Q2 2022 Sun Communities Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and thank you for standing by welcome to Sun communities second quarter 2022 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 meetings 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 expectations are detailed in yesterday's press release and from time to time in the company's periodic filings with the S. E C.
The company undertakes no obligation to advise or update any forward looking statements to reflect events or circumstances. After the date of this release.
He said that I would like to introduce management with US today, Gary Shiffman, Chief Chairman and Chief Executive Officer, John Mclaren, President and Chief operating Officer, and Fernando Castro care, a teeny Chief Financial Officer.
After their remarks, there will be an opportunity to ask questions.
For those who would like to participate in a question and answer session management asked that you limit yourself to two questions. So everyone would like so everyone, who would like to participate as ample opportunity.
As a reminder, this call is being recorded.
Now I'll turn the call over to Gary Shiffman, Chairman and Chief Executive Officer, Mr. Shiffman, you may begin.
Morning, and thank you for joining us as we discuss our second quarter 2022 results and provide an update on our full year guidance.
We are pleased to share that our portfolio has continued to deliver strong performance as we feel the ongoing demand for attainable housing and affordable outdoor and vacationing options.
A highly recurring and dependable revenues across our portfolio.
Evident in the strong results, we have consistently delivered throughout all economic cycles.
The combination of these drivers.
Achieving core F F O of $2.02 per diluted share in the second quarter.
On a constant currency basis, who aren't F F O per diluted share of $2.04.
Which represents a 13% increase from the prior year.
We continue to experience high demand for our manufactured housing communities and RV resorts.
In the second quarter, we grew our revenue producing sites by 950, representing record quarterly growth.
Over 85% of this increase came from converting transient RV customers at annual leases.
We are pleased that when transient RV guests discover the experience and value proposition of an RV vacation at a sun outdoors resort.
To make it a longer term vacationing option.
The first half of 2022 we have converted over 1400 transient guests to annual leases, which is about three quarters of the record number of conversions achieved during all of 2021.
Our proactive approach to converting transient guests our longer term annual residents.
Been a consistent strategy.
As we build SUNS portfolio through selectively acquiring best in class resorts.
As a result of an even greater revenues stickiness and higher NOI per site.
Yeah.
Our same property manufactured housing and RV portfolio demonstrates continued solid gains.
The second quarter manufactured housing and RV same property NOI.
3.6% over 2021.
Driven by a four 8% revenue increase.
Set by a seven 3% expense increase.
In our Marine segment same property NOI grew seven 1% for the quarter driven by a six 1% increase in revenues from slip storage income.
<unk>, 3.4% increase in expenses.
Looking forward to the next several quarters.
<unk> operating environment of high inflation and economic uncertainty presents challenges for all businesses.
After nearly 40 years in the business I have personally seen experienced cycle tested and nature of the demand for attainable housing and affordable vacationing.
This when combined with our best in class assets.
Steady cash flow growth and reliable bottom line performance.
We have a decades long track record of growing our business and cash flows.
Operating acquiring and expanding manufactured housing communities day dating back to 1975.
And RV communities dating back to 1996.
Specific to our V. I would highlight that we have three competitive advantages and continuing to garner transient RV revenues.
Namely our proprietary reservation technology, including camp spot.
Quality and locations of our resorts.
And then unmatched team yeah. It provides a best in industry customer experience.
Monday or manufactured housing and RV properties also important to note.
And over 90% of our manufactured housing portfolio, we are able to increase annual rents by CPI or greater.
As a result, we can pass through rent increases annually and mitigate the impact of inflation.
We're marina portfolio, we expect our locations to perform well during uncertain economic times.
Given the higher average household incomes of our members.
Tenuous and growing need for both storage and a compelling fundamentals.
The demand side for marinas is an existing base of approximately 12 million registered boats within the U S.
And the supply of only 900000 1 million wet slips.
Additionally, the overall supply of marinas continues to decline as the ball pairs acquire and repurpose them into waterfront residential and other commercial uses.
As of June 30th our Safe Harbor marinas represent a network of 130 marinas that provide the highest quality essential wet slip and dry storage facilities members require.
In turn <unk>.
Generates recurring revenue the average safe Harbor Marina member stays for approximately seven to eight years.
Yeah.
The common fundamentals among manufactured housing RV and marine us.
<unk> city locations.
The man that far outpaces supply.
Absolute barriers to entry.
It leads to resiliency of our revenues across our portfolio as evidenced by our strong performance to date.
Yeah.
We also achieved strong external growth during the second quarter and through the date of this call.
Closed on $1.8 billion of assets.
Listing or for manufactured housing communities.
Marinas and 52 holiday parks.
The 40 property park holidays portfolio in the U K.
For the remainder of the year, some focus will be on integrating these assets into our portfolio.
Recognizing the accretive value of these acquisitions.
Being highly selective and pursuing additional opportunities.
Our development platform continues to be a compelling growth driver and a unique differentiator for sun.
During the second quarter, we acquired two newly developed manufactured housing properties in Arizona and Texas.
Goodbye include nearly 450 fully developed sites ready for occupancy with an additional 600 expansion sites to be completed in the future.
These developments give sandy added attainable housing presence.
Highly attractive locations.
High quality manufactured home community is a very desirable way for people to achieve their dream of owning a home.
Turning to our U K portfolio the opportunities are very similar to the Sun manufactured housing business <unk>.
Including stickiness of revenues track.
Attractive growth two expansions and developments.
Similar supply and demand dynamics.
So the combination of the park holidays in the park leisure portfolios, we have a highly desirable footprint with.
With 75% of our target customers within a 90 mile drive one of our communities.
PERC holidays portfolio, that's an expansion pipeline of over 1500 sites. In addition to approximately 700 newly developed and completed sites.
Over the past 15 years.
Holidays team has shown their ability to create value for their stakeholders.
Last and certainly not least we released our latest ESG report during the quarter highlights the significant progress we made in 2021.
We increased high performance data and began laying the foundation for establishing improvement targets for key ESG measures.
We're especially pleased in in its recently released ESG report ne.
NAREIT recognized our back to school program.
Our first free tutoring for dependents of team members.
That is very well positioned to continue to create value through organic growth expansion, new developments and select acquisitions.
We are grateful for the entire team's ongoing dedication throughout the integrations and look forward to building upon the deep operating experiences and strength of the team members.
To continue delivering attractive risk adjusted returns for our stakeholders.
I will now turn the call over to John and Fernando will speak to our results in detail.
Thank you, Gary our second quarter and year to date performance in 2022 reflects the consistently strong operational results contributions throughout the entire portfolio.
Our same property MH and RV NOI increased three 6% for the quarter driven by a four 8% increase in revenues and offset by a seven 3% increase in property operating expenses.
Our MH communities performed well with a four 4% increase in revenue compared to the second quarter of 2021.
Our annual RV revenue increased 12, 1% driven by the high volume of transient to annual conversions, which contribute a revenue uplift on site in the range of 40% to 60% in the first year.
For the three months ended June 30th same property transient RV revenue increased 60 basis points, even as we had 1500 fewer sites due to our successful conversions Daniels.
The weighted average rental rate increase was four 5% for the quarter and occupancy increased by 170 basis points.
Marine our same property NOI increased by seven 1% for the second quarter and 5% for the six months ended June 32022.
Our boat slip storage annual revenue increased seven 1% for the quarter compared to the same time last year, reflecting the positive supply and demand dynamics that Gary spoke to earlier.
We acquired two manufactured housing developments this quarter, Spanish trails and age restricted community located in Casa Grande, Arizona and pioneer could trails in all age communities Conroe, Texas.
These two newly developed locations provides sun with an immediate opportunity to supply our quality value Orient solutions to municipalities in need of attainable housing.
Within the quarter Sun sold over 975, new and pre owned homes in our communities.
The average new home selling price increased seven 2% for the three months ended June 30th two $164000 with a margin approaching 20%.
Additionally, in our brokered home sales we are pleased to report a 37% increase in sales prices year over year, demonstrating the enduring value of living in a sun community.
Our MH and RV total portfolio occupancy reached 97, 2% as of June 30th.
Year to date, we have received approximately 29000 applications to live in a sun community as demand for our communities remains robust.
At Sun continues to execute on development expansion deliveries during and subsequent to quarter end, we purchased three land parcels for $10 $7 million located in Colorado, Utah and Nevada.
These three entitled Land parcels will provide sun with future opportunities for Greenfield development and expansion of over 650 sites in areas of high demand and needed supply.
On our last call we discussed commencing construction on five manufactured housing projects located in Colorado, Florida, Texas and California.
Construction is advancing as anticipated and we expect to have two communities opened their first phase by the end of this year.
Forward bookings for the total RV portfolio of owned and operated by Sun are slightly ahead of last year's record pace, although they have moderated compared to our prior expectations.
Continued growth is supported by an additional base of new customers, who experienced an RV vacation for the first time last year.
Similar to our strong performance over the Memorial day weekend during the fourth of July holiday same property transient revenue increased by nine 4% compared to 2021 and was driven by a 17, 3% increase in average daily rates.
We are pleased with our continued performance and are grateful for our team members, who continue to go the extra mile each day.
I will now turn the call over to Fernando to discuss our financial results in more detail Fernando.
Thank you John for the second quarter Sun reported core epitope or diluted share on a constant currency basis of $2.04, which is 13% above the prior year and exceeded the high end of our quarterly guidance range by three cents.
The outperformance was driven by better than forecasted results from the total marine our portfolio and home sales contribution given increased sales price and margin for the quarter.
These positive variances at the property level offset higher real estate taxes interest expense and lower than expected transient RV revenues.
As of June 30th Sun had $6 $9 billion of debt outstanding equating to a net debt to trailing 12 month recurring EBITDA ratio of six three times.
Our total debt carries a weighted average interest rate of three 4% and has a weighted average maturity of seven nine years, excluding our bank revolving credit and term loan facilities. The remaining $5 $2 billion of debt has a weighted average interest rate of three 5% and a weighted average maturity.
Of nine six years.
During and subsequent to quarter end, we settled forward agreements on approximately $6 2 million shares that netted $1.1 billion of proceeds used to pay down borrowings on our credit facility.
We had previously disclosed approximately five 2 million shares settled in connection with the park holidays acquisition in early April .
The remaining 1 million shares were settled to fund additional acquisition activity.
Additionally earlier this month, we swapped 400 million pounds of our funded 875 million pound Sterling term loan from variable rate to a fixed interest rate of 367% through 2025.
Pro forma for the $1 $8 billion of acquisitions and capital markets activity completed during and subsequent to the quarter. Our net debt to EBITDA leverage ratio is inside our stated target range of five and a half times we.
We have also reduced our variable rate debt exposure to 16% today as part of our active capital management strategy.
Due to the addition of our manufactured housing portfolio in the U K, we will now provide an guy to core F O on a constant currency basis.
Like other Reits with non U S dollar currency exposure, our constant currency adjustments eliminate the noncash fluctuations and reporting that are due to foreign currency exchange rate movements relative to the U S dollar, thereby enabling investors to compare fundamental performance across time periods.
We continue to see strong year over year growth across the platform after a great 2021%.
As summarized in the press release issued yesterday, we are increasing the low end of full year guidance for constant currency F O per share by two cents to a revised range of $7.22 to $7 32 per share.
$7 27 midpoint of our new range is one cent higher than last quarter and represents 11, 7% growth over 2021 results.
We are establishing third quarter 2022 constant currency core F O per share guidance in the range of $2 56.
The $2.61.
At the same property level, we are moderating our growth expectations slightly for manufactured housing and RV by 50 basis points to six 4% at the midpoint at least six to six 8% range.
Honestly lower growth accounts for higher real estate tax assessments in Texas, one of our larger MH markets and parent transient RV revenue expectations for the remainder of the year.
Third quarter same property MH and RV NOI growth is expected to be six 8% at the midpoint of guidance.
Or Marina same property, we are slightly adjusting the NOI growth range for the year by 30 basis points to six 4% at the midpoint of 80, 668% range.
Third quarter same property Marina NOI growth is expected to be eight 3% at the midpoint of guidance.
As a reminder, our guidance includes acquisitions and capital markets activity through July 25th but does not include the impact of prospective acquisitions or capital markets activities, which may be included in research analyst estimates.
This concludes our prepared remarks, we will now open the call for questions operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star case.
As a reminder, if you could please limit yourself to two questions. So everybody may have ample opportunity.
Our first question comes from the line of Keegan Karl with bare Burke. Please proceed with your question.
Hey, guys. Thanks for taking the question maybe first here on transient in the quarter I know prior you disclose the forward bookings were up 4% for same property you guys seeing any trends such as either shorter length <unk> visibility into booking window. Then how do you think about guidance on this particular segment for the rest of the year.
Okay against John Good morning.
Yeah, our booking window for summertime stays in our RV resorts generally is between the 15 or 60 days is when we see the majority of our bookings that sort of a.
Pick up from <unk> 62, their stay to the 15th day, which is sort of a peak I don't want people coming in and haven't seen it.
Tremendous you know when I chart that out in comparison in terms of like when bookings falling.
<unk> seen a whole lot of difference between that in prior years.
And then keegan to complement the second part of your question as far as our expectations for the full year on RV transient revenue growth.
We had previously stated a range of 12% at the midpoint are those expectations for the full year now are are at about six 4%.
With the.
With a third quarter.
Gross on the transient side of about 4%.
Got it very helpful. There and then maybe just one more on marine NOI guidance as well just maybe a little bit more color. Here. Obviously is a 30 basis point cut is it more expenses or demand deterioration just anymore color there would be helpful.
Okay, again, scary I think that.
What we're saying is just.
Great performance overall demand and rate continues to be exactly as we underwrote it.
Brian This is slightly adjusted for some longer stays that resulted from more of the restricted COVID-19 travel by the big boats, So as things open up a little bit.
The boats as they normally do travel started traveling a little bit more so the modest adjustments at some there.
Standpoint, as a result of that.
Great. Thanks for the time guys.
Our next question comes from the line of Wes Golladay with Robert W. Baird. Please proceed with your question.
Hey, Yeah. Good morning, everyone I want to go back to the pace for the third quarter for our E. I think you said, it's going to be 4% in the third quarter I just want to see what you're seeing on the ground and he seen fewer visits shorter stays where you're just converting too much too many sites to annual.
No Wes good morning, it's John .
I think the way I would answer that is that you know.
2021.
Ah represents a year in our view, where we enjoyed growth that was.
Beyond anything we've seen historically and as we shared before recorded record new guests that sort of set the stage. The answer your question. The fact is we're still enjoying the tailwind.
And our overall RV performance, thus far in 2020, you need to.
Just a few points of reference.
Since the start of 2021.
Over 10% of our transient sites in annual leases, which again as I said in my remarks, it was a 40% to 60% revenue pick up in the year that they convert.
That as Gary shared in the first half of 2022, we saw continued growth converting over 1400 sites, which is.
Over 75% ahead of our record setting first year full year of 2021 conversion results. So.
Even with a 10% reduction transient.
Last 18 months.
We still grew transient RV revenue overall in the second quarter and outlook like Fernando sub 4% in the third quarter, having really great Memorial day and fourth of July holidays.
As well as you know the expectation that we would grow approximately six I'd say pronounce at six 4% I think the key there for the full year.
The key there is that number is actually slightly elevated against typical transient growth numbers.
We would have realized annually pre COVID-19, but now with more conversion success and also in the face of 9% inflation that we have today so.
I think that transient performing extremely well remained steady and I think we continue to as we shared before build growth on a new base of customers, we established last year.
Got it and I want to go back to that comment about 12 million voters a supply of what slips you have insight into pent up demand to become a member.
Safe Harbor platform and is there any markets that really stand out with isn't a really big backlog.
Uh huh.
All markets stand out.
Fact of the matter is that the occupancy remains very very high because land as I said.
Is far greater than the wet slips that are available today, but.
If you want to follow up on anything specific.
Weighted too.
Anything please reach out to Fernando's Stephanie served the company and we can get you there.
Pacific details with regard to our residuals.
Residual demand and occupancy for most marinas during the high season.
We have more demand than we can actually supply they're at full occupancy for those on the tour as examples of where occupancy is even above 100% were full.
Full time.
We and our members move out and we can temporarily.
At their sites with their permission.
Again.
Well occupancy and.
The adjustment to guidance, just really related to a little bit of the easing of.
Covid travel the larger boats.
Great. Thanks, everyone.
Yeah.
Our next question comes from the line of Michael Bilerman with Citi. Please proceed with your question.
Thanks, Nick.
Nick Joseph here with Michael.
Starting on park holidays, I recognize it's only been a handful of months, but you've provided guidance for <unk> for the third quarter and then there's a six months for the back half of this year and I recognize that also includes some of the acquisitions.
Subsequent to the initial.
Company acquisition. So I was wondering how the at least the initial properties acquired have performed relative to underwriting thus far.
I'll start out and Uh huh.
Anyone can jump in but we.
We are certainly equal to or slightly exceeding all of our underwriting performance remained very very robust in the U K.
Edition of the park leisure portfolio as I mentioned in our comment.
It gives us an incredible footprint.
Yeah really targeted resident within a 90 mile drive evolve our coastal and inland properties. So the expectation is as.
As we look out over the next 12 months will continue to integrate.
All of the acquisitions in two.
Alright holidays.
Operating system, and we would expect continued growth.
Equal or exceed our underwriting so very very positive what we're seeing there.
Nick This is John I'll, just add onto that with the park leisure acquisition, those 11 properties really fits the sweet spot and the fact that.
Those sites and those properties are 92% owner occupied.
With 400 expansion sites in front of it as well so it's a really solid acquisition we're excited about.
Thanks.
I guess just more broadly on the acquisition pipeline how is it looking today and are you seeing any changes.
Cap rates across the different asset classes that you invest in.
So Nick it's Gary we continue to see opportunities across all three platforms. We do remain very disciplined with regard to our view on capital allocation.
Generally.
MH and RV remain in the four to five cap rate range.
With the highest quality manufactured housing's still seeing transactions.
And the three cap rate range.
Marinas remain in the six to eight range for the quality that are safe.
Safe Harbor in center looking for.
The U K side yields are everything we've done a tax adjusted have been in the low to mid Sevens, we haven't seen a lot of change as far as our outlook goes we would expect the challenging financial.
Markets and conditions out there.
Could yield some very special opportunities and we'd like to think that we'd be in a position and prepared to take advantage of those opportunities as they move forward.
We'll continue to watch.
But.
I'm very disciplined look as to how we're thinking about external acquisitions at this time.
Are any of those opportunities presented themselves now or is that more of a maybe a potential future expectation.
I think it's more of a future expectation are there are a couple of platforms.
Australia.
I never would've thought would've come to market that are coming to market right now with some of the bankers.
Hum.
We are not involved in those processes.
At this time, but.
Interesting to note that they came to market before I ever thought they would have.
Thank you.
Our next question comes from the line of Brad Heffern with RBC capital markets. Please proceed with your question.
Yeah. Thanks.
At the park holidays NOI split this quarter about.
About 65% of it was from home sales can you reconcile how that compares to the 37% of gross profit that you quoted with the deal and maybe just walk through how.
The split changes quarter by quarter with seasonality.
Bradley.
Our expectation is that the the touring sees in the heavy touring season.
For the park holidays portfolio.
Is is during the third quarter.
And so there there is an increased percentage of NOI contribution from from real property.
During the third quarter weekend.
We can step through those percentages on a on a follow up call.
Don't have those figures in front of me.
Okay got it.
And then on the currency exposure.
Is there a plan to you know.
How does that in some way or maybe pursue a pound offering in order to to neutralize some of that.
That's a that's a great question.
To remind everyone. We are fully naturally hedged in the in the U K, where we paid for the transaction.
With borrowings on our.
Multi currency credit facility that includes that includes sterling so any cash flow that is generated.
By the U K operations.
Pays down pay down any debt that's outstanding we are not moving.
Back and forth to the U S. So there is no realized a gain or loss from translation.
In in time, if we would plan to be moving capital from the U K back into the U S. We were.
We would look to put in cash flow hedges at that moment.
Okay.
Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Good morning, Thanks, a lot for taking my question. My first question is on the impact of inflation rent per site growth in 2022 with elevated historically, but not necessarily at the level of inflation.
When you set 2023 rent inflation levels will likely be higher than last year.
Theres been inflationary times in the past can you help help us think about how much you're able to pass along during elevated inflationary times and just related to that they've also been elevated expenses.
Revenue isn't growing as fast as your expenses this year so.
As we look forward do you think that revenue can grow faster than expenses.
Well, thanks, Michael for pointing out that I'm the oldest person in the room. So when we look at history.
Okay.
Let's start with the latter I'll move to the farmer I think we've shared with the market that are about 40, 50% of our rental increases in manufactured housing had to be noticed.
90 days in advance of January one.
Mostly in the Florida properties, but when we looked in August and September at our budgeting as we're doing right now at that time, we didn't have that crystal ball to ever imagined.
Inflation coming to this nine 1% and was most recently reported and so we sat rental increases I think roughly four two for the year.
And M H and we have to live with those until the next in a rental increases.
Or put in which we're beginning the budget right now and to the beginning of your question in my long history of 40, plus years and manufactured housing and through our.
Recessionary periods and certainly through the Dfc.
We are able to pass through.
All inflationary expenses in the form of annual rental increases and our current portfolio C. P I or a greater than 90% of our manufactured housing communities. So we feel very comfortable that.
With the insight of our.
Where inflation is going and the benefits that we will have over the next 60 days.
We will be able to adjust our rental increases.
To match.
Our expenses related to our cost so.
This coming year 2023.
We should see equal to or greater.
Increase okay.
Our average rentals.
Yeah.
That's really helpful. Thanks for that Gary and then on the topic of G&A. That's increased as you've built the foundation to support the number of business lines. At this point do you feel like.
That you have the necessary infrastructure in place to support the growth of your.
Three four segments going forward. So said another way should SG&A growth moderates in the years ahead.
Yeah, It's a great question and it really ties into.
The rate question that we just spoke about when we look at 2023.
We recognize and hope our stakeholders do as well that we've established a tremendous platform that will allow us to grow and create value.
All of the ways that we continue share with America, the internal opportunities of growth and external when we couple.
That with both historical performance and our ability to pass on.
<unk> costs in the form of rent.
Along with DNA that are really has grown substantially over the last three or so years, we would expect to be able to leverage that G&A and as we look out forward.
Really our goal and budgeting is to be flat year over year G&A.
That coupled with our rental rate increases to pass through inflation allow us to be very comfortable.
How we're thinking about our results going into 2020 rigs so scale ability of G&A.
I think is really at the forefront of what the company can deliver going forward.
Okay.
Thank you for that and good luck in the second half.
Our next question comes from the line of Samir Khanal with Evercore. Please proceed with your question.
Hi, Good morning, everybody, Hey, Gary just on that last point about G&A, you said sort of flat.
Keeping that flat next year, you're talking sort of on an absolute level or you're saying kind of a neat G&A as a percent of revenue.
We're going to get as close as we can on an absolute basis, but I was talking about a percent of revenue.
But.
We're really targeting.
Leveraging everything we've invested to bring the marine up platform.
And to our public reporting.
Position.
The same is true with the work being done on the U K.
And as we also continue to reduce the transient sites.
Transient to annual at the pace, we're going right now we would expect there would be some G&A savings there as well.
Okay got it and then and then Fernando I guess this is more of a modeling question, but.
And you talked about conversions as well for transient to annual and does that really picked up in the quarter I guess, how should we think about that that pace of conversion.
Sort of and into the back half of this year and into next year at this point.
As we look at our current inventory of about 28600 700 sites.
Transient RV sites.
We would say that there is there's a good 25% of.
Of those sites that are candidates for conversion over time, we have seen elevated conversions over the course of 2021, and certainly 2022, where we're already at 75% of last year's record figures and good could expect our ending.
2022, with a with a higher conversion of Mt.
But.
But we still have a good runway for a number a number of years and as we continue to expand our our communities that does provide additional inventory for for conversion over time.
Okay got it that's it for me thanks, guys.
Thanks.
Our next question comes from the line of Joshua <unk> with Bank of America. Please proceed with your question.
Yeah, Hey, everyone.
I had a I guess I saw that you had a comment in.
<unk>.
Page 10 of your press release, where you mentioned you reclassified certain revenues and expenses.
The marine aside just curious on kind of more color and what exactly whats changing there.
Sure Josh. Thank you for the question are we primarily reclassified certain expenses, mainly utilities and payroll and credit card fees. Due most closely closely align with the revenue drivers for those expenses. This reclassification did not have any impact on.
The unexpected growth.
Okay. So its a overall where were they just not in that same store number before is that right.
There was a reclassification between real property real property revenues and expenses and service retail dining and entertainment.
Revenues and expenses.
Okay, maybe I'll follow up offline.
One other question. So what is that one of the hot topics.
I've been fielding from a got citizens that you've added two new business segments Marine Ism Park holidays, and there's not really that much publicly available data to see how they performed in a recession can you maybe walk us through how youre thinking about the cyclicality of these business lines.
I think for those of you on the Investor Tour.
Recently in the UK, when we think about the.
U K Pac holidays business it lines right up with our manufactured housing business in particular.
Birds they are set.
Second homes vacation homes for a qualified buyer that must own a single family residential homes.
We have a 15 year period that our current management a lot of current management has worked in building the portfolio.
And are they.
<unk> seen a very very solid growth over the 15 year period of time, including the Dfc, where they also grew right through that period of time, So we're thinking it pretty much.
In terms of how we would think of our manufactured housing portfolio.
Which we've talked about being very resilient.
Tough economic times.
Affordable housing and affordable vacationing.
So the best comparative data we have is the performance over the last 15 years and their portfolio as compared to how MH has performed really for the last 30 plus years as a public company and 10 as a private company that I've been involved in it.
So to date, we're continuing to see it.
Perform right to budget or as I said slightly ahead of it.
Additionally.
With regard to marinas.
Don't have.
Same property is set to look at we have the performance.
But we're starting to develop in the Kpis that we're going to continue sharing with everybody, but our fundamental belief is that it is a business that matches up to SUNS platform.
Just because of the demand far outstripping supply factors that boats have been getting larger and larger so it's not an option anymore like it used to be to trade a lot of them into your backyard or your garage or something like that especially with homeowners associations not permitting.
<unk> stays.
And.
Thank God I mentioned in my remarks that we actually do have a diminishing amount of marine is across the U S. As we do see the real estate development.
Place in a very apprised waterfront areas.
So.
We would expect that our Marina this will continue to perform.
Very resilient in this market forward owners love their votes, and boating and Theres a shortage of places to put them on the water. So we're expecting a re.
The OEM performance moving forward.
Yeah.
Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
Great. Thanks for the time Fernando a question on the.
Cost structure of the MH business, so year to MH or up about eight 5% they were up 8% last year.
The high inflation environment continues its high single digit expense growth for the MH portfolio, a reasonable that in mind.
Thank you for the question.
John I would say there are a number of items that would moderate expected growth over the course of the second half of the year.
The main contributor to that would be an easier comp in the second half of 2022 for payroll as we've shared with the market.
During July of 2020, one we had.
That increase the minimum wage for.
For all team members.
At the at the property level and that led to much higher much higher expense growth.
Over the course of the last 12 months that comp now rolls off and it's a more moderated.
And that step function increase.
The moderating that.
That would be as I shared in my remarks, we did receive a real estate tax assessment and in Texas that was higher than our expectations.
As normal course of business we.
We can test that assessment and then to the extent that we are successful with.
Then reduce reduce that tax.
The tax hit.
But what would expect that expense growth for the MH portfolio to be lower than what you've seen over the course of the first half of the year.
Okay.
A question on.
Marina revenue.
And non transient so I know transient small.
Two line items going into different different directions in the quarter.
Excluding transient up seven 5%.
Transient revenue was down nine 5%. So can you just understand kind of the building behavior of the customer behavior around around the docks right why transits declining while other revenues are still increasing by a pretty big clip.
Yeah.
I think John I would suggest some of that is the movement.
That's taking place with a bigger boats that had been occupying a lot of sites through COVID-19 as they haven't moved around and some.
Some of that is just being picked up as they move up by the transient.
So youre seeing that because there is not a lot.
Percentage of.
Thanks slips available for transient.
When the.
Season started and so a little bit of movement, we were able to slip in a little bit more transient and John you mentioned it right. It's a it's a very small number was.
You're talking about $4 million in the over the course of the quarter. So the did the.
Comparative growth number is is larger but we're talking about a small dollar amount.
Understood, but are you seeing any makes sensitivity flow through the marine is right now outside of the big movement in the large ships for Covid issues.
We are not John .
I know.
At.
And visiting some of them Marine has recently everybody is out there enjoying their boats.
And obviously, you've been putting up with a lot of the hot weather.
And we.
We do not see any trends.
That would be different than the ordinary with regard to rental of slips there is more demand than we can actually.
Hey.
Long term membership.
Alright, thanks for the time.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, a question on the epic journeys deal you did in July in Montauk, I'm curious, it's a pretty sizable deal I just wanted to confirm that that does include the a b resort portion and if you would consider maybe selling that portion to our hospitality owners, if that makes sense and maybe some more.
Tailed rabbit.
Mailed around deal will be great.
Sure.
Safe Harbor had been working with the seller for many many years.
Our relationship basis trying to acquire.
Our island Marine at which came with the resort.
The Marina and.
Location is just an irreplaceable asset located in Montana.
Which is really a high demand area for the over 10000 existing regional safe Harbor members to utilize.
So it was acquired with the hotel same seller so both were.
What was sold.
Sold to a safe Harbor.
Obviously the membership.
As I already begun taking advantage of both the resort and the slips that are there.
It really plays to <unk> strength, and a history of buying on an accretive basis and recognizing the long term value creation opportunity achieved by growing yield and cap rate on an annual basis, we're still doing the marina.
The resort is being operated by a third party, which is actually the sellers a Gurney resort management company.
And we will definitely be looking at our options for opportunities.
With regard to that resort as we move forward.
Thanks, and then maybe one more on I guess, the Texas Pie maker trails MH deal it's at.
Yeah, I haven't seen a ton of MH deals in the U S. In a while so we've seen a few here it's quarter curious how that one was underwritten given the given the developments that you have there and how the interest was for that deal compare to seven.
So many age restricted deals you've done elsewhere.
I can speak to the interest and sort of how it came about so I think I've shared before we've spent the last six years really building the pipeline of sites and no pun intended the road in front of us in terms of MH development.
Today, we have about 30000 sites in various stages of entitlement that are in our pipeline and scary said a number of times I think that's a unique advantage.
The advantage that we have.
As a part of that.
And the markets that we look at we've talked to a lot of people as we because it takes a lot to get them into the pipeline and became across the sellers who are already starting to they had already entitled to site and started developing that site and so we took over midway through.
When we look at it it fits the profile the investment profile of Bolivar.
Development that we do which we would expect that this is going to kick off.
High single digit IRR.
And in an area that has I will say a little bit elevated lease up associated like we see in Texas. So it was obviously very attractive.
Development acquisition that we're excited about especially the fact that we've got.
400, plus sites that we can fill up the rapid succession.
Alright, thank you.
Our next question comes from the line of John Kim with BMO Capital markets. Please proceed with your question.
Thank you.
I had a question on your U K and into the <unk>.
Half of the year.
A little bit over $81 million in Hawaii.
What would that translate to on an EBITDA basis.
John we provided guidance during the <unk>.
Right. After the first quarter of G&A for the park holidays platform at a midpoint of about $27 million for the.
April to December .
On a comp on a non constant currency basis that that figure would be expected to be.
B b, a little bit less call, it a million or $2 less than $27 million.
Okay I just wanted to know if there was if there was any additional G&A through recent acquisitions or.
Other deductions from NOI to EBITDA.
Then there are small now.
Small figure.
My second question is post quarter, you raised equity on a forward basis, a little bit over $172 per share.
I was wondering how you were able to accomplish that kidney sharepoint wasn't at those levels.
I'm, sorry, I didn't hear the end of the John about.
And final question your share price Didnt.
You raised above the share price basically.
Yeah, I think that that was just the timing of what was available in the market and we were just match funding to no.
Some of the acquisition activity that was going out there.
Yeah.
Okay.
Thank you.
Yeah.
Our next question comes from the line of Anthony Hau with Truest. Please proceed with your question.
Hey, guys. Thanks for taking my question Fernando going back to the U K guidance last quarter. The guidance only included park holiday and an implied roughly around 125 million of NOI. When you back out G&A from EBITDA. The current guidance includes park leisure as well and implies a 125.
NOI after adjusting for FX.
To me that you've got to have a lower guidance, even on a constant currency basis am I missing something here.
Anthony your Youre not.
As you saw we provided an update this morning, where we updated our expectations for the remaining six months of the year inclusive of park leisure and other acquisitions in the U K that contribution at a at a midpoint would be for the next six months.
B, bringing in about $102 $5 million.
To which you would add the $40 5 million that we've already realized over the course of the second quarter of the year, bringing NOI contribution.
To to around $140 million.
Gotcha.
And that did the recent heatwave in U K make any impact to the holiday parks at all.
No. It didn't this is John .
Let's talk to those guys every day.
Yes.
Okay.
Okay.
That concludes our question and answer session I'd like to hand, the call back to management for closing remarks.
Thank you everybody and we.
We look forward to.
Speaking again on our.
Next quarter's results and feel free to follow up with any of your questions. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.