Sun Communities Earnings: Same-Store Net Operating Income Growth of 6.7% Better Than Anticipated

Third-quarter results for Sun Communities SUI were better than we anticipated, giving us confidence in our $173 fair value estimate for the no-moat company. Same-store occupancy increased 20 basis points year over year to 97.0%, slightly better than our estimate of 96.8% for the third quarter. Manufactured housing same-store revenue was up 7.4%, below our estimate of 10.0% growth, but recreational vehicle same-store revenue was up 2.2%, better than our estimate of a 0.2% decline, while marina same-store revenue was up 8.4%, in line with our estimate. Combined, total company same-store revenue was up 5.5%. Meanwhile, same-store operating expenses were only up 3.0% in the quarter, leading to same-store net operating income growth of 6.7%, which was better than our estimate of 4.8% growth in the quarter. As a result, Sun Communities reported core funds from operations of $2.57 per share in the third quarter, $0.15 better than our $2.42 estimate.

Given the strength of the quarter, management raised its same-store NOI guidance for 2023 to a new range of 6.0% to 6.4% from 5.3% to 6.1%, which puts our 2023 estimate of 6.2% growth at the midpoint of the updated guidance range. Management provided early 2024 guidance for same-store rental increases for their operating segments that mostly matches our estimates for the year. Manufactured housing in North America is expected to be up 5.4% while manufactured housing in the U.K. is expected to be up 7.1%, which is close to our blended estimate of 6.0% growth for the segment. Recreational vehicle rent is expected to be up 6.5%, slightly above our estimate of 6.3%, while marina rent is expected to be up 5.6%, slightly below our estimate of 5.8% growth. We do not anticipate making any material changes to our estimates given how close our forecasts are to management’s guidance.