Sun Communities (NYSE:SUI) is still enjoying increasing demand for manufactured housing. With its sites significantly concentrated in places where baby boomers can have enjoyable retirements, the company has experienced strong growth, internally and externally. Besides renting sites for manufactured residences — Sun owns the underlying land, infrastructure and common-area amenities — they also rent RV sites and have both seasonal and permanent residents. Most of their revenue is sourced from owners of permanent manufactured residences.
Comparing the first half of 2014 and 2015, Sun Communities has sped up acquisitions as net cash for investing activities increased from $197 to $305 million. During this time, Sun relied increasingly on debt as debt metrics ticked up slightly. Sun says they will retain year-end target level below 7 times net debt/EBITDA (more exactly, 6.5-6.8)
Portfolio NOI increased almost 50 percent in Q2 2015 vs. Q2 2014 mostly because of acquisitions. The number of properties increased from 190 to 251 during this period, and the developed sites spiked 30 percent. Occupancy excluding transient sites increased to 93.5 percent (250 basis points). Management thinks target occupancy is 95 percent.
Same-site performance in Q2 has been strong also. Total Q2 2015 revenues increased 8.2 percent, while total expenses increased 6.8 percent, resulting in an 8.8 percent NOI increase over Q2 2014. Weighted average monthly rent per site for manufactured houses and RVs combined has increased 3.1 percent.
Sun will keep seeking acquisitions as ground up developments over the upcoming years should be confined to two or three communities. They expect cap-rate compression in future acquisitions. For the Q2 acquisitions cap rate is 5.8-6.4 percent.
Total Q2 home sales, which represents 12 percent of total revenues, were 576, compared with 521 properties sold in Q2 2014. Average homeowner stay is 13 years, and residents take an average of 15 years to pay off mortgages.
FFO per share increased 10 percent from $0.79 to $0.87 a share, and the company increased its full-year 2015 FFO guidance to $3.62-$3.72 a share — a $0.07 increase at the midpoint.
SUI and its peer Equity LifeStyle (NYSE:ELS) have both been trading at 20× price-to-FFO, with SUI having higher yield at 3.7 percent. Both appear overvalued compared with the company’s history. That’s not a surprise. Stocks with strong fundamentals have been expensive.
Source: SUI, Fast Graphs
Written by Heli Brecailo
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