CHUYN
I’m simply round midway by means of my new e-book, REITs For Dummies, by which I will likely be serving to buyers navigate the worldwide actual property funding belief, or REIT, universe.
I’m very excited to get the e-book completed as a result of I do know that 1000’s of buyers are on the fence on the subject of REITs, just because they’re undecided if there’s worth in proudly owning actual property shares.
In fact, one of many best myths on the subject of REITs is that they’re harmful due to the various lower dividends through the Nice Recession.
I can definitely relate to that, as I used to be an actual property developer in 2008-2009 and I do know firsthand the ache when the subprime disaster was a whole monetary market meltdown.
In fact, there’s all the time a silver lining, and for me the Nice Recession pressured me to shift from actual property developer to actual property analyst. And due to the 100,000+ followers on In search of Alpha, I used to be capable of completely reinvent myself and turn into a trusted voice within the revenue house.
Earlier than In search of Alpha, I used to be primarily centered on web lease and procuring heart improvement, the place I orchestrated over $1 billion of transactions. A part of this “floor up” expertise allowed me to conduct due diligence on lots of my tenants, resembling Advance Auto Components (AAP), Walmart (WMT), Greenback Normal (DG), Sherwin-Williams (SHW), and Blockbuster Video.
Once I was youthful, I all the time loved analyzing enterprise fashions, and learning monetary statements. Name me a nerd, however I spent extra time in my school finance lessons than I did partying at fraternity row.
So, the wonderful thing about my job right now, as CEO at Broad Moat Analysis, is that I can analyze a wide range of firms. The one widespread denominator, in fact, for all of our analysis is summed up in a single phrase: INCOME.
Final week I used to be touring in South Florida, and I made a decision to satisfy a pal at Secure Harbor in Fort Lauderdale. His firm had a well-known yacht, On line casino Royale, docked in Secure Harbor, and he invited me over to take a tour. The yacht appeared in “On line casino Royale” because the “floating lair” of the film’s villain, Le Chiffre.
Secure Harbor (in Fort Lauderdale) is the most important yacht restore/refit facility within the nation, a powerful 65-acres within the Yachting Capital of the World. The property has 1600 whole vessel visits and completes over 1300 vessel hauls per yr with 5 lifts, considered one of which has the hauling capability of as much as 485-tons.
The marina gives dry docks and moist slips for vessels as much as 200 ft. LOA and likewise gives an on-site restaurant, YOT Bar and Kitchen, which overlooks the New River. It has over 130,000 sq. toes of workshop and workplace house, with over 20 premier on-site contractors representing all main shipyard trades on-site, prepared to satisfy all undertaking calls for.
Within the phrases of Secure Harbor’s CEO Baxter Underwood, the Secure Harbor model is the “intersection of luxurious and journey within the context of sailing.”
Brad Thomas
A Daring and Secure Acquisition
In September 2020, Solar Communities, Inc. (NYSE:SUI), a REIT concerned in manufactured housing and leisure automobile communities, entered into an settlement to amass Secure Harbor Marinas, the most important and most diversified marina proprietor and operator in the USA.
SUI Investor Presentation
Secure Harbor owns and operates 101 marinas, manages 5 marinas on behalf of third events, and has an approximate 40,000-member community of boat homeowners throughout 22 states. The transaction for money and SUI fairness is valued at $2.11 billion.
SUI Investor Presentation
This was a strategic “bolt on” acquisition for SUI, because it offers the REIT with 46k moist slips and dry storage areas and over 46K members within the community. 80% of the Marina are in coastal markets.
Florida 5,139 areas
Michigan 3,742 areas
Texas 2,064 areas
California 4,133 areas
Connecticut 3,325 areas
Different areas: 27,382 areas
Whole: 46,185 areas.
Marinas are nice property to personal, as the prevailing base has over 12 million registered boats throughout the U.S. and an estimated provide of 900K to 1 million leasable moist slips. There’s a shrinking provide of Marinas on account of redevelopment of waterfront properties.
Additionally, pre-owned boat gross sales underneath 30’ grew by 17% from 2012-2021 whereas gross sales for boats over 30’ elevated 52% – the common slip size within the SUI portfolio is 41’. Over 85% of SUI’s marinas have a waitlist.
Over 50% of Marinas inside SUI’s portfolio provide service, which will increase membership tenure on common by 26% in comparison with non-service properties. Service availability drives premium rental charges for moist slips and dry storage areas.
SUI Investor Presentation
In Q3-22 marinas continued to expertise robust efficiency, as SUI’s Identical Marina actual property NOI elevated 9.6% in comparison with Q3-21, pushed by elevated annual boat slip income and storage income. Demand for slips and storage is persistent.
Additionally, in Q3-22, SUI elevated its Marina same-property midpoint of full yr steerage to six.6%, a 20 foundation level enhance from the priorrange. The REIT expects same-property Marina development of 6.1% on the midpoint in This autumn.
As seen beneath, SUI has the size benefit throughout the marina sector (130 owned marinas) – or round 20% of income – whereas Fairness Way of life Properties, Inc. (ELS) has a smaller share of marina income (as proven beneath).
SUI Investor Presentation
Who’s Prepared For a Highway Journey?
As lots of , I present members at iREIT on Alpha with each day video updates and lots of C-suite interviews. Extra lately I’ve been touring round to satisfy the CEOs at their workplace…
A number of weeks in the past I visited Highwoods Properties (HIW) CEO Ted Klinck at his workplace in Raleigh, N.C. I additionally drove to Birmingham, Alabama, to satisfy with Medical Properties Belief (MPW) CEO Edward Aldag.
Just like the marina go to final week at Secure Harbor, I plan to start visiting many different REIT-owned properties throughout the U.S. and Europe. These so known as “boots on the bottom” interviews are extraordinarily rewarding for our analyst crew in addition to our members at iREIT on Alpha.
I’ve been serious about even renting an RV to journey round so I can go to the properties, meet CEOs, and conduct a street present my new e-book (REITs For Dummies) and REIT ETF Index. What do you assume?
Brad Thomas
Properly, guess what?
SUI additionally owns best-in-class RV communities, with ~60K websites situated in extremely fascinating locations with ~7K websites for enlargement and greenfield improvement. As proven beneath, RV communities signify 31% of SUI’s rental income:
SUI Investor Presentation
The provision and demand for this property sub-sector is compelling: 11 million households personal ab RV versus 1 million RV campsites. 9.5 million individuals plan to purchase an RV within the subsequent 5 years and the RV rental market added over 2 million new enters in 2021.
SUI’s RV communities provide reasonably priced holidays the place the common journey is 2-3 hours from a buyer’s dwelling deal with. In 2021, 250K new company visited a SUI neighborhood and 145K new company in 2022 (through Q3). 7-in-10 households establish themselves as a minimum of occasional campers.
SUI Investor Presentation
As SUI explains on the Q3 2022 earnings name (emphasis added):
“RV communities proceed to expertise excessive demand and transient conversions to annual leases accelerated 30% as in comparison with the third quarter of 2021. Yr-to-date, we now have transformed roughly 2,000 transient websites to annual leases, which exceeds our full yr document set in 2021. Every conversion equates to a 40% to 60% income uplift the primary yr and creates a brand new stream of recurring income. On a Identical Property foundation, annual RV revenues elevated 13.4% and whole NOI grew 8.4% in comparison with the third quarter final yr. Month-to-month base lease per RV website elevated by 7% year-over-year. On a mixed foundation, blended whole portfolio manufactured housing and annual RV occupancy was 97.1%, with over 2,300 revenue-producing websites gained year-to-date.”
The Core Enterprise Mannequin
SUI was stablished in 1975 and have become a publicly owned company in December 1993. In 1996, the corporate acquired 25 manufactured housing communities for $226 million. As you’ll be able to see beneath, since 2010, SUI has acquired properties valued at over $11.7 billion, growing its variety of properties by 4.9x (accomplished over $6.5 billion of acquisitions since 2020).
SUI Investor Presentation
Manufactured housing represents ~49% of SUI’s income and this sub-sector is taken into account its core enterprise platform. SUI has the most important manufactured housing portfolio in Nort America with greater than 99K websites. As well as, the corporate is the 2nd largest park proprietor and operator within the U.Okay., with 55 vacation parks consisting of 22K websites.
In whole, SUI has 352 manufactured housing communities consisting of 144K income producing websites and 9K websites for enlargement and greenfield improvement.
Manufactured housing fundamentals are robust, as SUI’s portfolio is at 96.2% occupancy, with 70% of its communities at 98% (occupancy). SUI can also be one of many largest annual purchasers of manufactured houses, with 2K houses per yr.
Annual dwelling move-outs in SUIs’ manufactured housing communities are 0.5%, and that’s actually an uninterrupted rental revenue stream: common tenure of residents in SUI communities is ~14 years. This low turnover is pushed by a $6k – $10k common price for a resident to maneuver a house.
SUI Investor Presentation
Manufactured houses in SUI’s communities present 25% extra space at ~54% much less price per sq. foot:
SUI Investor Presentation
SUI’s manufactured housing, Identical Property NOI elevated 4.9% in Q3-22 in contrast with Q3-21 supported by 4.3% features in month-to-month base lease per website, elevated occupancy and talent to handle bills.
The Steadiness Sheet
On the finish of Q3-33, SUI had $6.7 billion of debt excellent that carried a weighted common rate of interest of three.4% and a weighted common maturity of 8.8 years. The online debt to trailing 12-month recurring EBITDA ratio was 5.7x.
Excluding the financial institution revolving credit score and time period mortgage services, the remaining $4.9 billionof debt has a weighted common rate of interest of three.4% and a weighted common maturity of 9.9 years.
SUI Investor Presentation
When it comes to capital markets exercise in Q3-22, SUI repaid $318 million of debt secured by 35 properties, growing its unencumbered property to whole asset ratio to ~79%.
SUI Investor Presentation
When it comes to dividend development – which is a key metric for us to judge at iREIT on Alpha – we will see that ELS outperforms SUI. In 2008-2009 ELS did NOT lower its dividend, whereas SUI did. As well as, ELS has grown its dividend yearly, whereas SUI has not been as constant.
iREIT
Nevertheless, we seen an attention-grabbing pattern going down, by which SUI’s payout ratio was declining which makes the worth proposition extra enticing. In the meantime, ELS has appear its payout ratio enhance:
iREIT
Valuation Issues
On the Q3-22 name, SUI elevated the midpoint of full yr steerage – funds from operations (“FFO”) per share – by $0.08 to a revised vary of $7.32 to $7.38. It established a This autumn-22 fixed forex core FFO per share steerage within the vary of $1.23 to $1.29. The brand new vary represents 6% development on the midpoint for the total yr and implies the 6.6% development on the midpoint in This autumn-22.
As seen beneath, analysts forecast AFFO per share to develop by 14% in 2022 and round 6% in 2023. That’s on high of a document yr of development in 2021 (+27% in AFFO per share).
FAST Graphs
Remember that it was solely in 2021 that SUI obtained inaugural credit score rankings from S&P and Moody’s, validating the stability sheet stewardship, robust working monitor document, and industry-leading place. As SUI’s CEO mentioned,
“These rankings signify one other vital milestone in Solar’s ongoing evolution as we proceed to develop our portfolio and additional strengthen our stability sheet. We consider these rankings will permit us to proceed to execute on our development technique with further flexibility, broadened entry to capital and incremental enhancements to our total price of capital.”
FAST Graphs
As you’ll be able to see (above), SUI is now buying and selling at 24x present P/AFFO, and traditionally shares have traded round 26x. Nevertheless, Covid-19 offered an outlier state of affairs the place shares traded as excessive as 37x, the place pre-Covid shares traded at 12x to 25x.
Keep in mind, although, SUI is a a lot completely different animal right now, with a much-improved stability sheet, a lot safer dividend (payout ratio), and extra constant dividend development (~5.5% CAGR).
iREIT
As talked about, SUI trades at 24.3x versus ELS that trades at 30.8x. Additionally, SUI’s yield is 2.2% in contrast with ELS’s dividend yield of two.5%. Analysts forecast SUI to develop AFFO per share by 6% in 2023, and ELS is projected to develop by 5%.
We’re sustaining a BUY and I’m including SUI to my private SWAN portfolio. Having visited Secure Harbor myself final night time, I’m extraordinarily excited to turn into a marina landlord along with RV communities and manufactured housing websites.
I additionally see that Jeff Blau, CEO at Associated Firms, has joined SUI’s board, and that is one other optimistic addition to the administration crew. SUI is about to launch This autumn-23 earnings quickly, with the earnings name at 11:00 on February twenty third.
iREIT’s Annualized Whole Return estimate is 15% as proven beneath:
FAST Graphs
As all the time, thanks for studying and commenting.
Glad SWAN Investing!