If it seems to you like everyone has been on vacation for most of the summer of 2021, you may not be inaccurate. And that's been great news for short-term rental owners, as well as for some hotel real estate investment trusts (REITs). But there's another REIT that has also been benefitting.
Sun Communities (NYSE: SUI) -- the owner of RV parks, marinas, and manufactured home communities -- had a strong second quarter of 2021, all thanks to the impact of roaming remote workers and vacationers. Sun Communities reported that revenue for Q2 was up 99% to $603.9 million. Net income was up 88% year over year (YOY) to $110.8 million, or $0.98 per diluted common share. And core funds from operations (FFO) per share grew by 61% YOY to $1.80. Let's take a look at the factors that led to this success.
Everybody into the RV
We've talked before on this site about the boom in recreational vehicle sales and its impact on REITs that own these parks, marinas, and communities. While it might seem that the spike in RV sales is set to slow, that doesn't appear to be the case.
On the earnings call, John McLaren, president and chief operating officer of Sun Communities, referenced data from the RV Industry Association forecasting 2021 RV shipments to come in around 576,065 units. That would be a nearly 34% increase over 2020's total and on track to beat the current, comparable record high of 504,600 units set in 2017.
More RV owners mean more potential guests for Sun's 141 RV resorts across the U.S. and Canada. Same-community net operating income rose by 21.6% YOY. The 2021 summer holiday weekends have been huge for Sun's RV communities. Weekend RV revenue over Memorial Day weekend was up 39% compared to 2019, and July Fourth weekend revenue was up by 35%.
And it's not just the older generations that are embracing RV life. Sun has seen an 82% increase in visitors ages 18 to 24 and a 39% increase in those ages 25 to 34. Sun is also growing its social media presence on Instagram and TikTok and listing with rental RV platforms such as RVshare and Outdoorsy.
A loyalty program for multiple stays is still in the pilot phase but could also help increase revenues over time. That's just one reason Sun plans to keep acquiring new properties. In June, it issued $600 million of senior notes in an oversubscribed offering.
A boat is a hole in the water you pour money into
The success of Sun's marinas has been a surprise to the company. Same-marina rental revenue growth was up nearly 17% for the first half of 2021 compared to 2019. Consumers are buying more boats.
According to the National Marine Manufacturers Association, new boat sales hit a 13-year high in 2020 at nearly 320,000. And sales through March 2021 were up 30% compared to the 2020 average. Inventory has faced some supply chain slowdown, but dealers are selling boats as fast as they get them.
Sun's acquisition of Safe Harbor Marinas in 2020 is just the beginning of its growth in the marina market. Safe Harbor's marinas are mostly located on the East Coast, but Sun is planning to take the same model to the West Coast, establishing or acquiring marinas from Seattle to San Diego.
When the party's over
Will the boat or RV go the way of the COVID-19 puppy, with many people regretting the decision to go big on recreation? It's too soon to tell, but Sun's customer demographic numbers are promising, showing that it's not just retirees living their Nomadland life that are fueling demand.
However, even if demand for marina slips and RV spaces slows, Sun's core business of manufactured home communities should continue to thrive. With 244 manufactured community homes currently, many in Sun Belt markets, and an aggressive expansion plan, Sun is positioned to take advantage of current migration trends.
Manufactured homes satisfy the need for affordable housing at scale. Sun's biggest challenge in that area is to continue acquiring properties at prices that make sense for the business's long-term health.