The share price of Sun Communities (SUI 3.16%) has fallen 40% from its 2022 highs. The real estate investment trust (REIT) now offers a 3.1% dividend yield, which puts it near the highest levels seen since roughly 2018. Is this a buying opportunity, or is this fast-growing REIT slowing down?

Sun Communities is way down

Sun Communities has slipped below $125 per share, a level at which the dividend yield would sit at a nice round 3%. Given the growth in the business over the past decade or so, investors might find it an attractive entry point for a growth and income stock. It might sound odd to call a REIT that specializes in manufactured home communities, RV parks, and marinas a growth stock, given that its tenants are usually focused on enjoying their retirement years, but Sun Communities has grown very rapidly.

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In 2010, the company owned 124 manufactured home communities, four dedicated RV parks, and eight properties that were a combination of the two. By 2020, it owned 276 manufactured home communities, 136 RV parks, and 34 properties with both. It also added an entirely new property type, with 106 marinas. By the third quarter of 2024, Sun Communities owned 288 manufactured home communities in the United States, 179 RV parks, and 138 marinas. It also had 54 manufactured home communities in the United Kingdom, adding a whole new country to the mix (it stopped breaking out mixed communities). Clearly, Sun Communities has been in expansion mode.

Between 2010 and 2022, investors were happy to pay up for that growth, pushing the stock price steadily higher. Then something changed. Core funds from operations (FFO) per share in 2022 was $7.35. The company projected that the 2023 figure would fall between $7.22 and $7.42 per share. It ended up at $7.10. Clearly, the company's financial results fell well short of what investors had been told to expect, and they reacted accordingly.

SUI data by YCharts.

Things aren't getting better at Sun Communities

Sun Communities' results haven't exactly been getting better as 2024 has progressed. In the first quarter, core FFO was $1.19 per share, versus $1.23 in the same quarter of 2023. Second-quarter core FFO per share was $1.86, versus $1.96 in Q2 2023. The third-quarter 2024 figure chimed in at $2.34 per share, compared to $2.57 in the prior year.

It looks like 2024 will be another down year for core FFO. From a bigger-picture perspective, it also appears that Sun Communities' growth engine may have stalled out. The first big problem appears to be a rapid increase in operating costs. However, that's just the tip of the iceberg for Sun Communities, because of the nature of its properties.

The baby boomer cohort has been cresting into retirement, rapidly increasing the number of people who would be interested in manufactured home communities, RV parks, and marinas. But as this group ages, there is a material risk that their interest will shift from enjoying retirement to maintaining their health and well-being. That would suggest a shift toward more permanent living situations, including in senior housing developments that cater to the increased health needs of older adults.

Rising costs will, eventually, be dealt with. Sun Communities can raise rents and cut costs over time. But if demand for the highly specific types of properties it owns has peaked, it has a much bigger problem ahead of it. That is the issue that investors have to wrestle with.

Is this a ripple or a tsunami?

For conservative income investors, Sun Communities probably won't be an attractive choice. The yield isn't really high enough relative to other REITs to offset the uncertainty the company is facing. For growth and income investors, that decision is far more complex. Rising costs are probably a transitory issue, but changing demographics could potentially end the growth that Sun Communities has experienced. More conservative investors will probably want to wait on the sidelines until there's more evidence that Sun Communities has gotten back on the growth track, even if the stock is below $125 per share and yielding more than 3%.