Sun Communities Earnings: Strong Rent Growth Drives Solid Same-Store Net Operating Income Growth

Sun Communities reported second-quarter results that were in line with our expectations, leading us to reaffirm our $173 fair value estimate for the no-moat company. Occupancy for the manufactured housing segment increased 10 basis points sequentially to 96.9%, slightly better than our estimate of flat growth. Manufactured housing rent increased 5.7% year over year, in line with our estimate, while residential vehicle rent increased 8.6% year over year, which beat our estimate of 3.7% growth. However, the company continues to transition RV sites to annual membership locations, which pay a consistent level of rent throughout the year, from transient locations, which collect higher revenue during the busy vacation season but significantly lower in the other parts of the year. As a result of this shift in business mix, same-store net operating income growth for the RV segment was 3.3% in the second quarter, matching our estimate. Combined with same-store NOI growth of 5.7% for manufactured housing and 11.7% for the marina portfolio, total company same-store NOI growth was 6.3% in the second quarter. Sun Communities reported core funds from operations of $1.96 per share, which is a penny better than our estimate for the quarter.