Sun Communities (NYSE: SUI) comprises part of a fascinating subset of the residential REIT sector — manufactured residences — characterized by lower turnover, capex (as of revenues) and rent per square foot, and higher average tenure and square footage. Its price-to-FFO ratio of around 18× has been higher than its historic norm, but Sun Communities has still enjoyed a dividend yield higher than its sector’s median — 4.2 percent. Its track record can perhaps explain this strength.
The management team has described Sun Communities as a “recession-resistant” company, and I can see that clearly. Looking back, the dividend rate has not decreased even during the Great Recession. Between 2006 and 2013, they paid covered dividends at $2.52 per annum, with dividend per share growth resuming in 2014. An impaired leasing environment caused FFOs to decline between 2003 and 2005, but they have increased since then. Since 2008, share price has increased seven fold and currently trades around $63.
SUI’s first-quarter performance of 2015 vs. 2014 has been on a par with its history. Total portfolio occupancy, same-site revenues and same-site NOI increased from 90.2 to 92.9; 6.8; and 8.6 percent, respectively. There has also been improvement in same-site occupancy and same-site weighted average monthly rent.
The company’s performance has been strengthened by its second segment — RV resorts — whose participation in revenues should increase from ten percent in 2011 to eighteen percent in 2015. RV industry fundamentals are favorable as unit shipments peaked in 2014 and disposable incomes have risen. Since some sites are hybrid, the manufactured residence and RV segments complement each other nicely.
- good dividend yield
- segment diversification
- rapid growth
- a conservative balance sheet
Source: Sun Communities, Fast Graphs
Written by Heli Brecailo
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