Sun Communities (SUI), a Michigan-based real estate investment trust (REIT), invests in manufactured housing and recreational vehicle communities. SUI, which celebrated its 45th year in business during 2020, has an interest in 432 communities in 32 states and the Canadian province of Ontario, with a portfolio consisting of nearly 146,000 developed sites.

In September, SUI expanded its field of interest with the $2.1 billion acquisition of Safe Harbor Marinas LLC, the largest U.S. marina owner and operator. Safe Harbor Marinas, which now operates as a SUI subsidiary, owns and operates 101 marinas and manages five marinas on behalf of third parties, covering a network of nearly 40,000-member boat owners across 22 states.  

The U.S. residential housing market did not experience the economic trauma experienced across the commercial real estate sector during the COVID-19 pandemic, and SUI has been fortunate that its sector of the housing world weathered the pandemic storms – as of Sept. 30, its total portfolio occupancy was 97.2%, compared to 96.7% at the same time one year earlier. 

As CEO Gary Shiffman observed in SUI’s Q3 earnings report call, the company achieved “community NOI growth of 5.5% 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.”

Here’s how our proprietary POWR Ratings system evaluates SUI:

Trade Grade: B

SUI’s stock is trading at $143.22, which is closer to its 52-week high of $173.98 than its 52-week low of $95.34. The stock took a tumble in mid-March when the pandemic took root in this country, dropping from $170.55 on March 4 and bottoming at $100.90 by March 23. But it appears that SUI was swept up in the chaos of pandemic’s pain on the markets – there was nothing going on in the company’s financial health to warrant that kind of a sell-off. It has since regained most of its vibrancy, although it is still trading below its pre-pandemic levels.

Buy and Hold Grade: C

The lack of investor curiosity and enthusiasm in SUI is strangely at odds with the company’s respectable financial health. In the Q3 earnings that were announced in September, SUI’s total revenues were $400.5 million, a 10.5% year-over-year increase from the $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, compared to $57 million, or $0.63 per diluted common share, for Q3 2019. 

Also, the nine months ending Sept. 30 saw SUI’s total revenues hit the $1 billion mark, up 5.4% from the $962.2 million in the same period in 2019. However, net income attributable to common stockholders was $124 million, or $1.29 per diluted common share, for the first nine months of this year, compared to $131.7 million, or $1.49 per diluted common share, for the same period in 2019 – although this could be attributed to the drama in the pandemic’s early weeks rather than an internal defect within SUI.

Indeed, SUI President and CEO John B. McLaren told a Q3 earnings call that the company enjoyed a 9% increase in home rental applications and a 67% rental home renewal rate, while total applications for SUI community residency inclusive of sales was up 12% year-over-year.

“With regard to home sales, in the third quarter, we sold 710 homes compared to 906 homes last year,” McLaren said. “We had less pre-owned inventory to sell as a result of higher renewal rates and longer resident tenure. New home sales revenue grew 20% and our gross margin expanded 3.5% in the quarter to 18.7%. This was driven by a 29% increase in our average new home price of $153,000.”

Peer Grade: C

SUI ranks #6 out of 21 stocks in the REIT – Residential category. SUI is the highest ranking manufacturing housing and RV community REIT in the category, which is dominated by REITs focused on the single-family rental market.

Industry Rank: D

The REIT – Residential category ranks #107 out of 123 stock categories – the average POWR rating in this category is a C (Neutral).

Overall POWR Rating: B (Buy)

SUI has shown a solid financial performance this year. Outside of the Safe Harbor Marinas acquisition, SUI has been mostly under-the-radar this year.  However, investors should put this REIT on their radar.

Bottom Line

SUI is coming out of 2020 in a strong position, and the Safe Harbor Marinas acquisition signaled a level of forward-looking expansion. All evidence suggests the company is on the right track into 2021.

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SUI shares were trading at $145.85 per share on Tuesday afternoon, up $2.63 (+1.84%). Year-to-date, SUI has declined -1.10%, versus a 15.88% rise in the benchmark S&P 500 index during the same period.

About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...

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