SUI

Sun Communities, Inc. 10-Q Summary (Period Ended September 30, 2009)

Business Context and Reporting Period

Sun Communities, Inc. is a self-administered Real Estate Investment Trust (REIT) owning and operating manufactured housing communities across 18 states. As of September 30, 2009, the portfolio included 136 properties with 47,587 developed sites. The company operates two primary segments: Real Property Operations and Home Sales and Rentals. This filing covers the quarterly and nine-month periods ended September 30, 2009.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased slightly to $63.4 million for the quarter (up from $61.3 million in 2008) and $191.9 million for the nine months (up from $191.3 million in 2008). Real property income grew due to a 2.9% increase in average rental rates and higher occupancy.
• Profitability Improvement: Net loss attributable to Sun Communities improved significantly to $(2.0) million for the quarter compared to $(5.5) million in the prior year. The nine-month loss narrowed to $(3.4) million from $(16.0) million in 2008, primarily driven by a reduction in equity losses from affiliates.
• Home Sales: Pre-owned home sales revenue increased 17.9% in the quarter, while new home sales revenue declined 26.5%. Gross profit margins improved for both new (17.0%) and pre-owned (30.8%) homes.
• Debt Levels: Total debt increased to $1.156 billion from $1.139 billion at year-end 2008, largely due to an increase in secured borrowings related to collateralized receivables.

Guidance, Outlook, Risks, and Unusual Items

• Unusual Items: The company recorded an $0.8 million charge for flood damage at the Countryside Village of Atlanta property in Georgia. This represents the insurance deductible net of expected recoveries. Additionally, the company completed the sale of its cable television business, which is now reported as discontinued operations.
• Equity Losses: Equity loss from affiliates (primarily Origen Financial, Inc.) decreased significantly to $0.9 million for the quarter from $1.5 million in the prior year, and $1.3 million for the nine months from $14.0 million in 2008.
• Liquidity and Capital Resources: The company maintains an unsecured revolving line of credit with $27.4 million available as of September 30, 2009. Management expects to meet liquidity needs through operating cash flows and borrowings. However, the filing notes that credit market volatility may make obtaining new financing difficult.
• Dividends: Cash dividends declared were $1.89 per share for the nine months ended September 30, 2009.

Key Facts for Investor Verification

• Stockholders' Deficit: Verify the implications of the $95.5 million stockholders' deficit, which includes significant distributions in excess of accumulated earnings.
• Debt Maturities: Review the debt maturity schedule, noting $103.7 million due in 2011 (excluding normal amortization) and the reliance on the unsecured line of credit for liquidity.
• Noncontrolling Interest: Note the adoption of SFAS 160, which resulted in a $4.7 million deficit balance for noncontrolling interests, impacting the allocation of net loss.
• Legal Proceedings: Monitor the status of the arbitration demand filed by T.J. Holdings, LLC, alleging damages of $13.0 million plus punitive damages.
• FFO vs. GAAP: Distinguish between the GAAP net loss and the positive Funds From Operations (FFO) of $41.3 million for the nine-month period, which management uses as a primary performance metric.