Business context and reporting period
Sun Communities, Inc. is a REIT operating manufactured-home (MH) communities, recreational-vehicle (RV) resorts and marinas. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the same quarter of 2021. At quarter-end, the company owned or held an interest in 603 developed properties across the U.S., Canada, Puerto Rico and the U.K.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 or prior period |
|---|---|---|
| Total revenue | $548.5 million | $442.0 million; up 24.1% |
| Net income attributable to common shareholders | $0.7 million; diluted EPS $0.01 | $24.8 million; diluted EPS $0.23 |
| NOI | $261.9 million | $220.4 million; up 18.8% |
| FFO per diluted share | $1.28 | $1.22 |
| Core FFO per diluted share | $1.34 | $1.26 |
| Cash provided by operations | $225.7 million | $220.5 million |
| Total debt | $6.08 billion | $5.67 billion at Dec. 31, 2021 |
| Cash, cash equivalents and restricted cash | $102.6 million | $78.2 million at Dec. 31, 2021 |
Revenue growth reflected acquisitions and stronger operating results. Same-property MH and RV NOI rose 7.7%; same-property marina NOI increased 1.2%. MH occupancy was 97.3% and annual RV occupancy 100.0%; total MH and RV monthly base rent per site was $604, versus $580 a year earlier.
Reported common-shareholder earnings were sharply lower, principally because a $34.5 million loss from remeasurement of marketable securities replaced a $3.7 million gain in the prior-year quarter. Results also included a $13.4 million gain on property dispositions. The filing does not present a consolidated operating margin as a headline metric.
Investing activities used $484.2 million, including $299.0 million for property acquisitions and $182.7 million for property investment. Financing activities provided $282.9 million. Total debt carried a 2.958% weighted-average interest rate and 8.1-year weighted-average maturity. Unrestricted cash was $90.4 million, with $572.9 million of remaining Senior Credit Facility capacity at March 31. Net debt to enterprise value was 21.9%; the company reported compliance with debt covenants.
Changes, outlook and notable items
- Q1 acquisitions included four marinas and one U.K. MH community, for total consideration of $275.3 million. The company sold three Florida communities for $29.6 million and recognized a $13.4 million gain.
- Marina NOI increased 61.1%, supported by acquisitions, higher service rates and demand; same-property RV growth benefited from transient and vacation-rental activity. Home-sales NOI rose 77.4%, while Rental Program NOI declined 11.7% as occupied rental homes fell 17.5%.
- After quarter-end, the company completed its approximately $1.2 billion Park Holidays U.K. acquisition. It also reported subsequent acquisitions totaling $1.295 billion. These transactions are subsequent events, not Q1 results.
- On April 7, the Senior Credit Facility was amended to $4.2 billion, with potential additional capacity of $800 million. On April 12, the company issued $600 million of 4.2% ten-year notes; treasury-lock proceeds reduced the stated effective rate to 3.6%. On April 15, it settled forward equity sales for $934.9 million net and used the proceeds to repay facility borrowings.
- No numeric full-year guidance is provided in the supplied filing text. Management expects to continue evaluating acquisitions and development opportunities and describes liquidity needs for distributions, acquisitions, development, capital improvements and debt repayment. RV and marina results are seasonal, so Q1 results may not indicate full-year performance.
- Key risks cited include inflation and higher operating costs, interest rates, refinancing and capital availability, occupancy and rental rates, acquisition execution, foreign exchange, severe weather, market volatility, REIT qualification and manufactured-home financing. A 1% rate movement was estimated to change quarterly interest expense by $3.0 million based on the stated average variable-rate debt balance. Legal proceedings were not expected to have a material adverse effect; management reported effective disclosure controls and no material change in internal controls.
Important facts for investors to verify
- Separate recurring property performance from acquisition contributions and volatile items, particularly the marketable-securities loss and disposition gain; compare GAAP earnings with NOI, FFO and Core FFO.
- Review funding and integration of Park Holidays and other post-quarter acquisitions, including resulting debt, equity issuance, foreign-currency exposure and facility capacity.
- Monitor variable-rate borrowings, borrowing costs, refinancing needs and covenant headroom as rates and credit conditions change.
- Assess same-property occupancy, rent growth, operating-cost inflation and seasonal RV and marina trends; track the continuing decline in Rental Program homes and NOI.
- Confirm that cash-flow generation and financing access remain adequate for distributions, capital spending, development and acquisition commitments.