Sun Communities Inc: Form 10-Q for the period ended Mar 31, 2025

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 2024 Annual Report.

OVERVIEW

We are a fully integrated REIT. As of March 31, 2025, we owned and operated, directly or indirectly, or had an interest in, a portfolio of 502 developed properties located in the U.S., Canada, and the United Kingdom including 284 MH communities, 165 RV communities, and 53 UK communities. We also owned, operated, or had an interest in a portfolio of 138 marina properties in the U.S. and Puerto Rico, which was classified as discontinued operations as of March 31, 2025.

We have been in the business of operating, acquiring, developing and expanding MH and RV communities since 1975, 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. 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.

SAFE HARBOR SALE

Subsequent to the three months ended March 31, 2025, we completed the initial closing of the sale of Safe Harbor to Poseidon Holdco I L.P. (f/k/a BIP Poseidon Holdco L.P.) ("Buyer") (the "Safe Harbor Sale"), which generated approximately $5.25 billion of pre-tax cash proceeds, net of transaction and employee separation costs. Pursuant to the transaction agreement, 15 Delayed Consent Properties representing approximately $250.0 million of value were not part of the initial closing. In respect of each Delayed Consent Subsidiary, until such time as the third-party consent is received and Buyer acquires the equity interests of the Delayed Consent Subsidiary, an affiliate of Safe Harbor will manage the properties owned by the Delayed Consent Subsidiaries under an arm's-length management agreement; provided, that, the manager is not obligated to continue to manage any such properties for a period longer than three years following the closing of the Safe Harbor Sale. If and when the applicable consent for a Delayed Consent Subsidiary is obtained in the nine months following the signing of the Purchase Agreement, Buyer will, subject to the satisfaction of certain conditions, acquire that Delayed Consent Subsidiary for cash consideration equal to its agreed value. If the required third-party consent for any Delayed Consent Subsidiary is not received by the end of such nine-month period, Buyer will not have the right to acquire any such Delayed Consent Subsidiary, unless such period is extended by the parties.

The Safe Harbor Sale accelerates our strategy of focusing on our core MH and RV segments and significantly enhances our leverage profile and financial flexibility. We intend to utilize the cash proceeds from the Safe Harbor Sale to implement a capital allocation plan that reflects a balanced, tax-efficient approach to optimize shareholder value through significantly lower leverage, greater financial flexibility to drive sustainable cash flow growth, and a thoughtful capital return strategy.

Refer to Part I, Item 1A, "Risk Factors – Risks Related to the Safe Harbor Sale" in our Annual Report on Form 10-K for the year ended December 31, 2024, Note 2, "Assets Held for Sale and Discontinued Operations," and Note 20, "Subsequent Events," in our accompanying Consolidated Financial Statements for additional details related to the Safe Harbor Sale.

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, 2024.

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 property 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, 2024. Same properties exclude ground-up development properties, acquired properties, properties classified as discontinued operations, and properties sold after December 31, 2023. 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 ancillary 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 loss attributable to SUI common shareholders to NOI and summarize our consolidated financial results for the three months ended March 31, 2025 and 2024 (in millions):

(1) Excludes properties classified as discontinued operations. During the three months ended March 31, 2025 and 2024, our marina properties generated total NOI of $64.3 million and $61.8 million, respectively, which was recorded within Income / (loss) from discontinued operations, net on the Consolidated Statements of Operations. Refer to Note 2, "Assets Held for Sale and Discontinued Operations," for additional information.

Seasonality of Revenue

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

In the RV segment, 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. In the UK segment, vacation rental sites generally produce higher revenues between March and October. During the three months ended March 31, 2025, we recognized aggregate Real property - transient revenue from our segments of $30.5 million in the first quarter. During the year ended December 31, 2024, we recognized Real property - transient 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 months ended March 31, 2025 and 2024 (in millions, except for statistical information).

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

(1) MH annual sites included 11,495 and 10,300 rental homes in our rental program as of March 31, 2025 and 2024, respectively. Our investment in occupied rental homes at March 31, 2025 was $812.1 million, an increase of 16.6% from $696.3 million at March 31, 2024.

For the three months ended March 31, 2025, the $2.6 million, or 1.1% decrease in Real Property NOI as compared to the same period in 2024, consists of a decrease of $4.5 million from Same Property RV, a decrease of $0.6 million from Same Property UK, and a decrease of $11.6 million, net from other recently acquired or developed properties and other items, partially offset by an increase of $14.1 million from Same Property MH.

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, properties classified as discontinued operations, 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 2025 average exchange rates for constant currency comparability.

The following tables reflect certain financial and other information for our Same Property MH and RV portfolios as of and for the three months ended March 31, 2025 and 2024 (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 months ended March 31, 2025 of $0.6966 USD per Canadian dollar, respectively.

(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.

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

(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.

N/A = Not applicable.

(a) Same Property adjusted blended occupancy for MH and RV combined increased to 99.0% at March 31, 2025, from 97.5% at March 31, 2024. 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 98.1% at March 31, 2025, up 40 basis points from 97.7% at March 31, 2024.

(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 months ended March 31, 2025 and 2024 (in millions, except for statistical information):

(a) Same Property results for our UK 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 $1.2588 USD per pound sterling, during the three months ended March 31, 2025, 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

(a) Calculated using actual results without rounding.

(b) Adjusting for recently delivered and vacant expansion sites, Same Property adjusted occupancy decreased by 60 basis points year over year, to 90.1% at March 31, 2025, from 90.7% at March 31, 2024.

For the three months ended March 31, 2025 and 2024:

• The MH segment increase in NOI of $14.1 million, or 8.9%, when compared to the same period in 2024 is primarily due to an increase in Real property (excluding transient) revenue of $15.5 million, or 7.3%. Real property (excluding transient) revenue increased primarily due to a 5.2% increase in monthly base rent.
• The RV segment decrease in NOI of $4.5 million, or 9.1%, when compared to the same period in 2024 is primarily due to a decrease in Real property transient revenue of $6.8 million, or 20.6%, and an increase in Same property operating expenses of $2.6 million, or 5.5%, partially offset by an increase in Real property (excluding transient revenue) of $4.9 million, or 7.8%. The increase in Same Property operating expenses was primarily due to an increase in supplies and repairs expense and other expenses. The increase in Real property (excluding transient) revenue was primarily due to a 5.7% increase in monthly base rent and conversions of transient RV sites to annual RV sites.
• The UK segment decrease in NOI of $0.6 million, or 5.4%, when compared to the same period in 2024 is primarily due to total Same Property operating revenue remaining relatively flat while Same property operating expenses increased by $0.6 million, or 3.8%. The increase in Same Property operating expenses was due to increases in payroll wages and supplies and repairs expense.

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 months ended March 31, 2025 and 2024 (in millions, except for average selling price and statistical information):

NOI - North America

For the three months ended March 31, 2025, the 36.4% decrease in NOI is primarily driven by a 5.5% decrease in NOI margin and a 17.5% decrease in average selling price, driven by a changing mix of homes sold with a greater proportion of sales attributable to pre-owned homes, as compared to the same period in 2024.

NOI - UK

For the three months ended March 31, 2025, NOI was flat compared to the same period in 2024, primarily driven by a 7.9% increase in average selling price, partially offset by a 1.1% decrease in total home sales volume and a 1.8% decrease in NOI margin.

Other Items - Statements of Operations(1)

The following table summarizes other income and expenses for the three months ended March 31, 2025 and 2024 (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. N/A = Not applicable.

Catastrophic event-related charges, net - for the three months ended March 31, 2025, decreased primarily due to incremental asset impairment and debris removal charges of $4.7 million in 2024 that did not reoccur, driven by flooding at an RV community in New Hampshire.

Asset impairments - for the three months ended March 31, 2025, increased due to asset impairment charges of $20.5 million related to pre-construction development costs at seven of our MH and RV properties for which the related development projects are no longer probable of being realized. Refer to Note 16, "Fair Value Measurements," in our accompanying Consolidated Financial Statements for additional information.

Gain on foreign currency exchanges - for the three months ended March 31, 2025, was a gain of $8.7 million, as compared to a gain of $1.1 million during the same period in 2024 primarily due to the weakening of the U.S. dollar versus the pound sterling.

Gain / (loss) on dispositions of properties - for the three months ended March 31, 2025, was a loss of $1.1 million on the sale of five properties, as compared to a gain of $5.4 million on the sale of two properties during the same periods in 2024. Refer to Note 4, "Real Estate Acquisitions and Dispositions," in our accompanying Consolidated Financial Statements for additional information.

Other income / (expense), net - for the three months ended March 31, 2025, was income of $5.7 million primarily due to a gain on a non-monetary transaction with a real estate developer, as compared to an expense of $2.4 million during the same period in 2024. Refer to Note 10, "Equity and Temporary Equity," in our accompanying Consolidated Financial Statements for additional information.

Gain on remeasurement of investment in nonconsolidated affiliates - for the three months ended March 31, 2025, was zero as compared to a gain of $5.2 million during the same period in 2024 due to the fluctuation in the fair value of a notes receivable portfolio held at our GTSC joint venture. Refer to Note 8, "Investments in Nonconsolidated Affiliates," in our accompanying Consolidated Financial Statements for additional information.

Income / (loss) from discontinued operations, net - for the three months ended March 31, 2025, was a loss of $18.5 million, as compared to income of $11.2 million during the same period in 2024, primarily due to contingent consideration expense of $14.6 million and transaction costs of $14.6 million in 2025, each due to the Safe Harbor Sale.

RECONCILIATION OF NET LOSS ATTRIBUTABLE TO SUI COMMON SHAREHOLDERS TO FFO

The following table reconciles Net loss attributable to SUI common shareholders to FFO for the three months ended March 31, 2025 and 2024 (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 months ended March 31, 2025 and 2024, (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. Transaction costs - discontinued operations represent other non-recurring costs directly attributable to the Safe Harbor Sale.

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

(4) Other adjustments, net - continuing operations relates primarily to deferred tax benefit during the three months ended March 31, 2025 and 2024, and Other adjustments, net - discontinued operations relates primarily to a contingent consideration expense during the three months ended March 31, 2025 and litigation settlement gains during the three months ended March 31, 2024.

(5) FFO and Core FFO includes discontinued operations activity of $20 million or $0.15 per Share, and $49.2 million or $0.37 per Share, respectively, during the three months ended March 31, 2025, and $56.4 million or $0.44 per Share, and $46.0 million or $0.36 per Share, respectively, during the three months ended March 31, 2024.

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, cash generated from the Safe Harbor Sale, 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," Note 10, "Equity and Temporary Equity," and Note 20, "Subsequent Events," in our accompanying Consolidated Financial Statements for additional information and related activity subsequent to March 31, 2025.

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. 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 2025, 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 equity issuances and selective capital recycling. Furthermore, as discussed below, we expect to significantly lower our leverage profile by using net cash proceeds from the Safe Harbor Sale. 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.

Subsequent to the three months ended March 31, 2025, the initial closing of the Safe Harbor Sale occurred, generating approximately $5.25 billion of pre-tax cash proceeds, net of transaction and employee separation costs. The Safe Harbor Sale accelerates our strategy of focusing on our core MH and RV segments and significantly enhances our leverage profile and financial flexibility. We intend to utilize the cash proceeds from the Safe Harbor Sale to implement a capital allocation plan that reflects a balanced, tax-efficient approach to optimize shareholder value through significantly lower leverage, greater financial flexibility to drive sustainable cash flow growth, and a thoughtful capital return strategy. Furthermore, we allocated approximately $1.0 billion into 1031 exchange escrow accounts to fund potential future MH and RV acquisitions on a tax-efficient basis.

Subsequent to the three months ended March 31, 2025, in connection with cash proceeds generated from the Safe Harbor Sale, we settled outstanding debt balances of $1.6 billion under our senior credit facility and $740.0 million of secured mortgage debt, inclusive of prepayment costs. We also announced the planned redemption of $950.0 million, inclusive of prepayment costs, in outstanding unsecured senior notes that is expected to occur on May 10, 2025. Refer to Note 2, "Assets Held for Sale and Discontinued Operations," and Note 20, "Subsequent Events," for additional details related to the Safe Harbor Sale during and subsequent to the three months ended March 31, 2025.

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. Given the higher interest rate environment, we continue to selectively pursue acquisition and development opportunities that meet our underwriting criteria.

We have continued a targeted disposition program to divest non-strategic assets in an effort to simplify management and reduce total debt. During the three months ended March 31, 2025, we sold a portfolio of three MH properties and two RV properties for a gross sale price of approximately $120.7 million.

We plan to selectively expand our properties utilizing our inventory of owned and entitled land. We have 16,370 MH and RV sites suitable for future development. Refer to Note 4, "Real Estate Acquisitions and Dispositions," in our accompanying Consolidated Financial Statements for additional details on acquisitions and dispositions completed to date.

Capital Expenditures (excluding Acquisition Costs)

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. 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. The minimum capitalized amount is one thousand dollars.

Non-Recurring Capital Expenditures and Related Activities

Lot modifications - consist of expenditures 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 - 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 or shed, and other special capital projects that substantiate an incremental rental increase.

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 our 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 from continuing operations are summarized as follows (in millions):

Cash, cash equivalents and restricted cash increased by $40.3 million from $57.1 million as of December 31, 2024, to $97.4 million as of March 31, 2025.

Operating activities - Net cash provided by operating activities decreased by $27.5 million to $139.3 million for the three months ended March 31, 2025, compared to $166.8 million for the three months ended March 31, 2024. The decrease in operating cash flow was primarily due to the timing of changes in inventory, other assets, and other liabilities, and reduced operating performance at our RV properties, partially offset by growth in our Same Property operating performance at our MH properties, during the three months ended March 31, 2025 as compared to the corresponding period in 2024.

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;
• increases in other operating costs, such as wage and benefit costs, supplies and repairs, real estate taxes, and utilities;
• substantial increases in insurance premiums;
• 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 2024 Annual Report, and Part II, Item 1A of this report.

Investing activities - Net cash provided by investing activities was $19.6 million for the three months ended March 31, 2025, compared to net cash used for investing activities of $62.5 million for the three months ended March 31, 2024. The change in Net cash provided by / (used for) investing activities was primarily driven by an increase in proceeds received from the disposition of three MH properties and two RV properties, and an increase in settlements of notes receivable from real estate developers during the three months ended March 31, 2025 as compared to the corresponding period in 2024. Refer to the Consolidated Statements of Cash Flows for detail on the net cash provided by / (used for) investing activities during the three months ended March 31, 2025 and 2024. Refer to Note 20, "Subsequent Events," in our accompanying Consolidated Financial Statements for additional information on acquisition and investment activity subsequent to March 31, 2025.

Financing activities - Net cash used for financing activities increased by $95.0 million to $119.0 million for the three months ended March 31, 2025, compared to $24.0 million for the three months ended March 31, 2024. The increase in Net cash used for financing activities was primarily driven by a decrease in borrowings and issuance of other debt during the three months ended March 31, 2025, as compared to the corresponding period in 2024, 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 three months ended March 31, 2025 and 2024. Refer to Note 9, "Debt and Line of Credit," in our accompanying Consolidated Financial Statements for additional information.

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

Cash, cash equivalents and restricted cash for discontinued operations increased by $5.9 million from $6.8 million as of December 31, 2024, to $12.7 million as of March 31, 2025.

Operating activities - Net cash provided by operating activities for discontinued operations increased by $28.9 million to $104.6 million for the three months ended March 31, 2025, compared to $75.7 million for the three months ended March 31, 2024. The increase in net cash provided by operating activities for discontinued operations is primarily due to beneficial changes in inventory, other assets, and other liabilities, and improved operating performance at our Marina properties, during the three months ended March 31, 2025 as compared to the corresponding period in 2024.

Investing activities - Net cash used for investing activities for discontinued operations decreased by $17.6 million to $47.0 million for the three months ended March 31, 2025, compared to $64.6 million for the three months ended March 31, 2024. The decrease in net cash used for investing activities for discontinued operations is driven by a decrease in marina property acquisitions. Refer to the Consolidated Statements of Cash Flows for detail on the net cash used for investing activities for discontinued operations during the three months ended March 31, 2025 and 2024. Refer to Note 2, "Assets Held for Sale and Discontinued Operations," in our accompanying Consolidated Financial Statements for additional information on acquisitions and investment activity.

Financing activities - Net cash used for financing activities for discontinued operations increased by $50.3 million to $51.7 million for the three months ended March 31, 2025, compared to $1.4 million for the three months ended March 31, 2024. Refer to the Consolidated Statements of Cash Flows for detail on the net cash used for financing activities for discontinued operations during the three months ended March 31, 2025 and 2024. Refer to Note 2, "Assets Held for Sale and Discontinued Operations," in our accompanying Consolidated Financial Statements for additional information.

The absence of future cash flows from discontinued operations is not expected to significantly impact our liquidity, as the cash proceeds from the Safe Harbor Sale have been allocated to pay down debt, which will generate annualized interest expense savings, and to reinvest in our core MH and RV segments by means of a $1.0 billion cash allocation to 1031 exchange escrow accounts subsequent to March 31, 2025.

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 March 31, 2025, approximately 91% 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. Subsequent to March 31, 2025, in conjunction with debt paydown in conjunction with the Safe Harbor Sale, 100% of our total debt was fixed rate financing.

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 March 31, 2025, we had entered into and settled forward sales agreements under the ATM for an aggregate gross sales price of $524.8 million, leaving $725.2 million available for sale under the ATM.

Senior Unsecured Notes

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

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. The aggregate amount available under the senior credit facility consists of a revolving loan in an amount up to $3.05 billion with a maturity date on April 7, 2026. At our option, the maturity date may be extended for two additional six-month periods.

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, ranging from 0.725% to 1.6%, subject to certain adjustments. As of March 31, 2025, 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 $1.5 billion and $1.4 billion of borrowings outstanding under the revolving loan as of March 31, 2025 and December 31, 2024, respectively. The balance is 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 $11.5 million of outstanding letters of credit at March 31, 2025 and December 31, 2024, 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:

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

As of March 31, 2025, 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.

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 March 31, 2025 we had unrestricted cash on hand of $88.9 million, $1.5 billion of remaining capacity on the senior credit facility, and a total of 370 unencumbered MH, RV, 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 and RV 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 2024 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 March 31, 2025, our net debt to enterprise value was 29.8% (assuming conversion of all common and preferred OP units to shares of common stock). Our debt has a weighted average interest rate of 4.08% and a weighted average maturity of 5.9 years.

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 8, "Investments in Nonconsolidated Affiliates," in the accompanying Consolidated Financial Statements for additional information about these entities.

GTSC - GTSC maintains a warehouse line of credit with a maximum borrowing capacity of $275.0 million. As of March 31, 2025 and December 31, 2024, the aggregate carrying amount of debt, including both our and our partner's share, incurred by GTSC was $242.9 million (of which our proportionate share is $97.1 million), and $242.9 million (of which our proportionate share is $97.1 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 - Sungenia maintains a debt facility agreement with a maximum borrowing capacity of $54.1 million Australian dollars, or $33.8 million converted at the March 31, 2025 exchange rate. As of March 31, 2025 and December 31, 2024, the aggregate carrying amount of the debt, including both our and our partners' share, incurred by Sungenia JV was $30.7 million (of which our proportionate share is approximately $15.3 million), and $25.0 million (of which our proportionate share is $12.5 million), respectively. The debt bears interest at a variable rate based on the Australian 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," "intend," "goal," "estimate," "expect," "project," "projections," "plans," "predicts," "potential," "seeks," "anticipates," "should," "could," "may," "will," "designed to," "foreseeable future," "believe," "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, uncertainties, and other factors, both general and specific to the matters discussed in this document, 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. In addition to the risks disclosed under "Risk Factors" in our 2024 Annual Report and in Part II, Item 1A of this 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 $673.7 million and $895.5 million as of March 31, 2025 and 2024, respectively, after adjusting for the impact of hedging in place through the use of interest rate swaps. As of March 31, 2025 and 2024, 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 $1.7 million and $2.4 million for the three months ended March 31, 2025 and 2024, respectively, based on the $684.5 million and $968.9 million 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 March 31, 2025 and December 31, 2024, our shareholder's equity included $1.0 billion and $672.3 million from our investments and operations in the United Kingdom, Canada, and Australia which collectively represented 14.9% and 9.3% 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 $104.5 million and $67.2 million to our total shareholder's equity at March 31, 2025 and December 31, 2024, 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 ensure 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. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period was made under the supervision and with the participation of our management, including our principal executive officer and principal financial officer.

Based upon this evaluation, our principal executive officer and principal financial officer have concluded that, as of March 31, 2025, our disclosure controls and procedures were not effective as of that date due to a material weakness in internal control over financial reporting relating to our risk assessment process, as described below.

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 2024 Annual Report, as of December 31, 2024, management identified a material weakness because we did not have an effective risk assessment and response process ("risk assessment") that defined clear financial reporting objectives, that identified and evaluated risks of misstatement due to errors over certain financial reporting processes, or that developed internal controls to mitigate those risks.

Remediation of Material Weaknesses

We have invested considerable time and resources to undertake a number of actions related to the material weakness relating to our risk assessment process and we are in the process of developing and implementing additional actions as part of a detailed plan for remediation. The Audit Committee has continued to actively oversee these remediation plans, monitoring plan progression, and ensuring appropriate resources are allocated and implemented to effectively execute management's plan.

While we believe our remediation efforts will improve the effectiveness of our internal control over financial reporting, we cannot assure that the measures will be sufficient to remediate the material weakness we have identified or will prevent potential future material weaknesses. In addition, many of the improvements have not operated for a sufficient period of time to be able to conclude on the effectiveness of relevant internal controls. Accordingly, we will continue to monitor, with oversight from our Board of Directors, and evaluate the effectiveness of our internal control over financial reporting and further enhance our plan for remediation as necessary.

Changes in internal control over financial reporting

Except as discussed in the preceding paragraph, there were no changes in internal control over financial reporting during the three months ended March 31, 2025, 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 2024 Annual Report, which could materially affect our business, financial condition, or future results. We have updated our risk factors in our 2024 Annual Report with the risk factors described below:

General economic conditions and the concentration of our MH, RV, and UK properties in certain geographic areas may affect our ability to generate revenue.

The market and economic conditions in our current markets generally, and specifically in metropolitan areas of our current markets, may significantly affect occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect our revenues, and if our properties do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flows and ability to pay or refinance our debt obligations could be adversely affected.

As of March 31, 2025, 124 of our MH, RV, and UK communities, representing 25.9% of developed sites, are located in Florida; 85 communities, representing 19.2% of developed sites, are located in Michigan; 53 communities, representing 12.4% of developed sites, are located in the UK; 37 communities, representing 5.0% of developed sites, are located in California; and 29 communities, representing 6.2% of developed sites, are located in Texas. As a result of the geographic concentration of our MH, RV, and UK communities in Florida, Michigan, the UK, California and Texas, we are exposed to the risks of downturns in local economies or other local real estate market conditions which could adversely affect occupancy rates, rental rates and property values in these markets.

Our revenue would also be adversely affected if tenants and guests were unable to pay rent or if sites were unable to be rented on favorable terms. If we were unable to promptly relet or renew the leases for a significant number of the sites, or if the rental rates upon such renewal or reletting were significantly lower than expected rates, then our business and results of operations could be adversely affected. In addition, certain expenditures associated with each property (such as real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in income from the property. Furthermore, real estate investments are relatively illiquid and, therefore, will tend to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions.

The following factors, among others, may adversely affect the revenues generated by our properties:

• the international, national, and local economic climate which may be adversely impacted by, among other factors, plant closings, industry slowdowns, inflation, tariffs or threats of tariffs, trade wars, immigration issues, and supply chain disruptions;
• local real estate market conditions such as the oversupply of MH or RV sites or a reduction in demand for MH or RV sites in an area, and an oversupply of, or a reduced demand for, manufactured homes;
• increased operating costs, including insurance premiums, real estate taxes, and utilities;
• competition from other available MH and RV communities and alternative forms of housing (such as apartment buildings and site-built single-family homes);
• a decrease in the number of people interested in the RV lifestyle;
• outbreaks of disease and related restrictions on business operations;
• changes in foreign currency exchange rates, including between the U.S. dollar and each of the Canadian dollar, Australian dollar, and pound sterling;
• the number of repossessed homes in a particular market;
• the difficulty facing potential purchasers in obtaining affordable financing as a result of heightened lending criteria;
• an increase or decrease in the rate of manufactured home repossessions which provide aggressively priced competition to new manufactured home sales;
• the lack of an established MH dealer network;
• the housing rental market which may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates;
• the perceptions by prospective tenants of the safety, convenience and attractiveness of our MH properties, and the neighborhoods where they are located;
• zoning or other environmental regulatory restrictions;
• our ability to effectively manage, maintain, and insure our properties; and
• the enactment of rent control laws or laws taxing the owners of manufactured homes.

Deterioration in general economic conditions in the United States, and globally, including the effect of prolonged periods of inflation, could harm our business and results of operations.

Our business and results of operations could be adversely affected by changes in national or global economic conditions. These conditions include but are not limited to inflation, deflation, rising interest rates, availability of capital markets, energy availability and costs, the negative impacts caused by outbreaks of disease and public health crises, negative impacts resulting from military conflicts, tariffs or threats of tariffs, trade wars, immigration issues, supply chain disruptions, and the effects of other governmental initiatives to manage economic conditions.