Earnings

Sun Communities CEO Sees Rental Homes As Ripe For 'Optimization' In 2027

Charles Young would not say whether the rental-home program will shrink, but said his outside view sees room for change.

Sun Communities CEO Charles Young said on the company's third-quarter earnings call Tuesday that its manufactured-housing rental-home program is a "natural area for further optimization" in 2027, and he would not say whether it will shrink. The company reported core FFO of $2.35 per share, two cents above the high end of its guidance.

Rentals climb past 13% of sites

Sun Communities owns and operates manufactured housing communities and RV resorts, leasing sites to people who place their own homes or RVs on them. It also rents homes to residents.

An analyst from Green Street noted that rentals have grown from about 9% of occupied sites in 2022 to more than 13%, and asked whether that was deliberate. Young said it is "not an attentional focus." He described the program as a tool for leasing up new communities, with renters converting to owners over time.

With occupancy around 98%, Young said, he does not expect occupancy to climb much further. He said he and CFO Bob Garachana, who came from multifamily, see the program as an area to review.

No answer on 2027 rental sites

Pressed on whether rental sites will decline, hold or rise, Young said: "I'm not going to be able to tell you what we're looking at for 2027." He said he, Garachana and President and Chief Operating Officer John McClaren will work through the approach, and that for now the program is being used to drive top-line revenue.

Sun will give full 2027 guidance with fourth-quarter results in February, Garachana said.

Buybacks first, debt paydown last

Young said capital priorities start with share repurchases, followed by growth capital spending and selective acquisitions. Paying down debt ranks lowest. Sun has spent about $544 million on buybacks this year and paid down nearly $450 million of debt, using roughly $1 billion from the September sale of its UK business.

Demand for sites is deep, McClaren said: over 20 applications on average for each available manufactured-housing site. Sun expects 2027 rent increases averaging about 5.4% for manufactured housing and about 4.4% for annual RV.

Garachana said Sun will lay out its full 2027 outlook in February.