SUN COMMUNITIES INC Q4 FY2024 earnings call

• Strategic priorities included simplifying operations, focusing on core assets, reducing debt, and Board refreshment. Disposed approximately $570 million of nonstrategic assets in 2024. - Announced the sale of Safe Harbor Marinas for $5.65 billion to Blackstone Infrastructure, which allows refocus on core MH and RV, improves leverage, and generates a strong return for shareholders. - Operationally, 2024 North American same-property NOI grew 4.1%, with fourth quarter same-property NOI up 5.7%. Realized ~$11 million in G&A savings and ~$4 million in operating expense savings in 2024, expecting to expand savings by $3 million to $5 million in 2025. - Added 2 new members to the Board of Directors in the last 12 months, with ongoing CEO search by the Board Search Committee.

The core North American manufactured housing and RV segments are the focus. In 2024, core FFO per share was $6.81. Fourth quarter core FFO per share was $1.41, a 5.2% increase from the prior year. North American same-property NOI for the full year 2024 was 4.1% growth. Manufactured housing same-property NOI increased by 7.1% in 2024, and RV same-property NOI grew by 0.4% in the fourth quarter. The Safe Harbor Marinas segment was sold for $5.65 billion, with the sale allowing the core MH and RV segments to make up above 90% of total company NOI post-transaction, and the sale generated a $1.3 billion gain.

• 2025 guidance excludes the Safe Harbor Marina portfolio due to transaction uncertainty. - MH and RV same-property NOI growth is expected at the midpoint 5%, driven by 4.2% revenue growth and 3% expense growth. - Full year manufactured housing same-property NOI expected to grow by 6.4% at midpoint, RV same-property NOI expected to increase by 1.5%. - U.K. same-property NOI expected to grow by 1.9% at midpoint, with 4.9% revenue growth offset by 8.1% expense growth primarily due to U.K. national minimum wage and payroll tax increases.

• Uncertainty surrounding the financial impact of the Safe Harbor Marina portfolio during the transaction pendency, including its operations before closing, closing timing, and potential subsequent closing. - Macro-economic challenges that could affect business performance. - Fluctuations in interest rates that may impact debt servicing.

Q: Just a quick question on capital allocation. Will you be looking more at acquisitions? Could you tender for some debt? And I just want to -- I have an assumption that you may keep your U.K. debt leave that alone.

A: Gary Shiffman stated they're excited about the transaction's benefits, and the Board and capital allocation committee are evaluating priority uses of proceeds, which could include debt reduction, distributions to shareholders, or reinvestment in core businesses. Fernando Castro-Caratini mentioned they expect to pay down part of the GBP-denominated debt and look at optimal structures for synthetic hedges.

Q: Congratulations on the safe harbor transaction. Gary, I was hoping, can you provide some details on the background of how the board came to this kind of strategic shift? And why now given the business had such strong momentum. And why not wait for the CEO search to conclude?

A: Gary Shiffman said the CEO search is ongoing, but the Board worked together, evaluated alternatives, and saw the transaction as an opportunistic deal that positions the company well for the future, with active Board engagement throughout the process.

Q: Fernando, do you think it's likely that the sale will require a special dividend just to comply with the REIT rules?

A: Fernando Castro-Caratini said they're evaluating all alternatives regarding the ultimate use of proceeds and will update the market closer to the closing date.

Q: Can you help hope put an upper or lower limit on the amount of debt that will be paid off and many limits on the potential sizing of the special dividend as well?

A: Fernando Castro-Caratini stated they will update the market with more detailed use of proceeds closer to the closing date.

Q: Can you guys talk about what expenses is growing at 8% in the U.K. business? Is it due to the energy hedges that rolled off?

A: Fernando Castro-Caratini said the primary driver of increased expenses in the U.K. same-property is payroll-related, from increases in the minimum wage and payroll taxes.