There’s a bit of a stigma surrounding manufactured home communities. Many people wouldn’t consider living in one because they view them as less desirable than renting an apartment or single-family home. However, these properties provide 25% more space than a typical rental property while costing 50% less per square foot. That affordability is one reason why those living in a manufactured home community tend to stay there a very long time.
Resilient demand is one of the many factors that has made Sun Communities (NYSE: SUI) — a leading owner of manufactured housing communities — a magnificent investment over the years with 12.6% annualized total return since its IPO. Despite its durable growth, the dividend-paying real estate investment trust (REIT) currently sits more than 15% below its 52-week high. That makes now a great time to buy this niche property investor and hold it for a potential lifetime of durable and growing dividend income.
Sun Communities has delivered extremely reliable growth over the past couple of decades. For more than 20 years, the REIT has reported positive same-property net operating income (NOI) growth every single year or rolling four-quarter period. That stands out compared to other residential REITs that focus on multifamily properties. This group has experienced three periods of declining NOI (following the dot.com bust, financial crisis, and pandemic). Sun Communities’ steadier growth has enabled it to increase its NOI faster over the long term (5.2% annually compared to 3.1% for multifamily REITs and 3.2% for the broader REIT industry).
Affordability has played a huge role in driving the resilient demand for manufactured housing. It’s also expensive to move a manufactured home once in place in a community — $6,000 to $10,000 to relocate a home. Because of that, it’s typically cheaper to either pay the higher lot rent that the REIT pushes through or sell the home to a new owner willing to pay the higher lot rent. Adding to the demand dynamics is that there has been virtually no new supply of manufactured home communities built in the country in recent years.
In addition to owning manufactured housing communities, Sun Communities invests in RV parks, marinas, and U.K. holiday parks. These properties also benefit from durable and growing demand. For example, the average RV stays in one of the company’s communities for eight years. Meanwhile, more people are going camping than ever before — a 98% increase in the number of households that camp three or more times each year over the past decade. Likewise, the number of boat owners continues to grow (especially for larger vessels) while marina sizes are shrinking due to the continued redevelopment of waterfront properties.
