Sun Communities, Inc. (SUI) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Sun Communities' First Quarter 2012 Earnings Conference Call on the 26 April 2012. 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 assumption, 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 form and from time-to-time in the company’s periodic filing with 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’d like to introduce management with us today; Gary Shiffman, Chairman and Chief Executive Officer; Karen Dearing, Chief Financial Officer; and Jeff Jorissen, Director of the Corporate Development. [Operator Instructions] I would now like to turn the conference over to Mr. Gary Shiffman. Please go ahead, sir.

Thank you, operator, and good morning. Today, we reported funds from operations of $25.9 million or $0.90 per share for the first quarter of 2012 compared to $19 million or $0.83 per share for the first quarter of 2011. These results exclude acquisition-related costs incurred in each of the referenced quarters. Revenues increased to $83.1 million in the first quarter of '12 compared to $69.7 million in the first quarter of 2011. It was another excellent quarter for the company as all performance metrics continued to meet or exceed expectations and I will discuss a few of the most significant drivers of growth and then spend some time focusing on our markets and acquisition strategy. Revenue producing sites in our same property portfolio increased by 147 sites 2011 increasing occupancy from 84.8% to 86.1%, an additional 147 revenue producing sites were added in recently acquired communities, which are not yet included in the same property portfolio. So, in total, we added 294 residents in this year's first quarter compared to 143 in 2011's first quarter. In our same site portfolio, revenues grew by 5.3%, while expenses increased by 0.3%. NOI increased by 7.3% as compared to 4.2% and 1.7% in the first quarter of 2011 and 2010 respectively. NOI is also benefiting significantly from the continued momentum of quarterly occupancy gains. Home sales topped 400 for the first time in any quarter improving strongly from the 357 sales in the first quarter of 2011. Applications continued to drive occupancy and sales as nearly 6600 people applied to live in our communities in the first quarter. This represents an annual rate of over 26,000, almost 3,000 more applications than in 2011. And now what I'd like to do is review our markets. And as measured by revenues, approximately 85% of our…

[Operator Instructions] The first question comes from Paul Adornato.

This is Paul Adornato from BMO Capital Markets. First just a follow-up on the seasonality comments, I was wondering if you could quantify the seasonality that the company currently experiences in the fourth and first quarters compared to the rest of the year.

Sure, Paul. We have about $29 million in RV revenues and $10 million of that is seasonal and that seasonal revenue is recognized about 45% in Q1, 24% in Q4, and 18% in Q2, and 13% in Q3.

Okay, great. And looking at operating expenses were very low this quarter, I was wondering what kind of operating expense growth we might expect overall would be a good run rate to use.

I would -- good question, Paul. I would say that, yes, our operating expenses for same site were a bit lower than what was expected for the first quarter and if I look forward, I would expect that total NOI growth for the remainder of the year, each quarter would be less than the 7.3% that we experienced this year.

Okay. And finally, you talked about getting more and more applications for the rental program. I was wondering if you could provide an update as to the conversation rate of renters to buyers over time, is that if you've seen that as a better conversation rate over time.

That conversation rate has been between 12% and 15% a year.

And it has remained steady.

Yes.

The next question comes from Todd Stender.

Wells Fargo. First question, can we get a little more information on the 3 Florida RV communities you purchased in the first quarter, may be just which include occupancy give us some rates may be and then pricing, maybe how you look at this on a cap rate basis or price per site.

Sure, I think going a little bit back on memory only because the acquisition closed in 2 parts. The first part was 3 communities in fourth quarter and the 3 remaining communities first quarter of this year. Karen, do you have anything…

The portfolio had about a 1,100 RV sites, significant portion of which were seasonal RV. So, I think there is about [indiscernible].

Say, 40% permanent.

40% permanent, okay.

That’s seasonal and I’m going back on my notes and I did just find something that was right around an 8.5% cap rate.

Okay. And just in terms of the loan you guys, you - it’s a $19 million loan that came along with that. Can you just give us the terms if there is the maturity they coming up on that?

That loan is that - the 5-year loan is comes up in December 2016 and it’s 2.74% I believe.

Okay. And the proceeds, have you finished allocating the proceeds from the January equity offering. Is there anything left that might impact maybe the - that your results for this year any dilution?

No, I don’t.

That would have been modeled into guidance.

Okay. And regarding the Kentland portfolio, can you just maybe go into some of the drivers behind and better than expected top-line and NOI growth, what’s really contributing to that?

I think we've shared the concept of lot of what’s taking place in our U.S. portfolio, the bottoming out of the economy if you will the length of those it didn’t have job so, it seems generally to be over, the uncertainty of expenditures and commitment to want to stay in the area has resided. So, there is stronger than ever demand for the affordability feature if you will in the Midwest we’re finding, and making the home inventory available through the rental program as just surprised us the how rapid and how strong the growth has been and probably going to allow us to accelerate rents in the area little bit faster than anticipated.

Okay and final question, can you just going and maybe some of the seasonality of your CapEx is the first quarter number looked the little light. Can we expect that quarterly run rate to ramp-up as the year progresses?

Yes, we'll generally see a CapEx increasing most significantly in the third quarter, but we would, I would say as a run rate we gave guidance of about $8.4 million and we would expect that to coming at that dollar amount by the end of the year.

[Operator Instructions] The next question comes from Jeff Lau.

Sidoti & Company. The first question was touching on the G&A, I would kind of dropped the little bit this quarter is I guess you guys talked about guidance - reaffirming guidance is that G&A, I guess real property is still expected to be around $19 million this year?

Yes, it is. I would expect the remainder of what it hasn’t been incurred through March 31 to be pretty ratable over the 3 quarters.

Okay, and then I guess everything else since you maintain a reaffirming guidance, I guess in terms of home sales and occupancy still remains the same?

Correct.

[Operator Instructions] There appear to be no further questions at this time. Please continue.

Thank you, operator and thank you everyone who joined us today. We look forward to reporting results after earnings next quarter and as always both Karen, myself, and Jeff are available at the company for any further follow-up. Thank you.

That concludes the Sun Communities first quarter 2012 earnings conference call. Thank you for participating. You may now disconnect.