Sun Communities stock has declined due to financial improprieties and is not recommended for purchase
From Nasdaq: 2024-12-28 11:44:00
Lower benchmark interest rates have sparked renewed interest in real estate investment trusts (REITs) over the past year, with many income-focused investors turning to higher-yielding dividend stocks. However, Sun Communities (NYSE: SUI), which specializes in manufactured home communities, RV communities, and marinas, has seen its stock decline by 8% over the past year while the S&P 500 rose by nearly 30%. The company’s future is clouded by allegations of financial improprieties from a short-selling hedge fund, and its stock price has fallen by 14% in the past three months. Investors may want to consider other REITs with higher dividend yields.
Sun Communities’ portfolio consists of 659 properties, including manufactured housing, RV, and marina properties across North America, with a decline from a year earlier due to a restructuring of its manufactured housing portfolio. The company’s occupancy rates have improved, and its core funds from operations (FFO) per share have grown at a compound annual rate of 9% from 2018 to 2023. However, the company expects a decline in core FFO for 2024 as it prunes its manufactured housing business and cuts costs.
Despite Sun Communities’ stable business model, concerns have been raised by a short-selling hedge fund regarding financial improprieties and leverage. The company has engaged an independent law firm to investigate these claims, and the CEO is set to retire in 2025. While Sun’s stock may look reasonably valued, its forward dividend yield is lower compared to other REITs. Investors may want to consider other REITs with higher yields and lower valuations, such as Realty Income (NYSE: O), which offers a forward yield of 5.8% and trades at less than 14 times last year’s FFO per share.
It may be prudent for investors to avoid Sun Communities’ stock for now, as the company works through its challenges. While the company’s prospects could improve with further restructuring and declining interest rates, there are potentially more appealing REITs available. Investors should consider the overall landscape of REIT investments before making a decision on Sun Communities’ stock.
Read more at Nasdaq: Sun Communities Stock: Buy, Sell, or Hold?