Sun Communities, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Financial statements are audited; previously reported 2023 interim financial information was restated.
Business context
Sun Communities is a REIT operating manufactured housing (MH), recreational vehicle (RV), and marina properties in the U.S., UK, and Canada. At year-end it held interests in 667 developed properties with 227,340 developed sites, RV spaces, and marina slips/storage spaces, plus land for more than 17,980 potential MH and RV sites. MH and annual RV occupancy was 96.4%, versus 96.0% in 2022.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $3.225 billion | $2.970 billion |
| Net income (loss) attributable to common shareholders | $(213.3) million | $242.0 million |
| Diluted earnings (loss) per share | $(1.72) | $2.00 |
| Net cash from operating activities | $790.5 million | $734.9 million |
| Total portfolio NOI | $1.430 billion | $1.381 billion |
| Real property NOI | $1.252 billion | $1.167 billion |
| Same-property real property NOI | $1.139 billion; up 7.3% | $1.062 billion |
| Core FFO per diluted share and OP unit | $7.10 | $7.35 |
Revenue increased 8.6%. Same-property NOI grew 6.8% in MH, 4.8% in RV, and 11.7% in marinas. Same-property MH and RV monthly base rent per site rose 6.4% and 8.7%, respectively. Total home-sales NOI declined 19.5% to $124.5 million; North American sales volume fell 20.1%, while UK average selling price fell 19.8%.
GAAP results included $369.9 million of non-cash UK goodwill impairment, a $106.7 million loss on remeasurement of notes receivable (including a $102.9 million impairment related to Royale Holdings), and $325.8 million of interest expense, up from $229.8 million. Thus, the GAAP net loss contrasts with positive operating cash flow and NOI; FFO and Core FFO are non-GAAP measures and do not replace GAAP earnings or cash flow.
Debt, liquidity, and cash flow
Year-end total debt was $7.777 billion, with a 4.23% weighted-average interest rate and 6.8-year weighted-average maturity. After hedging, approximately 84% was fixed-rate and 16% floating-rate. Cash, cash equivalents, and restricted cash totaled $42.7 million, including $29.2 million unrestricted cash; remaining Senior Credit Facility capacity was approximately $2.0 billion. Operating cash flow rose $55.6 million year over year, while investing activities used $919.5 million and financing activities provided $80.3 million.
Debt maturities include $1.222 billion in 2025 and $1.652 billion in 2026. The company reported compliance with its debt covenants at year-end. In January 2024, it issued $500 million of 5.5% notes due 2029 and used most proceeds to repay floating-rate credit-facility borrowings, reducing floating-rate debt to approximately 10% of total debt.
Restatement, outlook, risks, and unusual items
- Restatement and controls: Management restated 2023 interim statements after determining goodwill impairment indicators for Park Holidays should have been recognized earlier. Restated impairment charges were $15.4 million in Q1, $309.7 million in Q2, and $44.8 million in Q3, totaling $369.9 million. The impairment was non-cash and did not affect operating cash flows. Investors should rely on the restated information in this 10-K, not the previously filed interim reports.
- Control weakness: Management concluded internal control over financial reporting and disclosure controls were ineffective as of December 31, 2023. The weakness related to the design of management review controls for UK goodwill impairment. The auditor issued an adverse opinion on internal control, while issuing an unqualified opinion on the financial statements. Remediation is underway but is not yet established as effective.
- Management outlook: For 2024, management expects rental-rate growth to exceed headline inflation and continued organic cash-flow growth from rent increases, occupancy gains, and expense management. It plans to prioritize reducing variable-rate debt and pull back on development and capital spending, except for projects underway and selected strategic opportunities. No numerical 2024 guidance is provided in the supplied filing text.
- Hurricane Ian: The company recorded $56.7 million of estimated property-insurance recoveries at year-end and recognized $20.2 million of business-interruption recoveries in 2023. Three Fort Myers RV communities remained under redevelopment; management could not estimate when results would return to pre-hurricane levels. Insurance recoveries and damage estimates may change.
- Contingencies and risks: The company faces a consolidated antitrust class action alleging MH operators shared competitively sensitive information to maintain site rents; it disputes the claims but cannot estimate any potential loss. Other material risks include high debt and refinancing costs, interest rates, insurance availability and costs, weather exposure, geographic concentration, foreign-currency risk, and potential further UK goodwill impairment.
Important facts for investors to verify
- Review the restated quarterly results and confirm the implications of the UK goodwill impairment and remaining goodwill sensitivity.
- Track remediation and independent testing of the material weakness, and any changes in financial-reporting controls.
- Assess the antitrust litigation, Hurricane Ian recovery and redevelopment progress, and the status of insurance claims.
- Reconcile the 2025–2026 debt maturities, floating-rate exposure after the January 2024 note issue, and available liquidity against planned spending and distributions.
- Compare future operating performance using GAAP results alongside NOI, FFO, and Core FFO, noting their differing definitions and limitations.