The share price of Sun communities (NYSE: SUI) is down 40% from its 2022 high. The Real Estate Investment Trust (REIT) now offers a dividend yield of 3.1%, putting it near the highest level since roughly 2018. Is this a buying opportunity, or is this fast-growing REIT slowing down?
Sun Communities has fallen below $125 per share, a level that would put the dividend yield at a nice round 3%. Given the company’s growth over the past decade, investors may find it an attractive entry point for growth and income stocks. It may sound strange to call a REIT which specializes in manufactured home communities, RV parks and marinas, is a growth stock as its renters are typically focused on enjoying their retirement years, but Sun Communities has been growing very quickly.
In 2010, the company owned 124 manufactured home communities, four specialty RV parks and eight properties that were a combination of both. In 2020, it owned 276 manufactured home communities, 136 RV parks and 34 properties with both. It also added an entirely new property type, with 106 marinas. As of the third quarter of 2024, Sun Communities owned 288 manufactured home communities in the United States, 179 RV parks and 138 marinas. It also had 54 manufactured home communities in the UK, adding a whole new country to the mix (it stopped breaking out mixed communities). It is clear that Sun Communities is in the expansion phase.
Between 2010 and 2022, investors happily paid for that growth, sending the stock price higher and higher. Then something changed. Core money from operations (FFO) per share in 2022 was $7.35. The company forecast the 2023 figure to be between $7.22 and $7.42 per share. It ended at $7.10. Clearly, the company’s financial results fell far short of what investors should have expected, and they responded accordingly.
Sun Communities’ results haven’t exactly improved as 2024 has progressed. In the first quarter, core FFO was $1.19 per share, compared to $1.23 in the same quarter of 2023. The second quarter, core FFO per share was $1.86, compared to $1.96 in the second quarter of 2023. The figure for the third quarter of 2024 came to $2.34 per share. compared to $2.57 last year.
It looks like 2024 will be another bad year for core FFO. From a bigger perspective, it also appears that Sun Communities’ growth engine has stalled. The first major problem appears to be a rapid increase in operating costs. However, that’s just the tip of the iceberg for Sun Communities, due to the nature of its properties.