Sun Communities, Inc. Reports 2020 Third Quarter Results

Financial Results for the Quarter and Nine Months Ended September 30, 2020

For the quarter ended September 30, 2020, total revenues increased $38.1 million, or 10.5 percent, to $400.5 million compared to $362.4 million for the same period in 2019. Net income attributable to common stockholders was $81.2 million, or $0.83 per diluted common share, for the quarter ended September 30, 2020, as compared to net income attributable to common stockholders of $57.0 million, or $0.63 per diluted common share, for the same period in 2019.

For the nine months ended September 30, 2020, total revenues increased $51.9 million, or 5.4 percent, to $1.0 billion compared to $962.2 million for the same period in 2019. Net income attributable to common stockholders was $124.0 million, or $1.29 per diluted common share, for the nine months ended September 30, 2020, as compared to net income attributable to common stockholders of $131.7 million, or $1.49 per diluted common share, for the same period in 2019.

Non-GAAP Financial Measures and Portfolio Performance

• Core Funds from Operations (“Core FFO”)⁽¹⁾ for the quarter ended September 30, 2020, was $1.60 per diluted share and OP unit (“Share”) as compared to $1.46 in the corresponding period in 2019.
• Same Community⁽²⁾ Net Operating Income (“NOI”)⁽¹⁾increased by 5.5 percent for the quarter ended September 30, 2020, as compared to the corresponding period in 2019, including the impact of $1.1 million of direct COVID-19 related expense.
• Revenue Producing Sites increased by 776 sites for the quarter ended September 30, 2020, bringing total portfolio occupancy to 97.2 percent.
• MH and Annual RV Rent Collections for the third quarter were approximately 97.0 percent and 98.0 percent, respectively.

Gary Shiffman, Chief Executive Officer of Sun Communities stated, “The growth we delivered in the third quarter demonstrated the resilience of our platform and our ongoing positive operational momentum. Once again, our results were ahead of expectations as solid top line revenue performance and certain expense savings continued to mitigate the impact of the pandemic. We achieved same community NOI growth of 5.5 percent and added 776 revenue producing sites, boosting our occupancy by 50 basis points. Our RV resorts were exceptionally strong, as travelers elected drive-to vacation options and took advantage of our varied vacation destinations featuring lakes, mountains and beaches.”

Mr. Shiffman continued, “Despite the present challenges of the pandemic, we remain focused on positioning Sun for the future. During the quarter we acquired five RV and two MH communities as we continue to expand our portfolio. We are particularly excited about our pending acquisition of Safe Harbor Marinas, LLC and the integration of marinas onto our platform which should further enhance Sun’s growth profile over the long term.”

OPERATING HIGHLIGHTS

Portfolio Occupancy

Total portfolio occupancy was 97.2 percent at September 30, 2020, compared to 96.7 percent at September 30, 2019. During the quarter ended September 30, 2020, revenue producing sites increased by 776 sites, as compared to 766 revenue producing sites gained during the third quarter of 2019, a 1.3 percent increase.

During the nine months ended September 30, 2020, revenue producing sites increased by 1,927 sites, as compared to an increase of 2,005 revenue producing sites during the nine months ended September 30, 2019.

Same Community⁽²⁾ Results

For the 366 communities owned and operated by the Company since January 1, 2019, NOI⁽¹⁾for the quarter ended September 30, 2020 increased 5.5 percent over the same period in 2019, resulting from a 5.4 percent increase in revenues, and a 5.2 percent increase in operating expenses. Adjusted to remove the impact of $1.1 million of direct COVID-19 related expense, Same Community NOI⁽¹⁾ growth was 6.2 percent for the quarter ended September 30, 2020. Same Community occupancy⁽³⁾ increased to 98.8 percent at September 30, 2020 from 96.8 percent at September 30, 2019.

For the nine months ended September 30, 2020, NOI⁽¹⁾increased 4.6 percent over the same period in 2019, as a result of a 3.0 percent increase in revenues and a 0.2 percent decrease in operating expenses. Adjusted to remove the impact of $2.1 million of direct COVID-19 related expense, Same Community NOI⁽¹⁾ growth was 5.0 percent for the nine months ended September 30, 2020.

Home Sales

During the quarter ended September 30, 2020, the Company sold 710 homes as compared to 906 homes sold during the same period in 2019. The Company sold 155 and 167 new homes for the quarters ended September 30, 2020 and 2019, respectively. Rental home sales, which are included in total home sales, were 225 and 317 for the quarters ended September 30, 2020 and 2019, respectively.

During the nine months ended September 30, 2020, 2,084 homes were sold as compared to 2,631 for the same period in 2019. Rental home sales, which are included in total home sales, were 581 and 859 for the nine months ended September 30, 2020 and 2019, respectively.

Rent Collections

For the third quarter of 2020, MH and annual RV rent collections were approximately 97.0 percent and 98.0 percent, respectively, after adjusting for the impact of hardship deferrals and prepaid rent balances.

PORTFOLIO ACTIVITY

Acquisitions and Dispositions

During the quarter ended September 30, 2020, the Company acquired the following communities:

^(a) In conjunction with the acquisition, the Company issued Series G preferred OP units. As of September 30, 2020, 260,710 Series G preferred OP units were outstanding.
^(b) Contains two communities.

Year to date, the Company has acquired 11 communities totaling 3,517 sites for a total purchase price of $303.5million.

During the quarter ended September 30, 2020, the Company sold a manufactured home community located in Montana, containing 226 sites, for $12.6million. The gain from the sale of the property was approximately $5.6 million.

Pending Transaction – Safe Harbor Marinas

On September 29, 2020, the Company entered into a merger agreement to acquire Safe Harbor Marinas, LLC (“Safe Harbor”) for approximately $2.1 billion. As of September 30, 2020, Safe Harbor directly or indirectly owned 101 marinas and managed five other marinas for third-party owners. The marinas collectively contain approximately 30,000 wet slips and moorings and approximately 8,300 dry racks, with approximately 9,500 additional spaces available for outside land storage. The marinas are located in 22 states in the Northeast, South, Mid-Atlantic, West and Midwest Regions of the United States, with the majority of such marinas concentrated in coastal regions and others located in various inland regions. The purchase price will be paid through a combination of the assumption of debt owed by Safe Harbor, the issuance of common and preferred OP units by the Company’s Operating Partnership, and cash. We expect to acquire Safe Harbor no later than October 30, 2020. The consummation of the $2.1 billion acquisition is subject to the satisfaction of customary closing conditions. If these conditions are not satisfied or waived, or if the merger agreement is otherwise terminated in accordance with its terms, then the acquisition will not be consummated. As a result, there can be no assurances as to the actual closing or the timing of the closing.

Construction Activity

During the quarter ended September 30, 2020, the Company completed the construction of nearly 660 sites in four ground-up developments and one redevelopment community, and nearly 25 expansion sites in one RV community.

BALANCE SHEET AND CAPITAL MARKETS ACTIVITY

Debt Transactions

As of September 30, 2020, the Company had $3.3 billion of debt outstanding. The weighted average interest rate was 3.9 percent and the weighted average maturity was 11.4 years. The Company had $102.4 million of unrestricted cash on hand. At period-end the Company’s net debt to trailing twelve-month Recurring EBITDA⁽¹⁾ ratio was 5.0 times.

Subsequent to the quarter ended September 30, 2020, the Company entered into a new $260.0 million term loan secured by 11 properties. The loan term is 12-years and the interest rate is fixed at 2.64 percent.

Equity Transactions

On September 30, 2020, the Company entered into two forward sale agreements relating to an underwritten registered public offering of 9,200,000 shares of the Company’s common stock at a public offering price of $139.50 per share. The offering closed on October 5, 2020. The Company did not initially receive any proceeds from the sale of shares of its common stock in the offering. The Company expects to physically settle the forward sale agreements (by the delivery of shares of its common stock) and receive proceeds from the sale of those shares of its common stock upon one or more forward settlement dates no later than October 5, 2021. The Company may also elect to cash settle or net share settle all or a portion of its obligations under the forward sale agreements if it concludes it is in its best interest to do so. If the Company elects to cash settle or net settle the forward sale agreements it may not receive any proceeds. If the Company fully physically settles the forward sale agreements, it expects to receive net proceeds of approximately $1.23 billion. The Company intends to use the net proceeds, if any, received upon the settlement of the forward sale agreements to fund the cash component of the purchase price for the Safe Harbor acquisition. If for any reason the Safe Harbor acquisition is not consummated, or if the net proceeds, if any, received upon the future settlement of the forward sale agreements exceed the cash component of the purchase price, the Company intends to use any such net proceeds to repay borrowings outstanding under the revolving loan under its senior credit facility, to fund possible future acquisitions of properties and for working capital and general corporate purposes.

COVID-19 FINANCIAL IMPACT

Given the uncertainty surrounding the impact from the COVID-19 pandemic on its operations, the Company has withdrawn full year 2020 operational and financial guidance previously provided on February 19, 2020.

For the third quarter of 2020, the Company had a net benefit of approximately $4.6 million from its original budget as compared to a forecasted net reduction of up to $15.0 million outlined during the Company’s second quarter earnings release. The improvement was primarily due to better than expected transient RV revenues, ancillary activities gross profit and lower property level payroll.

The Company expects fourth quarter 2020 Core FFO to be in the range of $1.08 to $1.12 per share.

This estimate range is inclusive of the Company’s latest revenue expectations for transient RV revenue, the estimated two-month contribution from the Safe Harbor acquisition, the impact from the Company’s 9.2 million share forward equity offering and announced financing activities. The forecast does not include any additional prospective acquisition or capital market activity.

EARNINGS CONFERENCE CALL

A conference call to discuss third quarter operating results will be held on Thursday, October22, 2020 at 11:00 A.M. (ET). To participate, call toll-free 877-407-9039. Callers outside the U.S. or Canada can access the call at 201-689-8470. A replay will be available following the call through November5, 2020 and can be accessed toll-free by calling 844-512-2921 or 412-317-6671. The Conference ID number for the call and the replay is 13708698. The conference call will be available live on Sun Communities’ website located at www.suncommunities.com. The replay will also be available on the website.

Sun Communities, Inc. is a REIT that, as of September 30, 2020, owned, operated, or had an interest in a portfolio of 432 communities comprising nearly 146,000 developed sites in 32 states and Ontario, Canada.

For more information about Sun Communities, Inc., please visit www.suncommunities.com.

CONTACT

Please address all inquiries to our investor relations department at our website www.suncommunities.com, by phone to (248) 208-2500, by email to investorrelations@suncommunities.com or by mail to Sun Communities, Inc. Attn: Investor Relations, 27777 Franklin Road, Ste. 200, Southfield, MI 48034.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This press release contains various “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the Company intends that such forward-looking statements will be subject to the safe harbors created thereby. For this purpose, any statements contained in this press release that relate to expectations, beliefs, projections, future plans and strategies, trends or prospective events or developments and similar expressions concerning matters that are not historical facts are deemed to be forward-looking statements. Words such as “forecasts,” “intends,” “intend,” “intended,” “goal,” “estimate,” “estimates,” “expects,” “expect,” “expected,” “project,” “projected,” “projections,” “plans,” “predicts,” “potential,” “seeks,” “anticipates,” “anticipated,” “should,” “could,” “may,” “will,” “designed to,” “foreseeable future,” “believe,” “believes,” “scheduled,” “guidance”, “target” and similar expressions are intended to identify forward-looking statements, although not all forward looking statements contain these words. These forward-looking statements reflect the Company’s current views with respect to future events and financial performance, but involve known and unknown risks, uncertainties and other factors, both general and specific to the matters discussed in or incorporated herein, some of which are beyond the Company’s control. These risks, uncertainties and other factors may cause the Company’s actual results to be materially different from any future results expressed or implied by such forward-looking statements. In addition to the risks disclosed under “Risk Factors” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and the Company’s other filings with the Securities and Exchange Commission from time to time, such risks, uncertainties and other factors include but are not limited to:

• outbreaks of disease, including the COVID 19 pandemic, and related stay at home orders, quarantine policies and restrictions on travel, trade and business operations;
• changes in general economic conditions, the real estate industry and the markets in which the Company operates;
• difficulties in the Company’s ability to evaluate, finance, complete and integrate acquisitions (including the acquisition of Safe Harbor), developments and expansions successfully;
• the Company’s liquidity and refinancing demands;
• the Company’s ability to obtain or refinance maturing debt;
• the Company’s ability to maintain compliance with covenants contained in its debt facilities;
• availability of capital;
• changes in foreign currency exchange rates, including between the U.S. dollar and each of the Canadian and Australian dollars;
• the Company’s ability to maintain rental rates and occupancy levels;
• the Company’s failure to maintain effective internal control over financial reporting and disclosure controls and procedures;
• increases in interest rates and operating costs, including insurance premiums and real property taxes;
• risks related to natural disasters such as hurricanes, earthquakes, floods, and wildfires;
• general volatility of the capital markets and the market price of shares of the Company’s capital stock;
• the Company’s failure to maintain its status as a REIT;
• changes in real estate and zoning laws and regulations;
• legislative or regulatory changes, including changes to laws governing the taxation of REITs;
• litigation, judgments or settlements;
• competitive market forces;
• the ability of purchasers of manufactured homes and boats to obtain financing; and
• the level of repossessions by manufactured home and boat lenders.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements included in this press release, whether as a result of new information, future events, changes in its expectations or otherwise, except as required by law.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by these cautionary statement.

Investor Information

Portfolio Overview
(As of September 30, 2020)

Financial and Operating Highlights

(amounts in thousands, except for *)

Consolidated Balance Sheets
(amounts in thousands)

Statements of Operations – Quarter to Date and Year to Date Comparison
(In thousands, except per share amounts) (Unaudited)

N/M = Percentage change is not meaningful.

Outstanding Securities and Capitalization
(amounts in thousands except for *)

^ Annual distribution is based on the last quarterly distribution annualized.

Reconciliations to Non-GAAP Financial Measures

Reconciliation of Net Income Attributable to Sun Communities, Inc. Common Stockholders to FFO⁽¹⁾
(amounts in thousands except for per share data)

^(a) Adjustments include deferred compensation amortization upon retirement and deferred tax (benefit) / expense.

Reconciliation of Net Income Attributable to Sun Communities, Inc. Common Stockholders to Recurring EBITDA ⁽¹⁾
(amounts in thousands)

Reconciliation of Net Income Attributable to Sun Communities, Inc. Common Stockholders to NOI ⁽¹⁾
(amounts in thousands)

Non-GAAP and Other Financial Measures

Debt Analysis
(amounts in thousands)

Real Property Operations – Same Community⁽²⁾
(amounts in thousands except for Other Information)

^(a) Includes COVID-19 personal protective equipment expense of $1,130 and $2,065 for the three and nine months ended September 30, 2020, respectively.

Home Sales Summary
(amounts in thousands except for *)

Rental Program Summary
(amounts in thousands except for *)

Acquisitions and Other Summary ⁽¹⁶⁾
(amounts in thousands except for statistical data)