Sun Communities, Inc. — 10-Q Summary
Reporting period: Three months ended March 31, 2017; unaudited. Sun Communities is a REIT operating manufactured-home and recreational-vehicle communities and related home sales and rentals. At quarter-end, it owned or had an interest in 342 developed properties across 29 U.S. states and one Canadian province.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 or prior date |
|---|---|---|
| Total revenue | $234.4 million | $174.6 million |
| Net income attributable to common stockholders | $21.1 million | $7.9 million |
| Diluted earnings per share | $0.29 | $0.14 |
| FFO per diluted share, excluding specified items (non-GAAP) | $1.10 | $0.90 |
| Cash provided by operating activities | $70.6 million | $50.9 million |
| Cash and cash equivalents | $10.9 million | $8.2 million at Dec. 31, 2016 |
| Total debt, as presented in the debt note | $3.14 billion | $3.11 billion at Dec. 31, 2016 |
- Net income attributable to common stockholders increased about 168%; diluted EPS rose from $0.14 to $0.29. FFO and adjusted FFO are supplemental, non-GAAP measures and should not be treated as cash flow.
- Real Property Operations NOI was $122.7 million, up 38.8%. Same Community NOI increased 6.7% to $94.4 million; same-community occupancy was 96.7%, up 1.7 percentage points, and total monthly base rent per site rose to $499 from $483.
- Portfolio-wide occupancy was 95.9%, compared with 95.5%. Management attributed $28.4 million of the increase in total Real Property NOI to acquired properties and $5.9 million to Same Communities.
- Rental Program NOI increased 9.1% to $23.0 million, while home-sale revenue rose 10.2% to $27.3 million but home-sale gross profit declined 2.6% to $6.4 million. Lower margins on certain older acquired homes weighed on pre-owned sales.
- Investing activities used $71.7 million, including $61.4 million invested in properties and a $13.0 million acquisition. Financing activities provided $3.9 million; distributions paid across stockholders and unit holders were $53.4 million.
- Reported mortgage loans payable were $2.775 billion; lines of credit were $178.3 million. Debt had a weighted-average rate of 4.5% and maturity of 8.2 years. The company reported compliance with debt covenants. At quarter-end, its $450 million credit facility had approximately $178.6 million borrowed; about $4.3 million of availability supported standby letters of credit.
Changes, outlook, and notable items
- Revenue growth reflects substantial portfolio expansion, including the 2016 Carefree acquisition. The filing reports $53.7 million of Q1 2017 revenue and $9.8 million of net income from 2016 acquisitions. Same-community property revenue increased 5.2%, with occupancy and rents contributing to growth.
- Interest expense increased 18.6% to $32.1 million, primarily reflecting acquisition-related financing, partly offset by debt repayments. Depreciation and amortization increased 29.7% to $62.8 million, primarily due to Carefree. Q1 also included a $0.5 million debt-extinguishment loss, $0.8 million foreign-currency translation gain in other income, and a $0.3 million deferred tax benefit.
- No full-year earnings or FFO guidance is provided. Management said it intends to pursue suitable acquisitions and development opportunities, subject to market conditions, and expects continued capital spending. The filing estimates approximately $74.9 million of transient RV revenue for 2017 and gives expected quarterly seasonality.
- After quarter-end, the company acquired entitled land near Myrtle Beach for $6.0 million, zoned for a 775-site RV resort. On April 25, it replaced its credit facility with a $650 million facility, including a $550 million revolver and $100 million term loan, with capacity potentially expandable to $1.0 billion and a stated maturity in 2021.
- Key risks include acquisition and development execution, access to debt and equity capital, refinancing, floating interest rates, occupancy and rent levels, operating-cost inflation, foreign-exchange movements, manufactured-home financing and repossessions, and maintaining REIT status. Management said ordinary-course litigation was not expected to have a material adverse effect; it reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Separate acquisition-driven growth from Same Community performance and assess whether rent and occupancy gains persist.
- Review the debt schedule, floating-rate exposure, covenant headroom, and the terms and availability of the post-quarter amended credit facility.
- Evaluate whether operating cash flow covers distributions, development and recurring capital expenditures, and acquisition needs.
- Monitor margins on pre-owned home sales, home-sale volumes, and the cost and returns of the Rental Program.
- Confirm subsequent acquisition and development plans, including project costs, financing, and expected contribution; the filing provides no formal full-year earnings guidance.