Edgar Filing: SUN COMMUNITIES INC

SUI 2012.06.30 10Q

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 June 30, 2012.

[ ] 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 [ X ]	Accelerated filer [ ]	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 June 30, 2012: 26,471,431

SUN COMMUNITIES, INC.

INDEX



		Pages
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Consolidated Balance Sheets ─ June 30, 2012 and December 31, 2011	3
	Consolidated Statements of Operations ─ Periods Ended June 30, 2012 and 2011	4
	Consolidated Statements of Comprehensive Income ─ Periods Ended June 30, 2012 and 2011	5
	Consolidated Statement of Stockholders’ Equity (Deficit) ─ Six Months Ended June 30, 2012	6
	Consolidated Statements of Cash Flows ─ Six Months Ended June 30, 2012 and 2011	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUN COMMUNITIES, INC.

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2012 AND DECEMBER 31, 2011

(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

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED JUNE 30, 2012 AND 2011

(In thousands, except per share amounts)

(Unaudited)



	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

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE PERIODS ENDED JUNE 30, 2012 AND 2011

(In thousands)

(Unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012		2011
Net income (loss)	$	2,479	$	(987	)	$	8,872	$	1,598
Unrealized gain on interest rate swaps	343		19			599		422
Total comprehensive income (loss)	2,822		(968		)	9,471		2,020
Less: Comprehensive income (loss) attributable to the noncontrolling interests	274		(147		)	735		75
Comprehensive income (loss) attributable to Sun Communities, Inc. common stockholders	$	2,548	$	(821	)	$	8,736	$	1,945

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(In thousands)

(Unaudited)



	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income			Distributions in Excess of Accumulated Earnings			Treasury Stock			Total Sun Communities Stockholders' Equity (Deficit)			Non-controlling Interest			Total Stockholders' Equity (Deficit)
Balance as of December 31, 2011	$	236	$	555,981	$	(1,273	)	$	(617,953	)	$	(63,600	)	$	(126,609	)	$	25,954		$	(100,655	)
Issuance of common stock from exercise of options, net	—		149		—			—			—			149			—			149
Issuance and associated costs of common stock, net	47		157,296		—			—			—			157,343			—			157,343
Share-based compensation - amortization and forfeitures	—		626		—			44			—			670			—			670
Net income	—		—		—			7,040			—			7,040			674			7,714
Unrealized gain on interest rate swaps	—		—		538			—			—			538			61			599
Cash distributions	—		—		—			(30,416		)	—			(30,416		)	(2,610		)	(33,026		)
Distributions declared	—		—		—			(2,935		)	—			(2,935		)	—			(2,935		)
Balance as of June 30, 2012	$	283	$	714,052	$	(735	)	$	(644,220	)	$	(63,600	)	$	5,780		$	24,079		$	29,859

See accompanying Notes to Consolidated Financial Statements.

SUN COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In thousands)

(Unaudited)



	Six Months Ended June 30,
	2012			2011
OPERATING ACTIVITIES:
Net income	$	8,872		$	1,598
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from land disposition	(87		)	—
Gain on valuation of derivative instruments	(4		)	(5		)
Stock compensation expense	688			634
Depreciation and amortization	40,010			34,218
Amortization of deferred financing costs	813			936
Distributions from affiliates	(2,650		)	(1,200		)
Change in notes receivable from financed sales of inventory homes, net of repayments	(4,435		)	(2,581		)
Change in inventory, other assets and other receivables, net	4,729			(7,102		)
Change in accounts payable and other liabilities	(4,452		)	2,593
NET CASH PROVIDED BY OPERATING ACTIVITIES	43,484			29,091
INVESTING ACTIVITIES:
Investment in properties	(60,930		)	(39,507		)
Acquisitions	(24,482		)	(50,858		)
Proceeds related to affiliate dividend distribution	2,650			1,200
Proceeds related to disposition of land	172			—
Proceeds related to disposition of assets and depreciated homes, net	1,211			2,313
Increase in notes receivable, net	(5,736		)	(551		)
NET CASH USED IN INVESTING ACTIVITIES	(87,115		)	(87,403		)
FINANCING ACTIVITIES:
Issuance and associated costs of common stock, OP units, and preferred OP units, net	157,343			47,097
Net proceeds from stock option exercise	149			690
Distributions to stockholders, OP unit holders, and preferred OP unit holders	(34,184		)	(29,009		)
Borrowings on lines of credit	71,635			101,400
Payments on lines of credit	(176,038		)	(107,602		)
Proceeds from issuance of other debt	54,567			172,483
Payments on other debt	(30,521		)	(129,221		)
Payments for deferred financing costs	(678		)	(1,939		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	42,273			53,899
Net decrease in cash and cash equivalents	(1,358		)	(4,413		)
Cash and cash equivalents, beginning of period	5,857			8,420
Cash and cash equivalents, end of period	$	4,499		$	4,007
SUPPLEMENTAL INFORMATION:
Cash paid for interest	$	28,519		$	25,441
Cash paid for interest on mandatorily redeemable debt	$	1,677		$	1,657
Cash paid for state income taxes	$	320		$	359
Noncash investing and financing activities:
Unrealized gain on interest rate swaps	$	599		$	422
Reduction in secured borrowing balance	$	6,081		$	4,739
Change in dividends declared and outstanding	$	2,935		$	—
Noncash investing and financing activities at the date of acquisition:
Acquisitions - A-1 preferred OP units issued	$	—		$	45,548
Acquisitions - debt assumed	$	—		$	52,449
Acquisitions - other liabilities	$	—		$	1,833

See accompanying Notes to Consolidated Financial Statements.

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, 2011 as filed with the SEC on February 24, 2012, as amended on March 23, 2012 (the “2011 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 2011 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 May 2011, we acquired Orange City RV Resort (“Orange City”), a Florida recreational vehicle community comprising 525 developed sites. In June 2011, we closed on the acquisition of Kentland Communities (“Kentland”), comprising 17 manufactured home communities and one recreational vehicle community. The 18 communities acquired are located in western Michigan and comprise 5,434 developed sites. In November 2011, we acquired Cider Mill Crossings (“Cider Mill”), a Michigan manufactured home community comprising 262 developed sites through an auction. In December 2011, we acquired three Florida RV communities, Club Naples RV Resort, Kountree RV Resort, and North Lake RV Resort (collectively the “Florida Properties”), two of which are in Naples, Florida and one of which is in Moore Haven, Florida, comprised of 740 developed sites. These acquisitions complement our existing portfolio and create both short-term and long-term growth opportunities.

In February 2012, we acquired three additional Florida RV communities, Three Lakes RV Resort, Blueberry Hill RV Resort and Grand Lake Estates (collectively, the “Additional Florida Properties”), one of which is located in Hudson, Florida, one of which is located in Bushnell, Florida and one of which is located in Orange Lake, Florida, comprised of 1,114 RV sites in the aggregate. We believe this portfolio provides for growth from both rental increases and through improved seasonal occupancy.

On July 24, 2012 we 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.

Acquisition related costs of approximately $0.6 million and $1.4 million have been incurred for the six months ended June 30, 2012 and 2011, respectively, 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 Kentland and Orange City. In the first quarter of 2012 some of the amounts previously estimated changed. The changes in estimates included a decrease in other assets of $0.8 million and a decrease in cash consideration of $0.8 million for the Florida Properties. The measurement period adjustments represent updates made to the purchase price allocation based on the escrow amount required for the Additional Florida Properties which is reflected in the purchase price allocation for the Additional Florida Properties. There were no significant adjustments to our Consolidated Statements of Operations.

The purchase price allocation for Cider Mill, the Florida Properties, and the Additional Florida Properties is preliminary and may be adjusted as final costs and final valuations are determined.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Real Estate Acquisitions, continued

The following table summarizes the amounts of the assets acquired and liabilities assumed recognized at the acquisition dates and the consideration paid for Kentland, Orange City, Cider Mill, the Florida Properties, and the Additional Florida Properties (in thousands):



At Acquisition Date	Kentland			Orange City		Cider Mill			Florida Properties			Addtl Florida Properties			Total
Investment in property	$	131,228		$	6,460	$	2,088		$	24,027		$	25,384		$	189,187
Inventory of manufactured homes	1,150			—		—			36			112			1,298
Notes	3,542			—		—			—			—			3,542
In-place leases	9,200			10		—			190			180			9,580
Other assets	1,269			—		—			97			—			1,366
Other liabilities	(2,067		)	—		(1,678		)	(1,237		)	(1,194		)	(6,176		)
Assumed debt	(52,398		)	—		—			—			—			(52,398		)

Total identifiable assets and liabilities assumed	$	91,924		$	6,470	$	410		$	23,113		$	24,482		$	146,399


Consideration

Cash ⁽¹⁾	$	27,383		$	2,533	$	410		$	6,113		$	24,482		$	60,921
A-1 preferred OP units	45,548			—		—			—			—			45,548
New debt proceeds	18,993			3,937		—			17,000			—			39,930

Fair value of total consideration transferred	$	91,924		$	6,470	$	410		$	23,113		$	24,482		$	146,399

⁽¹⁾ Subsequent to the acquisition, on March 30, 2012, the Additional Florida Properties were encumbered with a $19.0 million loan through Bank of America and The PrivateBank (See Note 8).

As of June 30, 2012, the total residual value of the acquired in-place leases above is $8.2 million. The amortization period is 7 years.

The results of operations of Kentland, Orange City, Cider Mill, the Florida Properties, and the Additional Florida Properties are included in the Consolidated Statements of Operations beginning on their acquisition dates of June 2011, May 2011, November 2011, December 2011, and February 2012, respectively. The following unaudited pro forma financial information presents the results of our operations for the six months ended June 30, 2012 and 2011 as if the properties were acquired on January 1, 2010 for those communities acquired in 2011 and January 1, 2011 for those that were acquired in 2012. 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 or the future results of operations (in thousands, except per-share data). ⁽¹⁾



	Six Months Ended June 30,
	(unaudited)
	2012		2011
Total revenues	$	165,999	$	153,739
Net income attributable to Sun Communities, Inc. shareholders	$	7,335	$	4,606
Net income per share attributable to Sun Communities, Inc. shareholders - basic	0.28		0.22
Net income per share attributable to Sun Communities, Inc. shareholders - diluted	0.28		0.20

⁽¹⁾ Below are nonrecurring expenses that have been adjusted for the pro forma results above:

(a) The sellers had management fees of $0.7 million for the six months ended June 30, 2011 that have been excluded from above as these fees will not continue going forward.

(b) Transaction costs related to the acquisitions are not expected to have a continuing impact and therefore have been excluded from 2012 and included in 2011.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Real Estate Acquisitions, continued

The amount of Kentland's, Orange City's, Cider Mill's, the Florida Properties', and the Additional Florida Properties' revenue and net income included in the Consolidated Statements of Operations for the six months ended June 30, 2012 is set forth in the following table (in thousands):



	Revenue		Net Income
Six Months Ended June 30, 2012	$	16,162	$	2,034

3. Investment Property

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



	June 30, 2012			December 31, 2011
Land	$	153,397		$	140,230
Land improvements and buildings	1,364,660			1,342,325
Rental homes and improvements	276,991			246,245
Furniture, fixtures, and equipment	42,394			41,172
Land held for future development	25,606			24,633
Investment property	1,863,048			1,794,605
Accumulated depreciation	(626,711		)	(597,999		)
Investment property, net	$	1,236,337		$	1,196,606

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 completed various transactions with an unrelated entity involving our notes receivable during 2012 under which we received a total of $11.5 million of cash proceeds in exchange for relinquishing our right, title and interest in certain notes receivable. 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 recourse provisions requiring us to purchase the underlying homes collateralizing such notes, in the event of a note default and subsequent repossession of the home by the unrelated entity. The recourse provisions are considered to be a form of continuing involvement, and therefore these transferred loans did not meet the requirements for sale accounting. We continue to recognize these transferred loans on our balance sheet and refer to them as collateralized receivables as a transfer of financial assets. The proceeds from the transfer have been recognized as a secured borrowing.

In the event of note default, and subsequent repossession of a manufactured home by the unrelated entity, 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 collateralized receivable, 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	%

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 (see Note 8) within the Consolidated Balance Sheets. The balance of the collateralized receivables was $86.5 million (net of allowance of $0.5 million ) and $81.2 million (net of allowance of $0.5 million) as of June 30, 2012 and December 31, 2011, respectively. The outstanding balance on the secured borrowing was $87.1 million and $81.7 million as of June 30, 2012 and December 31, 2011, respectively.

The balances of the collateralized receivables and secured borrowings fluctuate. The balances increase as additional notes receivable are transferred and exchanged for cash proceeds. The balances are reduced as the related collateralized receivables 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):



	Six Months Ended			Year Ended
	June 30, 2012			December 31, 2011
Beginning balance	$	81,682		$	71,278
Financed sales of manufactured homes	11,467			21,509
Principal payments and payoffs from our customers	(2,671		)	(4,425		)
Principal reduction from repurchased homes	(3,409		)	(6,680		)
Total activity	5,387			10,404
Ending balance	$	87,069		$	81,682

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 $4.4 million and $4.0 million for the six months ended June 30, 2012 and 2011, respectively.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Notes and Other Receivables

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



	June 30, 2012		December 31, 2011
Installment notes receivable on manufactured homes, net	$	15,034	$	13,417
Collateralized receivables, net (see Note 4)	86,539		81,176
Other receivables, net	20,335		20,291
Total notes and other receivables	$	121,908	$	114,884

Installment Notes Receivable on Manufactured Homes

The installment notes of $15.0 million (net of allowance of $0.1 million) and $13.4 million (net of allowance of $0.1 million) as of June 30, 2012 and December 31, 2011, respectively, are collateralized by manufactured homes. The notes represent financing provided by us to purchasers of manufactured homes primarily 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 8.2 percent and 10.8 years as of June 30, 2012, and 7.9 percent and 10.3 years as of December 31, 2011.

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



	Six Months Ended			Year Ended
	June 30, 2012			December 31, 2011
Beginning balance	$	13,545		$	9,466
Financed sales of manufactured homes	3,054			3,362
Acquired notes (see Note 2)	—			3,542
Principal payments and payoffs from our customers	(1,114		)	(1,728		)
Principal reduction from repossessed homes	(345		)	(1,097		)
Total activity	1,595			4,079
Ending balance	$	15,140		$	13,545

Collateralized Receivables

Collateralized receivables represent notes receivable that were transferred to a third party, but did not meet the requirements for sale accounting (see Note 4). The receivables have a balance of $86.5 million (net of allowance of $0.5 million) and $81.2 million(net of allowance of $0.5 million ) as of June 30, 2012 and December 31, 2011, respectively. The receivables have a net weighted average interest rate and maturity of 11.1 percent and 13.1 years as of June 30, 2012, and 11.2 percent and 13.2 years as of December 31, 2011.

Allowance for Losses for Collateralized and Installment Notes Receivable

The allowance for losses for collateralized and installment notes receivable was $0.6 million as of June 30, 2012 and December 31, 2011.



	Six Months Ended			Year Ended
	June 30, 2012			December 31, 2011
Beginning balance	$	(635	)	$	(303	)
Lower of cost or market write-downs	60			84
Increase to reserve balance	(62		)	(416		)
Total activity	(2		)	(332		)
Ending balance	$	(637	)	$	(635	)

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Notes and Other Receivables, continued

Other Receivables

As of June 30, 2012 other receivables were comprised of amounts due from residents for rent and water and sewer usage of $2.9 million (net of allowance of $0.3 million), home sale proceeds of $5.2 million, insurance receivables of $1.1 million, insurance settlement (see Note 3) of $3.7 million, rebates and other receivables of $2.4 million and a note receivable of $5.0 million loaned to the principals of the Florida Properties which bears interest at LIBOR plus 475 basis points, matures on January 31, 2013 and is secured by the equity interests in four of their RV communities. As of December 31, 2011 other receivables were comprised of amounts due from residents for rent and water and sewer usage of $3.0 million (net of allowance of $0.4 million), home sale proceeds of $3.3 million, insurance receivables of $0.8 million, rebates receivable in association of FNMA agreement of $4.9 million, insurance settlement of $3.7 million, note receivable related to Kentland acquisition of $0.9 million (see Note 2), and rebates and other receivables of $3.7 million.


6.	Intangibles

Our intangible assets are in-place leases from acquisitions and capitalized costs in relation to leasing costs. These intangible assets are recorded within Other Assets on the Consolidated Balance Sheets. They are amortized over a seven year amortization period. The gross carrying amount is $23.7 million and $25.3 million at June 30, 2012 and December 31, 2011, respectively. The accumulated amortization is $11.4 million and $10.8 million at June 30, 2012 and December 31, 2011, respectively. Aggregate net amortization expense related to intangible assets was $0.7 million and $0.5 million for the three months ended June 30, 2012 and 2011, respectively. Aggregate net amortization expense related to intangible assets was $1.7 million and $1.0 million for the six months ended June 30, 2012 and 2011, respectively.

7. Investment in Affiliates

Origen Financial Services, LLC (“OFS LLC”)

At June 30, 2012 and 2011, we had a 22.9 percent ownership interest in OFS 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”)

Through Sun OFI, LLC, a taxable REIT subsidiary, we own 5,000,000 shares of common stock of Origen which approximates an ownership interest of 19 percent. Although it is no longer originating or servicing loans, Origen continues to manage an existing portfolio of manufactured home loans and asset backed securities. We have suspended equity accounting for this investment as the carrying value of our investment is zero. We do, however, receive income from dividend distributions on our investment. 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 June 29, 2012.

The unaudited revenue and expense amounts in the table below represent actual results through May 2012 and budgeted June 2012 results.

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



	Three Months Ended June 30,						Six Months Ended June 30,
	(unaudited)						(unaudited)
	2012			2011			2012			2011
Revenues	$	14,982		$	17,109		$	31,275		$	34,838
Expenses	(18,010		)	(20,866		)	(30,737		)	(41,954		)
Net loss	$	(3,028	)	$	(3,757	)	$	538		$	(7,116	)

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. 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
	June 30, 2012		December 31, 2011		June 30, 2012	December 31, 2011	June 30, 2012		December 31, 2011
Collateralized term loans - CMBS	$	625,060	$	629,229	4.5	5.0	5.5	%	5.5	%
Collateralized term loans - FNMA	372,224		364,581		10.8	11.3	4.2	%	3.6	%
Aspen and Series B-3 preferred OP Units	47,822		48,822		8.8	9.2	6.9	%	6.9	%
Secured borrowing (see Note 4)	87,069		81,682		13.0	13.2	11.1	%	11.2	%
Mortgage notes, other	153,981		143,877		3.4	3.2	3.7	%	3.8	%
Total debt	$	1,286,156	$	1,268,191	7.0	7.3	5.3	%	5.2	%

Collateralized Term Loans

In March, 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.

In May 2011, we completed a refinancing agreement with Bank of America N.A., for $23.6 million. This debt bears an interest rate of 5.38% and has a maturity of June 1, 2021. This loan is secured by three 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.

In July 2011, we reached an agreement with Fannie Mae (“FNMA”) and PNC Bank, National Association, 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. The agreement became effective January 3, 2012 and the litigation was dismissed. 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 for 2011. In addition we drew a $10.0 million variable rate facility, which matures on May 1, 2023 and provides for interest-only payments until May 1, 2014, after which principal and interest payments will be due based on a 30-year amortization. The interest rate for the $10.0 million variable rate facility is equal to the 90-day LIBOR index, plus an investor spread equal to 95 basis points, plus a variable facility fee equal to 172 basis points through maturity.

The collateralized term loans totaling $1.0 billion as of June 30, 2012, are secured by 96 properties comprised of 35,107 sites representing approximately $574.8 million of net book value.

Aspen preferred OP Units and Series B-3 preferred OP units

The Aspen preferred OP units are convertible into 526,212 common shares based on a conversion price of $68 per share with a redemption date of January 1, 2024. The minimum and maximum annual preferred rate is 6.5 percent and 9.0 percent, respectively. The current preferred rate is 6.5 percent.

We redeemed $1.0 million of Series B-3 preferred OP units in May 2012.

Secured Borrowing

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

Mortgage Notes

In June 2011, we assumed secured debt with a principal balance of $52.4 million, as a result of the Kentland acquisition (see Note 2 for acquisition details), that had a weighted average maturity of 4.4 years and weighted average annual interest rate of 5.70% at the date of acquisition. This secured debt was recorded at fair value on the date of the acquisition which was equal to the assumed

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. Debt and Lines of Credit, continued

principal balance. This debt is secured by 12 properties. The current weighted average maturity is 3.9 years with the current weighted average annual variable interest rate of 5.61%.

In June 2011, we entered into a $22.9 million variable financing agreement with Bank of America N.A., to fund the Kentland and Orange City acquisition (see Note 2 for acquisition details). The agreement has a weighted average maturity of 3.7 years and weighted average annual variable interest rate of 3.10% at the date of acquisition. The debt was collateralized by six properties – five Kentland properties and Orange City. On February 1, 2012, we paid off $4.5 million of this agreement which was collateralized by Orange City. The current weighted average maturity is 2.9 years with the current weighted average annual variable interest rate of 3.10%.

In December 2011, we entered into a $17.0 million variable financing agreement with Bank of America, N.A. and The Private Bank to fund the Florida Properties acquisition (see Note 2 for acquisition details). The agreement has a weighted average maturity of 5.0 years and had an effective interest rate of 2.78% at the date of acquisition. The debt was collateralized by all three of the properties acquired in the Florida Properties acquisition. The current weighted average maturity is 4.5 years with the current weighted average annual variable interest rate of 2.75%.

In March 2012, we entered into an amended and restated variable financing agreement with Bank of America, N.A. and The PrivateBank which added an additional $19.0 million to the December 2011 variable financing agreement, the "36.0 Million Facility." The agreement has a weighted average maturity of 4.7 years and had an effective interest rate of 2.74% at the date of acquisition. The debt is collateralized by the three properties acquired in the Additional Florida Properties acquisition.

In March 2012, we paid off the entire $2.7 million mortgage agreement secured by Leisure Village which was due to mature on April 1, 2012.

In June 2012, we completed a variable refinancing agreement with Bank of America N.A., for $14.1 million. This debt bears an interest rate of LIBOR plus a 2.0% margin (effective rate at June 30, 2012 was 2.25%) and has a maturity of September 1, 2016, assuming the election of the two successive one-year extensions. The loan is secured by two properties and refinanced $14.0 million of debt which matured in June 2012.

The mortgage notes totaling $154.0 million as of June 30, 2012, are collateralized by 31 properties comprised of 8,160 sites representing approximately $256.3 million of net book value.

Lines of Credit

In September 2011, we entered into a senior secured revolving credit facility with Bank of America, N.A., and certain other lenders in the amount of $130.0 million (the "Facility"), which replaced 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 bears 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 calculation of the leverage ratio as of June 30, 2012, the margin is 2.50% . The outstanding balance on the line of credit was $20.1 million and $107.5 million as of June 30, 2012 and December 31, 2011, respectively. In addition, $4.0 million of availability was used to back standby letters of credit as of June 30, 2012 and December 31, 2011. As of June 30, 2012 and December 31, 2011, $105.9 million and $18.5 million, respectively, were available to be drawn under the facility based on the calculation of the borrowing base at each date.

We have 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 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 current effective interest rate is Prime plus 200 basis points, or 5.5 percent at June 30, 2012. Prime shall mean the prime rate published in the Wall Street Journal adjusted the first day of each calendar month. The outstanding balance was zero as of June 30, 2012. The outstanding balance was $16.0 million as of December 31, 2011.

We have a $12.0 million manufactured home floor plan facility renewable 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

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. Debt and Lines of Credit, continued

rate 7.0 percent at June 30, 2012). 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 $4.5 million and $5.5 million as of June 30, 2012 and December 31, 2011, respectively.

As of June 30, 2012, 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		Jul 2012 - Dec 2012		2013		2014		2015		2016		After 5 years
Lines of credit	$	24,631	$	—	$	4,531	$	—	$	20,100	$	—	$	—
Mortgage loans payable:
Maturities	1,001,931		—		33,762		185,754		16,622		312,585		453,208
Principal amortization	149,334		8,746		18,240		17,899		17,182		15,492		71,775
Aspen and Series B-3 preferred OP units	47,822		3,670		4,145		4,225		—		—		35,782
Secured borrowing	87,069		1,849		3,953		4,329		4,792		5,310		66,836
Total	$	1,310,787	$	14,265	$	64,631	$	212,207	$	58,696	$	333,387	$	627,601

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 June 30, 2012, we were in compliance with all covenants except that our subsidiaries that own the Florida Properties and the Additional Florida Properties were not in compliance with the debt service coverage ratio contained in the $36.0 Million Facility. There is no Event of Default under the $36.0 Million Facility. We have requested a waiver of such covenant for a specified period of time and, if we are unable to obtain such waiver, we intend to comply with this covenant by voluntarily paying down a portion of the $36.0 Million Facility in accordance with the loan agreement.

9. 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 2012 or 2011. 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 the six months ended June 30, 2012 and 2011, holders of Common OP Units converted 2,000 and 10,249 units, respectively to common stock.

On May 10, 2012 pursuant to a shelf registration statement on Form S-3, we registered with the SEC the sale of our common stock, preferred stock, debt securities, warrants and units consisting of two or more of the aforementioned securities. This shelf registration statement was effective upon filing and replaced our previous shelf registration statement which was scheduled to expire in May 2012.

On May 10, 2012 we entered into an "at-the-market" sales agreement with BMO Capital Markets Corp and Liquidnet Inc. to issue and sell shares of common stock from time to time. The current authorization allows for the sale of our common stock up to an aggregate amount of $100 million. There were no shares of common stock sold through June 30, 2012.

In January 2012, we closed an underwritten registered public offering of 4,600,000 shares of common stock at a price of $35.50 per share. The net proceeds from the offering were $156.0 million after deducting the underwriting discounts and expenses related to the offering. We used the net proceeds of the offering to repay $123.5 million of outstanding debt and we used $25.0 million to fund a portion of the Additional Florida Properties (See Note 2 for additional information), which were subsequently encumbered with a loan of $19.0 million. We expect to use any remaining net proceeds of the offering to fund possible future acquisitions of properties and for working capital and general corporate purposes.

Under our previous shelf registration statement on Form S-3 we had an "at-the-market" sales agreement to issue and sell shares

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Equity Transactions, continued

of common stock from time to time. We issued 40,524 shares of common stock from January 1, 2012 through May 9, 2012, when the sales agreement was terminated. 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 $37.22 and we received net proceeds of approximately $1.5 million. 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 million 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. In January, 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.

In June 2011, we issued $45.5 million of Series A-1 preferred operating partnership (“A-1 preferred OP”) units as a result of the Kentland acquisition (see Note 2 for details). A-1 preferred OP unit holders can convert the A-1 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 A-1 preferred OP units are convertible, but not redeemable. The A-1 preferred OP unit holders receive a preferred return of 5.1% until June 23, 2013 and 6.0% thereafter.

In August 2011, we discovered that we did not register with the SEC shares of our common stock purchased in the open market by our 401(k) plan for the benefit of participants in the plan. We eliminated the option to purchase our common stock in the plan in September 2011 and the last purchase made through the plan was on September 16, 2011. As disclosed in our prior SEC filings, we considered filing a registration statement on Form S-3 offering to rescind the purchase of shares of our common stock by persons who acquired such shares through our 401(k) plan from September 16, 2010 through September 16, 2011. During that period, the plan purchased a total of 3,301 shares of our common stock for the benefit of a total of 85 participants. If a rescission offer were conducted, we would offer to repurchase shares of our common stock purchased through the 401(k) plan during the one year period ended September 16, 2011, but only if such shares either (i) were subsequently sold at a loss, or (ii) were purchased at a price higher than the market price of our common stock at the end of the rescission offer period, and are still held by the plan participant. To the best of our knowledge no shares purchased during the applicable period have subsequently been sold at a loss. Based on the recent and current market price of our common stock, we believe our potential liability, if any, with respect to shares of our common stock purchased during the applicable period and still held by plan participants is not material to us. In fact, if we were to conduct a rescission offer today, we do not believe we would have any liability unless the market price of our common stock at the end of the rescission offer period were less than $39.28 per share, which is the highest price paid for purchases of shares by plan participants during the applicable period. Based on these facts and given the expense of conducting a rescission offer, we have determined not to conduct a rescission offer.

Cash dividends of $0.63 per share were declared for the quarter ended June 30, 2012. On July 20, 2012 cash payments of approximately $18.0 million for aggregate dividends, distributions and dividend equivalents were made to common stockholders, common OP unitholders, and restricted stockholders of record as of July 10, 2012.

10. Share-Based Compensation

In February 2012, we granted 15,000 shares of restricted stock to our executive officers under the 2009 Equity Plan. The awards vest ratably over an eight year period beginning on the fourth anniversary of the grant date, and have a fair value of $40.80 per share. The fair value was determined by using the closing share price of our common stock on the date the grant was issued.

During the six months ended June 30, 2012, 7,678 shares of common stock were issued in connection with the exercise of stock options and the net proceeds received were $0.1 million.

The vesting requirements for 8,750 restricted shares granted to our employees were satisfied during the six months ended June 30, 2012.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11. Other Income

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



	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012		2011
Brokerage commissions	$	124	$	146		$	329	$	294
Other income (loss), net	51		(121		)	106		(318		)
Total other income (loss), net	$	175	$	25		$	435	$	(24	)

12. 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 RV revenue is included in Real Property Operations’ revenues and is approximately $9.4 million annually. This seasonal revenue is recognized 48% in the first quarter, 13% in the second, 13% in the third quarter and 26% in the fourth quarter of each fiscal year.

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



	Three Months Ended June 30, 2012									Three Months Ended June 30, 2011
	Real Property Operations			Home Sales and Home Rentals			Consolidated			Real Property Operations			Home Sales and Home Rentals			Consolidated
Revenues	$	61,507		$	17,950		$	79,457		$	52,264		$	13,573		$	65,837
Operating expenses/Cost of sales	22,104			13,119			35,223			18,092			10,155			28,247
Net operating income/Gross profit	39,403			4,831			44,234			34,172			3,418			37,590
Adjustments to arrive at net income (loss):
Other revenues	2,830			92			2,922			2,316			109			2,425
General and administrative	(5,182		)	(2,238		)	(7,420		)	(4,833		)	(1,952		)	(6,785		)
Acquisition related costs	(423		)	—			(423		)	(1,151		)	—			(1,151		)
Depreciation and amortization	(14,077		)	(6,990		)	(21,067		)	(12,462		)	(5,659		)	(18,121		)
Interest expense	(17,605		)	(9		)	(17,614		)	(15,781		)	(273		)	(16,054		)
Distributions from affiliates, net	1,900			—			1,900			850			—			850
Provision for state income tax	(53		)	—			(53		)	259			—			259
Net income (loss)	6,793			(4,314		)	2,479			3,370			(4,357		)	(987		)
Less: Preferred return to A-1 preferred OP units	579			—			579			51			—			51
Less: Net income (loss) attributable to noncontrolling interests	800			(563		)	237			243			(391		)	(148		)
Net income (loss) attributable to Sun Communities, Inc.	$	5,414		$	(3,751	)	$	1,663		$	3,076		$	(3,966	)	$	(890	)

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. Segment Reporting, continued



	Six Months Ended June 30, 2012									Six Months Ended June 30, 2011
	Real Property Operations			Home Sales and Home Rentals			Consolidated			Real Property Operations			Home Sales and Home Rentals			Consolidated
Revenues	$	125,803		$	33,854		$	159,657		$	106,100		$	27,138		$	133,238
Operating expenses/Cost of sales	43,002			24,716			67,718			35,665			20,319			55,984
Net operating income/Gross profit	82,801			9,138			91,939			70,435			6,819			77,254
Adjustments to arrive at net income (loss):
Other revenues	5,495			355			5,850			4,335			403			4,738
General and administrative	(10,240		)	(4,447		)	(14,687		)	(9,311		)	(3,925		)	(13,236		)
Acquisition related costs	(587		)	—			(587		)	(1,400		)	—			(1,400		)
Depreciation and amortization	(27,038		)	(13,897		)	(40,935		)	(23,583		)	(11,217		)	(34,800		)
Interest expense	(35,166		)	(86		)	(35,252		)	(31,803		)	(483		)	(32,286		)
Distributions from affiliates, net	2,650			—			2,650			1,200			—			1,200
Provision for state income tax	(106		)	—			(106		)	128			—			128
Net income (loss)	17,809			(8,937		)	8,872			10,001			(8,403		)	1,598
Less: Preferred return to A-1 preferred OP units	1,158			—			1,158			51			—			51
Less: Net income (loss) attributable to noncontrolling interests	1,657			(983		)	674			798			(761		)	37
Net income (loss) attributable to Sun Communities, Inc.	$	14,994		$	(7,954	)	$	7,040		$	9,152		$	(7,642	)	$	1,510



	June 30, 2012							December 31, 2011
	Real Property Operations		Home Sales and Home Rentals			Consolidated		Real Property Operations		Home Sales and Home Rentals			Consolidated
Identifiable assets:
Investment property, net	$	1,042,754	$	193,583		$	1,236,337	$	1,028,575	$	168,031		$	1,196,606
Cash and cash equivalents	5,096		(597		)	4,499		5,972		(115		)	5,857
Inventory of manufactured homes	—		4,396			4,396		—		5,832			5,832
Notes and other receivables	114,667		7,241			121,908		109,436		5,448			114,884
Other assets	41,479		3,700			45,179		41,843		2,952			44,795
Total assets	$	1,203,996	$	208,323		$	1,412,319	$	1,185,826	$	182,148		$	1,367,974

13. Derivative Instruments and Hedging Activities

Our objective in using interest rate derivatives is to manage exposure to interest rate movements thereby minimizing the effect of interest rate changes and the effect it could have on future cash flows. Interest rate swaps and caps are used to accomplish this objective. We require hedging derivative instruments to be highly effective in reducing the risk exposure that they are designated to hedge. We formally designate any instrument that meets these hedging criteria as a hedge at the inception of the derivative contract.

As of June 30, 2012, we had four derivative contracts consisting of two interest rate swap agreements with a total notional amount of $45.0 million and two interest rate cap agreements with a notional amount of $162.4 million. We generally employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt and to cap the maximum interest rate on certain variable rate borrowings. We do not enter into derivative instruments for speculative purposes.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13. Derivative Instruments and Hedging Activities, continued

The following table provides the terms of our interest rate derivative contracts that were in effect as of June 30, 2012:

Type

Purpose

Effective Date

Maturity Date

Notional

(in millions)

Based on

Variable Rate

Fixed Rate

Spread

Effective Fixed Rate

Swap

Floating to Fixed Rate

9/1/2002

7/1/2012

25.0

3 Month LIBOR

0.4682%

4.7000%

1.8700%

6.5700%

Swap

Floating to Fixed Rate

1/1/2009

1/1/2014

20.0

3 Month LIBOR

0.4682%

2.1450%

1.8700%

4.0150%

Cap

Cap Floating Rate

4/1/2012

4/1/2015

152.4

3 Month LIBOR

0.4600%

11.2650%

—%

N/A

Cap

Cap Floating Rate

10/3/2011

10/3/2016

10.0

3 Month LIBOR

0.4600%

11.0200%

—%

N/A

Subsequent to June 30, 2012 the $25.0 million interest swap described in the above table matured and was not replaced.

Generally, our financial derivative instruments are designated and qualify as cash flow hedges and the effective portion of the gain or loss on such hedges are reported as a component of accumulated other comprehensive income (loss) in our Consolidated Balance Sheets. To the extent that the hedging relationship is not effective or do not qualify as a cash flow hedge, the ineffective portion is recorded in interest expense. Hedges that received designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as through the hedging period.

In accordance with ASC Topic 815, Derivatives and Hedging, we have recorded the fair value of our derivative instruments designated as cash flow hedges on the balance sheet. See Note 16 for information on the determination of fair value for the derivative instruments. The following table summarizes the fair value of derivative instruments included in our Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 (in thousands):



	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments		June 30, 2012		December 31, 2011			June 30, 2012	December 31, 2011
Interest rate swaps and cap agreement	Other assets	$	—	$	—	Other liabilities	503	1,106
Total derivatives designated as hedging instruments		$	—	$	—		503	1,106

These valuation adjustments will only be realized under certain situations. For example, if we terminate the swaps prior to maturity or if the derivatives fail to qualify for hedge accounting, we would need to amortize amounts currently included in other comprehensive income (loss) into interest expense over the terms of the derivative contracts. We do not intend to terminate the swaps prior to maturity and, therefore, the net of valuation adjustments through the various maturity dates will approximate zero, unless the derivatives fail to qualify for hedge accounting.

Our hedges were highly effective and had minimal effect on income. The following table summarizes the impact of derivative instruments for the six months ended June 30, 2012 and 2011 as recorded in the Consolidated Statements of Operations (in thousands):



Derivatives in cash flow hedging	Amount of Gain or (Loss) Recognized in OCI (Effective Portion)				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Six Months Ended June 30,					Six Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012		2011			2012		2011
Interest rate swaps and cap agreement	$	599	$	422	Interest expense	$	—	$	—	Interest expense	$	3	$	5
Total	$	599	$	422	Total	$	—	$	—	Total	$	3	$	5

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13. Derivative Instruments and Hedging Activities, continued

Certain of our derivative instruments contain provisions that require us to provide ongoing collateralization on derivative instruments in a liability position. As of June 30, 2012 and December 31, 2011, we had collateral deposits recorded in other assets of approximately $2.0 million and $3.1 million, respectively.

14. Income Taxes

We have elected to be taxed as a real estate investment trust (“REIT”) as defined under Section 856(c) of the Internal Revenue Code of 1986 (“Code”), as amended. In order for us to qualify as a REIT, at least ninety-five percent (95%) of our gross income in any year must be derived from qualifying sources. In addition, a REIT must distribute at least ninety percent (90%) of its REIT ordinary taxable income to its stockholders.

Qualification as a REIT involves the satisfaction of numerous requirements (some on an annual and quarterly basis) established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. In addition, frequent changes occur in the area of REIT taxation which requires us to continually monitor our tax status. We analyzed the various REIT tests and confirmed that we continued to qualify as a REIT for the quarter ended June 30, 2012.

As a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on the ordinary taxable income we distribute to our stockholders as dividends. If we fail to qualify as a REIT in any taxable year, our taxable income could be subject to U.S. federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if we qualify as a REIT, we may be subject to certain state and local income taxes and to U.S. federal income and excise taxes on our undistributed income.

SHS, our taxable REIT subsidiary, is subject to U.S. federal income taxes. Our deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced, if necessary, by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence. Our temporary differences primarily relate to net operating loss carryforwards and depreciation. A federal deferred tax asset of $1.0 million is included in other assets in our Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011.

We had no unrecognized tax benefits as of June 30, 2012 and 2011. We expect no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of June 30, 2012.

We classify certain state taxes as income taxes for financial reporting purposes. We record Texas Margin Tax as income taxes in our financial statements. In 2011 we were also subject to Michigan Business Tax that was replaced in May 2011 by a Corporate Income Tax. We believe that we will not have any corporate income tax liability under the new law. We recorded a provision for state income taxes of approximately $0.1 million for the six months ended June 30, 2012 and a benefit of approximately $0.1 million for the six months ended June 30, 2011.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15. Earnings (Loss) Per Share

We have outstanding stock options and unvested restricted shares, and our Operating Partnership has Common OP Units, convertible A-1 preferred OP units and Aspen Preferred OP Units, which if converted or exercised, may impact dilution. Although our unvested restricted shares qualify as participating securities, we do not include them in the computation of basic earnings (loss) per share under the two-class method in periods we report net losses, as the result would be anti-dilutive.

Computations of basic and diluted earnings per share from continuing operations were as follows (in thousands, except per share data):



	Three Months Ended June 30,					Six Months Ended June 30,
Numerator	2012		2011			2012		2011
Basic earnings: net income (loss) attributable to common stockholders	$	1,663	$	(890	)	$	7,040	$	1,510
Add: amounts attributable to common noncontrolling interests	—		—			—		37
Diluted earnings: net income (loss) available to common stockholders and unitholders	$	1,663	$	(890	)	$	7,040	$	1,547
Denominator
Weighted average common shares outstanding	26,188		21,090			25,749		20,875
Weighted average unvested restricted stock outstanding	281		—			279		193
Basic weighted average common shares and unvested restricted stock outstanding	26,469		21,090			26,028		21,068
Add: dilutive securities	16		—			17		2,078
Diluted weighted average common shares and securities	26,485		21,090			26,045		23,146
Earnings (loss) per share available to common stockholders:
Basic	$	0.06	$	(0.04	)	$	0.27	$	0.07
Diluted	$	0.06	$	(0.04	)	$	0.27	$	0.07

We excluded certain securities from the computation of diluted earnings per share because the inclusion of these securities would have been anti-dilutive for the periods presented. The following table presents the number of outstanding potentially dilutive securities that were excluded from the computation of diluted earnings per share for the six months ended June 30, 2012 and 2011 (amounts in thousands):



	Six Months Ended June 30,
	2012	2011
Stock options	57	78
Common OP units	2,070	—
A-1 preferred OP units	1,111	49
Aspen preferred OP units	526	526
Total securities	3,764	653

The figures above represent the total number of potentially dilutive securities, and do not necessarily reflect the incremental impact to the number of diluted weighted average shares outstanding that would be computed if the impact to us had been dilutive to the calculation of earnings per share available to common stockholders.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

16. Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, accounts and notes receivable, accounts payable, derivative instruments, and debt.

ASC Topic 820, Fair Value Measurements and Disclosures, establishes guidance fair value hierarchy established by FASB guidance that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

Level 1—Quoted unadjusted prices for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.

Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by us.

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Derivative Instruments

The derivative instruments held by us are interest rate swaps and cap agreements for which quoted market prices are indirectly available. For those derivatives, we use model-derived valuations in which all observable inputs and significant value drivers are observable in active markets provided by brokers or dealers to determine the fair values of derivative instruments on a recurring basis.

Installment Notes on Manufactured Homes

The net carrying value of the installment notes on manufactured homes estimates the fair value as the interest rates in the portfolio are comparable to current prevailing market rates.

Long Term Debt and Lines of Credit

The fair value of long term debt (excluding the secured borrowing) is based on the estimates of management and on rates currently quoted and rates currently prevailing for comparable loans and instruments of comparable maturities.

Collateralized Receivables and Secured Borrowing

The fair value of these financial instruments offset each other as our collateralized receivables represent a transfer of financial assets and the cash proceeds received from these transactions have been classified as a secured borrowing in the Consolidated Balance Sheets. The net carrying value of the collateralized receivables estimates the fair value as the interest rates in the portfolio are comparable to current prevailing market rates.

Other Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair market values due to the short-term nature of these instruments.

The table below sets forth our financial assets and liabilities that required disclosure of their fair values on a recurring basis as of June 30, 2012. The table presents the carrying values and fair values of our financial instruments as of June 30, 2012 and December 31, 2011 that were measured using the valuation techniques described above. The table excludes other financial instruments such as cash and cash equivalents, accounts receivable, and accounts payable because the carrying values associated with these instruments approximate fair value since their maturities are less than one year.

SUN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

16. Fair Value of Financial Instruments, continued



	June 30, 2012		December 31, 2011
Financial assets	Carrying Value	Fair Value	Carrying Value	Fair Value
Installment notes on manufactured homes, net	15,034	15,034	13,417	13,417
Collateralized receivables, net	86,539	86,539	81,176	81,176
Financial liabilities
Derivative instruments	503	503	1,106	1,106
Long term debt (excluding secured borrowing)	1,199,087	1,188,927	1,186,509	1,175,261
Secured borrowing	87,069	87,069	81,682	81,682
Lines of credit	24,632	24,632	129,034	129,034

17. Recent Accounting Pronouncements

In April 2011, the FASB issued ASU 2011-03, “Reconsideration of Effective Control for Repurchase Agreements” (ASU 2011-03) which amends ASC Topic 860, Transfers and Servicing. The updated guidance in ASC Topic 860 removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The updated guidance in ASC Topic 860 is effective for the first interim or annual period beginning on or after December 15, 2011. Early adoption was not permitted. The adoption of this guidance did not have any impact on our results of operations or financial condition.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04) which amends ASC Topic 820, Fair Value Measurement. The updated guidance in ASC Topic 820 changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The updated guidance in ASC Topic 820 is effective during interim and annual periods beginning after December 15, 2011. Early adoption was not permitted. The adoption of this guidance did not have any impact on our results of operations or financial condition.

18. Commitments and Contingencies

On June 4, 2010 we settled all of the claims arising out of the litigation filed in 2004 by TJ Holdings, LLC in the Superior Court of Guilford County, North Carolina and the associated arbitration proceeding commenced by TJ Holdings in Southfield, Michigan. Under the terms of the settlement agreement, in which neither party admitted any liability whatsoever, we paid TJ Holdings $360,000 . In addition, pursuant to this settlement, TJ Holdings’ percentage ownership interest in Sun/Forest, LLC will be increased on a one time basis, in the event of a sale or refinance of all of the SunChamp Properties, to between 9.03% and 28.99% depending on our average closing stock price as reported by the NYSE during the 30 days preceding the sale or refinance of all the SunChamp Properties. Once this percentage ownership interest has been adjusted, there will be no further adjustments from subsequent sales or refinances of the SunChamp Properties. The likelihood of a sale or refinancing of all of the SunChamp properties is not probable as these properties continue to see growth potential nor do we have a need to refinance all of the properties, so we do not expect it to have a material adverse impact on our results of operations or financial condition.

We are involved in various other legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have a material adverse impact on our results of operations or financial condition.

SUN COMMUNITIES, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and the notes thereto, along with our 2011 Annual Report. Capitalized terms are used as defined elsewhere in this Form 10-Q.

OVERVIEW

We are a self-administered and self-managed real estate investment trust, or REIT. We own, operate, and develop manufactured housing communities concentrated in the midwestern, southern, and southeastern United States. We are fully integrated real estate companies which, together with our affiliates and predecessors, have been in the business of acquiring, operating, and expanding manufactured housing communities since 1975. As of June 30, 2012, we owned and operated a portfolio of 162 properties located in 18 states (the “Properties” or “Property”), including 141 manufactured housing communities, 11 recreational vehicle communities, and 10 properties containing both manufactured housing and recreational vehicle sites. As of June 30, 2012, the Properties contained an aggregate of 55,921 developed sites comprised of 47,939 developed manufactured home sites and 7,982 recreational vehicle sites (“RV”) and approximately 6,450 manufactured home sites suitable for development. We lease individual parcels of land (“sites”) with utility access for placement of manufactured homes and recreational vehicles to our customers. The Properties are designed to offer affordable housing to individuals and families, while also providing certain amenities.

We are engaged through a taxable subsidiary, SHS, in the marketing, selling, and leasing of new and pre-owned homes to current and future residents in our communities. The operations of SHS support and enhance our occupancy levels, property performance, and cash flows.

SIGNIFICANT ACCOUNTING POLICIES

We have identified significant accounting policies that, as a result of the judgments, uncertainties, and complexities of the underlying accounting standards and operations involved could result in material changes to our financial condition or results of operations under different conditions or using different assumptions. Details regarding significant accounting policies are described fully in our 2011 Annual Report.

SUPPLEMENTAL MEASURES

In addition to the results reported in accordance with GAAP, we have provided information regarding Net Operating Income (“NOI”) in the following tables. NOI is derived from revenues minus property operating expenses and real estate taxes. We use NOI as the primary basis to evaluate the performance of our operations. A reconciliation of NOI to net income attributable to Sun Communities, Inc. is included in “Results of Operations” below.

We believe that NOI is helpful to investors and analysts as a measure of operating performance because it is an indicator of the return on property investment, which provides a method of comparing property performance over time. We use 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 our properties rather than of the Company overall. We believe that these costs included in net income often have no effect on the market value of our 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.

NOI should not be considered a substitute for the reported results prepared in accordance with GAAP. NOI should not be considered as an alternative to net income as an indicator of our financial performance, or to cash flows as a measure of liquidity; nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. NOI, as determined and presented by us, may not be comparable to related or similarly titled measures reported by other companies.

We also provide information regarding Funds From Operations (“FFO”). A definition of FFO and a reconciliation of FFO to net income are included in the presentation of FFO in “Results of Operations” following the “Comparison of the Six Months Ended June 30, 2012 and 2011”.

SUN COMMUNITIES, INC.

RESULTS OF OPERATIONS

We report operating results under two segments: Real Property Operations and Home Sales and Rentals. The Real Property Operations segment owns, operates, and develops manufactured housing communities and RV communities concentrated in the midwestern, southern, and southeastern United States and is in the business of acquiring, operating, and expanding manufactured housing and RV communities. The Home Sales and Rentals segment offers manufactured home sales and leasing services to tenants and prospective tenants of our communities. We evaluate segment operating performance based on NOI and Gross Profit.

The accounting policies of the segments are the same as those applied in the Consolidated Financial Statements, except for the use of NOI. We may allocate certain common costs, primarily corporate functions, between the segments differently than we would for stand alone financial information prepared in accordance with GAAP. These allocated costs include expenses for shared services such as information technology, finance, communications, legal, and human resources. We do not allocate interest expense and certain other corporate costs not directly associated with the segments’ NOI and Gross Profit.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011

REAL PROPERTY OPERATIONS – TOTAL PORTFOLIO

The following tables reflect certain financial and other information for our Total Portfolio as of and for the three months ended June 30, 2012 and 2011:



	Three Months Ended June 30,
Financial Information (in thousands)	2012		2011		Change			% Change
Income from Real Property	$	61,507	$	52,264	$	9,243		17.7	%
Property operating expenses:
Payroll and benefits	4,803		3,928		875			22.3	%
Legal, taxes, & insurance	728		850		(122		)	(14.4	)%
Utilities	7,117		5,789		1,328			22.9	%
Supplies and repair	3,141		2,293		848			37.0	%
Other	1,379		1,134		245			21.6	%
Real estate taxes	4,936		4,098		838			20.4	%
Property operating expenses	22,104		18,092		4,012			22.2	%
Real Property NOI	$	39,403	$	34,172	$	5,231		15.3	%



	As of June 30,
Other Information	2012			2011			Change
Number of properties	162			155			7
Developed sites	55,921			53,611			2,310
Occupied sites ^{(1) (2)}	45,101			43,336			1,765
Occupancy % ⁽¹⁾	86.8		%	85.0		%	1.8		%
Weighted average monthly site rent - MH⁽³⁾	$	427		$	420		$	7
Weighted average monthly site rent - Permanent RV⁽³⁾	$	402		$	425		$	(23	)
Sites available for development	6,451			6,237			214


⁽¹⁾	Occupied sites and occupancy % include manufactured housing and permanent RV sites and exclude seasonal RV sites.


⁽²⁾	Occupied sites include 394 sites acquired during 2011 and 193 sites acquired in 2012.


⁽³⁾	Weighted average rent pertains to manufactured housing and permanent recreational vehicle sites and excludes seasonal recreational vehicle sites.

Real Property NOI increased by $5.2 million, from $34.2 million to $39.4 million or 15.3 percent. The growth in NOI is primarily due to $3.2 million from the newly acquired properties and $2.0 million from the same site properties as detailed below.

SUN COMMUNITIES, INC.

REAL PROPERTY OPERATIONS – SAME SITE

A key management tool used when evaluating performance and growth of our properties is a comparison of Same Site communities. Same Site communities consist of properties owned and operated for the same period in both years for the three months ended June 30, 2012 and 2011. The Same Site data may change from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions, or unique situations.

In order to evaluate the growth of the Same Site communities, management has classified certain items differently than our GAAP statements. The reclassification difference between our GAAP statements and our Same Site portfolio is the reclassification of water and sewer revenues from income from real property to utilities. A significant portion of our utility charges are re-billed to our residents. We reclassify these amounts to reflect the utility expenses associated with our Same Site portfolio net of recovery.

The following tables reflect certain financial and other information for our Same Site communities as of and for the three months ended June 30, 2012 and 2011:



	Three Months Ended June 30,
Financial Information (in thousands)	2012		2011		Change			% Change
Income from Real Property	$	51,071	$	48,799	$	2,272		4.7	%
Property operating expenses:
Payroll and benefits	3,942		3,902		40			1.0	%
Legal, taxes, & insurance	602		841		(239		)	(28.4	)%
Utilities	2,786		2,784		2			0.1	%
Supplies and repair	2,643		2,283		360			15.8	%
Other	1,208		1,121		87			7.8	%
Real estate taxes	4,076		4,039		37			0.9	%
Property operating expenses	15,257		14,970		287			1.9	%
Real Property NOI	$	35,814	$	33,829	$	1,985		5.9	%



	As of June 30,
Other Information	2012			2011			Change
Number of properties	136			136			—
Developed sites	47,782			47,677			105
Occupied sites ⁽¹⁾	39,663			38,928			735
Occupancy % ^{(1) (2)}	86.6		%	84.5		%	2.1		%
Weighted average monthly rent per site - MH⁽³⁾	$	432		$	420		$	12
Weighted average monthly rent per site - Permanent RV⁽³⁾	$	434		$	425		9
Sites available for development	5,255			5,439			(184		)


⁽¹⁾	Occupied sites and occupancy % include manufactured housing and permanent RV sites, and exclude seasonal RV sites.


⁽²⁾	Occupancy % excludes completed but vacant expansion sites.


⁽³⁾	Weighted average rent pertains to manufactured housing and permanent recreational vehicle sites and excludes seasonal recreational vehicle sites.

Real Property NOI increased by $2.0 million, from $33.8 million to $35.8 million or 5.9 percent. The growth in NOI is primarily due to increased revenues of $2.3 million slightly offset by a $0.3 million increase in expenses.

Income from real property revenue consists of manufactured home and recreational vehicle site rent, and miscellaneous other property revenues. Income from real property revenues increased $2.2 million, from $48.8 million to $51.0 million, or 4.7 percent. The growth in income from real property was due to a combination of factors. Revenue from our manufactured home and recreational vehicle portfolio increased by $2.4 million due to average rental rate increases of 3.1 percent and the increased number of occupied home sites and was partially offset by rent concessions offered to new residents and current residents who convert from home renters to home owners.

Property operating expenses increased $0.3 million, from $15.0 million to $15.3 million, or 1.9 percent. Supplies and repairs increased by $0.4 million due to increased tree and lawn services, water system, road and pool repairs and community maintenance expenses. Other expenses increased $0.1 million primarily due to increased resident relations expenses. These increases were offset by decreased property and liability insurance expenses of $0.2 million.

SUN COMMUNITIES, INC.

HOME SALES AND RENTALS

We acquire pre-owned and repossessed manufactured homes generally located within our communities from lenders and dealers at substantial discounts. We lease or sell these value priced homes to current and prospective residents. We also purchase new homes to lease and sell to current and prospective residents.

The following table reflects certain financial and other information for our Rental Program as of and for the three months ended June 30, 2012 and 2011 (in thousands, except for certain items marked with *):



	Three Months Ended June 30,
Financial Information	2012		2011		Change		% Change
Rental home revenue	$	6,511	$	5,427	$	1,084	20.0	%
Site rent from Rental Program ⁽¹⁾	9,482		7,745		1,737		22.4	%
Rental Program revenue	15,993		13,172		2,821		21.4	%
Expenses
Commissions	545		472		73		15.5	%
Repairs and refurbishment	2,033		1,785		248		13.9	%
Taxes and insurance	828		815		13		1.6	%
Marketing and other	742		682		60		8.8	%
Rental Program operating and maintenance	4,148		3,754		394		10.5	%
Rental Program NOI	$	11,845	$	9,418	$	2,427	25.8	%
Other Information
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*	251		200		51		25.5	%
Weighted average monthly rental rate*	$	767	$	747	$	20	2.7	%

⁽¹⁾

The renter’s monthly payment includes the site rent and an amount attributable to the leasing of the home. The site rent is reflected in the Real Property Operations segment. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated with implementation of the Rental Program, and assess the overall growth and performance of Rental Program and financial impact to our operations.

Rental Program NOI increased $2.4 million from $9.4 million to $11.8 million or 25.8 percent due to increased revenues of $2.8 million, offset by increased expenses of $0.4 million. Revenues increased $2.8 million due to the increased number of residents participating in the Rental Program and from increased monthly rental rates as indicated in the table above.

Operating and maintenance expenses increased by $0.4 million from $3.8 million to $4.2 million or 10.5 percent. Commissions increased by $0.1 million and repairs costs on occupied home rentals increased by $0.2 million due to the increased number of homes in the Rental Program. Bad debt expense increased by $0.1 million.

SUN COMMUNITIES, INC.

The following table reflects certain financial and statistical information for our Home Sales Program for the three months ended June 30, 2012 and 2011 (in thousands, except for statistical information):



	Three Months Ended June 30,
Financial Information	2012			2011			Change			% Change
New home sales	$	1,312		$	650		$	662		> 100%
Pre-owned home sales	10,127			7,496			2,631			35.1	%
Revenue from homes sales	11,439			8,146			3,293			40.4	%
New home cost of sales	1,116			557			559			> 100%
Pre-owned home cost of sales	7,855			5,844			2,011			34.4	%
Cost of home sales	8,971			6,401			2,570			40.1	%
NOI / Gross profit	$	2,468		$	1,745		$	723		41.4	%

Gross profit – new homes	196			93			103			> 100%
Gross margin % – new homes	14.9		%	14.3		%	0.6		%	4.2	%
Gross profit – pre-owned homes	2,272			1,652			620			37.5	%
Gross margin % – pre-owned homes	22.4		%	22.0		%	0.4		%	1.8	%

Statistical Information
Home sales volume:
New home sales	20			9			11			> 100%
Pre-owned home sales	437			353			84			23.8	%
Total homes sold	457			362			95			26.2	%

Home Sales NOI increased by $0.7 million, from $1.8 million to $2.5 million, or 41.4 percent due to increased gross profit from increased sales volume.

The gross profit on new home sales increased from $0.1 million to $0.2 million due to the increase in sales volume as shown above. The gross profit on pre-owned home sales increased from $1.7 million to $2.3 million due to increased margins and sales volumes.

SUN COMMUNITIES, INC.

OTHER INCOME STATEMENT ITEMS

Other revenues include other income, interest income, and ancillary revenues, net. Other revenues increased by $0.5 million, from $2.4 million to $2.9 million, or 20.8 percent. This was primarily due to an increase in interest income of $0.2 million from collateralized receivables, a $0.2 million increase in interest from installment note receivables, and a $0.1 million decrease in loan loss reserve.

Real Property general and administrative costs increased by $0.4 million, from $4.8 million to $5.2 million, or 8.3 percent due to an increase in payroll expenses of $0.1 million due to severance payments , an increase in human resource expenses of $0.1 million, an increase in legal expenses of $0.1 million, and an increase of $0.1 million in other expenses related to travel and other miscellaneous expenses.

Home Sales and Rentals general and administrative costs increased by $0.3 million, from $1.9 million to $2.2 million, or 15.8 percent due to increased salary and commission costs.

Acquisition related costs decreased by $0.7 million. These costs have been incurred for both closed and potential acquisitions.

Depreciation and amortization costs increased by $2.9 million, from $18.1 million to $21.0 million, or 16.0 percent due to increased depreciation on investment property for use in our Rental Program of $1.2 million and increased other depreciation and amortization of $1.7 million primarily due to the newly acquired properties (See Note 2).

Interest expense on debt, including interest on mandatorily redeemable debt, increased by $1.6 million, from $16.0 million to $17.6 million, or 10.0 percent due to an increase in expense associated with our secured borrowing arrangements of $0.2 million, an increase of $1.8 million in our mortgage interest due to debt associated with the acquired properties (see Note 2) and a higher rate on our FNMA debt, offset by a decrease in interest on our lines of credit of $0.4 million.

Distributions from affiliates increased by $1.0 million, from $0.9 million to $1.9 million. We suspended equity accounting in 2010 as our investment balance is zero. The income recorded in 2012 and 2011 is dividend income.

The following table is a summary of our consolidated financial results which were discussed in more detail in the preceding paragraphs (in thousands):



	Three Months Ended June 30,
	2012			2011
Real Property NOI	$	39,403		$	34,172
Rental Program NOI	11,845			9,418
Home Sales NOI/Gross Profit	2,468			1,745
Site rent from Rental Program (included in Real Property NOI)	(9,482		)	(7,745		)
NOI/Gross profit	44,234			37,590
Adjustments to arrive at net income (loss):
Other revenues	2,922			2,425
General and administrative	(7,420		)	(6,785		)
Acquisition related costs	(423		)	(1,151		)
Depreciation and amortization	(21,067		)	(18,121		)
Interest expense	(17,614		)	(16,054		)
Provision for state income taxes	(53		)	259
Distributions from affiliates, net	1,900			850
Net income (loss)	2,479			(987		)
Less: preferred return to A-1 preferred OP units	579			51
Less: amounts attributable to noncontrolling interests	237			(148		)
Net income (loss) attributable to Sun Communities, Inc. common stockholders	$	1,663		$	(890	)

SUN COMMUNITIES, INC.

RESULTS OF OPERATIONS

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

REAL PROPERTY OPERATIONS – TOTAL PORTFOLIO

The following tables reflect certain financial and other information for our Total Portfolio as of and for the six months ended June 30, 2012 and 2011:



	Six Months Ended June 30,
Financial Information (in thousands)	2012		2011		Change			% Change
Income from Real Property	$	125,803	$	106,100	$	19,703		18.6	%
Property operating expenses:
Payroll and benefits	9,314		7,720		1,594			20.6	%
Legal, taxes, & insurance	1,432		1,551		(119		)	(7.7	)%
Utilities	14,513		12,091		2,422			20.0	%
Supplies and repair	4,888		3,736		1,152			30.8	%
Other	3,047		2,354		693			29.4	%
Real estate taxes	9,808		8,213		1,595			19.4	%
Property operating expenses	43,002		35,665		7,337			20.6	%
Real Property NOI	$	82,801	$	70,435	$	12,366		17.6	%



	As of June 30,
Other Information	2012			2011			Change
Number of properties	162			155			7
Developed sites	55,921			53,611			2,310
Occupied sites ^{(1) (2)}	45,101			43,336			1,765
Occupancy % ⁽¹⁾	86.8		%	85.0		%	1.8		%
Weighted average monthly site rent - MH⁽³⁾	$	427		$	420		$	7
Weighted average monthly site rent - Permanent RV⁽³⁾	$	402		$	425		(23		)
Sites available for development	6,451			6,237			214


⁽¹⁾	Occupied sites and occupancy % include manufactured housing and permanent RV sites, and exclude seasonal RV sites.


⁽²⁾	Occupied sites include 394 sites acquired during 2011 and 193 sites acquired in 2012.


⁽³⁾	Weighted average rent pertains to manufactured housing and permanent recreational vehicle sites and excludes seasonal recreational vehicle sites.

Real Property NOI increased by $12.4 million, from $70.4 million to $82.8 million or 17.6 percent. The growth in NOI is primarily due to $7.8 million from the newly acquired properties and $4.6 million from the same site properties as detailed below.

SUN COMMUNITIES, INC.

REAL PROPERTY OPERATIONS – SAME SITE

A key management tool used when evaluating performance and growth of our properties is a comparison of Same Site communities. Same Site communities consist of properties owned and operated for the same period in both years for the six months ended June 30, 2012 and 2011. The Same Site data may change from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions, or unique situations.

The following tables reflect certain financial and other information for our Same Site communities as of and for the six months ended June 30, 2012 and 2011:



	Six Months Ended June 30,
Financial Information (in thousands)	2012		2011		Change			% Change
Income from Real Property	$	104,415	$	99,463	$	4,952		5.0	%
Property operating expenses:
Payroll and benefits	7,749		7,693		56			0.7	%
Legal, taxes, & insurance	1,185		1,542		(357		)	(23.2	)%
Utilities	5,770		5,915		(145		)	(2.5	)%
Supplies and repair	4,171		3,726		445			11.9	%
Other	2,700		2,341		359			15.3	%
Real estate taxes	8,124		8,154		(30		)	(0.4	)%
Property operating expenses	29,699		29,371		328			1.1	%
Real Property NOI	$	74,716	$	70,092	$	4,624		6.6	%



	As of June 30,
Other Information	2012			2011			Change
Number of properties	136			136			—
Developed sites	47,782			47,677			105
Occupied sites ⁽¹⁾	39,663			38,928			735
Occupancy % ^{(1) (2)}	86.6		%	84.5		%	2.1		%
Weighted average monthly rent per site - MH⁽³⁾	$	432		$	420		$	12
Weighted average monthly rent per site - Permanent RV⁽³⁾	$	434		$	425		9
Sites available for development	5,255			5,439			(184		)


⁽¹⁾	Occupied sites and occupancy % include manufactured housing and permanent RV sites, and exclude seasonal RV sites.


⁽²⁾	Occupancy % excludes completed but vacant expansion sites.


⁽³⁾	Weighted average rent pertains to manufactured housing and permanent recreational vehicle sites and excludes seasonal recreational vehicle sites.

Real Property NOI increased by $4.6 million, from $70.1 million to $74.7 million or 6.6 percent. The growth in NOI is primarily due to increased revenues of $4.9 million partially offset by a $0.3 million increase in expenses.

Income from real property revenue consists of manufactured home and recreational vehicle site rent, and miscellaneous other property revenues. Income from real property revenues increased $4.9 million, from $99.5 million to $104.4 million, or 5.0 percent. The growth in income from real property was due to a combination of factors. Revenue from our manufactured home and recreational vehicle portfolio increased by $5.3 million due to average rental rate increases of 3.1 percent and the increased number of occupied home sites and was partially offset by rent concessions offered to new residents and current residents who convert from home renters to home owners. Additionally, revenue realized on cable television royalties and utility income decreased by $0.3 million and $0.1 million respectively.

Property operating expenses increased $0.3 million, from $29.4 million to $29.7 million, or 1.1 percent. Supplies and repairs increased by $0.4 million due to increased lawn services, water and sewer system repairs, garage and shed repairs, and community maintenance expenses. Other expenses increased $0.4 million primarily due to increased meeting, office, and resident relations expenses . These increases were offset by decreased property insurance expenses of $0.4 million and decreased utilities expenses of $0.1 million.

SUN COMMUNITIES, INC.

HOME SALES AND RENTALS

The following table reflects certain financial and other information for our Rental Program as of and for the six months ended June 30, 2012 and 2011 (in thousands, except for certain items marked with *):



	Six Months Ended June 30,
Financial Information	2012		2011		Change		% Change
Rental home revenue	$	12,802	$	10,757	$	2,045	19.0	%
Site rent from Rental Program ⁽¹⁾	18,527		15,317		3,210		21.0	%
Rental Program revenue	31,329		26,074		5,255		20.2	%
Expenses
Commissions	1,078		944		134		14.2	%
Repairs and refurbishment	3,879		3,591		288		8.0	%
Taxes and insurance	1,633		1,551		82		5.3	%
Marketing and other	1,382		1,341		41		3.1	%
Rental Program operating and maintenance	7,972		7,427		545		7.3	%
Rental Program NOI	$	23,357	$	18,647	$	4,710	25.3	%
Other Information
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	%

⁽¹⁾

Rental Program NOI increased $4.7 million from $18.7 million to $23.4 million, or 25.3 percent due to increased revenues of $5.3 million, offset by increased expenses of $0.6 million. Revenues increased $5.3 million primarily due to the increased number of residents participating in the Rental Program and from increased monthly rental rates as indicated in the table above.

The increase in operating and maintenance expenses of $0.6 million was due to several factors. Commissions increased by $0.1 million due to increased number of new leases. Repairs costs on occupied home rentals increased by $0.3 million due to the increased number of homes in the Rental Program. Personal property and use taxes increased $0.2 million due to the additional homes in the program.

SUN COMMUNITIES, INC.

The following table reflects certain financial and statistical information for our Home Sales Program for the six months ended June 30, 2012 and 2011 (in thousands, except for statistical information):



	Six Months Ended June 30,
Financial Information	2012			2011			Change			% Change
New home sales	$	2,634		$	731		$	1,903		> 100%
Pre-owned home sales	18,418			15,650			2,768			17.7	%
Revenue from homes sales	21,052			16,381			4,671			28.5	%
New home cost of sales	2,271			605			1,666			> 100%
Pre-owned home cost of sales	14,473			12,287			2,186			17.8	%
Cost of home sales	16,744			12,892			3,852			29.9	%
NOI / Gross profit	$	4,308		$	3,489		$	819		23.5	%

Gross profit – new homes	363			126			237			> 100%
Gross margin % – new homes	13.8		%	17.2		%	(3.4		)%	(19.8	)%
Gross profit – pre-owned homes	3,945			3,363			582			17.3	%
Gross margin % – pre-owned homes	21.4		%	21.5		%	(0.1		)%	(0.5	)%

Statistical Information
Home sales volume:
New home sales	38			10			28			> 100%
Pre-owned home sales	820			709			111			15.7	%
Total homes sold	858			719			139			19.3	%

Home Sales NOI increased by $0.8 million, from $3.5 million to $4.3 million, or 23.5 percent due to increased gross profit from increased sales volume.

Due to increased sales volume the gross profit on new home sales increased from $0.1 million to $0.4 million and the gross profit on pre-owned home sales increased from $3.4 million to $4.0 million.

SUN COMMUNITIES, INC.

OTHER INCOME STATEMENT ITEMS

Other revenues include other income, interest income, and ancillary revenues, net. Other revenues increased by $1.1 million, from $4.8 million to $5.9 million, or 22.9 percent. This was primarily due to an increase in interest income of $0.5 million from collateralized receivables, a $0.2 million increase in interest income from installment note receivables, a $0.1 million increase from gain on sale of land, a $0.2 million decrease in loan loss reserve, and a $0.1 million increase in management fees and other miscellaneous income.

Real Property general and administrative costs increased by $0.9 million, from $9.3 million to $10.2 million, or 9.7 percent due to an increase in payroll expenses of $0.3 million due to severance payments, additional staff and increased wages, an increase in training and recruiting expenses of $0.1 million, an increase in legal expenses of $0.1 million, and an increase of $0.4 million in other expenses primarily related to travel expenses, software support and maintenance costs, licenses and dues and rent.

Home Sales and Rentals general and administrative costs increased by $0.5 million, from $3.9 million to $4.4 million, or 12.8 percent due to increased salary and commission costs.

Acquisition related costs decreased by $0.8 million.These costs have been incurred for both closed and potential acquisitions.

Depreciation and amortization costs increased by $6.1 million, from $34.8 million to $40.9 million, or 17.5 percent due to increased depreciation on investment property for use in our Rental Program of $2.4 million and increased other depreciation and amortization of $3.7 million primarily due to the newly acquired properties (See Note 2).

Interest expense on debt, including interest on mandatorily redeemable debt, increased by $3.0 million, from $32.3 million to $35.3 million, or 9.3 percent due to an increase in expense associated with our secured borrowing arrangements of $0.5 million, an increase of $3.2 million in our mortgage interest due to debt associated with the acquired properties (see Note 2) and a higher rate on our FNMA debt, offset by a decrease in interest on our lines of credit of $0.7 million.

Distributions from affiliates increased by $1.5 million, from $1.2 million to $2.7 million. We suspended equity accounting in 2010 as our investment balance is zero. The income recorded in 2012 and 2011 is dividend income.

The following table is a summary of our consolidated financial results which were discussed in more detail in the preceding paragraphs (in thousands):



	Six Months Ended June 30,
	2012			2011
Real Property NOI	$	82,801		$	70,435
Rental Program NOI	23,357			18,647
Home Sales NOI/Gross Profit	4,308			3,489
Site rent from Rental Program (included in Real Property NOI)	(18,527		)	(15,317		)
NOI/Gross profit	91,939			77,254
Adjustments to arrive at net income:
Other revenues	5,850			4,738
General and administrative	(14,687		)	(13,236		)
Acquisition related costs	(587		)	(1,400		)
Depreciation and amortization	(40,935		)	(34,800		)
Interest expense	(35,252		)	(32,286		)
Provision for state income taxes	(106		)	128
Distributions from affiliates, net	2,650			1,200
Net income	8,872			1,598
Less: preferred return to A-1 preferred OP units	1,158			51
Less: amounts attributable to noncontrolling interests	674			37
Net income attributable to Sun Communities, Inc. common stockholders	$	7,040		$	1,510

SUN COMMUNITIES, INC.

FUNDS FROM OPERATIONS

We provide information regarding FFO as a supplemental measure of operating performance. FFO is defined by the NAREIT as net income (loss) (computed in accordance 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. Due to the variety among owners of identical assets in similar condition (based on historical cost accounting and useful life estimates), we believe excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment and excluding real estate asset depreciation and amortization, provides a better indicator of our operating performance. FFO is a useful supplemental measure of our operating performance because it reflects the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not readily apparent from net income (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. Management, the investment community, and banking institutions routinely use FFO, together with other measures, to measure operating performance in our industry. Further, management uses FFO for planning and forecasting future periods.

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. FFO is compiled in accordance with its 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.

The following table reconciles net income (loss) to FFO data for diluted purposes for the periods ended June 30, 2012, and 2011 (in thousands):



	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⁽¹⁾	—			(398		)	—			(407		)
Gain on disposition of assets, net	(1,101		)	(710		)	(1,897		)	(1,518		)
Funds from operations ("FFO")	$	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


⁽¹⁾	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.

SUN COMMUNITIES, INC.

LIQUIDITY AND CAPITAL RESOURCES

Our principal liquidity demands have historically been, and are expected to continue to be, distributions to our stockholders and the unitholders of the Operating Partnership, capital improvements of properties, the purchase of new and pre-owned homes, property acquisitions, development and expansion of properties, and debt repayment.

We expect to meet our short-term liquidity requirements through working capital provided by operating activities and through borrowings on our lines of credit. We consider these resources to be adequate to meet our operating requirements, including recurring capital improvements, routinely amortizing debt and other normally recurring expenditures of a capital nature, payment of dividends to our stockholders to maintain qualification as a REIT in accordance with the Code, and payment of distributions to our Operating Partnership’s unitholders.

We completed four acquisitions in 2011 in which we acquired 23 properties in total, 18 manufactured housing communities and 5 recreational vehicle communities. We completed one acquisition in 2012 in which we acquired three recreational vehicle communities. See Note 2 for details on the acquisitions. We will continue to evaluate acquisition opportunities that meet our criteria for acquisition. Should additional investment opportunities arise in 2012, we intend to finance the acquisitions through secured financing, debt and/or equity financings, the assumption of existing debt on the properties or the issuance of certain equity securities.

During the six months ended June 30, 2012, we have invested $29.8 million in the acquisition of homes intended for the Rental Program net of proceeds from third party financing from homes sales. Expenditures for 2012 will be dependent upon the condition of the markets for repossessions and new home sales, as well as rental homes. We finance new home purchases with a $12.0 million floor plan facility. Our ability to purchase homes for sale or rent may be limited by cash received from third party financing of our home sales, available floor plan financing and working capital available on our secured lines of credit.

Cash and cash equivalents decreased by $1.4 million from $5.9 million as of December 31, 2011, to $4.5 million as of June 30, 2012. Net cash provided by operating activities from continuing operations increased by $14.4 million from $29.1 million for the six months ended June 30, 2011 to $43.5 million for the six months ended June 30, 2012.

Our net cash flows provided by operating activities from continuing operations may be adversely impacted by, among other things: (a) the market and economic conditions in our current markets generally, and specifically in metropolitan areas of our current markets; (b) lower occupancy and rental rates of our properties; (c) increased operating costs, such as wage and benefit costs, insurance premiums, real estate taxes and utilities, that cannot be passed on to our tenants; (d) decreased sales of manufactured homes and (e) current volatility in economic conditions and the financial markets. See “Risk Factors” in our 2011 Annual Report.

We have a secured revolving line of credit facility with a maximum borrowing capacity of $130.0 million, subject to certain borrowing base calculations. As of June 30, 2012, we had an outstanding balance on the line of credit of $20.1 million. The outstanding balance on the line of credit as of December 31, 2011 was $107.5 million. $4.0 million of availability was used to back standby letters of credit as of June 30, 2012 and December 31, 2011. Borrowings under the line of credit bear a floating interest rate based on Eurodollar plus a margin that is determined based on our leverage ratio calculated in accordance with the line of credit agreement, which can range from 2.25% to 2.95%. As of June 30, 2012, $105.9 million was available to be drawn under the facility based on the calculation of the borrowing base. During 2012, the highest balance on the line of credit was $107.5 million. The borrowings under the line of credit mature October 1, 2015, assuming the election of a one year extension that is available at our discretion, subject to certain conditions. Although the secured revolving line of credit is a committed facility, the financial failure of one or more of the participating financial institutions may reduce the amount of available credit for use by us.

The line of credit facility contains various leverage, fixed charge coverage, net worth maintenance and other customary covenants all of which we were in compliance with as of June 30, 2012. The most limiting covenants contained in the line of credit are the maximum leverage ratio and minimum fixed charge coverage ratios. The maximum leverage ratio covenant requires that total indebtedness be no more than 70 percent of total asset value as defined in the terms of the line of credit agreement. The minimum fixed charge coverage ratio covenant requires a minimum ratio of 1.45:1. As of June 30, 2012, the leverage ratio was 57.1% and the fixed charge coverage ratio was 1.93:1.

SUN COMMUNITIES, INC.

Although the U.S. economy has started to recover from the global financial crisis and recession, the rate of recovery has been much slower than anticipated. Forecasts for economic growth over the next year have been downsized, due in large part to the recent turbulence in the US and global markets. While bank earnings and liquidity are on the rebound, the potential of significant future credit losses clouds the lending outlook. Credit availability has improved, but the turbulence in the markets cause capital markets and credit availability to wax and wane unpredictably making certainty of access to specific forms of capital products tenuous. For us, this is the most relevant consequence of financial market volatility. We believe this risk is somewhat mitigated because we are able to utilize various forms of capital to fund our operations making availability to one specific form of capital less vital and have adequate working capital provided by operating activities as noted above. We anticipate meeting our long-term liquidity requirements, such as scheduled debt maturities, large property acquisitions, and Operating Partnership unit redemptions through the issuance of certain debt or equity securities and/or the collateralization of our properties. We currently have 33 unencumbered properties with an estimated market value of $249.9 million, most of which support the borrowing base for our $130.0 million secured line of credit. From time to time, we may also issue shares of our capital stock or preferred stock, issue equity units in our Operating Partnership, obtain debt financing, or sell selected assets. Our ability to finance our long-term liquidity requirements in such a manner will be affected by numerous economic factors affecting the manufactured housing community industry at the time, including the availability and cost of mortgage debt, our financial condition, the operating history of the properties, the state of the debt and equity markets, and the general national, regional, and local economic conditions. When it becomes necessary for us to approach the credit markets, the volatility in those markets could make borrowing more difficult to secure, more expensive, or effectively unavailable. See “Risk Factors” in Item 1A of our 2011 Annual Report. If we are unable to obtain additional debt or equity financing on acceptable terms, our business, results of operations and financial condition would be adversely impacted.

As of June 30, 2012, our debt to total market capitalization approximated 50.9 percent (assuming conversion of all Common Operating Partnership Units to shares of common stock). Our debt has a weighted average maturity of approximately 6.9 years and a weighted average interest rate of 5.3 percent.

Capital expenditures for the six months ended June 30, 2012 and 2011 included recurring capital expenditures of $3.6 million and $2.9 million, respectively. We are committed to the continued upkeep of our Properties and therefore do not expect a significant decline in our recurring capital expenditures during 2012.

Net cash used in investing activities was $87.1 million for the six months ended June 30, 2012, compared to $87.4 million for the six months ended June 30, 2011. The difference is primarily due to decreased acquisitions of $26.4 million (see Note 2) and an increase in proceeds from affiliate dividend distribution of $1.4 million, offset by a decrease in proceeds from the disposition of homes and assets of $0.9 million, an increase in notes receivable of $5.2 million, and increased investment in property of $21.4 million, largely due to homes purchased for the Rental Program primarily in the acquired communities and expansion projects.

Net cash provided by financing activities was $42.3 million for the six months ended June 30, 2012, compared to of $53.9 million for the six months ended June 30, 2011. The difference is due to decreased net borrowings on the line of credit of $98.2 million, decreased proceeds from issuance of other debt net of repayments on other debt of $19.2 million, increased distributions to our stockholders and OP unitholders of $5.2 million and decreased net proceeds for stock option exercise of $0.5 million partially offset by increased net proceeds received from the issuance of additional shares of $110.2 million and decreased payments of deferred financing costs of $1.3 million.

SUN COMMUNITIES, INC.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains various “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the United States Securities Exchange Act of 1934, as amended and we intend that such forward-looking statements will be subject to the safe harbors created thereby. Forward-looking statements can be identified by words such as “believes,” “forecasts,” “anticipates,” “intends,” “plans,” “expects,” “may”, “will,” “guidance,” “could,” “should,” “estimates,” “approximate,” and similar expressions in this Form 10-Q that predict or indicate future events and trends and that do not report historical matters. These forward-looking statements reflect our current views with respect to future events and financial performance, but involve known and unknown risks and uncertainties, and other factors, some of which are beyond our control. These risks, uncertainties, and other factors may cause our actual results to be materially different from any future results expressed or implied by such forward looking statements. Such risks and uncertainties include the 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, and our other periodic filings with the SEC. The forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date hereof and we expressly disclaim any obligation to provide public updates, revisions or amendments to any forward-looking statements made herein to reflect changes in our assumptions, expectations of future events, or trends.

SUN COMMUNITIES, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal market risk exposure is interest rate risk. We mitigate this risk by maintaining prudent amounts of leverage, minimizing capital costs and interest expense while continuously evaluating all available debt and equity resources and following established risk management policies and procedures, which include the periodic use of derivatives. Our primary strategy in entering into derivative contracts is to minimize the variability interest rate changes could have on our future cash flows. We generally employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt. We do not enter into derivative instruments for speculative purposes.

We have four derivative contracts consisting of two interest rate swap agreements with a total notional amount of $45.0 million, and two interest rate cap agreements with a notional amount of $162.4 million as of June 30, 2012. The first swap agreement fixes $25.0 million of variable rate borrowings at 6.57 percent through July 2012. Subsequent to June 30, 2012, this swap matured and was not replaced. The second swap agreement fixes $20.0 million of variable rate borrowings at 4.02 percent through January 2014. The first interest cap agreement has a cap rate of 11.27 percent, a notional amount of $152.4 million, and a termination date of April 2015. The second interest cap agreement has a cap rate of 11.02 percent, a notional amount of $10.0 million through October 2016.

Our remaining variable rate debt totals $242.3 million and $265.6 million as of June 30, 2012 and 2011, respectively, which bear interest at Prime or various LIBOR rates. If Prime or LIBOR increased or decreased by 1.0 percent during the six months ended June 30, 2012 and 2011, we believe our interest expense would have increased or decreased by approximately $1.2 million based on the $237.5 million and $231.9 million average balances outstanding under our variable rate debt facilities for the six months ended June 30, 2012 and 2011.

ITEM 4. CONTROLS AND PROCEDURES

(a)

Under the supervision and with the participation of our management, including the Chief Executive Officer, Gary A. Shiffman, and Chief Financial Officer, Karen J. Dearing, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to ensure that information we are required to disclose in our filings with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information we are required to disclose in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.


(b)	There have been no changes in our internal control over financial reporting during the quarterly period ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

SUN COMMUNITIES, INC.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 18 of the Consolidated Financial Statements contained herein.

ITEM 1A. RISK FACTORS

You should review our 2011 Annual Report, which contains a detailed description of risk factors that may materially affect our business, financial condition, or results of operations. There are no material changes to the disclosure on these matters set forth in the 2011 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

In November 2004, the 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 under this buyback program during the six months ended June 30, 2012. There is no expiration date specified for the buyback program.

Recent Sales of Unregistered Securities

Holders of our Common OP Units have converted 2,000 units to common stock during the six months ended June 30, 2012.

All of the above partnership units and shares of common stock were issued in private placements in reliance on Section 4(2) of the Securities Act of 1933, as amended, including Regulation D promulgated there under. No underwriters were used in connection with any of such issuances.

SUN COMMUNITIES, INC.

ITEM 6. EXHIBITS



Exhibit No.	Description	Method of Filing
4.1	Form of Senior Indenture	(1)
4.2	Form of Subordinated Indenture	(1)
10.1	First Amended and Restated 2004 Non Employee Director Plan^#	(2)
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	(3)
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	(3)
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(3)
101(4)	The following Sun Communities, Inc. financial information for the quarter ended June 30 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive (Loss) Income (unaudited), (iv) Consolidated Statements of Stockholders’ Deficit (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to Consolidated Financial Statements (unaudited).	(3)


(1)	Incorporated by reference to Sun Communities, Inc.'s Registration Statement on Form S-3 filed May 10, 2012.


(2)	Incorporated by reference to Sun Communities, Inc.'s Current Report on Form 8-K dated July 19, 2012


(3)	Filed herewith.

(4)

Users of this data are advised that pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

ons.

# Management contract or compensatory plan or arrangement.

SUN COMMUNITIES, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




Dated: July 26, 2012	By:	/s/ Karen J. Dearing
		Karen J. Dearing, Chief Financial Officer and Secretary (Duly authorized officer and principal financial officer)

SUN COMMUNITIES, INC.

EXHIBIT INDEX



Exhibit No.	Description	Method of Filing
4.1	Form of Senior Indenture	(1)
4.2	Form of Subordinated Indenture	(1)
10.1	First Amended and Restated 2004 Non Employee Director Plan	(2)
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	(3)
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	(3)
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(3)
101(4)	The following Sun Communities, Inc. financial information for the quarter ended June 30 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive (Loss) Income (unaudited), (iv) Consolidated Statements of Stockholders’ Deficit (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to Consolidated Financial Statements (unaudited).	(3)


(1)	Incorporated by reference to Sun Communities, Inc.'s Registration Statement on Form S-3 filed May 10, 2012.


(2)	Incorporated by reference to Sun Communities, Inc.'s Current Report on Form 8-K dated July 19, 2012


(3)	Filed herewith.

(4)

ons.

# Management contract or compensatory plan or arrangement.