Q3 2023 Sun Communities Inc Earnings Call
Good afternoon, ladies and gentlemen, and thank you for standing by welcome.
Welcome to the Sun communities third 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 may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Although the company believes the expectations reflected in any forward looking statements are based on reasonable assumptions. The company can provide no assurance.
That its expectations will be achieved.
Factors and risks that could cause actual results to differ materially from.
Vacations 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 today of just released.
Having said that I would like to introduce management with us today.
Shifting chairman, President and Chief Executive Officer, and Fernando Castro, Parachini, Chief Financial Officer.
After their remarks, there will be an opportunity to ask questions, but those who would like to participate in the question and answer session management asks that you limit yourself to one question. So everyone would like to participate as ample opportunity.
As a reminder, this call is being recorded I'll now turn the call over to Gary Shiffman, Chairman, President and Chief Executive Officer. Mr. Shiffman, you may begin.
We reported another strong quarter core <unk> per share of $2 57.
Exceeding the high end of our guidance range.
Total same property NOI growth of six 7%.
Meaningfully outperformed guidance, demonstrating how our properties high demand and scarce supply fundamentals Gen.
Generate durable growing real property Yankee.
Same property NOI growth was fueled primarily by solid revenue growth and continued cost savings initiatives across their properties.
In our manufactured housing segment third quarter same property NOI grew 8% as compared to 2022.
Supported by a six 1% increase in monthly base rent per site and occupancy gains.
Within our RV communities for 1% same property NOI growth achieved in the quarter is a testament to continued high demand in our communities.
Exemplified by the successful execution of our strategy to convert transient sites.
The annual leases.
Today I'm transient to annual conversion surpass 1800 sites and we are on pace to meet guidance for the year.
On a combined basis.
Perhaps the adjusted accident C for manufactured housing and RV communities.
170 basis points this quarter compared to last year.
And across the total portfolio revenue producing sites increased by approximately 752 during the third quarter.
An 8% increase compared to 2022.
This brings year to date revenue producing site gains.
Nearly 2600.
Marine has delivered another very strong quarter with same property NOI growth of eight 9% over the prior year period.
Demand to join are unparalleled in Safe Harbor network.
<unk> strong as demonstrated by the increase in her wavelengths and 89% for marine.
Our.
That's your housing portfolio.
It will be included in same property results starting January 1st.
We reset the same community pool for 2024.
Is it third corner real property NOI in the U K grew 15, 1% over the same period last year in line with their expectations.
Adjusting for exchange rate change in U K real property NOI increased by eight 7% over the prior year quarter.
Home sale activity, which supports the predictable rental income of our communities.
It is in line with our expectation and is tracking within our guidance ranges for the year.
Looking ahead into 2024, we expect rental rate growth in our same property portfolio to exceed inflation.
At the midpoint, we expect to realize average annual rental rate increases.
Five 4% for manufactured housing in North America.
And seven 1% in the UK.
We expect a six 5% increase in annual rental rates for our annual RV portfolio.
5%, 6% growth in annual rate Ross Marine it.
We expect these strong rental rate increases combined with modestly higher rock.
And our ongoing focus on expense management.
Produce another year of strong organic cash flow growth in 2024.
And I wanted to give you some perspective on offense broader strategic objectives.
The board and management team are laser focused on implementing changes designed to streamline our company and position us for growth.
Our goal of making such changes is to help ensure that our best in class operationally resilient portfolio delivers the consistent per share growth.
Stakeholders historically have enjoyed from SAP.
For example, we recently sold his stock position and then junior generating over $100 million pay down variable rate debt.
This transaction had the added benefit of being accretive.
No.
In addition, we've previously discussed.
Continue to advance the process to identify select properties for potential disposition with the Intentive further delevering proceeds.
As we move forward, we are substantially reducing capital spending.
Including the acquisition and development activity.
In light of the more challenging economic and capital market environments.
This year as we have stated before we are completing ground up development projects that were already underway.
And a new external growth projects will be solely focused on the most strategic opportunities.
Our strategic pause in investment activity can be seen in our UK operations as well.
In 2021, after we announced the agreement to acquire Pac holidays.
And in the loans you realize the UK holiday Paragon manufactured housing developer and operator.
Separate transaction.
Development opportunity as distinct from a public holidays business.
Along the way of life is collateralized by real estate and several other assets.
We have selectively and successfully partnered with strategic counter parents for development without Sun's history.
As macroeconomic conditions rapidly deteriorate in the U T. He decided not to pursue incremental acquisitions take the vote.
Since that decision well life engaged with several lenders to repair note, but was unable to do so.
Ultimately as you know.
End of September.
Appointed receiver to enforce their interest and their real estate securing her alone.
We continue to assess their options as we take the notice of the receivership process.
Additionally, San debate as a premier manufactured housing community in the U K, we acquired in 2022.
It is 730 operating thing and can be expanded by an additional 450 sites.
That's Paramount broad strategic portfolio review, we decided to sell the property and had it under contract to be sold its real life backed by additional financial investors and lenders.
Well that transaction is not progressing we are in discussions with other potential buyers in the meantime continue to benefit from the <unk> contribution to real property NOI.
Well, some 30 year history as a public company, we have demonstrated operational reliability and cash flow strength all economic cycles.
And we are continuing to see this in the solid performance of real property business.
We remain optimistic about our performance and organic cash flow generation in the near term supported by our anticipated rental increases in 'twenty to 'twenty four.
However, we recognize the headwinds from today's challenging macro environment and as I said.
We are taking action and steps to realign our strategy to focus on our proven durable income streams.
We are recycling capital out of non core investments.
Our operating portfolio to monetize lower growth communities.
And remaining disciplined and deliberate pursuing only the highest growth capital expenditure projects.
As we implement these right sizing activities in the coming quarters, we're optimistic the market will recognize how these activities will decrease our leverage and target a return to the consistency of earnings.
Long enjoyed.
As always the management team and I are grateful for the hard work and accomplishments of the entire Sun team this longer than I would.
Like to thank all the team members for their dedication and all of our stakeholders for their support.
Fernando will now discuss our results in more detail Fernando.
Thank you Gary.
Third quarter.
With $2 57 per share with one another.
High end of our guidance range expense savings at the property and corporate level, what are the primary contributor to our performance as compared to our midpoint.
Sun's total same property NOI for the quarter increased six 7% compared to last year.
Performing the high end of our guidance by 220 basis points.
Performance was driven by same property revenue growth of five 5% and lower than expected property operating expense growth of 3%.
Quarter same property manufactured housing NOI increased 8% driven by rental rate increase of six 1% continued occupancy gains and focus on expense management.
RV same property NOI grew four 1% due to an eight 8% increase in weighted average annual run rate of approximately 2100 transient annual site conversions over the trailing 12 months and ongoing operational programs to mitigate expense growth excuse.
These were partially offset by four 4% decline in transient RV revenues.
Transient occupancy normalizes.
Adjusting for the decrease in sites converted to annual transient revenue.
Two 2% relative to the prior year period.
Compared to last year's holiday weekend.
Adjusting for the five 7% decrease in transient nice converted to annual transient RV revenues increased by four 4%.
We continue to drive the piece some transient to annual RV lease conversion to increase our percentage of sticky Robyn.
Quarter, we converted nearly 540 sites to annual leases.
For year to date total of over 1800 convergent.
And marine and same property NOI increased eight 9% in the third quarter as compared to 22 eight.
Eight 4% increase in revenue highlights the strong demand to be part of our network.
<unk> was due to solid rental rate increase.
Steve I guess in our south eastern Marina and operating expense savings.
Securely within payroll and utilities.
In the U K real property NOI for the quarter of $29 million was in line with our guidance retention rates among our scale nursing homes.
With an average resident tenure that approach is eight years.
Increased retention over 2022 is a meaningful driver of real property income growth this year.
Turning to home sales North American wholesale contribution was broadly in line with our expectations for the quarter, our lower volume was offset by higher Mark.
In the U K, despite economic headwinds continuing to challenge home sales volume, we sold 2300 10 homes through the end of the third or.
Fourth quarter to date, we have sold 204 homes, leaving approximately 300 homes to be sold to achieve our full year volume guidance in terms of NOI. We are on track to achieve the midpoint of prior guidance, which approximates just over $70 million for the full year.
Regarding our balance sheet since our last call we have focused on decreasing leverage in variable rate debt.
During and subsequent to the third quarter, we entered into $150 million of Sun for swaps on our U S. Dollar line of credit at a fixed rate of four 8% from April 2026.
As Gary discussed we sold our position in junior and used the net proceeds of approximately $100 million to pay down borrowings under our line of credit.
Additionally, we refinanced approximately $118 million of secured debt that was maturing this year with approximately $250 million of new secured debt adjust.
Adjusted to include the positive impact like $50 million. So for swap executed in March the new loans bear interest at a fixed rate of six 5% and mature in 2013.
Taking this activity into account, we have seven $6 billion in debt outstanding and a weighted average rate of 415% and had a weighted average maturity of approximately seven years, our trailing 12 months leverage ratio was six times and approximately 14% of our debt.
Right.
Turning to guidance for the year.
We are revising our full year core epitope share guidance downward by 1% at the midpoint to a range of $7 five $7 13 times and establishing a fourth quarter core <unk> per share guidance range of $1 28 to $1 36.
Guidance for the year is driven primarily by higher expected interest expense in the fourth quarter related primarily to the U K no remaining outstanding U K home sales NOI performing towards the midpoint of our range and lower expectations for transient revenue in the U S.
Regarding the UK now through the first nine months of this year, we recognized $28 million or approximately 22 cents per share and interest income there's no interest income from the snow and fourth quarter guidance.
We previously expected to pay down debt with the notes repayment, which wouldn't have generated roughly $5 million or approximately four cents a share of interest expense savings in the fourth quarter.
Our U K home sales, we expect to finish the year within our prior guidance range with home sales volume of around 500 units in the fourth quarter.
We are forecasting lower margins on these homes built of U K consumers continue to favor pre owned homes and part exchange into a new home.
Oh my margins on U K home sales for the first nine months averaged $26000 in our revised guidance assumes average NOI margins of approximately $20000 per home in the fourth quarter.
Our same property portfolio is by far the largest driver of our results representing over 90% of NOI.
Based on results to date and our expectations for continued strong demand bolstered by effective expense management. We are increasing total same property NOI guidance by 50 basis points from five 7% growth at the midpoint of the prior range two new mid point of six 2%.
The increases based on higher expectations at our same property manufactured housing marine of properties, partially offset by slower growth in R&D addressed earlier.
At the midpoint of five eight to $6, 1% NOI growth. We now expect from an H is 45 basis points higher than the midpoint of the prior range.
And our same property RV portfolio, we now expect NOI to grow three five to four 2%, which represents a 15 basis point decrease at the midpoint as compared to prior guidance.
Our same property Marine is we expect NOI to increase to a range of 10 to 10, 3% for the year.
65 basis point increase from our prior assumed range of 8% to 9%.
Additionally, and as Gary discussed, we are providing guidance on preliminary rental rate increases for 2024.
We expect to realize average annual rental rate increases of five 4% for manufactured housing in North America, and seven 1% in the U K.
We expect a six 5% increase in annual rental rates for our annual RV portfolio and five 6% growth in annual rates Marine and prudish.
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 October 22, our guidance does not include the impact of prospective acquisitions dispositions or capital markets activities, which may be included in research.
It does.
This concludes our prepared remarks, we will now open the call up for questions operator.
Thank you and at this time, we'll 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 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.
As he starkey.
Please proceed with your question.
Hey, good afternoon, everybody I'm, Gary maybe provide a little bit more detail on air.
Sorry, you're you plan to sell assets I guess, what's what's the transaction market look like.
In the U K.
And the U S. Just trying to figure out your ability to sell those assets as it relates to that the U K alone.
It kind of stayed at about Sandy Bay I think it was in the market now it as held for sale just wanted to maybe you can provide a bit more color on that the market in the U K.
I think underlying or go.
<unk> to sell assets as we've shared with the market. It's just the use of recycling capital and paying down debt.
Generally these are all high quality assets and they are performing in the portfolio, but for various reasons, we think that bring them to market and.
Being able to pay down higher price debt.
Would be favorable.
As we go forward so in North America, we've shared we've done a kind of a deep dive.
And identified some assets to bring to market. So who's our first group of assets.
Sure.
Either currently or in the next week will be marketed.
In North America as everyone's aware there has been very very little transaction on the manufactured in RV.
Market. So there are no data points to point to right now we know that our rates are significantly up.
These are good high quality assets.
We look forward to being able to share with you I don't know.
<unk> call or if we're able to execute anything before our next call.
Market is responding to those assets.
With regard to the UK in particular those that are collateralized.
By the rail alone real life assets.
We're in the receivership period, there is really little that we can comment on but during the receivership period, we are in dialogue.
With Optionality on those assets and we will continue to be so and then we talked about Sandy Bay, It's a really high quality Premier asset 730 sites with a big expansion piece to it.
We are in dialogue with a number of people.
Adding a potential sale there as well so we will be very pleased to be able to.
Martin.
Okay, and then I guess, just as a follow up and maybe changing the subject here on on Marine is.
That continues to show strength I would've thought you would've been able to push the rates for 'twenty for a little bit of higher I mean do you rate was five 6% I understand there's been a moderation in inflation, but you know I would have thought maybe the rate would have been higher can you provide a bit more color around that.
Yeah, I think it speaks to how.
How we've shared with our stakeholders over 10, 2030 40 years of the business.
And of the AR.
Slowing marathon over the sprint in our approach to want to be able to really get outsized growth above inflation when inflation is low and when inflation is high last year, we got off.
70 273 Fernando.
Rental increase so we.
We are really enjoying heavy heavy demand and want to continue to see it continue so we think that we.
We've really set the rent in a way that over a long period of time, we'll be able to maintain NOI growth in excess of inflation and at the same time retaining high occupancy so <unk>.
After a couple of years of tremendous growth, we look forward to continuing that growth and set the rental rate a very thoughtfully for 2024.
Thank you.
Okay.
Our next question comes from the line of Wes Golladay with Robert W. Baird. Please proceed with your question.
Hi, everyone, maybe looking into next year can we talk about some of the bigger moving parts that we should be aware of one in particular I want to get it.
More clarity yard would be home sell volume.
Spansion is the development will that have any impact in the U S.
Yeah I'll take the.
First person Fernand who wants to add anything I think we've been very very clear that with regard to use of capital and our free cash flow.
Our highest.
Priority and best use for.
For that free cash flow will be to reduce leverage.
As we look at this.
High capital cost environment that we're in right now recognizing that we do get very very stronger or is that an expansion.
Usually in the 10% to 13% range I mentioned Harvey and new development in the high single double digit those are ours and they do take a period of time and they are initially dilutive.
So by putting those things on hold moving forward.
Our expectation is that in a better economic environment, we have the inventory of sites on hand, and we can resume our expansion and development activities. So.
As it stands right now and we will share the exact numbers as we go forward and guidance for 2024. The expectation is to have a very limited capital investment in the.
The development area and it's just a fact from where we are sitting and see the cost of capital right now.
To add to Gary's comments.
We have inventory to sell on the manufactured housing side by the end of the year, we'll be delivering nearly 1000, and we will have to deliver nearly 1000 new sites across expansion in ground up development, so that that would support the.
Home sales.
Volume or.
Contribution to NOI here.
Here are here in the U S.
Where we would say should should be.
Around what we expect it to get this year.
And with regard to what I'm, saying.
Again, the U K.
We have to say we have the homes.
UK parents holidays team is doing a remarkable job, we're very very pleased with.
How home sales are continuing although they are guided down from the beginning of the year.
We'll be able to share those.
Guidance pose with 24 guidance.
Okay, and then a follow up on the balance sheet, you've taken the the variable rate I believe you said for now at about 14% is floating now should we think of the balance is being repaid off with the asset sales are going to keep a certain amount of floating.
Well, we'll continue to look to move that percentage downward certainly the immediate use of proceeds.
Our free cash flow in 2024 as well.
Any proceeds from dispositions or other activities would be to pay down debt yes.
Okay. Thanks, a lot.
Yeah.
Let's see what you acquire.
Thanks, Fernando what percentage of the roughly 360 million loan to Royal life is secured by real estate versus the op codes at the manufacturers.
Sure Hi, John about 70% is secured by real estate and the other 30 IV operating companies.
Okay and can you just give us any sense of magnitude of that.
In your guys' minds, what's a reasonable base case for the level of impairment of the 300 <unk>.
$8 million.
I think that.
Based on what we've shared we've had third party appraisers throughout the process at the beginning and as recently as our June 1st.
Provide appraisals.
And the overall appraisals.
<unk> came out about 80%.
At the midpoint of value are we.
That alone is covered at 80%.
Okay back in June 1st and so it's a lot lower now is that fair.
No that's not the assumption.
The devaluations do cover a wide range of scenarios in that analysis with our third party providers.
And appraisers, so no I would not be a good assumption.
Okay last one from me can you just give us a I guess what specific expense control initiatives were rolled out to result in such a large reduction to our expense growth guidance. This year and should we expect these benefits to continue into 2024.
Sure John would say the primary driver has been in response to a.
Normalizing our transient revenue growth.
And given normalizing occupancy any variable expenses are at the <unk>.
Pretty level I have been managed a cross payroll.
Our supply and repair and utilities as it relates to our Marina portfolio. For example, we have some of the growth capital that we've that we've invested are have been in solar projects that are driving them lower.
Lower utility expense year over year at four four of those properties. So yes, much how much of that would be sustainable in.
Our expense control on the variable side is in response to.
Top line.
So we would continue to look to mitigate the impact of lower revenues if that would be the case.
Okay. Thanks for taking all the questions.
Our next question comes from the line of Brad Heffern with RBC capital markets. Please proceed with your question.
Hey, Thanks, everybody I'm thinking back to last year, you, obviously gave some impressive rate indications in <unk> 'twenty two but we were all surprised by how that translated into <unk>. When the fall Guy came out obviously, you're not going to get 20 twenty-four gotten shot, but just given a similarly high set of increases do you think well see some return to a more normal level.
<unk> growth next year or are there other headwinds like the slowing that might prevent that from happening.
Brad that our expectation is with 90 plus percent of our.
Our revenue being derived from those are real property operations and with the.
The fact that.
30% to 40% maybe.
By year end close to 50% are those rental rate increases will all be out there.
We with good expense control.
Should continue to see the benefit.
Of high occupancy.
Solid rental increases and expense control as Fernando just referred to.
You've seen our.
Operational leverage at the corporate level with more muted G&A growth.
And we believe any activity as it relates to episodic capital recycling.
The flow through from same property growth, not not showing up and oh per share growth.
Okay got it perfect and then on the 'twenty 'twenty four rate indications I think if you get that close to 50%, but I'm curious if you could just talk about how locked in those are and I assume that there's different numbers across the different businesses for for how many of those rights have been fully staffed for 'twenty four.
Here's some by the by the end of October.
Just over 40% of our manufactured housing portfolio will have been noticed.
And those have been at about a five 4%.
Increase.
They will be around half of the portfolio will happen now is by the end of the year on.
On the on the RV side about 60% of our.
Residents have been noticed at this point.
In the UK are 100% of residents that have been noticed at this point.
And Marina essentially our south eastern or southern arenas have been noticed and the rest are rolling.
Over Ah overtime.
Okay I appreciate it.
Thank you.
Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.
Thanks, It's actually Nick Joseph here with Eric.
Gary you mentioned in the press release I think on the calls while implementing the select changes it sounds like.
You talked about Capex then.
This deficiency with athletes like that and some other opportunities that you think will get back to earnings growth and it sounds like that earnings will be in 2024.
On the G&A side and the integration on the back end of some of these portfolio companies.
Hey, and Marina.
What's the opportunity there and how can you frame some time going into this walkways.
Yes, I think.
Don't know if that was directed to me or to Fernando, but I'll start out with it.
I mean, summarizing youre exactly correct.
Steps that we're thinking about there.
The fact that we've shared we've stopped new development and acquisition continuing converting transient to annual where when you think about those conversions in the last three years.
Actually converted about 20% of our transient sites or will have by the end of this year to annual leases.
Our leases and we'll continue to do so as Fernando mentioned, we sold our stock position physician and junior all looking to re circulate more free cash flow and capital to pay down debt.
And.
Demonstrating the operational leverage which youre, referring to is something we're very hyper focused on for 2024, we've continued to see a <unk>.
Slowdown and even minor reduction in the growth that we've.
Seen for the last five seven years and certainly for the last two to three years as we brought these portfolios in and.
Eric we're working really hard and look forward to sharing with you our the outlook for 2024 as we.
We have opened the portfolios will have wounded portfolios for two to three years.
And.
I think that that will also underscore.
How we're able to deliver.
Bottom line <unk> growth moving forward.
Thanks.
It was more specific to G&A, though right.
Different geographies.
Yes.
Yeah, that's what I that's fantastic.
And that's what I'm referencing.
It is our goal to be able to.
Sure the two.
24 expectations for G&A, and who have created leverage moving forward.
Alright, Thanks, and then just on LNG and you obviously show so the stock that you have the JV that had been extended there can you talk about the timing and the potential monetization of that investment.
Yes sure.
First of all I would say that we're very pleased with our relationship with the MGM folks in.
We set out to have this JV so in junior in 2018, and while we sold our entire investment in ingenious stock.
They are great partners and the sudden junior development and we.
We don't have to we no longer have a somewhat on the overall board, we're able to allow them to focus on the day to day management and operations of the development and the fact of the matter is that after all that time and the investment there.
<unk> now completed and the backdrop of demand in Australia for retirement housing. The near term returns are very attractive and we are very positive about the cash flow over the next 12 months.
Again, that's something we'll be able.
Cable to lay out in 2024, so we've invested five years for what is expected.
In 2024.
And.
I think that that'll.
That'll be pretty clearly laid out as we provide guidance and then we can talk about thoughts going forward from there.
Thanks will get back in the queue.
Okay.
Our next question comes from the line of Keegan Karl with Wolfe Research. Please proceed with your question.
Yeah. Thanks for the time guys. Maybe first just wondering if you could walk through your reconciliation of your assets over share guidance, where you went from negative 10 cents a share at a positive two cents a share and the other adjustments line item.
Yes, well there are various line items.
At that contribute to that change the primary.
The drivers will be the remeasurement of marketable securities, which is in genia on a quarter to quarter basis, which accounted for for about six.
And then any unrealized gain loss on on.
On FX changes are again in the quarter.
Accounts for five of them five cents.
Got it and then I guess I'm struggling to with the Marine a rate increase it was a little disappointed in the numbers, but I also know that there's not good data on marine is so I'm. Just curious do you have an idea of what your hypothetical wants to lease will look like on that portfolio, given where market rents would be today, if something were to come in and they are both there.
Yeah, I think that after two.
Two years of ownership of the Marinos and a seven 3% rental increase last year and seeing the demand as I said a.
But signs are always focused on is the ability to give sustained sustainable returns year after year on a same community basis.
And the fact of the matter is that a lot of thought and dialogue went into that rental increase so that.
In the coming years, we will be able to look for a continued long term growth in the same way.
We had.
And are the portfolios.
We don't have much.
Mark.
Mark leaves pickup just because there's very very little turnover.
RV portfolio and as well as our Marina.
So on the MH side not to address it to share with you you know 15 year average turnover nearly 98% occupancy less than 5% of the homes move out a year and the fact that.
Yeah.
We don't have many leases that are directly tied to CPI.
Or any long term leases so our market rents are on current rents seem to be pretty close by standard to market and we feel the same is true on the marine aside.
And we've always shared that an empty site or in this case from the Marina and empty slip. This is the most costly slip that we have so as we look for providing solid performance in 2024, we arrived at.
The five 6% increase.
And it does really not provide for very much if any.
Market.
Mark to Mark a rental increase at all.
The rest of our portfolio.
Got it thanks for the time guys.
Sure.
Our next question comes from the line of Josh deadline with Bank of America. Please proceed with your question.
Yeah, Hey, guys I'm, just maybe a follow up on that marine or a growth of five point sex.
What I guess, how should we also think about maybe occupancy increases in that line of business like maybe it'll be helpful to just hear what great growth you've set out for last year and the occupancy up left.
Yeah, I don't have the occupancy uplift for 'twenty three of course 24, we'll give that.
Thought as part of our guided range, but.
Yeah, well I guess I'm, just trying to figure out of that five sectors like kind of static or or like if there's potential kind of upside relative to kind of where that is as I like to think about rental revenue on that side.
I mean, Josh.
Through through year to date on non transient non transient income on the on the Marine Aside had just has been just under just under 10% and our rental increase in AR and the seven and a half a percent range.
So from a back of the envelope math, roughly 200 to 200 basis points of of.
Occupancy gain.
In that number.
Okay. Okay Awesome and then just the UK sale that I guess it was disclosed in February but didn't go through what's what's sorry, if I missed it I had to jump on late on the call are what's the what's the backstory there.
Well we are.
Acquired at a really high quality premier.
Manufactured housing community in the U K.
In late 'twenty one.
And as.
As we move forward.
With the real life group and determine that Oh.
We would provide them with a note for them to pay us back with that long. They were also working with a group.
And then I was interested in acquiring a sandy Bay.
And we shared with American at that time. It was an offer we were willing to accept.
As we were looking to really reduce our capital commitments in the UK.
And as a.
Completely separate from real life.
Please these separate from park holidays, we agreed and entered into a contract with that group to sell Sandy Bay and now that that's not moving forward. We will continue to operate it and hold it for sale and recognize the income.
About 730 existing sites with expansion potential of $4 50.
And.
That's what I had shared earlier.
Okay.
I guess why didn't the sale goes through as it related to the buyer can find financing or something else.
Yeah, I can't comment too much on a real life other than are the same things that everyone is aware of that they have been.
Taken under <unk>.
Certain aspects of it have been taken under receivership and.
Recapitalization as I understand it.
As certainly install this not terminated at this time.
And our next question comes from the line of Michael Goldsmith with UBS.
See with your question.
Good afternoon, and thanks, a lot for taking my question. My my first questions on the guidance and some of the moving pieces there I'm not sure. If we touched on this earlier, but it seems like you know the the NOI guidance moved higher and then that would be kind of offset by.
The higher interest expense as a result of not using the proceeds of this note to pay that down so what were the moving pieces.
Kind of like below the line that that drove the <unk> guidance lower was was that the was that the engineer piece.
And Michael No engineer Wood would have.
Nothing to do as it relates only as it relates to the Paydown of the $9 million loss recognized as essentially marking the value of the shares.
At the end of the third quarter at $4 four Aussie dollars in 'twenty.
Two our ultimate sale price of three.
390, so that would not impact our guidance.
As it relates to the to the guide certainly higher interest expense as it relates to as it relates to the no not being repaid theres some additional interest expense.
In there in there as well, but it's primarily the note.
On the holiday side from a home sells a perspective we.
We provided guidance in July.
With the high end of about.
About $75 million U S.
We are expecting that to be.
Closer to the midpoint and we give guidance and we provide ranges.
Some some outcomes strike, we have parts of the business that did outperform and others that outperformance to the midpoint or or.
Or to the low end.
And transient mentioned in my remarks, our transient revenue.
<unk> is down on a on a guy to guide standpoint, where when we spoke in July we were expecting.
About a 4% decline in transient revenues.
We are now expecting about 7% for the full year.
We will look to offset.
And mitigate some of that impact with some savings as we've done in.
In the third quarter.
Thanks for that my second question is a little bit.
More strategic in nature.
What is the profile of the properties that you're looking for sale like is there anything anything specific about the Sandy Bay property that made it a good candidate was it the fact that these developments.
But the additional capital into it and then finally, along the same Glenn do you have a target leverage ratio, which you are looking to move down to through the sale of some of these properties. Thank you.
Yeah, Sandy Bay I think as we've shared it just was just wondering high.
The quality very high profile property. The fact of the matter is that we determined we did not want to increase our.
Capital.
Exposure in the U K, and therefore took the offer and the opportunity to put it up for sale and we will continue to market it and as I said during the income as that process goes forward. So nothing particular about that and North America I think what we shared.
Before is we did sort of a deep dive looking for where we can recycle capital.
Looked at all of our properties.
And the fact of the matter we have some.
Some properties, where with her in a single location, we probably expect it to be able to acquire.
Acquire more properties in the area, but the fact of the matter is they're not efficient to offer.
Without more properties in the area. So those are the candidates and then we have some smaller properties that.
I really don't fit the size of the company right now and the way that we operate so those are the types of things that fall in the bucket, they're all performing they're not cats and dogs.
And we just selectively bucket at those opportunities to recycle capital.
And then Michael as it relates to long term leverage targets.
Let me say that our our goal is to be at five and a half times and below from a leverage perspective.
Pro forma for the ingenious stock sale, we are on a trailing basis, we are now at six.
Six times, so we will through free cash flow and then through these episodic.
Sales are we will look to get to in within that range.
Thank you very much good luck in the fourth quarter.
Our next question comes from the line of John Kim with BMO Capital markets. Please proceed with your questions.
Thank you and the U K can you just comment on who.
Drove the decision to move forward with two separate transactions with Royal life.
Was it the local park park holidays team or was it your team in Michigan.
As I've said before they're not related to merit holidays, they are separate and distinct and it was a management.
Okay.
I'm sure you're aware.
I'm sure you're aware of this and you can hear this on the call, but and in meetings you've had but.
The performance.
Stan.
Getting completely dominated by the U K business.
And I know youre looking to simplify and improve our balance sheet, but.
I'm just wondering how much longer you could stomach having this much exposure to the U K.
And have you contemplated exiting the business I know you don't want up behind so low but.
Looking at the forward growth.
Prospects of all of your different businesses, why why not contemplate exiting the U K.
Well, John I think it's important to understand that.
First of all the management team is doing very well there.
And the growth in the liability of the real property income is achieving management's goals, although home sales in the.
Challenging environment aren't in there has been a big focus.
By stakeholders, who clearly.
Our focus on home sales and.
How old they are lower than what we originally guided to and the fact that it's not the business or the percentage that we.
We want it to be of the contributing income, but we acquired the portfolio in a much different economic environment.
When we took the opportunity in what was a strong economy to increase our manufacturing our.
Home holdings by acquiring parents holidays.
Properties higher themselves are excellent and we do believe in the business and the team.
That being said Unfortunately your opportunity in the UK has been impacted by <unk>.
Really strong economic headwinds.
Even though the core of the business is performing so.
So with that being said in a very challenging times, we continue to really review all of our options, but we are very supportive of what the team is accomplishing there and we are very aware of those people shared with us their thoughts on the capital invested in the U K.
Once the final question for me.
Our goal really is to maximize value.
Four.
That investment and as we continue to perform and our view.
We view the UK, we're happy to share any thoughts that we have moving forward.
Just one more final question on me on the sales that you're.
Landing in the U S. What kind of cap rate should be expect you've taken out mortgage debt at six 5%.
Obviously, the interest rate environment, not helping but what should we be modeling in Florida, where exit cap rates.
So I'm going to suggest we're going into the market next week with the first group.
And.
It would be best if we are able to report realized market data and not interfere with the process is taking place.
Go out to the market.
Great. Thank you.
Okay. Thanks.
No.
Our next question comes from the line of James Feldman with Wells Fargo. Please proceed with your question.
Great. Thanks for taking my question.
I hate the commentary I and the board and management team focused on streamlining the streamlining of the company for growth.
As I think about the last year.
Big part of that story for investors, it's really been just kind of surprises.
You know taking down UK park holiday guidance than that.
Yeah that the law in the U K alone.
Thinking about selling at that deleveraging I mean that all makes sense, but like what what can you say that it feels like it's process. It's also making sure that their ship that stuff that kind of kept some people off guard or out of left field that maybe you can't be quite as clearly from the balance sheet or some of the reporting.
For the company.
I'm only going to suggest that.
There is a tremendous effort from the board of directors down to management to make sure that we provide as much transparency as we can.
So that those type of surprises, although they werent.
Economic headwinds.
In the UK came about very very fast and had obviously dramatic impacts on these.
These are things that you're referencing but I think what you're finding is that.
Everything is.
Clearly and disclosure and clearly open to discussion by the management team and we want nothing more than to be as transparent as possible. So that there aren't any surprises going forward.
Okay. Thanks for that.
And then as we think about.
And can you talk to what kind of pre Covid run rates were for whether it's the marine a business or even the MH business or even that.
The U K business.
Just to give us a sense of what.
What we should expect in terms of longer term run rate for these businesses.
That you know the Covid.
Covid activity fate.
I think that are speaking to some communities, which has been public for 30 years.
We have.
Three.
Our business lines that all have the same underlying fundamentals.
High demand against very short supply.
I mean, certainly the affordable housing.
Which drives the high Occupancies that.
Historically performed very very well in all economic times.
And so.
When we shared the fact that we've been able to get rental rate increases.
SaaS, some inflationary pressure pressure throughout our history and have never delivered as a company a four quarter period, where we didn't have positive NOI growth.
Our expectation and our growth goal with everything we're doing.
With the rental increases that are with the priorities that I shared with everybody with the focus and the strategy.
We have been implementing is to continue to get that same kind of Oh same community growth and I have a dropdown in an <unk> per share basis to our shareholders. So.
I think historically.
One has to look to how we performed and what we see as the outlook for <unk>.
Certainly the rental rate increases that we have going forward and the high Occupancies and demand is that we should be able to continue to grow.
And provide a growth as we have historically done as a company so.
We're optimistic about moving forward and we certainly have a lot of steps that we identified that we're taking to.
Secure that kind of growth.
And our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, good afternoon. Thanks for taking the question I guess in terms of RV expensive you've done a good job of reducing expenses when you've had lower I guess that transient demand.
Are you able to leverage these lower expenses, let's say next year, if you have a recovery or stabilization there.
Or do you think you would have to add back mortgage expenses and create some surprises on the expense growth line there.
And then candidly there were always on the lookout for for efficiencies and there are certainly things we're learning as an ops team to.
To run our properties more efficiently, but certainly there there is flex right.
As it relates to <unk>.
The the variable rate or the you know the the variable expenses with hot with transient and where.
We're looking at another very strong year of.
Transient site conversions over to the annual side, where we're already at 1800 signs converted as of the end of the as of the end of the third quarter and our would expect.
That elevated level of conversions to continue into 'twenty, 'twenty, four which will which does continue to reduce our transient our transient revenue as a percentage of total revenues for the for the portfolio.
Got it and maybe one more expense question on insurance I guess, so far this year I think it's been a less destructive hurricane season.
I know, we talked about some initiatives to reducing certain expense increases at NAREIT in June so maybe update us on how youre looking at expense growth for insurance next year and will you be able to maybe I'll have a better outcome on that line item.
Sure.
I just got back from from London, a couple of weeks ago with the initial meetings with the syndicate.
The tone of the conversations is certainly more constructive than it was a year ago. At this time and we are working through the insurance program as we speak with our with our broker and ER and the syndicate itself as we mentioned at NAREIT.
We have not implemented significant changes to our historical insurance program and so that is that is something that we will be looking to do.
To mitigate the the large increase that we saw this year of 40% across our MH RV and marine business, but mitigating that increase year over year heading into heading into 2024 as a reminder, our our program renews at the end of the year.
And so we'll look to we'll look to share with the market at that at that time.
Once we file bound or our coverage.
Alright, thank you.
Our next question comes from the line of Anthony How which was securities. Please proceed with your question.
Hey, guys. Thanks for taking my question. Gary You mentioned that you guys are focused on only pursuing the highest growth capital projects can you provide a little bit more color on what type of projects. They are and what type of return should we expect from these opportunities and what projects I guess coming back.
Yeah, I think it is very very limited in scope, there would be certain expansions where.
There is high high demand in our some of our image communities and actually a backlog.
Potential sales.
Some small expansion opportunity and then and marine us, where we identify and great opportunity that provide 10% to 13% rapid returns on investments reconfiguration of slips.
Other small expansions that we can do those are the types of areas that we'll be focusing on.
Gotcha.
I also noticed that the move out rate year to date of three 7%, which is at least 100 bps higher than last.
The last couple of years, what are the top reason for move out and where the residents moving in the home to it's not like a difference and move out rate for age qualified or or age.
And to me that move out rate is a combination of manufactured housing and RV.
What I can share is the as it relates to our manufactured housing portfolio move out rates are largely the same as they have been historically and we've seen some higher move outs on the on the RV side.
And again as I shared Uh huh.
It earlier right. Our 1800 site conversions are in that number. So we are continuing to to fill sites fill vacancy as it relates to on the on the RV side and are implementing various strategies to to look to lengthen our debt.
That stay at our at our properties.
So the army move out there not the park models, that's moving out right. It's mainly the adult V a wheel vehicles right.
That would be correct.
Okay.
My last question is like for the assets that you've got some marketing next week are these considered like four or five star parts and do they qualify for agency loans.
I think there are select small group as I said, both small and large assets that would be high quality assets and my expectation is they would qualify for agency loans, yes.
Yes, Anthony the comment would be that both Fannie and Freddie are finance manufactured housing across the quality spectrum are they also they also finance.
M R.
And our next question comes from the line of Steve <unk> with Evercore ISI.
Please proceed with your question.
Yeah. Thanks, I just wanted to clarify maybe an answer that Fernando had given I think to John Pawlowski early on about the the collateral on the U K alone.
Fernando did you say that it wasn't that today it was at 80% loan to value or that the assets only or worth 80% of the loan amount and I just wanted to make sure I understood that correctly and then I had a quick follow up on that.
I'm sure, Steve 80% loan to value.
Okay, and maybe back when the law was originated you know what was the loan to value in care and you know when you guys work with the accounting for them to figure out what what that collateral is worth.
About 60%.
Great. Thanks very much.
And our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.
Thanks.
I guess.
Is it possible just to provide interest expense guidance.
For this year, and then I guess going forward I mean, it would be great to get that and then the second part of it is is just if there's anything I'm considered in guidance like asset sales or something else that would reduce that interest expense later this year just software.
Sure Nick No perspective.
Acquisitions dispositions or capital markets activities are factored into our guidance.
For the for the full year, we are expecting interest expense to be somewhere between $328 million and $330 million.
Yeah.
Okay. That's helpful. And then just to follow up on Steve's question there.
Going from 60 to 80, that's mainly because the second piece the seller financing that was done at like 100% Ltvs. Originally it was at 60% and then you added to the balance I think about 100 $890 million and presumably that was closer to like a like 100% is that right way to think about it.
Yes, the additional the.
Land sale that was sold in February was a 100% ltvs so that would increase the L E D.
And some additional accrued interest would also increase the LTV there. So it did it would not be a measure of.
The collateral itself.
Right.
Possible, but provide the debt yield of NOI on those assets.
Yeah.
Yeah, maybe just to NOI.
The bad or just how do I just in general for the collateral properties.
Yeah, I think that.
That's something that.
Who's going to come out of.
The work that's being done with the receivership and at this time.
Very little we can comment about those properties.
It is oh, all inclusive of the third party appraisals that we had done. So it is included to get to that failure.
But I would suggest.
The majority of that is the value of the properties themselves and the entitlement.
Right, Okay, all right. Thanks for taking the follow ups.
Okay.
Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
Thanks for keeping the call going Fernando I, just want to make sure I interpreted your comments of how NOI is going to flow through to earnings going forward, how I interpreted what you do expect earnings growth for.
For next year relative to calendar year 2023 is that is that a fair interpretation.
Yes.
Okay are there I mean, it back to Nick Joseph question about G&A are there.
So their corporate cost cutting initiatives that'll lead to declines in G&A next year relative to calendar year 'twenty three.
Yeah, I think we would share that when we provide guidance.
Okay, alright, thanks for all the Thunder.
Yeah.
Thank you.
And we have reached the end of the question and answer session I'll now turn the call back over to the chairman President and CEO, Gary Shiffman for closing remarks.
Well for those of you we're still and we appreciate your patience.
We really do look forward to providing full guidance and for 'twenty for our fourth quarter earnings call and I look forward to speaking to everybody then thank you.
And this concludes today's conference and you may disconnect your line of sight.
Thank you for your participation.
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