 2011.  As of December 31, 2010, other receivables were comprised of amounts due from residents for rent and water and sewer usage of $1.8 million (net of allowance of $0.4 million), home sale proceeds of $2.7 million, insurance receivables of $0.8 million, and rebates and other receivables of $3.1 million. 

 
6.
Investment in Affiliates

Origen Financial Services, LLC (“LLC”)

At September 30, 2011 and 2010, we had a 22.9 and 25.0 percent ownership interest, respectively, in LLC, an entity formed to originate manufactured housing installment contracts.  We have suspended equity accounting as the carrying value of our investment is zero.

Origen Financial, Inc. (“Origen”)

We own 5,000,000 shares of Origen which approximates an ownership interest of 19 percent.  We have suspended equity accounting for this investment as the carrying value of our investment is zero. We do, however, receive income from dividend payments.  Our investment in Origen had a market value of approximately $7.0 million based on a quoted market closing price of $1.40 per share from the “Pink Sheet Electronic OTC Trading System” as of September 30, 2011.

 
11

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
6.
Investment in Affiliates, continued

The unaudited revenue and expense amounts below represent actual results through August 2011 and estimated September 2011 results.

The following table sets forth certain summarized unaudited financial information for Origen (amounts in thousands):

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
 
$
16,649
   
$
18,395
   
$
51,215
   
$
56,546
 
Expenses
   
(19,028
)
   
(21,300
)
   
(59,891
)
   
(68,731
)
Net loss
 
$
(2,379
)
 
$
(2,905
)
 
$
(8,676
)
 
$
(12,185
)

 
7.
Debt and Lines of Credit

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

   
Principal
Outstanding
   
Weighted Average
Years to Maturity
   
Weighted Average
Interest Rates
 
   
September 30, 2011
   
December 31, 2010
   
September 30, 2011
   
December 31, 2010
   
September 30, 2011
   
December 31, 2010
 
Collateralized term loans - CMBS
 
$
468,034
   
$
463,286
     
5.1
     
3.6
     
5.3
%
   
5.1
%
Collateralized term loans - FNMA
   
365,749
     
369,147
     
11.6
     
3.4
     
3.6
%
   
4.1
%
Preferred OP Units
   
48,322
     
48,322
     
9.5
     
10.2
     
6.9
%
   
6.9
%
Secured borrowing (see Note 4)
   
79,276
     
71,278
     
13.2
     
13.4
     
11.2
%
   
11.3
%
Mortgage notes, other
   
290,751
     
211,579
     
4.6
     
4.6
     
5.0
%
   
4.8
%
Total debt
 
$
1,252,132
   
$
1,163,612
     
7.6
     
4.6
     
5.2
%
   
5.3
%

Collateralized Term Loans

On March 1, 2011, we completed a collateralized mortgage backed security “CMBS” financing with JPMorgan Chase Bank, National Association for $115.0 million bearing an interest rate of 5.837% and a maturity date of March 1, 2021.  This loan is secured by 11 properties.  The loan refinanced $104.8 million of CMBS debt which was scheduled to mature in July 2011 and was collateralized using the same property pool.

The collateralized term loans totaling $833.8 million as of September 30, 2011, are secured by 87 properties comprised of 31,372 sites representing approximately $504.9 million of net book value.

In July 2011, we reached an agreement with the Fannie Mae (“FNMA”) and PNC Bank regarding the settlement of the litigation we commenced in November 2009 over certain fees charged when the variable rate loan facility was extended in April 2009.   Except for certain transitional provisions, the agreement will become effective January 3, 2012 if certain conditions are met.  The litigation will be dismissed when all the terms of the agreement become effective.  In accordance with the terms of the agreement, we have the option to extend the maturity date of our entire $367.0 million credit facility with PNC Bank and FNMA from 2014 to 2023, subject to compliance with certain underwriting criteria. This agreement also provided a reduction in the facility fee charged on our variable rate facility, the effect of which reduced interest expense by $1.3 million thru September 30, 2011.  See Note 17 for a more detailed description of the agreement.

Preferred OP Units

We redeemed $0.9 million of Series B-3 Preferred OP Units in the nine months ended September 30, 2010.

In February 2010, our Operating Partnership completed a ten year extension on the redemption date associated with the $35.8 million convertible Preferred OP Units to January 1, 2024.  In connection with the extension, the maximum annual preferred rate on the Preferred OP Units was increased to 9.0 percent from 8.6 percent.  These Preferred OP Units are convertible into 526,212 common shares based on a conversion price of $68 per share.

Secured Borrowing

See Note 4 for additional information regarding our collateralized receivables and secured borrowing transactions.


 
12

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7.      Debt and Lines of Credit, continued

Mortgage Notes

In June 2011, we assumed secured debt with a principal balance $52.4 million as a result of the Kentland acquisition (see Note 2 for acquisition details) that has a weighted average maturity of 4.4 years and weighted average annual rate of 5.7%.  This secured debt was recorded at fair value on the date of the acquisition. This debt is secured by 12 properties.

In June 2011, we also entered into a $22.9 million financing agreement to fund the Kentland acquisition (see Note 2 for acquisition details).  The agreement has a weighted average maturity of 3.7 years and weighted average annual rate of 3.1%.  The debt was collateralized by 6 properties – 5 Kentland properties and Orange City.

In May 2011, we also completed a refinancing agreement for $23.6 million bearing an interest rate of 5.38% and a maturity of June 1, 2021.  This loan is secured by 3 properties.  The loan refinanced $17.9 million of debt which was scheduled to mature in June 2012 and was collateralized using the same property pool.

The mortgage notes totaling $290.8 million as of September 30, 2011, are collateralized by 37 properties comprised of 11,843 sites representing approximately $305.5 million of net book value.

Lines of Credit

On September 28, 2011, we entered into a senior secured revolving credit facility in the amount of $130.0 million (the "Facility") which replaces our $115.0 million revolving line of credit.  The Facility is secured by a first priority lien on all of our equity interests in each entity that owns all or a portion of the properties constituting the borrowing base and collateral assignments of our senior and mezzanine debt positions in certain borrowing base properties.  The Facility has a built in accordion feature allowing up to $20.0 million in additional borrowings and a one-year extension option, both at our discretion.  The Facility matures on October 1, 2015, assuming the election of the extension.  The Facility will bear interest at a floating rate based on Eurodollar plus a margin that is determined based on our leverage ratio calculated in accordance with the Facility, which can range from 2.25% to 2.95%. Based on our current leverage ratio, the margin will be 2.75%.  The outstanding balance on the line of credit was $90.5 million and $81.0 million as of September 30, 2011 and December 31, 2010, respectively. In addition, $4.0 million of availability was used to back standby letters of credit as of September 30, 2011 and December 31, 2010.  The weighted average interest rate on the outstanding borrowings was 3.0 percent as of September 30, 2011.  As of September 30, 2011 and December 31, 2010, $35.5 million and $30.0 million, respectively, were available to be drawn under the facility based on the calculation of the borrowing base at each date.

In May 2010, we entered into a $20.0 million secured line of credit agreement collateralized by a portion of our rental home portfolio.  The net book value of the rental homes pledged as security for the loan must meet or exceed 200 percent of the outstanding loan balance.  The agreement has a maximum 10 year term that can be prepaid partially or in full at our option any time before the maturity date without penalty.  The terms of the agreement require interest only payments for the first 5 years, with the remainder of the term being amortized based on a 10 year term.  The interest rate for the first 5 years is Prime plus 200 basis points, with a minimum rate of 5.5 percent and a maximum rate of 9.0 percent (effective rate 5.5 percent at September 30, 2011); and thereafter at a fixed rate of 5.15 percent over the 5-year U.S. Treasury rate in effect on May 1, 2015. Prime shall mean the prime rate published in the Wall Street Journal adjusted the first day of each calendar month.  The outstanding balance was $9.0 million as of September 30, 2011 and December 31, 2010 and was collateralized by 521 and 522 rental homes with a net book value of $18.1 million and $18.0 million, respectively.

In March 2009, we entered into a $10.0 million manufactured home floor plan facility that was increased to $12.0 million in the second quarter of 2011. The floor plan facility initially had a committed term of one year. In February 2010, the floor plan facility was renewed indefinitely until our lender provides us 12 month notice of their intent to terminate the agreement. The interest rate is 100 basis points over the greater of Prime or 6.0 percent (effective rate 7.0 percent at September 30, 2011).  Prime means the prevailing “prime rate” as quoted in the Wall Street Journal on the first business day of each month.  The outstanding balance was $4.8 million and $4.5 million as of September 30, 2011 and December 31, 2010, respectively.


 
13

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7.      Debt and Lines of Credit, continued

As of September 30, 2011, assuming the election of certain extension provisions, the total of maturities and amortization of debt and lines of credit during the next five years, are as follows (in thousands):

   
Maturities and Amortization By Year
 
   
Total Due
   
Oct 2011 - Dec 2011
   
2012
   
2013
   
2014
   
2015
   
After 5 years
 
Lines of credit
 
$
104,333
   
$
-
   
$
4,833
   
$
-
   
$
-
   
$
90,500
   
$
9,000
 
Mortgage loans payable:
                                                       
Maturities
   
991,624
     
-
     
16,784
     
33,761
     
188,208
     
24,879
     
727,992
 
Principal amortization
   
132,910
     
3,707
     
16,523
     
17,040
     
15,196
     
13,314
     
67,130
 
Preferred OP Units
   
48,322
     
370
     
4,300
     
3,645
     
4,225
     
-
     
35,782
 
Secured borrowing
   
79,276
     
793
     
3,389
     
3,715
     
4,067
     
4,504
     
62,808
 
Total
 
$
1,356,465
   
$
4,870
   
$
45,829
   
$
58,161
   
$
211,696
   
$
133,197
   
$
902,712
 

The most restrictive of our debt agreements place limitations on secured borrowings and contain minimum fixed charge coverage, leverage, distribution and net worth requirements. As of September 30, 2011, we were in compliance with all covenants.

8.      Equity Transactions

In November 2004, our Board of Directors authorized us to repurchase up to 1,000,000 shares of our common stock.  We have 400,000 common shares remaining in the repurchase program.  No common shares were repurchased during 2011 or 2010.  There is no expiration date specified for the buyback program.
 
 
Common OP Unit holders can convert their Common OP units into an equivalent number of shares of common stock at any time.  During 2011, holders of Common OP Units converted 10,249 units to common stock.

The vesting requirements for 20,412 restricted shares granted to our employees were satisfied during the nine months ended September 30, 2011.

Our shelf registration statement on Form S-3 for a proposed offering of up to $300.0 million of our common stock, preferred stock and debt securities was declared effective with the SEC in May 2009.  We entered into a sales agreement to issue and sell up to 1,600,000 shares of common stock from time to time pursuant to our effective shelf registration statement on Form S-3.  Sales under the agreement commenced during the third quarter of 2009 and we completed the final sale in May 2011.  On May 31, 2011, we entered into an amendment to the sales agreement pursuant to our effective shelf registration statement on Form S-3.  Our board of directors authorized the sale of an additional 1,600,000 shares after May 2011 under the sales agreement.  We issued 680,184 shares of common stock during the nine months ended September 30, 2011.  The shares of common stock were sold at the prevailing market price of our common stock at the time of each sale with a weighted average sale price of $37.52.  Through September 30, 2011, we received net proceeds of approximately $25.0 million related to the issuance of common stock.  The proceeds were used to pay down our line of credit.

On August 6, 2010, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with REIT Opportunity, Ltd. (“REIT Ltd.”), which provides that, upon the terms and subject to the conditions set forth in the Purchase Agreement, REIT Ltd. is committed to purchase up to the lesser of $100,000,000 of our common stock, or 3,889,493 shares of our common stock, which is equal to one share less than twenty percent of our issued and outstanding shares of common stock on the effective date of the Purchase Agreement.  From time to time over the two year term of the Purchase Agreement, and at our sole discretion, we may present REIT Ltd. with draw down notices to purchase our common stock.  Any and all issuances of shares of common stock to REIT Ltd. pursuant to the Purchase Agreement will be registered on our effective shelf registration statement on Form S-3.  On January 5, 2011 we sold 915,827 shares of common stock at a weighted average sale price of $32.76 and received net proceeds of $30.0 million.  The funds were used to pay down our line of credit.


 
14

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.      Equity Transactions, continued

In June 2011, we issued $45.5 million of Series A-1 preferred operating partnership (“Preferred OP”) units as a result of the Kentland acquisition (see Note 2 for details).  Preferred OP unit holders can convert the Preferred OP units into shares of common stock at any time after December 31, 2013 based on a conversion price of $41 per share with $100 par value.  These Series A-1 Preferred OP units are convertible, but not redeemable.  The Series A-1 Preferred OP unit holders receive a preferred return of 5.1% for the first two years and 6.0% thereafter.

On October 21, 2011, aggregate dividends, distributions and dividend equivalents of $15.0 million were made to common stockholders, common OP unitholders, and restricted stockholders of record on October 13, 2011.

9.      Share-Based Compensation

During the nine months ended September 30, 2011, 30,160 shares of common stock were issued in connection with the exercise of stock options and the net proceeds received were $0.7 million.

On July 27, 2011, we issued 10,500 director options under our 2004 Non-Employee Director Option Plan.  The weighted average fair value of the options issued is estimated on the date of the grant using the Binomial (lattice) option pricing model, with the following weighted average assumptions used for the grants in the period indicated:

   
July 2011 Award
 
Estimated fair value per share of options granted
 
$
9.70
 
Assumptions:
       
Annualized dividend yield
   
6.70
%
Common stock price volatility
   
45.20
%
Risk-free rate of return
   
1.52
%
Expected option terms (in years)
   
5.0
 


 
10.
Other Income

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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Brokerage commissions
 
$
102
   
$
80
   
$
396
   
$
354
 
Other income (loss), net
   
144
     
(70
)
   
(174
)
   
108
 
Total other income, net
 
$
246
   
$
10
   
$
222
   
$
462
 

 11.    Segment Reporting>

Our consolidated operations can be segmented into Real Property Operations and Home Sales and Rentals.  Transactions between our segments are eliminated in consolidation.  Seasonal recreational vehicle revenue is included in Real Property Operations’ revenues and is approximately $5.5 million annually. This seasonal revenue is recognized approximately 49% in the first quarter, 6.5% in both the second and third quarters and 38% in the fourth quarter of each fiscal year.

 
15

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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

   
Three Months Ended September 30, 2011
   
Three Months Ended September 30, 2010
 
   
Real Property Operations
   
Home Sales and Home Rentals
   
Consolidated
   
Real Property Operations
   
Home Sales and Home Rentals
   
Consolidated
 
Revenues
 
$
58,251
   
$
13,765
   
$
72,016
   
$
50,169
   
$
12,459
   
$
62,628
 
Operating expenses/Cost of sales
   
20,858
     
10,610
     
31,468
     
17,755
     
9,484
     
27,239
 
Net operating income/Gross profit
   
37,393
     
3,155
     
40,548
     
32,414
     
2,975
     
35,389
 
Adjustments to arrive at net income (loss):
                                               
Other revenues
   
2,676
     
31
     
2,707
     
2,046
     
35
     
2,081
 
General and administrative
   
(5,138
)
   
(2,109
)
   
(7,247
)
   
(3,408
)
   
(1,873
)
   
(5,281
)
Acquisition related costs
   
(121
)
   
-
     
(121
)
   
-
     
-
     
-
 
Depreciation and amortization
   
(12,869
)
   
(5,879
)
   
(18,748
)
   
(11,745
)
   
(5,387
)
   
(17,132
)
Interest expense
   
(17,226
)
   
(234
)
   
(17,460
)
   
(16,304
)
   
(190
)
   
(16,494
)
Equity income (loss) from affiliates, net
   
450
     
-
     
450
     
(19
)
   
(50
)
   
(69
)
Provision for state income tax
   
(150
)
   
-
     
(150
)
   
(143
)
   
-
     
(143
)
Net income (loss)
   
5,015
     
(5,036
)
   
(21
)
   
2,841
     
(4,490
)
   
(1,649
)
Less:  Preferred return to preferred OP units
   
585
     
-
     
585
     
-
     
-
     
-
 
Less:  Net income (loss) attributable to noncontrolling interests
   
213
     
(446
)
   
(233
)
   
197
     
(443
)
   
(246
)
Net income (loss) attributable to Sun Communities, Inc.
 
$
4,217
   
$
(4,590
)
 
$
(373
)
 
$
2,644
   
$
(4,047
)
 
$
(1,403
)


 
16

 
SUN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


11.      Segment Reporting, continued

   
Nine Months Ended September 30, 2011
   
Nine Months Ended September 30, 2010
 
   
Real Property Operations
   
Home Sales and Home Rentals
   
Consolidated
   
Real Property Operations
   
Home Sales and Home Rentals
   
Consolidated
 
Revenues
 
$
164,351
   
$
40,903
   
$
205,254
   
$
152,124
   
$
40,225
   
$
192,349
 
Operating expenses/Cost of sales
   
56,523
     
30,929
     
87,452
     
52,263
     
30,178
     
82,441
 
Net operating income/Gross profit
   
107,828
     
9,974
     
117,802
     
99,861
     
10,047
     
109,908
 
Adjustments to arrive at net income (loss):
                                               
Other revenues
   
7,011
     
434
     
7,445
     
6,267
     
369
     
6,636
 
General and administrative
   
(14,449
)
   
(6,034
)
   
(20,483
)
   
(12,525
)
   
(5,659
)
   
(18,184
)
Acquisition related costs
   
(1,521
)
   
-
     
(1,521
)
   
-
     
-
     
-
 
Depreciation and amortization
   
(36,452
)
   
(17,096
)
   
(53,548
)
   
(34,675
)
   
(15,980
)
   
(50,655
)
Interest expense
   
(49,029
)
   
(717
)
   
(49,746
)
   
(48,264
)
   
(426
)
   
(48,690
)
Equity income (loss) from affiliates, net
   
1,650
     
-
     
1,650
     
(1,646
)
   
-
     
(1,646
)
Provision for state income tax
   
(22
)
   
-
     
(22
)
   
(404
)
   
-
     
(404
)
Net income (loss)
   
15,016
     
(13,439
)
   
1,577
     
8,614
     
(11,649
)
   
(3,035
)
Less:  Preferred return to preferred OP units
   
636
     
-
     
636
     
-
     
-
     
-
 
Less:  Net income (loss) attributable to noncontrolling interests
   
1,011
     
(1,207
)
   
(196
)
   
649
     
(1,169
)
   
(520
)
Net income (loss) attributable to Sun Communities, Inc.
 
$
13,369
   
$
(12,232
)
 
$
1,137
   
$
7,965
   
$
(10,480
)
 
$
(2,515
)

   
September 30, 2011
   
December 31, 2010
 
   
Real Property Operations
   
Home Sales and Home Rentals
   
Consolidated
   
Real Property Operations
   
Home Sales and Home Rentals
   
Consolidated
 
Identifiable assets:
                                   
Investment property, net
 
$
1,009,116
   
$
160,298