Sun Communities, Inc.

good morning ladies and gentlemen and thank you for standing by welcome to the sun community's first quarter 2022 earnings conference call at this time management would like me to inform you that certain statements made during this call which are not historical facts may be deemed forward-looking statements within the meanings of the privacy of the private securities litigation reform act of 1995. although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's periodic filings with the 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 would like to introduce management with us today. Gary Schiffman, Chairman and Chief Executive Officer, John McLaren, President and Chief Operating Officer, Karen Dearing, Chief Financial Officer, and Fernando Castro Caratini, Senior Vice President, Finance and Capital Markets. After their remarks, we will have an opportunity to ask questions. I will now turn the program over to Gary Shiffman, Chairman and Chief Executive Officer. Mr. Shiffman, you may begin.

Good morning, and thank you for joining us as we discuss our first quarter 2022 results and growth initiatives and provide an update on our outlook. As anticipated, we delivered another strong quarter, building on 2021's momentum and positioning us for another solid year we execute on each of our growth pillars, including organic growth, accretive acquisitions, and developments. In quarter, core FFO per share was $1.34, which is a 6.3% increase over last year. The ongoing demand for attainable housing and affordable vacationing continues to be evident in our platform as driving compelling, ongoing organic growth. Applications to live in a Sun community increased 6%, and same property occupancy increased 160 basis points over the same time last year. Revenue-producing sites increased by approximately 30% compared to the first quarter of 2021. The majority of those were conversions of transient RV to annual RV leases, which provides us a 50% revenue uplift within the first year. In terms of acquisitions, in the first quarter and year to date through this call, we have completed approximately $1.6 billion of transactions, including the 950 million pound or $1.2 billion acquisition of Park Holidays. We are pleased to have completed the acquisition of the Park Holidays portfolio, which expands on its total addressable market and takes advantage of our relative cost of capital within a very fragmented UK market. The acquisition of these 40 properties in many highly desirable seaside locations provides Sun with an additional platform for growth, growing on our expertise and proven track record. Our holidays is a mirror image of our manufactured housing business with the same supply and demand drivers sticky revenues, and a highly experienced and dedicated management team. Our manufactured housing business ended the quarter with 96.7% total portfolio occupancy, a 20 basis point increase over last year. With compelling demand tailwinds, we are continuing to pursue greenfield developments and expansion opportunities. is uniquely positioned to capture this opportunity given our experience development platform and team. It has played an important role since we developed our first communities over 30 years ago. Within the RV business, robust demand continues as many new guests discover the joy and affordability of an RV vacation. This has only accelerated over the past two years. For its quarter, same-property RV revenue growth increased 20.5% compared to 2021. Furthermore, an outdoor industry-leading monthly research report in March indicated that 50% of campers have already booked trips for 2022, indicating the ongoing outdoor vacationing demand. Our marina properties have also continued to perform well, with overall performance exceeding our first quarter expectations. Our same property marinas produced a 7.7% revenue increase this quarter compared to last year. During and subsequent to the first quarter, we added four marinas to our portfolio. These new locations strengthened Safe Harbor's network effect as the largest operator of marinas in the United States. It also gives new boat owners and used boat owners additional opportunities to join as Safe Harbor members. Additionally, as you may have seen in a recent press release, I'm excited to announce the promotion of Fernando Castro to Executive Vice President and Chief Financial Officer, effective May 2nd. I'm pleased to have both Fernando and Karen with us on this call today to take any of your questions. Aaron will play a key role in the CFO transition and will be staying on as an executive officer leading the UK integration efforts and advising on other corporate initiatives. Aaron has deep experience integrating many acquisitions, including large corporate transactions, such as American Land Lease, Carefree, and Safe Harbor. A strong cycle-tested record of operating, expanding, and acquiring communities is favorably positioned to continue to deliver solid results. Macro tailwinds we are seeing support growth across the business. The demand for attainable housing, outdoor vacationing, and marina slips and storage is sustained through economic cycles. Sun is uniquely positioned to meet these customer needs. Furthermore, with the closing of Park Holidays, we look forward to continuing to establish a presence among the fragmented UK market. We have a highly talented and experienced team across our entire organization, and we are excited about the opportunity to continue to build on Sun's best-in-class platform. I will now turn the call over to John and Fernando to discuss their results in further detail.

Thank you, Gary. Our team delivered another excellent quarter of operational results. Some same property MH and RV NOI growth for the first quarter was 7.7%, a 150 basis point increase over the high end of guidance. This was driven by a 9.2% increase in revenues, offset by a 12.7% increase in property operating expenses. Outperformance during the first quarter was driven by annual RV revenues given increased annual RV conversions and transient RV revenues, which benefited from a full return of our Canadian snowbirds and strong rate and occupancy growth in the first quarter. The weighted average rental increase was 4.2% for the quarter and occupancy increased by 160 basis points. Marina same property revenues were up 7.7% for the quarter, driven by rental rate, occupancy gains, and transient revenues. Same property Marina NOI growth was 1.2% as certain expenses were unseasonably higher during the first quarter. The first quarter is the lowest contributor to NOI from a seasonality perspective at 18%, and therefore higher expenses had a disproportionate impact to NOI growth. That said, current demand, leasing activity, and forward visibility into the strong start to the summer boating season helps us reaffirm the full year NOI growth guidance to 6% to 7.4%. Performance for the overall marina platform exceeded expectations as we also experienced stronger demand for service by our members. Our acquisitions of approximately $1.6 billion during and subsequent to the end of the first quarter include the 41 UK properties with over 16,700 sites and four marinas with nearly 900 wet slips and dry storage spaces. This also includes Sandy Bay, a popular southern England seaside retirement manufactured housing community for approximately $184 million, consisting of approximately 600 occupied sites with an additional 600 expansion sites that we expect to build out over the coming years. Additionally, we disposed the three assets of Florida in the first quarter for a total of $29.6 million as we continue to optimize our portfolio. As of today, our total platform includes 644 properties throughout the United States, Canada, and the United Kingdom. As Gary mentioned, applications to live in a Sun community increased 6% compared to the first quarter of 2021. For the quarter, Sun sold over 800 new and pre-owned homes in line with last year. Our new home selling price increased by almost 17% to almost $180,000, and we maintain margins compared to last year. Additionally, our brokered home selling price increased by 35.4% in the quarter, which demonstrates the value proposition for residents who come to live in a Sun community. Our total portfolio occupancy as of March 31st was 97.5%, and during the quarter, we gained 670 revenue-producing sites, with the majority being RV transient annual lease conversions. Sun's inventory of nearly 11,000 zoned and entitled manufactured housing and RV sites provides Sun with an investment pipeline to fuel growth for many years as we execute on our development plans. In addition, we have a significant pipeline of land for future development within the entitlement process that will enable us to be in a position to meet the increasing demand for attainable housing across the country. We plan to start development of five new greenfield manufactured housing communities in 2022, with two communities actively under construction today, with first phases anticipated to open late this year in Colorado and Florida. Board bookings for our sun-owned and operated RV resorts are pacing approximately 5% ahead compared to the same time last year for the second quarter. As you will recall, the second quarter of 2021 delivered strong results as all resorts were open and in very high demand. They are pacing 13% ahead for the second half of the year. Our RV same property NOI growth of almost 23% compared to the first quarter of 2021 shows the continued demand for outdoor vacationing, which benefited from the Canadian border being open for our Snowbird residents and guests. There's a lot of conversation around the potential impact of inflation and rising gas prices. We're also pleased to see the continued strong forward bookings for the remainder of the year, which we believe is a solid indicator of an RV vacation's continued desirability. Operationally, Sun had a very positive quarter due to the diligent effort of all team members. Fernando will now discuss our financial results in more detail. Fernando?

Thank you, John. I would first like to say I am honored to be assuming the role of CFO. Sun is a tremendous company, and I look forward to continuing to help drive and support our growth. I'd like to thank Karen for her mentorship and guidance through the years, and look forward to collaborating with her for many years to come. For the first quarter, Sun reported core FFO per share of $1.34, representing 6.3% growth over the first quarter of 2021 and $0.07 ahead of the top end of our first quarter guidance range. We've had an active year to date on the capital markets front, closing on the Park Holidays transaction on April 8th at a purchase price of approximately 950 million pounds, which was funded entirely on our new $4.2 billion multi-currency revolving credit and term loan facility. Additionally, we settled forward equity contracts on approximately 5.2 million shares for $935 million of net proceeds. These proceeds were used to pay down U.S. dollar borrowings on our credit facility. In early April, Sun issued $600 million of senior unsecured notes. Net proceeds were used to pay down the remaining U.S. dollar balance on the revolver. In conjunction with the unsecured notes offering, Sun settled four 10-year Treasury rate locks totaling $600 million for a payment to the company of $35 million, lowering our effective interest rate on the notes from 4.2% to 3.6%. We have approximately 1.2 million shares or $230 million of forward equity contracts outstanding after selling 600,000 shares at the end of the first quarter. As of March 31st, Sun had $6.1 billion of debt outstanding at a 3% weighted average rate and a weighted average maturity of 8.1 years. We had $90 million of unrestricted cash on hand, and a net debt to trailing 12 months recurring EBITDA ratio of 5.9 times. Our pro forma leverage on a fully loaded basis for all acquisition and capital markets activity to date is in the mid five times. Given our outperformance for the first quarter and outlook for the remainder of the year, we are increasing our full year FFO per share guidance range to $7.20 to $7.32, which represents a 1.5% increase at the midpoint. Full year manufactured housing and RV same property NOI growth is increasing to a range of 6.5% to 7.3%, and we affirm full year marina same property NOI growth at 6 to 7.4%. For additional details and second quarter expectations, please see our supplemental disclosure. 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. This concludes our prepared remarks. We will now open up the call for questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may 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 key. Our first question comes from the line of Keegan Carl with Barenburg. Please proceed with your question.

Hey, guys. Thanks for taking the question. maybe first, just in your MH and RV same property interwide growth vision, can you give us a little bit more color behind what's driving it?

Hi, Keegan. The outperformance in the first quarter on MH and RV same property was really driven by the RV portfolio with stronger performance from the annual side as we had as we exceeded our expectations of conversions of transient sites to annual leases, as well as on transient revenue, both from the performance for the quarter based on the comp against the first quarter of 2021, where we were affected by the Canadian border closure and the California stay-at-home orders. Both of those, as well as a little bit of outperformance on the MH side, led to our 7.7% combined NOI growth.

Got it. Just on the transient real quick, I mean, how is it trending versus your previously issued guidance? It's trading.

Go ahead, Fernando.

The expectations for the remainder of the year and for our original budget are ahead of our original expectations. For the year, we would be forecasting, this is inclusive of the first quarter, somewhere between 11% to 13% growth in transient RV. Got it.

And then shifting gears a little bit here, as far as disclosure for holiday parks, I saw you guys classified them as MH or acquisition. Just kind of curious what the rationale is for this and why maybe you're not breaking down as a separate entity. And then finally, I mean, should we expect these to be reported in the MHRV bucket going forward?

As far as reporting goes, I think they will be in the MHRV bucket going forward. And our view on them, as we've shared, is that they're even more permanent than our manufacturing housing homes here in the U.S. and that they're actually trucked on a lorry to the site, craned onto the site, tied down to the ground, and they do not have the types of wheels and axles that we have here in the U.S., so they're about as permanent as they can be. Then the fact that the average licenses, as they call them there, as opposed to leases, run 20 to 30 years, you know, makes it kind of what we would consider the quintessential land lease-type community. So... They are about as much as we can compare to manufactured housing as we've seen out there. They are second homes, however. They must have a primary residence in order to acquire and be licensed in a holiday park, and primarily, therefore, vacationing as a second residence. Got it very clear.

to be clear, the team will be going through, just like they did for the marinas, they'll be going through all of our reporting and all of the considerations regarding segments and supplemental reporting and really create the most transparent way to view the holiday parks and particularly planning for them. going into the future and being included in the same community. But we do truly see them as manufactured housing.

Got it. Very helpful. Thanks, guys.

Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Good morning. Congratulations to Karen and Fernando. The marina performance on NOI came in a little bit light due to higher expenses, as you alluded to. I was wondering if you could break down the same-store Merino revenue and expense guidance for 2022?

Sure, John. This is Fernando. So, we are on the NOI side. We affirmed guidance at 6 to 7.4 percent. This would translate to at the midpoint. to revenue growth of about 6% and expense growth of about 5%.

Why was the first quarter unusually high in expenses?

It was a little bit higher due to utility costs in the quarter that were unseasonably higher, but as we have visibility for the remainder of the year, both from a top line and expense standpoint. We did make adjustments that will help us hit the original guidance of 6 to 7.4 percent. We had stronger revenue growth on the wet slip and dry storage spaces. And overall, The Marina platform did exceed our first quarter expectations with stronger service demand from our members.

Okay. And then John mentioned in your prepared remarks that forward bookings for RVs are trending 5% out of last year in the second quarter. Your guidance for same-store MH&RV is just 3.9% at the midpoint. What's the offset to the higher demand you're seeing on the RV side?

John, the... The offset... It wouldn't be an offset from a comp standpoint. We did have the first quarter of 2021 where we... We had around $6 million less in that quarter because of the Canadian border closure and the California stay-at-home orders than we would have expected. So we're not expecting close to 30% revenue growth for the rest of the year on the RV side, given that the comparables for the remainder of the year are more normalized from that perspective.

Right, but bookings are 5% out of schedule for RVs, so is MH slowing that down below that, or is it fewer conversions to transient? I'm just wondering why the guidance doesn't suggest something higher than 3.9%.

We have, as we've shared before, we instituted a payroll increase across the portfolio that is impacting expenses for the first half of the year. We saw that impact in the first quarter and would expect that again in the second quarter. Expense growth for the second half of the year will normalize as we don't have that step function increase that went in in July of 2021. Okay, got it. Thank you.

Our next question comes from the line of John Pulaski with Green Street Advisors. Please proceed with your question.

Thank you for the time. John, on the RV rental rate side, 6% rent growth in the quarter. Should we expect that to accelerate from here or kind of hold steady in the 6% range?

Hey, John, appreciate the question. I think it's going to hold steady. It could be up a little bit.

Okay, great. And then last one for me, in terms of the UK park holiday GNA. So should we expect additional step changes in year two and three of owning this business, similar to what we saw with Safe Harbor, trying to get comfortable around the scalability of the expenses that are hitting right now and what's to come beyond this year?

You know, I think that Park Holidays is a small, you know, they're a smaller business. We are changing them from a privately held company to a publicly held company. Although they have placed some of those increases in their GNA for 2022, we will see what the future holds. dependent on acquisition activity and things of that nature, you may see some amount of increase into the following year just to really bring them up to the level that they need to be in order to provide the reporting and the timing of reporting along with all of their statutory reporting requirements in the UK.

That's great, John. I'll just add to that point. I think the opportunity we're looking at with expansion taking place there right now, 700 sites that are under construction and 700 sites beyond that, any additional GNA would be to measure it with the outsized growth we expect to get there. So as we really operate for the first 12 months, We would expect to be certain scalability and yet certain increased GNA as we get through all of the adjustments to get into the reporting here properly in the U.S. and to support their continued growth out there. So I think we'll be able to share more quarter by quarter with you.

Okay, but in terms of GNA as a percent of revenues for park holidays, we should expect it to be stable beyond this year?

Yeah, I think that would be the case.

Okay, thank you.

Our next question comes from the line of Nick Joseph from Citi. Pleased to see you with your question.

Thanks. Just starting off, I just wanted to clarify something, too. the first quarter same-store marina performance was actually ahead of expectations. Is that right? Because there was some conversation, obviously, around the expenses and kind of the remainder of the year, but just wanted to clarify the exceeded expectations, or is that relative to the entire portfolio?

Nick, relative to the entire portfolio, we exceeded our expectations with stronger demand for service from our members. On the same property side, we did have the 1.2% growth, which was slightly below our original expectations. But as John explained during the prepared remarks, the first quarter is the lowest contributor from a seasonality perspective. So a few hundred thousand dollars have an outsized impact on the performance for the quarter. That being said, The top line performed extremely well, and visibility into the start of the northern boating season has us very excited for what we can deliver for the rest of the year.

Thanks. And then maybe just on marinas, there were some press articles yesterday on one of the large owners considering its future plans. How does their portfolio compare to Safe Harbor, and then would new capital sources at the company increase competition for marine acquisition?

Gary and Nick, I think that we've followed Suntec for the last five years as we've followed Safe Harbor in the marine of business, and certainly appreciate the fact that they've been growing to a scale that they're considering an IPO as one of their alternatives. There has been very little change to the general market, to the cap rates, as Safe Harbor has been able to increase its size by over 60% in an 18, 20-month period of time. Very, very carefully thought through strategic acquisitions. to improve the footprint, network, the membership. And my expectation would be that with the fragmented business, with the current availability of some securities and the networking, through the patriarchs who are so influential in the industry that reside over at Safe Harbor that we should be able to continue to grow regardless of Suntec's goal to continue to grow or to do an IPO or anything like that. So for the foreseeable future, Safe Harbor really has the ability to proceed as it's been proceeding.

Thank you.

Our next question comes from the line of Joshua Dennerlein with Bank of America. Please distribute your question.

Yeah. Hey, everyone. I'm just curious on the marine estate store. It looks like you just include property operating expenses. I think it's my understanding, and please correct me if I'm wrong, but that does not include labor. And then if it like onsite labor, and if it doesn't, what's the rationale for not including that in marina same store expenses?

Josh, our marina same store is on a real property basis. We are evaluating and could potentially in the future report service, retail, dining, and entertainment on a same store basis as well, and we can update the market at that time. But it includes all of the expenses that go into operating the marina.

Including payroll to operate the marina.

Oh, including payroll. So like mechanic stock hands, that's included in the property operating expenses or somewhere else?

If that labor is working on servicing a vessel, that is included in expenses for SRD&E.

Okay. The fuel docks, everything else that's related to the actual operating of the wet slips and dry storage is included, everything.

Included in... Is it included in that $24.4 million for same store?

It's included in the same store that we reported.

Okay. It'll follow up offline. And then my other question related to park holidays, you mentioned that the resident has to get a license to have that home. Is that from the government or as you as the owner?

No, that basically equates on our side to having a lease. The terminology is a license and basically guarantees them the ability to have that site anywhere from 20 to 30 years, Josh. So it's from Park College.

Oh, okay. So that's something you could change if you wanted to. Would that be something you would be willing to change or you'd like this kind of set up?

If we saw a reason to change it, we could change it, yes.

Okay, awesome.

Going forward, yes.

Okay. All right, thank you, guys.

Our next question comes from the line of Wes Galladay with Robert W. Baird. Please proceed with your question.

Hi, everyone. I just want to look at the second half pace. I believe you said it was up 13%. At this time, how much do you have on the books for the second half, and is that mostly driven by rate or occupancy?

I don't have the figure of what we actually have on the books right in front of me, Wes, but it's a balance between both. I mean, typically, I think we've seen Again, a pretty even balance between both rate and occupancy. One of the things that we've been really focused on is those extensions into the shoulder days that are around the normal Saturday and Sunday stay that you might have and picking up more Mondays, picking up more Thursdays along the way to extend that a bit.

Got it. And can you provide an update on your loyalty program initiatives right now?

Sure. So we've got a number of properties that are still in that program. We're going to continue to keep it in pilot mode, if you will, probably for the next six months, because obviously the learnings have been enlightening through the process. We've got, I think, approximately 4,000, 5,000 members within the loyalty program today. And it's, like I said, it's important to keep it in pilot stage until we go to a full launch and just gather the learnings that we're picking up along the way. Much of what the benefit that our guests are getting within the pilot from the program are geared towards bringing them back to the properties and growing the spend within the properties rather than outside of the loyalty program.

Got it. And then on the acquisition front... Oh, sorry.

I'll look forward to updating you as subsequent calls along the way, too, as we get closer.

Okay. And then on the acquisition front, Looking at the Jarrett Bay assets, there's not a lot of slips there. Maybe can you talk about what you're thinking with those assets?

My question is, Gary, Jarrett Bay really is a very strategic acquisition for Safe Harbor. It does have potential for a slip expansion, but it's one of the very few service centers for large vessels situated between Maryland and Georgia. It's in close proximity to one of our very large MARINA, CITY MARINA IN CHARLESTON, AND IT REALLY IS A PERFECT NETWORK ADDITION, AS I SAID, FOR SAFE HARBOR MEMBERS TRAVELING NORTH AND SOUTH ON THE EAST COAST BETWEEN OUR SOUTHERN OLD PORT COVE RIVAVICH AND LAUDERDALE MARINA IN THE SOUTH ALL THE WAY UP TO OUR NORTHERN NEWPORT BEACH AND OTHER MARINAS. SO WE JUST THINK IT'S A GREAT OPPORTUNITY to expand the network capabilities for our members, and that is part of the underlying strategy that we think differentiates Safe Harbor from any of the competition.

Thanks, everyone.

Our next question comes from the line of Samir Connell with Evacor. Please proceed with your question.

Yeah, hi. Good morning, everyone. Hi, Gary. Can you talk about expanding the transfection market a little bit more? I know you provide a little bit of color on the marina side, but what you're seeing on the overall market in light of bond yield moving up, and maybe there's a way to kind of talk about sort of MH and RV, sort of bifurcate that and sort of the demand you're seeing.

Sure. Sure. It's an interesting question, Samir. I can sit here and tell everybody that we have seen no impact to cap rates in either the MHRV or marina space thus far. I think the best example of that is that John shared with you the fact that we disposed of three manufactured housing communities this last quarter And the cap rate on a trailing basis was 3.5. These obviously were not our trophy assets. So it gives you some sense of the demand that's out there. I think looking forward for right now, what we have in the pipeline reflects pretty much what we've had for some time now on the manufactured housing side. It's strictly relationship-oriented, and oftentimes we can use some securities for tax deferral to make transactions, and I think that there's continued focus on that. And a little bit more interest by people in relationships we've talked to who are seeing the interest rate environment change. So we suspect in onesies and twosies to be able to capture that manufactured housing acquisition type property. But at the same time, recognizing that manufactured housing has been so consolidated, we have definitely ratcheted up our desire to increase New development of manufactured housing where we can build to higher yields than buy. John shared with you we expect to be developing approximately five new manufactured housing communities per year going forward and have geared up for that for the last four or five years. And then we look to the UK for really an exciting opportunity on both the Holiday Park side to continue to expand their communities and look for additional acquisitions. Those appear to be in cap rates that are 300 to 400 points higher than what we're seeing in the US. So great opportunity there. And then the Marina side, as I shared with you earlier, Still a very fragmented industry with limited competition, so we expect to continue to deploy capital on external growth through acquisitions of Marina as well.

Great. Thanks for the color. And I guess just switching gears on the Marina's name for NOI growth, I know for the second quarter, you've provided a pretty wide range, right, like 5.7 to 7.3% I'm just trying to understand with basically sort of two months left in the quarter, can you talk about kind of what the swing factor is to get you kind of the low end and the top end of that range?

Well, you know, certainly it is a wide range, and we're early into the season. I think John shared in his remarks that for Fernando we're seeing strong demand for We're seeing the extension of certain leases that perhaps some of the vessels would have been traveling across the Atlantic overseas, but for some of the geopolitical situation taking there. So we're kind of excited about what we see, and we'll look towards the next call to be able to share the actual results.

And Samir, just for reference, right, it's a smaller portfolio, standalone portfolio from a marina standpoint. So, again, a shift of a few dollars has a greater impact both up or down. So that's why the range is just slightly – it doesn't amount to a large dollar amount. from a range standpoint.

Got it. And my last question, if I may, Fernando, on the expense growth for the balance of the year, how should we think about the cadence of that in the remaining quarters here?

As shared earlier, we are expecting expense growth to be somewhere around the 5% range on a full-year basis. So a deceleration from what we saw in the first quarter is expected.

Okay. Thanks very much.

Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Good morning. Thanks a lot for taking my question. Congratulations on your new roles, Karen and Fernando. As we think about MH rents keeping pace with inflation, same property MH rent per site in the first quarter came in below the low end of your initial guidance range of 4% to 4.2%. As we think about how that progresses, should that accelerate through the year and finish above the high end of the range? And does that kind of become the run rate going forward, you know, above 4.2?

This is John. Thanks for the question. The quick answer to your question is yes. Our guided MH rent increase for 2022 at the midpoint is 4.1, which is, as you know, already above our historical range. I think going forward, we're going to have some good opportunity over the course of 2022 to potentially achieve higher than that range as more MH move-ins and resales take place across the portfolio over the balance of the year. And even in locations such as Florida and California, where many of those rent increases are tied to some form of CPI, I expect to see higher increases as the year progresses and into 2023. So, you know, yes. I mean, again, the quick answer is yes, we expect it to accelerate.

That's really helpful. And then as we think about transient RV, you know, You know, it was ahead of expectations in the first quarter. It seems like forward bookings have you ahead of last year. Does this change how you think about kind of like where the ultimate level of transient RV demand falls, you know, relative to pre-COVID levels?

Yeah, you know, I'll put it this way. You know, RV performance is nothing short of outstanding. Okay. We had over 230,000 new guests come to our resorts last year, which in part led to the record high conversions of transient annual leases that we had was 1700, which was like a 70% increase over any other year that we had in conversions as well as close to 600 conversions in the first quarter alone. So that, you know, the booking pace being 13% ahead, of the second half of last year represents a record upon a record that we have. And so, as I've said on other calls, it's like we established a new baseline to grow from, and we look for that to continue to grow.

Thanks. And if I can squeeze one more in. It's been five months since you announced the transaction for Park Holidays. How has that market evolved since then? Have valuations changed? Has competition evolved? And then,

do you see yourself bidding on some of the larger portfolios or or is this a roll-up of kind of the onesies and twosies uh from here on out i think uh this gary and john can add it he's uh really uh been working closely with uh the park group and everything we're doing out there but i think we see uh things pretty steady as we saw them when we first entered the space obviously um there is a lot of interest and focus when sun makes you know important move in a new um country like that uh there are a lot of people out there looking at the asset class but uh we would look at mostly onesies and twosies and really levering off of uh the 15-year expertise of the management that's in place to grow the existing communities, to acquire new ground, to apply their skills and their sales force to build new communities, as well as consolidate into one season Tuesday. So that would be our focus. I think the larger portfolios that we know, obviously we see, they're presented to us But the complexities involved are far from the simple business that we look for there, which is increasing our manufactured housing communities because of the stickiness of the rent and all the real characteristics that make it so attractive for growth. So it will be the onesies and twosies, maybe small portfolios, much like we do here right now.

Thank you very much.

Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning. This may be a follow-up to that question. How are cap rates for the onesies and twosies in the UK compared to portfolio cap rates, and how do both compare to what you're seeing for an MH in the U.S.? ?

I want to be careful what I say here because the pipeline is so full and we are negotiating in a proprietary way with so many people over there. But I'm going to suggest that the cap rates exceed cap rates here by more than 400 basis points at least.

Got it. All right. Thanks for that. And maybe just switching gears to the development, you mentioned you're doing five new communities per year. Is there... Maybe an opportunity to increase that. We've seen a lot more concern with affordable housing options in the U.S. Has the conversation changed with local communities regarding MH development? And is that an opportunity for you over the long run?

Hey, this is John. Thanks. Yeah, the answer to that is yes. Like we shared before, we have five new MH ground-up starts that are happening this year. Two are in the ground. Interesting thing that's taken place, we actually have added a couple more to that count with respect to MH projects that were in flight by others that were developing them that we have taken over those projects. And so really what we expect to start this year is going to be more in the range of seven to eight MH communities as a result of that. We'll continue to look for those opportunities to add to that five a year that we've shared that we expect to do.

All right. Thank you.

That is all the time we have for questions. I'd like to hand the call back to management for closing remarks.

This is Gary, and I too would like to congratulate Fernando and Karen. Thank you all for your participation. As I always close, we are all available for any follow-up questions. We're very excited for the growth opportunity we have in front of us and look forward to reporting next quarter. Thank you, everyone.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.