Sun Communities, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Community's Third 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 meaning 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 Shiffman, Chairman and Chief Executive Officer. John McLaren, President and Chief Operating Officer. And Fernando Castro-Cartini, Chief Financial Officer. After their remarks, there will be an opportunity to ask questions. For those who would like to participate in the question and answer session, management asks that you limit yourself to two questions so everyone who would like to participate has 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 third quarter 2022 results and provide an update of our full year guidance. I would first like to share my best wishes and support for everyone affected by Hurricane Ian. The swift, organized response of our Sun team members in the preparation and cleanup from the hurricane was remarkable and selfless. We are pleased with our results this quarter and year to date, and our outperformance demonstrates both the resilience of our properties and our strength as operators. Our portfolio of best-in-class assets in high-demand locations is strategically positioned to continue creating value for stakeholders through varying economic cycles. Our proven track record of execution, facilitated by an operational platform which is second to none, allows sons to provide continued growth. Our third quarter was exceptionally strong, exceeding the high end of our guidance, and as Fernando will detail, we are raising our midpoint of full-year FFO guidance. The resilience of each business segment is evident in our results. Manufactured housing, same property NOI increased 4.9% for the quarter compared to last year. supported by 4.3% gains in monthly base rent per site, increased occupancy, and our ability to manage expenses. Importantly, our UK operations, which are included in our manufactured housing segment, are performing in line with expectations, demonstrating continued resilience amid economic uncertainties. Our holidays team has been operating the portfolio since 2005 and are cycle tested, having demonstrated consistent execution and value creation through various economic conditions. Similar to how we see new residents trading into manufactured housing in the U.S. during times of economic challenges, we are experiencing continued strong demand for domestic holiday homes in the U.K., Harvey communities continue to experience high demand and transient conversions to annual leases accelerated 30% as compared to the third quarter of 2021. Here to date, we have converted approximately 2,000 transient sites to annual leases, which exceeds our full year record set in 2021. Each conversion equates to a 40% to 60% revenue uplift the first year and creates a new stream of recurring revenue. On the same property basis, annual RV revenues increased 13.4% and total NOI grew 8.4% compared to the third quarter last year. Monthly base rent per RV site increased by 7% year over year. On a combined basis, blended total portfolio manufactured housing and annual RV occupancy was 97.1%, with over 2,300 revenue-producing sites gained year-to-date. Looking ahead to 2023, we are positioned for continued organic growth in manufactured housing and RV, as we expect to realize average rental rate increases of 6.3% for manufactured housing and 7.8% for annual RV at the midpoint. Both represent material increases on a year-over-year basis. Marinas continue to experience strong performance. The Marina Real Property NOI increased 9.6% in the third quarter compared to last year. driven by increased annual boat slip revenue and storage revenue. Demand for slips and storage is persistent, and over 85% of the Safe Harbor marinas have wait lists to join as a member. In terms of external growth, we are and will remain very selective in approaching new opportunities. With our second quarter earnings call in July, we have closed on $24 million of new acquisitions. We also sold one RV community in California for $15 million. Our development platform continues to be a differentiating and exciting growth driver over the long term, and we are pleased to have John focused on the pipeline of manufactured housing development communities. During the quarter, we delivered over 170 acquisitions expansion and greenfield development sites. On the ESG side, we are proud to report that our GRES score came back in the mid-60% range, which represents a 42% improvement from last year's score. This was only our second year of participating in GRES, and we are pleased to be scoring in line with our peers. Our team continues to work hard to build on this momentum, as we enhance our ESG protocols and reporting. At scale, the quality and locations of Sun's properties, along with our unrivaled team, give Sun a clear competitive advantage through all economic cycles. We are well positioned to continue delivering value to our stakeholders through our proven, resilient platform. I would like to thank all of our team members for their ongoing contributions and efforts. which makes Sun what it is today. I also want to congratulate Bruce Thalen, who will take over the Chief Operating Officer role in 2023. Since joining the company in 2018, Bruce has been a vital member of Sun's leadership team. He has consistently grown his responsibilities related to manufactured housing and RV property operations. Bruce and John have worked together overseeing the operations team and I look forward to Bruce's continued leadership. I will now turn the call over to John and Fernando to speak to our third quarter results in detail. John?

Thank you, Gary. Third quarter results have demonstrated Sun's resilience. Both quarters, same property, manufactured housing, and RV and OI increased 6.4%, driven by a 4.7% increase in monthly base rents per site and a 200 basis point increase in occupancy. Same property manufactured housing communities recorded a 4.6% increase in revenue and a 4.9% increase in NOI for the quarter compared to the prior year period. Annual RV revenue increased 13.4% in the quarter due to the record number of transient to annual lease conversions continuing to build on the success we have been delivering. The record transient to annual conversions Gary mentioned translated into having almost 7% fewer sites to rent during the third quarter. Notwithstanding this fact, we increased transient RV revenue 60 basis points during the quarter. Marina Sane Property NOI increased by 9.6% for the third quarter, which was 60 basis points ahead of the high end of guidance. Marine Outperformance was largely driven by increased operating revenue from wet slips and dry storage space demand and expense savings across the portfolio. Our UK portfolio performed well, and we are experiencing continued strong demand for holiday homes. Additionally, Park Holidays has proactively locked in utility costs through 2024, which will benefit our residents. The integration of our UK operations continues to advance smoothly, and we'll continue to realize synergies between our team's systems, technologies, and methodologies over time. Development and expansion activity remains an important contributor to our long-term growth. We continue to entitle land and locations with high structural demand in order to maintain a robust pipeline of future embedded growth. Accordingly, in the quarter and through the date of this call, we purchased four fully entitled manufactured housing land parcels for a total of $20 million that provide an opportunity to develop approximately 800 additional sites. In the quarter, Sun sold 724 new and pre-owned homes in our communities. New home sales prices averaged $183,000 for the quarter, up $31,000 from the prior year. This 21% increase in the past year reflects the high quality and demand to live in a Sun community. The demand to live in a Sun community is also evident as total portfolio, manufactured housing, and RV occupancy reached 97.1% as of September 30th. The average rental rate increases for 2023 are expected to be between 6.2 and 6.4% across our MH portfolio, excluding the UK, where we expect an average rent increase in the range of 7.2 to 7.4%. For annual RV, we expect rental rate increases of 7.7 to 7.9% and a range of 7.3 to 7.6% increases in marina rents. As previously disclosed, Hurricane Ian caused significant flooding and wind damage at three RV properties and damage to the seawall and docks at one marina, all located near Fort Myers, Florida. Prior to the hurricane making landfall, we acted our emergency plan. Our team members, along with third-party contractors, began restoration work as soon as it was safe to return on site. We organized convoys of supplies, food, and travel trailers to our Florida properties. We could not be more proud of the entire team in effectively managing through a challenging situation. We expect that our property casualty flood and business interrupt insurance will fully cover us net of deductibles. We are grateful for and humbled by the dedication of our team members and pleased with the company's performance to date. I will now turn the call over to Fernando to discuss our financial results in more detail. Fernando? Thank you, John. For the third quarter, Sun reported core FFO for diluted share on a constant currency basis of $2.71, a 28% increase above prior year results and exceeding the high end of our quarterly guidance range. The outperformance was driven by total marina real property, net operating income, interest income, UK corporate tax favorability, and lower corporate costs. As of September 30th, Sun had $6.7 billion of debt outstanding that carried a weighted average interest rate of 3.4% and has a weighted average maturity of 8.8 years. As of quarter end, our net debt to trailing 12-month recurring EBITDA ratio was 5.7 times. Excluding our bank revolving credit and term loan facilities, the remaining $4.9 billion of debt has a weighted average interest rate of 3.4% and a weighted average maturity of 9.9 years. In terms of capital markets activity, during the quarter, we repaid $318 million of debt secured by 35 properties, increasing our unencumbered assets to total asset ratio to nearly 79%. We are also in the process of executing on approximately $310 million of mortgage refinancings for a portfolio of properties which is expected to reduce our variable rate debt exposure to approximately 16%. As mentioned on our last call, in July, we swapped £400 million of our £875 million sterling debt outstanding on our term loan from variable rate to fixed rate through 2025. Lastly, since our second quarter call, we settled all remaining forward equity agreements on approximately 540,000 shares for $95 million in net proceeds. In total for the quarter, we settled 1.5 million shares that netted approximately $276 million of proceeds used to pay down borrowings on our credit facility. Turning to guidance. As summarized in yesterday's press release, we are increasing the midpoint of full-year guidance on constant currency FFO per share by 8 cents to a revised range of $7.32 to $7.38. We are establishing fourth quarter 2022 constant currency core FFO per share guidance in the range of $1.23 to $1.29. At the same property level, we are moderating our full-year manufactured housing and RV NOI growth expectations by 40 basis points, primarily reflecting revised transient RV revenue expectations for the fourth quarter. The new range represents 6% growth at the midpoint for the full year and implies a 6.6% growth at the midpoint in the fourth quarter. For Marina, same property. we are increasing the midpoint of full year guidance to 6.6%, a 20 basis point increase from the prior range. In the fourth quarter, we expect same property marina growth of 6.1% at the midpoint. As a reminder, our guidance includes acquisitions, dispositions, and capital markets activity through October 24th, and the approximately $310 million of debt financing we are in the process of closing. but it does not include the impact of prospective acquisitions, dispositions, 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?