Sun Communities, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Sun Communities is a REIT operating manufactured housing (MH) and recreational vehicle (RV) communities, plus manufactured-home sales and rentals. At quarter-end, it owned or held interests in 424 properties across 33 states and one Canadian province.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $310.3 million | $287.3 million |
| Net income (loss) attributable to common stockholders | $(16.1) million | $34.3 million |
| Diluted earnings (loss) per share | $(0.17) | $0.40 |
| Operating cash flow | $118.5 million | $103.1 million |
| NOI / gross profit (non-GAAP) | $179.8 million | $164.4 million |
| Core FFO per diluted share (non-GAAP) | $1.22 | $1.18 |
- Revenue increased 8.0%. Real-property income rose 10.6%; home-sale revenue rose 2.4%. Real Property NOI increased 10.4% to $156.6 million, including 6.7% growth in same-community NOI to $150.2 million.
- Same-community growth reflected a 5.2% increase in real-property income, supported by higher occupancy and rents. Adjusted blended occupancy was 98.4%, versus 96.6% a year earlier; total monthly base rent per site increased to $567 from $544.
- The common-stockholder loss chiefly reflected non-operating valuation and currency items: a $28.6 million marketable-securities remeasurement loss, $17.5 million foreign-currency translation loss, and $2.1 million notes-receivable and $2.2 million affiliate-investment remeasurement losses. Core FFO increased despite the GAAP loss.
- Total cash, cash equivalents and restricted cash were $394.7 million, versus $34.8 million at year-end 2019; management separately reported $382.5 million of unrestricted cash. Marketable securities were $55.6 million, down from $94.7 million.
- Total debt, including lines of credit and mandatorily redeemable preferred interests, was $3.93 billion, compared with $3.43 billion at year-end. Weighted-average debt maturity was 10.6 years and weighted-average interest rate was 3.6%. Net debt to enterprise value was approximately 22.6%.
- Operating cash flow was $118.5 million; investing used $169.3 million and financing provided $411.1 million. The filing does not provide a single comparable free-cash-flow measure.
Material changes and financing
- Revenue and operating metrics grew year over year, while GAAP earnings swung to a loss largely because of fair-value and foreign-exchange changes. General and administrative expense increased 16.6% to $25.5 million, and depreciation and amortization increased 9.3% to $83.7 million.
- Credit-line borrowings rose substantially: lines of credit were $582.8 million at quarter-end versus $183.9 million at December 31, 2019. The company also completed a $230 million secured financing and repaid or refinanced other loans.
- Management reported $222.5 million of remaining line capacity and 143 unencumbered properties valued at approximately $2.6 billion that could support potential mortgage borrowing. The company was in compliance with debt covenants at quarter-end.
- Q1 acquisitions added two RV communities with 529 sites. Effective April 1, the company significantly curtailed non-essential capital spending and said it was carefully assessing near-term acquisitions.
Outlook, COVID-19, and risks
- The company provided no quantified full-year earnings or operating guidance. Management said the pandemic’s duration and full financial effect could not be predicted with confidence.
- COVID-19-related actions included reducing or deferring non-essential expenses, furloughs and pay reductions, and executives and directors foregoing base compensation for at least Q2. Amenities were closed where directed or to limit gatherings; evictions were halted and a rent-deferral hardship program was offered.
- As of April 21, management reported collecting approximately 98% of April MH rent and said fewer than 3% of MH-community residents had been approved for the hardship program. These are post-quarter management updates, not Q1 results.
- Forty-four northern U.S. and Canadian RV resorts had delayed openings with dates not yet confirmed. Management warned that travel restrictions and closures could reduce RV, ancillary and home-sale revenue, and that resident financial stress could affect rent collections.
- Further risks include access to debt and equity capital, refinancing and covenant compliance, interest-rate and foreign-currency movements, operating-cost increases, development delays, and potential reductions or stock payment of distributions. Ordinary-course legal proceedings were not expected to have a material adverse effect.
Investor verification points
- Track subsequent MH rent collections, hardship deferrals, occupancy, and any changes to rent increases or resident fees.
- Monitor delayed RV resort openings, seasonal demand, cancellations, and the resulting effect on RV and ancillary revenues.
- Reconcile unrestricted cash and available revolving-credit capacity; assess debt growth, refinancing needs, and covenant headroom.
- Review the valuation basis and subsequent movements in marketable securities, notes receivable, and the GTSC affiliate investment, which materially affected reported earnings.
- Compare GAAP results with NOI and Core FFO, which are non-GAAP measures, and review management’s disclosures for any later formal outlook.