Sun Communities, Inc. — Q1 2012 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2012, compared with Q1 2011. Sun is a REIT operating manufactured-housing and recreational-vehicle communities, with home sales and rentals through a subsidiary. At quarter-end it owned 162 properties in 18 states, with 55,921 developed sites.
Financial and operating performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $83.1 million | $69.7 million |
| Net income | $6.4 million | $2.6 million |
| Net income attributable to common stockholders | $5.4 million | $2.4 million |
| Basic / diluted EPS | $0.21 / $0.21 | $0.12 / $0.11 |
| FFO | $25.7 million | $18.8 million |
| Cash from operating activities | $21.1 million | $16.3 million |
| Cash and cash equivalents, quarter-end | $16.0 million | $5.9 million at Dec. 31, 2011 |
- Real-property NOI was $43.4 million, up 19.7%; same-site NOI increased 7.3% to $38.9 million. Same-site occupancy was 86.1%, versus 84.8%, and average monthly manufactured-home site rent was $431, versus $418.
- Rental Program NOI increased 24.7% to $11.5 million, with 7,349 occupied rental homes, up 17.9%. Home sales revenue rose 16.7% to $9.6 million; home-sales gross profit was $1.8 million, up 5.5%.
- Net cash used in investing activities was $51.7 million, including $24.5 million for acquisitions. Net cash provided by financing activities was $40.8 million. Quarterly dividends were $0.63 per common share, unchanged from Q1 2011.
- Total debt was $1.288 billion, with a 5.3% weighted-average interest rate and 7.1-year weighted-average maturity. The separate balance-sheet line-of-credit balance was $6.0 million, primarily the home floor-plan facility; the $130 million revolving facility had no borrowings and $126 million available, subject to borrowing-base limits.
Material changes versus Q1 2011
- Revenue grew 19.2%, while common-stockholder net income rose to $5.4 million from $2.4 million. Results benefited from acquired properties, higher same-site revenue and occupancy, and Rental Program growth.
- Portfolio NOI growth included $4.5 million from recently acquired properties and $2.6 million from same-site properties. The portfolio expanded to 162 properties from 136 a year earlier.
- Depreciation and amortization increased to $19.9 million from $16.7 million, and interest expense, including mandatorily redeemable debt, rose to $17.6 million from $16.2 million.
- A January public offering generated $156.0 million net proceeds; $123.5 million was used to repay debt and $25.0 million funded part of the February Florida-property acquisition. Issued common shares increased substantially during the quarter.
Outlook, risks and unusual items
- Management said operating cash flow and available credit were expected to meet short-term needs, including recurring capital improvements and distributions. It anticipated addressing long-term needs through debt or equity issuance, property collateralization, or asset sales. No specific earnings or revenue guidance was provided.
- Management cited uncertainty in economic recovery, credit and capital-market access, occupancy and rental rates, operating costs, manufactured-home sales and buyer financing. A 1 percentage-point move in Prime or LIBOR was estimated to change quarterly interest expense by approximately $0.6 million, based on the period’s average variable-rate borrowings.
- The company was in compliance with debt covenants at March 31, 2012. Its revolving facility leverage ratio was 56.0% against a 70% maximum; fixed-charge coverage was 1.89:1 against a 1.45:1 minimum.
- Transfers of manufactured-home receivables did not qualify for sale accounting: the $83.1 million net receivables remained on the balance sheet alongside an $83.6 million secured borrowing. Sun retained recourse to repurchase homes following specified defaults.
- Litigation concerning a credit facility was dismissed after a settlement became effective in January 2012. Management said other disclosed legal matters were not expected to have a material adverse impact. The filing reported no material changes to the prior annual report’s risk factors.
Investor verification points
- Assess how much reported growth came from acquisitions versus same-site operations, and whether same-site rent and occupancy gains continue.
- Verify acquisition financing, the effect of the equity offering on per-share results, and future capital needs and distributions.
- Review debt maturities, floating-rate exposure, covenant headroom and availability under the borrowing base.
- Monitor Rental Program returns, home-sale margins, and the performance and default-related recourse risk of manufactured-home receivables.
- Consider the seasonal concentration of RV revenue: management said approximately 45% of annual seasonal RV revenue is recognized in Q1.