Sun Communities Earnings: Annual Membership Revenue Growth Strong, but Transient Revenue Declines

Sun Communities reported second-quarter results that were relatively in line with our expectations, giving us confidence in our $172 fair value estimate for the no-moat company. Same-store occupancy for the manufactured home segment remained flat sequentially at 96.7%. However, after adjusting for recently completed expansion projects, occupancy increased 150 basis points year over year to 98.5%. Rental rates increased 6.0%, leading to same-store revenue growth of 7.2% and same-store net operating income growth of 6.4%, which was in line with our 6.7% estimate. While annual membership revenue for recreational vehicles was up 11.0%, transient business for RVs was down 12.0%. As a result, same-store revenue for RVs was down 0.7% and same-store NOI fell 4.6%, which was worse than our estimate of a 1.8% decline. The company’s marina segment saw same-store NOI growth of 6.1%, so total company same-store NOI growth was 3.6% for the second quarter, which was in line with our 4.0% estimate. Sun reported core funds from operations of $1.86 per share for the second quarter, which was below our $1.89 estimate.