Sun Communities Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 6, 2025
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Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Communities First Quarter twenty twenty five 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 meanings 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 prove provide no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in today's press release and from time to time in the company's periodic filings with the SEC.

Operator

The company undertakes no obligation to advise or update any forward looking statements to reflect events or circumstances after the date of this release. Having said that, I would like to introduce the management with us today, Gary Shiffman, Chairman and Chief Executive Officer John McLaren, President Fernando Castro Caratini, Chief Financial Officer and Alan Weiss, executive vice president of corporate strategy and business development. After their remarks, there will be an opportunity to ask questions. For those who would like to participate in the question and answer session, management ask that you limit yourself to one question so everyone would like to participate as ample opportunity. As a reminder, this call is being recorded.

Operator

I will now turn the call over to Gary Shiffman, Chairman and Chief Executive Officer. Mr. Shiffman, you may begin.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Good morning, and thank you for joining us as we discuss first quarter twenty twenty five results, the closing of the Safe Harbor Marinas transaction and our updated guidance for the year. We are very pleased with our first quarter performance and to have announced the successful closing of the Safe Harbor Marinas transaction last week. The sale of Safe Harbor marks a major milestone in Sun's ongoing strategic repositioning toward a pure play owner and operator of manufactured housing and recreational vehicle communities. We're equally encouraged by the continued execution of our broader simplification strategy as we streamline our operations and drive cost savings and revenue growth. These efforts are materializing and position us to deliver strong, resilient and consistent growth going forward.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

The cash generated from the closing of Safe Harbor transaction enhances our financial flexibility and positions us for long term growth. As part of our capital allocation plan, we executed on our debt reduction efforts and established a new long term net debt to EBITDA target of 3.5x to 4.5x. In addition to the Safe Harbor transaction, year to date, we have sold six nonstrategic MH and RV communities, generating total gross proceeds of approximately $124,000,000 While John and Fernando will go into more detail, I want to reiterate our confidence in the strength of SUNG's platform and the long term opportunities we see across our MH and RV segments. The fundamentals driving demand remain intact, particularly around affordable housing with no changes to long term supply constraints, which support our positive outlook. In conjunction with the sale of Safe Harbor, we have a repositioned balance sheet and have allocated approximately $1,000,000,000 into 10/31 exchange accounts for potential tax efficient acquisitions.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

We are underwriting a number of high quality single assets and small portfolio manufactured housing opportunities that have been identified through a combination of our long term industry relationships and inbound activity. In March, Sun announced that our board nominated Mark Deneen as an independent director candidate for election to our Board of Directors. Mark has over three decades of real estate experience and served in multiple executive roles at Duke Realty. We expect his experience and perspective to be a strong addition as we continue to execute on our strategy. The CEO search committee continues to be engaged and is advancing its work to secure the top candidate as my successor by year end.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

And on behalf of the Sun team, I want to thank the entire Safe Harbor and Blackstone teams for a smooth transaction process. We wish them continued success. As always, I also want to thank the Sun team for their continued focus on delivering strong results. I will now turn the call over to John and Fernando to discuss our results and financial performance in more detail. John?

John McLaren
President at Sun Communities

Thank you, Gary. I am very pleased to discuss the results of our first quarter as we focus on delivering strong operational performance from our core MH and RV communities. We've streamlined our portfolio and have significantly enhanced our balance sheet flexibility. In front of us is an exciting chapter for Sun, one grounded in operational excellence and the realization of disciplined execution through consistent organic growth and selective expansions. Our North American same property portfolio delivered 4.6% NOI growth, driven by solid performance in manufactured housing and ongoing progress in expense management.

John McLaren
President at Sun Communities

Manufactured housing continues to show resilience, with same property NOI up 8.9 in the first quarter. Revenue grew 7.3%, supported by strong rental rate increases and a 150 basis point occupancy gain. Expenses were well managed, growing 2.8%, with notable savings in payroll, insurance, and legal. Occupancy remained strong at 97.5, with average resident tenure of approximately twenty one years, demonstrating the value our residents enjoy living in a Sun community. Within the RV segment, the annual side of the RV business continues to perform well, with revenue increasing 7.8% year over year, reflecting the benefits of our strategy to drive more stable recurring income.

John McLaren
President at Sun Communities

The decline in RV same property NOI of 9.1% is attributable to softness in the transient RV business, which remains under pressure from general macroeconomic uncertainty and reduced Canadian guests. Canadians account for roughly 4% of our annual base and 5% of our transient RV revenue. While transient revenue declined, transient guests play an important role in supporting our annual revenue growth across the broader portfolio. The first quarter represents approximately 16% of total annual RV NOI. In The UK, total same property NOI saw a modest decrease of $600,000 compared to the prior year, primarily due to higher payroll as a result of increases in national minimum wage and higher real estate taxes.

John McLaren
President at Sun Communities

Revenue grew 0.2% supported by higher MH income and home sales volumes largely consistent with prior year, with average sales prices approximately 8% higher year over year. We are pleased with our first quarter results and the notable progress we've made. In particular, we're encouraged by our performance, the enhanced revenue driving strategies we implemented and ongoing activities we will roll out to deliver resilient earnings growth over time. We are focused on operational excellence, and I'm extremely excited about the opportunities ahead as we build on this momentum and further unlock the potential within our portfolio. I will now turn the call over to Fernando to discuss our financial results in more detail as well as our updated 2025 guidance.

John McLaren
President at Sun Communities

Fernando?

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

Thank you, John. As John and Gary noted, we believe we are at an important inflection point for some, not just operationally, but financially. We closed on substantially all of the $5,650,000,000 sale of Safe Harbor Marinas on April 30 and have begun executing on a capital allocation plan that has meaningfully reshaped our balance sheet and financial profile. Let me start with our first quarter results.

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

We delivered core FFO per share of $1.26 representing a 5.8 increase year over year. This performance was driven by a combination of solid operational execution and early benefits from our ongoing cost optimization efforts. Turning to our balance sheet. As of March 31, SUNS' debt balance stood at $7,400,000,000 with a weighted average interest rate of 4.1% and a weighted average maturity of five point nine years. Our net debt to trailing twelve month recurring EBITDA ratio was 5.9 times.

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

Turning to capital allocation. As outlined in our press release last week, the capital allocation plan following the Safe Harbor transaction reflects a balanced tax efficient approach to optimize shareholder value through lower leverage, greater financial flexibility to drive sustainable cash flow growth, and a thoughtful capital return strategy. From the net proceeds of the initial closing, Sun had paid down or intends to repay approximately 3,300,000,000 of debt, inclusive of estimated prepayment costs. This includes the full repayment of approximately $1,600,000,000 under our senior credit facility, leaving us with a zero balance as of May 1 and no floating rate debt outstanding. The payoff of approximately $740,000,000 of secured mortgage debt with a weighted average interest rate of 5.3% and the redemption of approximately $950,000,000 of unsecured bonds, inclusive of estimated prepayment costs scheduled to close on May 10, bearing a weighted average coupon of 5.6%.

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

The company intends to manage its balance sheet in a leverage range of approximately 3.5 to 4.5 times on a long term basis. Based on the initial debt pay downs, we expect to generate annualized interest expense savings of approximately $160,000,000 and reduce the weighted average interest rate on SUNS outstanding indebtedness to approximately 3.5%. Our weighted average debt maturities have increased to nearly eight years. Post transaction, the remaining cash on hand, inclusive of amounts held in tenthirty one accounts, is expected to initially earn an annualized interest rate of approximately 3.5% to 4%. Additional elements of our capital allocation plan include a one time cash distribution of $4 per share to holders of record as of 05/14/2025, payable on May 22, a planned increase to our quarterly distribution by approximately 10.6% to $1.04 per common share and unit.

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

This increase is expected to begin with the second quarter distribution that is anticipated to be paid during July 2025, and the adoption of a $1,000,000,000 stock repurchase program permitting future repurchases of our common shares. We continue to evaluate additional proceed maximization strategies, which may evolve as we finalize tax and strategic implications over the remainder of the year. Pro form a for these actions, our leverage has declined meaningfully. For full year 2025, we are establishing core FFO per share guidance in the range of $6.43 to $6.63 This reflects the execution and timing of the Safe Harbor Marinas transaction, including the disposition of the delayed consent properties. Note that our original guidance issued in February was adjusted for full year contribution assumptions relating to Safe Harbor.

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

This updated outlook assumes the full sale of all Marina assets and does not include any potential future acquisitions, proceeds deployed for share repurchases, and any other non ordinary course strategic actions or financial transaction. In terms of operational assumptions embedded in our updated guidance, we raised our manufactured housing same property NOI guidance by 60 basis points at the midpoint, reflecting strong first quarter results and continued top line strength expectations. RV same property NOI expectations have been reduced to a range of down 3.5% to up 05%, driven by observed slower transient reservation pacing, reflecting a shift towards shorter booking windows. Overall, total North America same property NOI is expected to grow 3.5% to 5.2%, with a midpoint of 4.4%. Our UK same property NOI guidance remains unchanged with a projected growth range of 90 basis points to 2.9% and a midpoint of 1.9% growth.

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

Ancillary NOI has been reduced by approximately $4,000,000 at the midpoint, primarily due to lower than expected transient RV activity. For additional details regarding our full year guidance, please see our supplemental disclosures. As a reminder, our guidance includes acquisitions and dispositions and capital markets activity through May 5, but it does not include the impact of prospective acquisitions, dispositions or capital markets activities, which may be included in Research Analysts' estimates. I will now turn the call back to Gary for his closing remarks. Gary?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Thank you, John and Fernando. We're extremely pleased with our four plus year investment in safe harbor that concluded with successful sale we consummated last week. I want to thank the entire Safe Harbor team once again for their partnership, in which Blackstone and Safe Harbor continued success in the future. As it relates to Sun, this transformative sale aligns with our long term strategy by substantially reducing our leverage and increasing our strategic and financial flexibility. I would like to extend my gratitude to the entire Sun team for their efforts in delivering on this important quarter and to our shareholders for their continued support.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

This concludes our prepared remarks. Operator, we're now ready to take questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue.

Operator

Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Michael Goldsmith
Equity Research Analyst at UBS Securities LLC

Good morning. Thanks a lot for taking my question. Maybe starting with the manufactured housing NOI guidance, it went up 50 basis points from your initial guidance. So can you walk us through what are you seeing on the MH side that has you revising guidance up early in the year? And is that on the revenue side or is that on the expense side?

Michael Goldsmith
Equity Research Analyst at UBS Securities LLC

Thanks.

John McLaren
President at Sun Communities

Hey, Michael, it's John. Good morning. Thanks for the question. It's a little bit of everything, to be quite honest with you. We're seeing good occupancy gains over the course of the first quarter that we expect to continue.

John McLaren
President at Sun Communities

Within the rental home program, we've had really good renewal performance as well as renewal rate performance in the first quarter that we expect to continue on. The team has done a really nice job in terms of rent collections, which is obviously moves its way towards reduced impact from a bad debt perspective. And we've had really good discipline with the expense savings program that we launched towards the end of last year. So it's really I mean, it's hitting on all cylinders on the MH side, which is why we are excited to improve our

John McLaren
President at Sun Communities

guidance for 2025.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Hey, Michael, it's Gary. I would just add the fact that we have the long tenure of twenty plus years in the manufactured housing side, we always point to the expenses related to turnover and things like that. And so I think that as we continue to see the strong, strong demand to be in the communities, it also has a benefit with regard to the much extended tenures that we're seeing.

Michael Goldsmith
Equity Research Analyst at UBS Securities LLC

Got it. Thanks for that. And as a follow-up, as you think about the repurchase authorization, are you thinking of that as an opportunity to opportunistically purchase shares at you know, what you see as a discounted valuation or is this kind of a indication that Sun is out, will be out in the market and kind of consistently be acquiring? I was trying to understand, is this an opportunistic vehicle or is this something that you plan on using to its fullest? Thanks.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Good question. I think the way I'd respond to it, I think that it's just part of the much larger thoughtful program related to the positioning of the company today. It gives us continued flexibility, And we're just very, very pleased with the fact that we were able to close the Safe Harbor Marinas transaction in what is a very volatile marketplace out there right now. We closed it actually more rapidly than even we anticipated. So with the ability to strengthen the balance sheet, to have the capital on the ten thirty one exchange, continue to focus on our overall strategies in the MHRV portfolio to be able to put out the special one time distribution, and really look out and look forward to being able to share with the market as things progress in the future during the year.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

So it's one piece of the overall plan.

Michael Goldsmith
Equity Research Analyst at UBS Securities LLC

Thank you very much. Good luck in the second quarter.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Thank you.

Operator

Thank you. The next question comes from the line of Jana Gulan from Bank of America. Please go ahead.

Jana Galan
Jana Galan
Director at Bank of America

Thank you. Good morning. I just wanted to follow-up on the revision in the RV guidance and whether you're kind of attributing that to potentially just the continued return to office or lower Canadian travel. And if you have any visibility into Memorial Day weekend that you can comment on. Thank you.

John McLaren
President at Sun Communities

Hey, it's John. Good morning. Thanks for the question. I think so here's the broader color I want to give on transient RV, which a large component of our transient revenue headwinds actually is created by our success in converting transient sites to annual sites, which I think everybody knows has been a big success over a number of years. I think despite the near term volatility, our transient RV business generates solid revenue and margins and continues to play an important role in creating the pipeline for annual conversions.

John McLaren
President at Sun Communities

Regarding recent trends, I will share that at the March, we were actually outpacing twenty twenty four bookings. And then beginning in early April, we began to see a shift towards much shorter booking windows and trends related to our Canadian guests became a bit more challenging. The bottom line is people are booking closer to their stays, okay, than they were last year. As we share frequently, I think RV represents affordable vacationing, and especially in tougher economic times to funnel towards annual RV revenue growth. And while we may in fact see improvement in guidance we've shared today related to transient as people potentially shift vacation plans to something closer to home or more affordable, making their plans closer into when they want to stay.

John McLaren
President at Sun Communities

Right now, we're following the data and the pacing that we have and felt it was appropriate to make an adjustment to our transit revenue forecast for 2025. That said, our RV strategy remains focused on, as you know, continuing to flex operating expenses within RV and building upon the demonstrated annual conversion success with particular emphasis on retention of existing annual guests. I think many on the call probably heard me say before that the best revenue producing site we can gain is the one we never lose, and so that's where our focus is placed. It's really a combination of what we're seeing in terms of our Canadian guests and things I talked about just

John McLaren
President at Sun Communities

a second ago. But we're after it, it's the bottom line.

Jana Galan
Jana Galan
Director at Bank of America

Thank

Jana Galan
Jana Galan
Director at Bank of America

you, John.

Operator

Thank you. The next question comes from the line of Eric Wolf from Citigroup. Please go ahead.

Eric Wolfe
Eric Wolfe
Director at Citi

Hey, thanks. I think you said that you're assuming 3.5% to 4% rate on the cash that you're holding on your balance sheet. Can you just talk about what the average cash balances you're assuming for the rest of the year? I would assume it's like $1,700,000,000 but just want to confirm.

John McLaren
President at Sun Communities

So Eric, we as stated in the prepared remarks, we are not assuming any prospective acquisitions or capital markets activity. So we are carrying a higher cash balance than what we expect to by year end as it relates to that interest income, and that carrying an interest rate between that 3.5 to 4%. But on a net basis, it's it will be around $1,700,000,000 that's embedded in guidance.

Eric Wolfe
Eric Wolfe
Director at Citi

All right. Makes sense. And then in terms of potential acquisitions, can you just discuss how much is under contract right now? Just given the size, I assume that you have some visibility towards closing something in the near term or maybe I'm wrong on that, but talk about that. Then just the types of properties that you're targeting and the general valuations level.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Sure. So, a good question and something we're obviously very focused on with the opportunity that we have. Basically, we've built a strong long term relationship with owners over the last thirty plus years. So we have been actively engaged on a number of acquisition opportunities, as I said in my earlier remarks. And we will be looking forward to sharing more when we're able to do so.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

But what I can share is they are high quality single manufactured housing assets and small portfolio manufactured housing opportunities that we've reached out on from those relationships. And additionally, we've had some inbound interest come into us. But what I would really want to underscore is that this is a great opportunity for Sun to deploy capital, and the ten thirty one exchanges and reaccelerate growth in our core business. But we will do it in a very disciplined way. So we won't be looking to just put capital out for the sake of putting capital out.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

We'll be underwriting and doing our diligence to create the best circumstances for growth going forward. So very anxious to be able to share specifics, but we're very excited about the opportunity that we have in front of us. And then I would just share that as most of you may be aware, the identification window under a ten thirty one exchange is forty five days or so. So we're working diligently with that timeframe. But as I said, we won't comment prematurely just given our active engagement that's taking place right now.

Eric Wolfe
Eric Wolfe
Director at Citi

That's helpful. Thank you.

Operator

Thank you. The next question comes from the line of Brad Heffern from RBC Capital Markets. Please go ahead.

Brad Heffern
Brad Heffern
Director at RBC Capital Markets

Yes. Hi, everybody. Good morning. Gary, you gave a very brief update on the search for your successor. Can you give any additional details there on what the process has been so far and what remains?

Brad Heffern
Brad Heffern
Director at RBC Capital Markets

And then I think you also said by year end, so should we not expect an announcement until late in the year? Or is there a possibility that it comes before then?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Answering it backwards, the possibility between now and year end certainly is more representative of the process. As I indicated, we have a search committee in place at the Board of Directors. They've hired an outside third party firm that's been helping them through the process, and they've been moving very thoughtfully through the process. I'd suggest that we've been very, very focused on the Safe Harbor Marina's closing and the transaction as a top priority. But equally, the decision about long term leadership planning and the search committee's work for a new CEO has also been a top priority.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

So it is moving along and glad to be able to advise you as decisions are made. And I look forward to doing so as time progresses here.

Brad Heffern
Brad Heffern
Director at RBC Capital Markets

Okay, got it. And then Fernando, on the tax leakage from the sale, is there any update you can give there? I know it obviously depends on how much you're able to reinvest through the 1031s, but can you give a range like if you didn't reinvest anything to if you reinvested $1,000,000,000 or anything like that?

John McLaren
President at Sun Communities

At this time, I'm not able to provide a range, but we are employing tax minimization strategies and we'll continue to update the market over time, as those are finalized over the course of the year.

Brad Heffern
Brad Heffern
Director at RBC Capital Markets

Okay. Thanks.

Operator

Thank

Operator

you. The next question comes from the line of Wes Golladay from Baird. Please go ahead.

Wesley Golladay
Senior Research Analyst at Robert W. Baird & Co

Hey, everyone. A question for you on the annual RV. Typically, you have this is a big source of gains, revenue producing site gains. This year, was down year over year. Can you remind us what's in guidance and what is going on there?

John McLaren
President at Sun Communities

Yes, what's in guidance for the year, Wes? This is John. Thanks for the question. It's approximately 1,500 conversions to take place over the course of the year. What I would tell you is that we are in fact on track with our annual RV conversion contracts 2025 with the exception of some of the impact that we experienced in Q1 specifically related to renewals and new conversions of Canadian guests.

John McLaren
President at Sun Communities

I think it's important to point out with me saying that though, that Canada only represents about 4% of our RV annual business, and we'll continue to focus on our proven performance in RV annual conversion and retention across the board and filling more sites domestically over the course of the year.

Wesley Golladay
Senior Research Analyst at Robert W. Baird & Co

Okay. And then the rental program is showing really strong gains. It's up double digits year over year. Is this from lease up of your developments?

John McLaren
President at Sun Communities

Some of it is that, yes. But some of it's interspersed throughout the portfolio as well.

Wesley Golladay
Senior Research Analyst at Robert W. Baird & Co

Okay. And then can I get a quick update on your hedging policy for The UK?

John McLaren
President at Sun Communities

So, as a strategy, we have paid down all of our DBP debt. We are looking at putting on synthetic hedges with some of our existing debt.

Wesley Golladay
Senior Research Analyst at Robert W. Baird & Co

Thank you.

Operator

Thank you. The next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa
Senior Managing Director & Senior Equity Research Analyst at Evercore ISI

Yes, thanks. Good morning. Just wanted to touch on G and A. I know when you guys announced Safe Harbor, was a large decline in G and A given that business. And then when John came back, you guys talked about, I think, at least 15,000,000 to $20,000,000 in cost savings.

Steve Sakwa
Senior Managing Director & Senior Equity Research Analyst at Evercore ISI

So I'm just curious where that cost savings plan stands. And I guess, how much further or how much more benefit do you think you can kind of ring out of the system here?

John McLaren
President at Sun Communities

Yes. Thanks, Steve. It's John. I'll start. Overall, really pleased with the progress we've made with the 15,000,000 to $20,000,000 expense savings plan.

John McLaren
President at Sun Communities

I think we shared before that within G and A, close to $11,000,000 savings over 2024, primarily resulted from staff reductions and associated costs, which is already embedded in our guidance for 2025. We picked up additional savings related to things like advertising, technology licensing costs as well. As part of that plan though, within property operating expenses, initiatives were taken across all of our MH and RV assets to manage expenses in the controllable areas. We realized, as you know, approximately $4,000,000 in savings in Q4 which is embedded in our 2025 expectations along with the expectation to expand that another 3,000,000 to $5,000,000 of additional savings and things like payroll, things I've shared earlier on the call like bad debt reductions and other items. We'll continue to seek additional expense savings over the course of this year and we're obviously equally focused on additional revenue growth opportunities.

John McLaren
President at Sun Communities

I think the result of which is reflected in the solid Q1 MH performance through both occupancy gains and rate gains. Last thing I'll say is the fundamentals are our focus. For example, performance within our sales and leasing funnel, which measures leads to applications to approvals to closings, continues to set new milestones. So that's helping to grow on the top line as well. And finally, we have expanded our centralized procurement platform, which is generating savings through more standardization, discipline and economies of scale in all the areas served by this important platform.

John McLaren
President at Sun Communities

So we're pretty happy with where things are going and look to further expansion as the year goes on.

Steve Sakwa
Senior Managing Director & Senior Equity Research Analyst at Evercore ISI

Thanks, John. Just one quick one for Fernando. I don't think in the guidance you provided real property NOI this time versus last quarter. Do you have that number handy?

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

Steve, the same property portfolio between North America and UK is 99 plus percent of total real property for us for the year. That's why the total real property guidance was not provided.

Steve Sakwa
Senior Managing Director & Senior Equity Research Analyst at Evercore ISI

Got it. Thank you.

Operator

Thank you. The next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

John Kim
John Kim
Managing Director - US Real Estate at BMO Capital Markets

Thank you. Gary, on past calls and meetings, when you talked about manufactured housing cap rates, there were oftentimes surprisingly low, sometimes as low as sub 3%. And you largely attributed that to ten thirty one buyers in the market. So I'm wondering how much lower the hurdle rate is for you on MH acquisitions, just given your circumstance today?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Certainly a great question, John. As I indicated before, we have a great opportunity in front of us to look at MH acquisitions, but we will be very, very disciplined in how we think about it so that we can generate the type of solid growth as we think about the long term underwriting of these assets. I'd suggest that cap rates for high quality manufactured assets are generally consistent with historical levels. I'm going to suggest in that four to five range. But we're going to be very cautious in sharing cap rates at a time when we're in the market, so to speak, and having those discussions.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

But we will certainly share those cap rates with you at a future date as we begin to close on potential transactions.

John Kim
John Kim
Managing Director - US Real Estate at BMO Capital Markets

Okay. And then on RVs, I just wanted to make sure that you're not planning to use the $1,000,000,000 of proceeds for 10/31 on any RV acquisitions. And then as far as the, discussion on transient RV, it still was a little bit surprising. Was down so much given transient sites were down about 7% year over year. So I'm wondering what else, do you think was causing demand to come down so much in the segment?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

I'll take the first part of the question is that while we like the RV business, we are primarily focused on acquisitions of manufactured housing communities. So that's the expectation that, that will be our primary focus.

John McLaren
President at Sun Communities

And then, John, as it relates to transient RV revenue and the performance in the first quarter. The decline of 20% in revenue is due primarily to seasonality of the portfolio and the high number of conversions over the last twelve months, especially in Florida, impacting available transient sites during this period. The first quarter represents about 16% of NOI for our RV portfolio. And revenue per available site did decline, but again, primarily because of that availability of sites in the portfolio for the first quarter.

John Kim
John Kim
Managing Director - US Real Estate at BMO Capital Markets

Did you expect the first quarter was the trough as far as the year over year decline? It improves from here?

John McLaren
President at Sun Communities

That's correct.

John Kim
John Kim
Managing Director - US Real Estate at BMO Capital Markets

Okay. Thank you.

Operator

Thank you. The next question comes from the line of Anthony Howe from Truist Securities. Please go ahead.

Anthony Hau
Anthony Hau
Vice President , Equity Research at Truist Securities

Hi, guys. Thanks for taking my question. Gary and John, in terms of MH acquisition, is there a preference between all age and age restricted communities? And what's the cap rate spread and rent growth difference between the two?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

A great question, Anthony, sort of an age old discussion that we share with the marketplace. We believe in a very balanced portfolio. The importance that we've always kind of shared with the market is that in the all age communities we generally have more strength and ability to raise rental income, less restricted by covenants that might control how you increase rents, and we experience higher rental increases in more challenging inflationary periods. At the same time, we experience a twenty one plus year tenure in our balanced portfolio, and it is weighted towards longer stays in the all age versus age restricted. But at the same time, high demand in our age restricted balances out how we think about that balanced portfolio.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

So generally, I would expect to continue to look for that balanced portfolio in our acquisitions, and we are looking at both age restricted and all age at this current time.

John McLaren
President at Sun Communities

Anthony, it's Josh. Add to that, I mean, one of the things that we've shared before is that 25% to 30% of the residents that live in our all age communities are in fact would qualify for age restricted communities as well. So it's a nice balance and from the operating perspective, we like the fact that we can cast a wider net of prospects that can move into our communities through the all age as well. So, like Gary said, it's a nice balance that we seek to maintain.

Anthony Hau
Anthony Hau
Vice President , Equity Research at Truist Securities

Gotcha. And then, like, the resident move out rate was four point six percent year to date, four point three in 2024, but I think it was roughly three percent in 2022 and 2023. What's driving the higher churn, and what's embedded in the guidance?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

We're referencing MHRV?

John McLaren
President at Sun Communities

Overall for the total portfolio?

Anthony Hau
Anthony Hau
Vice President , Equity Research at Truist Securities

Yeah.

John McLaren
President at Sun Communities

I think we're referencing actual resident turnover, but homes remain in the communities. And so, this is part of the product of why we've seen an increase on our broker home sales that have taken place over the first quarter. So, we actually benefit from some of that turn.

John McLaren
President at Sun Communities

But the fact is that the homes, like Gary mentioned earlier, I think I said in my remarks that an average resident stays in our community for twenty one years. Homes themselves, I think it's what, about 05%. On the manufacturing housing side, our turnover on the homes specifically are under 50 basis points per year. So this just creates more opportunities for us to transact, Anthony.

Anthony Hau
Anthony Hau
Vice President , Equity Research at Truist Securities

Gotcha. And just one last question for me. This is for Fernando. What's twenty twenty five core SSO run rate should we use excluding the Marina contribution?

John McLaren
President at Sun Communities

I think, Anthony, the best way would be to go from a same property NOI build for our MH, RV and UK portfolio. We've also provided guidance for all other line items ex Mirena, be that ancillary, G and A, etcetera, etcetera. So that will be your build.

Anthony Hau
Anthony Hau
Vice President , Equity Research at Truist Securities

Thank you.

Operator

Thank you. The next question comes from the line of Peter Abrahamowitz from Jefferies. Please go ahead.

Peter Abramowitz
Peter Abramowitz
SVP - Equity Analyst at Jefferies

Yes, thanks for the time. I think most of my questions have been answered, but just wanted to ask one. Could you just talk about what you're seeing in the financing market for MH and RV assets? I guess, kind of post the Liberation Day announcement, maybe just comment on spreads in that market and what you're seeing there?

John McLaren
President at Sun Communities

Say, very strong market. The Fannie and Freddie continue to finance residential, be that manufactured housing, annual RV and multifamily. We haven't gotten any color from our partners as far as any slowdown there.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

I'd add life companies as well. So the typical sources recognize the fundamentals inherent in the business, the stability, cash flow, and resilience to tough economic times, demand for affordable housing. So I haven't experienced or heard anything different as well.

Peter Abramowitz
Peter Abramowitz
SVP - Equity Analyst at Jefferies

All right. That's helpful. Thank you.

Operator

Thank you. The next question comes from the line of David Segal from Green Street. Please go ahead.

David Segall
Senior Analyst at Green Street Advisors, LLC

Hey, thank you. Is it possible to quantify the RV booking pace for a Canadian customer specifically?

John McLaren
President at Sun Communities

Thanks, David. This is John. Generally speaking, like I said, booking pace has been down. But the bigger impacts to Canadian have been attributed to the first quarter, as I shared in my remarks as well as some of the earlier questions. But it's a little bit of uncertainty that's out there right now that we're dealing with as we talked about the near term challenges.

John McLaren
President at Sun Communities

But once again, I will say that it is limited in terms of the fact that Canada only represents 4% of our annual business as well as 5% of our transient business. So even a reduction in bookings or an increase in cancellations has more of a marginal impact on us overall. So we are focused on, like I said before, just recouping that through domestic travel. And as we've seen in other times of tougher economic conditions, we've seen more people flow through to us. But I think with the pacing that we're seeing now, with the booking window that we're seeing now, is the reason why we made the adjustments to guidance just to because it made sense.

John McLaren
President at Sun Communities

Okay. Our hope of course is that this will continue to improve over the course of 2025.

David Segall
Senior Analyst at Green Street Advisors, LLC

Great. Thank you. And maybe just shifting to additional asset sales. You've been streamlining the portfolio, and I'm just curious what how much additional portfolio pruning you're looking at for the rest of the year?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Good question, David. Thank you. We are very, very pleased at what we've been able to accomplish. Our '24 program of dispositions along with what we've accomplished that we announced in the six communities to date. I think these are non core strategic assets, and they're just improving the outlook on the rest of the portfolio.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

So we'll just continue good asset management and they'll probably look like onesies and twosies when we determine something doesn't fit our long term core strategy.

David Segall
Senior Analyst at Green Street Advisors, LLC

Great, thank you.

Operator

Thank you. We take the next question from the line of Eric Wolf from Citigroup. Please go ahead.

Eric Wolfe
Eric Wolfe
Director at Citi

Thanks for taking the follow-up. You mentioned there was a forty five day window under ten thirty one exchange law. I guess, is there any way to extend that? And I guess, is the rule simply that you have to move under contract in forty five days? Like what needs to happen within forty five days to avoid a taxable event?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Good question, Eric. There is no way that I'm aware to extend that, but that forty five day period of time is just to identify the properties. So that's the forty five day period of time. And then you have a total of one hundred and eighty days, I believe, to actually execute on a closing. So that first forty five is just a period of time within which you have to identify them.

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

We also will benefit from the handful of deferred properties that are subject to close in the future related to final approvals from Corps of Engineers and municipalities. So those ten thirty one exchange opportunity periods will be from the date of closing. So same math would work there,

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

too. Great.

Eric Wolfe
Eric Wolfe
Director at Citi

And then I guess now that you've completed the sale of Safe Harbor, can you just give us a sense for the amount of recurring CapEx that you expect on an annual basis sort of dollars, if you could?

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

Eric, this is Fernando.

Fernando Castro-Caratini
Fernando Castro-Caratini
Executive VP & CFO at Sun Communities

Over the course of 2025, the recurring CapEx we expect for our MH, RV and U. K. Portfolio is just over $70,000,000 for the year.

Eric Wolfe
Eric Wolfe
Director at Citi

All right. And then last question I have, thank you for taking these. It's a little bit old news, but I think last quarter you took a write down on The UK business. Can you just remind us what value you took that business down to and whether it includes all of our UK assets or excludes for instance some of the land parcels or other assets within UK? Just trying to understand what the valuation was there and what it includes.

John McLaren
President at Sun Communities

Eric, that's a great follow-up. Let's pick that up offline. But the write down in the fourth quarter related to writing down the remaining goodwill within The U. K. Portfolio.

Eric Wolfe
Eric Wolfe
Director at Citi

Okay.

Eric Wolfe
Eric Wolfe
Director at Citi

All right. Thank you.

Operator

Thank you. Ladies and gentlemen, as there are no further questions, I would now hand the conference over to Gary Shiffman for his closing comments. Gary?

Gary Shiffman
Gary Shiffman
Chairman & CEO at Sun Communities

Thank you, everybody. Obviously, we shared with you that we're very, very pleased with what we've been able to accomplish this last quarter and look forward to sharing information with you on second quarter's performance. Thank you, operator.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the company's remarks. You may now disconnect your lines. Goodbye.

Executives
    • Gary Shiffman
      Gary Shiffman
      Chairman & CEO
    • Fernando Castro-Caratini
      Fernando Castro-Caratini
      Executive VP & CFO
Analysts
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Key Takeaways

  • Sun closed its Safe Harbor Marinas transaction for $5.65 billion, marking a strategic shift to a pure‐play manufactured housing and RV community operator.
  • In Q1, North America same property NOI rose 4.6%, driven by an 8.9% increase in manufactured housing (revenue +7.3%, occupancy +150 bps) and a 7.8% gain in annual RV revenue, partly offset by transient RV softness.
  • The company executed on its capital allocation plan, prepaying ~$3.3 billion of debt, setting a long‐term net debt/EBITDA target of 3.5–4.5×, and expects ~$160 million in annualized interest savings.
  • Sun updated its 2025 guidance, forecasting core FFO/share of $6.43–$6.63, raised MH NOI growth assumptions by 60 bps, and set RV NOI expectations at down 3.5% to up 0.5%.
  • Ahead of future acquisitions, Sun allocated $1 billion into 1031 exchange accounts to pursue high‐quality manufactured housing assets under a disciplined 45‐day identification window.
AI Generated. May Contain Errors.
Earnings Conference Call
Sun Communities Q1 2025
00:00 / 00:00

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