Sun Communities Inc: Form 10-Q for the period ended Jun 30, 2024

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 accompanying Notes, along with our 2023 Annual Report.

OVERVIEW

We are a fully integrated REIT. As of June 30, 2024, we owned and operated, directly or indirectly, or had an interest in, a portfolio of 666 developed properties located in the U.S., Canada and the United Kingdom including 296 MH communities, 179 RV communities, 137 marinas, and 54 UK communities.

We have been in the business of operating, acquiring, developing and expanding MH and RV communities since 1975, marinas since 2020, and communities in the United Kingdom since 2022. We lease individual parcels of land, or sites, with utility access for the placement of manufactured homes and RVs to our MH, RV and UK customers. Our MH communities are designed to offer affordable housing to individuals and families, while also providing certain amenities. In the U.S., we are also engaged in the marketing, selling and leasing of new and pre-owned homes to current and future residents in our MH communities. The rental program operations within our MH communities support and enhance our occupancy levels, property performance and cash flows. Our RV communities are designed to offer affordable vacation opportunities to individuals and families complemented by a diverse selection of high-quality amenities. The majority of our marinas are concentrated in coastal regions. Our marinas offer wet slip and dry storage space leases, end-to-end service (such as routine maintenance, repair and winterization), fuel sales and other high-end amenities. These services and amenities offer convenience and resort-quality experiences to our members and guests. In the United Kingdom, our UK communities are referred to as "holiday parks" and are located predominantly at irreplaceable seaside destinations in the south of England. We provide holiday home sales and associated site license activities to holiday homeowners in our communities.

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 Annual Report on Form 10-K for the year ended December 31, 2023.

NON-GAAP FINANCIAL MEASURES

In addition to the results reported in accordance with GAAP in our "Results of Operations" below, we have provided information regarding net operating income ("NOI") and funds from operations ("FFO") as supplemental performance measures. We believe NOI and FFO are appropriate measures given their wide use by and relevance to investors and analysts following the real estate industry. NOI provides a measure of rental operations and does not factor in depreciation, amortization and non-property specific expenses such as general and administrative expenses. FFO, reflecting the assumption that real estate values rise or fall with market conditions, principally adjusts for the effects of GAAP depreciation / amortization of real estate assets. In addition, NOI and FFO are commonly used in various ratios, pricing multiples / yields and returns and valuation calculations used to measure financial position, performance and value.

NOI

Total Portfolio NOI - NOI is derived from property operating revenues minus property operating expenses and real estate taxes. NOI is a non-GAAP financial measure that we believe is helpful to investors as a supplemental measure of operating performance because it is an indicator of the return on property investment and provides a method of comparing property performance over time. We use NOI as a key measure 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. Therefore, NOI is a measure of the operating performance of our properties rather than of the Company overall. We believe that NOI provides enhanced comparability for investor evaluation of properties' performance and growth over time.

We believe that GAAP net income (loss) is the most directly comparable measure to NOI. NOI should not be considered to be an alternative to GAAP net income (loss) as an indication of our financial performance or GAAP cash flow from operating activities as a measure of our liquidity; nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. Because of the inclusion of items such as interest, depreciation and amortization, the use of GAAP net income (loss) as a performance measure is limited as these items may not accurately reflect the actual change in market value of a property, in the case of depreciation and in the case of interest, may not necessarily be linked to the operating performance of a real estate asset, as it is often incurred at a parent company level and not at a property level.

Same Property NOI - This is a management tool used when evaluating the performance and growth of our Same Property portfolio. We define same properties as those we have owned and operated continuously since January 1, 2023. Same properties exclude ground-up development properties, acquired properties and properties sold after December 31, 2022. The Same Property data may change from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions or unique situations. Same Property NOI does not include the revenues and expenses related to home sales, and service, retail, dining and entertainment activities at the properties. We believe that Same Property NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the Same Property portfolio from one period to the next.

FFO

FFO is defined by the National Association of Real Estate Investment Trusts ("Nareit") as GAAP net income (loss), excluding gains (or losses) from sales of certain real estate assets, plus real estate related depreciation and amortization, impairments of certain real estate assets and investments, and after adjustments for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure that management believes is a useful supplemental measure of our operating performance. By excluding gains and losses related to sales of previously depreciated operating real estate assets, real estate related to impairment and real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO provides a performance measure that, when compared period-over-period, reflects the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not readily apparent from GAAP net income (loss). Management believes 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.

Core FFO - In addition, we use FFO excluding certain gain and loss items that management considers unrelated to the operational and financial performance of our core business ("Core FFO").

We believe that FFO and Core FFO provide enhanced comparability for investor evaluations of period-over-period results. We believe that GAAP net income (loss) is the most directly comparable measure to FFO. The principal limitation of FFO is that it does not replace GAAP net income (loss) as a financial performance measure or GAAP cash flow from operating activities as a measure of our liquidity. Because FFO excludes significant economic components of GAAP net income (loss) including depreciation and amortization, FFO should be used as a supplement to GAAP net income (loss) and not as an alternative to it. Furthermore, 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 is calculated in accordance with our interpretation of standards established by Nareit, which may not be comparable to FFO reported by other REITs that interpret the Nareit definition differently.

RESULTS OF OPERATIONS

The following tables reconcile the Net income / (loss) attributable to SUI common shareholders to NOI and summarize our consolidated financial results for the three and six months ended June 30, 2024 and 2023 (in millions):

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Seasonality of Revenue

The RV and marina industries are seasonal and the results of operations in any one period may not be indicative of results in future periods.

In the RV business, certain properties maintain higher occupancy during the summer months, while other properties maintain higher occupancy during the winter months. Based on the location of our properties with transient RV sites, our portfolio generally produces higher revenues between April and September than between October and March. Through June 30, 2024, we recognized Real property - transient revenue of $37.7 million in the first quarter and $81.7 million in the second quarter. During the year ended December 31, 2023, we recognized Real property - transient revenue as follows:

In the marina business, the majority of our wet slip and dry storage space leases have annual terms that are billed seasonally. Wet slip storage increases during the summer months for the boating season, whereas dry storage increases during the winter season as weather patterns require boat owners to store their vessels on dry docks or within covered racks. Through June 30, 2024, we recognized seasonal real property revenue of $78.1 million in the first quarter and $95.9 million in the second quarter. During the year ended December 31, 2023, we recognized seasonal real property revenue as follows:

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Real Property Operations - Total Portfolio

The following tables reflect certain financial and other information for our real estate operations by segment as of and for the three and six months ended June 30, 2024 and 2023 (in millions, except for statistical information).

N/M = Not meaningful. N/A = Not applicable.

(a) MH annual sites included 10,589 and 9,721 rental homes in our rental program as of June 30, 2024 and 2023, respectively. Our investment in occupied rental homes at June 30, 2024 was $709.4 million, an increase of 12.6% from $630.0 million at June 30, 2023.

Real Property Operations - Total Portfolio (Continued)

For the three months ended June 30, 2024, the $14.9 million, or 4.7% increase in Real Property NOI as compared to the same period in 2023, consists of $9.7 million from Same Property MH, $4.1 million from Same Property Marina, $1.7 million from Same Property UK, and $2.8 million, net from other recently acquired or developed properties and other items, partially offset by a $3.4 million decrease from Same Property RV.

For the six months ended June 30, 2024, the $46.5 million, or 8.1% increase in Real Property NOI as compared to the same period in 2023, consists of $21.8 million from Same Property MH, $0.3 million from Same Property RV, $7.7 million from Same Property Marina, $5.0 million from Same Property UK and $11.7 million, net from other recently acquired or developed properties and other items.

Real Property Operations - North America Same Property Portfolio

Same Property refers to properties that we have owned for at least the preceding year, exclusive of properties recently completed or under construction, and other properties as determined by management. The Same Property 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 Property portfolio, management has classified certain items differently than our GAAP statement. The reclassification difference between our GAAP statements and our Same Property portfolio is the reclassification of utility revenues from real property revenue to operating expenses. Additionally, prior period Canadian currency figures have been translated at 2024 average exchange rates for constant currency comparability.

The following tables reflect certain financial and other information for our Same Property MH, RV and Marina portfolios as of and for the three and six months ended June 30, 2024 and 2023 (in millions, except for statistical information):

(a) Same property results for our MH and RV properties reflect constant currency for comparative purposes. Canadian currency figures in the prior comparative period have been translated at the average exchange rate during the three and six months ended June 30, 2024 of $0.7309 and $0.7364 USD per Canadian dollar, respectively.

Real Property Operations - North America Same Property Portfolio (Continued)

(b) We net certain utilities revenues (which include utility reimbursement revenues from residents) against related utility expenses in property operating expenses as follows (in millions):

(c) Percentages are calculated based on unrounded numbers.

(d) Total Same Property operating expenses consist of the following components for the periods shown (in millions), and exclude amounts invested into recently acquired properties to bring them up to our standards.

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North America Same Property Summary (in whole units)

N/A = Not applicable.

(a) Same Property adjusted blended occupancy for MH and RV combined increased to 98.7% at June 30, 2024, from 97.2% at June 30, 2023. The 150 basis point increase was driven by MH expansion fills and the conversion of transient RV sites to annual sites. Same Property blended occupancy for MH and RV was 97.9% at June 30, 2024, up 30 basis points from 97.6% at June 30, 2023. The 30 basis point increase was driven by MH expansion fills and the conversion of transient RV sites to annual sites.

(b) Calculated using actual results without rounding.

(c) Occupied rental program sites in Same Property are included in total sites.

Real Property Operations - UK Same Property Portfolio

The following tables reflect certain financial and other information for our Same Property UK portfolio as of and for the three and six months ended June 30, 2024 and 2023 (in millions, except for statistical information):

(a) Same Property results for the Company's properties reflect constant currency for comparative purposes. United Kingdom currency figures in the prior comparative period have been translated at the average exchange rate of $1.2618 and $1.2649 USD per Pound sterling, during the three and six months ended June 30, 2024, respectively.

(b) Percentages are calculated based on unrounded numbers.

(c) We net certain utility revenues (which include utility reimbursement revenues from residents) against related utility expenses in property operating expenses as follows (in millions):

UK Same Property Summary (in whole units)

(a) Calculated using actual results without rounding.

(b) Adjusting for recently delivered and vacant expansion sites, Same Property adjusted occupancy decreased by 40 basis points year over year, to 90.8% at June 30, 2024, from 91.2% at June 30, 2023.

For the three months ended June 30, 2024 and 2023:

• The MH segment increase in NOI of $9.7 million, or 6.4%, when compared to the same period in 2023 is primarily due to an increase in Real property (excluding transient) revenue of $15.0 million, or 7.2%. Real property (excluding transient) revenue increased primarily due to a 6.0% increase in monthly base rent.
• The RV segment decrease in NOI of $3.4 million, or 4.6%, when compared to the same period in 2023 is primarily due to a decrease in Real property transient revenue of $8.4 million, or 12.0%, and an increase in Same property operating expenses of $2.3 million, or 4.0%, partially offset by an increase in Real property (excluding transient revenue) of $7.3 million, or 11.0%. The increase in Real property (excluding transient) revenue was primarily due to a 6.4% increase in monthly base rent and conversions of transient RV sites to annual RV sites.
• The Marina segment increase in NOI of $4.1 million, or 6.1%, when compared to the same period in 2023 is primarily due to the $4.6 million, or 5.1%, increase in Real property (excluding transient) revenue.
• The UK segment increase in NOI of $1.7 million, or 9.3%, when compared to the same period in 2023 is primarily due to the $1.6 million, or 7.1%, increase in Real property (excluding transient) revenue. The increase in Real property (excluding transient) revenue was primarily due to a 7.9% increase in monthly base rent per site.

For the six months ended June 30, 2024 and 2023

• The MH segment increase in NOI of $21.8 million, or 7.2%, when compared to the same period in 2023 is primarily due to an increase in Real property (excluding transient) revenue of $28.8 million, or 7.0%. Real property (excluding transient) revenue increased primarily due to a 6.0% increase in monthly base rent.
• The RV segment increase in NOI of $0.3 million, or 0.3%, when compared to the same period in 2023 is primarily due to an increase in Real property (excluding transient) revenue of $15.0 million, or 12.1%, partially offset by a decrease in Real property transient revenue of $13.1 million, or 12.4%. The increase in Real property (excluding transient) revenue was primarily due to a 6.4% increase in monthly base rent and conversions of transient RV sites to annual RV sites. The decrease in Real property transient revenue was primarily due to transient to annual RV site conversions.
• The Marina segment increase in NOI of $7.7 million, or 6.7%, when compared to the same period in 2023 is primarily due to the $10.0 million, or 6.1%, increase in Real property (excluding transient) revenue.
• The UK segment increase in NOI of $5.0 million, or 19.4%, when compared to the same period in 2023 is primarily due to the $3.6 million, or 7.7%, increase in Real property (excluding transient) revenue, and a decrease of $0.2 million, or 0.5%, in Same property operating expenses. The increase in Real property (excluding transient) revenue was primarily due to a 7.9% increase in monthly base rent per site. The decrease in Same property operating expenses was primarily due to efficient expense management related to leasing costs and utility expenses, net of utility revenue.

Home Sales Summary

We sell new and pre-owned homes to current and prospective residents and customers in our communities. This inventory is purchased from manufacturers, lenders, dealers, former residents or customers.

The following table reflects certain financial and statistical information for our home sales program for the three and six months ended June 30, 2024 and 2023 (in millions, except for average selling price and statistical information):

NOI - MH

For the three months ended June 30, 2024, the 19.0% decrease in NOI is primarily driven by an 8.9% decrease in total home sales volume as compared to the same period in 2023, primarily driven by fewer available sites in conjunction with reduced expansion and development activity, partially offset by a 2.6% increase in average selling price.

For the six months ended June 30, 2024, the 28.0% decrease in NOI is primarily driven by a 25.4% decrease in total home sales volume as compared to the same period in 2023, partially offset by an 11.4% increase in average selling price.

NOI - UK

For the three months ended June 30, 2024, the 12.1% decrease in NOI is primarily driven by a 13.0% decrease in average selling price in addition to a 6.0% decrease in total home sales volume as compared to the same period in 2023.

For the six months ended June 30, 2024, the 13.9% decrease in NOI is primarily driven by a 13.0% decrease in average selling price as compared to the same period in 2023.

Other Items - Statements of Operations(1)

The following table summarizes other income and expenses for the three and six months ended June 30, 2024 and 2023 (in millions):

(1) Only items determined by management to be material, of interest, or unique to the periods disclosed above are explained below.

N/M = Percentage change is not meaningful.

Service, retail, dining and entertainment, net - for the three and six months ended June 30, 2024, decreased primarily due to a decrease in boat sales revenue and increased costs related to service and retail activities in our Marina segment.

Interest income - for the three and six months ended June 30, 2024, decreased primarily due to having a lower receivable balance outstanding with real estate operators than during the same period in 2023. Refer to Note 4, "Notes and Other Receivables," in our accompanying Consolidated Financial Statements for additional information.

Brokerage commissions and other, net - for the six months ended June 30, 2024, decreased primarily due to a decrease in the number of brokered home sales reducing total brokerage commissions as compared to the same period in 2023, and a decrease in dividend income as a result of the sale of our publicly traded marketable securities in Ingenia in 2023, partially offset by business interruption recoveries of $5.2 million recognized in 2024. Refer to Note 17, "Commitments and Contingencies" in our accompanying Consolidated Financial Statements for additional information.

General and administrative expense - for the six months ended June 30, 2024, increased primarily due to non-recurring transaction costs related to the settlement of a loan provided to a real estate operator, other costs associated with potential acquisitions that will not close, and an increase in payroll costs at our UK segment, as compared to the same periods in 2023.

Catastrophic event-related charges, net - for the six months ended June 30, 2024, increased primarily due to incremental asset impairment and debris removal charges, net of insurance recoveries, of $10.6 million driven by flooding at an RV community in New Hampshire.

Asset impairments - for the three and six months ended June 30, 2024, increased due to asset impairment charges related to non-continuing expansion and development properties as well as the write off of other financial assets within our MH and UK segments in 2024. Refer to Note 16, "Fair Value Measurements," in our accompanying Consolidated Financial Statements for additional information.

Goodwill impairment - for the three and six months ended June 30, 2024, there were no goodwill impairment charges, as compared to charges of $309.7 million and $325.1 million driven by a decline in the fair value of the UK reporting segment during the same periods in 2023. Refer to Note 6, "Goodwill and Other Intangible Assets," in our accompanying Consolidated Financial Statements for additional information.

Interest expense - for the three and six months ended June 30, 2024, increased due to a higher debt balance and higher weighted average interest rate as compared to the same periods in 2023. Refer to Note 9, "Debt and Line of Credit," of our accompanying Consolidated Financial Statements for additional information.

Gain / (loss) on remeasurement of marketable securities - for the three and six months ended June 30, 2024, was zero due to the sale of our publicly traded marketable securities in Ingenia in 2023, as compared to a loss of $5.8 million and gain of $14.1 million during the same periods in 2023, respectively.

Gain / (loss) on foreign currency exchanges - for the three months ended June 30, 2024, was a loss of $2.8 million, as compared to a gain of $2.7 million during the same period in 2023 primarily due to the termination of the Pound sterling denominated term loan under our Senior Credit Facility in the current period. Refer to Note 9, "Debt and Line of Credit" in our accompanying Consolidated Financial Statements for additional information.

Gain / (loss) on dispositions of properties - for the three and six months ended June 30, 2024 was a gain of $2.5 million and $7.9 million on the sale of three properties as compared to a loss of $0.6 million and $2.2 million on the sale of two land parcels during the same periods in 2023, respectively. Refer to Note 3, "Real Estate Acquisitions and Dispositions," in our accompanying Consolidated Financial Statements for additional information.

Other income / (expense), net - for the six months ended June 30, 2024, was a gain of $6.4 million in 2024, primarily due to a litigation settlement gain of $10.3 million related to our Marina segment, as compared to an expense of $1.8 million related to long-term lease termination expenses during the same period in 2023.

Income / (loss) from nonconsolidated affiliates - for the three and six months ended June 30, 2024, increased primarily due to the improved performance of our nonconsolidated affiliates, primarily driven by the Sungenia joint venture. Refer to Note 7, "Investments in Nonconsolidated Affiliates," in our accompanying Consolidated Financial Statements for additional information.

Income / (loss) on remeasurement of investment in nonconsolidated affiliates - for the six months ended June 30, 2024, was a gain of $5.3 million as compared to a loss of $4.5 million during the same period in 2023 due to the fluctuation of the fair value of our nonconsolidated affiliates. Refer to Note 7, "Investments in Nonconsolidated Affiliates," in our accompanying Consolidated Financial Statements for additional information.

Deferred tax benefit - for the three months ended June 30, 2024, decreased primarily due to timing differences for book and tax purposes driven by the write off of financial assets at our UK operations. Refer to Note 13, "Income Taxes," in our accompanying Consolidated Financial Statements for additional information.

RECONCILIATION OF NET INCOME / (LOSS) ATTRIBUTABLE TO SUI COMMON SHAREHOLDERS TO FFO

The following table reconciles Net income / (loss) attributable to SUI common shareholders to FFO for the three and six months ended June 30, 2024 and 2023 (in millions, except for per share amounts):

(1) Excludes the effect of certain anti-dilutive convertible securities.

(2) These costs represent (i) nonrecurring integration expenses associated with acquisitions during the three and six months ended June 30, 2024, and 2023, (ii) costs associated with potential acquisitions that will not close, (iii) expenses incurred to bring recently acquired properties up to our operating standards, including items such as tree trimming and painting costs that do not meet our capitalization policy.

(3) Loss of earnings - catastrophic event-related charges, net include the following:

(4) Other adjustments, net relates primarily to (i) litigation settlement gains during the three and six months ended June 30, 2024, (ii) deferred tax benefit during the three and six months ended June 30, 2024 and 2023, and (iii) long-term lease termination expense during the three and six months ended June 30, 2024 and 2023.

LIQUIDITY AND CAPITAL RESOURCES

Short-term Liquidity

Our principal short-term liquidity demands historically have been, and are expected to continue to be, distributions to our shareholders and the unit holders of the Operating Partnership, property acquisitions, development and expansion of our properties, capital improvement of our properties, the purchase of new and pre-owned homes, and debt repayment. We intend to meet our short-term liquidity requirements through available cash balances, cash flow generated from operations, draws on our Senior Credit Facility, and the use of debt and equity offerings under our shelf registration statement. Refer to Note 9, "Debt and Line of Credit," and Note 10, "Equity and Temporary Equity," in our accompanying Consolidated Financial Statements for additional information.

We intend to continue to strengthen our capital and liquidity positions by focusing on our core fundamentals, which are generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs. We take a disciplined approach to selecting the optimal mix of financing sources to meet our liquidity demands and minimize our overall cost of capital. Our investment grade credit ratings remain unchanged from the initial rating. We plan to continue to capitalize on our unsecured bond market access to optimize our cost of capital and increase our financial flexibility.

Current market and economic conditions, including relating to, among other things, interest rates, currency fluctuations, equity valuations and inflation, may adversely affect our ability to obtain debt and equity capital in the short term on attractive terms.

Since our initial public offering in 1993, we have demonstrated operational reliability and cash flow strength throughout economic cycles. Our current objectives include streamlining our operations with an emphasis on our reliable real property income. We recognize the headwinds we are facing from a challenging macroeconomic environment and are re-aligning our strategy to focus on our proven, durable income streams. We are positioned for ongoing organic growth with expected rental rate increases, occupancy gains and expense management. In 2024, we expect rental rate growth that exceeds headline inflation with ongoing focus on expense management to continue generating strong organic cash flow growth.

Given a macroeconomic backdrop of sustained higher interest rates, we intend to prioritize debt reduction as our primary use of free cash flow from our operations and of proceeds from selective capital recycling. In addition, we are reducing our development activity considering the more challenging macroeconomic and capital market environment. Capital spending besides projects that are underway will be solely focused on the most strategic opportunities. We also attempt to manage interest rate risks by using interest rate hedging instruments and by monitoring our overall leverage levels. We engage in certain hedging transactions to limit our exposure from the adverse effects of changes in interest rates on borrowing costs of our loans.

Acquisitions, Dispositions, Development and Expansion Activities

Subject to market conditions, we intend to selectively identify opportunities to expand our development pipeline and acquire existing properties. We finance acquisitions through available cash, secured financing, draws on our Senior Credit Facility, the assumption of existing debt on properties and the issuance of debt and equity securities. The current higher interest rate environment makes it more expensive to finance acquisitions and fund developments and expansions. We will continue to very selectively pursue acquisition and development opportunities that meet our underwriting criteria.

During the six months ended June 30, 2024, we acquired four marinas with an aggregate 193 wet slips and dry storage spaces for an aggregate purchase price of approximately $12.0 million. Two of the acquired marinas were combined with an existing marina property. During the same period, we entered into a ground lease that can support one marina with eight wet slips and dry storage spaces. Subsequent to the six months ended June 30, 2024, we sold seven MH properties with an aggregate of 2,448 sites for a gross sale price of approximately $262.6 million, and received total cash consideration of approximately $171.0 million. Refer to Note 20, "Subsequent Events," in our accompanying Consolidated Financial Statements for additional information.

During the six months ended June 30, 2024, we acquired two land parcels located in the U.S. for an aggregate purchase price of $12.9 million. The parcels can accommodate the potential development of over 1,100 sites. We also acquired one land parcel, previously subject to a ground lease, located in the U.K. for an aggregate purchase price of $9.6 million. We also expanded one of our existing communities by nearly 30 sites and delivered nearly 100 sites at two ground-up development properties.

We continue to selectively expand our properties utilizing our inventory of owned and entitled land. We have 17,650 MH and RV sites suitable for future development.

Refer to Note 3, "Real Estate Acquisitions and Dispositions," in our accompanying Consolidated Financial Statements for additional detail on acquisitions completed to date.

Capital Expenditures (excluding Acquisition Costs)

Our capital expenditures include lot modifications, growth projects, rebranding, acquisition-related capital expenditures, expansion and development construction costs, rental home purchases and recurring capital expenditures.

Our capital expenditure activity is summarized as follows (in millions):

Recurring Capital Expenditures

Property recurring capital expenditures are necessary to maintain asset quality, including purchasing and replacing items used to operate the communities and marinas. Recurring capital expenditures at our MH, RV and UK properties include major road, driveway and pool improvements; clubhouse renovations; adding or replacing streetlights; playground equipment; signage; maintenance facilities; manager housing and property vehicles. Recurring capital expenditures at our marinas include dredging, dock repairs and improvements, and equipment maintenance and upgrades. The minimum capitalized amount is five hundred dollars.

Non-Recurring Capital Expenditures and Related Activities

Lot modifications - lot modification capital expenditures are incurred to modify the foundational structures required to set a new home after a previous home has been removed. These expenditures are necessary to create a revenue stream from a new site renter and often improve the quality of the community. Other lot modification expenditures include land improvements added to annual RV sites to aid in the conversion of transient RV guests to annual contracts.

Growth projects - growth projects consist of revenue generating or expense reducing activities at the properties. These include, but are not limited to, utility efficiency and renewable energy projects, site, slip or amenity upgrades such as the addition of a garage, shed or boat lift, and other special capital projects that substantiate an incremental rental increase.

Rebranding - rebranding includes new signage at our RV communities and the costs of building an RV mobile application and updated website.

Capital improvements to recent acquisitions - often require 24 to 36 months to complete after closing and include upgrading clubhouses; landscaping; new street light systems; new mail delivery systems; pool renovations including larger decks, heaters and furniture; new maintenance facilities; lot modifications; and new signage including main signs and internal road signs.

Expansion and development expenditures - consist primarily of construction costs such as roads, activities, and amenities, and costs necessary to complete site improvements, such as driveways, sidewalks and landscaping at our MH, RV and UK communities. Expenditures also include costs to rebuild after damage has been incurred at MH, RV, marina or UK properties, and research and development.

Rental program - consists of investment in the acquisition of homes intended for the Rental Program and the purchase of vacation rental homes at our RV communities. Expenditures for these investments depend upon the condition of the markets for repossessions and new home sales, rental homes and vacation rental homes.

Cash Flow Activities

Our cash flow activities are summarized as follows (in millions):

Cash, cash equivalents and restricted cash increased by $61.5 million from $42.7 million as of December 31, 2023, to $104.2 million as of June 30, 2024.

Operating activities - Net cash provided by operating activities increased by $103.9 million to $553.8 million for the six months ended June 30, 2024, compared to $449.9 million for the six months ended June 30, 2023. The increase in operating cash flow was primarily due to improved Same Property operating performance at our MH and RV communities, marinas, and UK communities, partially offset by an increase in interest expense during the six months ended June 30, 2024 as compared to the corresponding period in 2023.

Our net cash flows provided by operating activities from continuing operations may be adversely impacted by, among other things:

• the market and economic conditions in our current markets generally, and specifically in the metropolitan areas of our current markets;
• lower occupancy and rental rates of our properties;
• substantial increases in insurance premiums;
• increases in other operating costs, such as wage and benefit costs, real estate taxes and utilities;
• decreased sales of manufactured homes;
• current volatility in economic conditions and the financial markets; and
• the effects of outbreaks of disease and related restrictions on business operations.

See "Risk Factors" in Part I, Item 1A of our 2023 Annual Report.

Investing activities - Net cash used for investing activities decreased by $261.9 million to $319.9 million for the six months ended June 30, 2024, compared to $581.8 million for the six months ended June 30, 2023. The decrease in Net cash used for investing activities was primarily driven by a decrease in cash deployed to invest in existing properties and acquire new properties, and proceeds received from the disposition of three MH properties during the six months ended June 30, 2024 as compared to the corresponding period in 2023. Refer to the Consolidated Statements of Cash Flows for detail on the net cash used for investing activities during the six months ended June 30, 2024 and 2023. Refer to Note 3, "Real Estate Acquisitions and Dispositions," and Note 20, "Subsequent Events," in our accompanying Consolidated Financial Statements for additional information on acquisitions and investment activity subsequent to June 30, 2024.

Financing activities - Net cash used for financing activities was $172.1 million for the six months ended June 30, 2024, compared to net cash provided by financing activities of $109.4 million for the six months ended June 30, 2023. The change in Net cash provided by / (used for) financing activities was primarily driven by a decrease in total debt issued during the six months ended June 30, 2024 as compared to the corresponding period in 2023 as part of our strategy to optimize the strength of our balance sheet. Refer to the Consolidated Statements of Cash Flows for detail on the net cash provided by financing activities during the six months ended June 30, 2024 and 2023. Refer to Note 9, "Debt and Line of Credit," in our accompanying Consolidated Financial Statements for additional information.

We are exposed to interest rate variability associated with our outstanding floating rate debt and any maturing debt that has to be refinanced. Interest rate movements impact our borrowing costs and, while as of June 30, 2024, approximately 89% of our total debt was fixed rate financing, including the impact of hedge activity, increases in interest costs are likely to adversely affect our financial results.

Equity and Debt Activity

At the Market Offering Sales Agreement

During May 2024, we renewed our 2021 ATM with certain sales agents and forward sellers pursuant to which we may sell, from time to time, up to an aggregate gross sales price of $1.25 billion of our common stock. Through June 30, 2024, we had entered into and settled forward sales agreements under the ATM for an aggregate gross sales price of $160.6 million, leaving $1.1 billion available for sale under the ATM.

Senior Unsecured Notes

The following table sets forth certain information regarding our outstanding senior unsecured notes (in millions). All senior unsecured notes include interest payments on a semi-annual basis in arrears.

(1) In January 2024, the Operating Partnership issued $500.0 million of senior unsecured notes with an interest rate of 5.5% and a five-year term, due January 15, 2029 (the "2029 Notes"). Interest on the 2029 Notes is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2024. The net proceeds from the offering were $495.4 million, after deducting underwriters' discounts and offering expenses. We used the majority of the net proceeds to repay borrowings outstanding under our Senior Credit Facility.

The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on our senior unsecured notes are guaranteed on a senior basis by Sun Communities, Inc. The guarantee is full and unconditional, and the Operating Partnership is a consolidated subsidiary of the Company. Under Rule 3-10 of Regulation S-X, as amended, subsidiary issuers of obligations guaranteed by its parent company are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company's consolidated financial statements, the parent guarantee is "full and unconditional" and, subject to certain exceptions, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), we have excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Operating Partnership are not materially different from the corresponding amounts presented in our consolidated financial statements and management believes such summarized financial information would be repetitive and not provide incremental value to investors.

Line of Credit

The Operating Partnership (as borrower), SUI (as guarantor), and certain lenders are parties to a credit agreement which governs our Senior Credit Facility.

Prior to March 2024, the aggregate amount of our Senior Credit Facility was $4.2 billion with the ability to upsize the total borrowings by an additional $800.0 million, subject to certain conditions. The aggregate amount under the Senior Credit Facility consisted of the following: (a) a revolving loan in an amount up to $3.05 billion and (b) a term loan facility of $1.15 billion, with the ability to draw funds from the combined facilities in U.S. dollars, Pound sterling, Euros, Canadian dollars and Australian dollars, subject to certain limitations. The maturity date of the revolving term loan facility is April 7, 2026. At our option that maturity date may be extended two additional six-month periods.

In March 2024, we terminated the term loan facility and settled the associated $1.1 billion of borrowings outstanding under the term loan by increasing our borrowings under the revolving loan of the Senior Credit Facility. By terminating the term loan, we reduced our aggregate borrowing capacity under the Senior Credit Facility to $3.05 billion under the revolving loan. During the six months ended June 30, 2024, we recognized a Loss on extinguishment of debt in our Consolidated Statements of Operations of $0.6 million related to the termination of the term loan facility. In June 2024, we amended the Senior Credit Facility to replace the Canadian Dollar Offered Rate with the CORRA as the benchmark rate for borrowings denominated in Canadian Dollars, with no other significant changes to the terms of the facility.

The Senior Credit Facility bears interest at a floating rate based on the Adjusted Term SOFR, the Adjusted Eurocurrency Rate, the Australian BBSY, the Daily SONIA Rate or the CORRA, as applicable, plus a margin, in all cases, which can range from 0.725% to 1.6%, subject to certain adjustments. As of June 30, 2024, the margins based on our credit ratings were 0.85% on the revolving loan facility.

At the lenders' option, the Senior Credit Facility will become immediately due and payable upon an event of default under the Credit Facility Agreement. We had $1.7 billion and $944.1 million of borrowings outstanding under the revolving loan as of June 30, 2024 and December 31, 2023, respectively. We also had zero and $1.1 billion of borrowings outstanding under the term loan on the Senior Credit Facility as of June 30, 2024 and December 31, 2023, respectively. These balances are recorded in Unsecured debt on the Consolidated Balance Sheets.

The Senior Credit Facility provides us with the ability to issue letters of credit. Our issuance of letters of credit does not increase our borrowings outstanding under the Senior Credit Facility, but does reduce the borrowing amount available. We had $11.2 million and $26.2 million of outstanding letters of credit at June 30, 2024 and December 31, 2023, respectively.

Financial Covenants

Pursuant to the terms of the Senior Credit Facility, we are subject to various financial and other covenants. The most restrictive financial covenants for the Senior Credit Facility are as follows:

In addition, we are required to maintain the following covenants with respect to the senior unsecured notes payable:

As of June 30, 2024, we were in compliance with the above covenants and do not anticipate that we will be unable to meet these covenants in the near term.

Derivative Transactions

We enter into treasury rate lock contracts, interest rate swaps, and forward swaps for interest rate risk management purposes. We do not enter into derivative instruments for speculative purposes. The risks being hedged are the interest rate risk related to outstanding floating rate debt and forecasted debt issuance transactions, and the benchmark interest rates used are the SOFR and the SONIA Rate.

During the six months ended June 30, 2024, we entered into four interest rate swap contracts with an aggregate notional value of $125.0 million to hedge interest rate risk associated with a future debt offering.

During the six months ended June 30, 2024, in connection with the issuance of $500.0 million of senior unsecured notes with an interest rate of 5.5% and a five-year term, due January 15, 2029, we settled seven forward swap contracts totaling $255.0 million and paid a net settlement payment of $2.3 million to several counterparties. Refer to Note 15, "Derivative Financial Instruments," in our accompanying Consolidated Financial Statements for additional information.

Long-term Financing and Capital Requirements

Long-term Financing

We anticipate meeting our long-term liquidity requirements, such as scheduled debt maturities, large property acquisitions, expansion and development of properties, other nonrecurring capital improvements and Operating Partnership unit redemptions through long-term unsecured and secured debt and the issuance of certain debt or equity securities subject to market conditions. If current market and economic conditions, including relating to, among other things, interest rates, currency fluctuations, equity valuations and inflation, continue or worsen, our ability to obtain debt and equity capital in the long term on attractive terms may be adversely affected.

As of June 30, 2024 we had unrestricted cash on hand of $89.1 million, $1.3 billion of remaining capacity on the Senior Credit Facility, and a total of 510 unencumbered MH, RV, marina and UK properties.

From time to time, we may also issue shares of our capital stock, issue equity units in our Operating Partnership, issue unsecured notes, obtain other 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 MH, RV and marina industries 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. In the event our current credit ratings are downgraded, it may become difficult or more expensive to obtain additional financing or refinance existing unsecured debt as maturities become due. See "Risk Factors" in Part I, Item 1A of our 2023 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, 2024, our net debt to enterprise value was 33.2% (assuming conversion of all common and preferred OP units to shares of common stock). Our debt has a weighted average interest rate of 4.21% and a weighted average years to maturity of 6.5.

Capital Requirements

Certain of our nonconsolidated affiliates, which are accounted for under the equity-method of accounting, have incurred debt. We have not guaranteed the debt of our nonconsolidated affiliates in the arrangements referenced below, nor do we have any obligations to fund this debt should the nonconsolidated affiliates be unable to do so. Refer to Note 7, "Investments in Nonconsolidated Affiliates," in the accompanying Consolidated Financial Statements for additional information about these entities.

GTSC - During September 2019, GTSC entered into a warehouse line of credit with a maximum loan amount of $125.0 million. The line of credit was subsequently amended, with the maximum amount increased to $325.0 million as of December 31, 2022, with an option to increase to $375.0 million subject to the lender's consent. As of June 30, 2024 and December 31, 2023, the aggregate carrying amount of debt, including both our and our partner's share, incurred by GTSC was $259.6 million (of which our proportionate share is $103.9 million), and $261.3 million (of which our proportionate share is $104.5 million), respectively. The debt bears interest at a variable rate based on a Commercial Paper or adjusted SOFR plus a margin ranging from 1.65% to 2.5% per annum and matures on December 15, 2026.

Sungenia JV - During May 2020, Sungenia JV, entered into a debt facility agreement with a maximum loan amount of $27.0 million Australian dollars, or $18.0 million converted at the June 30, 2024 exchange rate. During July 2022, the maximum amount was increased to $50.0 million Australian dollars, or $33.3 million converted at the June 30, 2024 exchange rate. During June 2024, the maximum amount was increased to $54.1 million Australian dollars, or $36.1 million converted at the June 30, 2024 exchange rate. As of June 30, 2024 and December 31, 2023, the aggregate carrying amount of the debt, including both our and our partners' share, incurred by Sungenia JV was $26.9 million (of which our proportionate share is approximately $13.4 million), and $25.2 million (of which our proportionate share is $12.6 million), respectively. The debt bears interest at a variable rate based on the BBSY rate plus a margin ranging from 0.95% to 1.4%, subject to adjustment for additional future commitments, per annum and matures on June 30, 2027.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains various "forward-looking statements" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we intend that such forward-looking statements will be subject to the safe harbors created thereby. For this purpose, any statements contained in this document 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 our current views with respect to future events and financial performance, but involve known and unknown risks and uncertainties, both general and specific to the matters discussed in this document, some of which are beyond our control. These risks and 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. In addition to the risks disclosed under "Risk Factors" in our 2023 Annual Report, and in our other filings with the SEC, from time to time, such risks, uncertainties and other factors include, but are not limited to:

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference into this document, whether as a result of new information, future events, changes in our expectations or otherwise, except as required by law.

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

Market risk is the exposure to loss resulting from changes in market factors such as interest rates, foreign currency exchange rates, commodity prices and equity prices.

Interest Rate 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 that interest rate changes could have on our future cash flows. From time to time, we 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.

Our variable rate debt totaled $889.7 million and $1.4 billion as of June 30, 2024 and 2023 respectively, after adjusting for the impact of hedging in place through the use of interest rate swaps. As of June 30, 2024 and 2023, our variable debt bore interest at the Adjusted Term SOFR, the Adjusted Eurocurrency Rate, the Australian BBSY rate, the Daily SONIA Rate or the CORRA, and the Eurodollar rate or Prime rate plus a margin. If the above rates increased or decreased by 1.0%, our interest expense would have increased or decreased by $4.7 million and $6.9 million for the six months ended June 30, 2024 and 2023, respectively, based on the $948.5 million and $1.4 billion average balance outstanding under our variable rate debt facilities, respectively. Our variable rate debt, interest expense and average balance outstanding under our variable rate debt facility includes the impact of hedge activity.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the risk that fluctuations in currencies against the U.S. dollar will negatively impact our results of operations. We are exposed to foreign currency exchange rate risk as a result of remeasurement and translation of the assets and liabilities of our properties in the United Kingdom and Canada, and our joint venture in Australia, into U.S. dollars. Fluctuations in foreign currency exchange rates can therefore create volatility in our results of operations and may adversely affect our financial condition.

At June 30, 2024 and December 31, 2023, our shareholder's equity included $827.4 million and $893.9 million from our investments and operations in the United Kingdom, Canada and Australia which collectively represented 11.9% and 12.5% of total shareholder's equity, respectively. Based on our sensitivity analysis, a 10.0% strengthening of the U.S. dollar against the Pound sterling, Canadian dollar and Australian dollar would have caused a reduction of $82.7 million and $89.4 million to our total shareholder's equity at June 30, 2024 and December 31, 2023, respectively.

Capital Market Risk

We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under other financing arrangements. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing and terms of capital we raise.

Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (pursuant to Rules 13a-15(e) or 15d-15(e) of the Exchange Act) at June 30, 2024. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the material weaknesses in internal control over financial reporting described below. These material weaknesses have not been remediated as of June 30, 2024.

Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As described in Part II, Item 9A "Controls and Procedures" of our 2023 Annual Report, as of December 31, 2023, management identified a material weakness relating to the design of management's review controls of potential triggering events related to the evaluation for impairment of goodwill relating to our Park Holidays business within the UK reporting segment.

Subsequent to the quarter ended March 31, 2024, management identified a material weakness relating to the design of management's review controls of the testing for long-lived asset impairments as of March 31, 2024, relating to certain other properties within the UK reporting segment. Management has concluded that this material weakness did not create any material misstatement to previously issued financial statements for any prior periods or the current period.

Remediation of Material Weaknesses

The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management, with oversight from the Audit Committee of the Board of Directors, has developed, and is implementing, a comprehensive plan to remediate the material weaknesses. Remediation efforts are focused on more rigorous policies and procedures and sufficiency of reviews for the Company's evaluation of impairment for goodwill and long-lived assets. These efforts will include enhanced education and training, including continuing professional education related to the evaluation of goodwill and long-lived assets for impairment, development of a continuous process for monitoring, assessment and communication, as well as involvement of additional key stakeholders in reviews.

Management believes the measures described above will remediate the material weaknesses that we have identified. As management continues to evaluate and improve our disclosure controls and procedures and internal control over financial reporting, we may decide to take additional measures to address control deficiencies or determine to modify certain of the remediation measures identified.

We will not be able to conclude whether these efforts will fully remediate the material weaknesses until the updated controls have operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively.

Changes in internal control over financial reporting

During the quarter ended June 30, 2024, we continued to enhance and refine our processes, procedures, and controls in conjunction with the launch and adoption of a new integrated ERP system, which replaced many of our existing core financial systems. The system enhances efficiencies and simplifies our accounting and reporting processes.

Except as discussed in the preceding paragraph and above under "Remediation of Material Weaknesses," there were no changes in internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this report, you should carefully consider the risk factors described in Part 1, Item 1A., "Risk Factors," in our 2023 Annual Report, which could materially affect our business, financial condition or future results. There have been no material changes to the disclosure on these matters as set forth in such report.