Sun Communities, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sun Community's fourth quarter and year-end 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 with different material relief 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 expectations. 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, 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 one question 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 2023 and our guidance for 2024. 2023 results demonstrated the resiliency of our best-in-class portfolio and our ability to generate reliable, strong, same-property NOI growth. For the year, Sunscore FFO per share of $7.10 was in line with our expectations. Same-property NOI increased 7.3% compared to last year, surpassing the high end of guidance. Our operational strength highlights the enduring, robust demand and limited supply fundamentals of our portfolio, which supports continued strong revenue growth, complemented by diligent expense management. For the fourth quarter, total same property NOI increased 9.6% compared to the same period in 2022. The outperformance was driven by higher rental revenues from MH and Marinas, and lower expense growth across all segments. For the quarter and year, MH same property NOI increased by 8.6% and 6.8%, and RV same property NOI increased 9.3% and 4.8%. Same property occupancy in MH and RV increased 230 basis points during 2023 as compared to 22. The increase was largely driven by transient to annual RV site conversions of more than 2,100 sites. Since the start of 2020, when we began to strategically focus on transient to annual RV site conversions, we have completed approximately 6,900 conversions, and have increased the number of annual sites by 24%. Within our Marina Sane Property portfolio, the continued strong demand for wet slip and dry storage spaces led to another positive quarter year with a 12.5% increase in NOI for the quarter and an 11.7% increase for the year. In the UK, The real property NOI of $66.7 million for the year was in line with guidance, demonstrating the strong value proposition our holiday parks represent. The value of owning a holiday home in Park Holiday's property is exhibited by the average resident tenure increasing to approximately eight years. Demand for UK home sales showed signs of stabilizing during the second half of the year. UK home sales and margins were in line with our guidance, which reflected economic headwinds facing UK consumers, including higher inflation and interest rates. We anticipate a continuation of current volume and margin trends. Based on the macroeconomic dynamics in the UK, we have recognized total non-cash impairments over approximately $370 million related to the goodwill associated with the Park Holidays platform acquisition. As part of our year-end audit process, it was determined that the impairments should have been recognized in earlier periods, resulting in a material weakness in internal control over financial reporting. These impairments, which are now recognized at March 31st, June 30th and September 30th, 2023, reduced balance sheet goodwill and gap net income. They are non-cash and there is no impact on revenues or FFO or operational metrics. Separate from park holidays and as previously disclosed, in late December, we obtained title to three real estate assets securing the UK note. Additionally, We recently completed the receivership and disposition processes related to the manufacturing businesses that represented the remaining collateral on the UK note. As we previously stated, because we did not wish to operate the manufacturing businesses, we moved expeditiously to dispose of them. As of this month, the UK note has been completely resolved. At the end of the year, we reclassified Sandy Bay, the high-quality MH community, as held for investment. Sandy Bay, along with one operating property and three development parcels that were not part of the original Park Holidays acquisition, are now being operated by the Park Holidays team. We continue to seek to maximize value related to these assets. We are excited about the prospects awaiting us in 2024 and beyond. Our primary goal remains simplifying our operations while positioning Sun for steady earnings growth. Achieving this involves maintaining focus on our best-in-class portfolio and operating team, which have consistently delivered strong same-property NOI growth. As detailed in our earnings press release, We sold our shares in Ingenium, monetized the portfolio of MH Consumer Loans, divested our interest in Camp Spot, and meaningfully reduced the number of properties owned in joint ventures. During 2024, we intend to focus on capital recycling strategies, including via select asset sales. By remaining highly selective with development projects and acquisitions, we intend to allocate our free cash flow and any additional capital proceeds generated towards deleveraging. As detailed in last night's press release, our board announced a one cent per share increase to our quarterly distribution for four cents on an annual basis. I would also like to take this opportunity to welcome Jerry Ellinger and Craig Leopold to our board. We look forward to their contributions and new perspectives. Last, and certainly not least, I would like to thank all of our team members for their hard work and dedication. We will now turn the call over to Fernando to discuss our results and guidance in more detail. Fernando?

Thank you, Gary. For the year and a quarter, Sun reported core FFO for diluted share of $7.10, and $1.34, respectively, both of which were in line with guidance. During the year, same property NOI grew 7.3% versus the prior year, driven by a 6.2% increase in revenue and a 4.2% increase in expenses. For the quarter, Same property NOI increased 9.6% compared to the prior year due to a 6.3% increase in revenues driven by strong rental rate increases and occupancy gains. Expenses grew by only 30 basis points in a quarter, led by utilities and supply and repair cost management, and a one-time benefit from lower real estate taxes. Looking at same property results across each segment, manufactured housing performance was strong, NOI grew 8.6% in the quarter due to a 7.6% increase in revenues and expense growth of 4.8%. For the year, same property NOI in manufactured housing increased by 6.8% compared to 2022. Strong revenue growth for the year of 7% was partially offset by a 7.5% growth in expenses. Same property RV NOI increased 9.3% in the quarter, driven by a 2.1% increase in revenues and a 4.7% reduction in expenses. The expense savings were driven by aligning controllable costs with lower transient revenues, especially in supply and repair, utilities, and payroll. For the year, same property RV NOI increased 4.8%. The continued strong volume of transient to annual RV site conversions also supported operational efficiency, as annual RV sites typically allow for lower operating expenses. Our same property adjusted occupancy for manufactured housing and RV increased by 230 basis points to 98.9%, reflecting the demand to be a resident in a Sun community. On the RV front, We have a long runway of transient sites that can be converted to annual over the coming years. The Marina Sink property portfolio had another very positive quarter in a year with a 12.5% increase in NOI for the quarter and an 11.7% increase for the year. The outperformance was driven by continued strong demand for wet slip and dry storage spaces due to higher boat traffic, especially in the southeast. Strong revenue growth was supported by expense management and real estate tax savings. As discussed earlier, UK real property performance showed strong growth and home sales volumes were in line with guidance. Our property level results were partially offset by higher interest expense, G&A, and other corporate costs. Regarding new investment activity, during the year we delivered approximately 800 expansion and development sites in North America. To simplify our business and reduce exposure to variable rate debt, in the fourth quarter we made strong progress toward monetizing assets no longer deemed to be strategic. We materially simplified our Sun-NG joint venture, an arrangement entered into in 2018 with Northgate Resorts, and experienced RV owner and operators. We have a successful relationship with them, and it helped us achieve our leading position as an owner and operator of one of the highest quality RV portfolios in the U.S. Given our focus on simplifying how we own properties, we sold our majority equity interest in three joint venture properties and acquired their minority interest in 14 joint venture properties so that we now own 100% of them. Notably, we believe these 14 properties have a long runway of embedded growth with meaningful opportunity for transient to annual RV site conversions over the coming years. Five properties remain in consolidated JVs, where we hold approximately 95% ownership interest. During the quarter, we also sold our ownership interest in ResPot, whose CampSpot software is a valuable tool that we continue to use for managing our RV bookings. Given the strong position we helped CampSpot achieve over the past several years, it was an opportune time to divest our interest. In total, the Sun, Engie, and ResPlug transaction netted us a minimal positive cash benefit, which was used to pay down debt. During the quarter, we recycled capital from a $53 million portfolio of manufactured housing consumer loans, held on our balance sheet, and used the net proceeds to pay down debt. As Gary discussed, we completed the receivership process related to the UK note. The three real estate assets are now reflected on our balance sheet at their currently assessed fair market value of $264 million, as supported by updated third-party valuations. Now that we own them, these assets in Sandy Bay are being managed by the Park Holidays team, and all income derived from their operating performance is included in our 2024 guidance. The remaining assets that collateralized the UK note were manufacturing businesses. Disposing of these businesses expeditiously was a key priority, and in mid-February, they were sold for a total of approximately $10.7 million. We have no further legal, financial, or other obligations to these businesses. Regarding our balance sheet, At December 31, 2023, the company had approximately $7.8 billion in debt outstanding, and our net debt-to-trailing 12-month recurring EBITDA ratio was 6.1 times. Respect to capital markets activity, in January, we issued $500 million of five-year senior unsecured notes with a 5.5% coupon. We used the majority of the net proceeds to repay borrowings outstanding under our senior credit facility. Adjusting our year and debt balances for this new issuance, we reduced our variable rate debt to approximately 10% of total debt. Turning to guidance for 2024. For 2024, we are establishing full year guidance for core FFO per share in the range of $7.04 to $7.24. We are also establishing guidance for first quarter 2024 core FFO per share in the range of $1.14 to $1.90. For 2024, 95% of our properties are included in the same property pool, including park holidays. In North America, at the midpoints, we expect same property NOI growth of 6.5% for manufactured housing, 2.8% from RVs, and 6.8% from arenas. to generate total same property NOI growth of 5.6% for the year. In the UK, we forecast real property operations will generate same property NOI growth of 1.3 to 3.3% for the year. Our outlook for same property NOI is anchored on solid expected rental rate growth, and we are confirming the average rental rate guidance provided in October of a 5.4% increase for manufactured housing in North America, 6.5% for RVs, 5.6% for marinas and 7.1% for manufactured housing in the UK. For home sales in North America, our guidance assumes an FFO contribution from 14.4 to $15.9 million in 2024. In the UK, Our 2024 guidance assumes an FFO contribution from home sales of $62.3 to $69.9 million, reflecting home sales volume of 2,750 homes at the midpoint. At the midpoint, our guidance assumes we increase revenue producing sites in North America across manufactured housing and RV by 2,600 sites in 2024. For ground-up development and expansion activity, our 2024 guidance assumes we allocate approximately $115 million to advance or complete projects already in progress. This includes approximately $50 million of spending related to the redevelopment of our Hurricane Ian impacted properties in Fort Myers. We are not planning to commence any new ground-up developments, and our average expected investment this year would mark a 54% decrease from our development spend in 2023. For the year, we expect G&A expense to run between 262.2 and $267.4 million, which equates to a 2.7% decrease over 20.3 G&A at the midpoint. Adjusting for anticipated add-backs of non-recurring expenses, we expect G&A to increase 5.3% at the midpoint. As a reminder, our guidance includes acquisitions and dispositions and capital markets activity through February 20th, 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.