Sun Communities Inc (SUI) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Sun Communities First Quarter Earnings Release Conference Call. At this time, management would like me to inform you that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although, the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions. The company can provide no assurance that if the expectations will be achieved. Factors and risks that could cause actual results to differ material from expectations are detailed in this morning’s press release and from time to time in the company’s periodic filings with the SEC. The company undertakes no obligation to advice or update any forward-looking statements to reflect the events or circumstances after this date of this release. Having said that, I would like to introduce management with us today, Gary Shiffman, Chairman and Chief Executive Officer; Jeff Jorissen, Chief Financial Officer.

Good morning. First quarter earnings, as announced prior to the opening in the market today, our funds from operations of $18.8m or 92 cents per share compared to $18.1m or 90 cents per share in 2002. Net income for the first quarter was $6.3m or 35 cents per share, compared to $8.1m or 46 cents per share and revenues for the first quarter were $44.7m compared to the $40.9m in the first quarter of 2002.

As a general comment, industry conditions are little if any changed from last quarter of 2002. There is interest excitement and anticipation related to the acquisitions of Clayton Homes and Conseco, but we believe it is too early to really know the tangible impact the transactions will have on the industry.

The liquidation of repossessed homes continues at equally discounted prices, which we discussed in our year-end call continuing to benefit the home buyer and the industry by removing those homes from the repossessed category for the long-term and creating excellent value for the home buyer. Sun’s weighted average rental increase for the first quarter was 4.5%, which is inline for our budget for the year. Occupancy in the manufactured housing portfolio declined by a net of 92 sites in the quarter. We would expect to recruit and move into the positive net lease position as we enter what we referred to as the primary sales season and leasing season over the next couple of quarters.

Same property portfolio net operating income growth of 2.6% should strengthen as well as revenues increase with occupancy during these stronger sales and lease in quarters. If revenues grow 4.5% instead of 3.5%, the NOI growth moves to 4%, or a 1% increase amounts to about $350,000 or about $3,000 per property on the same property basis.

Expenses grew by 6.2% and had that growth been 4%, the NOI would be further increased by 70 basis points to 4.7% for the quarter, which is what it was for all 2002. The expense differential between 6.2% and 4% amounts to about $200,000 over the 109 communities, or just under $2,000 per community, and I will address the specifics related to those expenses just in a little bit in the call.

Delinquencies on the entire portfolio at $1.2m; had not been this low since first quarter in 2002 and second quarter in 2001. So, we are encouraged by where delinquencies has sunk to at this point. Bad debt expense was 77 basis points of the income from the properties compared to 78 basis points for the year 2002.

Bad debt plus related legal and court costs, reduced by late fees for the quarter was $86,000 compared to a $164,000 for fourth quarter of 2002.

At the end of this quarter there were 326 repossessed homes where the finance company is still paying rent as compared to 313 repossessed homes at 12-31-02.

And now taking a deeper look at the margins, I would like to share some specific numbers with everybody. I point out the following way of viewing our costs and expenses for the quarter. Real estate taxes increased by $500,000 with $200,000 due to fourth quarter 2002 acquisitions and $300,0000, or about 11% due to increases in assessments and rates as we believe the municipalities have experienced budget problems and look for solutions to their own budgets.

Property operating and maintenance expenses increased from 21.3% to 24.5% of the income from property from the first quarter ’02 to first quarter ’03; an increase of about 320 basis points. One quarter of that increase is due to the acquisition and consolidation, excuse me, of the development properties, which will gradually be recouped as these communities fill. The remaining increase of about $1m results from the following; $100,000 was due to the expansion of our cable TV services, which resulted in approximately $200,000 of additional cable TV revenue; $250,000 is due to increases in property and casualty insurance. About $200,000 in legal -- about $50,000 of the 250, of which a $150,000 represents a one-time expense due to claims that were covered and loan prepaid by the now bankrupt Reliance Insurance Company.

$200,000 from increased cost of employee benefits including insurance and payroll taxes of which $100,000 represents an accrual for incurred, but not reported claims and $300,000 from the utilities which are also largely recovered through rebilling. Finally, a $150,000 from repairs and maintenance, which is approximately one half from the harsh winter we have had in the mid-west and one-half just a matter of timing issue.

So in summary, of the $1m in the first quarter POM expense increases, $400,000 are recovered through revenues, $250,000 represents one-time charges that I reviewed and about $75,000 is our repairs and maintenance timing issues; it's about 725,000 of the $1m.

On the G&A side, we had an increase of about $300,000 and this is due primarily to increased Michigan single business taxes, which were increased by about $200,000 and the timing of payroll taxes, which represented about $50,000 of the $300,000.

Overall, I will share with you that first quarter performance as measured by management was largely as expected. We call for somewhat stable occupancy, flat occupancy and our stable properties throughout the year and an increase of approximately 700 net sites and our development sites for the year, we feel that we are right on target for that and will affirm our earnings guidance of 2-4% FFO per share of growth for 2003, which will result in quarterly FFO per share through the rest of 2003 ranging from about 85 cents to 88 cents per share. And at this time Jeff and I would be glad to respond to any questions. We have the operator pick up please.

If you wish to ask a question please press “star” then the number “1”. Your first question comes from Alexander Goldfarb.

Good morning. Just first of-- just going back to the expenses. So, you’d expect the expenses to come down a bit for the remainder of the year or are there other sort of one time items for example your pending insurance or something of that sort, that may come up to keep expenses where they are currently.

Well, I think that the answer the yes. We would expect the expenses to run on a more normalized basis, going forward because these were in fact one time charges which we don’t expect to recur and the timing should-- [of course] items take care of themselves. So, answer is yes, we would expect the expenses to normalize.

So back to sort of an ’02 level.

Well, subject to of course to the properties we bought in Q4 of ’02, which are going to continue to impact margins because their operating percentage is -- their performance margins are NOI as a percentage of revenues is not going to be at the same level obviously, as our stabilized properties.

Okay. And can you give us an update on Origin I noticed in your proxy there was a mention of some financing on the portfolio and the third party lender and then some equity. If you could just touch on that?

Sure. I think Origin sold it’s $200m current portfolio of loans to a special purpose entity that finance the $200m purchase with a $160m facility from Solomons Smith Barney and $40m of equity, $20m that has so far being raised by third party private individuals, and an additional $20m is being raised out there that will go to pay back the Sun credit facility.

Okay. So, the -- I think Sun had about 32 or so million under the credit line. So, it sounds like about 12 or so had been paid back and the balance of 20 is remaining/

Yes. But, if their joint credit facility a total of $58m credit facility of which Sun has a participation of $35m. And so the facility has paid down as a whole and represents a pro rata share of each lender’s commitment to the facility.

Okay. So the entire Sun part has been repaid.

No. That would be incorrect. As the money flows into the facility it's pro rata Sun share of it 35 over 58. So every dollar that comes iin is shared pro rata with Sun that way.

Okay. And can you talk about how the lease up of the SunChamp and [Trident] properties are going. Are they on schedule? Are they a bit ahead -- a bit behind?

They’re basically rite on schedule. We are looking at absorption of about 3.5 per month, budget it for the year on a community-by-community basis and we’re right where we are-- forecast to be on budget for this time in the year.

Okay. So, that makes up, I think, you have mentioned 700 net sites growth for the year.

That’s correct. That will be our entire new community development portfolio which is broader than just 3 property-- then the two groups of properties that you mentioned.

Okay. And then--

You can see the breakdown in our supplemental data.

Okay. Okay. And just two balance sheet questions. One is -- if you can just walk [me] through the investment in affiliates, what is in there?

That’s entirely investments in Sun Home Services, which is our only remaining affiliate.

Okay.

At 03/31/02.

Okay. So, that's entire...

It will increase in '03.

Okay. So the entire amount, it's like 72m that's all Sun Home Services?

Correct.

Okay. And the final question. Can you just talk to me about the OP Press issuance? I think part of it was because of SunChamp, but it seems to have gone up about 10% over the past 2 quarters.

The OP -- I'm sorry -- could you repeat the question.

Sure. The OP -- the preferred OP units; they seemed to have gone up about 10% over the past two quarters and I think part of that was related to SunChamp, but I just want to understand if that was all SunChamp or if there are other thinks that were going on there?

We have nothing to do with SunChamp.

Okay.

The one of the collateralized lease obligations at its maturity was convertible into preferred OP units, and that matured in, I think in early January of '03. So -- and the fact which you see is collateralized lease obligations and the debt going down and preferred OP going up.

Okay. Thank you.

Your next question comes from David Shulman.

Good morning. On the special purpose on the -- special purpose entity that you have cited earlier on whose books will that entity be consolidated?

What special purpose entity?

Well, it was special on the $200m loan facility with Origin--

--Origin.

And the 160m warehouse and the 14m of equity. It is a special purpose entilty; on whose books will that entity be consolidated?

Origin.

Origin. That will be in Origins books.

Yes.

Okay. And on this -- and there is no gain on loss in this transaction, as far as net income for Origin will [inaudible].

I believe that's correct.

Okay. Thank you.

At this time, there are no further questions.

Okay. At this time, we would like to thank everybody for their participation and look forward to reporting second quarter earnings.

This concludes today's conference call. You may now disconnect.