Sun Communities, Inc.

Greetings. Thank you for joining us today for Sun Community's fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow after the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now like to turn the conference over to your host, Gary Shiffman, Chairman and Chief Executive Officer. Thank you. You may begin.

Good morning, and thank you for joining us as we discuss our fourth quarter and full year 2020 results, as well as our 2021 guidance. We hope that you and your families are in good health as we continue to navigate the challenges of the pandemic. We are very pleased with the resilience of our portfolio and the commitment and humanity of our team members during this most difficult time. The stable growth we delivered in the environment further demonstrates the strength of manufactured housing and RV resorts through economic cycles. It also underscores our rationale for meaningfully expanding our platform with the acquisition of Safe Harbor Marinas, a business that exhibits similar stability and growth characteristics. For the year, Sun generated core FFO per share growth of 3.5%, same community NOI growth of 4%, added over 2,500 revenue-producing sites and achieved total portfolio occupancy of 97.3%, a 90 basis point improvement over 2019. To drive additional future growth, we acquired almost $3 billion of properties in 2020. Over $600 million of our acquisitions took place in the fourth quarter after the closing of the Safe Harbor transaction. Total acquisitions for the year included 24 manufactured housing communities and RV resorts with over 6,900 sites and 106 marinas with nearly 39,000 wet slips and dry storage spaces. Additionally, post-year end, through the date of this call, we have closed acquisitions totaling over $43 million, including one manufactured housing community, two RV resorts, and two marinas. We are actively pursuing opportunities in each of our segments. Our extensive experience, track record, and industry relationships have helped continue to facilitate successful MH and RV transactions. On the marina side, since the closing of the Safe Harbor transaction, we have added seven additional marinas, inclusive of the world-class Rybovich Superyacht marinas in West Palm Beach and Riviera Beach, Florida. The Rybovich team is joining Safe Harbor, and we expect them to drive incremental growth across the entire marina portfolio, given the specialized nature of Superyacht marina operations. As we reflect on the events of 2020 and look optimistically to the future, we are encouraged by the fundamentals of our business. The demand for high quality affordable housing and vacationing is as strong as ever. Even with the various shelter in place restrictions throughout 2020 and into 2021, Applications to live in a Sun community remain at an all-time high as we received almost 50,000 applications in 2020 and sold nearly 2,900 homes. Our RV resort performance remains strong as travelers who wanted an increased level of control and safety chose our resorts for some much-needed respite. we believe that RVing attracted a large number of first-timers, as indicated by a 6% year-over-year growth in RV shipments, including an almost 50% increase in RV shipments for the month of December. We anticipate that many of those first-timers are likely to be repeat customers in the years ahead. We see numerous similarities with respect to marinas, as a wide portion of the population became first-time boat owners as well. According to industry sources, there was a 35% increase in the number of purchases by first-time boat buyers in 2020. In short, we expect there will be sustained demand across each of our business lines. As we look to operational initiatives for 2021, Sun is positioned to continue to execute on our four core investment strategies. The first is reinvestment in our properties to ensure sustained demand and to maintain the high quality of our assets. Second is the pursuit of accretive acquisitions of operating manufactured housing communities, RV resorts, and marinas. Our acquisition pipeline is as full as it has ever been. sellers continue to see the benefits of a transaction with Sun given the certainty of execution, tax deferment strategies, and the knowledge that Sun will improve and continue managing these assets to the highest possible standards. Our third investment strategy is the construction of expansion sites. And last is the construction of greenfield developments. Together, these four strategies support the long-term sustainability of delivering industry-leading growth. As our company has grown significantly, we have decided to expand the size of our board and recently announced the appointment of Tanya Allen as an independent director. Tanya brings a wealth of experience and expertise in the fields of education and economic development and will be a tremendous asset to our team. We welcome Tanya and look forward to having her expert perspective on sustainability and social issues as part of our board initiative and leadership moving forward. Our success would not be possible without the dedication and commitment of our team members. who continually placed the highest priority on the health and safety of our residents and guests. Through the many challenges this past year, our team consistently rose to the occasion and worked tirelessly to produce these positive results. I would like to extend a heartfelt thank you to the entire team as I am very proud of what we have been able to accomplish together. I will now turn the call over to John and Karen to discuss the results in further detail.

Thank you, Gary. Our solid performance for the fourth quarter and full year 2020 demonstrated the resilience of our operations across manufactured housing, RV resorts, and marinas. We benefited from heightened demand for RV resorts in the second half of the year and the steadiness of manufactured housing through all of 2020. Our same community results reflect the stability of the platform as we work through the challenges of the pandemic. For the fourth quarter, same community NOI increased by 2.1%. Excluding direct COVID-19 related expenses of $300,000, our same community NOI growth would have been 2.4%. In the fourth quarter, same community NOI was driven by a 5.7% growth in revenues reflecting a 3.8% increase in weighted average monthly rent and a 180 basis point occupancy gain. Breaking it down further, manufactured housing revenues grew by 4.8%, annual RV grew by 1.9%, and transient RV grew by almost 18%. If it were not for the mandated closures of our resorts in California starting in December, as well as the continued Canadian travel restrictions, our fourth quarter transient RV results would have been even stronger. The good news is that travel restrictions were lifted in California at the beginning of February, and we have already begun to welcome our guests to these resorts. Expenses in the fourth quarter were elevated predominantly due to the costs associated with the pandemic, along with higher payroll, supply and repairs, and utilities at RV resorts that had extended seasons. For the full year, same community NOI increased 4%. Excluding $2.4 million of direct COVID-related expenses, same community NOI would have increased by 4.4%. This growth reflects a 3.6% revenue increase and a 3% increase in same community expenses. The revenue growth was primarily driven by a 4.5% increase in annual RV revenues and 5.6% growth from manufactured housing revenues. Same community transient RV revenues were down 5% for the year, reflecting the delayed opening of 44 of our seasonal resorts due to COVID-related travel restrictions in the late spring and early summer. Our RV transient business saw a meaningful rebound with same community transient RV revenues growing by 5% in the third quarter and 17.8% in the fourth quarter as compared to the same period of 2019. Our RV property performance will be affected in the first quarter by the California shelter-in-place order that ran through the early part of February. Additionally, the continued Canadian border closure has prevented some of our guests from returning to our southern resorts for the season. Combined, these two events are estimated to have an impact of $8 to $10 million to Transient RV revenues, which is reflected in our first quarter and annual 2021 guidance. Even as the impact of the pandemic persists, forward bookings for the second quarter are pacing meaningfully ahead with current on-the-books revenues 18% above this time last year. From a total portfolio perspective, we gained 578 revenue-producing sites for the fourth quarter, bringing our total for the year to over 2,500. The addition of these sites increased our total portfolio occupancy to 97.3% from 96.4% a year ago. Of our revenue-producing site gains for the year, 1,070, or roughly 43%, were in our manufactured housing expansion communities. For the year, 863 transient RV sites were converted to annual leases. The development of ground-up and expansion sites is a consistent growth driver for us. In 2020, we delivered over 1,300 vacant ground-up and expansion sites. These recently completed expansion and ground-up development sites will contribute to growth in 2021 and beyond as they fill up and stabilize. Additionally, we currently have over 10,000 zoned and entitled sites in our portfolio for expansion and ground-up developments, which, when developed, should contribute to our growth in future years. Moving on to home sales, we sold 782 homes for the quarter and 2,866 homes for the year. 850 of these home sales were conversions of renters to owners in 2020. We saw a new home gross profit expansion of 3.6% year over year, driven by strong margins in Colorado, Connecticut, and Ontario. For the year, average home sales prices rose for both new and pre-owned homes, by 11.3 and 8.8 percent, respectively. The new home sales and our ground-up and redevelopments in Colorado and Florida contributed to this increase. Brokered home sales throughout Sun's portfolio saw a 15 percent increase in total sales year-over-year, as the resale market was strong as ever. Average brokered home prices in our communities increased by over 21 percent in 2020. A healthy resale market is very important for our success as new and existing residents see the value of choosing to live in a Sun community, given the quality and level of ongoing reinvestment that goes into our properties. Sun has maintained strong rent collection rates throughout 2020. Total rent collection rates for manufactured housing communities and annual RVs for the quarter ended December 31st, 2020, where over 96% and 97% respectively after adjusting for the impact of COVID-19 related hardship deferrals and prepaid rent balances. January collections were over 97% for both manufactured housing and annual RV. Through February 16th, we have collected 95% for both our manufactured housing communities and for our annual RVs, which is consistent with prior year collections. With respect to Safe Harbor, we closed our acquisition on October 30th, 2020, The fourth quarter performance was solid, with a two-month NOI contribution of $17.9 million. COVID-related tailwinds, like the surge of new boat ownership, which Gary discussed, helped drive strong wet slip rental and on-land winter storage revenue. Given the ability to enjoy the outdoors in a safe and self-controlled environment, we anticipate marinas to be an important growth driver for the coming years. In closing, 2020 posed both numerous challenges and opportunities for SUN. We have grown as an organization and are stronger than ever. We are proud of our team members' dedication to our residents and guests and are grateful for their efforts in a truly challenging year. Karen will now discuss our financial results. Karen?

Thanks, John. For the fourth quarter, SUN reported core FFO per share of $1.16, 5.5% above the prior year, and 4 cents ahead of the top end of our guidance range. These results reflect better-than-expected performance from our ground-up developments and recently completed acquisitions, including Safe Harbor marinas. For the 12 months ended December 31, 2020, core FFO per share was $5.09, up 3.5% from 2019. We are very pleased with our results and our positioning for 2021. During the year, we acquired almost $3 billion of operating properties, including the Safe Harbor Marina portfolio. Subsequent to year end, we acquired a manufactured housing community for redevelopment adjacent to an existing community, two RV resorts, and two marinas for a combined $43 million. We had an active year on the capital markets front, raising approximately 1.9 billion in equity to ensure the strength and flexibility of our balance sheet to support our acquisitions and growth initiatives. We ended 2020 with 4.8 billion of debt outstanding at a 3.4% weighted average rate and a weighted average maturity of 9.4 years. We had $83 million of unrestricted cash on hand, and a net debt to trailing 12 months recurring EBITDA ratio of 6.9 times. Proforma leverage, including the estimated full-year EBITDA contribution from Safe Harbor and other acquisitions, is in the mid to high five times EBITDA, which is in line with our long-term leverage target. Our performance in 2020 and the confidence we have in the ability to continue to generate industry-leading results provided the incentive for our board to raise our 2021 distribution to $3.32 per share, up 5.1% from last year. This is our fifth consecutive annual distribution increase. Turning to guidance, for the year, we expect Core FFO to be in the range of $5.79 to $5.95 per share, an increase of 15.3% at the midpoint. First quarter FFO is expected to be in the range of $1.13 to $1.17 per share. Moving to internal growth drivers, we are anticipating a 2021 same community NOI growth range of 5.6 to 6.6%, which includes a blended weighted average monthly rent increase of 3.4% for manufactured housing and annual RVs. Our core FFO and same community NOI guidance assumes lower transient RV revenue contributions in the first quarter of approximately $8 to $10 million due to the California shelter-in-place order, which ended in early February, and the extension of the Canadian border closure. We expect revenue-producing site gains throughout the year to be between $2,150 and $2,350. On the development front, we plan to deliver 1,200 to 1,600 vacant expansion and ground-up development sites in 2021. For our marina business, we expect total NOI, inclusive of service and ancillary contributions, of $163 to $169 million dollars. With respect to our G&A guidance, we expect our 2021 G&A expense to be in the range of $164 to $167 million. Approximately $33 million of the year-over-year increase is attributed to marinas as we scale that platform to capture and support the integration and operations of the large consolidation opportunity we see before us. As Safe Harbor transitions from a private operator to a wholly owned subsidiary of a public company, it requires an expanded operating infrastructure and financial reporting structure to support both its regulatory obligations, primarily around reporting, and future growth potential. This level of G&A supports both the operationally intensive nature of the Marina business as well as our expectation for the Marina portfolio to be in high growth mode over the next several years. In just our first 90 days of ownership, we've increased the Marina portfolio's transaction value by over 20%. We want to ensure that the business and the team are set up for success and anticipate that Marina-related G&A will be leveraged over time. It's important to note there is seasonality in our portfolio. Please refer to our supplemental for additional disclosures on expected seasonality for total MH and RV NOI, Marina NOI, and Core FFO. As a reminder, our guidance includes acquisitions through the date of this call, but does not include the impact of prospective acquisitions or capital markets activities, which may be included in research analyst estimates. Finally, we'd like to note that starting with our first quarter earnings release, we intend to provide enhanced reporting disclosures in our supplemental across MH, RV, and marinas. This completes our prepared remarks. We will now open up the call for questions. Operator?

Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for your questions. Our first questions come from the line of Josh Fennerly with Bank of America.

Please proceed with your questions.

Good morning, everyone. It's actually a little Oscar back on for Josh today. Congratulations on a great quarter. Just jumping on to the marina side, we saw that Safe Harbor is hosting regattas in Newport this August. Do you envision hosting similar events across the different areas in your marina portfolio over time? Are there any other events that the team is working on that might drive traffic across your marinas portfolio? I know you mentioned a little bit more on the ancillary side for the NOI, but just kind of trying to figure out what else is part of it.

So it's Gary. I think that we're very excited to participate in the first event that you described, and I think it is the beginning of trying to tie a Very large membership consisting of close to 50,000 members in the marina right now to the ability to go from safe harbor to safe harbor marina and understand the expectation that one would have in visiting the consistency of how these marinas run and what the services they offer. So I think that this will be the first opportunity to really showcase that. And the Sun staff sitting in this room is as excited as anyone to really participate and really see what the safe harbor management has planned for the future. So with regard to that, we'll be able to share more with regard to what the future holds and those types of events going forward. So kind of one of the first inaugural step-outs for SUN to participate in this type of safe harbor event. With regard to marina details and disclosures, what we wanted to share with everyone today is that we will be providing enhanced disclosure by business segmentation and specifically for marinas. with our first quarter earnings release. So in doing so, we'll begin providing separate disclosure on our manufactured housing business line as well as separate disclosure on our RV business line in an effort to really provide insight into each of the three business lines. So I think it will be a first quarter. We'll have the opportunity to look a little bit more clearly into marinas and the business segmentation, as well as helping everyone understand for their review and modeling purposes, breaking apart MH and RV as well. So that will be coming first quarter, and we'll be better able to look into the segmentation of each.

Okay, great. Thank you. And I apologize, I may have missed this. But did you guys discuss the guidance for acquisitions this year? Just trying to think about if we are seeing the same flow from 4Q going forward, or I don't know, I think you might have mentioned that 4Q is usually a big acquisition quarter. Yeah. Just trying to figure out.

You didn't miss it. You didn't miss it. We didn't give it. We typically don't give guidance. We usually have forward acquisitions. We usually reference the previous year or the previous few years, obviously new with Safe Harbors Marina acquisitions, but generally we look for $200 to $400 million of MH and RV acquisitions based on historical numbers, excluding large portfolios, which basically have already been consolidated. And then... Separately, we spoke about or I mentioned in my remarks that I can share that the acquisition pipeline really in manufactured housing, RV and marinas is absolutely as full as it's ever been. So we certainly have our work cut out for us. We are seeing increased competition. in the MH and RV space. And it might not surprise many of you that we're starting to see increased competition in the marina space. So we will be very, very selective that anything we do acquire will be the highest of quality and the highest of opportunity to provide growth and value creation for our shareholders. And we're excited to work through that pipeline and be able to present exactly what we've accomplished each quarter.

Okay, great. Thank you so much.

Thank you. Our next questions come from the line of John Kemp with BMO Capital Markets. Please proceed with your question.

Thank you. A couple questions on the Rybovich portfolio, which is the largest acquisition you've done in marinas since State Harbor. Is this the first superyacht marina that you own? Can you compare some of the characteristics as far as margins, retention rates, or growth potential in rents of Superyacht versus your typical arena?

Yeah, it's Gary again. I'll defer to first quarter when we can really look a little bit deeper into segments of the business, but I would share with you that... The Rybovich Marina in both locations offers services to the world's largest boats. But when you get into it, the margins remain similar. But because of the unique offerings, the occupancy, the service requirements which specialties draw in, vessels and boats that are less sensitive to the cost of staying in the marina and provide all the ancillary revenue lead towards very good returns against the investment on a pretty predictable basis. So as you look out over a long period of time, the consistency of their growth of revenue is very comfortably predictable. So those are the characteristics of it. But within it, it's just high occupancy, high demand. Their slips can accommodate boats in excess of 300 feet. So it is really the world's largest boats. and yachts and sailcraft, and I can share with you, it's really a list of the who's who in marina yacht ownership as it's one of the few marinas that can accommodate that size and scale of boats.

Looking at your guidance this year for marinas at the midpoint of NOIs, about a 6.6 cap rate, are you seeing compression on across the board on marinas, or is it really just the Magnus portfolio with the lower cap rate acquisition?

Yeah, I guess I would describe it that we expected some cap rate compression after our announcement, and there have been a couple other platforms for sale over the last 12 months. And as we studied them carefully and did our research, and began to understand the stability of cash flow, the lack of new supply, the demand versus supply fundamentals, the growth in boat ownership. It doesn't come as a surprise to us. I think what does come as a little bit of a surprise is how fast the awareness of many other potential investors are queuing in in the marina business. So we have heard, both on a publicly announced basis and a private basis, that there has been cap rate compression taking place. Certainly, Marina's changing hands at a lower cap rate than the ability of the Safe Harbor Group to generate higher cap rates. So that cap rate is creeping in. And the way I describe it right now is our view on the marinas is that they're trading at a 300 to 400 basis points spread above where we're seeing many manufactured housing and RV communities trading at today. So still a good solid spread. And What I'd share is that the seven marinas that were closed, including Rybovich, traded in the range of a 6.4 to 8.5 cap rate thus far.

Okay. Appreciate the information you provided on the seasonality of the marinas. Can I just ask, just given that 58% of the NOIs in the second and third quarter, how much visibility you have on those contracts being signed? And if there's any variability, you know, in case there's any travel restrictions going forward, you know, what the risks are to achieving that NOI?

I think as far as are you speaking of maybe in terms of COVID impact and things like that? We don't see much risk associated with that. I mean, the portfolio performed very well through COVID last year. So I don't really see, you know, much impact if that were to happen based on what happened last year.

Our second quarter...

bookings looking john yeah i mean on the on the rv side you know our second quarter and third quarter you know bookings are pacing ahead of last year um so um as i shared in my remarks i mean it's it's just you know it's that what gary's talked about the whole time is there is a tremendous amount of pent-up demand for people wanting to get outdoors and you know the rv asset class along with the marina asset class really serve that purpose so we're really uh Pretty excited about what we see going forward, John.

Yeah, the MH is all annual contracts, so we've seen how it performed in 2020. But for the impact on the Canadian borders John covered and the California closures that are now up in February, We are feeling very comfortable with how 2021 should play out, just based on what we saw in 2020.

OK, last one for me, just turning over to RVs. When I look at your RV site breakdown in page three of your supplement, the transient RVs as a percentage of total RV sites has been increasing over the last year. Now it's 16.8% from 15% a year ago. Is that due to recent acquisitions and expansions, or is this partially due to a slower conversion rate from transient to annual and seasonal?

Well, we converted 863 transient guests over to annual leases last year, which is pretty close to what we do on an annual basis. And so I think we're really pleased with that performance and But I would say the bigger part of that, John, has been the development that we have done that's added to that denominator of transient sites that we have in our portfolio, which, of course, are future transient conversion opportunities to annual leases.

That conversion gets us a 40% to 60% per site revenue increase on an annual basis.

First year.

First year. So those conversions are very important to us. There's a part of our strategy that seeks to buy transient, just as we seek to buy vacancy in our manufactured housing communities, because it's an absolute, tremendous first-year benefit when, A, we get the sites filled in manufactured housing, and B, when we convert the transient. So you will find us stepping up our conversion programs as we get more and more inventory of the transient sites going forward.

I appreciate that. Thank you.

Our next question has come from the line of Nick Joseph with Citi. Please proceed with your question.

Thanks. Gary, I appreciate the comments on the cap rate differential between marinas and MHNRV, but how does it work on an IRR differential for the acquisitions that you've done recently?

We're excited to demonstrate to the market and our shareholders growth on the marina side, if you're referencing the marina side. I think that part of the excitement by the Safe Harbor management and operational team is the ability to have a strong, well-capitalized partner to enhance and grow the business. So I think the opportunity ahead of us to create increased cap rate, which will generate into a greater IRR over a, call it a three to five to seven year period of time, with additional, I think, contraction of cap rate, which will naturally enter in over a period of time, I think the exit cap rates in this particular asset class will be modeled probably more aggressive than the entry if our strategy proves out. And so the IRRs are very, very strong.

When you compare that to MH or RV, where you're getting some level of uplift, should that incremental capital be going to marinas right now, or are the IRAs pretty similar, given the uplift that you're seeing on the other segments?

Yeah, I would say that the capital will go out similarly, where we can justify the return we're going to get on it, but due to the ability to buy at a higher cap rate, and the strategy and the supposition, as we said, that there'll be cap rate contraction, that on paper, at least, the IRRs grow a little bit faster on the marina side.

Thanks. And then just on the GNA side, I understand that, you know, it's a wholly owned subsidiary. but obviously there's some costs there. And I'm wondering if there's an opportunity for synergies or to consolidate some of the back end across marinas and the rest of the platform for some savings in the future.

Nick, what I'd say is that, as you mentioned, the marina platform is independently operating. So we did absorb all of the executive team senior operations back off us And we did not underwrite any expected synergies or efficiencies with that platform. And if you think about that platform, it's scaling, right? It's growing very, very rapidly. It's not scaled yet. So I would think that we will leverage GNA over time, but I would not expect that near term.

Thank you. Thank you.

Our next questions come from the line of Wes Galladay with Baird. Please proceed with your questions.

Hey, good morning, everyone. I'd like to talk about the pace of the marina deals and how much you think was due to pent-up demand for OP units.

That's a great question, Wes. Certainly. Both the sun management and safe harbor management, when we explored the transaction, both were excited about the opportunity to create a tax deferred security to be able to unlock the acquisition of marinas that might not otherwise be available. As I know Baxter and the safe harbor management have shared on some of our calls, many of these marinas are second and third generation. So the tax recapture and the tax ramifications and the fact that they generally won't qualify for 1031 exchanges, I think lead us to believe that we have a lot of opportunity in front of us. I think Rybovich is an excellent example of where... Do you recall the exact percentage there were securities? A third. A third of it? Okay, a third of it was actually a combination of preferred operating partnership units and operating partnership units. And the Huizenga family really was aligned in wanting to protect the tax implications and obviously defer the impacts. But at the same time, you know, as I mentioned earlier in our remarks, we're really excited to have that entire team with their experience in the Superyacht and Marina world as part of the Safe Harbor team. So not only do the tax securities become important to acquire the property, but in this case, we acquired a management team relationships in the industry and core competencies that are just going to enhance Safe Harbor's efforts moving forward. So, you know, there's a lot of benefits from having those securities.

Great. Thank you. And maybe switching over to development, do you have any plans, starts this year and then maybe bigger picture for the industry? Do you have a sense of how many active developments there are for MH and RV right now nationally?

Yeah, these are all coming to me. Get the operational questions out here to John. It's a great question. And today we have about 8,400 sites in various stages of pre-development. Okay. Nine manufactured housing communities, eight RV communities, two hybrids that are hybrids for us are a combination of manufactured housing and RV and a single development. So as we kind of shared, you know, we've been the largest consolidator of manufactured housing communities over the last 10 years or so, and we began to ramp up our efforts on new community development, especially as we saw the severe compression in cap rates, no new supply coming on, And having the experience at Sun Communities of being a developer in new communities initially, we determined that we could start developing communities at better returns than acquiring the existing communities at these compressed cap rates. So today we'll continue acquiring existing communities where we think the cap rates justify and the growth justified it. But you'll continue to see a focus on development as we think we can generate high single-digit returns upon stabilization. which generally looks to be three to five years after the construction begins, depending if it's RV or MH.

Great. And then last one, the topic of rent control comes up in a lot of discussions with investors. And I was curious if you're seeing it in more of your markets for the MH segment, and if so, how much or I guess what type of restrictions are they looking to implement? And then maybe a follow-up on that would be with the new administration, is there anything in their plans that will impact your businesses?

Hey, Wes, this is John. So, no, I mean, no real impact for Sun as far as that's concerned. It's more, you know, I think some of it really has to do with the simple fact that, as we've shared, we've always been on average over at least the last 20 years, you know, rent increases in the 2% to 4% range. We do have some rent control communities in California that are pure rent control, but it's really a smaller part of our portfolio. And the fact that we've always managed that rent increase between 2% to 4%, what I'm seeing out there and what I've heard in various locations, even if we have a single community in a particular state, that a lot of that dialogue, frankly, is sort of within our range that we would be doing anyway. So it doesn't really have a tremendous impact on us at this point.

Great. Anything on the new administration? Any plans to impact your MH positively or negatively?

really too early to tell. We're watching it carefully. And as everyone is, there's a lot of discussion out there, certainly a lot of discussion on the HUD front and the continued commentary to focus on affordable or obtainable housing by the government agencies. But we're yet to see any meaningful shift towards anything.

The other thing I'd add, Wes, like some of the numbers that Gary just shared with you in terms of what we have in various stages of entitlement on development is I think that we are in a bit of a unique position just because we have constructed seven ground up developments now over the last three years. And so when I'm going to these meetings with various municipalities and planning commissions and that sort of thing, I'm no longer showing renderings of what we can do. I'm showing what we've actually done. With the dialogue from Washington, which is important about attainability and affordability, we're very well able to demonstrate how we play so well into helping with that crisis.

Great. Thanks a lot, everyone. Thank you.

Our next question has come from the line of John Palowski with Green Street Advisors. Please proceed with your question.

Hey, thanks a lot. Gary or John, I want to understand the scalability of Safe Harbor's platform a little bit better. And so you have to bring on the Rybovich team for yacht expertise. Just curious, as this grows, are there any, you know, if it takes you to different regions of the country or different types of marinas, are we going to see big step changes in GNA over the coming years or Do we now have all the expertise in-house to scale your marine investment?

Hey, John, that really is a great question. And obviously, as we prepared for budgeting for the acquisition of Safe Harbor and to discuss guidance, we tried to be very, very transparent in our GNA. And we asked that question ourself even during the underwriting. This should be very scalable. We do underwrite. to approximately 3% of revenue for GNA as we acquire the new marinas. That has been the practice at Safe Harbor. We continue to underwrite in that methodology. But in working closely with Baxter and Gavin, senior management at Safe Harbor, The addition of the Rybovich senior staff and back office is not so much of a have to have, it's a want to have. And so that's a perfect example where their skill set will be able to be spread over many of the existing Safe Harbor marinas. to be able to now take that super yacht ability to shift and provide services and ancillary revenues from other safe harbor marinas to be able to deliver services back and forth, we think will incrementally grow the existing opportunities. And as we look to new opportunities, And there are several that I could point to in the pipeline. It is their skill set that is being levered to be able to really take a hard look at opportunities and create what we would call more strategic value post acquisition that will benefit growth going forward. I don't think you'll see the step. I think you'll see that we're there and you'll see the incremental changes from where we are right now.

Okay. And Karen, the $23 million in business combination expenses that are excluded from core FFO, what specific costs are included in that and are additional costs expected in 2021?

No, so the $23 million in business combination costs are really the impact of the Safe Harbor Marina being treated as a business com rather than an asset acquisition. So asset acquisitions, you capitalize costs. Business coms, you expense them. Those costs are just typical closing costs on real estate transactions. They are the legal costs associated with it. and the M&A advisory fees, those types of things. I think, you know, the amount in line with what you'd see on an M&A transaction of this size, and they're not anticipated going forward. Most of our acquisitions are considered asset acquisitions, so those types of costs would be capitalized.

The only thing that I'd add to that, the complexity of marinas, there being the uplands and the water. We did extensive diligence from an engineering standpoint to evaluate the uplands, the utilities, the waters, the wave attenuation complexities of the business, the seawalls. So more than we would be doing at an MHRV transaction, even at that size. One-time costs.

Okay, thank you for the color. Last one, if I may. Could you share the cap rate for Rybovich, just NOI, and then what it would be if you included their GNA load?

What I can share is what I have in front of me. I indicated for the seven properties acquired, the cap rate range was from 6.4 to 8.5. and Rybovich would be on the lower end of that.

Okay, and then including GNA, what would the yield be?

I'm sorry, I missed that.

Including GNA.

I don't have that in front of me, but you could definitely follow up with Fernando. All right, thank you.

Thank you. Our next question has come from the line of Keegan Carl with Berenberg. Please proceed with your questions.

Hey, guys. Thanks for taking the questions. So first, just given what's going on in Texas, have you guys heard of any reported damages either to your MH and RV or marina properties? And if so, how material of an impact do you think that will have in the quarter?

Hey, this is John. We've been dealing with some of the power outages and things like that, but really we haven't had, other than a few broken pipes and things like that, we feel fortunate as of right now within our communities and resorts in Texas that we haven't had more damage than we have. So we seem to be in pretty good shape right now.

Okay, that's good to hear. And then shifting gears a little bit, if we look at resident move outs in the MH and RV space, it looks like they picked up to 3.3% for the year. What was the driver of this and how quickly do you expect to fill these sites?

Well, I think that on the RV side, it was really more to do with our conversions earlier in the course of the year. And we have gained a lot of that back towards the latter half of this year. On the MH side, I mean, what I can tell you is we've seen, you know, more homes in our, particularly our brokered home sales business has grown considerably and more houses changing hands, which is good and it's healthy for the community. So I think we're just seeing, you know, additional activity that's happening. But as I've shared in some earlier calls as well, What we may lose from an occupancy standpoint, we are seeing it overwhelmingly come back in terms of the application activity for new people to move in as well.

Got it. That's it for me. Thanks, guys.

Thank you. Thank you. Our next question has come from the line of Todd Stender of Wells Fargo. Please proceed with your questions.

Thanks. Just to stay on the Ryvovich deal, what were the terms on the new Series I preferred OP units, and how did that compare to the Series H?

Let's see.

Well, that one I'm going to have to dig up.

But similar to a preferred OP unit, there's got to be a coupon, right?

Yeah. It's a 3% coupon. The Series H was a 3% also.

And there's a lock-up period or some type of hold period that converts to common at some point?

There is. I don't think we have in front of it, but we'd be glad to share it with you.

Sure, no problem. That's it for me. Thank you.

Thank you. Our next question has come from the line of Josh Dennerle with Bank of America. Please proceed with your questions.

Yeah. Hey, guys. Just a follow-up. We've talked a lot about super yachts, and it just made me think about how global that industry is. What's your appetite for international expansion on the marina side?

That's a great question. I think that... the seasonality that exists in that super yacht world of where boats spend their time at different times of the year. I think it will be logical to look towards a sister marina in the areas of super yacht travel. I think we have identified a couple that are under consideration and discussion based on the vast experience of the great team that we're getting along with Rybovich and their understanding of that super yacht business. So we won't be jumping and running anywhere soon, but I think that we will selectively look at an opportunity or two that matches against generally the transatlantic traffic that exists out of Rybovich.

Okay, interesting. So that sounds more like a Mediterranean expansion.

Yeah, Mediterranean would be the logical spot.

Okay, awesome. Appreciate that. Thanks, Gary.

Thank you.

There are no further questions at this time. I would like to hand the call back over to management for any closing comments.

Well, we'd like to thank everybody for participating on this call. We hope that everybody stays safe, and we look forward to speaking again after first quarter. Thank you.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.