The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes, along with our 2021 Annual Report.
PREVIEW
We are a fully integrated, self-administered and self-managed REIT. As ofMarch 31, 2022 , we owned and operated or held an interest in a portfolio of 603 developed properties located in 39 states throughoutthe United States ,Ontario, Canada ,Puerto Rico and theUnited Kingdom including 283 MH communities, 161 RV resorts, 31 properties containing both MH and RV sites, and 128 marinas. We have been in the business of acquiring, operating, developing and expanding MH communities and RV resorts since 1975 and marinas since 2020. We lease individual sites with utilities access for placement of manufactured homes, RVs or boats to our customers. We are also engaged in the marketing, selling and leasing of new and pre-owned homes to current and future residents in our MH communities. The Rental Program operations within our MH communities support and enhance our occupancy levels, property performance and cash flows.
PRINCIPAL ACCOUNTING POLICIES
We have identified significant accounting policies that, as a result of the
judgments, uncertainties and complexities of the underlying accounting standards
and operations involved could result in material changes to our financial
condition or results of operations under different conditions or using different
assumptions. Details regarding significant accounting policies are described
fully in our 2021 Annual Report.
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SUN COMMUNITIES, INC.
NON-GAAP FINANCIAL MEASURES
In addition to the results reported in accordance with GAAP in our "Results of
Operations" below, we have provided information regarding net operating income
("NOI") and funds from operations ("FFO") as supplemental performance measures.
We believe NOI and FFO are appropriate measures given their wide use by and
relevance to investors and analysts following the real estate industry. NOI
provides a measure of rental operations and does not factor in depreciation,
amortization and non-property specific expenses such as general and
administrative expenses. FFO, reflecting the assumption that real estate values
rise or fall with market conditions, principally adjusts for the effects of GAAP
depreciation / amortization of real estate assets. In addition, NOI and FFO are
commonly used in various ratios, pricing multiples / yields and returns and
valuation calculations used to measure financial position, performance and
value.
NOI is derived from operating revenues minus property operating expenses and
real estate taxes. NOI is a non-GAAP financial measure that we believe is
helpful to investors as a supplemental 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. We use NOI as a key measure 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 our properties
rather than of the Company overall.
We believe that GAAP net income (loss) is the most directly comparable measure
to NOI. NOI should not be considered to be an alternative to GAAP net income
(loss) as an indication of our financial performance or GAAP cash flow from
operating activities as a measure of our liquidity; nor is it indicative of
funds available for our cash needs, including our ability to make cash
distributions. Because of the inclusion of items such as interest, depreciation
and amortization, the use of GAAP 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.
FFO is defined by the National Association of Real Estate Investment Trusts
("NAREIT") as GAAP net income (loss), excluding gains (or losses) from sales of
depreciable operating property, plus real estate related depreciation and
amortization, real estate related impairments, 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 our
operating performance. 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 GAAP net income (loss). Management believes 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. We also use FFO excluding certain gain and loss items that
management considers unrelated to the operational and financial performance of
our core business ("Core FFO"). We believe that Core FFO provides enhanced
comparability for investor evaluations of period-over-period results.
We believe that GAAP net income (loss) is the most directly comparable measure
to FFO. The principal limitation of FFO is that it does not replace GAAP net
income (loss) as a performance measure or GAAP cash flow from operations as a
liquidity measure. Because FFO excludes significant economic components of GAAP
net income (loss) including depreciation and amortization, FFO should be used as
a supplement to GAAP net income (loss) and not as an alternative to it.
Furthermore, 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 is calculated in accordance with our interpretation of standards
established by NAREIT, which may not be comparable to FFO reported by other
REITs that interpret the NAREIT definition differently.
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SUN COMMUNITIES, INC.
RESULTS OF OPERATIONS
The following tables reconcile the Net income attributable toSun Communities, Inc. common shareholders to NOI and summarize our consolidated financial results for the three months endedMarch 31, 2022 and 2021 (in millions):
Three months completed
Net income attributable to
$ 0.7 $ 24.8 Interest income (6.8) (2.6) Brokerage commissions and other revenues, net (8.0) (6.0) General and administrative expense 55.7 38.2 Catastrophic event-related charges, net - 2.4 Business combination expense 0.5 1.2 Depreciation and amortization 148.5 123.9 Loss on extinguishment of debt (see Note 8) 0.3 - Interest expense 45.2 39.5 Interest on mandatorily redeemable preferred OP units / equity 1.0 1.0
(Gain) / loss on revaluation of marketable securities (see Note 15)
34.5 (3.7) Loss on foreign currency translation 2.2 - Gain on disposition of property (13.4) - Other expense, net 0.6 0.5 Gain on remeasurement of notes receivable (see Note 4) (0.2) (0.4) Income from nonconsolidated affiliates (see Note 6) (0.9) (1.2)
Gain on revaluation of investments in unconsolidated associates (see Note 6)
(0.1) (0.1) Current tax (benefit) / expense (see Note 12) 1.3 (0.2) Deferred tax benefit (see Note 12) - (0.1) Preferred return to preferred OP units / equity interests 3.0 2.9 Income / (loss) attributable to noncontrolling interests (2.2) 0.3 NOI$ 261.9 $ 220.4 Three Months Ended March 31, 2022 March 31, 2021 Real property NOI$ 232.8 $ 204.6 Home sales NOI 18.8 10.6 Service, retail, dining and entertainment expenses NOI 10.3 5.2 NOI$ 261.9 $ 220.4 37
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SUN COMMUNITIES, INC.
Income seasonality
The recreational vehicle and marina industries are seasonal in nature, and results of operations for any given period may not be indicative of results in future periods.
In the RV segment, certain properties maintain higher occupancy during the summer months, while other properties maintain higher occupancy during the winter months. Based on the location of our properties with transient RV sites, our portfolio generally produces higher revenues between April and September than between October and March. Real property - transient revenue is included in RV segment revenue. As ofMarch 31, 2022 , we recognized$42.7 million of Real property - transient revenue in the first quarter. Real property - transient revenue was$266.6 million for the year endedDecember 31, 2021 . In 2021, Real property - transient revenue was recognized 11.9 percent in the first quarter, 27.3 percent in the second quarter, 44.9 percent in the third quarter and 15.9 percent in the fourth quarter. In the marina segment, demand for wet slip storage increases during the summer months as customers contract for the summer boating season, which also drives non-storage revenue streams such as service, fuel and on-premises restaurants or convenience stores. Demand for dry storage increases during the winter season as seasonal weather patterns require boat owners to store their vessels on dry docks and within covered racks. As ofMarch 31, 2022 , we recognized$62.4 million of seasonal Real property revenue in the first quarter. Seasonal Real property revenue was$246.6 million for the year endedDecember 31, 2021 . In 2021, Seasonal Real property revenue was recognized 17.7 percent in the first quarter, 25.0 percent in the second quarter, 29.9 percent in the third quarter and 27.4 percent in the fourth quarter. 38 --------------------------------------------------------------------------------SUN COMMUNITIES, INC.
Comparison of the three months ended
Real estate transactions – Total portfolio
The following tables reflect certain financial and other information for our Total Portfolio as of and for the three months endedMarch 31, 2022 and 2021 (in millions, except for statistical information): Three Months Ended March 31, 2022 March 31, 2022 Change % Change Financial Information Revenue
Real estate (excluding transitory)
$ 37.9 14.1 % Real property - transient 45.0 32.5 12.5 38.5 % Other 36.5 29.3 7.2 24.6 % Total Operating 388.2 330.6 57.6 17.4 % Expense Property Operating 155.4 126.0 29.4 23.3 % Real Property NOI$ 232.8 $ 204.6 $ 28.2 13.8 % As of March 31, 2022 March 31, 2021 Change Other Information Number of properties(1) 603 562 41 MH occupancy 96.7 % RV occupancy(2) 100.0 % MH & RV blended occupancy(3) 97.5 % 97.3 % 0.2 % Sites available for MH & RV development 11,377 9,646 1,731 Monthly base rent per site - MH $ 615 $ 598 (5)$ 17 Monthly base rent per site - RV(4) $ 542 $ 522 (5)$ 20 Monthly base rent per site - Total $ 597 $
580 (5)
(1) Includes MH communities, RV resorts and marinas.
(2) Occupancy percentages include annual RV sites and exclude transient RV sites.
(3) Occupancy percentages include annual MH and RV sites, and exclude transient RV sites.
(4) Monthly base rent refers to annual RV sites and excludes transient RV sites.
(5) Figures in Canadian currency included in the three months ended
For the three months endedMarch 31, 2022 , the$28.2 million increase in Real Property NOI consists of$13.6 million from Same Property MH and RV and$0.3 million from Same Property marina as detailed below, and$14.3 million from recently acquired properties as compared to the same period in 2021. 39 --------------------------------------------------------------------------------SUN COMMUNITIES, INC.
Real estate transactions – same property
A key management tool used when evaluating performance and growth of our properties is a comparison of the Same Property portfolio. Same Property refers to properties that we have owned for at least the preceding year, exclusive of properties recently completed or under construction, and other properties as determined by management. The Same Property data may change from time-to-time depending on acquisitions, dispositions, management discretion, significant transactions or unique situations. In order to evaluate the growth of the Same Property portfolio, management has classified certain items differently than our GAAP statements. The reclassification difference between our GAAP statements and our Same Property portfolio is the reclassification of utility revenues from real property revenue to operating expenses. A significant portion of our utility charges are re-billed to our residents.
Real estate transactions – same property – MH and RV
The following tables reflect certain financial and other information for our Same Property MH and RV as of and for the three months endedMarch 31, 2022 and 2021 (in millions, except for statistical information). Three Months Ended Total Same Property - MH and RV MH RVMarch 31 ,March 31 ,March 31 ,March 31 ,March 31 ,March 31, 2022 2021 Change % Change(1) 2022 2021 Change % Change(1) 2022 2021 Change % Change(1) Financial Information Revenue Real property (excluding transient)$ 233.1 $ 218.7 $ 14.4 6.6 %$ 182.4 $ 174.9 $ 7.5 4.3 %$ 50.7 $ 43.8 $ 6.9 15.5 % Real property - transient 39.1 30.3 8.8 28.9 % 0.5 0.6 (0.1) (23.1) % 38.6 29.7 8.9 30.0 % Other 7.6 7.2 0.4 5.5 % 4.9 4.4 0.5 11.1 % 2.7 2.8 (0.1) (3.3) % Total Operating 279.8 256.2 23.6 9.2 % 187.8 179.9 7.9 4.4 % 92.0 76.3 15.7 20.5 % Expense Property Operating 88.9 78.9 10.0 12.7 % 47.7 43.9 3.8 8.7 % 41.2 35.0 6.2 17.6 % Real Property NOI$ 190.9 $ 177.3 $ 13.6 7.7 %$ 140.1 $ 136.0 $ 4.1 3.0 %$ 50.8 $ 41.3 $ 9.5 22.9 %
(1) Percentages are calculated on the basis of unrounded numbers.
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SUN COMMUNITIES, INC.
As of
March 31, 2022 March 31, 2021 Change
Other Information
Number of properties 425 425 -
MH occupancy 97.3 %
RV occupancy(1) 100.0 %
MH & RV blended occupancy(2) 97.9 %
Adjusted MH occupancy(3) 98.1 %
Adjusted RV occupancy(4) 100.0 %
Adjusted MH & RV blended occupancy(5) 98.5 %
96.9% (6) 1.6%
Sites available for development 7,645 8,243 (598) Monthly base rent per site - MH $ 620 $ 597 (8)$ 23 Monthly base rent per site - RV(7) $ 553 $ 522 (8)$ 31 Monthly base rent per site - Total $ 604 $ 580 (8)$ 24
(1) Occupancy percentages include annual RV sites and exclude transient RV sites.
(2) Occupancy percentages include annual MH and RV sites, and exclude temporary RV sites.
(3) Adjusted occupancy percentages include MH and exclude recently completed but vacant expansion sites.
(4) Adjusted occupancy percentages include annual RV sites and exclude transient RV sites and recently completed but vacant expansion sites.
(5) Adjusted occupancy percentages include MH and annual RV sites, and exclude transient RV sites and recently completed but vacant expansion sites.
(6) Occupancy percentages for 2021 have been adjusted to reflect the incremental period-over-period growth of newly leased MH expansion sites and the conversion of transient RV sites to annual RV sites.
(7) Monthly base rent refers to annual RV sites and excludes transient RV sites.
(8) Figures in Canadian currency included in the three months ended
have been converted at average 2022 exchange rates.
The amounts in the table above reflect constant currency for comparative purposes. We have reclassified water and sewer revenues of$19.6 million and$17.3 million for the three months endedMarch 31, 2022 and 2021, to reflect the utility expenses associated with our Same Property portfolio net of recovery.
For the three months ended
•The$13.6 million , or 7.7 percent, growth in Total Same Property NOI is due to a$9.5 million , or 22.9 percent, increase in NOI from the RV segment and$4.1 million , or 3.0 percent, increase in NOI from the MH segment. •The RV segment increase in NOI of$9.5 million , or 22.9 percent, is primarily due to an increase in Real property - transient revenue of$8.9 million , or 30.0 percent, when compared to the same period in 2021 due to increased transient and vacation rental traffic. •The MH segment increase in NOI of$4.1 million , or 3.0 percent, is primarily due to an increase in Real property (excluding transient) revenue of$7.5 million , or 4.3 percent, when compared to the same period in 2021. MH property (excluding transient) revenue increased due to a 3.8 percent increase in monthly base rent and an increase in Occupancy of 160 basis points. 41 --------------------------------------------------------------------------------SUN COMMUNITIES, INC.
Real estate transactions – Same property – Marina
The following tables reflect certain financial and other information for ourSame Property Marina as of and for the three months endedMarch 31, 2022 and 2021 (in millions, except for statistical information). Three Months Ended % Financial Information March 31, 2022 March 31, 2021 Change Change(1) Revenue
Real estate (excluding transitional) $45.8 $
43.3$ 2.5 5.6 % Real property - transient 1.4 0.9 0.5 58.7 % Other 2.3 1.7 0.6 34.3 % Total Operating 49.5 45.9 3.6 7.7 % Expense Property Operating 24.4 21.1 3.3 15.2 % Real Property NOI $ 25.1 $ 24.8$ 0.3 1.2 %
(1) Percentages are calculated on the basis of unrounded numbers.
As of
March 31, 2022 March 31, 2021 Change % Change
Other Information
Number of properties 101 101 - - %
We have reclassified utility revenue from
Same property Marina NOI remained stable for the three months ended
compared to the same period in 2021.
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SUN COMMUNITIES, INC.
Summary of door-to-door sales
We buy new homes and acquire pre-owned and trade-in manufactured homes, typically located in our communities, from lenders, dealers and former residents for sale or rental to current and potential residents.
The following table reflects certain financial and statistical information for our Home Sales Program for the three months endedMarch 31, 2022 and 2021 (in millions, except for average selling price and statistical information):
Three months completed
March 31, 2022 March 31, 2021 Change % Change Financial Information New Homes New home sales $ 26.6 $ 23.0$ 3.6 15.7 % New home cost of sales 21.6 18.7 2.9 15.5 % Gross profit - new homes 5.0 4.3 0.7 16.3 % Gross margin % - new homes 18.8 % 18.7 % 0.1 % Average selling price - new homes$ 179,730 $ 154,174 $ 25,556 16.6 % Pre-owned Homes Pre-owned home sales $ 38.1 $ 29.2$ 8.9 30.5 % Pre-owned home cost of sales 19.8 18.6 1.2 6.5 % Gross Profit - pre-owned homes 18.3 10.6 7.7 72.6 % Gross margin % - pre-owned homes 48.0 % 36.4 % 11.6 % Average selling price - pre-owned homes$ 55,298 $ 42,605 $ 12,693 29.8 % Total Home Sales Revenue from home sales $ 64.7 $ 52.2$ 12.5 23.9 % Cost of home sales 41.4 37.3 4.1 11.0 % Home selling expenses 4.5 4.3 0.2 4.7 % Home Sales NOI $ 18.8 $ 10.6$ 8.2 77.4 % Other Information New home sales volume 148 149 (1) (0.7) % Pre-owned home sales volume 689 686 3 0.4 % Total home sales volume 837 835 2 0.2 % Gross Profit -New Homes For the three months endedMarch 31, 2022 , the$0.7 million , or 16.3 percent, increase in gross profit is primarily the result of a 16.6 percent increase in the new home average selling price, as compared to the same period in 2021. Gross Profit - Pre-owned Homes For the three months endedMarch 31, 2022 , the$7.7 million , or 72.6 percent, increase in gross profit is primarily the result of a 11.6 percent increase in gross margin, primarily due to a 29.8 percent increase in the pre-owned home average selling price, as compared to the same period in 2021. Homes sales NOI For the three months endedMarch 31, 2022 , the$8.2 million , or 77.4 percent, increase in NOI is primarily the result of an increase in new home average selling price and pre-owned home average selling price, compared to the same period in 2021. 43 -------------------------------------------------------------------------------- SUN COMMUNITIES, INC.
Rental Program Summary
The following table reflects certain financial and other information for our Rental Program as of and for the three months endedMarch 31, 2022 and 2021 (in millions, except for weighted average monthly rental rate and statistical information): Three Months Ended March 31, March 31, 2022 2021 Change % Change Financial Information Revenues Home rent$ 16.1 $ 17.0 $ (0.9) (5.3) % Site rent 16.1 19.1 (3.0) (15.7) % Total 32.2 36.1 (3.9) (10.8) % Expenses Rental Program operating and maintenance 4.9 5.2 (0.3) (5.8) % Rental Program NOI$ 27.3 $ 30.9 $ (3.6) (11.7) % Other Information Number of sold rental homes 177 211 (34) (16.1) % Number of occupied rentals, end of period 9,467 11,473 (2,006) (17.5) %
Investment in occupied rental housing, end of period
(12.9) %
Weighted average monthly rental rate, end of period
8.0 %
The RNE for the rental program is included in the RNE for real estate. The rental program’s ROE is reviewed separately to assess the overall growth and performance of the rental program and its financial impact on the company’s operations.
For the three months endedMarch 31, 2022 , Rental Program NOI decreased$3.6 million , or 11.7 percent as compared to the same period in 2021. The decrease is primarily due to a$3.9 million or 10.8 percent decrease in revenue driven by a 17.5 percent decrease in number of occupied rental homes, as compared to the same period in 2021. 44 --------------------------------------------------------------------------------SUN COMMUNITIES, INC.
Summary of marinas
The following table reflects certain financial and other information for our marinas as of and for the three months ended
Three Months Ended
March 31, March 31,
2022 2021 Change % Change
Financial Information
Revenues
Real property (excluding transient) $ 67.0 $ 46.1 $ 20.9 45.3 %
Real property - transient 2.5 0.9 1.6 177.8 %
Other 2.9 1.6 1.3 81.3 %
Total Operating 72.4 48.6 23.8 49.0 %
Expenses
Property Operating 33.2 23.6 9.6 40.7 %
Real Property NOI 39.2 25.0 14.2 56.8 %
Service, retail, dining and entertainment
Revenue 71.2 44.4 26.8 60.4 %
Expense 59.8 38.0 21.8 57.4 %
NOI 11.4 6.4 5.0 78.1 %
Marina NOI $ 50.6 $ 31.4 $ 19.2 61.1 %
Statistical information
Number of properties 128 110 18 16.4 %
Total wet slips and dry storage 45,725 39,338 6,387 16.2 %
The Marina Real Property NOI is included in Real Property NOI. The Marina NOI is
separately reviewed to assess the overall growth and performance of the marina
segment and its financial impact on the Company's operations.
We have reclassified utility revenue from
For the three months ended
•The$19.2 million , or 61.1 percent increase in Marina NOI is due to a$14.2 million , or 56.8 percent increase in Marina Real Property NOI and a$5.0 million or 78.1 percent increase in Service, Retail, Dining and Entertainment NOI. •The$14.2 million , or 56.8 percent growth in Marina Real Property NOI is due to a$20.9 million , or 45.3 percent, increase in Real property (excluding transient) revenue due to an increase in the number of owned marina properties compared to the same period in 2021. •The 5.0 million, or 78.1 percent increase in Service, Retail, Dining and Entertainment NOI is due to an increase in Real property transient revenue due to an increase in service rates at our marinas and the addition of service revenue from the acquisition of additional marinas coupled with increased demand and entry into the superyacht market. 45
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