Sun Communities, Inc. Reports 2010 First Quarter Results

(1)  Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (computed in accordance with generally accepted accounting principles), 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 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 income. 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.

Because FFO excludes significant economic components of net income including depreciation and amortization, FFO should be used as an adjunct to net income and not as an alternative to net income. 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 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. Management also uses an Adjusted Funds from Operations ("Adjusted FFO") non-GAAP financial measure, which excludes certain gain and loss items that management considers unrelated to the operational and financial performance of the Company's core business. Other REITs may use different methods for calculating FFO and Adjusted FFO and, accordingly, the Company's FFO and Adjusted FFO may not be comparable to other REITs.

(2)  Investors in and analysts following the real estate industry utilize net operating income ("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 (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 is the most directly comparable GAAP measurement to net operating income. Net income 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 net operating income 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.

Consolidated Balance Sheets

(in thousands, except per share amounts)

(Unaudited)

March 31,
2010

December 31,
2009

ASSETS

Investment property, net

$

1,052,973

$

1,064,305

Cash and cash equivalents

8,054

4,496

Inventory of manufactured homes

2,698

3,934

Investment in affiliates

827

1,646

Notes and other receivables

77,945

74,030

Other assets

30,832

32,954

TOTAL ASSETS

$

1,173,329

$

1,181,365

LIABILITIES

Debt

$

1,157,962

$

1,159,442

Lines of credit

98,525

94,465

Other liabilities

35,178

38,766

TOTAL LIABILITIES

1,291,665

1,292,673

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  (March 31, 2010 and December 31, 2009, 20,789 and 20,635 shares issued respectively)

208

206

Additional paid-in capital

467,146

463,811

Officer's notes

(3,217)

(5,028)

Accumulated other comprehensive loss

(2,246)

(1,858)

Distributions in excess of accumulated earnings

(508,890)

(498,370)

Treasury stock, at cost (March 31, 2010 and December 31, 2009, 1,802 shares)

(63,600)

(63,600)

Total Sun Communities, Inc. stockholders' deficit

(110,599)

(104,839)

Noncontrolling interests

(7,737)

(6,469)

TOTAL STOCKHOLDERS' DEFICIT

(118,336)

(111,308)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

1,173,329

$

1,181,365

Consolidated Statements of Operations

(in thousands, except per share amounts)

Three Months Ended
March 31,

2010

2009

REVENUES

Income from real property

$

52,007

$

50,999

Revenue from home sales

8,037

7,461

Rental home revenue

5,079

5,200

Ancillary revenues, net

226

195

Interest

1,796

1,272

Other income, net

272

157

Total revenues

67,417

65,284

COSTS AND EXPENSES

Property operating and maintenance

13,040

12,605

Real estate taxes

4,180

4,184

Cost of home sales

6,244

5,423

Rental home operating and maintenance

3,623

4,537

General and administrative - real property

3,490

4,166

General and administrative - home sales and rentals

1,933

1,826

Depreciation and amortization

16,573

16,204

Interest

15,105

14,245

Interest on mandatorily redeemable debt

817

835

Total expenses

65,005

64,025

Income before income taxes and equity income (loss) from affiliates

2,412

1,259

Provision for state income taxes

(132)

(133)

Equity income (loss) from affiliates

(819)

27

Income from continuing operations

1,461

1,153

Loss from discontinued operations

-

(172)

Net income

1,461

981

Less: amounts attributable to noncontrolling interests

124

104

Net income attributable to Sun Communities, Inc. common stockholders

$

1,337

$

877

Amounts attributable to Sun Communities, Inc. common stockholders:

Income from continuing operations, net of state income taxes

$

1,337

$

1,031

Loss from discontinued operations, net of state income taxes

-

(154)

Net income attributable to Sun Communities, Inc. common stockholders

$

1,337

$

877

Weighted average common shares outstanding:

Basic

18,842

18,511

Diluted

20,984

20,698

Basic and diluted earnings (loss) per share:

Continuing operations

$

0.07

$

0.06

Discontinued operations

-

(0.01)

Basic and diluted earnings per share

$

0.07

$

0.05

Cash dividends per common share:

$

0.63

$

0.63

Reconciliation of Net Income to Funds From Operations

(in thousands except for per share/OP unit amounts)

Three Months Ended

March 31,

2010

2009

 Net income

$

1,461

$

981

 Adjustments:

 Depreciation and amortization

17,034

16,621

 Benefit for state income taxes ⁽³⁾

(11)

(13)

 Gain on disposition of assets, net

(849)

(1,328)

 Funds from operations (FFO)

$

17,635

$

16,261

 Weighted average Common Shares/OP Units outstanding:

 Basic

20,981

20,698

 Diluted

20,984

20,698

FFO per weighted average Common Share/OP Unit - Basic

$

0.84

$

0.79

FFO per weighted average Common Share/OP Unit - Diluted

$

0.84

$

0.79

Three Months Ended

March 31,

2010

2009

 Net income

$

1,461

$

981

 Michigan Business tax reversal

(740)

-

 Equity affiliate adjustment

819

(99)

 Adjusted net income

1,540

882

 Depreciation and amortization

17,034

16,621

 Benefit for state income taxes ⁽³⁾

(11)

(13)

 Gain on disposition of assets, net

(849)

(1,328)

 Adjusted funds from operations (FFO)

$

17,714

$

16,162

Adjusted FFO per weighted average Common Share/OP Unit - Diluted

$

0.84

$

0.78

(3)  The tax benefit for the periods ended March 31, 2010 and 2009 represents the reversal of a tax provision for potential taxes payable on the sale of company assets related to the enactment of the Michigan Business Tax. These taxes do not impact Funds from Operations and would be payable from prospective proceeds of such sales.

Statement of Operations – Same Site

(in thousands except for other information)

Three Months Ended

March 31,

2010

2009

Change

% Change

REVENUES:

Income from real property

$

49,134

$

48,439

$

695

1.4

%

PROPERTY OPERATING EXPENSES:

Payroll and benefits

3,823

3,693

130

3.5

%

Legal, taxes, & insurance

610

774

(164)

-21.2

%

Utilities

3,479

3,509

(30)

-0.9

%

Supplies and repair

1,300

1,194

106

8.9

%

Other

955

875

80

9.1

%

Real estate taxes

4,180

4,184

(4)

-0.1

%

Property operating expenses

14,347

14,229

118

0.8

%

NET OPERATING INCOME ("NOI") ⁽²⁾

$

34,787

$

34,210

$

577

1.7

%

As of March 31,

 OTHER INFORMATION

2010

2009

Change

Number of properties

136

136

-

Developed sites

47,566

47,605

(39)

Occupied sites ⁽⁴⁾

38,177

37,877

300

Occupancy % ⁽⁴⁾

83.9

%

83.3

%

0.6

%

Weighted average monthly rent per site ⁽⁵⁾

$

407

$

397

10

(4)  Occupied sites and occupancy % include manufactured housing and permanent recreational vehicle sites, and exclude seasonal recreational vehicle sites.

(5) Average rent relates only to manufactured housing sites, and excludes permanent and seasonal recreational vehicle sites.

Rental Program Summary

(in thousands except for *)

Three Months Ended

March 31,

2010

2009

Change

% Change

REVENUES:

Rental home revenue

$

5,079

$

5,200

$

(121)

-2.3

%

Site rent included in income from real property                        

7,016

6,450

566

8.8

%

Rental program revenue

12,095

11,650

445

3.8

%

EXPENSES:

Payroll and commissions

500

783

(283)

-36.1

%

Repairs and refurbishment

1,604

1,991

(387)

-19.4

%

Taxes and insurance

783

770

13

1.7

%

Marketing and other

736

993

(257)

-25.9

%

Rental program operating and maintenance        

3,623

4,537

(914)

-20.1

%

NET OPERATING INCOME ("NOI") ⁽²⁾

$

8,472

$

7,113

$

1,359

19.1

%

OTHER INFORMATION

Number of occupied rentals, end of period*

5,950

5,698

252

4.4

%

Cost of occupied rental homes

$

188,697

$

177,755

$

10,942

6.2

%

Number of sold rental homes*

178

168

10

6.0

%

Weighted average monthly rental rate*

$

729

$

730

$

(1)

-0.1

%