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 Caratini, 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 Shiffman, Chairman, President, and Chief Executive Officer. Mr. Shiffman, 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 best-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 attentive 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 manufactured 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 6.2% 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 15.1% in the 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%. Sons 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 from 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 new assets during the quarter, a manufactured housing community in Michigan and the Savannah Yacht Center, a premier service-oriented marina in Savannah, Georgia, with its services provided by third parties. The 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 and 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. I 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. 4FFO per share was $1.23 for the first quarter, exceeding the high end of guidance by 3 cents. The outperformance was driven by higher than anticipated real property revenue in 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 rebills and effective expense management at the properties. At the same property level, outperformance throughout our portfolio contributed to the 6.7% increase in total same property NOI. Same property manufactured housing NOI grew 5% over the prior year, resulting from a 6.4% increase in revenues and 10.4% expense growth. The outperformance 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 4.4% for the first quarter, with a 6.2% increase in revenues and an 8.1% expense increase. During the first quarter, we converted 524 transient sites to annual leases, 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 15.1% in the first quarter, consisting of a 10.9% increase in revenues and a 4.3% increase in expenses. Marina Same Property 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 3.9%. 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 deleveraging 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 U.K. 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 5.4% for manufactured housing, 4.4% to 5.6% 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 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?