Q3 2021 Sun Communities Inc Earnings Call

October 26, 2021

[music].

Greetings. Thank you for joining us today for Sun communities third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

A question and answer session will begin after the formal presentation. Please note that this conference is being recorded I would now like to turn the conference over to your host Gary Shiffman, Chairman and Chief Executive Officer. Thank you you may begin please wait for the tone and a recording will begin.

Yeah.

Okay.

Yeah.

Yes.

Good morning, and thank you for joining us this week.

Yeah.

Okay.

Yeah.

Good morning, and thank you for joining us as we discuss our third quarter 2021 results.

Our strong third quarter as a continuation of the momentum we have historically demonstrated which reflects both the stability and the growth potential of our platform we have established.

This includes organic growth expansion and development and acquisitions.

The combination of these elements allowed us to deliver 31, 9% growth in core <unk> per share during the third quarter.

And exceeded the high end of our guidance.

Let's be along with a positive outlook for the remainder of the year. Once again led us to raise our core 2021 after a full guidance.

16 cents at the midpoint to a range of $6 40 core Seth.

At $6 50 per share.

And we're expecting the same community NOI growth for the full year at 70 basis points.

A 10, 9% to 11, 1%.

For the quarter same community NOI grew 12.4% over last year, driven by a favorable strategic positioning to capture the sustained demand and arby's.

In our RV segment.

Same community NOI increased by 36% for the quarter.

Transient RV continued to deliver exceptionally strong results.

Our RV resort business benefiting from people seeking outdoor experiences at Sun RV resorts.

Having from both existing and new customers.

Our reading is establishing itself as the vacation choice for many travelers.

We have positioned the sun to capture this demand at scale.

We're continuing to see momentum in forward bookings for transient.

As well as annual site conversions.

Furthermore, the opening of the Canadian border in November is expected to accelerate that momentum in the first quarter of next year as we welcome back our Canadian Snowbirds residents and guests.

Yeah.

The stability of our manufactured housing portfolio continues to show the need for attainable housing as evidenced by our home sales volume and applications to live in a community.

And you factored homes sales were another bright spot in the quarter with total home sales volume up nearly 64% from the prior year and brokered home sales up over 15% for the quarter compared to the third quarter of 2020.

Our core pillars of delivering superior customer service, maintaining high quality communities and offering an attainable housing option continued to create strong demand to live in a fan community.

And Marina segment, we're pleased that results continue to track ahead of our underwriting.

Our NOI increases this quarter have been primarily from the continued demand for wet slips and dry storage needs for our members.

Forward demand for dry storage and wet slip rental.

Is ahead of where they were this time last year in large part due to our best in class Marine and network locations and services.

We have also remained active in growing and improving our portfolio.

In the third quarter and through the date of this earnings call. We added 22 properties across our three segments.

Playing over $500 million of capital and adding over 7400 sites.

Our recently acquired four leaf portfolio of nine manufactured housing communities in the Midwest.

Comprises over 2500 high quality sites with expansion growth opportunities and ample room bill existing vacancies.

And the Marina side, our acquisitions imports of Delray.

Co largest marina in the Caribbean continues to strengthen our irreplaceable network of marine assets.

Whereas the Delray now allows for a safe harbor member to remain within the network traveling from the northeast.

All the way down to the Caribbean.

Our acquisition teams remain extremely active and we are enthusiastic about the opportunities we're seeing across each of Sun's business segments.

Furthermore, we have a proven track record in maximizing value from our acquisitions as we integrate them onto the same platform.

This includes adding value through our operational platform.

Dietary technologies.

All of our marketing and booking platforms, including Caf spot.

Potential repositioning of acquired properties.

As the leading industry consolidator, we believe our cycle tested ability to create value through acquisitions.

Continue to result.

Attractive accretive growth.

This activity is supported by ongoing proactive focus on maintaining financial flexibility.

Additionally, we are continually evaluating our portfolio for assets, which no longer fit with our long term strategic and growth objectives.

And then in the third quarter, we completed the disposition of fixed assets.

Total sales price of 162 million, representing a blended cap rate the low fours, which further demonstrates the value of Sun's portfolio.

We have a deep bench of incredibly talented team members.

A well positioned balance sheet.

And a healthy pipeline of internal and external growth opportunities.

We remain optimistic in our ability to deliver on each of our performance objectives.

I'll now turn the call over to John to discuss our operational performance.

Thank you Gary.

<unk> delivered a strong third quarter across the board outperforming our previous expectations.

Our results reflect the combination of the stability of our best in class portfolio as well as the contributions from our growth initiatives across all three of our business segments.

For the third quarter combined same QED manufactured housing and RV NOI decreased 12, 4% from the third quarter 2020.

The growth in NOI was driven by a 12, 8% revenue D supported by a 150 basis point increase in occupancy to 98, 9%.

And the three 7% weighted average rental rate increase.

Our expenses were up 37% from the prior year.

Thank you me any manufactured housing NOI increased by two 6% from 2020 and same community RV NOI increased by 36%.

Annual RV growth was 52% for the quarter as a result of a 5% rental rate increase.

Effective over 1500 conversions to annual leases over the trailing 12 months.

RV transient revenues were up 29% compared to last year. This was on top of the 5% transient growth we experienced in the third quarter 2020 over 2019, we began to see the benefits of travelers who are seeking drive to vacation options and took advantage of our resorts and desirable destinations.

When we issued second quarter results in late July we shared the transient RV revenue for the second half of the year was 52% ahead of the original budget.

Today and accounting for the third quarter's actual contribution it has accelerated to 18, 3% ahead of original budget.

As of this earnings call, our fourth quarter transient RV revenue is 19, 6% ahead of the original budget.

The increased levels of consumer engagement as discussed last quarter have continued.

Year to date RV website traffic is up 10% compared to last year, and 120% compared to 2019, and we have seen our social media following and interact should continue to grow with more than one 4 million followers on the three major platforms, Instagram Facebook and Tic Tac.

Our best salespeople have always been a residence to guests and their reach to spread the word has been meaningfully amplified through our social media engagement.

We are also continuing to sign up members to our pilots on RV resorts loyalty program and while it is still in its early days initial interest and feedback has been very positive.

In short we believe we are seeing strong evidence of two important trends.

First that many travelers the learning and trying out and RV vacation and second once travelers have discovered there sunnier side through an RV vacation it becomes part of their future vacation considerations.

Additionally, Sun has simplified the reservation process with our camp spot platform, which in turn enhances the demand for our vacations at Sun RV resorts.

With respect to our total MH and RV portfolio, we continue to pursue our strategy of filling existing vacancy and creating additional revenue producing opportunities through expansion and conversions.

In the third quarter, we gained 576 revenue producing sites.

Our revenue producing site gains over 430 were transient RV sites converted annual leases with the balance being added to our manufactured housing expansion communities.

We have now converted almost 1200 transient RV sites, Daniel leases year to date, which exceeds any prior full year figure and demonstrates the successful execution of this internal growth lever.

The army site conversions, resulting in an average 50% increase in site revenues during the first year conversion with an additional benefit of transient sites scarcity pushy rates.

Yeah.

Moving on to new construction in the third quarter, we delivered over 320, new sites, approximately 70% of which were greenfield ground up developments and the remainder were expansion to existing communities.

One of the ground up developments delivered this quarter was the next phase of Smith Creek crossing a manufactured housing community in Granby, Colorado.

The first phase of 82 sites has been filling up rapidly since the opening of a year ago and we anticipate this next phase to continue to see the high demand for attainable housing in the area.

MH home sales in the third quarter were also strong.

Total sales volume was up 64% year over year as we sold more than 1100 homes in the quarter.

These results are a clear reflection of the value proposition that our son manufactured housing community offers the healthy demand for these homes and the home value that is maintained in our communities.

Applications to live in a sun community or up 13, 2% year to date and we anticipate we will continue to strengthen our manufactured housing business given the tight housing market and the demand for quality attainable housing.

Yeah.

Turning to the Marina business, we ended the quarter with 120 properties, comprising nearly 45000 wet slips and dry storage spaces, which includes the acquisition of six properties for approximately $250 million completed in the third quarter.

Yeah.

They marina rental revenue growth for the portfolio of 75 properties owned and operated by Safe Harbor since the start of 2019 was 17, 8% for the nine months of 2021 over 2019.

This is a CAGR increase in rental revenue up nine 9% for the quarter and eight 5% year to date through the end of September 2021.

Better than expected performance in the Marina portfolio continues to come from demand for wet slips and dry storage spaces.

We have also witnessed higher margins on the service business with water del Marina Center arrive a bitch being the leading contributors to this outperformance.

Great service create stronger slipped rental demand and higher member retention.

In summary, Sun's growth engines continued to deliver strong results our internal levers are driven by the fundamentals of Sun's operating platform and by expansion site deliveries.

Our total MH portfolio stands at approximately 97% occupancy providing us with more than 200 basis points of occupancy upside. The dwell has additional growth potential by adding further expansion sites over time.

In the RV business robust transient demand continues.

And we also anticipate continued momentum in conversions of transient to annual leases each year.

We expect to build on our successful track record of delivering a filling expansion sites.

We have an inventory of 7500 expansion sites, a portion of which we intend to strategically deliver each year targeting 10% to 14% Unlevered IRR.

In addition, our external growth pipeline is robust across all three businesses with opportunities to continue to consolidate each industry as well as pursuing selective ground up developments.

We are pleased by our performance year to date, and we expect to continue delivering on our objectives.

Karen will now discuss our financial results in more detail.

Thanks, John for the third quarter, our reported core <unk> per share of $2 11.

31, 9% above the prior year and five cents ahead of the top end of our third quarter guidance range.

Our performance was achieved across annual and transient RV and marine.

During and subsequent to quarter end, we acquired approximately $500 million of operating properties, bringing our year to date total to 1.1 billion, adding 38 properties totaling nearly 12000 sites.

To support our operations and growth expectation, we have been active in enhancing our balance sheet and in capital markets activity, which provide the capacity and flexibility to pursue our ongoing growth pipeline.

Last quarter, we received investment grade rating, which provides us with an additional attractive source of financing.

Subsequent to the end of the third quarter, we issued 600 million of senior unsecured notes and our second bond offering of the year across seven and 10 year maturity.

Additionally, we utilized our ATM program and completed the sale of $21 4 million of foreign shares of common.

We ended the second quarter with $4 $7 billion of debt outstanding at a three 3% weighted average rate and a weighted average maturity of nine six years.

As of September 30th we had $72 million of unrestricted cash on hand, and our net debt to trailing 12 month recurring EBITDA ratio of four nine times.

We are raising our full year 2021 classical guidance to a range of $6 44 to $6.50 per share.

16th increase at the midpoint from our prior range.

The increase includes our outperformance in the third quarter with the remainder due to contributions from recent acquisitions and increased expectations across each of our businesses.

We expect <unk> for the fourth quarter to be in the range of $1 24 to $1.30 per share.

We are also increasing full year same community NOI growth guidance to a range of 10, 9% to 11, 1%.

Up 70 basis points from the previous midpoint of guidance of 10, 3%.

The fourth quarter same community NOI growth guidance is 7.2% to 8%.

As a reminder, our guidance includes acquisitions through the date of this call, but does not include the impact of prospective acquisitions or capital markets activity, which may be included in research analysts estimate.

This completes our prepared remarks, we will now open the call for questions operator.

Yeah.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

We want to be respectful of everyone's time, and we suggest limiting the questions to two per annum than.

And then if we have more time towards the end of the call we would be happy to take more questions.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Kids one moment, please while we poll for questions.

Our first question is from Nick Joseph with Citi. Please proceed with your question.

Thank you I was hoping you can provide some more commentary around the marina performance versus underwriting so for full year 2021, what's contemplated in updated guidance versus your initial expectations for safe Harbor.

Overall.

Marina portfolio has been.

Outperforming our initial.

The initial underwriting.

Fuel and transient book slip in storage.

Storage rents have been outperforming service otherwise have been outperforming.

You know I think they are.

A little offset for utility expenses.

Payroll and incentive costs in the Marina portfolio.

Yeah.

Our guidance.

At the end of the year does.

Food some amount of outperformance and certainly the impact of the.

Acquisitions that the marine appointment that we've done in the Marina portfolio.

Thanks can you quantify the the outperformance.

We have a throw kind of.

Let's say I think shines.

Right.

You might guess moving closer to the microphone, it's very hard to hear you.

Sure we are having a little bit of a audio difficulties.

SUNS then today, so I apologize for those as we got started at the beginning of the meeting can you hear me Okay now.

Yeah, a little is that it must be on the safe Harbor.

Uh huh.

I wish I could tell you I was floating up and down on the waves, but oh.

We're here in Southfield, Michigan doing what we always do.

I think we don't have it broken up.

The follow up and discuss a little bit more of a Ken but.

The best thing that we can point to is that we're getting those strong third quarter.

Results as compared to 19.

Nine 9% growth in figure.

Figure and our year to date, eight 5% and as Karen indicated.

The demand for.

What slips and drive steps similar to RV.

With.

Both sales, increasing especially the large boat sales.

Year over year.

At the highest level from what I understand that.

They've been just more and more demand and.

At the end of this month, Mark that 12 month, one year period of time since we closed on the transaction.

Safe Harbor.

As we've indicated it is outperforming our initial underwriting.

Also I'm very pleased that the acquisitions once put on the safe Harbor operating platform have been outperforming our underwriting there as well so we do experience.

In the Marina side exactly what we're experiencing in MH and RV and have been for the last 20 plus years.

Once put on a very professional best in class platform.

Have a safe harbor.

Our extracting greater returns.

Initially underwritten so it's the same kind of outperformance.

Thanks for that.

What's your appetite for additional Marina International expansion and can you talk through the strategic rationale of any additional acquisitions.

Acquisitions there.

Yeah, I think we've shared it.

On our calls before.

We'll be looking at a few points of international.

Marina acquisitions.

The benefit and then part a lot of what we're seeing with the outperformance relates.

The strategic.

Rent and networking that the safe Harbor management team has been able to design I talked about it in my remarks, you can start and main today, even a little north of Maine, BNS Safe Harbor Marina.

Travel all the way down to the Caribbean staying in the network.

Now what we'd like to do is be able to keep that network.

Trans Atlantic if you will and we will look for a couple of points.

We're a larger vessels in particular, who had to one side of the ocean, perhaps a year and the other side of the Atlantic for that other half of the year and stay in a safe harbored network.

So.

Nothing to share on that yet, but we are working diligently to find a couple of points transatlantic.

Thank you.

Our next question comes from Keegan Karl with Van Berg. Please proceed with your question.

Hey, guys. Thanks for taking the questions first just a little bit more color on the same community RV NOI growth I guess, how much of it was a function of volume versus pricing and then on the labor side of things do you think you are in our lives actually improved but the current labor shortage.

Yeah. This is John so in the quarter, we saw about a 50 50, a little bit over 50% increase on the rate side about 8% increase in occupancy so that's kind of splits.

For that.

What was the second question I'm, sorry, I missed that.

Yeah on labor. So do you guys think it actually was the.

Tailwind for NOI growth just given there's a current labor shortage and you probably have less people working than anticipated.

No I mean, we just like everybody else we had.

You know a little bit of shortage, particularly at the beginning of the season with our seasonal help that we have with the community has been nothing that's.

<unk>.

I think one of the things that we discussed on our last call with regard to that.

Any savings, we might've had from a shortage of people was.

Really eroded by how we took off.

Pages at that level.

Did you increase them to attract.

Personality, you've also got a raise your existing personnel who are those new higher.

Wages and AR that was.

Started to be incorporated first and second quarter and actually is in our guidance through the end of the year and we are.

With respect to incorporate it into our 2022.

Got it and then on Marina is can you give us a little additional color on the reconfiguration of certain assets what are the typical cost associated with this and how long does it take to transform.

It goes into determining what specific locations are best for it and as it's completed how much revenue uplift do you anticipate on at removing smaller slipped out of the larger ones.

Was that specifically to marinas or is that to all of our platforms.

Yes, specifically to marinas.

It's Gary and a well I don't have those specific numbers for you I can share that we look to get a low double digit 12 13, 14% returns on the capital invested for that type of repositioning.

<unk> average length of time to combine the dots docks.

And perhaps make them more efficient for the larger boats is approximately 12 months.

That can be longer permitting slows things down certainly can be in the COVID-19 environment.

It is a big part of the long term plan just as it is in the MH and RV World World.

Not only reconfigure.

And RV sites, but oftentimes, if there's zoning and entitlement is there.

Greg the ground.

Just to the beginning and build the community.

All over again.

Not the case with marinas.

It's mostly just reconfiguring the slip sizes.

Great. Thanks for your time.

Mhm.

Our next question comes from Joshua generally with Bank of America. Please proceed with your question.

Yeah. Good morning, everyone hope everyone's doing well I saw that the number of rental homes over the quarter dropped seem to drop.

Fair bet was that driven by the asset sales you did or just higher conversions throughout the quarter.

Hi, Josh.

Yeah, I I E.

Both of the bulk of the reason so you're seeing the impact of the dispositions of about six properties are within them. What there was about 625 rental homes Ann.

On a year over year basis, we converted about 200 more rental homes.

Please to owner occupied.

And so both of those things are impacting the rental program.

Okay Awesome awesome.

And then.

Curious on the Marina front any new initiatives on that side of the business for 'twenty or 'twenty, two I I know.

This year you launched.

Our regatta in August in the court.

Is there a possibility to kind of expand that to other markets and then also I'd love to hear just an update on how that went.

Since the beginning of it with regard to a marina and new initiatives was what was the beginning of the question. Yeah. Just just curious on if there are any new initiatives on the Marina fraud for 2022.

Yeah.

Thank I wouldn't reference any of them as new I would say that continuation.

Just a very unique opportunity to roll up the best of the best.

I mean, when you look at the.

Quality of management and quality of the existing marinas. The focus is really membership and networks. So that we can keep all of the safe Harbor members within the Safe Harbor network. So it's really about the geographic footprint.

As Ed.

I mentioned earlier, our north to south.

East to west when we get into the inland lakes ability oftentimes to travel for one of the oceans from one of the inland lakes to the St. Lawrence Seaway things like that so that network remains very very important.

The usage again.

Securities for Sun is opening up a lot of doors with regard to the.

Our longstanding relationships with Safe Harbor management team has with.

Mom and pop owners, who for estate planning and.

Tax planning have not been able to sell even though they might like to so I think that you'll continue to see a lot of the same but we'll have the ability to be enormously selective and really acquire only the what we referred to as the best of the best as we build out the platform.

Going forward. So we remain enormously excited about the opportunity here.

Again, I touched on it already a sustained ability to be able to.

Harness accelerated growth.

Quiring of Marina and putting it on the safe Harbor platform.

The management skills, the economies of scale the technology.

A very very exciting place I'd also add what was really interesting to realize that.

Even after a almost a $1 billion of acquisitions since we've acquired.

Safe Harbor are less than a year ago percentage of rental revenue today, 18% to 19%.

Exactly where it was when we acquired the.

Platform.

It just indicates that.

The continued opportunity within the MH and RV platform as.

As well so one year out we're really pleased that what we see.

Yeah.

Awesome. Thanks Kerry.

Yeah.

Our next question comes from Wes Golladay with Baird. Please proceed with your question.

Good morning, everyone I just had a follow up on the safe Harbor in the Marina acquisition at this point how much of your targeted Marina network do you have today.

It's a great question.

With.

Also shared with the market when we acquired.

The safe Harbor platform.

We had a.

Approach that said, we would look to pay percentage rent.

Rental revenues up to perhaps 24, 25% of the entire portfolio.

He indicated we're currently still at 18, 9%, 19% with a $1 billion of acquisitions. So.

We really have a bright opportunity we've shared our cap.

Cap rates being two to 300 basis points.

Greater than MH RV.

Some cases more.

The great benefit of the network effect.

The relationships from the pounders that builders in the patriarchs as safe Harbor, the Brewer family as one we often referred to their networking effect. So we really do have a really bright future ahead of us.

With regard to potential acquisitions so.

I really expect to be a disciplined would probably.

Selectively acquiring.

About 20% of what's being reviewed.

So really a lot of headroom to go moving forward.

Okay, and then I guess, when we look at the footprint of Safe Harbor. It looks like the West Coast is where your lightest is that going to be a little bit harder to buildup.

No I wouldn't suggest everything seems to be a little bit more expensive on the west coast. So there's no doubt about that.

While we carefully are focused on where the greatest growth.

With sales and slipped demand is that will lead to.

The greatest value creation for our stakeholders.

So we are working on the west coast Black suggest very selectively.

A lot more demand.

<unk> side of the country right now and in the West side.

Got it and then if I can switch gears real quick to camp spot can you update us on how many third party sites are now affiliated with the with the application and what where our bookings for the platform in the third quarter.

Yeah I can tell you. We've got you know on the reservation side, we've got over a thousand folks that are using that system throughout the.

The RV universe.

I don't think we have any more updated information at this time.

Then we're extraordinarily excited about whats taken place there.

Hum.

That is it.

New C E O as.

<unk> put in place and.

Really excited about the opportunity in front of us with kind of a spot.

Okay. Thanks, everyone.

No theres nothing like it out there on the RV.

World right now so it's the first of its kind.

Alright. Thanks.

Our next question is from John Pawlowski with Green Street. Please proceed with your question.

Thank you John or Karen could you provide a breakdown of the major expense line items that drove the 14% growth in the quarter and just give us a sense for how long we should expect double digit growth expense growth to continue.

Sure John.

So I'll break it down between a manufactured housing and RV and MH expenses.

Where higher.

Notably in payroll, obviously due to the proactive wage increases that we discussed last quarter.

And repair expense yeah, I believe the comparable period in 2020 was low we I don't think we are.

Up to full operations.

Last quarter, so that drove growth would be higher finally, we had higher than expected real estate tax assessment.

Florida trim notices came in and day, we had some significant increases Texas had some also.

Although were appealing a number of those assessments.

Third quarter really reflects the cumulative nine months impact of those higher assessment.

That's M H R V.

Variable.

Expenses were up due to really the higher transient activity things like supply and repair vacation rental expense utilities, that's really based on just the higher transient activity and it also was impacted by the wage increase that we discussed I think as you think about.

What we are.

Flying for fourth quarter same community growth.

I think you're looking at it with that 7.2% to 8% NOI growth you're looking at revenues in the seven to you know some of the seven 8% and Opex in the $86 seven to seven and a half range.

Okay.

And just in terms of what's going on right now in the labor market and you're you're proactive stance in increasing wages and then repair and maintenance can you just help us bracket reasonable best and worst case scenarios for expense growth over the next year.

Just help us understand what kind of any more and then on the labor side.

In the repair and maintenance and the pressure on expense growth.

No that is not kind of a tough one to put it to play out we don't we don't really have any we don't have guidance out for next year.

To give you specifics on that.

I think that with the wage increase that we.

Put in place with a proactive wage increases.

It's something yeah that was.

Pretty pretty standard for.

For wage increases.

I think that if you just think about expenses overall and potential inflation impact since we already did a wages.

We've got let's say, we're in the process of renewing our property insurance right. Now so we'll have a better idea on pricing very near term I already talked about real estate taxes, and how dependent they are on assessments and we.

We hope successful appeal.

It at least supply and repair expenses.

Have that potential inflationary pressure no different than any other company operated business and supply and repairs are about 12% to 13% of our opex. So.

Hum.

Is that that's as much color as I can provide you on something for next year.

Okay understood, but the payroll the increases to payroll costs are those largely done now or should we expect another batch of large increases next year.

Well, because we put them in in the third and fourth quarter.

We expected the whole impact to be about $16 million and so we would have anticipated $8 million that would hit next year.

So they probably are.

Okay last one from me John can you just provide.

Some color on how you're approaching the rental rate settings for MH renewal increases that you'll be sending out. These next few months.

Sure.

As you know John we take a very long term approach virtually with everything we do.

It's our continued reinvestment in our communities as well as the predictability of our rent increases as there is a big part of the reason why our residents live live in our communities and average of 14 years and as you probably know.

This really saves on the cost of turnover, which is not much in any given year.

Yeah, but it's really sort of a balancing act.

As I might've shared before.

And I think it's important to remember that the rate increases just one of those growth levers that we have.

Certainly occupancy growth is a big piece.

As we've seen over the years, it's important to maintain resident equity.

In their homes and improve it because that actually helps our home pricing and margins at the same time, there's some growth there.

Keenly focused on social responsibility side of things with the rent increase as we've shared before especially.

Hopefully the later stages of Covid.

But really it's about consistency.

All of our stakeholders and the kind of performance that we've had over the last 20 years in our NOI, that's been very consistent and so I think last year. We finished out at about a three 4% weighted average increase that we had and I think I said in my remarks that we're at $3 seven for this year. So we're.

Seeing that expand a bit.

But once again, it's it's it's not really in a position to really guide to anything in 2022 at this time, but I think you can see sort of the trajectory of where it's moving.

Okay that helps thank you very much.

Yeah.

Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning.

You mentioned that you are making good progress in converting transient RV sites to annual and that's helping you on the pricing side on the transient RV space it.

How do you balance pricing versus getting more new customers interested in RV ing and what the optimal mix between annual and transient site than any given RV community.

Yes, good question.

I think I think the way that.

The answer to your question is is first off.

Is back to what we've seen in the RV portfolio overall, I mean, all the performance indicators continue supporting.

The transient RV and RV overall is stronger than ever and there's a lot to unpack with that.

Vacations continue to be drawn to the outdoors, even as air travel has opened up over the course of this year. When we look at internally just kind of going through the numbers again, we saw 30 over 30% growth in transient RV NOI quarter.

52% RV annual revenue growth in those 1500 conversions over the last 12 months that you're referring to in one of the drivers of that has been we've had over 143000, new customers that are staying in an RV resort in the first three quarters of 2021.

Web based traffic is up another 10% from historical site high from last year.

You know a lot of increase in guests that are younger ages 18 to 24, and the 25% to 34 buckets than.

And then everything we're doing on social media with the $1 4 million followers across three major platforms that are out there. So.

From a balance perspective, it's really going to be determined based on the function of a resort.

Even with in a resort that is gonna be a function of how much revenues being derived by a single site within the resort certainly if we're getting.

Let's just say $20000 of revenue annually on a site that would have if we convert it to an annual and its getting 15, that's not a conversion that we would do but insights that are having lower revenue. We are converting those sites first and so it's really sort of the optimal mix.

It's really on a per community per resort basis versus that and looking at something sort of overarching across the portfolio.

Got it and that's how do you replenish those those loss range of sites once you convert them.

Is there a way for you to do that.

So can you say it one more time.

Well have you replenish a train.

Transient back that converted if you want to I guess continue to attract new customers into those sites into the community. So if you and Bert one screens at bank so annual.

Do you then aimed I guess, adding new training site elsewhere in that community.

Yeah, if it's possible I mean, we look all over the all over our portfolio and add expansions to our existing communities.

Probably I don't think we look at it on a community by community basis, but more on a portfolio wide basis. So.

Two things happened, we look for transient.

Opportunities in the acquisition pipeline, where John and his team can convert as we've shared so when we do convert a transient to annual the first year a pickup in revenue is approximately 50% on that site.

So acquisitions.

Team members will be guided when we want to focus on RV transient and one where we want to shut it off and the acquisitions of period of time right now 15 Hunter sites through the first three quarters. It was the highest level of conversions that we've seen so.

Hum.

Probably see us.

Naturally the amount of transient by the conversions and then at that time, we would see.

To acquire more properties. So we can have that conversion opportunity and then as John mentioned the.

Spansion.

Ending the ground.

Adjacent or oftentimes being able to acquire.

RV communities that have expansion opportunity as we did this last quarter as well.

We'd focus on him to replenish it.

Got it maybe one more for me the home sales numbers have been very strong.

Out of a new run rate of home sales, where you are achieved ROE further and is there any kind of one time bump in home sales given.

It was all of the increased demand due to COVID-19 dislocation migration.

Any color there would be great.

I think it's I think it's a run rate we can expect in maybe with a little bit more growth in front of it too. So I mean, that's what we aim for each year, just some incremental pick up in terms of clients.

Some margin and then really on the on the price and the margin side, It's really got a lot to do with all of it frankly.

Once again it speaks to the high quality of the communities and the demand that's out there for affordable housing and that's what we offered so I'd expect it to grow a little bit.

Yeah, the only thing I'd add Anthony where we are one of the restrictor as vacancy.

So.

We build expansion sites, so that we can fill them up and sell homes and then secondly act.

The acquisition strategy, which we've shared over the last 15 plus years being able to buy vacancy within the existing community is really very accretive for us poorly portfolio that we closed on this quarter is a great example of that.

We have the opportunity as a well capitalized and.

Experienced manager to.

Take the opportunity of those vacancies accelerates.

The sales in the occupancy.

Hance early growth.

Those properties. So those kinds of opportunities are really something we'd like to focus on and then I'd also just add in properties that have a higher occupancy were seeing nice growth in our broker resident to resident resale transactions picking up sales to that vehicle as well.

Thank you.

Our next question is from Michael Goldsmith with UBS. Please proceed with your question.

Good morning, Thanks, a lot for taking my question.

This quarter seemed to be a little bit more tilted towards properties with development opportunities or Linda can be developed it is that a conscious effort maybe a reflection of the returns you can get from development relative to the mature properties.

Yeah, absolutely I mean, it's we like the combination of all of it.

Acquiring operating assets that are accretive that we can expand the yield on those as well as ones like Gerry Gerry was just talking about where the vacancy upside to pick up through occupancy gains.

That is exactly in our wheelhouse and something that we've demonstrated for many years that we're very good at.

Do you think that becomes a bigger part of the growth algorithm going forward.

Yes.

That's helpful.

<unk>.

Building off a prior question, yes, as you have your conversations with communities for the upcoming year.

You said, you've kind of mentioned that rate growth has kind of accelerated from last year and it could look to pick up a little bit more how does that breakout between.

All age communities in age restricted communities and then separately or are these communities are they asking for new or different amenities and a post COVID-19 world.

Yes, I think I mean, typically youre going to see.

On average you're going to see a higher increase in all age communities. Then you do an age restricted community.

As far as the addition of amenities as part of that process.

No. This is that's something from a capital improvement standpoint, and again the long term perspective that we have is just a continual thing for us anyway.

It's not really a trade as much as well, it's just what we do okay continue to keep the communities beautiful so that we can grow them with all the different levers that we have.

Got it thank you very much.

Yeah.

There are no further questions at this time I would like to turn the floor back over to Gary Shiffman for closing remarks.

Well I'll apologize for any audio difficulties today, we're certainly going to look into this new system we installed.

We thank everybody for participating.

This is a management team that is.

As excited as ever to be able to continue.

Continue to grow the portfolio to meet the stakeholders expectations and we look forward to reporting.

Fourth quarter and year end results. Thank you everybody.

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

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Greetings. Thank you for joining us today for Sun communities third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will begin after the formal presentation. Please note that this conference is being recorded I would now like to turn the conference over.

To your host Gary Shiffman, Chairman and Chief Executive Officer, Good morning, and thank you for joining us as we discuss our third quarter 2021 results.

Our strong third quarter as a continuation of the momentum we have historically demonstrated which reflects both the stability and the growth potential of our platform we have established.

This includes organic growth expansion and development and acquisitions.

The combination of these elements allowed us to deliver 71, 9% growth in core <unk> per share during the third quarter.

And exceeded the high end of our guidance.

Let's be along with a positive outlook for the remainder of the year.

Again led us to raise our core 2021 <unk> guidance.

16 cents at the midpoint to a range of $6 44 to six.

$6 50 per share.

And our expected the same community NOI growth for the full year.

70 basis points for a range of 10, 9% to 11, 1%.

For the quarter same community NOI grew 12, 4% over last year, driven by a favorable strategic positioning and capture the sustained demand and rvs.

In our RV segment.

Same community NOI increased by 36% for the quarter.

ANZ and RV continued to deliver exceptionally strong results.

Our RV resort business is benefiting from people seeking outdoor experiences at Sun RV resorts.

From both existing and new customers.

Our being is establishing itself as the vacation choice for many travelers.

We are positioned to sun to capture this demand at scale.

We're continuing to see momentum in forward bookings for transient.

As well as annual site conversions.

Furthermore, the opening of the Canadian border in November is expected to accelerate that momentum in the first quarter of next year as we welcome back our Canadian Snowbirds residents and guests.

The stability of our manufactured housing portfolio.

News to show the need for attainable housing.

Evidenced by our home sales volume and applications to live in that community.

Manufactured home sales were another bright spot in the quarter with total home sales volume up nearly 64% from the prior year and brokered home sales up over 15% for the quarter compared to the third quarter of 2020.

Our core pillars of delivering superior customer service maintaining high quality communities.

Offering an attainable housing option.

To create strong demand to live in a sun community.

Our Marine segment. We are pleased that results continue to track ahead of our underwriting.

Our NOI increased this quarter, primarily from the continued demand for wet slips and dry storage needs for our members.

Forward demand for dry storage and wet slip rental.

This is ahead of where they were at this time last year.

Large part to our best in class Marine and network locations and services.

We have also remained active in growing and improving our portfolio.

In the third quarter and through the date of this earnings call. We added 22 properties across our three segments deploying over $500 million of capital.

Adding over 7400 sites.

Our recently acquired four lease portfolio of nine manufactured housing communities in the Midwest.

Arises over 2500 high quality sites with expansion growth opportunities.

Ample room to fill existing vacancies.

On the marine side, our acquisitions imports of Delray, and Puerto Rico largest marina in the Caribbean continues to strengthen our irreplaceable network of marine assets.

Whereas the Delray now allows for a safe Harbor remember.

Remain within the network are traveling from the northeast all the way down to the Caribbean.

Our acquisition teams remain extremely active and we are enthusiastic about the opportunities we're seeing across each of funds business segments.

Furthermore, we have a proven track record in maximizing value from our acquisitions.

As we integrate them onto the <unk> platform.

This includes adding value through our operational platform.

Bryan Peery technologies.

The scale of our marketing and booking platforms, including cash spot.

Potential repositioning of acquired properties.

As the leading industry consolidator, we believe our cycle tested ability to create value through acquisitions. We will continue to result in a <unk>.

The accretive growth.

This activity is supported by ongoing proactive focus on maintaining financial flexibility.

Additionally, we are continually evaluating our portfolio for assets, which no longer fit with our long term strategic and growth objectives.

To that end of third quarter, we completed the disposition of fixed assets for a total sales price of about 162 million, representing a blended cap rate the low fours, which further demonstrates the value of <unk> portfolio.

We have a deep bench of incredibly talented team members.

Well positioned balance sheet.

Healthy pipeline and internal and external growth opportunities.

We remain optimistic in our ability to deliver on each of our <unk>.

Performance objectives.

I'll now turn the call over to John to discuss our operational performance.

Yes.

Thank you Gary.

<unk> delivered a strong third quarter across the board outperforming our previous expectations. Our results reflect the combination of stability of our best in class portfolio as well as the contributions from our growth initiatives across all three of our business segments.

For the third quarter combined same QED manufactured housing and RV NOI increased 12, 4% from the third quarter 2020.

The growth in NOI was driven by a 12, 8% revenue gains supported by a 150 basis point increase in occupancy to 98, 9% and a three 7% weighted average rental rate increase.

Our expenses were up 13, 7% from the prior year.

Thank you me any manufactured housing NOI increased by two 6% from 2020 and same community RV NOI increased by 36%.

Annual RV growth was 52% for the quarter as a result of a 5% rental rate increase and the effect of over 1500 conversions to annual leases over the trailing 12 months.

When we issued second quarter results in late July we shared the transient RV revenue for the second half of the year was 52% ahead of the original budget.

Today and accounting for the third quarter's actual contribution it has accelerated to 18, 3% ahead of original budget.

Yeah.

As of this earnings call, our fourth quarter transient RV revenue is 19, 6% ahead of the original budget.

The increased levels of consumer engagement discussed last quarter have continued.

Our best salespeople have always been our residents guests and their reach to spread the word has been meaningfully amplified through our social media engagement.

We are also continuing to sign up members to our pilots on RV resorts loyalty program and while it is still in its early days initial interest and feedback has been very positive.

In short we believe we are seeing strong evidence of two important trends.

First that many travelers the learning and trying out and RV vacation and second once travelers have discovered there sunnier side through an RV vacation that becomes part of their future vacation considerations.

Additionally, Sun has simplified the reservation process with our camp spot platform, which in turn enhances the demand for our vacations at Sun RV resorts.

In the third quarter, we gained 576 revenue producing sites.

Our revenue producing site gains over 430 were transient RV sites converted to annual leases with the balance being added to our manufactured housing expansion communities.

We have now converted almost 1200 transient RV sites to annual leases year to date, which exceeds any prior full year figure and demonstrates the successful execution of this internal growth lever.

The RV site conversions, resulting in an average 50% increase in site revenues during the first year of conversion with an additional benefit of transient sites scarcity pushy rates.

One of the ground up developments delivered this quarter was the next phase of Smith Creek crossing a manufactured housing community in Granby, Colorado.

The first phase of 82 sites has been filling up rapidly since opening a year ago and we anticipate this next phase to continue to see the high demand for attainable housing in the area.

MH home sales in the third quarter were also strong.

Total sales volume was up 64% year over year as we sold more than 1100 homes in the quarter.

These results are a clear reflection of the value proposition that has some manufactured housing community offers the healthy demand for these homes and the home value that is maintained in our communities.

Applications to live in a Sun community are up 13, 2% year to date and we anticipate we will continue to strengthen our manufactured housing business given the tight housing market and the demand for quality attainable housing.

Same marina rental revenue growth for the portfolio of 75 properties owned and operated by Safe Harbor since the start of 2019 was 17, 8% for the nine months of 2021 over 2019.

This is a CAGR increase in rental revenue up nine 9% for the quarter and eight 5% year to date through the end of September 2021.

Better than expected performance in the Marina portfolio continues to come from demand for wet slips and dry storage spaces.

We have also witnessed higher margins on the service business with water del Marina Center, and river, which being the leading contributors to this outperformance.

Great service to create stronger slipped rental demand and higher member retention.

In summary, Sun's growth engines continued to deliver strong results our internal levers are driven by the fundamentals of Sun's operating platform and by expansion site deliveries.

Our total MH portfolio stands at approximately 97% occupancy, providing us with more than 200 basis points of occupancy upside.

Well as additional growth potential by adding further expansion sites over time.

In the RV business robust transient demand continues.

We also anticipate continued momentum in conversions of transient to annual leases each year.

We expect to build on our successful track record of delivering a filling expansion sites. We have an inventory of 7500 expansion sites, a portion of which we intend to strategically deliver each year targeting 10% to 14% Unlevered IRR.

In addition, our external growth pipeline is robust across all three businesses with opportunities to continue to consolidate each industry as well as pursuing selective ground up developments.

We are pleased with our performance year to date, and we expect to continue delivering on our objectives.

Darren will now discuss our financial results in more detail.

Thanks, John for the third quarter, some reported core <unk> per share of $2 11.

31, 9% above the prior year and five cents ahead of the top end of our third quarter guidance range.

Outperformance was achieved across annual and transient RV and Marina.

During and subsequent to quarter end, we acquired approximately $500 million of operating properties, bringing our year to date total to $1 1 billion, adding 38 properties totaling nearly 12000 sites.

Last quarter, we received investment grade rating, which provides us with an additional attractive source of financing.

Subsequent to the end of the third quarter, we issued $600 million senior unsecured note in our second bond offering of the year across seven and 10 year maturity.

Additionally, we utilized our ATM program and completed the sale of $21 4 million of foreign shares of common stock.

We ended the second quarter was $4 $7 billion of debt outstanding at a three 3% weighted average rate and a weighted average maturity of nine six years.

As of September 30th we had $72 million of unrestricted cash on hand, and a net debt to trailing 12 month recurring EBITDA ratio of four nine times.

We are raising our full year 2021 core <unk> guidance to a range of $6 44 to $6.50 per share.

Our 16th increase at the midpoint from our prior range.

The increase includes our outperformance in the third quarter with the remainder due to contributions from recent acquisitions and increased expectations across each of our businesses.

We expect <unk> for the fourth quarter to be in the range of $1 24 to $1 30 per share.

We are also increasing full year same community NOI growth guidance to a range of 10, 9% to 11, 1%.

Up 70 basis points from the previous midpoint of guidance of 10, 3%.

The fourth quarter same community NOI growth guidance is seven 2% to 8%.

This completes our prepared remarks, we will now open the call for questions.

Later.

We want to be respectful of everyone's time, and we suggest limiting the questions to two per annum.

We have more time towards the end of the call we would be happy to take more questions.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Our first question is from Nick Joseph with Citi. Please proceed with your question.

Overall.

In our portfolio has been.

Outperforming our.

Initial underwriting.

Annual and transient both slip in.

George rents have been outperforming service otherwise have been outperforming.

You know I think there's a little offset for utility expenses and does some payroll and incentive comp and the marina portfolio.

Yeah.

Our guidance.

We ended the year does it does include some amount of outperformance and certainly the impact of the.

Acquisitions that the marine appointment that we've done in the Marina portfolio.

Thanks can you quantify the outperformance.

We haven't broken.

Let's say I think shines.

Right.

You might guess moving closer to the microphone, it's very hard to hear you.

Sure, we are having a little bit of audio difficulties.

SUNS then today, so I apologize for those as we got started at the beginning of the meeting can you hear me Okay now.

Yeah, a little bit better.

Must be on the safe Harbor.

Uh huh.

I wish I could tell you it was floating up and down on the waves bypass.

We're here in Southfield, Michigan are doing what we always do.

I think we don't have it broken up.

The follow up and discuss a little bit more of a can but.

The best thing that we can point to is that we're getting those strong third quarter.

Results as compared to 19.

Nine 9% growth in AR.

Figure and our year to date, eight 5% and as Karen indicated.

The demand for.

What slips and drive steps similar to RV.

With a bow.

Both sales, increasing especially the large boat sales year.

Year over year.

At the highest level from what I understand that.

They've been just more and more demand and.

At the end of this month, Mark that 12 month, one year period of time since we closed on the transaction.

Safe Harbor.

As we've indicated it is outperforming our initial underwriting.

Also very pleased that the acquisitions once put on the safe Harbor operating platform have been outperforming our underwriting there as well so we do experience.

In the Marina side exactly what we're experiencing in MH and RV and have been for the last 20 plus years.

Once put on a very professional best in class platform.

Have a safe harbor.

Our extracting greater returns.

Initially underwritten so that's it.

Same kind of outperformance.

Thanks.

What's your appetite for additional Marina International expansion and can you talk through the strategic rationale of any additional acquisitions.

Acquisitions there.

Yeah, Matt I think we've shared it.

On our calls before.

We'll be looking at a few points of international.

Marina acquisitions.

The benefit and then part a lot of what we're seeing with the outperformance relates.

The strategic.

Footprint and networking that the safe Harbor management team has been able to design I talked about it in my remarks, you can start and main today, even a little north of main BNS Safe Harbor Marina.

Travel all the way down to the Caribbean staying in the network.

Now what we'd like to do is be able to keep that network.

Trans Atlantic if you will and we will look for a couple of points.

Where are the larger vessels in particular, who had to one side of the ocean for half of the year and the other side of the Atlantic for that other half of the year and stay in the Safe Harbor network.

So.

To share on that yet, but we are working diligently to find a couple of points transatlantic.

Thank you.

Our next question comes from Keegan Karl was banned Berg. Please proceed with your question.

Hey, guys. Thanks for taking the questions first just a little bit more color on the same community RV NOI growth.

How much of it was a function of volume versus pricing and then on the labor side of things.

Do you think you are in our lives actually improved but the current labor shortage.

Yeah. This is John so in the quarter, we saw about a 50 50, a little bit over 50% increase on the rate side and about 8% increase in occupancy so that's kind of splits.

For that.

What was the second question I'm, sorry, I missed that.

Yeah on labor. So do you guys think it actually was.

Tailwind for NOI growth just given there's a current labor shortage and you probably have less people working than anticipated.

No I mean, we just like everybody else we had.

Well, a little bit of shortage, particularly at the beginning of the season with our seasonal help that we have with the community has been nothing that's.

<unk>.

What are the things that we discussed on our last call with regard to that.

Any savings we might have had from the shortage of people was really eroded by how we took up our wages at that level.

You increased them to attract.

New personality, you've also got a raise your existing personnel.

Who are those new higher.

Wages and that was.

<unk> started to be incorporated first and second quarter and actually isn't in our guidance through the end of the year and we are.

With respect to incorporate it into our 2022.

Got it and then on Marina is can you give us a little additional color on the reconfiguration of certain assets what are the typical cost associated with this and how long does it take to transform.

It goes into determining what specific locations are best for it and as it's completed how much revenue uplift do you anticipate on it we're moving smaller slips adding larger ones.

Is that specifically to marinas or is that to all of our platforms.

Yes, specifically to marinas.

It's Gary and our well I don't have those specific numbers for you I can share that we look to get a low double digit 12 13, 14% returns on the capital invested for that type of repositioning.

Average length of time to combine the dots docks and perhaps make them.

More efficient for the larger boats is approximately 12 months that can be longer permitting slows things down certainly can be in the COVID-19 environment.

It is a big part of the long term plan just as it is and the.

M H and RV World.

Not only we can figure I mentioned RV sites, but oftentimes that the zoning and entitlement is there.

Greg the ground.

Just to the beginning and build the community.

All over again, that's not the case with marinas.

It's mostly just reconfiguring the slip sizes.

Great. Thanks for your time.

Okay.

Our next question comes from Joshua <unk> with Bank of America. Please proceed with your question.

Yeah. Good morning, everyone hope everyone's doing well.

I saw that the number of rental homes over the quarter dropped.

Seem to drop.

Fair bet was that driven by the asset sales you did or just higher conversions throughout the quarter.

Hi, Josh.

Yeah, I I E.

The bulk of the bulk of the reason so you're seeing the impact of the dispositions of about six properties within them. What there was about 625 rental homes Ann.

On a year over year basis, we converted about 200 more rental homes to owner occupied.

And so both of those things are impacting the rental program.

Okay Awesome awesome.

And then.

Curious on the Marina front any new initiatives on that side of the business for 2022, I I know this year you launched.

Our regatta in August and need court.

Is there a possibility to kind of expand that to other markets and then also I'd love to hear just an update on how that went.

Yeah.

Since the beginning of it with regard to Marina and new initiatives.

What was the beginning of the question Yeah. Just just curious on if there are any new initiatives on the Marina fraud for 2022.

Yeah.

I think I wouldn't reference any of them as new I would say that continuation.

<unk>.

Just a very unique opportunity to roll up the best of the best I mean, when you look at the.

As Ed.

I mentioned earlier, our north to south.

The usage again.

Securities for Sun is opening up a lot of doors with regard to.

Our longstanding relationships with Safe Harbor management team has with mom.

Mom and pop owners, who for estate planning and.

Tax planning have not been able to sell even though they might like to so I think that you'll continue to see a lot of the same but we will have the ability to be enormously selective.

Really acquire only the what we referred to as the best of the best as we build out the platform going forward. So we remain enormously excited about the opportunity here.

Again, I touched on it already a sustained ability to be able to.

Harness accelerated growth.

Quiring of Marina and putting it on the safe Harbor platform.

The management skills, the economies of scale of the technology.

A very very exciting place I'd also add what was really interesting to realize that.

Even after a almost a $1 billion of acquisitions since we've acquired.

Safe Harbor are less than a year ago.

Percentage of rental revenue today, 18% to 19%.

Exactly where it was when we acquired the.

Platform.

It just indicates that.

The continued opportunity within the MH and RV platform as.

As well so oh, one year out we're really pleased that what we see.

Yeah.

Awesome. Thanks, Gary.

Yeah.

Our next question comes from Wes Golladay with Baird. Please proceed with your question.

Good morning, everyone.

A follow up on the Safe Harbor in the Marina acquisition at this point how much of your targeted Marina network do you have today.

It's a great question Wes.

Also shared with the market when we acquired.

The safe Harbor platform.

We had a.

That said, we would look to take percentage.

Rental revenues up to perhaps 24, 25% of the entire portfolio as I indicated we're currently still at 18, 9%, 19% with a $1 billion of acquisitions. So are we.

We really have a bright opportunity we've shared.

The cap rates being two to 300 basis points greater than our MH RV.

In some cases more.

Great benefit of the network.

Fact.

The relationships.

From the pounders that builders in the patriarchs as safe Harbor, the Brewer family as one we often referred to their networking effect. So we really do have a really bright future ahead of us.

With regard to potential acquisitions so.

I really expect to be a disciplined we're probably.

Selectively acquiring.

About 20% of what's being reviewed.

So really a lot of headroom to go moving forward.

Okay, and then I guess, when we look at the FERC print of Safe Harbor. It looks like the West Coast is where your lightest is that going to be a little bit harder to buildup.

I would suggest everything seems to be a little bit more expensive on the west coast. So there's no doubt about that.

While we carefully.

Focused on where the greatest growth.

Both sales and slipped demand is that will lead to.

The greatest value creation for our stakeholders.

So we are working on the west coast, but I'd suggest very selectively.

A lot more demand.

On the east side of the country right now and in the West side.

Got it and then if I can switch gears real quick to camp spot can you update us on how many third party sites are now affiliated with the with the application and then what were our bookings for the platform in the third quarter.

Yeah I can tell you. We've got you know on the reservation side, we've got over a thousand folks that are using that system throughout the year.

The RV universe.

I don't think we have any more updated information at this time.

Then we're extraordinarily excited about what's taking place there.

Hum.

That is it.

New C E O as.

<unk> put in place and.

Really excited about the opportunity in front of us with kind of a spot.

Okay. Thanks, everyone.

No theres nothing like it out there on the RV.

World right now so it's the first of its kind.

Alright. Thanks.

Our next question is from John Pawlowski with Green Street. Please proceed with your question.

Sure John.

So I'll break it down between a manufactured housing and RV and MH expenses.

Where higher.

Notably in payroll, obviously due to the proactive.

Wage increases that we discussed last quarter.

And repair expense.

Yeah, I believe the comparable period in 2020 was low and I don't think we are.

Up to full operations.

Last quarter, so that's a growth would be higher.

Finally, we had higher than expected real estate taxes last night.

Florida trim notices came in and <unk>.

We had some significant increases Texas had some also.

Although were appealing a number of those assessments.

Third quarter really reflects the cumulative nine months impact of those higher assessment.

That's M H R V.

Yeah.

Variable expense.

I think as you think about.

What we are in.

Inclined for fourth quarter same community growth.

I think youre looking at it with that 7.2% to 8% NOI growth you're looking at revenues in the seven to you now.

Some of the seven 8% in Opex, and maybe six seven to seven and a half range.

Okay.

And just in terms of what's going on right now in the labor market.

Are you proactive.

An increase in wages and then repair and maintenance can you just help us bracket reasonable best and worst case scenarios for expense growth over the next year.

Just help us understand what kind of any more and then on the.

On the labor side.

In the repair and maintenance and the pressure on expense growth.

No that is not kind of a tough one to put it to play out we don't we don't really have any we don't have guidance out for next year.

To give you specifics on that.

I think that with the wage increase that we.

Put in place with a proactive wage increases.

It's something.

That was pre.

Pretty pretty standard.

For wage increases.

I think that if you just think about expenses overall and potential inflation impact since we already did a wages.

We hope successful appeal.

Or at least the spine repair expenses.

Have that potential inflationary pressure no different than any other company operated business and supply and repairs are about 12%, 13% of our opex down.

Hum.

Is that that's as much color as I can provide you on something for next year.

Okay understood, but the payroll the increases to payroll costs are those largely done now or should we expect another batch of large increases next year.

Well, because we put them in in the third and fourth quarter.

We expected the whole impact to be about $16 million and so we would have.

Anticipated $8 million member kit next year.

So it's Paul here.

Okay last one from me John can you just provide.

Some color on how you're approaching the rental rate settings for MH renewal increases that you will be sending out. These next few months.

Sure.

You know as you know John we take a very long term approach virtually with everything we do.

Our continued reinvestment in our communities as well as you know the predictability of our rent increases as there is a big part of the reason why our residents live live in our communities and average of 14 years and as you probably know.

This really saves on the cost of turnover, which is not much in any given year.

Yeah, but it's really sort of a balancing act.

As I might've shared before.

And I think it's important to remember that the rate increase is just one of those growth levers that we have.

Certainly occupancy growth is a big piece.

As we've seen over the years, it's important to maintain resident equity.

In their homes and improve it because that actually helps our home pricing and margins at the same time and some growth there.

<unk> only focused on social responsibility side of things with rent increase as we've shared before especially.

Hopefully the later stages of Covid.

But really it's about consistency.

All of our stakeholders.

On a performance that we've had over the last 20 years in our NOI, that's been very consistent and so I think last year. We finished out at about a three 4% weighted average increase that we had and I think I said in my remarks that we're at three 7% for this year. So we're seeing that expand a bit but once.

Again, it's it's.

Not really in a position to really guide to anything in 2022 at this time, but I think you can see sort of the trajectory of where it's moving.

Okay that helps thank you very much.

Yeah.

Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning.

You mentioned that you are making good progress in converting transient RV sites to annual and that's helping you on the pricing side on the transient RV space. It how do you balance pricing versus getting more new customers interested in RV ing and what the optimal mix between annual and transient site than any given RV community.

Yes, good question.

I think I think the way that.

The answer to your question is is first off.

Is back to what we've seen in the RV portfolio overall, I mean, all the performance indicators continue supporting.

The transient RV and RV overall is stronger than ever and there's a lot to unpack with that.

Vacations continue to be drawn to the outdoors human as air travel has opened up over the course of this year. When we look at internally just kind of going through the numbers again, we saw 30 over 30% growth in transient RV NOI quarter.

52% RV annual revenue growth in those 500 conversions over the last 12 months to referring to in one of the drivers of that has been we've had over 143000, new customers that are staying in an RV resort in the first three quarters of 2021.

Web based traffic is up another 10% from historical site.

Hi from last year.

And.

A lot of increase in guests that are younger ages 18 to 24, and the 25 to 34 buckets.

And everything we're doing on social media with the $1 4 million followers across three major platforms that are out there. So.

From a balance perspective, it's really going to be.

Chairman based on the function of a resort.

Even within a resort that's going to be a function of how much revenues being derived by a single site within the resort certainly if we're getting no. Let's just say $20000 of revenue annually on a site that would have if we convert it to an annual and its getting 15, that's not a conversion that we would do but insights.

That are having lower revenue we are converting those sites first and so it's really sort of that optimal mix, but it's really on a per community per resort basis versus that and looking at something sort of overarching across the portfolio.

Got it.

How do you replenish those those lost transient sites once you convert them.

Is there a way for you to do that.

So can you say that one more time.

Well have you replenish eh.

Transient back that converted if you wanted to I guess continue to attract new customers into those sites into the community. So if you convert one screening defined annual.

Then aimed I guess added new training site elsewhere in that community.

Yeah, if it's possible I mean, we look all over the all over our portfolio and add expansions to our existing communities.

Probably I don't think we look at it.

Community by community basis, but more on a portfolio wide basis. So two.

Two things happened, we look for trends yet.

Opportunities in the acquisition pipeline or John and his team can convert as we've shared.

When we do convert a transient to annual the first year pick up in revenue is approximately 50% on that site.

So acquisitions.

Team members will be guided when we want to focus on RV transient and one where we want to shut it off and the acquisitions of period of time right now.

<unk> Hunter sites through the first three quarters. It was the highest level of conversions that we've seen so.

You'll probably see us.

Naturally the amount of transient by the conversions and then at that time, we would see.

To acquire more properties. So we can have that conversion opportunity and then as John mentioned the.

Spansion.

The ground.

Adjacent or oftentimes being able to acquire.

RV communities that have expansion opportunity as we did this last quarter as.

This is what we would focus on to replenish it.

Got it maybe one more for me the home sales numbers have been very strong.

The run rate of home sales, where you are that you've achieved ROE further and is there any kind of one time bump in home sales given.

All of the increased demand due to COVID-19 dislocation migration.

You called out would be great.

I think it's I think it's a run rate we can expect in maybe with a little bit more growth in front of it too. So I mean, that's what we aim for each year.

Just some incremental pick up in terms of clients.

Some margin and then really on the on the price and the margin side, It's really got a lot to do with all of it frankly is.

Once again it speaks to the high quality of the communities and the demand that's out there for affordable housing and that's what we offered so I'd expect it to grow a little bit.

The only thing I'd add Anthony where we are one of the Restrictor as vacancy.

So.

We build expansion sites, so that we can fill them up and sell homes and then secondly act.

The acquisition strategy, which we have shared over the last 15 plus years being able to buy vacancy within the existing community is really very accretive for us poorly portfolio that.

We've closed on this quarter is a great example of that.

We have the opportunity as a well capitalized and.

Experienced manager too.

The opportunity those vacancies accelerates.

Sales in the occupancy.

Hance early growth in.

And those properties. So those kinds of opportunities are really something we'd like to focus on midnight I'd also just add in properties that have a higher occupancy were seeing nice growth in our broker resident to resident resale transactions picking up sales to that vehicle as well.

Okay. Thank you.

Our next question is from Michael Goldsmith with UBS. Please proceed with your question.

Good morning, Thanks, a lot for taking my question.

Acquisitions, this quarter seem to be a little bit more tilted towards properties with development opportunities or Linda can be developed is that a conscious effort maybe a reflection of the returns you can get from development relative to the mature properties.

Yeah, absolutely I mean, it's we like the combination of all of it.

Acquiring operating assets that are accretive that we can expand the yield on this as well as ones like Gerry Gerry was just talking about where they can see upside to pick up through occupancy gains.

That is exactly in our wheelhouse and something that we've demonstrated for many years that we're very good at.

Do you think that becomes a bigger part of the growth algorithm going forward.

Yes.

That's helpful.

Building off a prior question, yes, as you have your conversations with communities for the upcoming year.

You said, you've kind of mentioned that rate growth has kind of accelerated from last year and it could look to pick up a little bit more how does that breakout between.

All age communities in age restricted communities and then separately or are these communities are they asking for new or different amenities and a post COVID-19 world.

Yes, I think I mean, typically youre going to see on average you're going to see a higher increase in all age communities. Then you do an age restricted community.

As far as the addition of amenities as part of that process.

No. This is that's something from a capital improvement standpoint, and again the long term perspective that we have is just a continual thing for us anyway.

And it's not really a trade as much as it is just what we do okay continue to keep the communities beautiful so that we can grow them with all the different levers that we have.

Got it thank you very much.

There are no further questions at this time I would like to turn the floor back over to Gary Shiffman for closing remarks.

Well I'll apologize for any audio difficulties today, we're certainly going to look into this new system installed.

We thank everybody for participating.

This is a management team that is.

As excited as ever to be able to.

Continue to grow the portfolio to meet the stakeholders expectations and we look forward to reporting.

Fourth quarter and year end results. Thank you everybody.

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

Q3 2021 Sun Communities Inc Earnings Call

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