Earnings call transcript: Sun Communities Q2 2025 earnings miss forecasts

Sun Communities Inc. reported its second-quarter earnings for 2025, revealing a significant miss against analyst expectations. The company’s earnings per share (EPS) came in at $0.07, far below the forecasted $1.12, marking a 93.75% shortfall. Revenue was slightly below expectations at $697.2 million, compared to a forecast of $698.81 million. In response, the company’s stock saw a 3.97% rise in value, closing at $119.53, although it dipped slightly in premarket trading by 1.19% to $118.11.

Key Takeaways

• Sun Communities’ EPS missed expectations by a wide margin.
• The company reported a slight revenue shortfall.
• Stock prices rose in regular trading but dipped in premarket trading.
• Sun Communities raised its full-year Funds From Operations (FFO) per share guidance.
• The company completed the sale of Safe Harbor Marinas to focus on core operations.

Company Performance

Sun Communities showed resilience in its core operations despite missing earnings expectations. The company reported a core FFO per share of $1.76, surpassing its guidance. It has strategically repositioned itself as a pure-play owner of manufactured housing and RV communities, completing the sale of Safe Harbor Marinas and acquiring titles to 22 UK properties.

Financial Highlights

• Revenue: $697.2 million, slightly below forecast
• Earnings per share: $0.07, significantly below forecast
• Core FFO per share: $1.76, exceeding guidance
• North American same property NOI growth: 4.9%
• Manufactured housing same property NOI growth: 7.7%

Earnings vs. Forecast

Sun Communities reported an EPS of $0.07, missing the forecasted $1.12 by 93.75%. The revenue also fell short of expectations by 0.23%, coming in at $697.2 million against the $698.81 million forecast. This miss represents a significant deviation from the company’s historical performance trends.

Market Reaction

Despite the earnings miss, Sun Communities’ stock rose by 3.97% in regular trading, closing at $119.53. However, the stock experienced a 1.19% dip in premarket trading, reflecting investor caution. The stock remains within its 52-week range of $109.22 to $137.77.

Outlook & Guidance

The company raised its full-year FFO per share guidance to $6.51-$6.67. Sun Communities expects continued growth in its core operations, with North American same property NOI growth now projected at 4.7%. The company is also focusing on potential 1031 exchange acquisitions valued at $565 million.

Executive Commentary

John McLaren, President of Sun Communities, stated, "We are growing top line, managing operating expenses efficiently, and delivering consistent, high-quality results across the organization." Outgoing CEO Gary Shiffman added, "Throughout the years, your support has enabled us to invest in people and properties, weather difficult periods, and emerge stronger."

Risks and Challenges

• Economic downturns could impact occupancy rates and rental income.
• Rising interest rates may increase borrowing costs.
• Competition in the manufactured housing and RV communities sector.
• Potential regulatory changes affecting property management.
• Fluctuations in foreign exchange rates impacting UK operations.

Q&A

During the earnings call, analysts inquired about Sun Communities’ 1031 exchange strategy and potential tax implications. Questions also focused on the performance and conversion strategies of the transient RV business and the transition plan for incoming CEO Charles Young.

Full transcript - Sun Communities Inc (SUI) Q2 2025:

Conference Operator: Good afternoon ladies and gentlemen and thank you for standing by. Welcome to Sun Communities’ second quarter 2025 earnings conference call. At this time, management would like 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 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. The company undertakes no obligations to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.

Having said that, I’d like to introduce management with us today: Gary Shiffman, Chairman and Chief Executive Officer; John McLaren, President; Fernando Castro-Caratini, Chief Financial Officer; and Aaron 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 asks that you limit yourself to one question so that everyone who would like to participate has ample opportunity. As a reminder, this conference is being recorded. I’ll now turn the call over to Gary Shiffman, Chairman and Chief Executive Officer. Mr. Shiffman, you may begin.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Good afternoon and thank you for joining us to review Sun Communities’ second quarter 2025 results and updated full year outlook. This was a pivotal quarter for Sun as we completed the previously announced sale of Safe Harbor Marinas and repositioned Sun as a pure play owner and operator of manufactured housing and RV communities. I am pleased with our financial results and operational performance as we execute on our strategy to deliver consistent, reliable earnings growth. We have taken deliberate steps to streamline operations, unlock meaningful financial flexibility, and enhance shareholder value. During the quarter, we paid down approximately $3.3 billion of debt inclusive of prepayment costs, materially improving our balance sheet position. Since closing on the Safe Harbor transaction, we returned over $830 million to shareholders for a special cash distribution and share repurchases. Additionally, we increased our regular annual distribution rate by over 10%.

We have also made significant headway identifying acquisition opportunities. Using 1031 exchange proceeds, we are evaluating opportunities to acquire manufactured housing properties in strong markets with attractive supply-demand dynamics. We continue to make progress on the delayed consent properties related to the Safe Harbor transaction. In May and June, we successfully closed on six of these properties and are working through final government approvals for the remaining nine. Turning to our operational performance, we are pleased with the strength of our manufactured housing and annual RV businesses. Sun reported core FFO per share of $1.76 for the quarter, exceeding the high end of guidance. Total North American same property NOI grew 4.9% in the second quarter, driven primarily by the continued growth and stability of our manufactured housing portfolio as well as the benefit of our ongoing cost savings initiatives and greater efficiency at the expense level.

We believe this demonstrates the resilience of our core business and the strength of our portfolio. As announced last week, Charles Young has been appointed as Sun Communities’ next Chief Executive Officer and Board Member following a thorough search process. Charles is a seasoned and highly respected leader with over 25 years of experience across real estate operations, investment, and strategy. He most recently served as President of Invitation Homes and brings with him a strong track record of driving growth, operational excellence, and team development. We’re incredibly excited to welcome Charles to Sun and he will be officially joining on October 1, 2025. The Board and I are confident that his leadership, vision, and deep understanding of the real estate industry will build on the foundation we created and guide Sun through its next phase of growth and value creation.

I will be stepping into the role of Non-Executive Chairman of the Board. This provides for a smooth transition that allows me to continue supporting the company and our exceptional team. It has been an honor and privilege to serve as CEO of Sun for over 40 years and I could not be prouder of what we’ve accomplished. It’s been an incredible journey in growing Sun from a 31 community portfolio at our initial public offering to where we are today with more than 500 communities. I’m incredibly pleased that this change is happening at a time when the company is well positioned to build on our strong foundation and continue to create value for all of our stakeholders. I’d like to close by expressing my sincere appreciation to the entire Sun team.

Their hard work and dedication made these results possible and continues to reinforce Sun’s strong position in the market. With that, I’ll turn the call over to John and Fernando to walk through the quarter’s results and our updated guidance in more detail.

John McLaren, President, Sun Communities: John, thank you. Gary, we could not be more excited and proud of what our team delivered this quarter. We are executing the plan as we hold ourselves accountable with transparent performance rankings, and the results are clear. We are growing top line, managing operating expenses efficiently, and delivering consistent, high-quality results across the organization. In our North American same property portfolio, we reported 4.9% NOI growth for the quarter, demonstrating a disciplined balance between revenue growth and a focus on expense management, driven primarily by our manufactured housing segment, which had an outstanding quarter. Same property manufactured housing NOI increased 7.7%, and our same property MH occupancy was up 60 basis points from the prior year to 97.6%, reinforcing the ongoing demand to live in a Sun community. As it relates to RV, we remain within our 2025 guidance range.

For the second quarter, same property RV NOI declined 1.1%, driven by a 0.9% revenue increase, offset by a 3.1% expense increase. Importantly, we’ve been able to mitigate some of the transient softness through growth in annual RV and by continuing to flex expenses. In the UK, we are seeing strong results. Same property NOI in our UK portfolio increased 10.2% for the quarter, with revenue up 9.5%, driven by strong demand across our communities as well as higher transient revenue. Expenses were up 8.8% as a result of the budgeted national minimum wage increase, but that was partially mitigated by cost savings initiatives. The Park Holidays team continues to perform at a very high level. They have done a tremendous job shifting the revenue mix from home sales to recurring real property income, strengthening the long-term profile of our UK business.

The unmatched quality of our UK portfolio and operating team allow Park Holidays to command its outsized market share and underlies our confidence and continued momentum. As we look at 2025, I truly believe we are performing as well as we ever have as a team and achieving some of the best organic growth I have seen in my long career here at Sun, with a focus on driving top line growth while maintaining expense efficiency. Most importantly, we have the results to prove it. I want to sincerely thank all of our team members for their tireless effort, hard work, and dedication. These operating results do not happen by accident. They occur through the disciplined execution by team members who care about delivering for our residents, guests, and shareholders.

I will turn the call over to Fernando to walk through our financial results and updated 2025 guidance in more detail.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Fernando, thank you, John. For the second quarter, Sun reported core FFO per share of $1.76, exceeding the high end of our guidance range. This strong result was primarily driven by the outperformance in our manufactured housing and UK segments, supported by continued rent growth and stable occupancy. As previously mentioned, we closed on the sale of Safe Harbor Marinas on April 30, meaningfully simplifying our platform and creating significant financial flexibility for Sun. Following the initial $5.25 billion Safe Harbor closing, we subsequently closed on six delayed consent subsidiaries totaling approximately $137 million. The cash proceeds from those sales have been deployed to support a combination of debt reduction, including $3.3 billion of debt that has been repaid, shareholder distributions, and reinvestment into our core portfolio.

Turning to our balance sheet, as of June 30, Sun’s total debt balance stood at $4.3 billion with a weighted average interest rate of 3.4% and a weighted average maturity of 7.6 years. Our net debt to trailing twelve-month recurring EBITDA ratio was 2.9 times at quarter end. Importantly, we have zero floating rate debt outstanding. In addition to our debt reduction, we deployed capital through share repurchases under our $1 billion authorized stock buyback program. During and subsequent to quarter end, we repurchased approximately 2.4 million shares for a total of $300 million. We believe this opportunistic repurchasing enhances long-term shareholder value while maintaining balance sheet strength. We also returned capital to shareholders through a one-time cash distribution of $4 per share during the second quarter, equating to $521 million in total shareholder distributions.

With respect to 1031 proceeds from a Safe Harbor transaction, we initially allocated nearly $1 billion into 1031 exchange accounts. As of today, we have identified potential acquisitions totaling approximately $565 million, which allowed us to release $431 million into unrestricted cash accounts in mid-June. We are pleased to have received two credit rating upgrades this quarter. S&P Global raised Sun’s rating to BBB from BBB- and Moody’s upgraded us to Baa2 from Baa3. Both agencies cite our deleveraging progress, balance sheet strength, and focus on core operations as key drivers for the upgrades. During the quarter we acquired the titles to 22 properties in the UK that were previously controlled via ground leases for approximately $199 million inclusive of taxes and fees. This transaction creates financial and strategic flexibility, eliminates material lease obligations, and is expected to be accretive to core FFO on an annual basis.

Turning to our full year 2025 guidance, we are raising our FFO per share range to $6.51 to $6.67, a $0.06 or just over 90 basis point increase at the midpoint. Reflecting our second quarter outperformance, we have increased North American same property NOI growth guidance to 4.7% at the midpoint, an increase of 40 basis points. Manufactured housing same property NOI is now expected to grow 7.5% at the midpoint, reflecting continued strong performance. RV same property guidance is being maintained at down 1.5% at the midpoint as our outlook for the remainder of the year is consistent with expectations set during our first quarter earnings call in May. UK same property NOI guidance has been raised to 2.3% at the midpoint, a 40 basis point increase driven by strong second quarter results.

We have also updated guidance to reflect changes in interest income and interest expense from the debt paydown, stock buybacks, and the purchase of the 22 UK properties previously subject to ground leases. For additional details regarding our full year guidance, please see our supplemental disclosures. As a reminder, our guidance includes acquisitions, dispositions, and capital markets activity through July 30 and the effect of the completion of the sale of the remaining Safe Harbor Delayed Consent subsidiaries, but it does not include the impact of additional prospective acquisitions, dispositions, or capital markets activities which may be included in research analyst estimates. I would now like to turn the call back to Gary for closing remarks.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: As I conclude my final earnings call as CEO after four decades with this remarkable company, I want to express my deepest gratitude to the extraordinary people who have made this journey possible. To our dedicated team members, past and present, your tireless efforts and unwavering commitment to our residents, guests, and one another have contributed to a company and a culture that we can all be truly proud of. To our valued shareholders and all of our stakeholders, thank you for your trust, patience, and belief in our vision. Throughout the years, your support has enabled us to invest in people and properties, weather difficult periods, and emerge stronger. I’m filled with immense pride in what we’ve accomplished together and maintain tremendous optimism for the future. While my role is evolving, my commitment to this company and all of you remains.

Thank you for allowing me the privilege of leading this incredible organization. We have an exceptional team, a strong foundation, and a bright future ahead. I look forward to supporting Charles and all of you as we continue to build on Sun’s legacy together. Operator, we can now turn it over for questions and answers.

Conference Operator: Thank you. You’ll now be conducting a Q&A session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Stephen Thomas Sakwa with Evercore ISI. Please proceed.

Speaker 9: Yes, thanks. Good afternoon and congrats, Gary, as you transition into the new role. My first question, I wanted to talk a little bit about what Fernando talked about, which is the releasing of some of the funds into unrestricted cash. Just your expectations about 1031 acquisition volume and are there any tax issues or tax considerations for basically not doing 1031s? Are there other special distributions that may need to be made because of that?

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Steve, to answer the first question, the last question first, no expected adverse.

John McLaren, President, Sun Communities: Tax.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Impact from releasing funds out of the 1031, but we initially allocated about $1 billion towards potential 1031 transactions, recognizing that fully deploying that amount was unlikely. We’ve identified approximately $565 million of potential.

John McLaren, President, Sun Communities: Acquisitions which allowed us to release the.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: $431 million into unrestricted cash under 1031 guidelines. We’ll need to close on any identified.

John McLaren, President, Sun Communities: Assets by the end of October.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: While we continue pursuing opportunities, we are under no obligation to complete transactions.

John McLaren, President, Sun Communities: That don’t align with our strategy.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: We’re also actively evaluating other strategies.

John McLaren, President, Sun Communities: Maximize the value of these proceeds.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: We continue to assess both tax and strategic considerations for the remainder of the year.

Speaker 9: Okay, thanks. Maybe a question for John. I guess the transient RV business seemed to be better or less bad than I think we had expected. Maybe just talk about some of the trends that you’re seeing on that transient RV business and some of the steps you’ve taken to enhance the business or keep it from going down more than people expected.

Speaker 5: Sure.

John McLaren, President, Sun Communities: Hey Steve, great question. I think I want to start with saying that when we look at our business, we look at the entire business and our focus is on bottom line results. Overall, we beat Q1, we just beat and raise Q2. I’m thrilled with how we’re performing. Specific to transient RV, as you know, we took a proactive approach in revising guidance after Q1, reflecting on the current environment. Those trends remain in line. Just like we shared, as you know, a large component of our transient revenue headwinds actually is created by our success in converting transient sites and annual sites. Despite near term volatility we face, our transient RV business generates solid revenue and margins, continues to play a vital role by creating pipeline for more annual conversions.

The ways that we’re addressing these things head on is like we’ve shared, we continue to flex operating expenses within RV and continue to build upon, as we have, adding more annual RV sites to the mix that we have in our portfolio. We do things here and there in various parts of the portfolio where we see an opportunity to be laser focused on a specific opportunity for conversion or things that we can do to enhance revenue and obviously the flex on expenses. It’s pretty surgical the way that we look at it.

Conference Operator: Thank you. Our next question comes from the line of Jana Galan with BofA Securities. Please proceed. Thank you.

Speaker 8: Congratulations on a great quarter and congratulations to Gary. Just following up on that, I was curious if you could talk a little bit and explain how the renewals for the annual memberships work, and are they kind of spread out through the year or do they hit in a particular quarter?

John McLaren, President, Sun Communities: Hi Jana, it’s John. Good question. Appreciate it. There are some periods of the year, like early part of the year where we had more of our annual renewals in Florida and Arizona and places like that that we talked about earlier this year. It is pretty pro rata as the year goes on, as we step into the summer annual season that we have up north.

Conference Operator: Thank you.

Speaker 8: On the MH occupancy gains, just curious if you could talk a little bit about the outlook for the second half of the year for MH home sales. It looks like rental homes picked up a little bit, but just curious how you’re thinking about those two components.

John McLaren, President, Sun Communities: Yeah, I think on the U.S. home sales side, I mean, one thing, John, I would tell you is that, you know, we’re really focused more than anything on real property income and home sales expectations that we have, not just for the back half of the year, but what we’ve seen in the first half of the year are really a product of running at close to 98% occupancy and having very low resident turnover, which obviously leads to stability of long-term cash flows in the rent, and, you know, I think what you would see in the back half of the year is something similar to what we’ve experienced in the first half.

Conference Operator: Thank you. Our next question comes from the line of Eric Jon Wolfe with Citigroup. Please proceed.

Speaker 5: Hey, thanks. For the UK ground lease purchases, can you just talk us through the economics on that and what you meant by increasing your strategic flexibility? Sure.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Hey, Eric. The transaction creates flexibility across the portfolio. In the UK, by converting leasehold interest into freehold ownership, we gain full control and eliminate future rent escalations, which improves long-term economics for these properties.

John McLaren, President, Sun Communities: For the portfolio overall.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: The ground lease repurchases, which totaled nearly $200 million, blend to about a 4%.

John McLaren, President, Sun Communities: A quarter yield going in.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Four and a quarter yield.

Speaker 5: It’s accretive relative to, call it, the 3.75% on cash. Is that what you meant by accretive?

John McLaren, President, Sun Communities: Yes.

Speaker 5: The second question, maybe I missed this in your answer to Steve’s question, but there was a really big turnaround in the transient. I guess I’m trying to understand how much of it is execution on the operating side, things that have actively changed to either better market it or operate it, versus is it better weather, just market conditions? It went from negative 20% to negative 6%. It feels like a pretty big change in growth. I’m trying to understand how sustainable that improvement is and what you’ve started, like how you’re trending in the third quarter thus far.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Eric, the first quarter decline in revenue of just over 20% is really due to seasonality and the transient sites that are open and active during that period of time. We forecasted and budgeted a quarter over quarter improvement because the majority of our transient focused assets are open during the summer months. That’s why you’re seeing that improvement. I’ll remind everyone, over the course of the full year, we are projecting at the midpoint of our RV guidance a decline of just over 9% for transient RV revenue.

Conference Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS Investment Bank. Please proceed.

Speaker 5: Good afternoon. Thanks a lot for taking my question. Can we get an update on the restructuring process from the perspective of the expense savings?

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: John, I know you’ve been all over.

Speaker 5: Can we get an update on the progress that was made in the last quarter and where are the.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Future opportunities from this? Thank you.

John McLaren, President, Sun Communities: Sure. Michael, great question. I’m going to start again by saying that we are really focused on the entire business, you know, balance between expense discipline and top line growth, which I’ve been saying since I returned is leading to the bottom line results that we’re enjoying today. Overall, beating guidance Q1 was great for the team, beating a raise in Q2, so we’re thrilled. I expect it to continue specific to the plan that we talked about walking into the year. Within the first half, we’ve expanded that savings, I would say beyond $17 million, much of which lies in payroll, utilities, as well as meaningful standardization and expansion, adoption of the procurement platform that I’ve talked about before, which encompasses many different supply and repair and other expenses related to property operations.

We’re doing exactly what we said we’d be doing on expenses and we’ll continue that work, growing additional savings in the second half of 2025. Just to give you a little bit of an example, we had one particular large supplier that we’re working with where we underwent in the second quarter extensive product standardization project, renegotiated unit pricing for those products, applied an overall discount to those products, and as well as will benefit later from additional annual rebate for those products. The work has been extensive, but I can’t emphasize enough the amount of focus and effort that’s being placed on the top line as well, which is what’s growing the company.

We will stay very focused on all of it and particularly MH performance through retention, occupancy gains, rate gains, revenue growth, and all the things that I’ve talked about before with our collections, which has led to bad debt savings. There’s just a laundry list of things that I’m really proud of that the team’s accomplishing this year.

Speaker 5: Thank you very much. Good luck in the back half, and congratulations, Gary, on a legendary run.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Thank you, Michael.

Conference Operator: Thank you. Our next question comes from the line of John P. Kim with BMO Capital Markets. Please proceed.

John McLaren, President, Sun Communities: Thank you. Congrats, Gary, on your tenure.

Speaker 5: Ending on a high note. I wanted to ask a follow-up to Jana’s question on the MH occupancy. It looks like rental homes is now 12% of total MH sites, and I was wondering if you’re embracing the rental home business more.

John McLaren, President, Sun Communities: Hey, John. This is John. Thanks for the question. The answer to that is yes. Okay, those are all future homeowners in our community.

Speaker 4: How far, how much higher do?

Speaker 5: You think that could go, and how much was that a contributor to your?

John McLaren, President, Sun Communities: Occupancy growth this quarter? Yeah, I think it’s going to be the sort of thing that will ebb and flow like it has over the course of my career. We’ve had times where we’ve been up in the 16% range. We’ve had times where we’ve been in the 9% range. We’re going to utilize it in the best strategic way possible to maximize growth within the portfolio.

Conference Operator: Thank you. Our next question comes from the line of Bradley Barrett Heffern with RBC Capital Markets. Please proceed.

John McLaren, President, Sun Communities: Yeah, hi everyone. Thanks.

Speaker 4: Equity Lifestyle has talked about some increased.

John McLaren, President, Sun Communities: Turnover and vacancy in their annual RV business. Is that something that you’ve seen as well? No, we grew ours in the quarter. Okay, easy enough. On the Canadian customers, have you seen an impact? I know sometimes they can be more concentrated in the winter months, but I assume you have some cross border travelers during the summer as well. Yeah, good question, Brad. Yes, we talked about earlier in the year with some of the impact in Florida. We did see, and I think I’ve shared on various conferences and that sort of thing where, you know, we saw.

Speaker 4: Some.

John McLaren, President, Sun Communities: Impact in Maine, places like that, that were closer to Canada in the summer months. That’s frankly some of the work that the team’s been doing to try and fill those vacancies with domestic customers, which has led to us being well within what we put out there in terms of guidance for transient RV.

Conference Operator: Thank you. Our next question comes from the line of James Colin Feldman with Wells Fargo Securities. Please proceed.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Great.

Speaker 0: Thanks for taking my question. Congratulations on all the progress on restructuring the company and management changes, I guess. On that topic, can you talk more about the decision to hire Charles Young? Obviously you had an extensive search, lots of candidates. What is it about Charles that you think is a good fit? How should we think about how he fits into the role in terms of what everyone else will be doing as he gets here, what he brings to the table, and maybe also delineate just Gary, what you think your role will be and everyone else on the team’s role with such firepower coming in?

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Sure, I’ll start it out and then open it up.

John McLaren, President, Sun Communities: Anyone else?

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: We were really excited to announce the appointment of Charles Young as Sun’s next CEO. His effective starting date will be October 1, 2025. The Board reviewed a very wide list of candidates and, as indicated, ran a very thorough process. This was a very important decision for this company and we feel very comfortable with where it landed and very happy to welcome Charles aboard. I think that in Charles, what we saw is over 25 years of leadership experience specific to real estate operations, development, and investment management.

His track record, including in the residential REIT asset class where he’s winding up his current role as President at Invitation Homes, made him really uniquely suited and qualified to come over and lead Sun through what we view as its next phase of growth and sharing all the strategic progress that we made and positioning the company to be pure MH RV moving forward. I think it’s a great opportunity for Charles to bring in his experience.

Speaker 4: And.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Continue to grow the company out into the future. My anticipated role is to support Charles’ success. I think that Charles, in his interview with the succession committee, the board, and eventually time that I and others have had with him, indicated an excitement to be able to have access to myself, based on the 40 years of experience in the industry, in both building the company and in understanding the manufactured housing and RV industry itself. My goal will be to support him. He has expressed interest, as I said, in being able to access and gain the benefit of that experience, that knowledge, so he can put it to work in the way he sees fit with an existing team that’s looking forward to him coming on board. I’ll stop there and see if you have anything else to add, John, about how the team’s thinking about things.

Yeah, I think.

John McLaren, President, Sun Communities: One of the things that truly makes Sun a great company is the diversity of experience our team members bring to the table. In that vein, I think having someone as accomplished as Charles join our team, as his extensive SFR and beyond background serves to enhance what we do both strategically and tactically. I’ve experienced that myself, having left Sun for a short while in 2005, went to multifamily, and I was able to bring back some invaluable skills and most certainly played a role in our success after I’d returned. I’m very excited about bringing that, you know, another side to real estate into our strategy here at Sun.

Speaker 0: Okay, thank you for the color.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Good luck with it.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Thank you.

Conference Operator: Thank you. Our next question comes from the line of Jason Adam Wayne with Barclays Bank PLC. Please proceed.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Hi, thanks for the question. Just on the impairment charges recorded in the quarter, can you walk through the change in strategic plan for the North America properties and were the UK development write downs related to the ground leases at all? Thank you for the question. The write downs in the UK were not related to the ground lease acquisitions. We actually recorded a gain of about $26 million related to the ground lease repurchase, but you mentioned it.

John McLaren, President, Sun Communities: Strategic shift.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: We are not, as an organization, developing new greenfield projects, not just in the UK but in the U.S., and that is what is leading to the impairment charges given the strategic shift for these assets.

John McLaren, President, Sun Communities: Got it.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: There have been some reports that some of your peers in the UK are looking to sell holiday parks. Following the ground lease transactions, is.

John McLaren, President, Sun Communities: there any plans to sell UK ops?

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: I think what we’ve shared with shareholders and stakeholders before is that we are really taking the view that during a tough market and backdrop in the UK, the best thing that we can do at this time is support what we believe is an excellent operating team headed by Jeff Sills, Chris, Richard, some of the best operators that are in the industry and very, very focused on our strategy of increasing real property income and reducing dependence on the margin of the home sales. We’ve been very, very successful in accomplishing that. Really pleased with how we’re growing the real property income and creating value, if you will, in accomplishing that strategy. For right now, we will continue moving forward in that direction and any future opportunity that we look at will benefit from the value that we’re creating right now.

Conference Operator: Thank you. Our next question comes from the line of David Segall with Green Street. Please proceed.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Thank you and congratulations, Gary.

John McLaren, President, Sun Communities: Congratulations, Charles. Can you talk about the decision to buy out the UK ground leases now?

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Versus when Park Holidays were acquired or at any point in the next century that remained on those leases. Thank you, David. It was an opportunistic acquisition for these ground leases.

John McLaren, President, Sun Communities: We did not have to do it.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Certainly, as we looked at our capital allocation strategies, this was one that created a lot of financial and strategic flexibility.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Great, thank you.

John McLaren, President, Sun Communities: As you think about the other potential uses of proceeds for the $400+ million of capital that have been allocated to 1031 exchanges and now been released.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: What are the other potential places you could deploy that money?

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Yeah, David. Gary, I would suggest all the options remain available to us. I would suggest that the 1031 is just one form of many tax mitigation options that we have, and we are comfortable with where we think we’ll end up for the year. Outside of 1031, we continue to review a nice pipeline of high quality manufactured housing communities. Within that, within the availability of our stock buyback program, we have optionality there, and through potentially even looking at opportunistically acquiring other of the land leases in the UK, there are a host of strategies that we’re looking at. I hope we’ve demonstrated to our shareholders and stakeholders we’ve been very, very thoughtful in the use of proceeds, how we’re thinking through tax mitigation, and that’s ongoing work we’re doing, and it’s work we look forward to sharing with you in the near future.

Conference Operator: Thank you. Our next question comes from the line of Peter Dylan Abramowitz with Jefferies LLC. Please proceed.

John McLaren, President, Sun Communities: Yes, thank you for the time.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Thank you for taking the question. Just wondering on the 1031 acquisition opportunities you’ve identified. Could you talk a little bit about economics and your underwriting, what you’re expecting in terms of going in yields for those?

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Yeah, sure, Peter. We’ve talked about going in yields of 4 to 5% cap rates. The fact of the matter is, for the higher quality communities that we do look at, they will fall into that lower end or tighter cap rate, if you will. Beyond that, it’s first about the going in cap rate, but the yield that John and his team can generate in growth in each successive year. We look for opportunities where there’s high demand, low supply, and that’s how we’ve really focused on things. There’s been no shortage in the pipeline of opportunities. The fact of the matter is we are being very selective and we are turning down more things than we’re actually looking at. We’ll continue to do so and, of course, balance the value to our shareholders of acquisition of manufactured housing communities as to other uses of capital.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Thanks, Gary, that’s helpful. I guess in light of.

John McLaren, President, Sun Communities: Could you just talk about the.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Share repurchase program and kind of how you view the attractiveness of that?

John McLaren, President, Sun Communities: Is it sort of you?

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: There’s a level at which the stock trades and you won’t do it above that, and I guess just how you think about the returns.

John McLaren, President, Sun Communities: On that versus more acquisitions.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Peter, the share buybacks is one tool in the toolkit for us from a capital allocation perspective, which includes strategic reinvestment into the current portfolio. It includes acquisitions whether inside of the 1031 exchange or outside of it, and then the share repurchases.

John McLaren, President, Sun Communities: All right, thank you.

Conference Operator: Thank you. Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed.

Speaker 3: Hey, thanks for the time here, guys. All the best to you, Gary, going forward. I wanted to ask, I guess sort of in similar light around cash capital allocation, how do you guys view sort of development and expansion opportunity here and maybe compare and contrast that to the acquisition opportunity that you just talked about in sort of the 4% to 5% cap rate range?

John McLaren, President, Sun Communities: Yeah, I think I’ll talk about it from the, like Fernando said, there’s really nothing we’re doing from a greenfield development perspective, nothing in the pipeline, but we are currently evaluating a handful of expansion projects that achieve the returns that we want in the U.S. and some U.S. communities that are highly occupied with outstretched demand, I would say that meet creative return hurdles. That’s really the extent of what we’re talking about on the development side right now. Okay.

Speaker 3: That’s helpful. I think you maybe alluded to this, but are there future potential ground lease termination repurchase opportunities in the Park Holidays portfolio, or is this kind of the.

Conference Operator: Solon.

Fernando Castro-Caratini, Chief Financial Officer, Sun Communities: Small opportunity there, but still available? We have just above 10 additional properties that are still subject to ground.

John McLaren, President, Sun Communities: Leases in the UK.

Conference Operator: Thank you. Our next question comes from the line of Omotayo Tejumade Okusanya with Deutsche Bank AG. Please proceed.

Speaker 4: Hi, yes, good afternoon everyone. Gary, again, best of luck in the new role. I wanted to go back to Steve Sakwa’s question just around the strong performance on the transient side. John, I know you kind of gave some commentary around kind of doing more on the annual side and things like that, but again, still very curious about just from a blocking and tackling perspective, if you kind of just provide some concrete steps that you may have taken that resulted in the better results. Given how much of a drag transient has been for the past couple of quarters, what really changed this quarter?

John McLaren, President, Sun Communities: What did you do to change it? I don’t know. It’s really changing as much as it’s enhancing what we already do from a strategic and, I’ll call it, tactical perspective. I mean, we are hyper focused on things like retention. It’s about having engagement with guests that come to book another stay for the season and having those conversations. Everybody’s heard me say over and over again on the conversion side, the best revenue producing site you can gain is the one you never lose. When you function that way and you’re a little bit more, we’ll call it, defensive in terms of your occupancy, it leads to great, better net result, which is why I think that we are still seeing, even coming off of three years of record growth and conversions, growth this year.

It’s things like that, it’s the fundamentals of what we do, which is spending time at the properties and really taking the data and the technology we have to better. Maybe that’s one of the bigger changes, is in fact the data that we have in comparison to when I was COO before. It helps guide us into where we go, why we go, when we go better than we’ve ever had. We can be more laser focused on the time that we spent at which properties over the course of the year. Gotcha.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Thank you.

Conference Operator: Thank you. There are no further questions at this time. I’d like to pass the call back over to Mr. Shiffman for any closing remarks.

Gary Shiffman, Chairman and Chief Executive Officer, Sun Communities: Thank you, operator. Thank you for everyone who attended today. I couldn’t be more pleased with the positioning of the company and the support of the existing team for Charles to step in and really be able to operate the incredible portfolio for future growth. Thank you, everybody.

Conference Operator: Goodbye. This concludes today’s teleconference. You may now disconnect your lines. Thank you for your participation.

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