Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sun Communities Inc (SUI, Financial) reported a solid second quarter with Core FFO per share of $1.86, in line with guidance.
- Manufactured housing, the largest segment, generated same-property NOI growth of 6.4%, driven by strong rental rate growth and occupancy gains.
- Marina same-property results achieved 6.1% NOI growth, in line with guidance, supported by strong demand for Safe Harbor networks.
- The UK segment saw same-property NOI growth of 9.3%, exceeding the high end of guidance, driven by lower-than-expected utility expenses.
- Sun Communities Inc (SUI) successfully sold eight properties, bringing total asset sale proceeds year-to-date to over $300 million, which helped reduce the leverage ratio to 6.0 times on a pro forma basis.
Negative Points
- Same-property NOI for the RV segment decreased by 4.6%, driven by weakness in the transient RV segment.
- The company experienced a 12% decrease in RV transient revenues in the second quarter, underperforming the expected 8% decline.
- Total real-property NOI is 80 basis points lower for 2024 at the midpoint of guidance, primarily reflecting recent asset sales.
- Interest expense guidance is $6.5 million lower at the midpoint after paying down debt using net proceeds from asset sales.
- UK home sales slowed in June ahead of England's elections, leading to a reduction in the UK home sales FFO contribution by $850,000 at the midpoint.
Q & A Highlights
Q: Are you looking to do more dispositions from here? And can you provide some information around the cap rates of the properties sold?
A: (Gary Shiffman, CEO) We are on plan with our $300 million disposition program and have several other select dispositions in the market. These are non-strategic assets that help improve operational efficiencies. We will provide updates at the appropriate time.
Q: Can you give an update on the UK loan collateral and if any of those assets are potentially among the assets that you're looking to monetize in the near term?
A: (Fernando Castro-Caratini, CFO) The assets collateral for the UK loan are not part of the potential dispositions. The Park Holidays team has taken over operations, and we are excited to see them continue to produce.
Q: Can you elaborate on the Marina business being down 30 basis points and the large vessel movements?
A: (Gary Shiffman, CEO) The earlier-than-forecasted transatlantic movement of large superyachts has impacted our Marina business. We expect these vessels to return later in the year, around late September to early October, which we have accounted for in our revised guidance.
Q: What is happening on the ground in the UK that has led to a meaningful shift in same-store revenue and a decline in expenses?
A: (Gary Shiffman, CEO) Positive macro trends, such as lower inflation and interest rate cuts, are benefiting our UK operations. We are focused on increasing real-property contribution over home sales profit. (Fernando Castro-Caratini, CFO) We are seeing higher rates from new owners and lower utility costs than expected, driving the outperformance.
Q: Can you clarify the expected return of superyachts after the America's Cup?
A: (Gary Shiffman, CEO) We expect the superyachts to return around November, which is later than usual due to the America's Cup. This has been factored into our guidance.
Q: The dispositions were done on an FFO accretive basis, but there seems to be a discrepancy in real-property NOI and interest expense. Can you explain?
A: (Fernando Castro-Caratini, CFO) The discrepancy is due to shifts in performance over the second quarter for the rest of the portfolio and movements in our non-same-property pool, including acquisitions and development assets.
Q: How will you manage home sales in the UK given the higher demand and increased margins?
A: (Gary Shiffman, CEO) We will continue to reduce margins and increase the velocity of occupancy to create more valuable revenue on the real-property side. (Fernando Castro-Caratini, CFO) Home sales will continue to be part of the business, feeding into more reliable income on the real-property side.
Q: Can you give more color on your transient RV outlook for the balance of the year and how July 4th performed?
A: (Gary Shiffman, CEO) We are focused on converting transient to annual sites, which leads to better margins and predictability. (Fernando Castro-Caratini, CFO) Transient revenue is expected to decline by about 10% for the year. July 4th revenue was down about 7%, but we converted around 7% of sites from transient to annual.
Q: Is the current strategy to stick with core businesses and sell non-core assets, or are there other potential options being considered?
A: (Gary Shiffman, CEO) We are focused on increasing FFO growth and maximizing returns through our current strategies. We will continue to evaluate all options but are currently targeted at translating NOI growth into FFO growth for 2025.
Q: What are some signs of stabilization in the transient RV business, and when do you expect to see them?
A: (Gary Shiffman, CEO) We see RV as a good long-term business with some cyclicality in the transient segment. Our strategy of converting transient to annual sites minimizes near-term volatility. (Fernando Castro-Caratini, CFO) Transient revenues have grown at a 5% CAGR over the last five years, and we continue to see demand for conversions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
