Sun Communities, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Community's first quarter 2024 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 cause actual results to differ materially from expectation are detailed in yesterday's press release and from time to time in the company's periodic filings with the SEC. This 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'd like to introduce management with us today. Gary Shiffman, Chairman, President and Chief Executive Officer, and Fernando Castro-Cartini, Chief Financial Officer, and Aaron Weiss, Executive Vice President of Corporate Strategy and Business Development. After the remarks, there'll be an opportunity to ask questions. For those who'd like to participate in the question and answer session, management asks that you limit yourselves to one question so everyone who'd like to participate has ample opportunity. As a reminder, this call is being recorded. I would now like to turn the conference call over to your host, Gary Shiffman, Chairman, President, and Chief Executive Officer. Mr. Shiffman, you may begin.

Good afternoon, and thank you for joining us on our conference call to discuss first quarter 2024 earnings and our updated guidance. We're pleased to report solid first quarter results underpinned by strong operational performance in each of our businesses. For FFO per share of $1.19 for the quarter was driven by robust 7.9% year-over-year growth in North American same property NOI and strong UK same property NOI growth. Our first quarter results underscore how the favorable dynamics of high demand and limited supply inherent in our best-in-class portfolio generate resilient real property income. Same property manufactured housing NOI increased 8% compared to the first quarter of 2023 due to several factors, including rental rate increases, occupancy growth, and lower expenses. Same property RV NOI increased 8.1%, primarily reflecting the positive impact of converting transient sites to annual leases and continued expense savings that partially offset lower transient revenues. Same property Marina NOI grew 7.5% compared to the prior year. The outperformance was driven by continued strong demand for wet slips and dry storage. as well as strong rental rate increases. As we enter our third full year of ownership of our UK portfolio, this segment is now included in our same property reporting. UK same property NOI and a quarter was approximately $11 million, which is a strong start to the year. We remain focused on our capital recycling strategy and as disclosed on our last earnings call, have sold two manufactured housing properties. Currently, we are in the market with additional assets and feel positive about our ability to transact. In terms of capital deployment, Sun continues to be highly selective. Year to date, Sun has acquired several bolt-on marina properties for approximately $12 million that strategically enhance our marina member network on the east coast. We recently published our sixth annual ESG report. Key highlights include completing our inventory methodology for reporting scopes one, two, and three greenhouse gas emissions and a 73% increase in team member volunteer hours compared to 2022. Additionally, we continue to prioritize our dialogue and interactions with our stakeholders and to work with our supply chain partners to understand their ESG programs. We continue to execute on a plan focused on delivering earnings growth from our reliable real property income. I would like to thank our talented team members for their continued dedication and strong performance and all our stakeholders for their continued support. I will now turn the call over to Fernando to discuss our results and guidance in more detail. Fernando?

Thank you, Gary. In the first quarter, Sun reported core FFO per diluted share of $1.19, driven by strong real property revenue growth and our continued focus on managing expenses. In North America, total same property NOI for the quarter grew 7.9%, driven by a 6% increase in revenues and a 2.2% increase in expenses, further detailing each segment. Same Property Manufactured Housing reported another solid quarter with an 8% increase in NOI compared to 2023. The NOI was driven by a 6.8% increase in revenue and expense growth of 3.4%. For Same Property RV, its 8.1% NOI growth was driven by a 3.1% increase in revenue and a 1.8% decrease in expenses. The year-over-year decline in RV operating expenses was due to aligning controllable costs with transient revenues, notably in payroll and utilities. Occupancy for same-property manufactured housing and RV, adjusted to include expansion activity, increased 180 basis points year-over-year to 98.9%. Part of the uplift in occupancy can be attributed to conversions of transient to annual RV sites. For the trailing 12 months ended March 31st, 2024, Sun converted over 1,750 transient sites to annual contracts, accounting for approximately 65% of our revenue-producing site gains. We are continuing our strategic focus on converting transient to annual sites. Since the start of 2020, we have completed nearly 7,100 conversions and have increased the number of annual sites by approximately 27%. Marina's posted another strong quarter, with same property NOI increasing 7.5% compared to 2023. This was driven mainly by rate increases for wet slips and dry storage spaces across the portfolio and stronger transient demand, resulting in a 7.1% increase in revenue, partially offset by a 6.5% increase in expenses, primarily driven by payroll. In the UK, same property NOI increased by $3.3 million, representing a 44.5% increase over 2023 same property results. Higher rental rates, increased customer retention, and the early timing of the Easter holiday break drove a 12.3% increase in revenue in the quarter. Property operating expenses decreased 1.7% year over year, primarily reflecting timing differences for supply and repair and payroll costs. First quarter UK home sales volumes were in line with expectations. We sold more than 620 homes, representing a 5.4% increase compared to the previous year. FFO contribution was $10.2 million for the quarter, reflecting the strong sales volume offset in part by lower margins. The strong unit sales performance in the first quarter will lead to an increase in community occupancy and site rent for the year. This aligns with our strategic objective to shift the larger share of our UK business activity from home sales to real property rents. Regarding capital allocation, Sun remains extremely disciplined, pursuing limited strategic opportunities. As Gary indicated, we recycled approximately $52 million of proceeds from selling two assets this year and acquired four highly strategic marinas for approximately $12 million. Turning to our balance sheet, on March 31, 2024, the company had approximately $7.8 billion in net debt outstanding, and our net debt to trailing 12-month recurring EBITDA ratio was 6.1 times. We remain focused on further enhancing our balance sheet strength. During the quarter, Sun issued $500 million of five-year senior unsecured notes with an interest rate of 5.5%. Net proceeds were used to pay down borrowings outstanding under our senior credit facility. During the quarter, we also paid off our corporate term loan with our revolving credit facility. Our weighted average debt maturity is 6.8 years, and our variable rate debt was approximately 11% at the end of the quarter. We intend to use free cash flow from operations and proceeds from planned asset sales to reduce overall leverage and variable rate debt percentages. As detailed in yesterday's release, we are updating our 2024 guidance for first quarter results as follows. We narrowed our full year core FFO per share guidance to a range of $7.06 to $7.22. We are also establishing guidance for the second quarter of 2024 core FFO per share in the range of $1.83 to $1.91. For our total portfolio, we expect real property NOI growth in the range of 6.5 to 7.3%. Higher expected NOI growth in MH and marinas should offset lower expected NOI from RV. In North America, The updated full year same property growth range is 4.6% to 5.8%. The 40 basis point reduction at the midpoint is primarily due to transient RV revenue headwinds. Revised expectations are 6.2% to 7.1% for manufactured housing, a 15 basis point increase at the midpoint, negative 0.3% to 1.3% for RVs, a 230 basis point decrease at the midpoint driven by transient RV revenue headwinds, which we are partially offsetting with controllable expense reductions, and 6.4 to 7.6% for marinas, a 20 basis point increase at the midpoint. In the UK, we forecast approximately the same total FFO contribution for the year, but with a greater contribution now expected to come from real property results. We are increasing our full-year same-property NOI forecast from the prior range of 1.3% to 3.3% to a new range of 6% to 8%. The increase is driven by greater expected rental revenues complemented by continued cost management efforts. The higher real property revenue outlook is a function of the previously implemented rental rate increases and higher home sales volume and retention achieved year-to-date. For UK home sales, we maintain our range of expected volume for the year, but expect lower FFO contribution due to lower margins. Our UK strategy remains focused on shifting a larger proportion of our income from home sales margins into the resilient, reliable NOI generated by real property rents. Overall, we are pleased with our operating performance, expense management, and minimizing capital spending over the course of this year. Please refer to our supplemental for additional guidance information. As a reminder, our guidance includes acquisitions and dispositions and capital markets activity through April 29th, 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?