Sun Communities, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited results are compared with Q1 2020. Sun Communities is a REIT operating manufactured-home communities, RV resorts and marinas; the marina business expanded substantially following the 2020 Safe Harbor acquisition.
Financial performance and position
- Revenue: Total revenue was $442.0 million, up 42.5% from $310.3 million. Real-property revenue was $330.6 million; home sales were $52.2 million; and service, retail, dining and entertainment revenue was $50.6 million, largely reflecting Safe Harbor marina operations.
- Profit: Net income was $27.9 million versus a $15.5 million net loss; net income attributable to common stockholders was $24.8 million versus a $16.1 million loss. Diluted EPS was $0.23 versus a $0.17 loss per share. Results included a $3.7 million marketable-securities remeasurement gain, compared with a $28.6 million loss in Q1 2020.
- Property operations: NOI, a non-GAAP measure, rose to $220.4 million from $176.3 million. Same-community real-property NOI increased 2.7% to $175.4 million. Core FFO per diluted share was $1.26, versus $1.22; FFO per diluted share was $1.22, versus $0.98.
- Cash flow: Operating cash flow was $220.5 million, compared with $118.5 million. Investing used $286.0 million, including $141.8 million for acquisitions and $152.0 million invested in properties. Financing provided $93.0 million. Cash, cash equivalents and restricted cash ended at $120.2 million.
- Debt and liquidity: Total debt was $4.42 billion, down from $4.76 billion at year-end; weighted-average interest rate was 3.394% and weighted-average maturity was 9.5 years. Unrestricted cash was approximately $105.1 million, with approximately $1.7 billion of remaining capacity on credit lines. The company reported covenant compliance. Net debt to enterprise value was approximately 19.7% on the stated conversion assumption for specified OP units.
- Equity and distributions: The company received $537.6 million net from 4.0 million shares sold in March. A forward sale for 4.05 million additional shares could provide approximately $544.3 million net if physically settled; cash or net-share settlement may yield no proceeds. A quarterly distribution of $0.83 per share was declared.
Changes versus the prior period
- Growth reflects both operations and acquisitions, particularly Safe Harbor: the portfolio comprised 562 properties at quarter-end, including 110 marinas, compared with 422 properties a year earlier. Q1 2021 included $25.0 million of marina NOI and $3.7 million of NOI from recently acquired properties; same-community NOI contributed $4.6 million of growth.
- Same-community MH NOI rose 4.9%, supported by higher rent and occupancy. Same-community RV NOI fell 4.0%, mainly due to lower transient revenue and higher operating costs.
- MH and annual RV occupancy was 97.9% for the same-community portfolio; MH monthly base rent was $599 and annual RV monthly base rent was $524. Home-sales NOI increased 62.0% to $10.6 million.
- Beginning in 2021, reporting changed from two segments to three—MH communities, RV resorts and marinas—and prior-period segment information was recast. Management said the reclassifications did not affect prior-period net income, equity or cash flows.
Outlook, risks and unusual items
- No specific full-year earnings or FFO guidance is provided. Management said it expects to meet long-term liquidity needs through operating cash flow, available cash, credit facilities, debt or equity issuance, and property collateralization. It intends to continue evaluating acquisitions and development opportunities, subject to market conditions.
- Management estimated annual transient real-property revenue, excluding vacation rentals, at approximately $175.9 million, with substantial seasonality. Q1 recognized $26.0 million; the filing estimated $46.3 million for Q2, $76.3 million for Q3 and $27.3 million for Q4.
- COVID-19 impacts remained uncertain. The U.S.–Canada border remained closed to recreational travel, and Ontario restrictions could delay seasonal resort openings. The filing also identifies risks from occupancy and rent changes, operating-cost inflation, interest rates, refinancing and capital availability, acquisitions and integration, foreign exchange, and natural disasters.
- Variable-rate debt was $917.6 million. Management estimated a 1 percentage-point rate movement would change quarterly interest expense by approximately $3.0 million, based on average variable-rate debt balances.
- Q1 included $2.4 million of net catastrophic-event charges, primarily fire damage and winter ice storms, and $1.2 million of business-combination expense. The company reported no expected material adverse effect from ordinary-course legal proceedings. Disclosure controls were deemed effective; Safe Harbor was excluded from the internal-control assessment during its first year after acquisition.
Investor verification priorities
- Separate acquisition-driven growth, especially Safe Harbor, from same-community operating trends and assess continued RV transient-revenue softness.
- Review the March forward-equity settlement choice, proceeds actually received, share dilution and use of offering proceeds.
- Monitor debt balances, variable-rate exposure, credit-line availability and covenant headroom, including Safe Harbor facility terms.
- Assess whether marina integration, acquisition costs and the new segment structure affect comparability and reported margins.
- Track COVID-related travel restrictions, seasonal demand, operating-cost increases and the timing of development and capital spending.