Q1 2024 Sun Communities Inc Earnings Call
Good afternoon, ladies and gentlemen, and thank you for standing by.
Speaker Change: Welcome to the Sun communities first quarter 'twenty 'twenty four 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 cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's periodic filings with the SEC.
This company undertakes no obligation to advise or update any forward looking statements to reflect events or circumstances. After the date of this release.
Speaker Change: Having said that I'd like to introduce management with us today.
Speaker Change: Gary Shiffman, Chairman, President and Chief Executive Officer, and Fernando Castro, Caccini, Chief Financial Officer, and Aaron Wise Executive Vice President of corporate strategy and business development.
Speaker Change: After their remarks, there'll be an opportunity to ask questions for those who'd like to participate in the question and answer session management asked that you limit yourselves to one question, so everyone who liked to participate has ample opportunity.
Speaker Change: As a reminder, this call is being.
Recorded I would now like to turn the conference call over to your host Gary Shiffman, Chairman, President and Chief Executive Officer Mr.
Gary A. Shiffman: Mr. Shiffman, you may begin.
Gary A. Shiffman: Good afternoon, and thank you for joining us on our conference call to discuss first quarter 2024 earnings and our updated guidance.
Gary A. Shiffman: We're pleased to report solid first quarter results underpinned by strong operational performance in each of our businesses.
<unk> per share of $1 19 for the quarter was driven by robust seven 9% year over year growth.
North American same property NOI and.
Gary A. Shiffman: Strong U K same property NOI growth.
Gary A. Shiffman: Our first quarter results underscore how the favorable dynamics of high demand and limited supply inherent in our best in class portfolio generate resilient real property income.
Gary A. Shiffman: Same property manufactured housing NOI increased 8% compared to the first quarter of 2023.
Gary A. Shiffman: Several factors, including rental rate increases.
Gary A. Shiffman: And see growth and lower expenses.
Same property NOI increased eight 1%, primarily reflecting the positive impact of converting transient sites to annual leases and continued expense savings to partially offset lower transient revenues.
Gary A. Shiffman: Same property Marina NOI grew seven 5% compared to the prior year.
Gary A. Shiffman: The outperformance was driven by continued strong demand for wet slips and dry storage as well as strong rental rate increases.
As we entered our third full year of ownership of our UK portfolio. This segment is now included in our same property reporting.
Gary A. Shiffman: Same property NOI in the quarter was approximately $11 million, which is a strong start to the year.
We remain focused on our capital recycling strategy and as disclosed in our last earnings call and sold two manufactured housing properties.
Gary A. Shiffman: Lee.
Gary A. Shiffman: In the market with additional assets and feel positive about her ability to transact.
Gary A. Shiffman: In terms of capital deployment Sun continues to be highly selective.
Gary A. Shiffman: Year to date Sun has acquired several fulltime marina properties or approximately $12 million.
Strategically enhance our Marina member network and the East Coast.
Gary A. Shiffman: We recently published our sixth annual ESG report.
Gary A. Shiffman: Key highlights include completing our inventory methodology for reporting scope, one two and three greenhouse gas emissions.
Gary A. Shiffman: And a 73% increase in team member volunteer hours compared to 2022.
Gary A. Shiffman: Additionally, we continue to prioritize a dialogue and interactions with our stakeholders and to work with their supply chain partners to understand their ESG programs.
We continue to execute on a plan focused on delivering earnings growth in my reliable real property.
Gary A. Shiffman: I would like to thank our talented team members for their continued dedication and strong performance.
Gary A. Shiffman: And all of our stakeholders for their continued support.
Gary A. Shiffman: I will now turn the call over to Fernando to discuss our results and guidance in more detail.
Gary A. Shiffman: Linda.
Fernando: Thank you Gary in the first quarter Sun reported core <unk> per diluted share of $1 19, driven by strong real property revenue growth and our continued focus on managing expenses.
Fernando: North America total same property NOI for the quarter grew seven 9%.
Fernando: By a 6% increase in revenues and a two 2% increase in expenses.
Fernando: They're detailing each segment.
Fernando: Same property manufactured housing reported another solid quarter with an 8% increase in NOI compared to 2023.
Fernando: It was driven by a six 8% increase in revenue and expense growth of three 4%.
Fernando: For same property RB is eight 1% NOI growth was driven by a three 1% increase in revenue and then one 8% decrease in expenses the year over year decline in RV operating expenses was due to aligning controllable cost with transient revenues, notably in payroll and utilities.
Fernando: Yeah.
Fernando: Occupancy for same property manufactured housing in RMB adjusted to include expansion activity increased 180 basis points year over year to 98, 9%.
Fernando: Part of the uplift in occupancy can be attributed to conversions of transient to annual RV sites for the trailing 12 months ended March 31, 2020 for Sun converted over 1700, 50 transient sites to annual contracts.
Fernando: <unk> for approximately 65% of our revenue producing site gains we're continuing our strategic focus on converting transient to annual sites.
Fernando: The start of 2020, we have completed nearly 7100 conversions and have increased the number of annual sites by approximately 27%.
Fernando: Marina posted another strong quarter with same property NOI, increasing seven 5% compared to 2023. This was driven mainly by rate increases for wet slips and drive storage spaces across the portfolio and stronger transient demand, resulting in a seven 1% increase in revenue partially offset.
Fernando: By six 5% increase in expenses, primarily driven by payroll.
Fernando: In the U K same property NOI increased by $3 $3 million, representing a 44, 5% increase over 2023 same property results higher rental rates increased customer retention and the early timing of the Easter holiday break.
Fernando: Drove a 12, 3% increase in revenue in the quarter property operating expenses decreased one 7% year over year, primarily reflecting timing differences for supply and repair and payroll cost.
Fernando: First quarter U K home sales volumes were in line with expectations, we sold more than 620 homes, representing a five 4% increase compared to the previous year.
Fernando: <unk> contribution was $10 $2 million for the quarter, reflecting the strong sales volume offset in part by lower margins. The strong unit sales performance in the first quarter will lead to an increase in community occupancy and site rent for the year.
Fernando: Lines with our strategic objective to shift a larger share of our U K business activity from home sales to real property rents.
Fernando: Regarding capital allocation Sun remains extremely discipline pursuing limited strategic opportunities.
Fernando: Arie indicated we recycled approximately $52 million of proceeds from selling two assets. This year and acquired four highly strategic Marina for approximately $12 million.
Fernando: Turning to our balance sheet on March 31, 2024, the company had approximately $7 $8 billion in net debt outstanding and our net debt to trailing 12 month recurring EBITDA ratio was $6 one times levered.
Fernando: We remain focused on further enhancing our balance sheet strength.
Fernando: During the quarter Sun issued $500 million of five year senior unsecured notes with an interest rate of five 5% net proceeds were used to pay down borrowings outstanding under our senior credit facility during.
Fernando: During the quarter, we also paid off our corporate term loan with a revolving credit facility.
Fernando: Our weighted average debt maturity of six eight years and our variable rate debt was approximately 11% at the end of the quarter, we intend to use free cash flow from operations and proceeds from planned asset sales to reduce overall leverage and variable rate percentages.
Fernando: As detailed in yesterday's release, we are updating our 2024 guidance for first quarter results as follows.
Fernando: We narrowed our full year core <unk> per share guidance to a range of $7.06 to $7 22.
Fernando: We are also establishing guidance for the second quarter of 2024 core <unk> per share in the range of $1 83 to $1 91.
Fernando: For our total portfolio, we expect real property NOI growth in the range of six 5% to seven 3% higher expected NOI growth in MH and Marina should offset lower expected NOI from RBC.
Fernando: In North America, the updated full year same property growth range is $4 six to five 8%.
Fernando: 40 basis point reduction at the midpoint is primarily due to transient RV revenue headwinds revised expectations are six two to seven 1% for manufactured housing a 15 basis point increase at the mid point.
Fernando: Negative <unk>, 3% to one 3% for RBS, a 230 basis point decrease at the midpoint driven by transient RV revenue headwinds, which were partially offsetting with controllable expense reductions and six 4% to seven 6% for Marina is a 20 basis point increase at the midpoint.
Fernando: In the U K, we forecast approximately the same total <unk> contribution for the year with a greater contribution now expected to come from real property results. We are increasing our full year same property NOI forecast from the prior range of 1.3 to three 3% to a new range of 6% to 8%.
Fernando: The increase was driven by greater expected rental revenues complemented by continued cost management efforts the higher real property revenue outlook is a function of the previously implemented rental rate increases and higher home sales volume and retention achieved year to date.
Fernando: For UK home sales, we maintain our range of expected volume for the year, but expect lower <unk> contribution due to lower margins.
Fernando: Our UK strategy remains focused on shifting a larger proportion of our income from home sales margins into the Brazilian reliable NOI generated by real property rights.
Fernando: Overall, we are pleased with our operating performance expense management and minimizing capital spending over the course of this year.
Fernando: Please refer to our supplemental for additional guidance information as a reminder, our guidance includes acquisitions and dispositions and capital markets activity through April 29, but it does not include the impact of prospective acquisitions dispositions or capital markets activities, which may be included in research analyst estimates.
Speaker Change: This concludes our prepared remarks, we will now open the call up for questions.
Fernando: Greater.
Speaker Change: Thank you at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Fernando: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q.
Fernando: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Fernando: Our first question comes from Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: Good afternoon. Thanks, a lot for taking my question. It seems like you guys have been able to convert this strategy in the U K from generating the bulk of the ore you've.
Michael Goldsmith: <unk> been able to convert from generating a lot of your NOI from home sales and you've made progress on generating up more for rent growth.
Speaker Change: Are you able to achieve that in such a short period of time.
Speaker Change: Kind of influence the guidance in such a large way. Thank you.
Speaker Change: Thanks for the question Michael.
Speaker Change: The U K business overall is performing generally in line with expectations.
Speaker Change: There has been a strategy that.
Speaker Change: You mentioned that we've indicated.
Speaker Change: At the time, we acquired the acquisition that we look to.
Speaker Change: Sacrifice a little bit of the margin on home sales to be able to create a more sticky dependable.
Speaker Change:
Speaker Change: Real property income in the form of pitch fees there.
Speaker Change: And it is working.
Speaker Change: Working very very well in first quarter I think is a good example of it that being said there are still economic pressures and headwinds in the UK well were up in volume and overall growth.
Speaker Change: The U K very much like what we're seeing in the U S.
Speaker Change: As a.
Speaker Change: Probably not.
Speaker Change: <unk> seen the.
Speaker Change: Benefits of interest rate.
Speaker Change: Rate reductions as soon as.
Speaker Change: They might've been anticipated a while ago so.
Speaker Change: The bottom line is I think that we'd be in a position to be.
Speaker Change: Even ex selling further and we expect to be doing so as we go through the year and into the future and will continue.
Speaker Change: To sacrifice a little bit of that margin to gain the.
Speaker Change: And the real property revenues, it's been working so far.
Speaker Change: We expect it to continue to do so.
Speaker Change: Thanks for that Gary and Mike My follow up question is there were several moving pieces in the 2024 expectations and that came two months after issuing your initial outlook got two months ago. So as we look forward from here or do you do you sit here and say okay now.
Speaker Change: We've got a much better grasp on the year.
Speaker Change: Sitting kind of in the middle of spring and so there shouldnt be as much volatility with the guidance going forwards or.
Speaker Change: Okay.
Speaker Change: Just point in the year could there still be kind of a large shifts within the expectations going forward or just how do you gain a better understanding of where the visibility is into the euro at this point.
Speaker Change: It's certainly a question we.
Speaker Change: Can relate to and understand.
Speaker Change: And as we move forward to a very focused plan.
Speaker Change: Taking the underpinning and the well.
Speaker Change: Performance, if you will if our business.
Speaker Change: Platform and translating it into growth for our shareholders.
Speaker Change: We're working very very hard in a number of different areas and we've shared previously certainly the simplification.
Speaker Change: The recycling of capital.
Speaker Change: Many of the things that we've accomplished over the last couple of quarters all in an effort and this includes.
Speaker Change: The continued conversions of transient wherever it is harder to forecast our transient RV.
Speaker Change: Two.
Speaker Change: And you all.
Speaker Change: Agreements in our RV communities.
Speaker Change: All of this and the approach that we've taken to looking hard at first quarter and knowing that it's the lowest contributor across the board first and fourth quarters to our overall <unk> performance.
Speaker Change: We feel comfortable that the adjustments that we made will leave us in the best position to really deliver the results.
Speaker Change: Sharing with you today.
Speaker Change: And Michael while there certainly.
Speaker Change: Certainly our moving pieces to the to the guidance we did reiterate our.
Speaker Change: Our <unk> guidance per share with the second quarter.
Michael Goldsmith: Thank you very much.
Michael Goldsmith: Our next question comes from John Kim with BMO Capital markets. Please proceed with your question.
John P. Kim: Thank you just wanted to follow up on that <unk> guidance, which you maintained but when you look at the non games.
John P. Kim: Same store real property items.
John P. Kim: It looks like a 15% reduction in your outlook part of that is higher G&A.
John P. Kim: But that's another question, but how.
John P. Kim: How confident are you to make that you can make up that 15 cents or 2% of <unk> in your same store.
John P. Kim: Portfolio.
Speaker Change: Hey, John.
Speaker Change: The B G&A move.
Speaker Change: Upward from guide to guide that's from a GAAP perspective, so that does not include <unk>.
Speaker Change: Some add backs that we have for SFO mainly done.
Speaker Change: Deal costs and transaction costs of which there were just over $11 million in in the quarter.
Speaker Change: The transaction.
Speaker Change: This is related to.
Speaker Change: Finalizing the receivership process related to the Royal life note.
Speaker Change: And investor engagement during during the first quarter. So while there is.
Speaker Change: On the guidance page there is an increase from guide to guide in G&A.
Speaker Change: G&A, our NAV of those add backs, we are still expecting at the midpoint, our G&A to grow by about four 6%.
Speaker Change: At the midpoint.
Speaker Change: And the other items I mean, maybe my second question is your RV guidance Thats. The only part that went down on your same property.
Speaker Change: Outlook you had eight.
Speaker Change: <unk> growth in the first quarter, so you're basically implying it's going to go negative for the rest of the year I realize there's the transient to seasonal or annual conversion, but typically you get a big uplift in revenue when you make that conversion. So what is driving that reduction in the same property RG <unk>.
Speaker Change: Outlook.
Speaker Change: And John Youre seeing the uplift of that occupancy gain on the annual side with <unk>.
Speaker Change: With just over 13% growth for that line item.
Speaker Change: In the first quarter.
Speaker Change: The movement or the guide downward on the RV side is primarily due to the transient headwinds as mentioned earlier.
Speaker Change: Where we will look to offset as much of it is possible by with controllable expense cost reductions.
Speaker Change: The.
Speaker Change: Our forecast.
Speaker Change: Set in February for our guidance implied a two six reduction in transient revenue for the for the year that is that was including the impact of.
Speaker Change: Of conversions.
Speaker Change: Mentioned.
Speaker Change: That is that.
Speaker Change: That is currently with all the information that we have in front of us as it relates to our pace.
Speaker Change: Short booking windows.
Speaker Change: That is currently expected to be about 8%.
Speaker Change: Production for the year. So that's that that is the largest mover.
Speaker Change: On the on the RV side overall, when you take that into consideration with our manufactured housing platform and Marina platform.
Speaker Change: The guide.
Speaker Change: <unk> downward.
Speaker Change: On the NOI side is about $4 million.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Josh <unk> with Bank of America. Please proceed with your question.
Josh: Yeah, Hey, guys. Thanks for the question.
Josh: Maybe just wanted to touch on the asset sales and just like how that marketing process is going.
Josh: Yes.
Speaker Change: Well Josh.
Speaker Change: We've certainly got off to a good start in.
Speaker Change: Sure the two assets that we did sell.
Speaker Change: We are currently in the market.
Speaker Change: And there are.
Speaker Change: A number of opportunities that we feel very good within the selected assets that we've offered for dispositions again.
Speaker Change: These are assets that are.
Speaker Change: We feel will benefit somebody else in the long run.
Speaker Change: There are still buyers out there.
Speaker Change: There are those that are.
Speaker Change: Looking to build platforms looking.
Speaker Change: Yes.
Speaker Change: Negative leverage if you will but there is definitely.
Speaker Change: <unk> in the marketplace with.
Speaker Change: That cost being higher than they had been triggered last long period of time.
Speaker Change: We look forward to being able to share with everybody the results.
Speaker Change: These dispositions that we have in the market right now and hopefully we'll be able to do that in this coming quarter.
Speaker Change: I appreciate that Gary and then I just wanted to follow up on Michael's question about the guidance.
Speaker Change: When I think about like your guides.
Speaker Change: It almost seems like every line item to range was revised just like maybe stepping back and like thinking Big picture like how do you like what's your philosophy on like providing these guidance ranges.
Speaker Change: We're looking to provide as much disclosure as possible to the market as it relates to.
Speaker Change: As it relates to all of the all of the all of our business platforms.
Speaker Change: Other line items, so you can.
Speaker Change: With the guidance you can track.
Speaker Change: Almost entirely P&L, we did add guidance.
Speaker Change: In February as it related to expected interest expense, which had not been provided previously.
Speaker Change: So that is it is.
Speaker Change: Looking to provide as much color as possible to the market as it relates to <unk>.
Speaker Change: Our expectations those expectations.
Speaker Change: Some shift upward some shift downwards as you're seeing.
Speaker Change: With the guidance provided last night.
Speaker Change: But it's yes.
Speaker Change: The best information that we have in front of us today.
Speaker Change: To you and the rest of the market.
Speaker Change: Josh the only thing that I would add to that is the fact that.
Speaker Change: We certainly that's where a lot of challenges in 'twenty three have had some headwinds in 'twenty four as we've shared with everybody but.
Speaker Change: Also shared a strong desire to be.
Speaker Change:
Speaker Change: Uh huh.
Speaker Change: Simplifying and assisting with.
Speaker Change: The ability to model. So we continue to do.
Speaker Change: A lot of work on that and as we go through 'twenty for some of the steps that are <unk>.
Speaker Change: <unk> place I think will put us in a cadence.
Speaker Change: To be able to be able to.
Speaker Change: Provide.
Speaker Change: And understanding and information as we go forward a good example.
Speaker Change: UK home sales, where we will sacrifice margin.
Speaker Change: And made a decision and management is actually executing on the decision to increase volume at the cost of a little bit of margin to add to real property income.
Speaker Change: They've done an outstanding job.
Speaker Change: It is they really want to commend them on that and it's things like that that are causing the adjustments that I think as we continue quarter by quarter.
Speaker Change: We'll take a cadence that.
Speaker Change: We will feel much better.
Speaker Change: Okay I appreciate the color.
Speaker Change: Our next question comes from Brad Heffern with RBC capital markets. Please proceed with your question.
Bradley Barrett Heffern: Yes. Thanks is there any color that you can give about the pace at which you expect to move NOI out of the UK home sales business in India, and a real property going forward should we continue to see sort of big chunky moves like this as the year goes on or does the guidance kind of fully reflect that.
Speaker Change: The underlying change in strategy.
Speaker Change: The guidance fully reflects the underlying change in or not the change in strategy, but the continuation of that of that strategy of shifting.
Speaker Change: Of shifting more.
Speaker Change: More more income into the reliable real property side.
Speaker Change: Okay and is there any color you can give on kind of the pace at which we should expect that to happen obviously in the U S.
Speaker Change: Home sales are not a big contributor.
Speaker Change: Is there visibility on that happening in the UK over the next five years or three years or in any sort of framework you can give us around the speed at which you can accomplish that that transition.
Speaker Change: Okay.
Speaker Change: Right are we talking about the U K.
Speaker Change: Yes for the UK.
Speaker Change: Sure.
Speaker Change: Hi, again.
Speaker Change: Kind of reiterate.
Speaker Change: What Fernando said and the fact that.
Speaker Change: Even going back to when we announced the acquisition we had strategy recognizing that the model in the U K is different than it is in the U S.
Speaker Change: We would sacrifice margin for increasing occupancy and gaining that more sticky.
Speaker Change: Dependable if you will in the us.
Speaker Change: Model.
Speaker Change: A word.
Speaker Change: <unk> real property side, so what youre seeing is a continuation on that.
Speaker Change: And twenty-three definitely hit the headwinds.
Speaker Change: Slowing economy.
Speaker Change: The cause that to accelerate faster than our five or seven year plan originally had it but I would say right now where we're at we're right on target, where we want them to be.
Speaker Change: With Patrick holidays and.
Speaker Change: I think you'll just continue to.
Speaker Change: See us hit guidance and.
Speaker Change: If things should improve or if we have an opportunity to make more rapid we would definitely sure that in the future.
Speaker Change: Our next question comes from Wes Golladay with Robert W. Baird. Please proceed with your question.
Wesley Keith Golladay: Hello, everyone I just want to go back to the transient forecast can you unpack that a little bit what is driving that.
Wesley Keith Golladay: Even adjusted for the conversions are you seeing any rate pressure and then when you have your forecast for the balance of the year are you extrapolating the current trends into the balance of the year.
Wesley Keith Golladay: We continue to believe in the long term strength of the overall <unk> sector.
Wesley Keith Golladay: And as you know we've been strategically reducing our transient exposure.
Wesley Keith Golladay: And relative contribution over the past few years in favor of the stability of the.
Speaker Change: Growth of the annual agreements.
Speaker Change: We're really really focused on so.
Speaker Change: We've increased the.
Speaker Change: Annually by about 27%.
Speaker Change: By converting the transients since 2020, and our expectation and outlook.
Speaker Change: Moving forward as Youll continue to see that.
Speaker Change: And again.
Speaker Change: That allows us to budget and forecast.
Speaker Change: With a higher degree of confidence.
Speaker Change: We have.
Speaker Change: Those homes in on an annual basis and they are not subject to the.
Speaker Change: Concerns of weather again.
Speaker Change: Much of the transient is within a three hour drive of the Homebase homebuyer guest and so weather conditions as we saw in April and emphasis we've seen more recently in the last couple of years do impact that short term transient guests the ability to.
Speaker Change: To be able to forecast that so I think that.
Speaker Change: Well, it's a good business and we will continue to have a percentage of it we will continue to focus on.
Speaker Change: Converting those transient over to annuals, and we're seeing a stronger and stronger demand than we're opening up more and more of our transient sites.
Speaker Change: Allow them to be converted to angel.
Speaker Change: Yeah, No I get all that just maybe looking at the transient forecast, though it did come down about 6% five or 6% and I'm. Just wondering if there is a great pressure or is it just occupancy.
Speaker Change: Yeah. It is it mainly just the current trends that you're seeing and are you extrapolating that into the second half of your forecast.
Speaker Change: In a sense of maybe how conservative the guide is maybe a little too conservative as weather potentially impacting the guide at the moment.
Speaker Change: Yes, I would just suggest as Fernando mentioned certainly.
Speaker Change: He has a lot to do with that we're seeing an 8% down year over year.
Speaker Change: There is.
Speaker Change: A concept that says shorter booking windows will yield.
Speaker Change: Potential for upside but in.
Speaker Change: Our efforts to give the best guidance that we can going forward.
Speaker Change: We're looking at outpacing is right now.
Speaker Change: Fernando.
Speaker Change: Ed.
Fernando Castro: Okay, and then maybe go on to the U K is there any one time items that hit the first quarter and then anything in the forward guidance and maybe to say can you confirm that there is the pricing of lowering the pricing to build they're sticky income on the real property. That's nothing new that you changed this year year to.
Speaker Change: Data something that you've been doing all along.
Speaker Change: So I'll answer the first part and Fernando can talk about.
Speaker Change: Heading forward, but.
Speaker Change: The strategy of shifting.
Speaker Change: Margin for occupancy gain has been our strategy all along.
Speaker Change: <unk> before and more.
Speaker Change: Rapidly accelerated in 2020, right as we brought margins down.
Speaker Change: Due to the headwinds of the economy of what Youre seeing right now is continued strong demand.
Speaker Change: And a management team that from day, one understood the concept of being able to increase occupancy and increased real property contribution.
Speaker Change: Over the concept of the one time sales margin it.
Speaker Change: Probably worked much better for them.
Speaker Change: As the portfolio was one I, probably private equity firms in the past.
Speaker Change: It's pretty much.
Speaker Change: Exactly where we want it to be now and we're hoping to continue it.
Speaker Change: Really make a difference.
Speaker Change: How we're going to look long term.
Speaker Change: The value creation, if you will the real property contribution.
Wes: And then Wes.
Wesley Keith Golladay: On aggregate the total <unk> contribution from our holidays for 'twenty 'twenty four is in line with original expectations arc holidays contribution to core <unk> also includes.
Wes: Sorry, do you need through retail and F&B operations, and head office personnel and corporate activities.
Wes: On the G&A side in.
Speaker Change: In the first quarter and for the year included in the overall contribution to core <unk>.
Speaker Change: Wasn't expected payroll tax withholding.
Speaker Change: VAT refund in third party costs related to securing this refund. These various items had a net impact of about $2 million to our aggregate $153 million of <unk> in the first quarter or much larger for for the rest of the year.
Speaker Change: These.
Speaker Change: These changes are similar and consistent with call it.
Speaker Change: Kim.
Speaker Change: Real estate tax or sales tax or other expense changes that are pure fear periodically I reflected.
Speaker Change: Updated treatment of revenue or expense.
Speaker Change: These changes are sometimes favorable or unfavorable to the to the current period.
Speaker Change: Okay. So just the bottom line that says the contracts that you had and so the U K real property revenue is just a true upward lift then.
Speaker Change: On the floor.
Speaker Change: So what's not in same property is.
Speaker Change: As detailed during the call.
Speaker Change: Is primarily driven by the higher rental rates.
Speaker Change: Higher retention than the unexpected.
Speaker Change: And we did see a.
Speaker Change: Stronger Easter break, which also the comp on a year over year basis, where Easter was during the second quarter in 2023.
Speaker Change: Got it thanks for the time everyone.
Speaker Change: Our next question comes from Casey Carl with Wolfe Research. Please proceed with your question.
Keegan Grant Carl: Yes. Thanks for the time guys, maybe first I guess just on your acquisition of land parcels. It was a bit surprising given your comments on development and expansion last quarter. So I guess I'm just curious what changed on this front.
Speaker Change: Yes, I think we've talked about being very very strategic thinker.
Keegan Grant Carl: Thinking with.
Keegan Grant Carl: Use of capital and we've also shared the plan that we're looking to move.
Keegan Grant Carl: Cycle capital and dispositions as well as through cash flow by shutting down.
Keegan Grant Carl:
Keegan Grant Carl: Development in.
Keegan Grant Carl: Using that cap will pay down more costly debt.
Keegan Grant Carl: The basis I think that.
Keegan Grant Carl: When you have.
Keegan Grant Carl: 500.
Casey Carl: 600 properties that.
Casey Carl: I am very very strategically located in the strategic piece of land or opportunity comes about.
Casey Carl: We take.
Casey Carl: Advantage of that thinking about the long term nature.
Speaker Change: Son.
Speaker Change: And all you're seeing there is as you saw in the marinas.
Speaker Change: Just some bolt on opportunities, where we have had a very very low cost.
Speaker Change: A great deal of potential value creation in the future.
Speaker Change: Those are just one off strategic opportunities.
Speaker Change: Small in nature.
Speaker Change: And then shifting gears here on home sales I guess, both on the U S and U K, maybe UK first I know you mentioned margin is it just a function of mix like are you selling more used homes and new homes or is it just lower general pricing.
Speaker Change: Is there any update on Sandy Bay as well because I know those are higher priced homes and then on the U S. I know that outlook was reduced to is it explicitly tied to existing home sales or is there something else, we should be aware of.
Speaker Change: Kian on the UK side, it's a mix of both.
Speaker Change: Pricing and.
Speaker Change: And mix shifting more towards the pre owned.
Speaker Change: Syed.
Speaker Change: Of sales.
Speaker Change: Sandy is.
Speaker Change: Sandy Bay is ramping up well as it relates to marketing efforts for our four sales heading into a.
Speaker Change: Busier season over the course of the next next couple of months.
Speaker Change: In the U S.
Speaker Change: Side again.
Speaker Change: Clearly given the high occupancy which are.
Speaker Change: <unk> properties operate.
Speaker Change: And then a strategic shift away from deploying capital into that development and expansion. We did guide towards a much lower home sales this particular year.
Speaker Change: And.
Speaker Change:
Speaker Change: This is something that I think it just demonstrates that a little bit of the strength that we're seeing at nearly a 98% occupancy.
Speaker Change: The MH and annual communities.
Speaker Change: Great. Thanks for the time guys.
Speaker Change: Our next question is from Eric Wolfe with Citibank. Please proceed with your question.
Eric Wolfe: Hey, thanks.
Eric Wolfe: You look at your guidance I was just wondering if there's anything in the core numbers that as sort of onetime in nature, one way or the other so for instance, it seems like there might've been a tax refund in the U K since July this quarter, just trying to understand if there's anything in this year's cost so that won't be repeated next year as we think about the right sort of base from which to project.
Eric Wolfe: Things in 2025.
Eric is detailed a little bit earlier in the quarter.
Eric Wolfe: Budgeted this way.
Eric Wolfe: Contribution contribution in the U K included a a VAT refund.
Eric Wolfe: On.
Eric Wolfe: On the REO property outside included.
Eric Wolfe: <unk> expenses are higher expenses.
Eric Wolfe: Given.
Eric Wolfe: Your old tax withholding and cost associated with securing.
Eric Wolfe: That refund.
Eric Wolfe: The net of those figures is about 2 million $2 million for the quarter or for the year.
Eric Wolfe: Hi, Ken Hi, consistent with.
Eric Wolfe: This is akin to say.
Eric Wolfe: Real estate tax assessments, right, where we may pay.
Ken: A little bit.
Eric Wolfe: More given the assessment that we get from the state and if there is.
Eric Wolfe: If we are able to work through.
Eric Wolfe: I think we might get a refund.
Eric Wolfe: A later period.
Eric Wolfe: Similar and consistent with with that practice.
Speaker Change: Got it yeah that makes sense I guess I was trying to make sure. There was nothing outstanding so it sounds like just net net like maybe $2 million and understood.
Speaker Change: On the reason for it I just want to make sure that you know when we were projecting out to 2025, there's nothing else that would sort of distort those numbers.
Speaker Change: I guess second question on the recurring Capex.
Speaker Change: A little bit high relative to last year's quarterly average.
Speaker Change: Just wondering if we should expect it to come down and then also I saw that there was a decrease in sort of acquisition capex, but still a bit of this sort of bolt on investment.
Speaker Change: The former acquisitions I guess when should we expect that to come down as well.
Speaker Change: Thank you Eric.
Eric Wolfe: The the spend on a recurring capex side is consistent and we do have higher FX.
Eric Wolfe: Capex recurring capex on.
Eric Wolfe: The Marina side and on the UK side.
Eric Wolfe: During the first quarter of the year, so that spend is expected to moderate over the over the rest of the of the year.
Eric Wolfe: As it relates to total nonrecurring capex for the for the quarter.
Eric Wolfe: It does represent about a 45% reduction as compared to the first quarter of last year.
Eric Wolfe: And is expected to ramp up.
Has it.
Eric Wolfe: As we've discussed with the market our our spend on Capex is expected to be.
Eric Wolfe: Somewhere around 55% reduction.
Eric Wolfe: To the to the figures that you saw spend in 2023.
Speaker Change: Got it thank you.
Our next question comes from Anthony Powell with Barclays. Please proceed with your question.
Hi, Good afternoon, I guess another question on transient RV am I understand that you're trying to convert many of those types of annual but you still have a meaningful amount of transient sites. So I'm curious are there any strategies that you can employ to maybe improve.
Improved growth there and what's your optimal annual training split in that business.
I think answering the.
Second part of your question first we talked about.
Do think transient from.
The high 20, thousands to about 14000 15000, no growth 345 year period of time.
Transient sites to be honored.
Speaker Change: Best in transient properties as well as the feeder.
To continue to feed.
Annual.
Yes, as they move out.
So we're making good progress there.
Sure.
With regard to.
Other opportunities I think.
On the social media side on the marketing side, we've been very very focused I think that.
There's been a lot of talk about <unk>.
Credible growth.
Through Covid and the return to pre Covid periods of time, we're really just focused if you will.
Growing confirm where we are.
We have engaged with a number of third parties, who have hospitality experience.
Looking at different forms of revenue management different forms of looking for business activity and the shoulder parts of the week in the shoulder seasons. So we're very very focused in.
Do you believe that there is opportunity there.
Near to long term to really enhance.
The transient.
<unk>.
Properties and sites that we have.
Also.
What is left in the portfolio becomes the best of the best of the transient.
So there is an opportunity.
As well as we continue to convert to see.
Longer midterm kind of improvements in our growth and we're seeing right now.
But theres no nothing specific that I could point to that.
I would tell you that it's leading directly to an anticipated change.
Okay. Thank you.
Our next question is from Jamie Feldman with Wells Fargo. Please proceed with your question.
Great. Thank you and thanks for taking my question I guess, just focusing on the balance sheet can you just remind us your deleveraging our leverage objectives and floating rate debt objectives in terms of those metrics and can you also give us some thoughts on the glide path to get there what do you think it takes to get to your goal.
How long do you think it takes to get to your goals for both of those items.
Sure Jamie as we've stated previously our long term leverage targets are to be at five five times and below.
Today, we are at six one times from a leverage perspective.
Growth in.
And EBITDA over the course of the year should should provide.
Deleveraging by the end of the year as well as as Gary had stated before.
We have.
Multiple.
Multiple opportunities from a capital recycling standpoint that we are.
We trust, we will update the market with over the course of the next couple of months and quarters.
It should also contribute towards reach.
Reaching and surpassing that.
That goal of five five times.
Floating rate debt today is at the end of the quarter.
Was just above 11%.
We will look to manage that percentage to be below 10%. So that's not something that.
We can do here over the course of the short term.
Okay, and then just to confirm that a five and a half you're saying by yearend or no. That's that's going to take much longer.
And that takes us into 2025 from from that standpoint.
Okay.
And then I guess, just taking a step back.
Over the last.
Nine months year, and got a lot of new initiatives at the company you added two new Board members you took the plan to simplify earnings I think you know whether it was NAREIT meetings in November or end of year conference call discussions. It seemed like you had ring fenced a lot of the concerns on the U K and some of the problems that certainly.
The market was concerned about so you look today you guys maintained your guidance your core business actually ticked a little bit better than expected. When we started the year, but the stock is underperforming by almost 600 basis points to rights can you just talk about maybe looking behind the curtain of what's going on at the company and some of the initiatives that.
Speaker Change: Your board debating your management team's debating your company's debating about ways to.
Address the problem fixed the problem just babies things that we on this side of the fence don't necessarily have a view on.
People can look forward to as they think about this company.
Go ahead.
Yes.
Sure I think.
I'd share and really reiterate.
The thoughts related specifically to that.
<unk>.
The goal to create simplification up and down throughout the company.
The company has grown a lot.
Complexities certainly.
Crept in.
And as we've discussed previously we're really making good progress along those lines.
With regard to.
The board was pleased with the addition of the New Board members.
We're pleased with the setup of the committees going forward.
And recycling that capital we've talked about.
One of the JV is.
We've been able to simplify greatly we shared the northgate properties last quarter, we talked about stepping out of the head stock.
In Australia and we've.
Sold off our interest in the proprietary.
Software.
Or.
Managing.
Our RV communities.
Speaker Change: Though we still use it great software camps that and at the.
The same time, the conversions that are taking place.
We've spent a lot of time talking about today and other days.
Allow us to manage our business much better to bring the cost.
I think that the.
<unk> strategy that is working well in the UK right now with regard to.
Moving more of the volatile volatile home sales margin into real property.
The fact that.
We've been able to get through the.
From a closure process on the assets in the UK and they have Eric holidays manager in particular, the great job, they're doing a sandy Bay, we're excited too.
Sure the results.
Sure.
How things are shaping up over there.
So these are all the things that the board.
And the manager team manner.
Our management team are focused on it also.
It seems to me the opportunity to.
Mentioned that we have Aaron way sitting in on our call today.
We brought in two years ago, so as an effort to broaden our executive team.
Sure.
I think that.
We're really excited to be able to demonstrate.
This simplification and approach to everything is good.
Going to translate into <unk> growth as Sun has been known for historically.
But of course, we realize that.
We have a ways to go to demonstrate it through 2024.
Again, some of that lost credibility back and we're working very very hard and very very diligently to do so.
And I think it's just underpinned by the really outstanding performance.
Our business platforms.
And we continue to.
Were incurred in share.
Sure more of that information quarter by quarter with you.
Speaker Change: Thank you Gary this is very helpful and lots to think about I guess, just one quick follow up if you don't mind, just because we get asked this a lot I mean, how long does it take for whatever initiatives, even if all of the initiatives you put in place at year end or all the initiatives youre going to do like how long does it really take for it to have the full impact.
Well I'm going to suggest what we've talked about at NAREIT and some of the conferences and calls that 2024 isn't without its headwinds.
Speaker Change: We've talked a lot about the specific financial headwinds.
Speaker Change: Simplification passed that were taking place.
Our real goal is to look at 2025, when most of these headwinds that we can identify.
And we can really really began to translate.
Very strong core business growth.
<unk>.
Growth to our shareholders.
Well there is upside there isn't risk to everything as we go through the year and we are.
I know, it's still a challenged economy with a lot of uncertainty out there as far as what we can control in the company.
I think we'll be in a very very good position, finishing out 2004 and going into 'twenty five.
Okay, great. Thank you I appreciate your thoughts.
Our next question is from Anthony Hau with true Securities. Please proceed with your question.
Good afternoon, guys. Thanks for taking my questions.
Given that you brought sales margin down in U K are you seeing more homebuyers homeowners buying opinion largest compared to before and what percentage of buyers aren't buying stand out versus premium today.
Hey, Anthony our.
We have brought margin expectations down for the year by about 26 $2600 that is.
That is helping.
Drive more pre owned pre owned large sales.
Matt.
That premium position or those upgrades.
<unk> is something that we will continue to work with our customers that have bought our pre owned home over the course of the last couple of years and are looking to upgrade.
So that is part of the strategy as it relates to <unk>.
That higher retention that we've been discussing as it relates to our homeowners across the portfolio.
And when you upgrade.
<unk> like standards. Your premium you increased your pitch b by three times right.
It's going to depend Anthony.
The size of that home and that site, and where where that site is in and the portfolio, but yes. There is there is usually.
Speaker Change: Amortization not just from the sale of the home, but also.
On the pitch fee side.
Okay.
And just one one quick question about <unk>.
Revenue producing sites gain I think that initial guidance the same in 2400 2700.
Gains.
Underlying assumption for this metric changed for the current guidance and how confident are you to achieve this target given that only 233 sites for a gain in the first quarter.
Anthony No no change to the expectations for the full year as it relates to the revenue producing site gains across manufactured housing and RV for the for the year.
Okay. Thank you.
Yeah.
Our next question comes from John Pawlowski with Green Street. Please proceed with your question.
Yeah. Thanks for the time, that's two questions on the RV business. One just a clarifying question on autonomous mode. So is it that eight eight.
8% shortfall in reservation pace is that.
Revenues for the second quarter and third quarter are trending in April so 8% below a year ago or is that just number of reservations could you just be more specific on that stat.
Sure John the 8%.
A number that I quoted is expected year over year decline in revenue growth for the for the full year.
Currently as it relates to the second quarter, we are expecting about an eight 6% decline in revenue year over year.
Okay, and then can you give it on the ground details of what's going on with consumer demand right, now, which which regions are you seeing the most pronounced softness is it or is it a property type divergence for highly amortize resorts.
Our suffering a campaign.
Speaker Change: Help me understand what your local teams are seeing so we have a sense of.
Speaker Change: Silver price sensitivity right now.
John generally it's been pretty much across the board with just a slower pace.
Speaker Change: So we're guiding bet.
Based on that year over a year pacing if you will.
<unk> quarter has been quiet.
Approaching.
Seasonal communities that are opening up.
For May.
<unk> and <unk>.
Yes.
Little bit of weather issue impacts us a little bit as it did.
He was a months, but it is mostly just the pacing across the board. There's no one thing that we can point.
0.2, and we don't want to put in an expectation of outperformance there, but certainly.
We'll see.
Shorter and closer to normal.
As the patients that the bookings don't pick up a little bit.
But for that we really don't have anything to point to.
Suggest we asked that question all the time.
Our management team there is a return to a lot of other forms of vacation as we all know taking place out there across the board but.
We will keep you posted as to any other specific change that we would see so there is nothing I could point to regionally or within a segment of our.
Communities.
Okay final question for me Fernando 14th.
Adding back in transaction costs and nonrecurring G&A.
Not too far off from what that cost magnitude of cost added back in <unk> and 'twenty, three and 'twenty two doing much more acquisitive years. So.
Outside of Royal life, what else is in the specifically what else is in this number and I imagine Royal life is known.
Started the year, so again, what drove the seven incremental add back guide versus the guide.
So.
It would be the activity that we saw in the first quarter that is largely driving that that increase on a guy to guide.
Speaker Change: <unk>.
As we shared with the market during.
During February we expected about $9 5 million of add backs.
Over the course of the year we.
We did surpass that in the first quarter and are now projecting that just above 18.
Million.
Related to.
As mentioned earlier.
Primarily these are debt deal cost of transactions.
And that we had been underwriting.
And we will walk away from or have walked away from.
The transaction costs is as detailed earlier as well.
Speaker Change: We do have we do have.
Implementation expenses.
Expenses for.
Our technology platforms that we amortize over over a period.
Of time.
The amount that we've spent to develop.
Those those technologies and implement them.
Speaker Change: At this time that add back for the full year is expected to be $18 4 million as detailed in yesterday's press release, so it would not.
That's about $7 million of additional over the course of the rest of the year.
Yes.
That can change.
Alright, thank you.
We have reached the end of the question and answer session I'd now like to turn the call over to chairman President and CEO, Gary Shiffman for closing remarks.
Thank you everybody.
Hey, just one new wind and.
Letting everyone know we are very very focused on it.
Asset.
Understanding closing the gap in valuation and we are working very very hard with everything we do to move forward on that and I look forward to.
Speaking to everybody in the next quarterly call.
Thank you operator.
You are welcome. This concludes today's conference you may disconnect your lines at this time.
We thank you for your participation.
Goodbye.