Sun Communities Inc (SUI) 2009 Q4 法說會逐字稿

Welcome to the Sun Communities fourth quarter 2009 earnings results conference call. At this time management would like me to inform you that certain statements made during this conference call which will 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 it's expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in this mornings press release and from time to time in the Company's periodic filings with the SEC. The Company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release. Having said that, I'd like to introduce management with us today, Gary Shiffman, Chairman and Chief Executive Officer, Karen Dearing, Chief Financial Officer, and Jeff Jorissen, Director of Corporate Development.

I would now like to turn the call over to Gary Shiffman.

Thank you, and good morning, everybody. This morning we reported funds from operations of $16.2 million or $0.77 per share for the fourth quarter of 2009, compared to $15 million or $0.73 per share for the fourth quarter of 2008. FFO for the year ended December 31, 2009 was $59.5 million or $2.86 per share compared to $57 million or $2.78 per share for 2008. These FFO results exclude the various items noted the FFO table accompanying the press release. Total revenues for 2009 were $256.6 million. I'd like to begin by talking about some firsts at Sun Communities.

In 2009, we sold 1,116 homes which is in fact the first time we've sold over 1,000 homes in the Company's history. This includes the sale of 705 homes which had been a part of our rental pool and, again, this is an all-time high for the Company. Home sales used to be dominated by the dealer networks which have steadily diminished and as new home shipments have declined, and I think at Sun, our community sales programs have supplanted and replaced the dealer network as the primary source of owner-occupied homes in our communities. Annual applications to live in our communities increased from 17,000 in 2008 to just over 19,000 in 2009, continuing to demonstrate increasing interest and demand. And our rental program introduces thousands of residents annually to the community lifestyle and affordability as well as providing us with a constantly renewing pool of potential home buyers as we've discussed in the past.

In 2009, our average monthly delinquent receivables rounded to $1 million, again, the first time it has been that low since the year 2000. We think this is especially impressive given much lower revenue levels in 2000 as well as the absence of any rental program at that time. An additional benefit from this year's effective collections systems was a year-over-year reduction of bad debt expense in excess of about $0.5 million.

In 2009, we added 224 revenue producing occupied sites to the portfolio which is the first time our gains have exceeded 200 since the year 2000. In the first two months of 2010, I'm also pleased to be able to announce to everyone today that we have added an additional 196 revenue producing occupied sites, and that improvement in occupancy is really what we refer to as the tale of two markets. The midwest which is improving and the continued strong Texas market.

Michigan, Indiana and Ohio represent more than 50% of our manufactured housing sites. We lost 425 sites in those states in 2008, but only 66 in 2009. Through February 2010, we have actually gained 92 sites in those states, so that strong trend of improvement is actually continuing. In Texas we have gained over 400 sites of occupancy in the last two years and over 50 sites thus far in the first two months of 2010. So what I would like to share with everyone is our thought that we aren't actually realizing kind of a textbook example of preparation meeting opportunity.

The current economic conditions have benefited us in the form of fewer affordable housing options available out there. And as a result, we are actually now getting the customers we traditionally always had back into our portfolio. We are capitalizing on this opportunity because we were and continue to be totally prepared to provide an attractive option that lends the attributes of our products affordability and the benefits of traditional site-built housing in what we believe are well maintained and service minded communities. As a company, our team members continue to take initiative in and make decisions within the frame work of our core success attributes of commitment, intensity, accountability, and customer service.

Last quarter we introduced the tracking of net promoter scores throughout the portfolio asking one single question--how likely are you to refer a friend or family member to live in a Sun community? These results will govern much of our core strategy for 2010 and beyond.

A number of our communities in Texas, nine of which have occupancies of 98% or above, Colorado, and North Carolina which are approaching 100% occupancy, actually have zoned expansion sites which are currently under active consideration for developments. During our early years as a public company in the 1990s, we developed thousands of expansion sites as well as a number of new communities. There are minimal marginal operating expenses occurred in adding sites to the existing community, which is all that we are looking at now,and our ability to effectively manage rental programs through conversion and sales of those rental homes, lends confidence to our lease up expectations in those areas, where demand has remained strong, and we will take a good hard look at considering some expansion opportunities.

We are also beginning to see a number of acquisition opportunities which are tended to share a common profile. The owners of those communities could either not afford or were unable to effectively manage a rental program, which has been a necessary operational component and tool throughout the last challenging nine years in our industry. The result in their communities is that occupancy has declined to 50% or in some cases below. And cash flow became tight, giving rise to deferred maintenance and difficulties with their lenders. We believe these opportunities are attractive because our operations sales and rental team at Sun, as well as our systems, can readily be leveraged to add additional communities which we can then lease up profitably. We are currently reviewing five such opportunities.

Now I would like to turn the earnings guidance for 2010. We expect FFO per share will be in the range of $2.89 to $2.98 per share. This is based on a weighted average rental increase of 2.5%, and an increase in occupancy of 300 sites, and nearly 1,300 home sales. Other key assumptions are; same property growth in that operating income of 1.9%, continued modest growth in our rental home occupancy but no increase in our rental rates, and stable interest rate environment.

The Company's funds available for distribution or FAD, were within 0.5% of 1% of recovering our 2009 dividend. In 2010, using the midpoint of earnings guidance, FAD will be 103% when compared to the Company's 2009 dividend of $2.52. This would be the first year since our recapitalization in 2004 that FAD has exceeded our dividend.

In summary, we had a good year in 2009, especially with respect to occupancy improvements, and I am very pleased at our strong start in 2010, with a broadening array of alternatives for initiating new internal growth within the portfolio as well as external growth beginning in 2010, and at this time, Karen, Jeff and myself would be available for any questions.

Thank you. We will now be conducting a question and answer session. (Operator Instructions) Our first question is from Andrew McCulloch of Green Street Advisors, please go ahead with your question, sir.

Good morning, buys. This is Chris and Andy is with me as well. First off, have you had any preliminary negotiations about refinancing your 2011 maturities?

We have been very active on that and have met and talked to many of the bank group on our line of credit as well as the bank group looking at the a piece of the Bank of America secure tied debt that rolls at that time, and those are all geared towards early and well in advance efforts to make sure that we have gotten all of those debt maturities and our line of credit placed prior to terming out.

Okay. Thanks for that. And then, are any of those upcoming maturities tied to lower occupancy midwestern assets? Are you getting any kick back from the bank lenders or anything on that?

I never use the term of kick back, we will refer to it as push back. I think what we are seeing is that over the period of time, we have seen overall NOIs grow as much as 18% to 20% overall from where they were originally, underwritten cap rates obviously have changed, spreads have changed so they will have an impact, but we feel pretty good and pretty confident at this time, that actually in advance of the maturities, we will have tended to that debt.

Okay. And then, switching gears just a little bit, does the litigation you have ongoing with Fanny affect your relationship with that entity at all?

You know, we have not heard anything that would indicate that. I mean, there has been a very pleasant dialogue. They feel very comfortable with their position, and we are very puzzled at trying to understand their position on that, and it has been a cordial back and forth between the attorneys, so there's no indication one way or the other. It is something we think a lot about and something we discuss with them as well.

Great. Thanks, this is Andy. Could you give us some more color on how the terms on line are going to change or how you expect them to change?

Open up to Karen and Jeff as well. Our all-in rate is what on the line now, Karen? (Inaudible) Okay. So from LIBOR to 1.65, I mean, the spreads are sounding somewhere between 300 to 400 basis points with floors of 2% and flexibility within those ranges depending upon your relationship with the group and depending upon the participants in the group in their own given circumstances, so one of the thing that we've done offensively as I indicated is gone out there and said hey, it's in everybodys best interest to look before the term is up, and we're below market rates today, maybe we look doing something in advance, increase those rates a little bit so they're more market for you. And we are not, of the people in the group currently, had anyone who has told us flat out that they want out of the line, and in addition to that we have talking to two or three sources, in the event that somebody did not want to continue their participation, that's been the extent of the dialogue, BofA has been our lead in the current line, and we are actually in discussions with BofA on that renewal directly right now as well.

Great. Thanks everyone.

Thank you. (Operator Instructions) We will pause a moment to poll for questions. Our next question is from the line of Charlie Pohl with Anchor Capital Advisors. Please go ahead with your question.

Good morning, guys. Any update on the status of Origin and what impact that might have on your P&L?

Well, Origin is on our financial statements right now at a balance of $1.6 million. So, at the end of the year they're share price on the pink sheets was $1.45. So it is on our financial statement at $0.33 right now I think. So, as far as impairment issue, I don't see anything occurring there. It is really just equity earnings that affect our financial statement.

Great. The question was in terms of potential contributions rather that impairments.

I think that as much as we can share with you is what they share publicly, and do we have their stream of present valued income? They put out estimates, I believe of their share price based on the bonds and maturity and everything like that. We don't have anything in front of us right now, Charlie, but they put it out there.

And Charlie, our guidance doesn't include any sort of earnings from Origin.

Okay. Thank you.

I think the best answer that we can give you, and as a common board member I am somewhat limited, is that we have to look toward their guidance and their information as to what we would do here. But, we don't include anything at this time.

Okay. Thank you.

(Operator Instructions). Our next question is from Mark Lutenski with BMO Capital Markets. Please go ahead with your question.

Good morning. Just a question on the discontinued ops, you had a change in direction on that in the quarter, I'm wondering, were you selling homes at a loss in the fourth quarter?

No, no we weren't selling homes at a loss. Our margins are up. Our profit is up, our average profits are up. So, no.

Okay. And I am wondering, can you guys just tell me what is the average age of the portfolio at this point?

The communities?

Yes. I guess your housing inventory is really --

Well, in our communities, approximately 3% or so of the homes move out each year. So, if you had a community that was built in say 1980, and filled in 1980, the homes in that community might average 15 years old given that turnover and replacement by new homes. So, it is not so much when the community was built, as the housing stock that exists in the community and how that has turned over over time. The critical issue relative to the age of the community is its capacity to allow us to place modern homes which are largely, many, double wides, and in the past when we have actually taken a census of this, we have found that 95% of our sites can accommodate a double wide home so that we don't have any kind of significant obsolescence of sites in term of their ability to absorb a double wide.

Can you quantify for me how many signature homes sales you did during the quarter?

We just disbanded our signature program about nine months ago, Mark.

Okay.

Basically, it was designed to compete against the strong competition from site-built housing and when that market and all the issues of sub-prime lending fell through, the product, and the concept of signature was no longer something we needed to strategically carry through here.

Okay. Thank you.

You're welcome.

Our next question is from the line of Ed Turville with REMS Group. Please go ahead be your question.

Thank you. Good morning. I was wondering if the opportunities to acquire new communities combined with development activity all took place at the same time, where would the sources of capital come from to undertake that?

Excellent question. The importance throughout such turbulent times for the Company and the direction of the Board has been to maintain financial flexibility and I think we have done a good job stewarding that and then our usage of the line only changed to the $3 million year-over-year from 2008 to 2009. So, we are in a number of dialogues with both private equity and institutional equity on the arrangements for venturing to take advantage of some of these opportunities that we are seeing right now.

Okay. Thank you.

(Operator Instructions) There are no further questions at this time. I would like to turn the call back over to management for further comments.

On behalf of management, all of us would like to thank you for participating in the phone call, we are certainly pleased at to fourth quarter and year-end results, and very pleasantly pleased with what is taking place so far in 2010. And look forward to reporting to everyone after our first quarter is completed. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.