Sun Communities - Q2 2010
July 27, 2010
Transcript
Gary Shiffman (Chairman and CEO)
Thank you.
Operator (participant)
Ladies and gentlemen, thank you for standing by, and welcome to the Sun Communities Second Quarter Earnings Conference Call on July 27, 2010. At this time, management would like me to inform you that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectation reflected in any forward-looking statements are based on reasonable assumption, the company can provide no assurance that its expectation will be achieved. Factors and risks that could cause actual results to differ materially from expectation are detailed in this morning press release form, and from time to time in the company's periodic filings with SEC.
The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release. Having said that, I'd like to introduce management with us today, Gary Shiffman, Chairman and Chief Executive Officer, Karen Dearing, Chief Financial Officer, and Jeff Jorissen, Director of Corporate Development. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the presentation, please press star followed by the zero on your telephone for press assistance. I would now like to turn the conference over to Gary Shiffman. Please go ahead, sir.
Gary Shiffman (Chairman and CEO)
Thank you, and good morning, everybody. This morning, we reported funds from operations of $14 million or $0.66 per share for the second quarter of 2010, compared to $13 million or $0.62 per share in the second quarter of 2009. For the six months, FFO was $31.7 million or $1.50 per share, compared to $29.2 million or $1.40 per share in the first half of 2009. These results reflect FFO per share growth of 6.5% for the second quarter and 7% for the six months, a strong increase over FFO per share gains of 2%-4% over the last few years. These FFO results exclude various items, as noted in a table to the press release.
This morning, I'd like to begin by focusing on occupancy trends. As those of you who follow Sun and the industry know, manufactured housing has experienced a 10-year deterioration in the number of homes shipped by manufacturers, a simultaneous and precipitous decline in the dealer network that had always been our primary source of new residents, and a sharply more demanding underwriting environment with larger down payments and shorter maturities. Despite substantial and prospering operations in Texas, Florida, Colorado, and the Mid-Atlantic, our prospects are strongly influenced by the economic conditions in the Midwest. The domestic auto industry, which had teetered and tottered in the economic winds of the last few years, seem to have stabilized, somewhat anchoring the economic base upon which much of the Midwest actually draws its strength.
While much of the landscape has changed, the impacts related to the uncertainty of automotive job loss, the restructuring of GM, and the adjustment to the site-built housing market, all are having favorable results with regard to recent trends in our Midwest portfolio. For the last several quarters, we have noted that our Midwest portfolio, which is Michigan, Ohio, and Indiana, was steadily improving and that it was losing fewer sites and thus adversely impacting our growth markets to a lesser and lesser degree. We are finally able to report that the Midwest is actually a contributor to occupancy growth. In the most recent quarter, the Midwest added 119 sites, and for the trailing twelve months, which include what has usually been a weaker second half, the gain was 34 sites. This, in fact, marks the first positive trailing twelve-month period result in over five years.
As a basis for comparison, the worst trailing twelve-month period suffered a loss of 751 sites through June 30, 2007. This represents a key and long-awaited turnaround in occupancy performance in our Midwest markets, which comprise about half of our overall sites. I am pleased to report this positive trend and believe it bodes well for overall occupancy improvement within the portfolio. Overall occupancy in the entire portfolio increased nearly a full percentage point during the first two quarters of the year, improving from 83.4% at December 31, 2009 to 84.3% at June 30, 2010.
As would be expected from developing strength and occupancy, our same-site portfolio performance benefited from stronger revenue growth to result in NOI growth of 3.4% for the second quarter of 2010, compared to 1.3% for the second quarter of 2009. Portfolio applications, which provide the primary source of resident growth, increased by 23% from 9,430 in the first half of 2009 to over 11,650 in the first half of 2010. This reflects the increasing demand for our affordable housing lifestyle, and if the first half trend continues, we will top 23,000 applications to live in our communities for 2010.
We believe this demand marks not only the return of our traditional customer, but that of several segments of newly interested residents expanding and accounting for the increase in applications. First, with the restructuring of pay scale related to the automotive and other industries, particularly in the Midwest, as well as job loss and job change, manufactured housing is now the only affordable means of home ownership for some of this new segment. Second, the demand to rent an affordable home as opposed to buy, has been on the increase. Further, our Midwest applications have also increased from 2009, with applications to purchase homes through the first two comparative quarters year-over-year, increasing from 300 to 800. Applications to rent homes in that same Midwest segment of the portfolio and to convert from a renter to an owner have also increased.
Our home sales are now exceeding our home purchases, which represents a milestone and another long-term trend. The proceeds from home sales are gradually reducing the company's need to allocate capital beyond that realized from home sales to buying homes to support our rental program. 732 homes were sold in the first half of 2010, compared to 518 in the same period of 2009. To put the 732 first half sales in perspective, this is 1.5x-3x the new and pre-owned home sales in the first half of each of the years from 2001 to 2008. Our rental home program has never operated more efficiently in terms of inventory levels and average days in inventory.
With approximately 500 leases expiring each month before considering renewals, inventory was reduced to 515 homes at June 30, with an average days in inventory of 50. These are all-time peak achievements and reflect the efficiencies in the field related to refurbishment and re-leasing efforts, as well as the internal systems and controls at the home office, but underscore the demand for this affordable housing. In addition, the average cost per turn of a leased home has continued to decline to $1,403 at June 30, 2010, from $771 at June 30, 2006, for the respective twelve-month periods. Our expansion program to bring on more sites in our stronger markets is well underway.
124 sites will open by the fall in Colorado, and an additional 200 sites will open in Houston and Austin next spring. These sites are adding to supply in communities that are currently 95%-100% occupied, with rental rates that are approximately $100 greater than the portfolio average. In addition, these three markets have accounted for 16% of our total year-to-date leads and only 3.5% of our available vacant sites. The capital expenditures for these three expansions currently benefit from the front-end development and entitlement costs that were incurred more than 10 years ago.
We are optimistic that each of these communities will fill at a rate of 35-50 sites per year and are reviewing our expansion opportunities in the portfolio that might be ready to benefit from similar trends as they occur over the next 12-18 months. We continue our due diligence on a number of communities for acquisition, which represent turnaround opportunities with attractive and accretive returns on investment. This program has been slow moving, however, as both the financial institutions and the owners in various stages of foreclosure are typically mired in a process of paperwork. Often, as they continue the process of foreclosure, short sale, or deed in lieu, the properties deteriorate in terms of occupancy, delinquencies, and appearance, which, of course, impacts the price Sun is willing to pay.
Finally, after considering the effects of the anticipated annual dilution of $0.04 per share related to equity and $0.02 per share of other one-time incurred expenses, we affirm guidance of $2.89-$2.98 per share for the year. At this time, we would invite any questions. Operator, if you're there?
Operator (participant)
Thank you very much, ladies and gentlemen. If you would like to ask a question, please press the star followed by the one on your telephone. If you wish to cancel this request, please press the star followed by the two. Your question will be pulled in the order they are received. There will be short pause while participant registered for a question.
...The first question comes from William Acheson from Benchmark. Please go ahead.
William Acheson (VP)
Yes, good morning, everyone. Everybody, I wanted to ask, you know, if you look at the sales in the single-family home market, they're just simply taking it on the chin here. But, your home sale program continues to improve, and I was wondering, is this a manufactured home industry trend, or is it just a result of a concerted effort on your part?
Gary Shiffman (Chairman and CEO)
So I like to think it's a little bit of both. I think that we often like to point out that the average home, single wide, sells in a range of $35,000-$40,000 for new and slightly lower for used. And then you get into sectional homes that average around $45,000-$50,000 for new and less, obviously, for used. And those are very competitive price points. And when we're asked the question about how the competition of site-built housing and the inventory of site-built homes is impacting our sales, I think we typically point out that there's just such a vast difference in price point that they're two different markets and two different customers that are going to qualify for them.
The second answer is that the depth of the management team and experience in the industry at Sun, I think, is, is, can be viewed as having expertise that enables us to aggressively create the programs. The Net Promoter Scores that we're looking at, focusing on in 2010, indicate what satisfies the customers and all the efforts of management to get recommendations that are focused on satisfying those customer needs, and it helps us sell homes.
William Acheson (VP)
Okay, thank you. Given the improved demand here, on the rental side, have you changed your outlook for more or less holding the rental rate, constant?
Gary Shiffman (Chairman and CEO)
Yeah, I think that's a good question. I think what we saw over last year was about a $10 overall reduction on average to the previous year's rental rate, and it had been growing at a rate of almost 10% a year for several years prior to that. So I think we're looking at rental rates that are staying pretty constant or slightly increasing to hedge for costs of operating. But we're not looking for any significant growth. We are looking to convert as many of the renters as possible into homeowners, and that's been working, you know, pretty much according to our strategic plan. So I'm more interested in converting from renter to owner than there is right now in increasing significantly the cost to rent a home.
William Acheson (VP)
Okay, one last question. Kind of similar to what's going on in the apartment sector, although we've really had no actual job growth to speak of, it's not really holding back a recovery in pricing power, in your case, in increased occupancy. How long do you think the improvement can continue without any real job growth?
Gary Shiffman (Chairman and CEO)
You know, I think that anyone should feel free to you know, speculate on what they think. I think the way that it improves for our industry, and particularly for Sun's portfolio, is the fact that the affordability aspect is much more important to a growing segment. So we don't just have the return of our original base customer. We have increased pools who wouldn't probably have considered manufactured housing previously. So I think it fuels a little bit of strength and growth beyond what happens in the job market. It just drives more customers to us.
William Acheson (VP)
Okay, thank you very much.
Gary Shiffman (Chairman and CEO)
Sure.
Operator (participant)
Thank you. The next question come from Paul Adornato from BMO Capital Markets. Please go ahead.
Paul Adornato (REIT Analyst)
Hi, good morning. Was wondering if you could comment a little bit on July activity in both the rental and the sales programs. Did you see a continuation of the second quarter trends in the month of July?
Gary Shiffman (Chairman and CEO)
I think that's a great question that had we touched on it in our press release, we would be able to discuss it a little bit more, Paul, but I think I can share with everybody that in affirming guidance and taking into account the dilution from the equity and some of the one-time items, our expectation and our message to the market is that we continue to expect the trends that we're seeing to move forward and continue to be able to affirm guidance based on that.
Paul Adornato (REIT Analyst)
Okay. In terms of rental increases, could you remind us again what percentage of your leases are tied to CPI?
Karen Dearing (CFO)
I think, and Paul, I think it's about 10% of our leases are 55 and over sites, and, therefore, you know, those would be the ones that would be related to CPI.
Paul Adornato (REIT Analyst)
Mm-hmm. And what have been the trends or what are your expectations in terms of increases? Do you think you'll be able to achieve better than CPI increases over the next 12 months?
Gary Shiffman (Chairman and CEO)
Yeah, I think that, based into our original guidance, we had rental rate increases of about 2.5% through the first two quarters. I'd just remind everybody, about 50% of our rental increases take place in the first quarter, 25% in the second quarter, so about 75% has taken place, and the last 25% takes place in the third and fourth quarter. We're right on track with that budget of 2.5%. In addition, I think that, we oftentimes look to do multiyear rental increases in some of the adult communities so that they can lock in the knowledge, and not be subject to CPI. I think 2 of those multiyear leases have been executed already down in Florida.
We will, I believe, see an average, certainly well above CPI for the foreseeable future.
Paul Adornato (REIT Analyst)
Mm-hmm. Okay, thank you.
Gary Shiffman (Chairman and CEO)
Mm-hmm.
Operator (participant)
Thank you. The next question come from Mark Lutinsky from BMO Capital Markets. Please go ahead.
Mark Lutinsky (Equity Research Associate)
Hey there. Question on the home sales. I was wondering, how did that trend over the months in the second quarter? Was it, you know, high in the first month and second month, did it decline, or was what was the change?
Karen Dearing (CFO)
I'm sorry, Mark, we're having trouble hearing your question.
Mark Lutinsky (Equity Research Associate)
Hey, can you hear me better now?
Karen Dearing (CFO)
Yes.
Mark Lutinsky (Equity Research Associate)
Okay. I was wondering if you could talk about the trend of home sales over the second quarter. Was, you know, did it change between the first and the third month? Or was it constant?
Karen Dearing (CFO)
Let's see. Home sales increased about 41% year-to-date. You're talking over the quarter? We sold 407 this quarter and 270 last quarter, last year, I mean, second quarter last year. I'm not sure I've answered your question, though.
Mark Lutinsky (Equity Research Associate)
I'm just wondering, you know, did it, you know, over the individual months, was it a constant stream, you know?
Karen Dearing (CFO)
It improved. We sold 325 last quarter, 407 this quarter. Kind of similar to-
Gary Shiffman (Chairman and CEO)
What's the monthly?
Mark Lutinsky (Equity Research Associate)
A monthly?
Gary Shiffman (Chairman and CEO)
For the second quarter.
Karen Dearing (CFO)
Oh, I don't-
Gary Shiffman (Chairman and CEO)
Kim, can you call that?
Karen Dearing (CFO)
Yeah. I'm sorry, Mark, I don't have monthly.
Mark Lutinsky (Equity Research Associate)
Okay. And so your, your guidance is unchanged, but you had $0.04 of dilution now and, and $0.02 of non-recurring expenses included in that. Where are you making up? I guess that's sort of an increase to guidance. What, what has improved versus what your original expectations were?
Karen Dearing (CFO)
So I think we have some anticipated increase in same property. You know, our guidance was 1.9% NOI growth, and we're at 2.5 through the second quarter. So although, you know, that's dependent on keeping occupied sites and maintaining our expense controls, we are, you know, anticipating some greater performance there, and it's going to be somewhat offset by an increase in our G&A costs. I think our run rate in G&A is, it'll be about $1 million higher than the $6.4 million, $16.4 million we have in guidance right now.
Mark Lutinsky (Equity Research Associate)
Mm-hmm.
Karen Dearing (CFO)
So we're, you know, anticipating that that higher operating performance is going to trigger some anticipated increased incentive payments and other costs unrelated to operating performance, legal insurance-
Mark Lutinsky (Equity Research Associate)
Okay.
Karen Dearing (CFO)
-consulting.
Mark Lutinsky (Equity Research Associate)
All right.
Gary Shiffman (Chairman and CEO)
It's mostly coming from top-line revenue and reflects what's happening with occupancy and the strength that we're experiencing, particularly in the Midwest as well as our other markets.
Mark Lutinsky (Equity Research Associate)
Okay. And last quarter, you guys sounded a little bit more, I guess, intrigued by acquisition prospects. I was wondering if you could comment on that in this quarter.
Gary Shiffman (Chairman and CEO)
I don't think anything has changed except for, as I indicated, the painful, slow movement of the foreclosure process or the short sale process has just, after we've gotten into the contract phase, we've just kind of been on the sideline as the lenders and the owners are kind of negotiating final issues. And so where we would have expected to be further along in closing one or two or three acquisitions, we are in the phase of still negotiating some price adjustments, and the banks and the owners are negotiating their final paperwork, which seems to drag on much, much longer than we think it should, but it's just a fact of doing business today.
Mark Lutinsky (Equity Research Associate)
All right. Thank you.
Operator (participant)
Thank you. The next question comes from Andrew McCulloch from Green Street Advisors. Please go ahead.
Andrew McCulloch (Chief Analytics Officer)
Morning, guys. This is Chris Van Ens, and Andy McCullough is here with me as well. First question, can you just remind me what the economics are behind the rental home sales in particular? You know, what sort of margins are you selling them at? What kind of returns are you guys generating, et cetera?
Karen Dearing (CFO)
...Margins on the, rental home sales, let me see if I can find it real quick here. About a twenty, it's about the same, about 24%, margin on our re-rental home sales. And profits are, I don't know, about $6,000 a home, $4,000-$6,000 a home.
Andrew McCulloch (Chief Analytics Officer)
What sort of returns do you think you're generating on those?
Gary Shiffman (Chairman and CEO)
Net, net returns are you talking about, Chris?
Andrew McCulloch (Chief Analytics Officer)
Yeah, return, returns on the rental home sales.
Gary Shiffman (Chairman and CEO)
I think that basically, and then, again, I'm not sure we're answering this right, but we look to pretty much break even or show a small profit. And the program is just geared towards maintaining occupancy as it was in a deteriorating environment over the last nine years, and now converting those owners into owners. So there is no real anticipated profit margin on the overall operation of the home sales and rental program.
Mark Lutinsky (Equity Research Associate)
Okay. And then on home sales in general, you know, it looks like the gross profit generated from 2Q sales is about equal to that that you guys did in 2Q09, but you sold a bunch more homes this year. What's the reason behind that? Is that a mix issue, or are you actively lowering home prices or something else?
Karen Dearing (CFO)
No, we are actively decreasing home prices in order to increase volume. You know, the goal is to be accelerating the recycling of our capital to reinvest in the program.
Andrew McCulloch (Chief Analytics Officer)
Sure. Okay, that makes sense.
Gary Shiffman (Chairman and CEO)
I think we also have a particular program in place right now where we are focusing efforts on actually turning over and selling the oldest of the homes in the portfolio. So that might impact average prices and probably profit margins as well.
Andrew McCulloch (Chief Analytics Officer)
Okay. And you guys mentioned in your press release that you sold around, you know, 500,000 shares in the last six months. Is that all we're going to see, or do you guys plan to get a little bit more aggressive with your ATM, do you think?
Gary Shiffman (Chairman and CEO)
I think we've been pretty consistent with the program message. I think that we were initially had 1.6 million shares in the program. About 1 million remain. I think that through the guidance and discussion with the board, and as we look at continuing to create good liquidity and looking at the balance sheet as to what we have coming in 2011, which is about $104 million securitization and the renewal of our line.
We're paying close attention that we're not in a position to have to raise capital as others did at a time when the stock price was very, very low, and we were fortunate enough to catch a updraft in the price and raise the equity through the ATM program. It is likely that as performance continues we will continue to look at opportunities for whether it be equity or restructuring existing debt or improving on the line of credit as we have, you know, in the most recent six months. It's just continued efforts to make sure that we've stewarded the balance sheet properly.
Andrew McCulloch (Chief Analytics Officer)
Okay, and then finally, regarding the renewal of the line of credit and the secured debt coming due in 2011, any more color on that, where you guys stand right now?
Gary Shiffman (Chairman and CEO)
Sure. I think that we have been very much on the offense, as we've shared on the calls before. We have met with the participants on the line. We have discussed and reviewed several different options with regard to both the line of credit and the debt coming up. We continue to do so. We have a bank group meeting in August with the participants in our line of credit. We have received interest from several other banking institutions with regard to other types of facilities. And we've also noted, as you may have seen, an improvement in the overall terms, certainly in the last 3 months or 90 days, with regard to pricing and terms in the facilities.
Our approach to equity also plays into the strength within which we will be able to negotiate the renewal of the line of credit. As we've indicated before, the properties that make up the securitization are yielding NOIs of 15%-17% greater than where they were underwritten originally. We feel good under a tough market that we'll be able to successfully deal with the pending terms coming up probably prior to those terms expiring. So the bottom line is we continue all efforts. We're very focused on that. As you know, after 2011, we have a little bit of room till 2014 before any significant debt comes up again. So it leaves us a lot of time to focus on this.
Andrew McCulloch (Chief Analytics Officer)
Okay, and, and what kind of rates do you think you can get on 10-year secured financing, whether it be agency or, or balance sheet lender right now?
Gary Shiffman (Chairman and CEO)
You know, the rates that we're seeing are right around 5% right now to 5.75%.
Andrew McCulloch (Chief Analytics Officer)
Are you speaking, you know, is that 60-65 LTV, something like that, or what kind of coverage ratios, too?
Gary Shiffman (Chairman and CEO)
That's 65 LTV.
Andrew McCulloch (Chief Analytics Officer)
Okay, great. That's all my questions. Thanks, guys.
Operator (participant)
Thank you once again, ladies and gentlemen. If you would like to ask a question, please press star followed by the one on your telephone. The next question from Michael Bilerman from Citigroup. Please go ahead.
Michael Bilerman (Managing Director and Head of the Real Estate and Lodging Team)
Good morning. Might you provide some detail or insight as to the drivers of improvement in your Midwest portfolio? I know you mentioned some of the macro forces, but is there some other factors to consider, you know, for example, the export industry strengthening in Toledo, or is there something happening in Grand Rapids that's having a spillover effect in your growth?
Gary Shiffman (Chairman and CEO)
No, I don't think there is anything other than the macro trends that we referred to. I think that just removing the uncertainty of so much that's going on, a lot of the shift in job loss that has taken place and obviously the redistribution of some of the great employment talent that has left the market, that's kind of stabilized. And I think that right now we're benefiting from the affordability and the quality of the leasing opportunities that we have. And I don't know if anyone else has anything to add to that. I think it's just that simple.
Michael Bilerman (Managing Director and Head of the Real Estate and Lodging Team)
Very well. And is there anything in the demographic trends that, I know you touched upon that briefly, but anything that surprises you, for example, the 55 and older group?
Gary Shiffman (Chairman and CEO)
No, I don't think there's anything that, that surprises us. I think that, we're very, very positive on the metrics that we're seeing, for two reasons. Seeing the toughest of our portfolio begin to improve quarter after quarter and get to positive occupancy is something, as I indicated, we haven't seen, in more than five years. And, you know, we keep referring to metrics that have not been this good in about a 10-year period of time. And we're at the point, I think, as I said in the last call, that, we feel the trends are not just blips anymore. They, they certainly seem to be backed up by more than multiple quarters of positive direction. So it's just good, solid management by the operations component.
I think, our rental strategy has proved itself over the last eight, nine years. I know that the board and myself are pleased to see the conversion from rental to sales taking place right now, bringing more capital and making less dependency on the capital outlay for the rental program, fuel our growth. So, generally, you know, in a very, very tough Midwest market in particular, it's right now currently good to be in the manufactured housing leasing business.
Michael Bilerman (Managing Director and Head of the Real Estate and Lodging Team)
I appreciate that, and congratulations on the solid quarter.
Gary Shiffman (Chairman and CEO)
Sure.
Operator (participant)
Thank you. The next question come from David Minkoff from Maxim Group. Please go ahead.
David Minkoff (Equity Research Analyst)
Good morning, guys. Nice to see the good results this quarter. I'm trying to figure out whether the tax credit had anything to do with some of this nice increase. The home sales, which were up 50.7%, quarter-over-quarter. Let me see. The tax credit expired in April, was it? But you had until June to complete the closing. Is that how it worked?
Gary Shiffman (Chairman and CEO)
Yes.
David Minkoff (Equity Research Analyst)
So when would the counting after that period be meaningful? For after April or after June to see whether the tax expiration of the tax credit was meaningful?
Gary Shiffman (Chairman and CEO)
I would say it would be after April. We don't have near the lead time, of site-built, in terms of moving from, you know, an accepted offer to a closing.
David Minkoff (Equity Research Analyst)
Right.
Gary Shiffman (Chairman and CEO)
It's a much more contracted period of time in our industry.
David Minkoff (Equity Research Analyst)
Sure.
Gary Shiffman (Chairman and CEO)
As Karen indicated earlier, we do not have present with us the monthly sales for the second quarter, but-
David Minkoff (Equity Research Analyst)
Right.
Gary Shiffman (Chairman and CEO)
Certainly that's available. If anyone is interested in that, they can call Karen or I after the call, and we can get into what happened each month during the second quarter.
David Minkoff (Equity Research Analyst)
Yeah, I think that'd be interesting, especially in this event. With the rental home sales, let's see, that not only were home sales up 50%, but coincidentally, the percentage of renters that bought homes were 50% of the total sales. Also, that's 214 which renters became owners in the quarter of the 407 units that were sold. So when you think about it, that was almost a no-brainer for a renter, because a renter was already living there and was acclimated to the community. So with the tax credit expiring, you certainly should have bought, because you already knew what the community was like. That's probably an easier sale than a totally new person that may not have been familiar with it. Would you agree with that?
Gary Shiffman (Chairman and CEO)
Certainly, that's logical.
David Minkoff (Equity Research Analyst)
Right. So you may need a couple more months to see whether that, the expiration of the credit, affects those conversions from renters to owners, right?
Gary Shiffman (Chairman and CEO)
Well, I'm sure a little time will give us the seasoning and to make a judgment on that.
David Minkoff (Equity Research Analyst)
Right. Okay, again, great results. Good hearing from you guys in this vein, and the stock is acting accordingly, I guess. So, very nice. Good, good job.
Gary Shiffman (Chairman and CEO)
Thank you.
Operator (participant)
Thank you. The next question comes from Kathy Hepswell from Private Investors. Please go ahead.
Speaker 10
Yes, what is the average site rent in Michigan?
Karen Dearing (CFO)
I don't have that in front of me.
Gary Shiffman (Chairman and CEO)
It's gonna be a high, right? It's gonna be higher than-
Speaker 10
Yeah, yeah, I think,
Karen Dearing (CFO)
The average is 409 for the whole portfolio. I don't know. I guess, higher than that.
Gary Shiffman (Chairman and CEO)
Kathy, I think, it's an easy question to answer. If you just want to give Karen or Jeff a phone call, we'll dig it out. We just don't have it broken down in front of us.
Speaker 10
Okay, thank you.
Karen Dearing (CFO)
I don't have that.
Operator (participant)
Thank you. The next question from Ian Delsante from KBW. Please go ahead.
Ian Delsante (Equity Research Analyst)
Hey there, can you hear me?
Gary Shiffman (Chairman and CEO)
Yeah.
Karen Dearing (CFO)
Yes.
Ian Delsante (Equity Research Analyst)
Just a couple of follow-ups. Can you give more color on the change in home pricing that you alluded to earlier? Can you give us some sense of, or quantify that a bit, how much lower those prices are? And if you've, in fact, changed your underwriting standards on the portion that you provide financing for?
Gary Shiffman (Chairman and CEO)
Well, I'll answer the second part of the question. No, we have not changed our underwriting standards whatsoever. I think one of the key reasons for the success Sun's having, in particular in the Midwest, and it's all age communities, is that we've kept those underwriting standards at the level they need to be in our industry. Most importantly, with average amortizations of 15 years, which I underscore is necessary so that people build up some equity value, or at the very least, have a value in their home greater than the principal they own when they come to sell the home. With regard to pricing of home sales-
Karen Dearing (CFO)
Average sales price on our pre-owned homes has dropped, it dropped about $5,000 a unit.
Ian Delsante (Equity Research Analyst)
Okay, thanks for that. Can you give me the interest rate and the LTV on the secured line, the $20 million? Is that within the range you were, you were discussing earlier? Is that you, Jeff?
Gary Shiffman (Chairman and CEO)
Let's see, we locked that in at a spread-
Karen Dearing (CFO)
5.5.
Gary Shiffman (Chairman and CEO)
5.5%.
Ian Delsante (Equity Research Analyst)
65% LTV?
Gary Shiffman (Chairman and CEO)
Um...
Karen Dearing (CFO)
It's on the rent. On the rent, you're talking about the $20 million rental home line-
Gary Shiffman (Chairman and CEO)
Yeah, the rental.
Karen Dearing (CFO)
Is 200% collateralized, so.
Ian Delsante (Equity Research Analyst)
Okay.
Karen Dearing (CFO)
I don't know. I wouldn't... I don't know if it counts as loan to value on that.
Ian Delsante (Equity Research Analyst)
Okay, we could discuss it later. Just one last thing, would you recount for me sort of where your investment in Origen is today, and sort of what the near-term outlook is on when you think you'll stop taking losses on it?
Karen Dearing (CFO)
Well, our investment in Origen remaining on the books at the end of the quarter is $18,000. So if Origen should have another loss in the third quarter, we will take the loss to the extent of that $18,000. And we'll stop taking losses until they should start having income, and that income exceeds the losses that we haven't taken on the investment. Also, they should begin making cash distributions to their shareholders at some point in time in the future.
Ian Delsante (Equity Research Analyst)
Well, thank you. I'll, I'll follow up more on that later.
Operator (participant)
Thank you. There appear to be no further questions. Please continue with any other points you wish to raise.
Gary Shiffman (Chairman and CEO)
While this doesn't specifically address the home sale question, looking at applications to buy homes, both from renters and from people that come into our communities off the street, those applications averaged 500 per month for the first six months of the year. And while in May, they dropped to about 365, in June, they were over 500. So it would suggest that, maybe there was some sales that took place through April. It borrowed a little bit from May, but the interest is picked right up in June to the average level of the first six months. Okay, I'd like to thank everybody for participating today. Karen, Jeff, and I, of course, are available for any follow-up questions.
We look forward to sharing with you third quarter results, and thank you for participating.
Operator (participant)
Ladies and gentlemen, this concludes the second quarter earnings conference call.