Sun Communities, Inc. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Sun Communities is a REIT operating manufactured-housing and recreational-vehicle communities, with home sales and rentals. At quarter-end it owned 162 properties across 18 states, with 55,921 developed sites.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $82.4 million | $68.3 million | $165.5 million | $138.0 million |
| Net income attributable to common stockholders | $1.7 million | Loss of $0.9 million | $7.0 million | $1.5 million |
| Diluted earnings per share | $0.06 | Loss of $0.04 | $0.27 | $0.07 |
| FFO per diluted share | $0.77 | $0.70 | $1.66 | $1.51 |
Q2 revenue rose 20.7%; six-month revenue increased 20.0%. Real Property NOI grew 15.3% in Q2 and 17.6% for the six months, including contributions from acquired properties. Same-site NOI rose 5.9% in Q2 and 6.6% for the six months. Same-site occupancy was 86.6%, versus 84.5% a year earlier; average manufactured-home site rents increased 3.1%. Rental Program NOI increased 25.8% in Q2 and 25.3% for the six months. Six-month home-sales gross profit rose 23.5%, while new-home gross margin declined to 13.8% from 17.2%.
Six-month net cash from operating activities was $43.5 million, versus $29.1 million. Investing used $87.1 million and financing provided $42.3 million. Cash was $4.5 million at June 30. The company declared a quarterly dividend of $0.63 per common share.
Debt, liquidity and balance sheet
Total debt was $1.286 billion, with a 5.3% weighted-average interest rate and 7.0-year weighted-average maturity. Debt to total market capitalization was approximately 50.9%. The revolving facility had $20.1 million drawn and $105.9 million available under its borrowing base. Total stockholders’ equity was $29.9 million, compared with a deficit of $100.7 million at December 31, 2011; the January common-stock offering generated $156.0 million net proceeds, largely used to repay debt and fund acquisitions.
One significant exception to covenant compliance: subsidiaries holding the Florida Properties and Additional Florida Properties did not meet the debt-service coverage ratio in the $36 million facility. The company reported no Event of Default, requested a waiver, and said it could pay down part of the facility if the waiver is not obtained.
Changes, outlook and risks
- Growth reflected acquisitions as well as operations: Q2 portfolio NOI included $3.2 million from acquired properties and $2.0 million from same-site properties. The company acquired three Florida RV communities in February 2012; after quarter-end, it acquired a 260-site Texas RV community for $7.1 million on July 24.
- Management said operating cash and borrowing availability should meet near-term requirements and expected to fund longer-term needs through debt or equity issuance, property collateralization, or asset sales. No specific earnings or FFO guidance was provided.
- Management highlighted uncertain capital-market access, economic conditions, occupancy and rent levels, operating-cost inflation, manufactured-home sales and buyer financing, and interest-rate movements. A 1% change in benchmark rates was estimated to affect interest expense by about $1.2 million based on average variable-rate debt balances.
- Transfers of certain home loans did not qualify for sale accounting because of repurchase recourse; the related receivables and secured borrowing remain on the balance sheet. The company reported compliance with REIT requirements and said ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether the requested waiver for the $36 million facility was obtained, or a paydown was required.
- How much operating growth is repeatable same-site performance versus acquired properties and expansion of the rental-home program.
- Whether occupancy, rent increases and home-sales margins sustain their reported trends, and how concessions and operating costs evolve.
- Available borrowing capacity, refinancing conditions and sensitivity to variable interest rates; the $105.9 million availability is subject to borrowing-base calculations.
- Performance and default-related repurchase exposure for collateralized home receivables, which totaled $86.5 million net at quarter-end.