Sun Communities, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Community's fourth quarter and year-end 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 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 these 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, President, and Chief Executive Officer, John McLaren, Strategic Advisor, and Fernando Castro Calcini, 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, President, and Chief Executive Officer. Mr. Shiffman, you may begin.

Good morning, and thank you for joining us as we discuss fourth quarter and full year results for 2022 and our guidance for 2023. This year marks Sun's 30th year as a public company, and over the past three decades, we have established a track record of strategically expanding and diversifying our portfolio of recession-resistant, best-in-class properties. We and our stakeholders have benefited from the compelling supply and demand dynamics that underpin manufactured housing, RV communities, and marinas. A strategic approach has delivered an attractive balance of a reliable organic growth and strong FFO per share increases. We have increased rents throughout economic cycles. And our strong results for 2022 in outlook for same property NOI growth in 2023 demonstrate the benefits of operating in segments where supply is perpetually constrained and demand is resilient. In 2022, core FFO per share grew 12.9%, driven by strong demand for our offerings, as well as our accretive investment activity. Demand for our manufactured housing communities and RV locations is evident in our consistently high occupancy levels, gains in revenue-producing sites, and solid same-property NOI growth. At year end, our combined MH and RV occupancy was nearly 97%, reflecting approximately 96% occupancy within our manufactured housing portfolio. During the year, we achieved a record of over 2,900 revenue-producing site gains, driven by more than 2,250 conversions of transient RV sites to annual leases, which topped last year's record conversions of nearly 1,700 sites and represented a 36% year-over-year increase. In marinas, Our 2022 same property results continue to demonstrate supply-demand tailwinds, with a 12-to-1 ratio of registered boats in the U.S. to the existing supply of leaseable wet slips and dry storage spaces. This creates a very sticky customer base and gives us the ability to grow rents. Resilience of our platform can be seen in our full-year total sales. manufactured housing, RV, and marina, same property NOI results, which grew by 5.8% over 2021. With regard to external growth, since acquiring Park Holidays in April 2022, we have focused on integration as well as being very selective in our approach to acquisitions. The UK market for holiday parks remains highly fragmented, and as we have done in the U.S. over the years, we have used our park holidays footprint to opportunistically scale our presence in the UK. Subsequent to the park holidays transaction, we acquired 14 best-in-class holiday parks in the UK. These investments have accretive going-in cap rates, and we believe they will deliver significant ongoing growth and yield strong returns. In light of current market conditions, we have shown discipline with regard to our approach to capital allocation and will continue to do so going forward. As we sharpen our pencil and assess capital and funding alternatives, growing our revenue-producing sites through expansions and ground-up developments continues to offer accretive returns. During 2022, we delivered 2,000 new expansion and greenfield development sites in North America. which was at the high end of our guidance. These new sites will begin contributing revenue in 2023 and provide a new base for growth in the coming years. We have inventory of over 16,000 fully entitled sites for development and delivery in future years, representing embedded continued growth. Additionally, we regularly evaluate our portfolio for capital recycling opportunities to enhance our long-term growth profile. With respect to ESG, we continually identify ways that we can enhance our corporate citizenship. Sun recently set a target to achieve carbon neutrality by 2035 and net zero emissions by 2045. And as previously announced, we have a Jeff Blau, CEO of related companies to our board of directors. Just experience and leadership will be a tremendous addition to our team. Lastly, our board has raised our 2023 distribution to $3.72 per share, a 5.7% increase from the prior year. We're very pleased with our 2022 achievements, and I'd like to thank all of our Sun team members who contributed extraordinary efforts to our collective success. As we look ahead to 2023, we once again expect to deliver a year of solid, sane property growth. As our 30-year track record has demonstrated, we have a business model that delivers results throughout economic cycles, supported by compelling supply-demand fundamentals. We will remain disciplined in our investment activity and our unparalleled expansion and development platform will continue to provide us with a differentiated growth opportunity. I will now turn the call over to John and Fernando to speak to our results and guidance in detail. John?

Thank you, Gary. The stability of our operating platform has shown through in our results for the quarter and the year. MH and RV same property NOI increased by 4.4% in the quarter. 4.9% growth in revenues reflected a 5% increase in weighted average monthly rent and a 180 basis point occupancy gain. 5.8% increase in expenses was primarily related to turnover costs in our rental program as one consequence of the pandemic was lengthened average stay and therefore higher related refurbishment costs. Having turned over these units, we are now able to realize higher rents on incoming leases. For the full year, Same property MH and RV NOI grew 5.4%, driven by a 5.7% increase in revenue and a 6.2% increase in expenses. Strength of our portfolio is a direct result of our irreplaceable locations, the hard work of our team members, and our continued reinvestment in our communities. At our RV communities, we set another annual record for site conversions to annual leases. Full-year transient same-property RV revenues grew by 3.1%, reflecting an average rate of growth of 14.1%, despite an almost 10% reduction in available site nights from the strategic conversion of transient sites to annual leases. Occupancy in our same-property MH and RV portfolio remained strong, increasing 180 basis points during 2022 to end the year at 98.6%. Park Holidays' portfolio is performing above our original underwriting, and the management team has done an excellent job integrating into Sun. The fourth quarter continues to show strength. For the 31 properties Park Holidays has owned since at least January 2021, home sales rose 17%. Full-year weighted average rental rates increased 5.4%, driving a 24% increase in home revenue. Marinas exceeded our expectations with a 10.4% increase in same marina NOI during the quarter and a 7.7% increase for the full year. The outperformance is due to higher demand for wet slip and dry storage spaces. Like MH and RV, marinas continue to generate reliable growth due to the industry's favorable supply and demand dynamics. In terms of external growth, during 2022 and through the date of this call, Sun acquired 70 operating properties for $2.2 billion and spent approximately $62 million for developable land parcels. The acquired land can support over 2,500 future MH and RV sites. Development is in Sun's DNA. For the full year 2022, Sun delivered approximately 1,160 expansion sites at 11 existing communities and over 840 sites at six development communities in the U.S. for a total of 2,000 future revenue-producing sites. Looking ahead, we have a solid development expansion pipeline that can deliver accretive growth for years to come, as well as the proven skill set and platform to sustain our growth. Going forward, we'll focus on delivering two to three new MH developments each year, as well as continued expansions at our existing properties. With regard to home sales, our average new home selling price in the U.S. was $196,000 for the quarter, reflecting the high demand at and strategic locations at our properties. Within our MH and RV portfolio, we gained over 2,900 revenue producing sites for the year. Total portfolio occupancy of 96.8% includes newly delivered development and expansion sites. Included in our revenue-producing site gains were over 2,250 transient to RV annual lease conversions this year, a new record for Sun. We receive an approximate 50% uplift in revenue the first full year after conversion. Value proposition of an RV vacation, one to three hours from home, opens Sun to new customers who discover or rediscover the joy of a long-term RV experience. With regard to the three properties most directly affected by Hurricane Eden, I would note that the cleanup is complete and we have started the rebuilding process. We relocated as many people as possible to other properties, including our team members in the area. We have recently received our first permit to place new homes and our new home sales program is largely set in anticipation of reopening sites in the second half of the year. I want to express my gratitude to the entire Sun team for the privilege to serve as our president for the past eight years and as chief operating officer since 2008. We are an unparalleled team that has assembled a best-in-class portfolio and operating platform that has delivered impressive results over many years and continues to be positioned for future growth. As I assume my new responsibilities focusing on our MH development efforts, I look forward to supporting Bruce and the entire team. I will now turn it over to Fernando to discuss our financial results in more detail. Fernando? Thank you, John. For the year, Sun reported core FFO per diluted share of $7.35, a 12.9% increase from 2021. For the fourth quarter, we reported core FFO per diluted share of $1.33, a 1.5% increase from the prior year. Similar to last quarter, this quarter's outperformance was driven by total marina real property NOI, interest income, and UK tax favorability. As of December 31st, Sun had $7.2 billion of debt outstanding that carried a weighted average interest rate of 3.8% with a weighted average maturity of 7.4 years. On a run rate trailing 12-month basis, our net debt-to-EBITDA ratio was 5.8 times. in terms of capital markets activity. During and subsequent to quarter end, we completed a $311 million add-on to an existing secured financing with a weighted average interest rate of 4.6%. Proceeds were used to repay amounts on a revolving credit facility. In January of this year, we issued $400 million of 10-year senior unsecured notes which benefited from $250 million of Treasury locks and used those proceeds to further reduce our line of credit balance. Since we achieved an investment grade rating in 2021, we have now issued $2.2 billion of unsecured fixed-rate notes across four tranches. Pro forma for this activity, our floating rate debt was reduced to 16% of total debt, which has now decreased from 26% as of December 31, 2020. Turning to guidance for 2023. As summarized in yesterday's press release, we are establishing full year guidance for core FFO per share in the range of $7.22 to $7.42. We are also establishing guidance for first quarter 2023 core FFO per share in the range of $1.15 to $1.20. Note that we expect first quarter results to reflect the seasonality of UK operations as outlined in our supplemental, which we acquired in April 2022. In 2023, we expect total same property NOI across manufactured housing, RV, and marinas to increase between 4.9% and 5.9%. At the midpoint of the ranges summarized in our press release, This total same property NOI growth assumes 4.6% growth from manufactured housing, 5.8% growth from RV, and a 7% increase from marinas. Regarding average rental rate increases, we reiterate the guidance ranges provided back in October. At the midpoint, these rental increases are 6.3% for manufactured housing, 7.8% for RV, and 7.5% for marinas. On a total portfolio basis, we expect total revenues from real property to increase between 8.1% and 8.7% in 2023 and expenses to increase between 13.5% and 13.9%. Included in this expected expense growth is an approximately $18 million increase in property-related insurance costs. We expect total real property NOI to increase between 4.5 and 5.7% during 2023 due to strong resident, guest, and member demand at our properties. Our UK operations are included in our guidance for total NOI. We are also providing certain guidance data points to help the investment community track Park Holiday's performance. Our guidance assumes we increase revenue producing sites by 2,800 to 3,100 sites in 2023. And we expect about 60% of these revenue producing sites to come from RV transient site conversions to annual leases. We anticipate investing roughly $200 million in our ground up development and expansion activity. Throughout 2022, we continue to focus on corporate expense rationalization, including process efficiencies and reducing our office footprint. Despite the high inflation environment for 2023, we expect G&A expense to run between $256 and $262 million, which equates to minimal growth over 2022 at the midpoint. Importantly, we expect our G&A as a percentage of revenue to decline this year. But final note, Increasing interest rates were a headwind on FFO growth in the back half of 2022 and continue to be a headwind in our 2023 guidance. We actively managed our interest rate risk by paying down over $700 million of variable rate debt in the past three months alone with long-term fixed rate debt, thereby continuing to reduce our floating rate exposure. We believe our guidance reflects the current interest rate outlook at the time of this call and is informed by forward interest rate curves as of the time of providing our guidance. Our platform of recession-resistant, best-in-class properties is positioned to continue generating strong cash flow growth to the benefit of our stakeholders. As a reminder, our guidance includes acquisitions, dispositions, and capital markets activity through February 22, 2023, and the effect of a property disposition under contract expected to close in March 2023. 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.