Sun Communities, Inc.

Good morning ladies and gentlemen and thank you for standing by. Welcome to Sun Community's second 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 meetings 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 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 Shiffman, Chairman and Chief Executive Officer, John McLaren, President and Chief Operating Officer, and Fernando Castro Caratini, Chief Financial Officer. After their remarks, there will be an opportunity to ask questions. For those who would like to participate in a question and answer session, management asks that you limit yourself to two questions so everyone who would like to participate as ample opportunity. As a reminder, this call is being recorded. I'll now turn the call 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 second quarter 2022 results and provide an update on our full year guidance. We are pleased to share that our portfolio has continued to deliver strong performance as we feel the ongoing demand for attainable housing and affordable outdoor vacationing options. The highly recurring and dependable revenues across our portfolio are evident in the strong results we have consistently delivered throughout all economic cycles. The combination of these drivers led to Sun achieving core FFO of $2.02 per diluted share in the second quarter. On a constant currency basis, core FFO per diluted share was $2.04, which represents a 13% increase from the prior year. We continue to experience high demand for our manufactured housing communities and RV resorts. In the second quarter, we grew our revenue-producing sites by 950, representing record quarterly growth. Over 85% of this increase came from converting transient RV customers to annual leases. We are pleased that when transient RV guests discover the experience and value proposition of an RV vacation at a Sun Outdoors resort, they choose to make it a longer-term vacationing option. In the first half of 2022, we have converted over 1,400 transient guests to annual leases, which is about three-quarters of the record number of conversions achieved during all of 2021. Our proactive approach to converting transient guests to longer-term annual residents has been a consistent strategy that as we built Sun's portfolio through selectively acquiring best-in-class resorts, has resulted in even greater revenue stickiness and higher NOI per site. Our same property manufactured housing and RV portfolio demonstrates continued solid gains. In the second quarter, manufactured housing and RV same property NOI grew 3.6% over 2021, driven by a 4.8% revenue increase offset by a 7.3% expense increase. Within our Marina segment, same property NOI grew 7.1% for the quarter, driven by a 6.1% increase in revenues from slip storage income, offset by a 3.4% increase in expenses. Looking forward to the next several quarters, The current operating environment of high inflation and economic uncertainty presents challenges for all businesses. After nearly 40 years in the business, I have personally seen and experienced the cycle-tested nature of the demand for attainable housing and affordable vacationing, which when combined with our best-in-class assets, produces steady cash flow growth and reliable bottom-line performance. We have a decades-long track record of growing our business and cash flows. We're operating, acquiring, and expanding manufactured housing communities dating back to 1975 and RV communities dating back to 1996. Specific to RV, I would highlight that we have three competitive advantages in continuing to garner transient RV revenues. namely our proprietary reservation technology, including Camp Spot, the quality and locations of our resorts, and an unmatched team that provides a best-in-industry customer experience. Among our manufactured housing and RV properties, it's also important to note that in over 90% of our manufactured housing portfolio, we are able to increase annual rents by CPI or greater. As a result, we can pass through rent increases annually to mitigate the impact of inflation. In our marina portfolio, we expect our locations to perform well during uncertain economic times. Given the higher average household incomes of our members, the continuous and growing need for boat storage, and the compelling fundamentals, On the demand side for marinas is an existing base of approximately 12 million registered boats within the U.S. and a supply of only 900,000 to 1 million wet slips. Additionally, the overall supply of marinas continues to decline as developers acquire and repurpose them into waterfront, residential, and other commercial uses. As of June 30th, our Safe Harbor marinas represent a network of 130 marinas that provide the highest quality essential wet slip and dry storage facilities members require. In turn, this generates recurring revenue as the average Safe Harbor marina member stays for approximately seven to eight years. The common fundamentals among manufactured housing, RV, and marinas are the scarcity of locations, demand that far outpaces supply, and the absolute barriers to entry. This leads to resiliency of our revenues across our portfolio, as evidenced by our strong performance to date. We also achieved strong external growth during the second quarter and through the date of this call, closed on 1.8 billion dollars of assets consisting of four manufactured housing communities three marinas and 52 holiday parks including the 40 property park holidays portfolio in the UK the remainder of the year sons focus will be on integrating these assets into our portfolio and recognizing the accretive value of these acquisitions and while being highly selective in pursuing additional opportunities. Our development platform continues to be a compelling growth driver and a unique differentiator for Sun. During the second quarter, we acquired two newly developed manufactured housing properties in Arizona and Texas. Combined, they include nearly 450 fully developed sites ready for occupancy with an additional 600 expansion sites to be completed in the future. These developments give Sun the added attainable housing presence in highly attractive locations. A high-quality manufactured home in a Sun community is a very desirable way for people to achieve their dream of owning a home. Turning to our UK portfolio, the opportunities are very similar to the Sun Manufactured Housing business, including stickiness of revenues, attractive growth through expansions and developments, and similar supply and demand dynamics. With the combination of the park holidays and the park leisure portfolios, we have a highly desirable footprint. with 75% of our target customers within a 90-mile drive of one of our communities. The Park Holidays portfolio has an expansion pipeline of over 1,500 sites, in addition to approximately 700 newly developed and completed sites. Over the past 15 years, the Park Holidays team has shown their ability to create value for their stakeholders. Last and certainly not least, we released our latest ESG report during the quarter to highlight the significant progress we made in 2021. We increased our performance data and began laying the foundation for establishing improvement targets for key ESG measures. We are especially pleased that in its recently released ESG report, NAREIT recognized our back-to-school program which offers free tutoring for dependents of Sun team members. Sun is very well positioned to continue to create value for organic growth, expansions, new developments, and select acquisitions. We are grateful for the entire team's ongoing dedication throughout the integrations and look forward to building upon the deep operating experiences and strength of the team members to continue delivering attractive risk-adjusted returns for our stakeholders. I will now turn the call over to John and Fernando to speak to our results in detail. John?

Thank you, Gary. Our second quarter and year-to-date performance in 2022 reflects the consistently strong operational results and contributions throughout the entire portfolio. Our same property MH and RV NOI increased 3.6% for the quarter driven by a 4.8% increase in revenues and offset by a 7.3% increase in property operating expenses. Our MH communities performed well with a 4.4% increase in revenue compared to the second quarter of 2021. Our annual RV revenue increased 12.1% driven by the high volume of transient annual conversions which contribute a revenue uplift on the site in the range of 40 to 60% in the first year. For the three months ended June 30th, same property transient RV revenue increased 60 basis points, even as we had 1,500 fewer sites due to our success of conversions to annuals. The weighted average rental rate increase was 4.5% for the quarter, and occupancy increased by 170 basis points. Marina Seine property NOI increased by 7.1% for the second quarter and 5% for the six months ended June 30, 2022. Our boat slip storage annual revenue increased 7.1% for the quarter compared to the same time last year, reflecting the positive supply and demand dynamics that Gary spoke to earlier. We acquired two manufactured housing developments this quarter, Spanish Trails, an age-restricted community located in Casa Grande, Arizona, and Pine Acre Trails, an all-age community in Conroe, Texas. These two newly developed locations provide Sun with an immediate opportunity to supply our quality, value-oriented solutions to municipalities in need of attainable housing. Within the quarter, Sun sold over 975 new and pre-owned homes in our communities. the average new home selling price increased 7.2% for the three months ended June 30th to $164,000, with a margin approaching 20%. Additionally, in our brokered home sales, we are pleased to report a 37% increase in sales prices year over year, demonstrating the enduring value of living in a Sun community. Our MH&RV total portfolio occupancy reached 97.2% as of June 30th, Year to date, we have received approximately 29,000 applications to live in a Sun community, as demand for our communities remains robust. As Sun continues to execute on development expansion deliveries, during and subsequent to quarter end, we purchased three land parcels for $10.7 million, located in Colorado, Utah, and Nevada. These three entitled land parcels will provide Sun with future opportunities for greenfield development and expansion of over 650 sites in areas of high demand and needed supply. On our last call, we discussed commencing construction on five manufactured housing projects located in Colorado, Florida, Texas, and California. Construction is advancing as anticipated, and we expect to have two communities open their first phases by the end of this year. Forward bookings for the total RV portfolio owned and operated by Sun are slightly ahead of last year's record pace, although they have moderated compared to our prior expectations. Continued growth is supported by an additional base of new customers who experienced an RV vacation for the first time last year. Similar to our strong performance over the Memorial Day weekend, During the 4th of July holiday, same property transient revenue increased by 9.4% compared to 2021 and was driven by a 17.3% increase in average daily rates. We are pleased with our continued performance and are grateful for our team members who continue to go the extra mile each day. I will now turn the call over to Fernando to discuss our financial results in more detail. Fernando? Thank you, John. For the second quarter, Sun reported core FFO per diluted share on a constant currency basis of $2.04, which is 13% above the prior year and exceeded the high end of our quarterly guidance range by $0.03. The outperformance was driven by better-than-forecasted results from the total Marina portfolio and home sales contribution given increased sales price and margin for the quarter. These positive variances at the property level offset higher real estate taxes, interest expense, and lower than expected transient RV revenues. As of June 30th, Sun had $6.9 billion of debt outstanding, equating to a net debt to trailing 12-month recurring EBITDA ratio of 6.3 times. Our total debt carries a weighted average interest rate of 3.4% and has a weighted average maturity of 7.9 years. Excluding our bank revolving credit and term loan facilities, the remaining $5.2 billion of debt has a weighted average interest rate of 3.5% and a weighted average maturity of 9.6 years. During and subsequent to quarter end, we settled forward agreements on approximately 6.2 million shares that netted $1.1 billion of proceeds used to pay down borrowings on our credit facility. We had previously disclosed approximately 5.2 million shares settled in connection with the park holidays acquisition in early April. The remaining 1 million shares were settled to fund additional acquisition activity. Initially, earlier this month, we swapped 400 million pounds of our funded 875 million pounds sterling term loan from variable rate to a fixed interest rate of 3.67% through 2025. Proforma, for the $1.8 billion of acquisitions and capital markets activity completed during and subsequent to the quarter, our net debt to EBITDA leverage ratio is inside our stated target range of 5.5 times. We have also reduced our variable rate debt exposure to 16% today as part of our active capital management strategy. Due to the addition of our manufactured housing portfolio in the UK, we will now provide and guide to core FFO on a constant currency basis. Like other REITs with non-US dollar currency exposure, our constant currency adjustments eliminate the non-cash fluctuations in reporting that are due to foreign currency exchange rate movements relative to the US dollar, thereby enabling investors to compare fundamental performance across time periods. We continue to see strong year-over-year growth across the platform after a great 2021 for Sun. As summarized in the press release issued yesterday, we are increasing the low end of full-year guidance for constant currency FFO per share by 2 cents to a revised range of $7.22 to $7.32 per share. The $7.27 midpoint of our new range is one cent higher than last quarter and represents 11.7% growth over 2021 results. We are establishing third quarter 2022 constant currency core FFO per share guidance in the range of $2.56 to $2.61. At the same property level, we are moderating our growth expectations slightly for manufactured housing and RV by 50 basis points to 6.4% at the midpoint of a 6 to 6.8% range. The modestly lower growth accounts for higher real estate tax assessments in Texas, one of our larger MH markets, and current transient RV revenue expectations for the remainder of the year. Third quarter same property MH and RV NOI growth is expected to be 6.8% at the midpoint of guidance. For Marina same property, we are slightly adjusting the NOI growth range for the year by 30 basis points to 6.4% at the midpoint of a 6 to 6.8% range. Third quarter same property Marina NOI growth is expected to be 8.3% at the midpoint of guidance. As a reminder, our guidance includes acquisitions and capital markets activity through July 25th, 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 the call for questions. Operator?