When Jon Markman reveals much with his first paragraph in Forbes, which said: “Since 1975, Sun Communities has been flying under the radar. Managers have been buying and operating trailer parks.1 And they have been making a fortune for shareholders.”
Markman’s bio says Analyzing tech stocks through the prism of cultural change. “I am an investment adviser, trader, columnist and author based in Seattle. I publish or edit four daily publications: Strategic Advantage, on long-term investing…” He is also president of Markman Capital Insight.
“This month, the Michigan company saw its shares sprint to a record high, matching the move made by the Russell 2000 small-cap stock index,” said Markman. “Something big is happening with smaller-cap stocks. Investors should pay attention.”
Sun Communities (NYSE:SUI) is anything but flying under the radar, as even an industry outsider can rapidly confirm.
Bloomberg, NYTimes, Nasdaq, Seeking Alpha, and Simply Wall Street are some of the over 12 million hits on a quick Google search on this date revealed for Sun Communities.
So, what might be more accurate is for Markman to say that he’s discovering the sector and this stock, which are both arguably good for the industry, and for SUI.
Markman on Sun
“It’s easy to ignore Sun Communities. After all, manufactured housing and RV communities lack the chic appeal of high-end retail, or panache of technology companies,” said Markman. Perhaps he meant, it used to be easier to overlook them for those reasons?
“Yet, Sun executives adopted the best practices of acclaimed retailers, while carefully implementing new technology to grow its trailer park1 business in profound new ways.” That is the tech angle that may have drawn this tech focused writer to use his nomenclature plagued article to the attention of his Forbes and other readers.
“In the process, the company is building durable competitive advantages. And for shareholders, these moves are building value,” said Markman.
That’s arguably the most important topline point that he could have made about Sun, and the entire manufactured housing industry.
Because manufactured homes have an endurable competitive advantage, it has historically performed at a significantly higher level. The Sun graphics in this article are the addition of the Daily Business News, and where not found in the Forbes column, which only used the generic Shutterstock image and an older Sun video shown.
“Value investing has taken a backseat to growth strategies during the last nine years,” said Markman.
The Forbes contributor then goes into the weeds on why he and others think that value and small cap investing are likely to heat up.
“The current relative performance of smaller-capitalization issues is a clear indication that a transition is underway,” said Markman. “In 2018, the Russell 2000 Index is the clear market leader. The total year-to-date gain for small caps is 10.07%, the best of any major stock index.”
“With a market cap of $7.7 billion, Sun Communities is no longer a small cap. It has grown mightily. But its domestic focus, coupled with very strong cash flows, will curry favor among small-cap value investors,” he said.
“The company is carefully rolling up a deeply fragmented trailer park1 industry.” By “rolling up,” he obviously means, consolidating. “Managers then rebrand and refurbish the communities, raise rents, and send money back to shareholders through its Real Estate Investment Trust structure.”
“The process began almost immediately after the company sold shares to the public in 1993,” stated Markman, who then lists the following bullets.
- In 1996, Sun acquired 25 communitiesfor $226 million, and Chateau Properties for $370 million in stock, to bolster its holdings in Michigan and Florida.
- In 1997, it acquired 9 communities, in Indiana and Florida.
- In 2012, the company added a 756-unittrailer home park in Michigan, for $32.2 million.
- And in 2016, Sun bought 103 communities, mostly located in California, Florida and Ontario, Canada, for $1.7 billion.
“All of these communities, now 350 strong, offer well-maintained grounds and amenities such as exercise facilities, pools and saunas. Many are pet-friendly,” he said, in what may be news to some of his readers, but is hardly so for manufactured housing industry professionals. Investors should be mindful that there are some 45,000 manufactured home communities (MHCs) in the U.S., per the best count and estimates know. The link below can be read later for greater insight on the community count controversy.
Frank Rolfe, Dave Reynolds, George Allen, Manufactured Home Community Controversy Continues
“Its investments are paying off…Through 2017, Sun logged an overall occupancy of 94.6% at its manufactured home facilities. The average rent was $917, for a 1,250-square-foot home, with an expected increase of 3.8% in 2018. And the average tenure of residents is 12 years.”
“Sun has recorded 18 consecutive years of positive net operating income,” which is not surprising for many manufactured home communities, because prudent affordable housing is a more recession proof business. “It is a very compelling business model. And company managers are keeping track of everything with state-of-the-art cloud computing tools running custom SAP (SAP) software.”
“Since 2008, the total return on investment through 2017, including dividends, is 857.6%. The comparable return for the S&P 500 is 126%.”
For seeming the umpteenth time, he turns to the T-word in his description of an operation that usually focuses on upscale manufactured home communities, vs. 1 star type properties. “Investing in trailer parks1 might not seem like a great idea. It might even feel lowbrow. But the best investors look for businesses with durable, competitive advantages. Manufactured housing has consistently bested all real estate investments other than self-storage. And it is recession-resistant.”
Once more that’s arguably the top-line takeaway for those inside MH, or those investors and reseachers outside of manufactured housing that are looking in.
“In 2017, Sun Communities revenue grew 17.9%, to $982.6 million, year-over-year. The core funds from operations grew 10% to $4.17 per share. In 2018, company managers expect core FFO to reach $4.48 to $4.58, implying the current dividend yield of 3% will grow,” Markman said.
“As professional investors turn away from growth, yield is likely to become more sought after, and Sun will have its trailers1 hitched up and ready to go,” Markman quipped.
Sun is one of the publicly trade stocks tracked by the Daily Business News, with last night’s closing numbers found here. ## (News, analysis and commentary.)
Footnote 1. While terms like ‘trailer,” or “trailer park” are common, and routinely go unaddressed by the Manufactured Housing Institute (MHI), and too many others, they are improper terminology. The Society for Professional Journalism’s Code of Ethics says in part, “Avoid stereotyping. Journalists should examine the ways their values and experiences may shape their reporting.” Also, Journalists should: – Take responsibility for the accuracy of their work. Residents and professionals routinely resent the term ‘Trailer,” as MHProNews and MHLivingNews has often reported.
(Third party images, content are provided under fair use guidelines.)
Related Reports:
George Allen Blasts MHI, NCC Ignoring Own, Spencer Roane, SECO, COBA7, Tom Lackey Controversies
1) To sign up in seconds for our MH Industry leading emailed news updates, click here.
2) To provide a News Tips and/or Commentary, click the link to the left. Please note if comments are on-or-off the record, thank you.
3) Marketing, Web, Video, Consulting, Recruiting and Training Resources
