Sun Communities, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Community's first quarter 2023 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 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, President, and Chief Executive Officer, and Fernando Castro-Carrattini, 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 yourselves 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 Schiffman, Chairman, President, and Chief Executive Officer. Mr. Schiffman, you may begin.

Good morning, and thank you for joining us on our conference call to discuss First Quarter 2023 earnings and our updated guidance. We're off to a strong start to the year as our First Quarter performance extended Sun's track record of delivering reliable NOI growth driven by our -in-class properties, for which supply is persistently constrained and demand remains resilient. Our focus on providing an exceptional offering for residents, guests, and members backed by a tentative customer service at our properties is a value proposition that creates loyalty and durable revenues for Sun. Our First Quarter results were stronger than we anticipated, with $1.23 core FFO per share for the quarter exceeding the high end of our guidance. Our same property NOI increased 6.7%, surpassing the high end of our guidance by 230 basis points, driven by strong performance across all three segments. Same property manufacturer housing NOI increased 5% compared to the First Quarter of 2022 due to several factors, including rental rate increases, occupancy growth, and expense savings. Same property RV NOI increased 4.4%, driven by .2% revenue growth, primarily reflecting strong conversions of transient sites to annual leases. Following the unprecedented increase in transient demand during the pandemic, we continue to benefit from heightened awareness of RV vacations and anticipate continued strong demand for annual RV leases. We are capitalizing on this demand to grow our base of long-term durable rent revenues with these conversions. Same property marina NOI grew .1% in the first quarter as compared to the same time last year. Marina outperformance was due to strong rental increases, higher demand that included longer stays by transient guests in our southeastern marinas, and operating expense savings. Demand for attainable housing and for value-oriented vacationing remained high and drove same property occupancy for MH and RV 190 basis points higher compared to the same time last year. At quarter end, occupancy was 98.6%. Since MH and RV annual revenue producing sites increased by 802 sites in the quarter, representing the highest first quarter volume ever recorded and a 20% increase in the same period last year. Transient RV conversions to annual leases accounted for 65% of the RPS gains, demonstrating the success of our ongoing strategic focus to grow our base of long-term residents. Development activity continues to contribute incremental value to our long-term growth. We delivered over 200 ground-up development sites and over 130 expansion sites. We also opportunistically added to our inventory of land for future development, which now represents a pipeline of approximately 16,000 sites. We currently have sufficient new home inventory available to meet the demand for the newly delivered sites. On the acquisition front, SUN continues to remain highly selective and purchased two assets during the quarter. We manufacture housing community in Michigan and the Savannah Yacht Center, a premier service-oriented marina in Savannah, Georgia, with its services provided by third parties. Marina enhances our network, providing access to another strategic location for our members. We will be publishing our fifth ESG report in the coming weeks and are very proud of our team members for reaching many milestones in 2022. In the report, we highlight ESG achievements, such as the Coastal Habitat Restoration Program we are piloting at marinas in Rhode Island, our UK operations maintaining their silver rating from Investor in People, and achieving ISO certification for cybersecurity. Our ESG framework score improvements and the expansion of our data coverage to include marinas and the UK demonstrate our company's commitment to being accountable to our investors, team members, business partners, and the communities in which we operate. We are pleased with a strong start to our year and remain positive on our outlook. We would like to thank our team members for their enduring dedication and hard work. And with that, I will turn the call over to Fernando to discuss our results in more detail.

Thank you, Gary. First, I wanted to call your attention to the supplemental disclosure changes you likely noticed in the document published after the market closed yesterday. We have made a number of updates that are aligned with how we manage Sun as a whole and are intended to help you analyze our business better and more quickly. Our goal is that you find these modifications helpful and we welcome feedback. Orofofo per share was $1.23 for the first quarter, exceeding the high end of guidance by three cents. The out performance was driven by higher than anticipated real property revenue and manufactured housing, which benefited from rental rate growth and higher demand for our rental program sites, from RV annual revenues that benefited from conversions of transient sites, and from stronger than expected demand at our marinas. Additionally, the quarter's results benefited from higher utility rebuilds and effective expense management at the properties. At the same property level, out performance throughout our portfolio contributed to the .7% increase in total same property NOI. Same property manufactured housing NOI grew 5% over the prior year, resulting from a .4% increase in revenues and .4% expense growth. The out performance in revenues was due to a 280 site increase in MH revenue producing sites, which was more than four times the occupancy gains realized in the first quarter of 2022. In RV, same property NOI increased .4% for the first quarter, with a .2% increase in revenues and an .1% expense increase. During the first quarter, we converted 524 transient sites to annual which was ahead of our expectations. As we continue to execute on our strategy of converting sites and capturing more annual revenue, we expect to also see a related reduction in transient revenue. Marina same property NOI increased .1% in the first quarter, consisting of a .9% increase in revenues and a .3% increase in expenses. Marina same property NOI's revenue benefited from stronger than expected transient demand, especially in the southeast and continued expense management. During the quarter, we sold 589 homes in North America, which exceeded volume and margin expectations. In the UK, real property NOI was ahead of expectations in the quarter due to higher owner retention. NOI from home sales was below expectations in the quarter due to lower volume and the increased mix of pre-owned versus new home sales. Turning to investment activity, we purchased the Savannah Yacht Center for $100 million and funded the entire purchase price by issuing convertible preferred OP units. For the manufactured housing community acquired for $7 million, we issued a combination of OP units and cash. As of March 31, 2023, the company had $7.5 billion in debt outstanding. The weighted average interest rate was .9% and the weighted average years to maturity was 7.4 years. Our leverage ratio on a run rate basis is six times. Based on our operating cash flow expectations for the year, we anticipate the leveraging towards our five and a half times long-term leverage target over the remainder of the year. In terms of new financing activity, since our last call, we completed two additional mortgage loans that raised $100 million of fixed rate debt at a weighted average interest rate of 5.7%. In total, during the quarter, we raised approximately $585 million of fixed rate debt and used proceeds to repay borrowings under our senior credit facility. Additionally, we swapped another £100 million on our sterling denominated term loan to lock in a fixed all-in rate of 4.8%. At the end of the quarter, our floating rate debt was at 16%, which is in line with our internal expectations. Excluding our senior credit facility borrowings, between now and the end of 2025, less than 8% of our total debt matures. We continue to look at opportunities in the financing markets to further enhance our balance sheet, including terming out debt and reducing secured debt amounts. As detailed in our supplemental, we are affirming our guidance range for Core FFO Per Share for the year of $7.22 to $7.42 and establishing Core FFO Per Share guidance for the second quarter of $1.90 to $1.98. We expect higher total portfolio real property NOI growth of 6.1 to 7%, driven by additional NOI from first quarter acquisitions and from higher same property NOI growth. We also expect higher contributions from North America home sales, total SRD&E and lower G&A expense to offset a lower contribution from home sales in the UK. We now expect total same property NOI to grow by 5 to 6% for the year, representing a 10 basis points increase to prior guidance. The increase is driven by stronger than previously expected growth in same property manufactured housing and marina, partially offset by slower transient revenue growth expectations in same property RV. Our revised same property NOI growth ranges for the year are 4.6 to .4% for manufactured housing, 4.4 to .6% for RV and 6.8 to 8% for marina. For our UK operations, we are lowering our full year range for total real property and home sales NOI by roughly 10% to a new NOI range of $141 million to $148 million. For additional details regarding our updated full year guidance and second quarter expectations, please see our supplemental disclosures. As a reminder, our guidance and guidance includes acquisitions and dispositions and capital markets activity through April 26 and the effect of a property disposition under contract expected to close during the second quarter. 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 up for questions. Operator?

Thank you. We will now open the call for questions. 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. If at any time you wish to remove your question from the queue, please press star 2. We also remind you to limit your questions to two so that others may have time to ask questions. Our first question is from Josh down the line with Bank of America.

Hey, guys. Thanks for the question. Fernando, thanks for the color on the guidance. I just want to explore the UK NOI guidance range being lowered 10%. Can you just go into more detail on what's driving that underlying change?

Sure. Thank you, Josh, and good morning all. The drivers to the changes are actually an increase to expectations in real property NOI from the UK. That's increasing by about 9% at the midpoint or about $5.5 million and a decrease in expected contribution from home sales of about 20% or about $21 million. That would be for the full year. So that would have the impact of the home sales of the home sales performance over the first quarter and then our revised expectations for the rest of the year.

So was that strategy driven where you're pushing rate harder and that's why like the real property is up 9% and then you're just getting less home sales or just kind of square it? Yeah, just trying to figure out what's driving the drop in home sales too.

We're certainly seeing shifts in the strategy as far as stronger, as Gary mentioned in his remarks, stronger owner retention at the property level that is driving the increased expectations on the real property side. We did see softer demand in the first quarter from a volume perspective and as Gary mentioned in the mix of homes which carry different margin expectations.

So Gary, as I did suggest, that shift to a quality pre-owned home, the price is lower and therefore the retail price is lower, the margin is similar to as it has been but the contribution from a quality used home is just smaller than a new home and we have seen a bit of a slowdown in the new home and we're well aware of the backdrop of the economy in the UK and that effect as we think through guidance for the balance of the year.

Okay. In that NOI range, how much of that profit is like the profit that you're getting from home sales and how much is it like the real property? Just trying to think of like the modeling purposes and we should think about it.

Sure. Josh, in our updated guidance, the percentage split between real property and home sales is about 45% coming from real property and 55% coming from home sales.

Okay.

Thanks,

guys. Which is the shift over the long term that we're looking to make but the results of what's happening right now relate more to the economic environment.

Got it. Thank you.

Our next question is from Derek Wolf with City Research.

Hey, thanks. Just wanted to follow up on that because I think in March you put out a deck that showed that the UK operations were sort of expected to be in line for the year. So, I don't know, did something happen in March that caused you to rethink it and if I'm doing the math correctly, it sounds like you're expecting like a 21 million decrease in home sales on like a provisional starting point of 75, I guess, around there, 75, 80. So, that seems like a pretty material decline. So, just trying to understand sort of what would have changed in March that would cause such a large decline.

And, Derek, I think back to the matter is the decline has been very, very recent. The time from putting a deposit to closing and a buyer making a decision has slowed down. Obviously, the economic headwinds in the UK are a fact that CPI is still double digit and it has an impact on the home sales decision making. But at the same time, overall, the portfolio performance is quite strong as we indicated. The retention is high. Site fees have been collected for the year. The holiday bookings are very strong and the ancillary business that comes with those holiday bookings has been strong. Easter was an exceptional holiday week that we just experienced on vacation homes. But we are very cognizant and aware of the economy there and have adjusted the home sales as we look out to match what we've been doing. We did correlate with the March period of time. That being said, we can share that April we've been following closely and there's been positive undertones. But taking an approach to how we want to think about going forward, we made the adjustment to the home sales moving forward.

I understand. And then, I guess, I don't know, are you underwriting similar assets today that have a high home sales component? As you think about underwriting them, would you change anything in underwriting? Put a lower multibore on that income stream or predict more variability there? Just trying to think if anything you're seeing now would change how you underwrite the asset class longer term?

Certainly, we are very, very focused on that underwriting. This is a time where basically we can focus more on integrating what we already have in the portfolio and extract as we like to say the low-hanging fruit, develop out the sites, and grow the interesting portfolio. So as far as our appetite and our underwriting moving forward, it will be very, very disciplined. As we always say, the pencil is very sharp at this time, so I wouldn't look for any major acquisition opportunity. I would just reiterate our initial underwriting perspective in the business was long term and remains long term. And we're long term. We think we have the right portfolio, best in class as a matter of fact. The demonstrated management team has been through tough economic environments before and done well. And I think that we're watching them adjust to this difficult market that exists right out there. So as it relates to moving forward on underwriting, it is adjusted to reflect the current of what we believe is short-term impact of the market.

Got

it.

Thank you.

Our next question is from Keegan Carl with Wolf Research.

Hey guys, thanks for the time. So starting on the same store property RVNOI, it was cut kind of material amount. I'm just curious what drove such a start up change in such a short amount of time? I know you called out transient, but that should be offset by the conversion. So is it more top line or more expenses that are driving this? And if it is the former, how should we think about the demand funnel right now at this time of the year relative to last year?

Hi Keegan, it's Fernando. So the revised expectations on the same property RV side of 75 basis points at the midpoint equate to about $2.1 million of NOI from initial guidance provided in February. That will, that is primarily coming from the transient revenue line item where we have revised our expectations. In February we gave guidance of about 50 basis points of growth at the midpoint for the year given the strong number of conversions that we've made already and expectations for the rest of the year. And we did see some weather impact in the first quarter in California and in the southwest. Those are the primary drivers. So the revenue, the reforecasted revenue expectations are offset partially by expected expense savings in that part of the portfolio.

And just on the demand funnel, this is the second part of the question. How does it compare, if you're looking at your transient bookings say month to date, how does it compare versus last year?

Versus last year we're from a pace standpoint or running about 5 or 6% below last year.

Okay. And then changing gears here, so you mentioned in a recent conference there's an opportunity for you guys to potentially readjust your insurance rate. Given what your peer recently reported regarding their renewal rate, how should we be thinking about some potential upside here to your insurance expense and is that contemplated at all in your guidance range?

That is not contemplated in our guidance range. Key in the fact of the matter is that current market rates have not really improved. We're continuing our deep dive analysis of reviewing and analyzing our insurance needs in order to optimize cost versus risk. And as you might be referring to, these options we view include adjusting our retention pieces and levels throughout the stack for various types of risk. More closely examining usage of our captive, which is virtually unused at this time. Looking for opportunities to work with new reinsurance groups, although that's been met with some headwinds because as we're I think all aware right now, the overall insurance market is very, very challenged. So it's just a continuing effort to improve the cost and examine that we have the right risk adjusted costs going forward. So we would share with the market any cost savings that we believe we have found going forward.

Great. Thanks for the time guys.

Our next question is from Michael Goldsmith with UBS.

Good morning. Thanks a lot for taking my question. StreamStore expense guidance is down by about 120 basis points. G&A was adjusted down by $4 million. So can you talk a little bit about where you're able to find the savings and just maybe overall the flexibility or pliability of the expense model of the business and your ability to adapt it to the changing environments to accommodate some of the slowdown on the revenue side?

Thank you, Michael. The expense savings would primarily come from offsetting some of the revenue expectations on the transient RV side. That's going to be the largest driver. But also we did experience in the first quarter and are expecting for the rest of the year higher utility rebuilds, which is decreasing our year over year expense on that side of the expense stack given increased focus on rebuilds to tenants as well as, we've talked about this before, but our solar array projects of which we have 35 today and we have about another 15 underway, which ultimately will continue to save on electric expense as we deploy these projects. On the second part of your question on the G&A side, those expectations that bringing those cost expectations down is primarily coming from salaries and wages.

I assume that's just from lower hours.

Correct. At the property level. Yeah.

Got it. Thanks for that. Then my second question is just is on the Marina business and how it fits into the entire enterprise. We started concerned about the Marina business and how it performed during a recession. It seems like the results or expectations are improving and it's becoming a larger part of the business as a whole. Maybe you can talk about a little bit about the approving outlook there and then just also how it fits into the entire portfolio and how that diversity can help you navigate the tougher times.

I think that we're very pleased with Marina performance to date. Not only the outstanding performance this quarter, but what we've seen quarter after quarter over the last two years. Our view is that having the benefit of the entire network gives us an advantage over all competitors. It's really showing in the demand for wet slips and dry slips. We're virtually at full occupancy with waiting lists at many of the Marinas. We've had the strong benefit of strategically acquiring what we refer to as the international Marinas that allow us to keep the boats that are very, very large in the safe harbor system. Especially on the transient side when these boats come in for repair work that they often would head across the Mediterranean for. We're keeping them longer in our network as we're able to provide the service for them. The other thing I'd point to, we have opportunity in about 30 plus Marinas to reconfigure smaller slips into larger slips. There are two being redeveloped this year. There are 11 in for the remitting process, so we can do that. The advantage of this also is the ability to be able to charge higher linear footage rates for the longer boats and the greatest growth in the Marina vessel business is in boats 30 feet or greater. That certainly required the wet slips, so we have a nice opportunity there to continue to grow. I think a lot of it comes from the fact that as we have acquired the Marina platform, we've been able to invest for the long term, making small capital improvements that are well received by the members and therefore allowing probably a much larger share of demand to take place currently in the safe harbor network. We look to build on the strength that we saw this quarter.

Dari, what's the return or IRR of a reconfiguration project like that?

When we invest for that type of capex, we look for a 9 to 12 percent return.

Thank you very much.

Our next question is from Samir Kana with Evercore.

Good morning everyone. Hey Fernando, just curious on the home sales contribution in North America. I think you gave a number of 19 million. What was that budget before? What was that forecast before? Curious what you're seeing in the US as it relates to home sales and if that's similar headlines to what you're seeing in the UK.

Our original expectations for home sales contribution in North America were about $17 million. We are seeing increased expectations there. In the first quarter, we did see from internal expectations we saw more preowned homes sold than budgeted at higher margins, which drove out performance in that part of the business. As we, for the rest of the year, as we focus on, from a back to basics filling sites that we have just created across expansion sites and our ground up development projects, this is one of the levers we can pull to fill those sites. Home sales are performing strong over the course of the first three, four months of the year.

Got it. Then I guess Gary, just in terms of transaction and acquisitions, I knew you did $100 million in the quarter. I'm just trying to think about what does that opportunity set look like today? Is that the right, quarterly run rate to think about? Or is that too optimistic when you think about Marinas, RVs and MH? Thanks.

It's a great question. Certainly, cost of capital and the impact of, has a big impact on transactions. When we think of MH, certainly it's one of the biggest consolidators. There is very little, if any, cap rate expansion that we've seen. In fact, we saw another couple properties trade with a three or sub-three handle over the last two quarters. We were looking and evaluating those, but they sold far inside of anything that we would have paid for them. I think that moving forward, adjusting for the fact that there are much fewer, I think acquisitions out there on the MH side, it will be kind of a onesie and twosie opportunity. On the Marina side, we're very, very focused on the growth that we've had. We have the ability to be very, very selective and strategically inclined to look at acquisitions moving forward. I think it will be a quieter period of time on the acquisition side moving forward. Samir

would add, extremely selective as far as the acquisitions that we did in the first quarter, the $7 million manufactured housing community that was a near completed round of development that we bought in our backyard in Michigan that we will fill up quickly, given that that's a tried and true model. The Savannah Yacht Center on the Marina side, really, this is a two plus two equals five as far as how it complements the network and being able to keep more of the business within the network itself. Would also point to the funding mechanism for the Savannah Yacht Center, which was a convertible preferred operating partnership, the entire purchase price. Where we are, we did issue these securities and they would convert at a 30%, almost 30% premium to where we were trading at the time when we closed the acquisitions. Certainly being very opportunistic and using the funding sources that are available to us in the market.

Got it. Thanks so much.

Our next question is from John Kim with BMO.

Thank you. Good morning. I wanted to ask about the mortgage loans that you priced subsequent to the quarter end at five seven. I was wondering if you could provide some characteristics on what assets or assets are associated with this debt and what that means for cap rates.

Sure, John. So these were essentially, I'll use a non-technical term, borrow ups on an existing facility with the GSEs where we essentially increased the LPV and the debt. That had been, that had come down over the course of the last couple of years from a financing that we've done in 2019. This was done on manufactured housing assets. This was about eight years of weighted average maturity for that financing and it would be in line with say our unsecured borrowing rates today based on where the tenure is and expected spread. But Gary earlier made a comment on expectations from a pricing perspective for manufactured housing that haven't really shifted over the course of the last 12, 18 months given the scarcity value of manufactured housing. We've seen little to no widening of pricing expectations for the highest quality manufactured housing assets that we own in our portfolio or that we would be interested in buying.

Okay. My second question is maybe a two-parter on your UK guidance. First of all, I wanted to make sure or ask if this was on a constant currency basis or does this include the new currency rate versus what you had previously. But secondly, there was a report recently that property surveyors in the UK had actually increased their outlook for the year on home sales. I'm wondering if your reduced guidance is due to vacation homes not being directly correlated to the UK housing market or perhaps a lag effect given these are secondary homes for all the buyers or if we should not place too much emphasis on property surveyors.

Hey John. We too are aware of how the valuers are thinking about things but that is on the general homeowner market and what we would suggest is that is very positive because those are the owners who are buying second vacation homes in the Park Holidays portfolio. So it is something that we'll just have to watch and it could be something that creates a positive impact as we move forward. We can only underwrite what we're seeing right now. We know that the CPI environment is 10 plus percent there. RPI on the retail side up over 13 percent with some evidence that there are expectations that there will be some relief in sight and we think all that will play positive to continued sales that while are up year over year are not at the budgeted levels we had during the year. So we hope that would be positive but I think that's all against a backdrop if you will that from an underwriting perspective the business is performing basically in line with our overall expectations when we initially acquired the property. So we remain comfortable with our outlook and our opportunity that we undertook but we are experiencing short term aspects of the economy right there which this may be a positive as we refer to it kind of a grain shoot if that were to come to fruition.

And what about the currency impact? The British pound kind of worked in your favor over the last couple of

months? Don that would the expectations would reflect the weaker dollar by three cents in the FX rate.

Okay. Okay. Thank you.

Our next question is from Robin Liu with Green Street.

Hi. Thanks for taking my question. I just wanted to touch on real estate taxes. I noticed that it was 10% increase this quarter. Do you expect taxes to trend at this level for the remainder of the year? And can you also just remind us when you expect to receive new tax assessments for next year?

Hi Robin. Our expectations for the full year for our total same property are that we will have a portfolio lower than what we experienced in the first quarter. Call it in that 7 to 8% range. The assessments come in on a rolling basis over the course of the year and depends on state by state basis. So they are rolling.

Okay. Can you just put in context, was the 7 to 8% were you budgeted for the initial guidance?

That would be in line with our original expectations.

And then my second question. I understand that there has been discussions with the Ingenium Management team recently and perhaps some fund executives even visited Australia. Can you give us an update on the Australian joint venture and what your longer term plan is for that partnership?

When we look at the opportunity Robin, we remain very positive to be part of the growth and land lease community taking place in Australia. So we feel good about our optionality and ability to participate in that growth which we think is at a very early stage. We are pleased with the current performance of our SunGenia joint venture. We have two properties that have now been developed out and are selling homes. Fresh water is an age restricted development and we have a second one that has come online. And we have three other developments in process which we expect to see some contribution from in the late second half of the year. With regard to Ingenia, the head stock overall, they have noted continued challenges in securing home supply and construction as related to the pandemic and that has impacted settlements or home sales closings which they have guided to. So we are carefully evaluating any further investment and we will share with you and our shareholders as the year goes on as to the success that is taking place in those developments.

Our next question is from Anthony Powell with Barclays.

Hi, good morning. One more question on the UK home sales. If I remember correctly from last year, I think part of the thesis was that you would be able to sell higher end homes by combining sites and upgrading sites in the UK, so I can kind of have a largeredly prepare that for us.

Can you thinkani? This is a long, we have several long-term strategies that we've talked about. Certainly upgrading to the lodges brings a higher pitch fee with it because they are based on the size of the lodge amongst other things. So we continue those efforts. We did note that we've seen a shift to pre-owned homes. So probably we've underwritten and guided to slower lodge growth, which would be new home growth. At the same time, the best indication of satisfaction in one of our Park Holidays properties comes from the fact that we're seeing this huge increase in upgrades from existing residents. So that's a very, very positive thing. And we'll be able to share with you next quarter what we've seen in sales. But certainly those upgrades are taking place probably a little bit slower than we forecast earlier in the year.

Okay, thanks. And maybe one more on, I guess, on MH-based rent growth, I think .4% in this quarter. How's that split between, I guess, new homeowners and renewing homeowners? And how do you expect to see that, those new homeowners, where do you expect to see growth for that segment to trend over the next several quarters?

Hi, Anthony. The 5.4 is a blend of the entire portfolio. We will build towards, over the course of the year, towards the guided range of about .4% by the, towards the end of the year. And our, the rental increase in our rental program is running just below 10% at 9.6. So the 5.4 would be a combination for the entire portfolio, whether that's an owner that is renewing or a new resident in our communities.

Got it. And are you able to get, I guess, market rents on those newer residents as they move in? Or is it, I guess I'm trying to see as home sales increase or decrease, how that impacts your MH rent growth?

When we discuss tenure in our manufactured housing of about 15 years, that's a pretty steady, right, the rental increase that we provide guidance on. That is the expectation for the portfolio, where you, where you would see, call it, more updated rental increases would be in our rental program.

I think we just don't have a large part of market increase, and we are able to push through rental increases on an annual basis across the entire portfolio.

Got it. Thanks.

Our next question is from Jamie Feldman with Wells Fargo.

Great. Thanks for taking my question. So I just want to go back to your comments on Savannah being like an international marina. Can you talk about domestically how many more of those types of marinas are out there that you might want to add to the network?

I think, Jamie, that there probably aren't three or four similar marinas in the country. Lauderdale Marina Center, which was the first one we acquired, has been performing exceptionally. It is also a prime example of where we've been able to change the service model and utilize vendors, third-party vendors, to perform the service and leave the space to them and collect the rents and overages on the service provided. We're in the process of completing the same thing in the Savannah Yacht Center, where 85% of the revenue will come in from these third parties. And as I said, the huge benefit is what it provides in value to a safe harbor marina member. And this particular marina is world-class. There's only one like it that I know of in the world that can service boats 450 feet or longer. The super yachts, as they're known, and then off-season service the smaller vessels. So I wouldn't say there are more than a handful of them in this country. And Sun probably already owns two or three of them.

Okay. Thank you for that. So as you think about growing the marina business and putting incremental capital to work, I mean, is it safe to assume you're going to be looking mostly at saltwater marinas? And does that imply, you know, more likely to be buying internationally going forward? Or do you think you'll actually do more freshwater domestic marinas to grow the business? I mean, it seems like the network becomes a global network. It's not necessarily a domestic network.

I think we're quite comfortable for the foreseeable future that there are many saltwater marinas that would strategically enhance the safe harbor network and those being in North America. So we've talked about from time to time one or two points across the Atlantic where some of the larger boats and yachts tend to go for certain parts of the season. But one of the great benefits of Savannah, Rybovich, and Lauderdale Marina is the fact that we are seeing the results as we saw in the results this quarter of keeping those larger craft in the safe harbor marina, providing them service here that we can't get elsewhere. So our expectation is our growth will be predominantly in North America and also saltwater.

Okay. All right. Thank you.

Our next question is from Wes Golliday with Baird.

Hey, everyone. I just have a quick question on development. I think you delivered 200 units in the first quarter. What is the plan for this year? And if you can maybe give us a peek into next year?

I think generally we have about 1000 sites to deliver and expansion and new development. We're really pleased with what we've delivered so far and also the fact that we've had all the inventory that we need to be able to place units and provide for the demand in the development and expansion. And as we go forward, we talked about being able to provide three to four new manufactured housing community developments per year, which I think is a very unique way to be able to increase our manufactured housing percentage of our portfolio. So we're very, very happy with how development is going now and the fact that really five, six, seven years of work is now leading to the fact that we've been able to build up an inventory of entitled and zoned lots basically that doesn't exist anywhere else in the country. So we feel very, very good about our development going forward. So our expectation is for now at this rate we can self-fund internally. We have about $200 million of capital earmarks so to speak for development and expansion this year.

Okay, if I could just get one more. I was going to the network effect. Is that fully kicked in for RV and then for Marina, what do you think you have the full network effect?

That's Gary. On the Marina side, I think it's increasing every single day through the value that's being perceived again, having a long-term view as an owner-operator and being able to invest capital for the types of returns that we discussed earlier. It is seen by the membership, the strategic locations, the ability to stay in a safe harbor Marina up and down the East Coast now as we build out the rest of our geographic footprint. The perks that the members experience both through the advantage of service and some of the FMV and the fuel sales that we provide to the membership, that's all taking place, but I think we have a long way to go in building the continued loyalty of our already loyal membership. I think the same thing is true in the RV transient business. Sun Outdoors is only a year and a half old and we are seeing a lot of positivity as we connect the dots and travelers can go from a Sun Outdoors community to a Sun Outdoors community. But there's a long way to go on that branding. At the same time, I'd remind everybody that we are reaching the largest levels of converting transient customers to annual customers and expect that to continue. It's a benefit of moving people through our transient resorts and having them get that Sun Outdoors experience and being able to market to them to convert as annuals. So I think there's a lot to be gained year over year and we're seeing that in the increased conversions and the stickiness, if you will, of the annual renters once they convert.

Thanks everyone.

Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Gary Schiffman for closing remarks.

I would just like to thank everyone for participating on the call and we look forward to discussing our second quarter results on the next call. Thank you.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.