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Sun Communities, Inc. Reports 2016 Fourth Quarter Results
February 23, 2017
(the "Company"), 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 fourth quarter results.
For the quarter ended December 31, 2016, total revenues increased $50.4 million, or 30.0 percent, to $218.6 million compared to $168.2 million for the same period in 2015. Net loss attributable to Common Stockholders was $1.6 million, or $0.02 per diluted common share, as compared to net income attributable to Common Stockholders of $89.4 million, or $1.56 per diluted common share, for the same period in 2015.
For the year ended December 31, 2016, total revenues increased $159.1 million, or 23.6 percent, to $833.8 million compared to $674.7 million for the same period in 2015. Net income attributable to Common Stockholders for the year ended December 31, 2016 was $17.4 million, or $0.26 per diluted common share, as compared to $137.3 million, or $2.52 per diluted common share, for the same period in 2015.
"Sun's most recent results demonstrate the ongoing power of our platform. We achieved industry leading internal growth, increased or maintained occupancy for the 20th consecutive quarter and sold a record number of homes into our communities, while integrating our largest acquisition to date," said Gary A. Shiffman, Chairman and Chief Executive Officer. "As we proceed through 2017, we are keenly focused on continuing to deliver exceptional results to our shareholders. Along with continuing to drive NOI growth from our core portfolio, we anticipate the most meaningful opportunities will come from value-add assets that we can reposition to deliver superior returns over the long term. Sun is well positioned to continue our track record of value creation."
Total portfolio occupancy increased to 96.2 percent at December 31, 2016 from 95.0 percent at December 31, 2015. During the fourth quarter of 2016, revenue producing sites increased by 301 sites, as compared to 548 revenue producing sites gained in the fourth quarter of 2015.
Revenue producing sites gained during the year ended December 31, 2016 were 1,686 as compared to 1,905 revenue producing sites gained for the same period in 2015.
For the 219 communities owned throughout 2016 and 2015, fourth quarter 2016 total revenues increased 6.2 percent and total expenses decreased 0.9 percent, resulting in an increase in NOI of 9.1 percent over the fourth quarter of 2015. Same community occupancy increased to 96.6 percent at December 31, 2016 from 94.7 percent at December 31, 2015.
For the year ended December 31, 2016, total revenues increased 6.1 percent and total expenses increased 3.7 percent, resulting in an increase in NOI of 7.1 percent over the year ended December 31, 2015.
Total homes sales were 762 for the fourth quarter of 2016 as compared to 738 total homes sold during the same period in 2015.
During the year ended December 31, 2016, the Company sold 3,172 homes as compared to the 2,483 homes sold during the same period ending 2015, resulting in an additional 689 homes sold during 2016, or a 27.8 percent increase.
Rental homes sales, which are included in total home sales, were 231 and 297 for the three months ended and 1,089 and 908 for the year ended December 31, 2016 and 2015, respectively.
During the quarter ended December 31, 2016, the Company completed a $58.5 million secured borrowing that bears interest at a fixed rate of 3.33 percent and has a seven-year term. The Company repaid mortgage loans totaling $79.1 million in the fourth quarter and $28.9 million subsequent to year end, substantially addressing all of its 2017 maturities.
As of December 31, 2016, the Company had approximately $3.1 billion of debt outstanding. The weighted average interest rate was 4.48 percent and the weighted average maturity was 8.5 years. The Company had $8.2 million of unrestricted cash on hand. At period-end the Company's net debt to trailing twelve month EBITDA ratio was 7.5 times.
During the fourth quarter of 2016 and in January 2017, the Company sold 300,000 shares of common stock through its At-the-Market equity sales program at a weighted average price of $76.43 per share. Net proceeds from the sales were $22.6 million.
As noted in its third quarter earnings release, the Company acquired two communities shortly after September 30, 2016, for total consideration of $9.8 million. These communities, located in Colorado and New York, contain 495 RV sites and have expansion potential of approximately 350 sites.
Additionally, during the fourth quarter, the Company acquired a community adjacent to one of its existing communities in Florida, for consideration of $3.4 million. This community has 178 RV sites.
These communities are located in high demand destination locations and will undergo repositioning or expansion activities to fully realize the inherent value in the zoned and entitled land that was previously under-managed or under-utilized.
The Company estimates full year 2017 FFO per Share to be in the range of $4.16 to $4.24 per Share and the first quarter 2017 to be in the range of $1.06 to $1.08 per Share. Guidance does not include prospective acquisitions or capital markets activity.
The estimates and assumptions presented above represent a range of possible outcomes and may differ materially from actual results. The estimates and assumptions are forward looking based on the Company's current assessment of economic and market conditions, as well as other risks outlined below under the caption "Forward-Looking Statements."
A conference call to discuss fourth quarter operating results will be held on Thursday, February 23, 2017 at 11:00 A.M. (ET). To participate, call toll-free 877-407-4018. Callers outside the U.S. or Canada can access the call at 201-689-8471. A replay will be available following the call through March 9, 2017 and can be accessed toll-free by calling 844-512-2921 or by calling 412-317-6671. The Conference ID number for the call and the replay is 13652683. The conference call will be available live on Sun Communities' website www.suncommunities.com. Replay will also be available on the website.
Sun Communities, Inc. is a REIT that, as of December 31, 2016, owned or had an interest in a portfolio of 341 communities comprising approximately 117,000 developed sites in 29 states and Ontario, Canada.
For more information about Sun Communities, Inc., please visit the website at www.suncommunities.com.
Please address all inquiries to our investor relations department at our website www.suncommunities.com, by phone (248) 208-2500, by email investorrelations@suncommunities.com or by mail Sun Communities, Inc. Attn: Investor Relations, 27777 Franklin Road, Ste. 200, Southfield, MI 48034.
This press release contains various "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the Company intends that such forward-looking statements will be subject to the safe harbors created thereby. Forward-looking statements can be identified by words such as "will," "may," "could," "expect," "anticipate," "believes," "intends," "should," "plans," "estimates," "approximate," "guidance," and similar expressions in this press release that predict or indicate future events and trends and that do not report historical matters.
These forward-looking statements reflect the Company's current views with respect to future events and financial performance, but involve known and unknown risks, uncertainties, and other factors, some of which are beyond the Company's control. These risks, uncertainties, and other factors may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Such risks and uncertainties include national, regional and local economic climates, the ability to maintain rental rates and occupancy levels, competitive market forces, the performance of recent acquisitions, the ability to integrate future acquisitions smoothly and efficiently, changes in market rates of interest, changes in foreign currency exchange rates, the ability of manufactured home buyers to obtain financing and the level of repossessions by manufactured home lenders. Further details of potential risks that may affect the Company are described in our periodic reports filed with the U.S. Securities and Exchange Commission, including in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
The forward-looking statements contained in this press release speak only as of the date hereof and the Company expressly disclaims any obligation to provide public updates, revisions or amendments to any forward-looking statements made herein to reflect changes in the Company's assumptions, expectations of future events, or trends.
The following table reconciles Recurring EBITDA to consolidated net (loss) income:
The following table reconciles net operating income to consolidated net (loss) income:
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FFO is defined by the National Association of Real Estate Investment Trusts (NAREIT) as net income (loss) computed in accordance with generally accepted accounting principles (GAAP), excluding gains (or losses) from sales of depreciable operating property, plus real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure that management believes is a useful supplemental measure of the Company's operating performance. Management generally considers FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO provides a performance measure that, when compared period over period, reflects the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not readily apparent from net income (loss). Management believes that the use of FFO has been beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. FFO is computed in accordance with the Company's interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. The Company also uses FFO excluding certain items, which excludes certain gain and loss items that management considers unrelated to the operational and financial performance of our core business. We believe that this provides investors with another financial measure of our operating performance that is more comparable when evaluating period over period results.
Because FFO excludes significant economic components of net income (loss) including depreciation and amortization, FFO should be used as an adjunct to net income (loss) and not as an alternative to net income (loss). The principal limitation of FFO is that it does not represent cash flow from operations as defined by GAAP and is a supplemental measure of performance that does not replace net income (loss) as a measure of performance or net cash provided by operating activities as a measure of liquidity. In addition, FFO is not intended as a measure of a REIT's ability to meet debt principal repayments and other cash requirements, nor as a measure of working capital. FFO only provides investors with an additional performance measure that, when combined with measures computed in accordance with GAAP such as net income (loss), cash flow from operating activities, investing activities and financing activities, provide investors with an indication of our ability to service debt and to fund acquisitions and other expenditures. Other REITs may use different methods for calculating FFO, accordingly, our FFO may not be comparable to other REITs.
NOI is derived from revenues minus property operating expenses and real estate taxes. NOI does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (loss) (determined in accordance with GAAP) as an indication of the Company's financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity; nor is it indicative of funds available for the Company's cash needs, including its ability to make cash distributions. The Company believes that net income (loss) is the most directly comparable GAAP measurement to NOI. Because of the inclusion of items such as interest, depreciation, and amortization, the use of net income (loss) as a performance measure is limited as these items may not accurately reflect the actual change in market value of a property, in the case of depreciation and in the case of interest, may not necessarily be linked to the operating performance of a real estate asset, as it is often incurred at a parent company level and not at a property level. The Company believes that NOI is helpful to investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. The Company uses NOI as a key management tool when evaluating performance and growth of particular properties and/or groups of properties. The principal limitation of NOI is that it excludes depreciation, amortization interest expense and non-property specific expenses such as general and administrative expenses, all of which are significant costs, therefore, NOI is a measure of the operating performance of the properties of the Company rather than of the Company overall.
EBITDA is defined as NOI plus other income, plus (minus) equity earnings (loss) from affiliates, minus general and administrative expenses. EBITDA includes EBITDA from discontinued operations. The Company believes that net income (loss) is the most directly comparable GAAP measurement to EBITDA.
(2) The consideration amounts presented with respect to acquired communities represent the economic transaction and do not contemplate the fair value purchase accounting required by GAAP.
(3) This is a transferred asset transaction which has been classified as collateralized receivables and the cash received from this transaction has been classified as a secured borrowing. The interest income and interest expense accrue at the same rate/amount.
(4) Other expenses, net on the Consolidated Statements of Operations is comprised of: foreign currency exchange $5.0 million; hurricane related costs $1.2 million; and contingent liability re-measurement $0.2 million; partially offset by gain on acquisition of property $0.5 million.
(5) These costs represent the first year expenses incurred to bring acquired properties up to the Company's operating standards, including items such as tree trimming and painting costs that do not meet the Company's capitalization policy. As these costs have become more significant in connection with the size of our acquisitions, they are included as an adjustment to FFO for the year ended December 31, 2016. The Company incurred $1.1 million and $2.8 million of these first year expenses for the three months and year ended December 31, 2015, and had a similar adjustment been made, FFO attributable to Sun Communities, Inc. common stockholders and dilutive convertible securities per share excluding certain items would have been $0.83 and $3.68 for the three months and year ended December 31, 2015.
(6) The effect of certain anti-dilutive convertible securities is excluded from these items.
(7) The renter's monthly payment includes the site rent and an amount attributable to the leasing of the home. The site rent is reflected in Real Property NOI. For purposes of management analysis, the site rent is included in the Rental Program revenue to evaluate the incremental revenue gains associated with implementation of the Rental Program, and to assess the overall growth and performance of the Rental Program and financial impact on our operations.
(8) Three months and year ended December 31, 2015 excludes $1.1 million and $2.8 million of first year expenses for properties acquired in late 2014 and 2015 incurred to bring the properties up to Sun's operating standards. These costs did not meet the Company's capitalization policy.
(9) Includes manufactured housing (MH) and annual/seasonal recreational vehicle (RV) sites, and excludes transient RV sites and recently completed but vacant expansion sites.
(10) Occupancy reflects current year gains from expansion sites and the conversion of transient RV guests to annual/seasonal RV contracts as vacant in 2015.
(11) Monthly base rent per site pertains to annual/seasonal RV sites and excludes transient RV sites.
(12) Includes MH and annual/seasonal RV sites, and excludes transient RV sites.
(13) Includes capital expenditures necessary to maintain asset quality, including purchasing and replacing assets used to operate the community. These capital expenditures include items such as: major road, driveway, and pool improvements; clubhouse renovations; adding or replacing street lights; playground equipment; signage; maintenance facilities; manager housing and property vehicles. The minimum capitalized amount is five hundred dollars.
(14) Includes capital expenditures which improve the asset quality of the community. These costs are incurred when an existing older home moves out, and the site is prepared for a new home, more often than not, a multi-sectional home. These activities which are mandated by strict manufacturer's installation requirements and state building code include items such as new foundations, driveways, and utility upgrades.
(15) Acquisitions represent the purchase price of existing operating communities and land parcels to develop expansions or new communities. Acquisitions also include deferred maintenance identified during due diligence and those capital improvements necessary to bring the community up to the Company's standards. These include items such as: upgrading clubhouses; landscaping; new street light systems; new mail delivery systems; pool renovation including larger decks, heaters, and furniture; new maintenance facilities; and new signage including main signs and internal road signs. These are considered acquisition costs and although identified during due diligence, they sometimes require up to twelve months after closing to complete.
(16) Expansion and development costs consist primarily of construction costs and costs necessary to complete home site improvements.
(17) Capital costs related to revenue generating activities, consisting primarily of garages, sheds, and sub-metering of water, sewer and electricity. Revenue generating attractions at our RV resorts are also included here and, occasionally, a special capital project requested by residents and accompanied by an extra rental increase will be classified as revenue producing.
(18) Net leased sites do not include occupied sites acquired in that year.
Certain financial information has been revised to reflect reclassifications in prior periods to conform to current period presentation.
2321 Rosecrans Avenue. Suite 2200
90245 El Segundo Stati Uniti