Sun Communities, Inc. 10-K Summary (Fiscal Year Ended Dec 31, 2009)
Business Context and Reporting Period
Sun Communities, Inc. is a self-administered and self-managed Real Estate Investment Trust (REIT) specializing in the acquisition, operation, and expansion of manufactured housing communities. As of December 31, 2009, the Company owned and operated 136 properties across 18 states, comprising 47,572 developed sites (42,294 manufactured home sites and 5,278 recreational vehicle sites). The portfolio is geographically concentrated in Michigan (30% of sites), Florida (21%), Indiana (14%), and Texas (11%). The Company also operates a taxable subsidiary, Sun Home Services, Inc., which sells and leases manufactured homes to residents.
Key Financial Metrics
- Revenue: Total revenues were $256.6 million for 2009, a 0.9% increase from $254.3 million in 2008.
- Net Loss: The Company reported a net loss attributable to common stockholders of $6.3 million ($0.34 per share) for 2009, a significant improvement from the $34.4 million loss in 2008.
- Funds From Operations (FFO): FFO was $56.0 million ($2.69 per share), compared to $26.5 million ($1.29 per share) in 2008.
- Adjusted FFO: Adjusted FFO was $59.5 million ($2.86 per share), excluding equity losses from affiliates and other non-recurring items.
- Net Operating Income (NOI): Total NOI was $144.5 million, up from $142.3 million in 2008. Real Property NOI increased 0.7% to $131.1 million.
- Debt: Total debt and lines of credit outstanding were $1.25 billion as of December 31, 2009. The weighted average interest rate was 4.9% with a weighted average maturity of 4.8 years.
- Liquidity: Cash and cash equivalents totaled $4.5 million. The Company maintained an unsecured revolving line of credit with $21.9 million available.
Material Changes vs. Prior Period
- Occupancy and Rents: Portfolio occupancy (excluding seasonal RV sites) was 83.4% at year-end, up from 83.1% in 2008. Weighted average monthly rent per site increased 2.8% to $404.
- Home Sales: Total homes sold increased 15.6% to 1,116 units. Pre-owned home sales volume increased 24.0%, while new home sales volume declined 41.8%. Gross profit on home sales increased 28.5% to $9.2 million.
- Rental Program: The Rental Program added 230 occupied homes, reaching 5,747 units. Rental Program NOI increased 5.0% to $30.9 million.
- Equity Losses: Equity losses from affiliates decreased significantly to $2.2 million in 2009 from $16.5 million in 2008, primarily due to reduced impairment charges related to the investment in Origen Financial, Inc.
- Discontinued Operations: The Company completed the sale of its cable television service business in Q3 2009, resulting in a net gain of $0.1 million.
Guidance, Outlook, and Risks
- Outlook: Management anticipates selling nearly 1,300 homes in 2010 and increasing rental program occupancy by approximately 220 lessees. The Company expects to maintain rent increases at or near historical levels of 2.8% to 3.9%.
- Debt Maturities: The Company has no significant debt maturities in 2010. Significant maturities include $103.7 million in 2011 (including the unsecured line of credit) and $520.9 million in 2014.
- Risks: Key risks include geographic concentration in Michigan, Florida, Indiana, and Texas; potential inability to refinance debt on favorable terms; and the impact of economic downturns on occupancy and rental rates. The Company also faces risks related to its investment in Origen Financial, Inc., which has experienced significant losses.
- Unusual Items: A flood in September 2009 caused substantial damage to the Countryside Village of Atlanta property, resulting in a $0.8 million charge (deductible net of expected insurance recoveries).
Investor Verification Checklist
- Verify the status of the $103.7 million debt maturity in 2011, specifically the unsecured line of credit, given the constrained credit markets.
- Confirm the extent of insurance recoveries for the Georgia flood damage and any potential future claims.
- Monitor the performance and potential further impairment of the investment in Origen Financial, Inc.
- Assess the impact of the 9.8% ownership limit on the Company's ability to attract large institutional investors or face a change of control.
- Review the Company's ability to maintain occupancy rates in Michigan, which represents 30% of the portfolio, amidst local economic conditions.