Sun Communities, Inc. (SUI) Q2 2008 Earnings Report, Transcript and Summary

Welcome the Sun Communities, Inc. second quarter 2008 earnings results conference call. (Operator Instructions) 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 this morning's 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 would like to introduce management with us today, Gary Shiffman, Chairman and Chief Executive Officer; Karen Dearing, Chief Financial Officer; and Jeff Jorissen. I’ll hand the floor over to Mr. Gary Shiffman.

This morning we reported funds from operations of $13.4 million or $0.65 per share or $0.38 of losses related to Origen and $0.04 related to severance costs. This compares to FFO of $13.7 million or $0.68 per share in 2007. Net loss was $7.4 million or $0.41 per share compared to $2.2 million or $0.12 per share in 07. For the six months ended June 30th, 2008 FFO was $29.2 million or $1.43 per share before losses related to Origen and severance compared to $1.44 per share for the six months ended June 30th, 2007. Revenues increased to $65.5 million in the second quarter of 08 from $57.9 million in the second quarter of 2007. As we’ve got a half a year or two quarters [inaudible] I thought I’d turn the discussion at this time towards guidance. The company has issued FFO guidance in the range of $2.76 to $2.82 per share for 2008. Reviewing the components of the guidance in detail [inaudible] increases for the first half are 3.1% which equals guidance. Occupancy is positive of 98 sites through June compared to an annual loss of just under 100 sites in the guidance. Rents in the rental home program are up 1.7% through mid-July compared to an annual guidance of 3%. Occupancy in the program is up 152 sites through June compared to annual guidance of 250 sites. Sales of rental homes are at 296 through mid-July compared to annual guidance of 600 sales for the year. Through the first six months of 2008 Sun Homes Services and outside dealers have sold 277 new and pre-owned homes in our communities compared to an annual budget of 571 homes. The sales of the signature homes included in those sales are 33 compared to an annual guidance which includes 90 signature…

(Operator Instructions) Our first question is coming from Andy McCullough – Green Street Advisors. Andy McCullough – Green Street Advisors: On the installment loan for a second, what are the average LTDs on those loans?

They’re about 90%. Andy McCullough – Green Street Advisors: Then on the break point for a second, 15 months to get to the 90%. What’s the time period to get to 65%?

There’s a formula of months goes out an additional [six to three months] with different things being triggered over that period of time that takes to a 65% level. Andy McCullough – Green Street Advisors: Can you guys talk a little bit to expenses in the quarter and what drove those to get a little bit about 4%? What is the main items that are driving that expense growth?

There are expense increases in utilities, supplies and repairs and payroll. Of course we’ve looked at this as well and those expense increases are very close to budget for the first six months. While the expenses are increased year-over-year, most of these increases were within our expectations when we put together the 2008 budget and of course therefore are incorporated within the guidance. It’s primarily in utilities, some in payroll and benefits and then supplies and repairs which can also be somewhat due to timing depending on when they take on the various projects in the communities which is also a function of weather and other factors like that. Andy McCullough – Green Street Advisors: Can you guys speak to any recent transactions in your markets and/or give any color on where you think cap rates are or where they’re headed?

I think that transactions have been somewhat quiet although there is the odd one taking place and that obviously one of the public companies is looking at strategic alternatives right now. I don’t think that we’ve seen anything to indicate cap rates have changed from a low of 6 caps for the highest quality resort-like communities to a high of 9 cap rates for some of the all age older communities with probably an average of cap range expectation by me so right now 7.25 to 7.5 range.

Our next question is coming from Mark Lutenski – BMO Capital Markets. Mark Lutenski – BMO Capital Markets: My question is you have an other income of $2.8 million in the quarter. Could you break down what components were in that?

The majority of the other income is a gain on sale of undeveloped land and I think that’s around $3.1 million and the remainder of it is really just brokerage income. Mark Lutenski – BMO Capital Markets: Do you have any other land sales contemplated in guidance?

There were no land sales contemplated in guidance and they’re not in FFO.

Our next question is coming from [Jeff Cross – Cross Capital]. [Jeff Cross – Cross Capital]: I’ve got a couple of quick questions, one of them is the margin on homes sold. I noticed that that was down a bit on a year-over-year basis, on a percentage basis. I’m wondering if it’s likely to trend down or up or like 20% to 22.5% it can bounce around based on mix shifts anyplace in that range?

I actually have some increase in margin on our pre-owned home sales so there’s a slight decrease in our margin for new home sales and I think there’s a heavier weight to non-Florida home sales which have a lower margin. [Jeff Cross – Cross Capital]: But basically it’s likely to be in the low, low 20s?

I would expect it to be about the same. [Jeff Cross – Cross Capital]: Also if you could dig into expenses because I think expenses in the quarter were higher than were generally anticipated by those of us on the outside looking in. To what extent were there expenses in this quarter that might exceed an annual run rate or might have been recognized in a different quarter last year, to the extent you can really answer that?

As far as the timing I don’t know that I could answer that. As we had indicated earlier the expense increases were items that were for the most part anticipated by us and included in our guidance. For instance, in property operating maintenance where you have utility increases, we’ve seen increases in water/sewer expenses, in rubbish expenses with fuel surcharges. We’ve seen electric expense and gas expense increase. Supplies and repairs were all across the board, many increases in our lawn maintenance and common area maintenance. The expense increases were across the board and as I said mostly anticipated by the company.

There are no further questions at this time.

I’d like to thank everybody for participating on our second quarter analyst conference call. I think as we indicated we remain solidly on budget and look forward to reporting third quarter results with everybody. If you have any further questions, please don’t hesitate to contact Jeff, Karen or myself. Thank you.