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Edited Transcript of SUI earnings conference call or presentation 23-Apr-20 3:00pm GMT

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Q1 2020 Sun Communities Inc Earnings Call SOUTHFIELD Apr 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Sun Communities Inc earnings conference call or presentation Thursday, April 23, 2020 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Gary A. Shiffman Sun Communities, Inc. - Chairman & CEO * John Bandini McLaren Sun Communities, Inc. - President & COO * Karen J. Dearing Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary ================================================================================ Conference Call Participants ================================================================================ * Andrew T. Babin Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * John Joseph Pawlowski Green Street Advisors, LLC, Research Division - Analyst * Joshua Dennerlein BofA Merrill Lynch, Research Division - Research Analyst * Nicholas Gregory Joseph Citigroup Inc., Research Division - Director & Senior Analyst * Piljung Kim BMO Capital Markets Equity Research - Senior Real Estate Analyst * Samir Upadhyay Khanal Evercore ISI Institutional Equities, Research Division - MD & Equity Research Analyst * Todd Jakobsen Stender Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst * Wesley Keith Golladay RBC Capital Markets, Research Division - VP & Equity Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Communities First Quarter 2020 Earnings Conference Call. At this time, management would like to inform you that certain statements made during this conference call which are not historical facts may be deemed forward-looking statements within the meaning of 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 include the effects of the COVID-19 pandemic and other detailed in yesterday's press release and from time to time in the company's periodic filings with the SEC. The company undertakes no obligation to revise 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 management with us today: Gary Shiffman, Chairman and Chief Executive Officer; John McLaren, President and Chief Operating Officer; and Karen Dearing, Chief Financial Officer. After their remarks, there will be an opportunity to ask questions. I'll now turn the call over to Gary Shiffman, Chairman and Chief Executive Officer. Mr. Shiffman, you may begin. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [2] -------------------------------------------------------------------------------- Thank you, operator. Good morning, and thank you for joining us today as we discuss our first quarter results and provide an update on Sun's preparedness to navigate the COVID-19 pandemic. Since our fourth quarter call in mid-February, the environment has been dramatically challenged by a worldwide public health crisis. And before we begin, we wish to convey our sincere wishes for everyone's health and safety. We started the first quarter of 2020 ahead of expectations, reporting FFO per share of $1.22, $0.01 ahead of the high end of guidance. While everyone is focused on how the pandemic will affect our performance over the coming weeks and months, it's important to note that we entered the year from a position of strength. And because of the underlying fundamentals of providing affordable housing and vacationing options, we expect to sustain a relative position of strength as we navigate through the pandemic. We began 2020 with total portfolio occupancy of 96.7%, are well positioned from a balance sheet perspective with approximately $380 million of unrestricted cash as of quarter end, and a trailing net debt-to-EBITDA ratio of 5.6x. We want to commend and recognize our team and acknowledge the incredible job they have done stepping up and responding during this challenging time. Our team acted swiftly to ensure that Sun was doing its part to stem the spread of coronavirus by adapting work from home practices at our main office and wherever possible at our communities. At our properties, we closed amenities where residents and guests gather and implemented recommended sanitation and hygiene protocols. While prioritizing health and safety by adhering to social distancing parameters, we are striving to provide Sun's trademark customer service. Given current shelter-in-place and social distancing orders, we do not know nor are we in control of the duration of the current changes in operating conditions brought on by the pandemic. However, we can adjust certain controllable operating expenses, modify our capital deployment plans and manage our liquidity. On the expense side, Sun's directors and executive officers have set the tone by electing to forgo their compensation for at least the second quarter. The balance of our main office team members have also taken salary reductions in recognizing that we are all in this together. Additionally, we have placed a number of our team members on furlough due to the closing of our amenities and the temporary reduction of transactions. The company will continue to pay both its share and the team members' share of costs associated with providing each furloughed team members uninterrupted health care benefits. We have implemented a rent forbearance program for residents financially impacted by the virus. We have elected to apply and provide the necessary information related to their hardship in order to qualify for the program. Approximately 2.9% of our manufactured housing residents, inclusive of our rental home program, have applied and been approved. Requests from our annual RV guests have been minimal. In our manufactured housing portfolio, we have collected 98% of our rents as of April 22, which is on par with last month and prior year. In our RV portfolio, approximately 55% of our RV sites are leased annual sites. For annual RV rents currently due, collections are at 92%, relative to the percent collected at the same time last year. Of the remaining 45% of RV sites, which are transient, we are experiencing an impact from the pandemic with delayed resort openings and canceled reservations. John will provide additional detail. Given limited visibility on the return to normal operating conditions and the duration of the current situation, we are suspending our 2020 financial and operating guidance. We have also determined it prudent to temporarily reduce or suspend certain capital spend on expansions and ground-up developments, and we continue to evaluate acquisitions with measured caution. John and Karen will provide further details on the unavoidable financial impact associated with pandemic. However, we believe that even in the times of uncertainty or disruption, Sun's portfolio and the industry in which we operate are well suited to withstand the impacts of a recession. Sun provides a high-quality affordable housing option that has historically demonstrated stability and resilience during a downturn, and a stronger, earlier bounce-back through recovery as the macro economy improved. While different circumstances caused the great financial crisis in 2008, the underlying business model at Sun and the demand for affordable housing which Sun provides resulted in significant growth in the 5 years after the GFC. We anticipate that our RV resort business will demonstrate a similar pattern as it provides similar affordability in a market with proven strong demand and limited supply. Our RV resorts provide an affordable vacation option where guests can travel an average of 2 to 3 hours safely in their own vehicles without the need to get on a plane, stay in a hotel or congregate in a public space. For now, the pandemic has galvanized our operations team to stay ahead of the situation and steer us in the right direction. They meet daily to ensure that residents, guests and Sun team members are receiving compassion and unparalleled service during these times. They monitor local shelter-in-place mandates and are literally writing the playbook on how to navigate this fluid situation. There is no precedent for what the world or Sun is experiencing. We've had to make some extremely difficult but necessary decisions to ensure that Sun continues to be the nation's premier owner/operator of manufactured housing and RV communities. John and Karen will now provide additional operational and financial updates. John? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [3] -------------------------------------------------------------------------------- Thank you, Gary. I'll start with the recap on the strong performance and metrics in the first quarter, after which I'll provide specific details regarding the impact of the pandemic on operations, financials and the actions we've taken. As Gary mentioned, we are tracking strongly ahead of expectations for the quarter and delivered excellent Same Community growth even after absorbing disruptions from the onset of shelter-in-place ordinances in mid to late March. Our total portfolio ended the first quarter 96.7% occupied, improving 30 basis points over last year, and we added 300 revenue-producing sites even as shelter-in-place restrictions were put into effect. Our Same Community NOI increased 6.7% year-over-year driven by a 5.2% increase in Same Community revenues and a 1.8% increase in Same Community expenses. Same Community manufactured housing revenue growth was 6.2%. Annual RV revenues grew by 9.6%. And transient RV revenues decreased by 6% as we felt the first effects of COVID-19-related social distancing orders in March. In the first quarter, we saw Same Community occupancy increased to 98.4% from 96.6% in the first quarter of 2019. Even as social distancing began to impact traffic at our properties, home sales were quite strong with sales of 763 homes, of which 119 were new homes and 234 were rental home conversions. A core strength of Sun's operations team is the continual emphasis on refining our contingency planning and emergency preparedness and disaster recovery protocols, which are in place to rapidly deal with various out-of-the-ordinary circumstances. By late February, the team began deploying recommended protocols throughout the portfolio and assessing how best to balance compliance with health-related orders and the delivery of essential services to our residents and guests, which dictated a number of changes in the field. The steps we implemented are aimed to help ensure the safety of our residents, guests and team members, assist our residents who are facing extreme financial challenges and to support our local communities wherever we can. In terms of health and safety, we seamlessly implemented work from home for all positions that can be remote, we enhanced our cleaning protocols, closed public amenities and discontinued social gatherings. Our on-site offices remain available for essential services. We have also stepped up our communications and virtual servicing options for current and prospective residents. We have adopted a Financial Hardship program to provide forbearance under certain terms to residents impacted financially by the pandemic and temporarily suspend evictions, late fees and rental rate increases. For residents that qualify for the Financial Hardship program, rent will be deferred through May and be payable in 12 equal installments beginning in July 2020. We estimate the deferred rent equates to $1.9 million for each of the 2 months, and it includes resident-owned homes on sites and our manufactured housing rental units. Now I'll provide some details related to the current quarter that will help frame our best estimate of financial expectations with regard to the actions just described and the impact of the pandemic. We are very pleased with April rent collections. In our manufactured housing portfolio, as Gary indicated earlier, we have collected 98% of our April rent to date. While we are experiencing lower traffic at the communities as would be expected with shelter-in-place mandates, we are still seeing demand for move-ins and actually expect fewer move-outs during this time. For the month of April, while the total application count is down approximately 13% on a year-over-year basis, web applications are up 111% and represent 45% of total applications compared to only 19% in April of the prior year. Our technology platform has the capability to capture online applications and steer prospective residents to use Sun's web services. Our platform also has the capabilities to provide remote virtual home showings and tours, allowing us to nimbly adapt in the face of this evolving landscape. Now we would like to provide some perspective on our RV portfolio. Our portfolio consists of over 26,000 annual sites and approximately 22,000 transient sites. The annual RV sites are located in resorts that are open year-round as well as resorts that are open on a seasonal basis. The majority of our annual sites are either park models or sites where RVs are tied down and the guests has made significant investments in personalizing their sites by building decks, indoor/outdoor rooms, and porches and installing landscaping and hardscaping, essentially making these very permanent in nature. These guests return year after year to what is typically their vacation home. On the transient side of our RV business, it has been our experience for more than 25 years that most of Sun's transient RV guests enjoy the convenience and safety of driving in their own vehicle to a vacation destination they are familiar with and comfortable at. Based on many years of operating experience and engagement with our transient guests, we believe they are likely to return to our resorts once shelter-in-place and nonessential travel restrictions are lifted. Historically, over 50% of our transient RV guests return to the same resort each year, providing a predictable and steady income stream. For the time being, however, we have received an increased number of reservation cancellations related to shelter-in-place directives. Additionally, we have 44 RV resorts that would have been opened on or around April 1 but are being prohibited from opening by local authorities. As of now, we expect these resorts to open at various points in May as restrictions are lifted. Thus far, for May and June, guests are calling frequently inquiring about our opening date and taking a wait-and-see approach with regard to their planned vacations. Forecasting for what we know related to cancellations, bookings, resorts that are not currently open and the fact Memorial Day weekend is included in this quarter, our best estimate for the second quarter includes a reduction of $10 million of transient revenue from our original budget expectations. In addition to this forecasted reduction in transient RV revenue just discussed, based on the current environment, there are a number of additional revenue sources that could be impacted temporarily. These include lower manufactured housing revenue due to rental increases being deferred and lower occupancy gains, lower annual RV revenue related to fewer transient to annual site conversions and the associated rent pickup, lower other and ancillary income due to various fees not being collected as a result of delayed resort openings and lower home sales and brokerage fees as a result of stay-at-home orders and travel restrictions. Despite the near-term disruption to our operations, we are confident in the long-term viability of our mission and business model, which has stood the test of time throughout many of the most difficult economic times and downturns over the life of the industry. During those periods, this industry has been characterized by its steady, predictable cash flow fueled by strong consumer demand for home ownership as well as the demand for affordable vacationing. I would now like to turn the call over to Karen to discuss our financial results, balance sheet and provide a summary of the potential impact to our second quarter as a result of the pandemic. Karen? -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [4] -------------------------------------------------------------------------------- Thank you, John. I will begin by reviewing our financial results, followed by a discussion of our balance sheet as well as the estimated financial implications, the response to the COVID-19 pandemic has had on our business operations and of the actions we have taken to date. For the quarter ended March 31, 2020, we reported $1.22 per share in core funds from operations, $0.01 ahead of the top end of our previously provided guidance range for the quarter. We ended the first quarter with approximately $380 million of unrestricted cash on hand after we completed a 15-year $230 million term loan at a rate of 3% that closed at the end of March. The properties for this new financing had been encumbered by a $99.6 million term loan due to mature in 2021, with an interest rate of 5.84% that was paid off at the end of February. Additionally, we paid off 4 term loans totaling approximately $20 million that were set to mature this year. We have no material debt maturities until 2023. We ended the quarter with $3.9 billion in debt outstanding with a weighted average interest rate of 3.64% and a weighted average maturity of 10.6 years. Our net debt to trailing 12-month recurring EBITDA ratio at March 31 was 5.6x. We also have flexibility on our balance sheet to support our business operations. As of March 31, we had $223 million of capacity on our revolving line of credit and have the ability to increase the size of our facility by $350 million to $1.1 billion. Also our significant unencumbered asset base comprised of 143 properties provides us with additional potential funding capacity. We took decisive measures to reduce our cash spend for the remainder of 2020. We have suspended nonessential capital expenditures of $240 million, including expansions, ground-up development, home purchases and other capital projects. From a corporate perspective, we've made compensation reductions at the Board and executive management level and implemented other compensation savings throughout the company through salary reductions and furloughing certain team members. We have reviewed our general and administrative cost line items and reduced expenses where possible. From the operations perspective, we continue to maintain our properties at the highest level, but may see a reduction in certain variable operating costs. More broadly, when taking into consideration the disruptions to our business in both our manufactured housing and RV resort operations discussed earlier by John and including projected expense savings, the forecasted reduction to our original budget for the second quarter is between $15 million to $18 million. As we said earlier, the pandemic is a fluid situation. As shelter-in-place and travel restrictions are lifted, we expect to see an improvement in our level of transient RV reservations and our second quarter forecast. But for now, we've shared what we believe to be our best estimate based on the information we have today. In summary, we've taken a number of actions to support the company should the impact of the pandemic persists. We are confident that we have the financial flexibility to ensure our ability to operate in this unprecedented time. Thank you for joining us today. This concludes our prepared remarks. We would like to open the call now for question. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from John Kim with BMO Capital. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [2] -------------------------------------------------------------------------------- I was wondering, John, if you could provide some more color on when you think the RV campgrounds will be open as far as the 44 that are not open yet? And how many of those 44 could be opened by Memorial Day? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [3] -------------------------------------------------------------------------------- John, thanks for the question. Yes, it's -- I mean that is going to be sort of aligned with the government mandates and as things start to lift along the way. I think we said in our prepared remarks that we expect that to sort of start happening in May. And I think one of the important things with that, John, is the fact that we often talk about our playbook and the decades of refining that playbook. And all of this situation is just a different version of operating conditions pre-, during, post- natural disasters and hurricanes and things like that that we deal with. And so as you might imagine, pretty much as soon as this all started to happen, we were preparing our plans for reopening at the same time. And through that, we've developed a 3-phase plan associated with reopening that will align with those government mandates that you -- that all you really have to do is drop in the open date, and it guides to prepare our team leading to opening all the way through to normal operation status. And so the plan itself includes proper sequencing of reopening the resorts and the amenities, starting with ones that provide better space for social distancing. So we're really looking forward to welcoming our guests back. But again, that's going to be more along the lines of whatever the governmental authorities allow us to do. But we're ready. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [4] -------------------------------------------------------------------------------- Does the $15 million to $18 million range -- is that just a wide range of outcomes for how many of those open by Memorial Day, just given that's a crucial date for you? -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [5] -------------------------------------------------------------------------------- Yes. It's Gary. I think that we want to be cautious. We have been in touch with the counties, cities and municipalities who have asked us to extend our openings from generally April 1, with the anticipation that they would be opening up sometime in May. We haven't heard otherwise. So as of right now, we do expect to get them all opened in the month of May. But that's, of course, going to be dependent on any change that we hear from the municipalities. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [6] -------------------------------------------------------------------------------- Okay. So once the RVs are open, is there anything you're going to do on your end to limit capacity just to, I guess, limit human interaction? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [7] -------------------------------------------------------------------------------- Well, one of the interesting things about an RV resort as opposed to other hospitality options is there's sort of some of that built-in spread because everybody has their own site that they're on which promotes, all by itself, social distancing. Some of the things that we've done, some examples of some things, John, that we've already put into play to get ahead of that is we've actually already stocked social distancing signage for all entry points that we have within our communities, as well as we've seen those before at conferences where they put the stickers down on the floors, and we can do that in the more highly trafficked areas to promote that as well. And I think one of the really key things that we're able to do is utilize our online express check-in capabilities which allows guests to check in and pay early, allowing them for a touchless arrival process as well. So it's -- there's a lot of that sort of thing that's happening. But I think by its very nature, an RV resort promotes a lot of social distancing right out of the gate. And I also think that Gary and I both agree that many people are going to want to get out of their houses. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [8] -------------------------------------------------------------------------------- Final question is just on your ability and confidence on demand for RVs just given the amount of near-term cancellations that you've received so far? -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [9] -------------------------------------------------------------------------------- Yes. I think we all sort of feel the same way. We can't brush aside or make light of the financial impact, especially to transient RV from the current pandemic. But we really have to look through to the value of the fundamental business proposition in the platform itself, which as John sort of indicated, we're providing an affordable and cost-effective vacation experience in what really is a safe, self-contained RV, and we're doing it to all various demographics. So we would expect really on the other side of this unfortunate circumstance that people that are looking for unique and desirable experience like RV offers to both individuals, retirees and families spending time in our rustic camping resorts or one of our high-end glamping experience really should be in high demand. Anecdotally, I've heard from at least a dozen people over the last 2 weeks or so looking to inquire on where to get an RV. Of course, if we can get them a discount, if we can assist them. But as recent as yesterday, one of our Board members wanted to let me know that they bought an RV. They've actually left Michigan, and they are on their way, first, to Colorado, traveling out to California. So we really feel that the RV business could benefit strongly from this unfortunate situation. And I think we'll see that rather rapidly when the impact of social -- stay-at-home and travel bans are lifted. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Our next question comes from Nicholas Joseph with Citi. -------------------------------------------------------------------------------- Nicholas Gregory Joseph, Citigroup Inc., Research Division - Director & Senior Analyst [11] -------------------------------------------------------------------------------- Appreciate the details on April MH collections. But I'm just curious as we go forward over the next few months if you expect any performance differential given different demand drivers between the all-age and the age-restricted MH portfolios and then maybe within owned versus rental as well. -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [12] -------------------------------------------------------------------------------- Yes. Nick, this is John. I think the way I'd characterize is that with the April rent collections that the all-age portfolio has showed its resilience. And I think it also benefits along with the rest of the portfolio sort of the proactive nature of our culture. One of the things that we've said as a company for a decade or longer has been the best revenue-producing site you can gain is the one you never lose. And I think everybody knows that our average residency in our communities is 14 years. And there's a value proposition. There's a reason why people want to be there. From a rent collection standpoint in April, rent collections for all-age communities is on par with last month. I mean -- and so I think that that really kind of shows, coming right into this when there was a lot of uncertainty coming into this pandemic, that that value proposition that people see is realized. The other thing I'd add is a component of the all-age portfolio is -- it's a bit of a reminder that we've shared before that from a retiree standpoint where you compare 55-plus versus all-age, not every person who is over 55 wants to live in a retirement community. So we have a healthy component of residents within our all-age communities that are retirees. And so those folks are going to be less impacted by things like job loss than others. And so I think looking out, looking into May, I would add that I think that our Hardship program did what it was designed to do, and that takes the pressure off as well. And I would like to think that some of the things that our government has done to help promote what people's needs are, with the stimulus plan and the checks that are starting to arrive, that I would hope that the experience from May rent collection will be similar to that of April. -------------------------------------------------------------------------------- Nicholas Gregory Joseph, Citigroup Inc., Research Division - Director & Senior Analyst [13] -------------------------------------------------------------------------------- And then anything on the rental program versus owned in terms of different risk profiles going forward? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [14] -------------------------------------------------------------------------------- No. I mean it's really -- it's pretty much -- it's about 50-50 as far as the utilization of the Hardship program. So it's very similar in nature. I will tell you that an interesting thing that's happened during this terrible crisis has been that with the rental home program, our applications in April are actually up versus where they were of April of last year. -------------------------------------------------------------------------------- Nicholas Gregory Joseph, Citigroup Inc., Research Division - Director & Senior Analyst [15] -------------------------------------------------------------------------------- And then just you mentioned the change to expansion and development spend. How does that impact the Australian JV? Or were those comments just for the U.S.? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [16] -------------------------------------------------------------------------------- Well, speaking to the U.S., really, I think one of the things on our expansion development spend has been the fact that -- and I think we might have shared this before as well. I apologize if I'm repeating myself. But we are fortunate that we're always in a position thinking ahead and staying a year, 1.5 years ahead of what the supply needs are for expansion sites. And as we shared on other calls, we had 2,100 sites built in '17, 1,200 sites in '18, 1,200 in 2019. And so we've got a good supply of sites. So tapering it down for a bit really shouldn't have an impact. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [17] -------------------------------------------------------------------------------- Yes. And it's Gary. John's remarks did reflect what's taking place in the U.S. With regard to Ingenia in Australia, it's a little bit of a different business proposition. They've been a little bit less impacted. I'd like to think maybe that social distancing of the size of the country versus the population allows them a little bit more natural barrier to what we're experiencing here in the U.S. But demand has remained strong. There's been, as John said, tendency for people who maybe were going to move out of Sun's communities to kind of postpone those moves. And in the sort of opposite way in Australia, they queue up what they refer to as their settlements and their home closings long in advance. And that's dictated by a resident's home sale, primary home sale as they're downsizing. They look to downsize to release equity to be used in their retirement. So it's very, very important to them to understand and know that as they sell their home, they have a place to go. So if anything, there's been a little bit of an acceleration on those who have reservations and plan to move into the Ingenia Communities. So that's been a positive thing there. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Our next question comes from Drew Babin with Baird. -------------------------------------------------------------------------------- Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19] -------------------------------------------------------------------------------- A quick question on -- just related to the transient reopenings. I know a lot of the rent premium that you're able to command associated with just upgraded amenities, things like that at the properties. Can you give a little more detail on kind of amenities might be available upon the opening? Which amenities may kind of lag? And whether as far as there are bookings or any clarity, is that affecting pricing at all? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [20] -------------------------------------------------------------------------------- Yes. I mean sort of the natural sequence, Drew, with amenity openings is going to start with ones that are more social distancing promoting. So we'll call it more the outdoor type stuff that we have out there where there can be less contact. I think some of the things that we're doing in terms of signage, one of the things that we're also doing, we're starting to secure a supply of infrared thermometers where we can check temperatures as our team comes in for the day and as well as when our guests check in and those sorts of things. And we're actually going to be providing wrist bands to everybody indicated that they've been cleared. And again, just out of an abundance of caution that we do this in helping to build confidence for our guests coming back because they're excited to come back and they want to be there. And so that's sort of the sequencing of it. We've not to date made any adjustments in terms of rate. -------------------------------------------------------------------------------- Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21] -------------------------------------------------------------------------------- Okay. I appreciate the color there. And just one follow-up for me just on the pace of expansions and development deliveries. I know you mentioned that online traffic is up. Obviously, on-site traffic has been down amidst all of this. Is there any kind of update on the pacing of the delivery of revenue-producing sites throughout this year, whether it's sites that were put in place kind of coming into the year at the end of last year or ones that you may be planning on adding later this year? Any update there as we model it out? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [22] -------------------------------------------------------------------------------- Yes. As far as the expansion site deliveries, again, I don't think that there's a lot of impact from an availability or supply standpoint. I mean it really is -- from an application standpoint, as we shared in the remarks, the apps are down only 13% thus far. We've got excellent web-based connectivity to be able to continue to collect the applications and as well as do virtual showings and that sort of thing. And frankly, I've seen a lot of great creativity out of our teams out in the field. And so again, it's going to line up more. Without being able to tell you exactly what's going to happen, it's all going to line up with kind of as these things start to ease up a little bit. But in the end, we are still building a pipeline that we will remain engaged with, with those prospects and customers that when the time comes and we can sort of be at the pace we're used to being at, then it's all really about the throughput that we do after that. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Our next question comes from John Pawlowski with Green Street Advisors. -------------------------------------------------------------------------------- John Joseph Pawlowski, Green Street Advisors, LLC, Research Division - Analyst [24] -------------------------------------------------------------------------------- Maybe just a clarification on the first question. It sounds like -- and correct me if I'm wrong. It sounds like the $10 million in transient revenue impact assumes basically 0 revenue coming in the door in April, and the vast majority of May revenue is still achievable. Is that fair? -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [25] -------------------------------------------------------------------------------- I would say that it's somewhere in between there. Yes. -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [26] -------------------------------------------------------------------------------- Yes. It sort of ramps up to highest level in June, obviously. But you're correct that there's a minimal amount of revenues expected in April and ramping up from there. -------------------------------------------------------------------------------- John Joseph Pawlowski, Green Street Advisors, LLC, Research Division - Analyst [27] -------------------------------------------------------------------------------- Okay. And then the 98% collections on the MH side in April, is that a cash or GAAP basis? So roughly 3% of rents are deferred? Or is the cash collection 95%? Or is the cash collection actually 98%? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [28] -------------------------------------------------------------------------------- 98%. -------------------------------------------------------------------------------- John Joseph Pawlowski, Green Street Advisors, LLC, Research Division - Analyst [29] -------------------------------------------------------------------------------- Okay. Final one for me. So $15 million to $18 million of 2Q impact on NOI, $10 million of it coming from the transient side. What kind of impact are you assuming on the MH portfolio in 2Q? -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [30] -------------------------------------------------------------------------------- Okay. So John, we knew that providing that estimated impact -- impacted dollar amount was going to lead you to be wanting some more details. We felt it was the right thing to do, and so we've done it. Our effort was to provide as much detail as we could. Therefore, these are the things that we have included. A transient revenue reduction of $10 million, that makes up the majority of the range. And the remaining $5 million to $8 million is split between home sales and brokerage, other and ancillary, annual revenues and MH revenues. It's net of expense reductions. -------------------------------------------------------------------------------- John Joseph Pawlowski, Green Street Advisors, LLC, Research Division - Analyst [31] -------------------------------------------------------------------------------- Okay. Understood. Are you assuming at this point that you see any diminution in occupancy on the MH portfolio? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [32] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Our next question comes from Wes Golladay with RBC. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [34] -------------------------------------------------------------------------------- How is financing availability changing for home sales? Are you seeing any changes on that? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [35] -------------------------------------------------------------------------------- No, I haven't. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [36] -------------------------------------------------------------------------------- It hasn't been good before. It hasn't gotten any better. It hasn't gotten any worse. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [37] -------------------------------------------------------------------------------- Fair enough. Will Sun be doing any more on that front, helping tenant? -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [38] -------------------------------------------------------------------------------- I think that we actually have a subcommittee on our Board of Directors that is really focused on improving availability of home financing. They were on track to be able to work through probably the first manufactured housing loan securitization at the end of second quarter. I know John has worked very hard on it. Do we have any more color at this time? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [39] -------------------------------------------------------------------------------- Not at this time. It's just kind of... -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [40] -------------------------------------------------------------------------------- Yes. So we will keep everybody posted. But the home financing today is pretty much the same as it was 2 months ago. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [41] -------------------------------------------------------------------------------- Got you. Okay. Then looking at the CARES Act, the increased unemployment benefits that many of the tenants should receive. Will you need to extend that Hardship program beyond May and hold off on rent increases? And then a quick addition to that one is, how many leases in MH expire in 2Q? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [42] -------------------------------------------------------------------------------- Well, that's -- so it's a good question because that's precisely why we designed the program to include April and May because the thought process was, with the Hardship program, that it was going to be very difficult for people to go out and find jobs in April. And so we wanted to kind of wrap it over both of those months. And as we talked about in our prepared remarks, begin the payments, lighter payments starting over a 12-month period of time in July. So I think that provides a lot of support for our residents, that my hope would be that that will, one, promote, like I said earlier on this call, good May rent collections as well as put some things at ease for people as they're kind of putting things back together when the pandemic starts to hopefully taper down. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [43] -------------------------------------------------------------------------------- The rent collections by quarter -- does someone have those available? Our rent increases renewals? -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [44] -------------------------------------------------------------------------------- The -- not the... -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [45] -------------------------------------------------------------------------------- The expiration. -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [46] -------------------------------------------------------------------------------- I'm sorry. What was the last part of your question, Wes? -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [47] -------------------------------------------------------------------------------- Yes. It was -- yes, sorry. It was just the expirations that can be expired this quarter. -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [48] -------------------------------------------------------------------------------- I don't have the detail of that number. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [49] -------------------------------------------------------------------------------- No problem. And then maybe one last one. What is the typical booking window for transient RV? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [50] -------------------------------------------------------------------------------- It's a pretty wide range. I mean it could be anywhere from a year in advance, and a lot of people that are booking before they even leave the resort from the year before, or it could be the day of. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Our next question comes from Joshua Dennerlein with Bank of America. -------------------------------------------------------------------------------- Joshua Dennerlein, BofA Merrill Lynch, Research Division - Research Analyst [52] -------------------------------------------------------------------------------- Maybe just a follow-up on the last question. For MH rent increases, do those all go through on January 1? Or are they staggered throughout the year? And, if so, have you considered maybe not pushing through any rent increase for people this year? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [53] -------------------------------------------------------------------------------- Yes. So the increases that are already out there are about 50%. This is what happens in the first quarter. And so those are already out, Josh. And then we have put a hold on further rent increases until things start to open up or ease up a little bit. And so I think when you look at this sort of overall, it could have about maybe a 50-point -- 50-basis-point impact on the guided rent increase for 2020. That's our best estimate at this point in time. -------------------------------------------------------------------------------- Joshua Dennerlein, BofA Merrill Lynch, Research Division - Research Analyst [54] -------------------------------------------------------------------------------- Okay. And that's all related to MH communities? Or is that also with RV communities for annuals? -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [55] -------------------------------------------------------------------------------- It's both. -------------------------------------------------------------------------------- Joshua Dennerlein, BofA Merrill Lynch, Research Division - Research Analyst [56] -------------------------------------------------------------------------------- Both? Okay. -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [57] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Joshua Dennerlein, BofA Merrill Lynch, Research Division - Research Analyst [58] -------------------------------------------------------------------------------- Okay. And then if the pandemic goes on for longer and maybe if things can't start opening up in May on the RV side, has there been any thought given to how you would respond as far as like if people can't access their sites on the RV side, maybe like reducing their rent for the year? Anything on that front? -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [59] -------------------------------------------------------------------------------- Yes. I think it's something that we talk about and something that we're just going to have to watch and continue to see what does take place just like across the country. But we have been conservative in our thought process through the quarter, slowly ramping up, as we indicated earlier. We have deferred rental increases for the time being. We have eliminated all fees related to late charges, the various other fees that we often do collect, and try to be there for our residents. As John said, our residents are there long term, and so it'll just be a work in process. If things continue on, we're going to have to be able to provide additional transparency to you and to the market. But we do think that we really did take a very good, hard look at our best estimates, and that's what we put forward with the concept to what we know now. -------------------------------------------------------------------------------- Operator [60] -------------------------------------------------------------------------------- Our next question comes from Todd Stender with Wells Fargo. -------------------------------------------------------------------------------- Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [61] -------------------------------------------------------------------------------- So back to the Hardship program. You guys were talking about April and May. Tenants then pick up payments in July. What about June? How does -- it seems like it jumped over June, but maybe not. -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [62] -------------------------------------------------------------------------------- Yes. So -- and sort of like what Gary said just a minute ago, I mean I think that we launched the program even before April rent was due, trying to think ahead of it, and so we are thinking about that. But the thought process was just to cover April and May based on the data that we had at the time that's out there to try and set up the program so it sort of fits with the various models that are out there and to provide some space between when things hopefully start to slow down and when people have to start making payments back. And so I would say as far as June is concerned, Todd, I mean it's something that we will closely monitor as things evolve or emerge, as we need to. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [63] -------------------------------------------------------------------------------- So if they were to start making their first rental payment in June, we didn't want to burden them with the forbearance payback, so that's why we delayed it an additional 30 days. -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [64] -------------------------------------------------------------------------------- Right. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [65] -------------------------------------------------------------------------------- And that's also why we took the route of 12 equal payments to extend it over the longest period of time to make it easiest on the residents. -------------------------------------------------------------------------------- Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [66] -------------------------------------------------------------------------------- All right. I get it. So April and May will begin being paid back in July, but June will be just your standard June payment. -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [67] -------------------------------------------------------------------------------- That's correct. -------------------------------------------------------------------------------- Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [68] -------------------------------------------------------------------------------- Got it. Appreciate that. And then foregoing base compensation for the Board and executives, do you have any numbers around this just for us to look and start looking at our G&A estimate going forward? -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [69] -------------------------------------------------------------------------------- We don't really have the numbers and ... -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [70] -------------------------------------------------------------------------------- I have to add them up really quickly in my head. They're just -- they just came out in the proxy, Todd. I think you can add them up and take a quarter of that. -------------------------------------------------------------------------------- Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [71] -------------------------------------------------------------------------------- Okay. So it's one quarter's worth for now? -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [72] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [73] -------------------------------------------------------------------------------- But again, depending on the duration of this. -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [74] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [75] -------------------------------------------------------------------------------- Yes. We were very pleased. Proactively, our Board of Directors reached out to us very early out in this situation and wanted to do whatever they could. And obviously, from a distance, and strategically, they had done some, but they continue to do some, but they were able to contribute financially in this way. -------------------------------------------------------------------------------- Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [76] -------------------------------------------------------------------------------- Okay. Finally, just for Karen. Your line of credit balance ramped, but also so did your cash balance. Have you spelled out how much you've tapped to just kind of sit on cash to preserve liquidity right now? -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [77] -------------------------------------------------------------------------------- I'm sorry. I missed the last part, Todd. -------------------------------------------------------------------------------- Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [78] -------------------------------------------------------------------------------- Well, tapping your line, how much is that are you just sitting on cash just to preserve liquidity right now? -------------------------------------------------------------------------------- Karen J. Dearing, Sun Communities, Inc. - Executive VP, CFO, Treasurer & Secretary [79] -------------------------------------------------------------------------------- So yes, you're right. We had $380 million of unrestricted cash on hand. We just finished the $230 million financing. We drew about $200 million additionally on our line, and we haven't drawn subsequent to quarter end. We feel like that is enough to meet our near-term needs. We did our distribution in April. So we think that that balance, less distributions, I think we did about $70 million, $75 million in distributions. Puts us in a good position to have the flexibility we need at this point in time. -------------------------------------------------------------------------------- Operator [80] -------------------------------------------------------------------------------- Our next question comes from Samir Khanal with Evercore. -------------------------------------------------------------------------------- Samir Upadhyay Khanal, Evercore ISI Institutional Equities, Research Division - MD & Equity Research Analyst [81] -------------------------------------------------------------------------------- I guess for Gary, for you. Do you have any early read as to what the impact has done to maybe underwriting for new deals or kind of unlevered IRRs cap rates? I mean you've acquired a lot over the last few years. And on the other side of this, could you see the opportunity to maybe pick up any assets? I just want to kind of get your initial thoughts here. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [82] -------------------------------------------------------------------------------- That's an excellent question. I would state the following, that we have seen significant interest in 3 different areas. We're seeing several types of communities that until recent events were not likely to be for sale. So that's been probably the biggest surprise. Properties that were or have been for sale but were not priced appropriately, we're getting a lot of inbound traffic and entering in dialogue and discussions as to whether or not those are things we want to look at right now. And then properties that could have been acquired but we didn't act on or we weren't proactive to getting to them, they're starting to surface. So I think the overall response is that we are seeing kind of a turned-up interest in acquisition offerings. And as I said in my earlier remarks, we're taking a very cautious approach to those acquisitions. But I think that for the time being, we're seeing a more realistic approach to how sellers might be thinking about their valuations. -------------------------------------------------------------------------------- Operator [83] -------------------------------------------------------------------------------- Our next question comes from John Kim with BMO. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [84] -------------------------------------------------------------------------------- Just a follow-up. On your suspension of rent increases in MH, what would be the catalyst or catalysts to return back to your projected escalations? Would they be macroeconomic factors or metrics tied specifically within your portfolio? -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [85] -------------------------------------------------------------------------------- Yes. I guess we've talked about this. I think they're metrics specifically tied to our portfolio. Sitting in March, along with the rest of the world, we had no idea how our residents or when our residents would be paying April rent. We've gotten through April rent really pleasantly pleased. We've now got a look at May. Assuming that we see continued strength with our residents and the desire to stay in the communities, we'll take it one month at a time. And I think it will be a combination of what we see in the macro world, as well as how we feel about the quality of what we're offering against other opportunities and being compassionate to our residents who have stuck by us and who we want to continue sticking by us. So it's a fluid situation, and just something John and the ops team will have to present to management here and making a full decision as we step forward, really month by month. And the first thing we'd like to accomplish, as we shared with everybody, is to get our transient seasonal -- our transient business back and our seasonal communities open. I think having that step behind us will be a positive thing on how we approach when or if we put in rental increases. -------------------------------------------------------------------------------- Operator [86] -------------------------------------------------------------------------------- Our next question comes from Nicholas Joseph with Citi. -------------------------------------------------------------------------------- Nicholas Gregory Joseph, Citigroup Inc., Research Division - Director & Senior Analyst [87] -------------------------------------------------------------------------------- Just want to follow-up on I guess the transient and seasonal revenues. I appreciate the color for the second quarter expectations. But just curious what the scope of revenue that's been received that could be potentially refunded if the properties open later than expected or if the closures remain longer than expected. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [88] -------------------------------------------------------------------------------- I don't think the concept of refunding has been anything that we are expecting. And I think that if anything were to approach that magnitude or discussion... -------------------------------------------------------------------------------- John Bandini McLaren, Sun Communities, Inc. - President & COO [89] -------------------------------------------------------------------------------- I think it's also, Nick, important to note that the vast majority of -- on the seasonal or the annual side in these seasonal resorts, those sites remain occupancy -- occupied 12 months of the year, like we shared in the script, where it's either a park model or it's a tied down unit where they've done significant investment in their sites. And so similar to MH, there's a very significant investment that's been made by them. So I think that in a lot of -- frankly, they expect to pay the rent. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [90] -------------------------------------------------------------------------------- So it's not something we've been actually contemplating at this time. -------------------------------------------------------------------------------- Operator [91] -------------------------------------------------------------------------------- At this time, I would like to turn the call back to management for closing comment. -------------------------------------------------------------------------------- Gary A. Shiffman, Sun Communities, Inc. - Chairman & CEO [92] -------------------------------------------------------------------------------- I just want to wrap it up by thanking everybody for participating on this call. We've shared and firmly believe that Sun is well positioned to navigate the COVID-19 pandemic. We provide a highly desirable experience at our communities and our resorts. And we continue to have access to capital and are dedicated to see this through. As always, Karen, John, myself and others in the company will remain around to follow up with any questions that you have. And we look forward to updating you in the near future. Thank you, operator. -------------------------------------------------------------------------------- Operator [93] -------------------------------------------------------------------------------- Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day.