Sun Communities, Inc. , a real estate investment trust (“REIT”) that owns and operates, or has an interest in, manufactured housing (“MH”) and recreational vehicle (“RV”) communities, today reported its third quarter results for 2020.
Financial Results for the Quarter and Nine Months Ended September 30, 2020
For the quarter ended September 30, 2020, total revenues increased $38.1 million, or 10.5 percent, to $400.5 million compared to $362.4 million for the same period in 2019. Net income attributable to common stockholders was $81.2 million, or $0.83 per diluted common share, for the quarter ended September 30, 2020, as compared to net income attributable to common stockholders of $57.0 million, or $0.63 per diluted common share, for the same period in 2019.
For the nine months ended September 30, 2020, total revenues increased $51.9 million, or 5.4 percent, to $1.0 billion compared to $962.2 million for the same period in 2019. Net income attributable to common stockholders was $124.0 million, or $1.29 per diluted common share, for the nine months ended September 30, 2020, as compared to net income attributable to common stockholders of $131.7 million, or $1.49 per diluted common share, for the same period in 2019.
Non-GAAP Financial Measures and Portfolio Performance
Gary Shiffman, Chief Executive Officer of Sun Communities stated, “The growth we delivered in the third quarter demonstrated the resilience of our platform and our ongoing positive operational momentum. Once again, our results were ahead of expectations as solid top line revenue performance and certain expense savings continued to mitigate the impact of the pandemic. We achieved same community NOI growth of 5.5 percent and added 776 revenue producing sites, boosting our occupancy by 50 basis points. Our RV resorts were exceptionally strong, as travelers elected drive-to vacation options and took advantage of our varied vacation destinations featuring lakes, mountains and beaches.”
Mr. Shiffman continued, “Despite the present challenges of the pandemic, we remain focused on positioning Sun for the future. During the quarter we acquired five RV and two MH communities as we continue to expand our portfolio. We are particularly excited about our pending acquisition of Safe Harbor Marinas, LLC and the integration of marinas onto our platform which should further enhance Sun’s growth profile over the long term.”
Total portfolio occupancy was 97.2 percent at September 30, 2020, compared to 96.7 percent at September 30, 2019. During the quarter ended September 30, 2020, revenue producing sites increased by 776 sites, as compared to 766 revenue producing sites gained during the third quarter of 2019, a 1.3 percent increase.
During the nine months ended September 30, 2020, revenue producing sites increased by 1,927 sites, as compared to an increase of 2,005 revenue producing sites during the nine months ended September 30, 2019.
Same Community(2) Results
For the 366 communities owned and operated by the Company since January 1, 2019, NOI(1) for the quarter ended September 30, 2020 increased 5.5 percent over the same period in 2019, resulting from a 5.4 percent increase in revenues, and a 5.2 percent increase in operating expenses. Adjusted to remove the impact of $1.1 million of direct COVID-19 related expense, Same Community NOI(1) growth was 6.2 percent for the quarter ended September 30, 2020. Same Community occupancy(3) increased to 98.8 percent at September 30, 2020 from 96.8 percent at September 30, 2019.
For the nine months ended September 30, 2020, NOI(1) increased 4.6 percent over the same period in 2019, as a result of a 3.0 percent increase in revenues and a 0.2 percent decrease in operating expenses. Adjusted to remove the impact of $2.1 million of direct COVID-19 related expense, Same Community NOI(1) growth was 5.0 percent for the nine months ended September 30, 2020.
During the quarter ended September 30, 2020, the Company sold 710 homes as compared to 906 homes sold during the same period in 2019. The Company sold 155 and 167 new homes for the quarters ended September 30, 2020 and 2019, respectively. Rental home sales, which are included in total home sales, were 225 and 317 for the quarters ended September 30, 2020 and 2019, respectively.
During the nine months ended September 30, 2020, 2,084 homes were sold as compared to 2,631 for the same period in 2019. Rental home sales, which are included in total home sales, were 581 and 859 for the nine months ended September 30, 2020 and 2019, respectively.
For the third quarter of 2020, MH and annual RV rent collections were approximately 97.0 percent and 98.0 percent, respectively, after adjusting for the impact of hardship deferrals and prepaid rent balances.
Acquisitions and Dispositions
During the quarter ended September 30, 2020, the Company acquired the following communities:
|Community Name||Type||Sites||Development Sites||State||Total Purchase Price (in millions)||Month Acquired|
|Jellystone Lone Star||RV||344||—||TX||21.0||September|
|El Capitan & Ocean Mesa(a)(b)||RV||266||109||CA||59.5||September|
|Highland Green Estates & Troy Villa(b)||MH||1,162||—||MI||64.7||September|
(a) In conjunction with the acquisition, the Company issued Series G preferred OP units. As of September 30, 2020, 260,710 Series G preferred OP units were outstanding.
(b) Contains two communities.
Year to date, the Company has acquired 11 communities totaling 3,517 sites for a total purchase price of $303.5 million.
During the quarter ended September 30, 2020, the Company sold a manufactured home community located in Montana, containing 226 sites, for $12.6 million. The gain from the sale of the property was approximately $5.6 million.
Pending Transaction – Safe Harbor Marinas
On September 29, 2020, the Company entered into a merger agreement to acquire Safe Harbor Marinas, LLC (“Safe Harbor”) for approximately $2.1 billion. As of September 30, 2020, Safe Harbor directly or indirectly owned 101 marinas and managed five other marinas for third-party owners. The marinas collectively contain approximately 30,000 wet slips and moorings and approximately 8,300 dry racks, with approximately 9,500 additional spaces available for outside land storage. The marinas are located in 22 states in the Northeast, South, Mid-Atlantic, West and Midwest Regions of the United States, with the majority of such marinas concentrated in coastal regions and others located in various inland regions. The purchase price will be paid through a combination of the assumption of debt owed by Safe Harbor, the issuance of common and preferred OP units by the Company’s Operating Partnership, and cash. We expect to acquire Safe Harbor no later than October 30, 2020. The consummation of the $2.1 billion acquisition is subject to the satisfaction of customary closing conditions. If these conditions are not satisfied or waived, or if the merger agreement is otherwise terminated in accordance with its terms, then the acquisition will not be consummated. As a result, there can be no assurances as to the actual closing or the timing of the closing.
During the quarter ended September 30, 2020, the Company completed the construction of nearly 660 sites in four ground-up developments and one redevelopment community, and nearly 25 expansion sites in one RV community.
BALANCE SHEET AND CAPITAL MARKETS ACTIVITY
As of September 30, 2020, the Company had $3.3 billion of debt outstanding. The weighted average interest rate was 3.9 percent and the weighted average maturity was 11.4 years. The Company had $102.4 million of unrestricted cash on hand. At period-end the Company’s net debt to trailing twelve-month Recurring EBITDA(1) ratio was 5.0 times.
Subsequent to the quarter ended September 30, 2020, the Company entered into a new $260.0 million term loan secured by 11 properties. The loan term is 12-years and the interest rate is fixed at 2.64 percent.
On September 30, 2020, the Company entered into two forward sale agreements relating to an underwritten registered public offering of 9,200,000 shares of the Company’s common stock at a public offering price of $139.50 per share. The offering closed on October 5, 2020. The Company did not initially receive any proceeds from the sale of shares of its common stock in the offering. The Company expects to physically settle the forward sale agreements (by the delivery of shares of its common stock) and receive proceeds from the sale of those shares of its common stock upon one or more forward settlement dates no later than October 5, 2021. The Company may also elect to cash settle or net share settle all or a portion of its obligations under the forward sale agreements if it concludes it is in its best interest to do so. If the Company elects to cash settle or net settle the forward sale agreements it may not receive any proceeds. If the Company fully physically settles the forward sale agreements, it expects to receive net proceeds of approximately $1.23 billion. The Company intends to use the net proceeds, if any, received upon the settlement of the forward sale agreements to fund the cash component of the purchase price for the Safe Harbor acquisition. If for any reason the Safe Harbor acquisition is not consummated, or if the net proceeds, if any, received upon the future settlement of the forward sale agreements exceed the cash component of the purchase price, the Company intends to use any such net proceeds to repay borrowings outstanding under the revolving loan under its senior credit facility, to fund possible future acquisitions of properties and for working capital and general corporate purposes.
COVID-19 FINANCIAL IMPACT
Given the uncertainty surrounding the impact from the COVID-19 pandemic on its operations, the Company has withdrawn full year 2020 operational and financial guidance previously provided on February 19, 2020.
For the third quarter of 2020, the Company had a net benefit of approximately $4.6 million from its original budget as compared to a forecasted net reduction of up to $15.0 million outlined during the Company’s second quarter earnings release. The improvement was primarily due to better than expected transient RV revenues, ancillary activities gross profit and lower property level payroll.
The Company expects fourth quarter 2020 Core FFO to be in the range of $1.08 to $1.12 per share.
This estimate range is inclusive of the Company’s latest revenue expectations for transient RV revenue, the estimated two-month contribution from the Safe Harbor acquisition, the impact from the Company’s 9.2 million share forward equity offering and announced financing activities. The forecast does not include any additional prospective acquisition or capital market activity.
EARNINGS CONFERENCE CALL
A conference call to discuss third quarter operating results will be held on Thursday, October 22, 2020 at 11:00 A.M. (ET). To participate, call toll-free 877-407-9039. Callers outside the U.S. or Canada can access the call at 201-689-8470. A replay will be available following the call through November 5, 2020 and can be accessed toll-free by calling 844-512-2921 or 412-317-6671. The Conference ID number for the call and the replay is 13708698. The conference call will be available live on Sun Communities’ website located at www.suncommunities.com. The replay will also be available on the website.
Sun Communities, Inc. is a REIT that, as of September 30, 2020, owned, operated, or had an interest in a portfolio of 432 communities comprising nearly 146,000 developed sites in 32 states and Ontario, Canada.
For more information about Sun Communities, Inc., please visit www.suncommunities.com.
Please address all inquiries to our investor relations department at our website www.suncommunities.com, by phone to (248) 208-2500, by email to email@example.com or by mail to Sun Communities, Inc. Attn: Investor Relations, 27777 Franklin Road, Ste. 200, Southfield, MI 48034.