Q2 2023 Sun Communities Inc Earnings Call
Good afternoon, ladies and gentlemen, and thank you for standing by welcome.
Welcome to the Sun communities second quarter 2023 earnings Conference call. At this time management would like me to inform you that certain statements made during this call which are not historical facts, maybe maybe deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Although the company believes the expectations reflected in any forward looking statements are based on reasonable assumptions. The company can provide no assurance that its expectations will be achieved.
Factors and risks that could cause actual results to differ materially from expectations are detailed detailed in yesterday's press release and from time to time in the Companys 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.
Having said that I would like to introduce management with us today.
Gary Shiffman, Chairman, President and Chief Executive Officer, and Fernando Cashew, Karen Teeny <unk> Chief Financial Officer. After their remarks, there will be an opportunity to ask questions for those who would like to participate in the question and answer session management asked that you limit yourself to one question, so everyone, who would like to participate has ample opt.
Attunity.
As a reminder, this call is being recorded.
I'll now turn the call over to Gary Shiffman, Chairman, President and Chief Executive Officer, Mr. Shiffman, you may begin.
Good afternoon, and thank you for joining our call to discuss second quarter results.
<unk> 2023 guidance.
We are pleased to share some continued strong operating results.
Core <unk> per share of $1 96 for the quarter was in line with guidance.
Supported by strong six 3% year over year growth in same property NOI.
And three 4% growth in recurring EBITDA.
Our property share the compelling fundamentals of resilient demand and low to shrinking supply, which when combined with the unparalleled customer services teams delivered historically generate high durable cash flow streams throughout economic cycles.
Same property NOI growth in the quarter exceeded the high end of guidance by 150 basis points and was driven by solid revenue growth and the successful implementation of ongoing expense management.
Okay.
Manufactured housing same property NOI grew five 7% compared to 2022, driven by strong rental rate growth and bolstered by occupancy gains.
And Harvey's same property NOI growth of three 2%, reflecting our continued focus on converting transient guests.
Annual residents.
Which increases our stream of stable revenues and improved operational efficiencies.
At the end of the quarter same property adjusted occupancy for our combined MH RV locations was 98, 7% a year over year increase of 170 basis points.
That reflects the resilience of demand for our properties.
Additionally across our total portfolio, we gained over 1000, new revenue producing sites during the quarter, which represents nine 4% growth compared to last year and brings total gains for the year to nearly 850 sites.
Same property Marina NOI grew 11, 9% compared to the prior year.
Beating our expectations.
Performance was fueled by robust demand for wet slips and dry storage for boaters, who increasingly discover the convenient unmatched locations in premium amenities offered through our best in class network in the Marines.
On a trailing 12 month basis, our same property portfolio generated 91% of total real property NOI.
Powerful engine for EBITDA and cash flow growth.
We intend to remain internally focused on optimizing our embedded portfolio growth.
I reinvesting in our properties and providing the highest level of customer service, we preserved and increase value for the residents guests and members and help ensure predictable long term revenue growth.
Portfolio optimization includes completing select property expansion and then the case of Marinos dock reconfiguration to enhanced property returns and to scale property operations.
In the second quarter, we delivered over 100 expansion sites across three communities.
In May we published our 2022 ESG report.
Our significant achievements, including the expansion of our GHT inventory cover marinas, and the U K and our board's commitment to achieving net zero emissions.
These and other important initiatives reinforce our dedication to being responsible stewards of all resources toward a shared goal of improving the communities in which we live work and serve.
I would like to thank all of a sudden team members who have been instrumental in our accomplishments in the first half of the year and.
And as we progressed through the second half of 2023, I look forward to realizing even greater achievements that will further enhance sun's platform and the value we deliver to all of our stakeholders.
Now I'll turn the call over to Fernando to discuss our results in more detail.
Thank you Gary during the second quarter core F. L $1.96 cents per share was in line with guidance real property revenue growth as well as efficiencies in property level expenses drove the quarters performance, partially offset by higher interest expense.
Our same property results were solid as demand for our properties remains strong.
Same property NOI grew six 3% in the quarter as compared to 2022, which outperformed the high end of our guidance by 150 basis points total.
Total same property revenues grew six 2% and exceeded property operating expense growth of 6%.
Lower expense growth was broad based with moderate year over year growth realized in payroll utilities real estate taxes and other.
Same property manufactured housing NOI increased five 7% during the quarter exceeding internal expectations.
Outperformance was driven by strong occupancy gains all stirred by our rental rate increase of five 7% and lower than expected expense growth, especially in payroll.
And RV same property NOI for the quarter increased by three 2%, we achieved strong eight 6% gross and weighted average annual rents over the prior year and operating expense efficiencies have resulted in modest 4.1% expense growth over the prior year.
These partially offset a six 1% reduction in growth in transient RV revenue.
Our RV communities delivered solid results during the July 4th holiday weekend same property RV transient revenue increased by eight 4% compared to 2022, even as we had five 7% fewer transient sites available.
July 4th fell on a Tuesday, this year, whereas last year it fell on a Monday.
Adjusting for just the Friday to Monday period same property RV transient revenue still increased by two 7%.
While we continue to see strong holiday and weekend demand during midweek periods transient RV revenue growth continues to moderate from recent record levels strategically we remain focused on increasing our stable annual property revenues through increased transient to annual site conversions. In addition to incur.
<unk> the percent of revenues derived from annual residents conversions resulted in higher NOI margins over time by decreasing the higher level of variable expenses associated with transient guests.
During the second quarter, we converted over 750 transients sites across our total RV portfolio, bringing first half conversions to nearly 1300 sites.
The start of 2020, we have converted over 6000 transient sites to EM and.
And we intend to continue driving transient to annual site conversions to optimize long term returns.
In the second quarter Marina same property NOI increased 11, 9%. This outperformance was driven by nine 2% increase in revenue from stronger demand overall and lower expense growth of three 4%.
Michigan, we surpassed our internal expectations for mid single digit expense growth.
Lower expense growth was most significant in marine our payroll and benefits utilities and supply and repair.
In terms of home sales, we were in line with our expectations in North America and are on track to achieve our guidance continued demand as demonstrated by an average price for new homes of $210000 and higher margins.
In the U K economic headwinds continued to impact vacation home sales.
Wholesale NOI margins of five 7% below prior year margins were in line with our expectations. The approximately 840 homes sold in the second quarter were 8% below our expectations.
Inflation in the U K has remained higher for longer than anticipated and in late June the bank of England implemented an unexpected 50 basis point increase in our base interest rate, we have seen the time home purchasers take to buy a vacation home continuing to lengthen and the margins on those home sales remain under pressure.
Our experienced UK team continues to successfully navigate this challenging market environment with a focus on optimizing volume and margins while these conditions persist.
On the real property side, we are seeing higher retention rates for park holiday homeowners, which leads to higher average resident tenure and approaching eight years, we remain enthusiastic about the growth opportunity in this segment of the business.
As of June 32023, or seven $6 billion in debt outstanding more interest than weighted average rate of 4% and had a weighted average years to maturity of seven one years.
Our trailing 12 months leverage ratio was six two times based on our operating cash flow expectations for the remainder of the year and potential capital recycling opportunities, we anticipate deleveraging towards our long term leverage target.
As detailed in our supplemental we are revising our full year guidance range for core <unk> per share downward by two 2% to a revised range of $7 90.
The $7.23 and Istar.
<unk> guidance for the third quarter.
<unk> guidance is primarily reflective of lower expected home sales in the U K and higher interest expense expected in the second half of the year predominantly from the flexible variable rates Sterling denominated debt and funded our U K business.
Since our last guidance update in April short term interest rates have increased meaningfully we are evaluating opportunities to refinance and pay down floating rate debt over the second half of the year.
We expect continued strong same property performance and are increasing our total same property NOI growth for the year to range of five 3% to six 1% to.
The 20 basis point increase at the midpoint is driven by outperformance in manufactured housing and marinas moderated by revised expectations for same property. Archie. We also expect additional G&A savings over the second half than you.
Our revised same property NOI growth ranges for the year or five 2% to five 8% for manufactured housing representing a 50 basis point increase at the midpoint.
Three 4% to four 6% for R&D, representing a 100 basis point decrease at the midpoint our largest driver for the decrease is revised growth expectations for transient RV revenue, which is now forecasted to be a three 9% decline for the full year.
<unk> to 9% for Marina, representing a 110 basis point increase at the midpoint.
For our U K operations, we are lowering our full year forecast for home sales NOI to a range of $65 seven to $75 $4 million. The revised range represents a $10 2 million decrease to prior guidance at the midpoint and assumes we sell between 2800 2900 homes for the full year.
An approximate 11% decrease in volume from April expectations.
For additional details regarding our updated full year guidance, please see our supplemental disclosures.
As a reminder, our guidance includes acquisitions and dispositions and capital markets activity through July 26, and the effect of a property disposition under contract that is expected to close during the third quarter. Our guidance does not include the impact of prospective acquisitions dispositions or capital markets activities, which may be included in <unk>.
Our channel list estimates. This concludes our prepared remarks, we will now open the call up for questions operator.
Okay.
We will now open the call for questions. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Press Star two if he would like to remove your question from the queue.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing that he's darkies again, we ask all participants in the skin the queue to please limit yourself to only one question to allow others to participate.
One moment, please while we poll for questions.
Yeah.
Our first question comes from the line of Josh <unk> with Bank of America. Please.
Please proceed with your question.
Yeah, Hey, guys. Thanks for the time I'm sorry. This is the second time in a row, you've taken down in U K home sale profits.
Volumes as well.
What what's the status of the bottom and can you kind of walk us through how are you.
Our cast or come up with that guidance range for the at home sales and the profit.
Sure Josh Thanks.
You know too.
Really look at.
Our thinking about the fact that we.
And to re guide before on the U K.
I'd underscore that the home sales forecast and don't really from the bottom up with the community level.
King into account all available sites to sell homes homes.
Which includes vacant sites sites to be liberated from expansion activity and rental home higher fleet sites that we can convert.
To be able to sell homes and create an annual fee.
And this exercise it is completed.
With a lot of oversight, but built out from the property level.
Revised range really incorporates current market conditions and as we understand them. It doesn't assume any major decline in inflation or interest rates in the UK for the remainder of the year and we think even if we were to see the lag between.
Those changes and improvements.
Wouldn't impact our results for the balance of this year certainly they would enter 24, so the high end.
Range currently indicates what we believe is the most likely.
The outcomes and the low end of our range really had and in cab sat outcome further to what we would consider it a worst case scenario.
And as Fernando mentioned in his remarks since we met at NAREIT.
Certainly the conditions.
Since then that would have changed in the U K a much slower reduction of CPI.
There has been some modest reduction, but the bank of England's 50 basis point.
The rate increase was unexpected and it does have ramifications on the buyers of their vacation homes. So from.
From the best insight that we can see we feel that we've done a good job really thinking through what the scenarios should be through 2023, and that's how we adjusted guidance and came up with the range.
Okay, and then could you walk us through how most people finance or pay for their park holiday homes.
Cause there.
Yeah.
I do a lot of people use like a second lien on their primary home to pay for it.
Yeah.
Sure So Josh.
30% of our homeowners are purchasing with a financing that would be akin to a chattel financing here in the U S. A.
The other 70%, we see it as cash.
In some instances they are used.
Using proceeds from refinancing their home.
Our primary home in order to purchase their vacation home certainly rates are refinancing rates are higher for primary homes. So that.
That's going into the equation as far as.
Lower volume expected ourselves.
And the only thing that I would add that in the U K.
Single family residential primary home mortgages tend to fix.
Ray for a shorter period of time here in the U S. Three to five years so certainly.
Those.
Potential vacation home buyers are experiencing a reset to there.
Mortgage rates and that probably is.
As a factor on why we're seeing a slower conversion to buy homes from our potential customers.
The interesting thing I, just would add is that the.
The current.
Holidays platform really continues to put.
But it's strong to our market through the changes in Brexit the location of the units the work of the properties the work from.
Home, that's taking place there so theres still a when we talk about the real property activity still high demand high tourism high usage and high anecdotal interest remains in I'm buying homes, but it is definitely influenced by slower.
Peso sales, because I think they're experiencing financial ramifications in the UK.
Our next question comes from the line of Brad.
F <unk> with RBC capital markets. Please proceed with your question.
Yeah. Thank you sticking with the U K home sales can you talk about what underlies the guidance for the rest of the year in terms of the Asps and the margins compared to last year.
Sure So Brian .
Our 28 to 2900 home sales expectations for the for the full year.
Hum.
Adding a margin between 24 and $25000 NOI margin.
Do you see.
As you would see reported for us So we do have a a moderation.
Margin expected as on a year to date basis, we have been achieving about $26000 margin.
Okay got it and then how do you think about what needs to happen for that business to recover is it just you know rates need to stabilize or go down to the U K economy need to improve and how long do you think about that potentially taking.
Yes, I like to think we had a crystal ball and if we went on air and assumptions, we would have thought earlier we would.
We start to see some improvement, but that hasnt taken place and clearly when you look.
Hum.
Through Europe U K has the most challenged economy right now I think the steps that have been taken by the bank of England.
Begun to show some improvement in CPI, which was right around 10% a year ago.
As recently as a little while ago it dropped to seven nine so that still has a ways to go but I think as we see that improvement.
We would expect there wouldn't be a measure.
A measure at a rate decreases.
Injunction with that over time, so as we look out into 2020 four.
We think that's when we'll begin to see the change in realization that we go back to more normalized sales.
Thank you.
And just as a reminder, and when he was asked a question star one and please limit yourself to only one question. So we can accommodate everyone to ask a question. Thank you. Our next question comes from the line of Keegan Karl with Wolfe Research. Please proceed with.
So well just curious one what you're seeing on the safe Harbor platform too.
Two how are you thinking about underwriting a long term view of the space and then three what the Marina performance does to your views on long term capital allocation going forward.
In the first I would say five seconds of your question five to 10 seconds of your question did not come through can you repeat Hum just start start over.
Yep, So I'm just focusing on the Marina business, because obviously the outperformance is really impressive I think people should be focusing on that so one you know what given what you're seeing in the safe harbor for them.
You know how is that trending versus your initial expectations. How are you thinking about the long term underwriting the space because of this and then what does it mean from a capital allocation standpoint going forward.
I'll start out and just suggest that.
The safe Harbor outperformance really was driven by <unk>.
Strong demand for slip in dry storage rental across the entire board from small to medium all the way through to these super yachts.
The peak season rate increases were passed through.
And occupancy remained very strong.
We're seeing increased demand for our slips across the board.
And a lot of that we really do attribute to the value of the safe Harbor membership, which includes such things as.
You know an unmatched network of locations out there to the eighth of travel between.
Best in class facilities and amenities for the members to use.
And.
Really a best in class customer.
Customer service that we talk about the purchase like passing on fuel.
Basically our cost.
We noticed that fuel usage is up 13% year over year on a per gallon basis. So.
Some of the impact R&D.
Which was a decision we made intentionally to sacrifice that margin is really paying reward and the more important a slip rental so.
We're very very pleased.
How things are performing and safe Hamburger.
Marinas.
And.
We've seen it in performance quarter after quarter.
With regard to our long term outlook I think we've shared with you that.
Capital.
Allocation is.
Very restricted at the company today.
And were very internally focused.
And using our capital in a very disciplined way within our portfolio and marinas are a great example, we have identified 27 opportunities to reconfigure Marina slips.
And when we invest in Reconfiguring the slips when you get about a 10% to 12% return on that investment.
Of the 27 opportunities seven Reconfigurations have taken place three are under construction right now and.
About 10, and others are in the permitting process in three or four.
Still being worked out and so that's where we will see capital allocation. If we're looking for external growth it will be restricted to a.
Really accretive opportunity in a situation like at Savannah.
Strategically it has a lot of benefit to the network effect that we're trying to achieve within the marinas. So.
I don't know if you've anything to add hopefully that addresses your questions.
Can I just follow up just because fernando called out capital recycling as an opportunity is it is it fair to assume you might sell some MH or RV assets and recycle the capital into that the higher cap rate higher return Marina business is that is that the right way to think about it.
Yeah, and I think that as we look at our portfolio and evaluate them right. There is there is a bottom tier of assets always been forced ranking them. So we will look to selectively and strategically.
Look to recycle out of some properties that maybe aren't meeting the long term gross profit profile that were looking for and today any immediate use of that capital would likely go towards towards deleveraging.
But certainly we'll evaluate all opportunities in front of us.
Got it thanks, I'll hop back in the queue.
Our next question comes from the line of Eric Wolfe with Citi.
See with your questions.
It's actually Nick Joseph here with Eric.
Gary if I think about kind of really over the last 10 years I think the company has really benefited from a stability of results and if we go back to kind of a guidance questions earlier.
It seems like things are a lot more volatile now.
Part of that's probably the recent acquisitions, but at the end of the day, it's missing guidance in calling into question.
Kind of the forward guidance from here so.
So you know as you think about what do you think needs to change from the corporate side.
To forecast results more accurately.
Easter is growing pains, I guess, what the U K and maybe some some of the macro volatility that you cited.
And ultimately, we'll get back to kind of how it was traditionally.
Or is the range of outcomes.
Given the new businesses.
No.
Give some thoughts that I have and Fernando certainly can share his thoughts but.
We have shared with.
With our stakeholders that.
Complexity is something were working very hard to reduce them, taking all the steps that we possibly can to get back to them.
Helping and assisting with the simplification and the modeling forward guidance there is no doubt.
Headwinds, we're experiencing in the U K.
Caused.
Hum.
Lot of.
Challenges with regard to guiding forward and when we think about things we use the best tools that we have at the time, whether it be the forward curve whether it be.
I'm reading.
Everything we can with regard to.
Yeah, where to look and the economic challenges. There obviously, we've had to re guide so that makes things difficult, but all in all when we think about.
91% of the AR.
Hi, there.
Contribution from real property is.
What we're trying to guide to.
We have a lot of work to do in the UK that we're working on and the.
Marina side, we've worked very very hard to be able to put together the same side.
Marina that up so that we can measure going forward.
I know that Fernando and.
The disclosure in the supplemental has been working to.
Simplify a lot of things in.
Present, a lot of benefits that can help the modeling.
Anything you want to head from there so we.
We are very very attuned and aware of the complexity that has been created.
Enlarge parents through the acquisitions, both marinas in the UK recently and there is a company that's been around 30 plus years in the public marketplace.
Listen to our stakeholders that we're very very focused on step by step reducing that complexity and making the models into the forward guidance.
As good as possible.
Yeah.
Maybe just to follow up on that but what can you do to reduce the complexity kind of in the near medium and longer term rate of it.
Selling the U K home sale business is it somehow restructuring it.
How are you thinking about.
Actually reducing that complexity.
Well certainly one piece of it is the fact that strategically we have shared with the market that are long term goals in that U K was deemphasize.
Contribution from the home sales margins and focus on the very very stickiness of real property contribution like we do in the U S.
And that was a.
Kind of a five year strategic plan.
We're slowly making progress out there.
Radically as a percentage with home sales down.
That real property side percentages up.
We're working on that over a long period of time and I think that.
We've already increased the average stay in the U K to around eight years.
We're expanding our licenses to stay in the.
Our UK properties four from 20 years to 30 years. So we expect that eight years to continue to grow and look more similar to the 15 years. If you will in the North American manufactured housing so de emphasized the margins on home sales.
And I really focus on the.
Our real property contribution and we've taken a similar steps in the Marina side to accomplish that as well as we convert some of the R&D in particular the service over to rental income from third parties.
All of that I think as we look out over a period of time will help to simplify things going forward.
Thank you.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your.
Yeah.
Thanks. Good afternoon, just a question on I guess, a normalization of various leisure adjacent businesses. It's been a topic of a lot of calls that past few days that transient RV Marina you're still seeing growth in transient RV I guess on holidays.
Not necessarily midweek.
And then marine has it been pretty strong do you see any risk of normalization impacting music revenue in the next few years as people return to maybe more older older habits post COVID-19.
I would say Anthony I think were overall on track.
And RV side, we're seeing that normalization from record years.
Over the last two to three years.
Given the bump.
Hum over the second half of 2020 and into 2021.
We are we are we continue to see a lot of demand for our properties I think you see that with with a record number of conversions that we have having converted over 6000 sites over the course of last three and a half years, which greatly.
Greatly outpaces what.
What we were averaging on a per year basis prior prior to the pandemic.
And so now we're taking that transient Gaston.
They are choosing to stay with us for call. It on average about a five year period of time and on a on an annual basis getting getting a rental predictable rental increase from from our standpoint.
On the Marina side, we've certainly seen them.
Yep very high demand on the on the transient side as well.
In the first half of in the first half of this year, we'd say we're.
We're not underwriting double digit transient transient growth for that line item.
I'll remind.
Our stakeholders the percentage of rental income coming from transient on the marine side is much smaller its about 5% four 5% of total rental rental income. So we have seen we have seen outperformance on on that.
Line item, but are not underwriting double digit growth for over the course of the mid to long term.
Okay.
Alright, thank you.
Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Great. Thank you. So I appreciate all your commentary on park holiday and simplifying a bit do you think about some of the other areas where you you took down guidance, how do you create more visibility on that.
Beside that.
And then along the same lines your credit your credit line balances up above $800 million can you talk about plans to either keep it there or or refinance that to bring it back down.
Sure.
Thank you Jamie on the <unk>.
We modestly brought down expectations on the <unk> side that is as Gary mentioned earlier.
We are looking to deemphasize that over time as we.
Especially on the Marina side, we can hurt.
Our service business over to third parties paying us rent.
At the property level, so I think you'll you'll continue seeing seen.
<unk> seen that over time and that ultimately will.
We'll benefit real property NOI and rental income that we receive not just from our members, but then.
Third parties that pay us rent to.
B at our properties to provide to provide that service.
It relates to our line of credit.
We have a we've mentioned over.
Of course of the last couple of months are pursuing various strategic alternatives.
Alternatives, where whether that's capital recycling.
From operating assets that the immediate use of that capital would be to pay down debt.
I think as you as you look towards the second half and into 2024.
There will be a moderation.
And capital investments as well that.
I won't convert more free cash flow towards towards deleveraging, but we are.
We are evaluating transactions in the capital markets as well in order to bring those balances down and delever towards our long term target of being in the mid fives.
Okay. Thank you and if I could just ask a follow up on that.
So the interest expense our guidance reduction is that.
Because you you you use the credit line and didn't expect Q because rates are higher than you thought they would be.
And if you did use it more than you expected what was the reason for that.
Sure on a on a forecast to forecast basis.
I'd say.
Primarily would be expectations from the forward curve.
Where in general.
Ending the year.
Rates for both the sofa and Sony hour are up on average about 70 75 basis points from our last forecast and at the end of April .
Yeah.
Okay. So its not balance it was really just forecast.
Okay.
Okay, Alright, thank you very much.
Thank you Jim.
Our next question comes from the Leiden, Samir <unk> with Evercore ISI.
Please proceed with your question.
Yeah. Good afternoon, I guess Kerry just maybe switching gears a little bit on the MH side, our pricing still strong in that and I guess, how do you think about.
Rent increases in the next year with with inflation moderating here, but I mean more of a question kind of in the next 18 months.
Yes.
Great question certainly overall.
Overall, 98.7% occupancy.
MH annual.
There will be the opportunity to continue to pass through.
Inflationary pressure.
Suggest that.
What we did last October in advance of providing guidance.
In February with fourth quarter and year end results, we will again share with the market.
Our forecast on.
Rental rate increases across.
The board.
Our expectation is that.
We will be able to.
Pass through.
Solid.
Rental increases throughout the businesses.
And.
I'll share those with everybody in October .
Our next question comes from the line of John Pawlowski with Green Street.
We'll see with your question.
Thanks for the time Fernando I wanted to follow up on the revolving credit facility question.
It's been well over a year, where are you to lean heavily on the revolver. So why wasn't that properly termed out all.
How long ago to more closely align the duration of the debt with your assets and then specifically should we expect you to lock in longer term financing.
China.
You'll see us over the course of.
The next couple of quarters look to extend our our maturities not just what's in our line of credit but one.
What is coming due from unsecured secured debt standpoint, so that is not something that we are actively working towards.
But you know.
As far as bringing bringing balances down it's really evaluating.
The multiple.
Strategic alternatives that we have in front of us as far as being able to execute on those transactions and bring them.
Bring balances bring balances down and we've been since our.
Since our initial investment.
Investment grade rating in the summer of 2021, we've been very active in the bond market, having done about $2 $2 billion of.
Long term debt between seven and 10 years of tenure.
Our most recent transaction was.
Back in January of this year and that would be expected to Uh huh.
Over the course of the next couple of quarters.
Yeah.
Okay and then.
Another question on park holidays.
At your Investor day over there.
Retard properties with four or five senior leaders from harsh holidays have any senior leaders.
Last since last are retired.
San Antonio operations from the Sun.
Other ship here in the states.
Yeah.
John generally everybody is still there and there's a really well seasoned team.
Looking to work on pulling every single lever as they have these challenging economic times.
That group of talented people are still there and we're very pleased that they are there.
Thank you.
Okay.
Our next question comes from the line of John Kim with BMO Capital markets. Please proceed with your question.
Good afternoon.
On Ngls.
I'm not mistaken your development joint venture had a five year initial term.
It would be up for renewal later this year. So I was wondering what your appetite is to keep it going or could this be a potential use potential source of funds.
Great question, John I think the fact is that.
Tactically the.
Some genia as we call it G E.
Five year period of time is up at the end of November .
We are always assessing our businesses if you will to remind everyone certain homes at a 10% interest in the junior head start and we really have had a successful JV, which is performing well and we're happy with the partnership relationship there although.
There is no doubt.
Covid and the pandemic put kind of a two year crimp in the plan.
Junior JV now has four developments to enter in.
Sure phase and they are filling up nicely.
The other two are just about to break ground with the JV expiring.
We will continue to review, how we will think about moving forward, but one of the factors is that.
As these are four developments.
Moving forward.
We want to make sure that.
We have the best opportunity to maximize those results once they are sold.
And then up and stabilize.
We also are reviewing all optionality as it relates to.
Capital recycling and the options that we can do to bring down some of our variable rate debt.
We will continue to.
Keep you advised as we think through how we're going to focus on the <unk>.
Period of time, where it's at.
Those expired.
Okay, and if I could just follow up on U K home sales just given the third quarter is the most crucial quarter of the year out of.
The number of homes that you had planned to sell for the third quarter. How many have already been sold or are currently in negotiations and I was wondering how how sensitive. This is to mortgage rates. There was an article that came out but I'll tell you just a couple of hours ago of our can we have the largest U K lenders, reducing mortgage rates I'm wondering if that's been factored in at all.
Yeah.
I would start to say that as I shared in the comments earlier, we're not sitting here anticipating.
The benefit of reduced mortgage rates or anything like that going on.
Forward that would.
Definitely be a pause, but we do think there will be a lag before we see the benefits of things like that so.
So the underwriting that we talked about in the 2600 to 2900.
Unit range for the year.
It was kind of a downside.
Two our view in the market right now.
I don't know Fernando do we have any information on how many so well deserved.
Sure.
John who will provide updates on on homes sold over the course of the over the course of the quarter when we need patent during investor presentation and any other potential.
Potential updates, but we are as you identified.
We're heading into a busy.
Period as the holidays do pick up in August and we'll be able to report back to the market.
Over the course next couple of weeks.
Can I just squeeze in one more question.
Seasonality had stepped up a little bit, but he also provided more clarity or more disclosure.
On the seasonality of U K home sale is this a good run rate going forward will roughly a.
Third is sold in each of the second and third quarters.
Yeah, the seasonality shift with the same due primarily to the changes in volume, but yes. This would be the best run rate to use from a seasonality standpoint.
Okay, great. Thank you.
Our next question comes from the line of Wes Golladay with Baird. Please proceed with your question.
Hey, everyone. That's what I, maybe just maybe a few more of the moving parts that you may have in the future can you comment on the loan book is that mostly fixed rate rates that you're charging or is it floating and do you expect the size of the book to stay the same over the next few years.
Yeah.
Whilst our R.
Our wholly owned notebook no.
Portfolio is about $62 million $62 million today.
That is.
That is in active active repayment.
Residents make a.
Make payments on their loans.
Do have we do have a joint venture where we are a 40% partner, where we are we are underwriting.
Run rate call, it $7 million to $10 million of financing.
Month, as we as our residents finance their homes.
And our communities.
But that is fixed that is those are fixed rate financings chat.
Chattel loan rates have historically been in the 8% to 10% range.
Those haven't moved significantly theres been an uptick but they are call it plus minus at the high end of the range today for for.
For customers.
No I would only suggest with a slowdown of capital allocation too.
Development of new sites, which is where most of that channel alone.
It was used probably reduction in usage as we go forwards.
Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Good afternoon, and thanks, a lot for taking my question Gary earlier, you were talking about.
How did the U K, you're looking for a mix shift.
From the NOI generated from the home sales and more from the rents.
In the second quarter, our U K home sales.
Quantity was up 11% selling prices down 11%, but have you been able to pass along greater rents.
Along with the lower selling prices. So maybe you get a little bit more income over the long tail as people pay their regular rents.
Yes.
When we talk about the U.
U K management team.
And as I shared with US I Wonder update calls recently, they are fully attuned with that strategy and very very focused on it.
We expect to see the ability to pass on those rental increases.
And in fact, it's a little bit accelerated right now as we adjust our home price margins to move volume in this challenging economic time and sell more homes and are able to put it on to the.
Monthly real property fees so.
We expect to continue seeing that.
As we said strategically over the next four or five years and would expect to see accelerated.
Growth on the real property monthly fee side as we've reduced.
Operating margins.
Operating on a sale margin Sir.
Yeah.
And then as a follow up are you able to kind of quantify FTE increase in rents is offsetting.
The pressure on the home sale. So like are you just getting the back what you're losing in the near term are you are you getting that back over time as part of that can have a cash flow or is it just kind of a.
A more careful balance since you navigate a pressured consumer then over time, you'll look to navigate and find there.
At this time I think it's the latter first model would be too soon to draw and share any conclusions at this time, because we're just adjusting to a very challenging economic environment, there, but we do believe over a period of time.
Just as we do in North America.
We would sell a home at a very low margins to be able to create a sticky rent and one way to manufactured housing communities that with less than a half a percent from home, leaving on an annual basis.
Generally generate uninterrupted rent for a 40 50 plus year period of time and obviously.
That predictable steady cash flow is what we're looking for because it does tend to get the better multiple.
And understanding that.
Our management and our stakeholders are looking for that over a period of time, we're very very focused on achieving that and so as the team over there. So.
We are aligned on that.
Thank you very much.
Okay.
And our next question comes from the line of Anthony Powell with <unk> Securities. Please proceed with your question.
Hey, guys. Thanks for taking my question can you just talk about the trends that you guys are seeing on the holiday rental side you Paul.
I heard that some of the competitors are lowering their rates. Just curious if you guys are doing the same thing as well.
Anthony Good question.
We have seen the competition, bringing down rates are to capture demand, but we're actually seeing.
We're we're holding rates.
Fairly steady.
And our apps.
Capturing market share from from the market on that segment.
And so that's.
That's the outlook.
That is the conversations that we're having today.
Gotcha.
And just a separate question on kgs coastal over at the current like RV aim HN holiday park expansion opportunities and other initiatives such as solar arrays and slip configurations.
And can you can quantify the size of each opportunity and also the potential return.
Anthony in any of these projects from an expansion or growth potential and expansion will typically be that MH or RV.
Typically carry returns.
In low teens at 10% 13%.
Historically that has been the case.
Any solar arrays.
Aerie slightly higher.
Lies in the mid teens.
From from that standpoint.
And then in the in the U K any expansion opportunity.
Carries a slightly higher IRI in call it in the 20% range given the payback period.
One building in let's call it a home sell and the usage of <unk>.
Have a of the rental unit.
It pays back a much much faster.
We can offline we can go through in detail.
For any of these buckets, what the capital spend would be.
I think as we as we mentioned earlier.
We are looking at each of these investment buckets.
As we head into 2024 and would expect.
We'd expect that deceleration of spend.
As we as we focus on converting more free cash flow towards.
Towards debt repayment.
But we can we can review those buckets.
Fine.
Okay. Thank you.
And we have reached the end of the question and answer session I will now turn it back over to management for closing remarks.
Well, we appreciate everyone joining us for our second quarter call and we look forward to.
Speaking.
On the third quarter and also.
Sharing how we're viewing the implementation of rental increases going into 2024.
Thank you operator.
Yeah.
And thank you for your participation in today's conference. This does conclude today's remarks accompanying remarks, you may now disconnect your line.
Okay.
Okay.
Yes.
Goodbye.
Okay.
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