Sun Communities Inc (SUI) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Sun Communities first-quarter 2013 earnings conference call on April 25, 2013. 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 its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in the morning's press release form -- 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 would 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.

Throughout today's recorded presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions). I would now like to turn the conference over to Gary Shiffman. Please go ahead, sir.

Thank you, operator, and good morning. Today we reported funds from operations of $31.7 million or $0.93 per share for the first quarter of 2013 compared to $25.9 million or $0.90 per share for the first quarter of 2012. These results exclude acquisition-related costs incurred in each of the referenced quarters. Revenues increased to $103.4 million in the first quarter of 2013 compared to $83.1 million in the first quarter of 2012.

As we have been and are in a period of significant and rapid growth as well as change at the Company, we thought it would be helpful and evident by reviewing the following measures comparing current data with the end of 2010.

The number of communities has increased by 48 or 35% to 184. We are now in 25 states compared to 17 and a large portion of this growth represents recreational vehicle communities which supported our rebranding of Sun RV Resorts which is our commitment to excellence in service and vacation experience for our guests.

The number of home sites has increased by nearly 20,000 or 42% and this is roughly equal to adding a small city of 50,000 residents. The equity market capitalization has nearly tripled to about $2 billion and both EBITDA and real property operations NOI will reflect growth in excess of 50% from 2010. While that growth has been assimilated it's important to note the momentum of positive earnings measures and metrics as continued and continues to set new thresholds of performance.

Turning to year-over-year first-quarter comparative data, revenue producing sites for first quarter increased by 621, which is more than twice the rate of the first quarter of 2012. Occupancy improvements occurred in all of our markets including Indiana which experienced the best quarter for occupancy improvement in many years. Occupancy in Indiana improved by nearly 2% as 110 revenue producing sites were added in the first quarter.

Indiana prior to this quarter has been challenging thus far through the recovery of our economic cycle. Now it presents a strong growth opportunity with over 2,000 vacant sites. We've introduced a new mid-market product into select Indiana communities for sale and lease and it's being received very well. We plan to introduce the product into additional communities in Indiana during the second quarter.

Focusing in on same site data for the quarter, revenue in the same site portfolio increased by 4.9% while expenses increased by 3.2% resulting in NOI growth of 5.6%. Occupancy in the same site portfolio of 159 communities has increased to 88% from 86.1% at March 31, 2012, an increase of 1,506 sites.

Home sales were 466 in the first quarter, an increase of 16% from the 401 homes sold in the same quarter in the prior year. Approximately 50% of these sales represented transactions with renters.

As a general reference since the economic downturn in 2008, the compounded annual growth rate in first-quarter applications to live in Sun Communities has been at 13%. Applications to live in our communities continue to surge with growth [of] 15% from 2012 to nearly 7,600 for this quarter.

It is this demand which is generating gains in occupancy and home sales and these increases in applications also provide the impetus for us to bring on over 1,100 expansion sites this year in communities with full occupancy and continued strong demand. The majority of these expansions in seven communities are expected to be completed late this year.

The improvement of our balance sheet metrics has been as dramatic as the growth in performance described above. These are also compared to 2010. EBITDA to interest coverage improved by 43% from 2.1 times to 3 times. EBITDA to interest and preferred coverage improved 35% from 2 to 2.7 times. And net debt to enterprise value improved by 38% from 63% to 39%. Net debt to gross assets improved 32% from 73% to 50% and our weighted average debt maturity increased 57% from 4.4 years to 6.9 years.

At quarter end we had $60 million of cash on hand and $300 million of additional liquidity assuming the expected closing of our expanded secure line of credit in May. I believe the above accomplishments result in a Sun transformed by growth, balance sheet management and our operating performance in occupancy, home sales, property performance and the successful assimilation of our acquisitions.

While one cannot with confidence predict acquisition opportunities which may arise, it is our primary objective to enhance the bottom-line of performance of our existing portfolio as we move through 2013 and into 2014 with acquisitions.

And turning to guidance, as stated in the press release, we affirm 2013 FFO guidance of $3.19 to $3.29 per share and provide guidance of $0.68 to $0.71 per share for the second quarter. Guidance includes acquisitions through March 31, 2013 and the add back of related acquisition costs. No perspective acquisitions of equity offerings are included.

And at this time I would turn it over for questions and answers. Operator, if you are there.

(Operator Instructions). Jeff Lau, Sidoti & Company.

It looked like a pretty solid quarter. My only question was regarding the dividend and if there is any insight on I guess the possibility of giving that a little bit of an increase?

Yes, I think we shared with everyone when asked that it certainly is something the Board reviews on a continual basis. In I think our last call I did share the fact that with the recent capital improvements to our balance sheet, the equity raises and the preferred that the Board intends to look towards a policy of a dividend increase perhaps later in this year provided that the payout ratio reaches of the achieved levels that are anticipated.

What is that -- is there a target there?

There is a target there; it is a target that we share with the marketplace as below 80%.

All right. Thanks.

(Operator Instructions). Jana Galan, Bank of America.

This is Jane from Bank of America on behalf of Yana. We were just curious to know with the subsequent RV acquisition in April why guidance wasn't adjusted for that or is the impact not expected to be that large for the year?

Yes, Jane, that acquisition which we did a week ago, it was a very small acquisition and it had -- it would have very little impact on Q2 and it fit within the range of guidance for the year.

Great, thank you.

Ryan Burke, Green Street Advisors.

Hoping you can provide a little bit of color on the loan funding agreement that was announced with Talmer Bank. In particular any key differences from the other means that buyers have to obtain financing and also the type of progress that you have seen since its inception?

The Talmer financing -- could you repeat your first question again?

Yes, just in particular if there are any key differences from the other means that buyers of your communities have to obtain financing, any benefits to Sun?

Okay, I'm sorry, Ryan. There aren't any key differences in that agreement. It was a $10 million agreement for properties located in Michigan. And there has been no lending on that agreement at this time.

Okay, so the capacity of that agreement is actually $10 million and there is no (multiple speakers).

Yes, it is.

(Multiple speakers) no plans to expand that?

Correct.

Okay, thank you.

Josh Patinkin, BMO Capital Markets.

This is Paul Adornato here with Josh. Sorry if I missed this, but did you say what is driving the improvements in the Indiana portfolio?

I think that it's an area in the Midwest that has lagged a little bit in recovery and as we are watching Ford Motor Company and others post continued record-breaking North American profitability I think that we are seeing a very nice and healthy recovery in the Midwest. And I think it is trickling down to parts that have been slower to recover such as Indiana.

I think it has been bolstered by a new product that we have developed that is a home that has some proprietary structural changes without giving up any of the features that exist in the normal homes that we acquire. And it allows us to pass down a 5% to 7% price point that has been very -- reduced price point to the purchaser and it has been very well received. And we try to selectively in a handful of communities and we will be rolling it out in a much bigger way throughout Indiana.

So we think while we have seen the rest of the portfolio first in Colorado and then in Texas recover followed by a strong recovery that we have had in Michigan over the last 12 months, Indiana has lagged behind. And for the first time we are seeing increased demand and expect to be able to start making some progress filling the 2,000 vacant sites that exist out there.

Okay, thanks. And just wanted -- if you could provide a little bit more color on one line that came out of the press release and that was I think you referred to improving the bottom-line in 2013 and 2014. Is that referring to the integration of the new properties?

Yes, I think there is a lot of repositioning to take place, a lot of capital investment that is going into some of the communities. The rollout of the new Sun RV platform, the ability to market now from north to south. All of that integration will take place over the next 12 to 18 months. And I think what it will do is enhance the existing opportunities that we have in the new acquisitions and some of the existing properties we own.

Okay, and with respect to the CapEx spend, has all of that been accounted for with respect to the acquisition cost?

Yes, Paul, when we do our acquisitions we evaluate the properties for bringing the communities up to our standards and the CapEx is included in our evaluation of the properties.

Okay, thank you.

Mike Beall, Davenport.

Two quick questions. The occupancy trend is nice; it's up to 88%. Can you remind us what our highest occupancy Companywide level has ever been or is there kind of a practical limit to what that number ends up being?

I think, Mike, historically that range has been in the 94% to 96% occupancy. At around 96% we consider the communities basically full because there is always a bit of turnover. And at 96% we generally believe we can accomplish stronger increases in rental and revenue growth by nature of balancing the demand to the ideal occupancy.

I guess that leads me to my next question. If I figured it right your same-store rental increase was year over year about 2.8%. Is that increase benefiting, and I know it would have been there at least a year, but from some of the properties you are acquired say in the last two, two and a half years? Or is that fairly indicative of across the board what we are averaging?

I think our guidance, Mike, for same site is 3% -- actually no, guidance overall for the whole portfolio is about a 3% increase. So, most of the properties that went into same site, the majority of them were the Kentland portfolio that was in Michigan. So I think that would be a fairly typical increase of around 3%.

And is there any concern -- I mean, apartment buildings are being built in a lot of places at a pace we haven't seen in a while. Any thought that that is getting to be a more competitive factor than in recent years?

We don't believe so. I think we have really created a model that generally shows that we are able to deliver about 50% more space on a square-foot basis at about 40% of the -- at 40% reduced cost as compared to multi-family. If I remember the national figure was about $0.92 per square foot on average monthly for multi-family and I think was it in the $0.50's when we did our calculation for our portfolio?

We can get you that exact data, but I think it was somewhere between $0.56 and $0.58 per square foot. And the average on the square foot was 900 square foot to multi-family as compared to just under 1,400 square feet in our communities.

We're looking at this half full given the big increases we've seen in apartment rents. That spread, that value proposition I assume has actually gotten better in the last couple of years. Would that be true?

I think it has. It certainly has against site built. But I think coming off of occupancies that were in the low 80%s, we believe it won't be that far out in the future, that we will be in the 90% occupancies. And we would expect as we approach that 94% level, if you will, that we should be getting stronger revenue increases on a same site basis.

Thank you.

Ladies and gentlemen, this concludes the Sun Communities first-quarter 2013 conference call. You may now disconnect. Thank you for using ATT conferencing.