Greetings. Thank you for joining us today for Sun Communities Third Quarter 2020 Earnings Conference Call. Session will begin after the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Gary Shiffman, Chairman and Chief Executive Officer.
Thank you. You may begin.
Thank you, operator. Good morning and thank you for joining us today as we discuss our Q3 results and provide an update on the continuing impact of COVID-nineteen. We hope that you and your families are staying healthy and managing through this challenging time. We are now in our 7th month of navigating the pandemic and we are pleased to share that our performance continues to exceed our expectations. Our commitment to the safety of our residents, guests and team members remains our top priority and we are balancing this responsibility with our pledge to performance delivered in our manufactured housing and RV portfolios, we are excited to further expand and enhance our platform with the pending acquisition of Safe Harbor Marinas.
Safe Harbor brings a high quality rental revenue stream, adds diversity in terms We are pleased with our results for the Q3 as our RV portfolio continued to build reservation momentum on a week over week basis and manufactured housing continue to see increased demand given the need for affordable housing. We outperformed initial expectations discussed during our Q2 earnings call in July, primarily due to the strong performance of our transient RV business and related ancillary income generated at our resorts. Our 3rd quarter forecast guided to a net reduction due to the impact from the virus of up to $15,000,000 from our original budget. As the quarter progressed, We continue to perform better than forecast expectations and ultimately outperformed that forecast by approximately $20,000,000 Our Ving proved to be a preferred method of vacationing across the country due in large part to the ability for travelers to drive to and more safely vacation in our resorts, enjoying the outdoor lifestyle while remaining socially distanced. Our reported core FFO per share was 1 point 60% for the Q3, 9.6% ahead of last year.
The 5.5% same community NOI growth Delivered in the Q3 underscores the resiliency of our platform and the demand for our product. In the quarter, we grew same community occupancy 200 basis points to 98.8%. Additionally, during the Q3, we deployed approximately $205,000,000 in the acquisition of 2 manufactured housing communities and 5 RV Resorts, totaling approximately 2,500 developed sites and an additional 109 expansion sites. The majority of these acquisitions came to us through our long standing industry relationships. Our pipeline of single assets and small portfolios in manufactured housing and RV is as full as ever.
Sellers continue to see the benefits of the transaction with Sun given certainty of execution, tax deferment strategies and the knowledge that Sun will improve and continue managing these assets to the best possible standards. We also completed the construction of approximately 685 sites across our expansions, ground up and redevelopment projects, Bringing total development sites delivered for the year to almost 1211 communities and resorts in 9 states. On September 29, we announced the pending acquisition of Safe Harbor Marinas for $2,100,000,000 This acquisition will serve to expand our loyal customer base, diversify our geographic footprint and add incremental revenue streams, which we believe will strengthen our ability to generate industry leading growth over the long term. We are very excited about Safe Harbor Marinas and look forward to welcoming the entire Safe Harbor team to the Sun family. We anticipate that this acquisition will close at the end of this month.
We have not lost Overall, we believe that Sun has been a net beneficiary as a consequence of customer behavior, the demand for our homes and the safety of our vacation properties. As we have said in the prior two quarters, we did not know the duration or the ultimate impact on the economy or our operations. Thus far, we have proven our ability to navigate the environment and successfully execute our business strategy. Throughout the pandemic, our team has worked tirelessly to serve our residents and guests and produce the results we are discussing with you today. The team has demonstrated an ability to adapt While maintaining Sun's high customer service standards that are central to the business.
I would like to thank each one of our team members for going above and beyond in contributing to our outstanding results. I will now turn the call over to John to discuss our operational results in more detail.
John? Thank you, Gary. Our results in the 3rd quarter speak to the resilience of our platform as we outperformed our forecasted expectations across all of our revenue streams. From a total portfolio perspective, we gained 776 revenue producing sites, a 1.3% increase boosting total occupancy to 97.2%, up 50 basis points from last year. This now brings our year to date revenue producing site gains to approximately 1930 sites putting us within striking distance of achieving our original RPS gain budget 2020.
The demand for our communities and resorts is stronger than ever. Manufactured housing revenue producing site gains totaled 1400 sites or 72 percent of total site gains year to date. 9.10 of these gains conversions of transient RV sites to annual leases. Our same community portfolio NOI for the 3rd quarter rose 5.5 resulting from a 5.4% increase in revenues and a 5.2% increase in operating expenses, which included $1,100,000 of PPE related expenses. Adjusting for our PPE expense, same community NOI growth would have been 6.2%.
Our weighted average rental rate increase was 3.6% for the portfolio with manufactured housing at 3.2% and annual RV at 5.5%. Same community manufactured housing revenues increased by 5.4% driven by the discussed 3.2% rental rate increase in occupancy gains over the 12 months. Same community annual RV revenues increased by 3.6% and transient RV revenues rose by 5%. On the expense side, while we no longer have team members on furlough, we did have payroll savings due to delayed hiring for seasonal positions. Our rental program continues to perform well.
In the quarter, we had a 9% increase in applications to rent a home from Sun and our rent to home renewal rate was 67% consistent with renewal trends experienced during the 2nd quarter. These renewal rates are 10% better than historical averages. For the quarter, total applications to live in a Sun Communities inclusive of sales rose 12% year over year. Moving to rent collection, manufactured housing and annual RV collections continue to be strong with MH at approximately 97% and RV at approximately 98%. Month to date collections for October are consistent with historical results.
These strong collection figures underscore the fundamental strength and stability of our balanced portfolio of manufactured housing and RV communities. With regard to home sales, in the Q3, we sold 7 10 homes compared to 906 homes last year. We had less pre owned inventory to sell as a result of higher renewal rates and longer resident tenure. New home sales revenue grew 20% And our gross margin expanded 3.5% in the quarter to 18.7%. This was driven by a 29% increase in our average new home price of $153,000 New home sales, many of which are in our ground up developments and expansions are concentrated in Colorado, Florida and South Carolina and have higher than average new home prices and gross sales margins.
Interesting to note, our broker home sales are up 37% in the quarter indicating continued strong demand in our communities, experience heightened demand supporting our thesis about travel preferences during the pandemic. We experienced a consistent build and weekly demand quarter. Record visits to our websites and calls to our reservation centers. Anecdotally, our Instagram following has grown fourfold over the last 4 months. As previously discussed, we saw an acceleration in the recovery of our transient RV business throughout the summer once stay at home restrictions were lifted in our communities.
To demonstrate the velocity of the recovery, recall that Q3 started with the 4th July weekend where our same community transient RV revenues were down approximately 5% on a year over year basis as travel had just started to pick up. Fast forward to Labor Day, Our revenues were up 5.4% on a year over year basis. Transient RV revenues for the month of September ended up being 32% better than our original budget. This strength is carrying into the 4th quarter and and we are anticipating a high single digit revenue increase over last year. We remain optimistic in our demand outlook given the increasing popularity of RV vacationing.
Our experience thus far with the impact of pandemic reinforced our confidence in the durability of our cash flows and the strength of our portfolio and our strategy. I would now like to turn the call over to Karen to discuss our financial results and balance sheet. Karen?
Thank you, John. I will be reviewing our financial results followed by a discussion of our balance sheet, our capital markets activities and our expectations for the Q4. For the quarter ended September 30, 2020, we reported $1.60 per share in core funds from operations as compared to $1.46 last year. During the Q3, we acquired 7 properties for approximately $205,000,000 The acquisitions are comprised of 2 manufactured home communities with approximately 1200 sites and 5 RV Resorts with approximately 1300 sites and just over 100 sites available for expansion. The properties are located in California, Florida, Michigan and Texas.
As previously communicated, on September 29, we announced the acquisition of Safe Harbor Marinas for $2,100,000,000 including the assumption of approximately $800,000,000 of unsecured debt. We intend to run Safe Harbor as a wholly owned subsidiary of Sun, retaining the existing management team and its infrastructure. The acquisition is expected to close on October 30. To support the Safe Harbor investment and maintain a flexible balance sheet, On September 30, we launched an equity offering for 5,600,000 shares. Due to strong demand.
The offering was subsequently upsized to 9,200,000 shares including the Green Shoe, which allowed us to raise approximately $1,300,000,000 As of the end of the third quarter, We had $102,400,000 of unrestricted cash on hand and $3,300,000,000 in debt outstanding with a weighted average interest rate of 3.86 percent and a weighted average maturity of 11.4 years. Our net debt to trailing 12 month recurring EBITDA ratio at September 30 was 5 times. The pandemic and its financial and operational implications continue to be a fluid situation. However, with that said and with the expectation that current operational conditions continue, we are providing a forecast range for 4th quarter core FFO per share. Based on our current estimates, we anticipate core FFO for the 4th quarter to be between $1.08 1.12 $0.02 per share.
When added to our actual results for the 1st three quarters, it implies a core FFO per share range of $5.02 to $5.06 for 2020. This forecast range includes, but is not limited to, the latest revenue expectations for our transient RV portfolio, the estimated 2 month contribution from Safe Harbor and the impact of our equity raises and other financing activities. It does not include any prospective acquisitions or capital markets activities. Thank you for joining us today. This concludes our prepared remarks.
We would like to open the call now for questions. Operator?
A confirmation tone will indicate your line is in the question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will pause for one moment to poll for questions. Our first question will be with Nick Joseph with Citigroup. Please proceed.
Thanks and appreciate you providing 4th quarter guidance. So you'll have the 2 months of the Safe Harbor that will hit the 4th quarter. And I think previously you talked about a 6.7% year 1 cap rate. I'm wondering if you can walk through the seasonality of that, particularly for these winter months, November, December and into the beginning of the year and how that 6, 7
So yes, we are obviously we're highly active in the pursuit of industry leading results. So we realize there are a lot of moving parts to creating, FFO estimates between COVID impact pluses and minuses, contributions from acquisitions, share count changes from equity raises, seasonality, just to name a few of the items going into that high speed blender. For the Safe Harbor portfolio. There is seasonality in it. So based on our underwritten EBITDA, The Q4 typically contributes about 16% to 18% of full year EBITDA rather than a pro rata 25%.
November December for the month that will be in our portfolio in 2020, Those months contribute 7% to 8% of EBITDA. For full year, Since Safe Harbor is just in the process of creating their 2021 budget as are we, I'll provide some quarterly seasonality based on our underwriting. So their seasonality is similar to our MH and RV portfolio, but it's even more heavily weighted to Q3 and Q2. So, seasonality is generally in Q1, 15% to 17% of EBITDA Q2, 30% to 32% Q3, 35% to 37% and Q4 is 16% to 18%. And so we're busy putting together 2021 information and we look forward to providing some additional information on that seasonality when we provide our 2021 guidance.
Thank you. That's very helpful. And then just on the transient RV, given the travel restrictions with Canada, How big of a risk do you see that? And what's the ability right now do you think to backfill with any sort of domestic demand?
Hey, Nick, it's John. Good morning. Well, I think the first obvious thing is they all want to come down and get out of the cold. Okay? There's no question.
And I think that a lot of people are focused on whether or not the border will open, but I think it's important to kind of break it out into kind of 2 parts. 1st really this is a transient business and looking back on sort of our seasonality on that, Canadian guests only represent about 5% of our yearly transient budget. And so when you look at like Q4, that represents less than 1% of that. But with snowbird season coming, as you might expect, we've been working on executing on plans and campaigns for months, Okay. To help secure any potential softness that may come in demand, inclusive of having elevated campaign segmentation targeted to more U.
S. Guests. At this point in time, I can tell you I'm very comfortable with the proactiveness the team has had and the strategy we've employed over the last 4 months to offset any potential Canadian Business declined domestically. With respect to annuals, which is the other component of that, I think really, I mean their homes are in our communities and they're like I said they want to come down to their winter homes. We've spoken with many of them.
They still plan to come down. And in fact, some might come sooner to enjoy the winter warmth. And I think that I think it's important to note also that our annual guests are all under lease contracts with our homes located in our communities and we have developed and implemented a number of strategies to help support those folks that may not be able to come down At least as early as they want. We could see some shifts where maybe some of those annuals might come down. Maybe they can't come down in December, maybe they can't come down to January, but maybe they come down to February, March, April and stay a little longer as well.
So all in all, I feel very confident with what we're doing from a marketing and strategic perspective to recapture any potential offset we might have.
Thank you. Yes.
Our next question is from John Kim with BMO Capital Markets. Please proceed.
Thank you. Good morning. You had
a very strong growth in 3rd quarter. Your 4th quarter Guidance is basically flat year over year. And John, you mentioned you have high single digit growth expectations in RVs for the 4th quarter. So I'm wondering why the 4th quarter guidance was relatively modest?
I think it's primarily due to the expectations of the Safe Harbor contribution as I mentioned a little bit earlier. When I look at the rest of the portfolio exempting Safe Harbor, between I think the partial year contribution from our acquisitions along with the expected transient RV and vacation rental and ancillary contributions that will be very strong along with higher even broker commissions. Those items are basically offsetting any sort of negative COVID impact that we might have to manufactured housing rents based on delayed or lowered rent increases, annual RV impacts or even our home sales impacts.
Okay. I mean, 3rd quarter was up almost 10% year over year, so and that's your core business. I would assume a lot of that would carry over into the Q4. So is it really the ancillary revenue that's going to come down? Or I can't imagine Safe Harbor alone is going That growth for the remainder of the year.
There's not an anticipation that ancillary will be a negative to the Q4.
Okay. I think Karen
covered in her earlier remarks There are a lot of pieces going into Q4 and beyond post Safe Harbor. So We do look forward to closing the transaction at the end of the month and being able to share guidance, but sharing the seasonality is I hope will be very helpful as you build your models. But the Sensitivity of 4th quarter is absolutely lowest in the RV transient as well. So it Represents about 15%. So, it's not going to be as strong as it was in 3rd quarter.
And just overall, Q4 is lower for the core portfolio is based on our own internal seasonality and the way transient, the transient business impacts that.
Back in September, you gave the bookings indication of 4 bookings up 20% in transient RV. I was wondering if you had that same figure for the next couple of months?
Yes. I mean October is solidly up year over year. And like we mentioned in the prepared remarks, I mean, we do expect the high single digit growth for Q4. I mean, that's about the best outlook I can give you for the Q4 at this point in time, John. But I would say that looking out beyond that, Again, that's something that we really need to include when we release guidance here in the 4th quarter.
Okay. I was wondering if you could quantify your Canadian customers as your percentage of RV revenue either for the year or particularly the Q4 and Q1 typically?
Yes. Annual represents about Canadians represent about 7.6% of annual revenue and transient is 5.1 from Canada.
Got it. Okay. Yes. Thank you. Yes.
Our next question is from Joshua Denali with Bank of America. Please proceed.
Yes. Hey, guys. Curious on What you expect to do maybe on a forward basis as far as Marina acquisitions? I think it Looks like Safe Harbor has done about 10 marine acquisitions a year over the last 2 years. Just curious kind of on what your early thoughts are there?
I think from a capital allocation perspective on the Marina side, I think initial expectations are in the $200,000,000 to $300,000,000 range. And just looking forward for the company overall, I think We're going to continue to deploy capital in the MH and RV space, although it's getting tougher in our long term relationships, our tax advantageous structures, and our trusted name recognition really continues to bear fruit for acquisition opportunities, evidenced by over $300,000,000 in acquisitions so far this year. And we have a very robust pipeline and outside of the large portfolio transactions. We've been able to typically deploy between $250,000,000 and $300,000,000 in acquisitions per year. And besides that, we'll continue to deploy long term growth capital on expansions and developments.
Thanks, Karen. And maybe one follow-up. When you guys are underwriting or maybe when you're thinking about your capital budget for Varenas, What kind of CapEx load are you underwriting to? Is it like 5% of NOI or Just throwing out a number there and just seeing how you guys think about it and how might that compare to MH or RV?
Yes, it's very, very similar. I think that when we sat down and did our underwriting and as Baxter shared on some of our Early calls when we announced the deal. Interestingly enough when you divide their entire CapEx on a per slip basis, It was approximately $2.50 per site. Karen is correcting me.
No, it
was 250.
It's $250 and it's interesting that ours is between $250 $300 a site,
yes, dollars
300 a site. So pretty close to what we experienced.
So very similar to our industry and I think it just again underpins how much similarity there are. Certainly, there are differences between the marinas, the customers, the business, but the core fundamentals As we've talked about supply demand all the things that MH and RV are known for are similar and then working through the CapEx that was a Pleasant surprise for us to see it very similar to our existing core business.
Great. Thanks, Gary. Thanks, Karen.
Our next question is from John Pawlowski with Green Street Advisors. Please proceed.
Great. Good morning. Thanks for the time.
John, as you've gone and reinstated the rental Increases on the MH side. Could you give us a sense for kind of the average rate you're sending out today and how that may differ around that average by markets. What's the low and what's the high looking like?
Yes. I think we might have shared this before, but we had temporarily halted our rent increases in the spring. I think you know. And in response to the unprecedented impact of COVID, when we reinstated those increases, we elected to do it at a lower rate To both aid in supporting our loyal residents and to better secure occupancy and long term success of the business for all Sun stakeholders. So I think right now we're right about we're averaging 3.2%.
And what would we expect? We would expect that to finish out 2020 at about 3%, John.
Okay. Within the portfolio, what's kind of the what's the weakest market? Are rental rates falling anywhere?
No, I mean there's nothing that really stands out John. No, I mean we've got because of the demand that we've got throughout the country, We've applied it on a pretty consistent basis throughout the portfolio.
Okay. Thanks. And last one for me, I guess for anybody, trying to wrap my head around the environmental risk for some of the marinas, maybe namely the lake focused marinas and less about the economy, but more floods, droughts and the like. Historically, have there been assets you've acquired in recent years where just the boating season is largely gone because of environmental factors and revenue plummets. Just how do you think through the volatility associated with the environmental impacts on some of the marinas?
Yes, it's Gary, John. And it's a good question and a question that we really spent time on and diligence on during our underwriting of Both Safe Harbor and the other marine opportunities that we've looked at over the last 4 years or so. And I think that one of the things that attracted us to Safe Harbor was their outlook On what they are inclined to want to bring into their platform and what they are inclined not to want to or exclude from their acquisition horizons. And we got comfortable with the fact that the current portfolio and the acquisition objectives Take into account as best they can, both historical indications of what have happened, Mostly title wise as well as droughts. And they've focused on the big water opportunities and the coastal opportunities.
Certainly, there is future climate risk throughout the RHNA business and all assets. However, you look at those risks with regard to hurricanes, tornadoes, storms, floods, title issues. But the existing portfolio we feel has really been scrutinized and selected well. So to the best of our underwriting ability, we think it's the best of best Marinas 2 own insulated as much as possible from the environmental issues.
Okay. In recent years, how many assets, if any, have lost a considerable amount of just The demand in a year due to environmental issue, haven't there been any?
There are none that I'm aware of. That being said, There have been adjustments made to docks and things like that. Fixed docks are now floating docks And that capital has been invested in areas where they've seen a benefit to putting the floating docks in. And as an industry comment, I think that's the way of the future if you will where the fixed moorings become less and less frequent and the floating moorings Which interestingly enough much of it is done with floating concrete, a lot of air is injected into that concrete. And I think that's the forward direction of most marinas.
Okay. Thanks for the time.
Our next question is from Samir Khanal with Evercore ISI. Please proceed.
Yes. Good morning, everyone. Hey, Gary. Just curious if you can give some color around the ancillary revenue side. It was very strong in the quarter.
I mean, is there are you getting I mean, what's sort of boosting that number? Is it sort of the younger age cohort? And kind of how should we think about that sort of over the next 12 months, Considering that the safe harbor as well, so I think it's about a 10% component to ancillary revenue as well. Yes.
Sameer, this is John. Hey, I think it's primarily as a result of the reservation activity that we've had. We Just simply had more people coming to our resorts, which drives that ancillary business at the same time.
Inclusive of vacation rental. With cottage and vacation rental. Yes.
Okay. And you think it's sustainable as we kind of think about sort of modeling 2021 and Numbers at this point, the kind of the growth you're seeing?
Yes.
Okay. That's it for me. Thanks so much.
Thank you.
This concludes question and answer session. I would like to turn the conference back over to management for closing remarks.
Well, we thank you again for joining us today and We believe Sun has demonstrated its durability and resiliency during these challenging times. We look forward to sharing additional information with you and guidance on our Q4 call. Thank you. Be safe.
Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a