Morning, ladies and gentlemen, and thank you for standing by. Welcome to The Sun Communities fourth quarter and year-end 2022 earnings conference call. At this time, management would like me to inform you that certain statements made during this call, which are not historical facts, may be deemed forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that these expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are 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 advise or update any forward-looking statements to reflect events or circumstances after the date of this release.
Having said that, I would like to introduce management with us today, Gary Shiffman, Chairman, President, and Chief Executive Officer, John McLaren, Strategic Advisor, and Fernando Castro-Caratini, Chief Financial Officer. After their remarks, there will be an opportunity to ask questions. For those who would like to participate in the question-and-answer session, management asks that you limit yourself to two questions so everyone who would like to participate has ample opportunity. As a reminder, this call is being recorded. I'll now turn the call over to Gary Shiffman, Chairman, President, and Chief Executive Officer. Mr. Shiffman, you may begin.
Good morning. Thank you for joining us as we discuss fourth quarter and full-year results for 2022 and our guidance for 2023. This year marks Sun's 30th year as a public company. Over the past three decades, we have established a track record of strategically expanding and diversifying our portfolio of recession-resistant, best-in-class properties. Our stakeholders have benefited from the compelling supply and demand dynamics that underpin manufactured housing, RV communities, and marinas. A strategic approach has delivered an attractive balance of reliable organic growth and strong FFO per share increases. We have increased rents throughout economic cycles. Our strong results for 2022 and outlook for same-property NOI growth in 2023 demonstrates the benefits of operating in segments where supply is perpetually constrained and demand is resilient.
In 2022, core FFO per share grew 12.9%, driven by strong demand for our offerings as well as our accretive investment activity. Demand for our manufactured housing communities and RV locations is evident in our consistently high occupancy levels, gains in revenue-producing sites, and solid same-property NOI growth. At year-end, our combined MH and RV occupancy was nearly 97%, reflecting approximately 96% occupancy within our manufactured housing portfolio. During the year, we achieved a record of over 2,900 revenue-producing site gains, driven by more than 2,250 conversions of transient RV sites to annual leases, which topped last year's record conversions of nearly 1,700 sites and represented a 36% year-over-year increase.
In marinas, our 2022 same property results continue to demonstrate supply-demand tailwinds with a 12/1 ratio of registered boats in the U.S. to the existing supply of leasable wet slips and dry storage spaces. This creates a very sticky customer base and gives us the ability to grow rents. The resilience of our platform can be seen in our full-year total manufactured housing, RV, and marina same-property NOI results, which grew by 5.8% over 2021. With regard to external growth, since acquiring Park Holidays in April 2022, we have focused on integration as well as being very selective in our approach to acquisitions. The U.K. market for holiday parks remains highly fragmented. As we have done in the U.S. over the years, we have used our Park Holidays footprint to opportunistically scale our presence in the U.K.
Subsequent to the Park Holidays transaction, we acquired 14 best-in-class holiday parks in the UK. These investments have accretive going-in cap rates, and we believe they will deliver significant ongoing growth and yield strong returns. In light of current market conditions, we have shown discipline with regard to our approach to capital allocation and will continue to do so going forward. As we sharpen our pencil and assess capital and funding alternatives, growing our revenue-producing sites through expansions and ground-up developments continues to offer accretive returns. During 2022, we delivered 2,000 new expansion and greenfield development sites in North America, which was at the high end of our guidance. These new sites will begin contributing revenue in 2023 and provide a new base for growth in the coming years.
We have inventory of over 16,000 fully entitled sites for development and delivery in future years, representing embedded continued growth. Additionally, we regularly evaluate our portfolio for capital recycling opportunities to enhance our long-term growth profile. With respect to ESG, we continually identify ways that we can enhance our corporate citizenship. Sun recently set a target to achieve carbon neutrality by 2035 and net zero emissions by 2045. As previously announced, we added Jeff Blau, CEO of Related Companies, to our board of directors. Jeff's experience and leadership will be a tremendous addition to our team. Lastly, our board has raised our 2023 distribution to $3.72 per share, a 5.7% increase from the prior year.
We're very pleased with our 2022 achievements. I'd like to thank all of our Sun team members who contributed extraordinary efforts to our collective success. As we look ahead to 2023, we once again expect to deliver a year of solid same-property growth. As our 30-year track record has demonstrated, we have a business model that delivers results throughout economic cycles, supported by compelling supply-demand fundamentals. We will remain disciplined in our investment activity, and our unparalleled expansion and development platform will continue to provide us with a differentiated growth opportunity. I will now turn the call over to John and Fernando to speak to our results and guidance in detail. John?
Thank you, Gary. The stability of our operating platform has shown through in our results for the quarter and the year. MH and RV same-property NOI increased by 4.4% in the quarter. 4.9% growth in revenues reflected a 5% increase in weighted average monthly rent and a 180 basis point occupancy gain. 5.8% increase in expenses was primarily related to turnover costs in our rental program, as one consequence of the pandemic was lengthened average stay and therefore higher related refurbishment costs. Having turned over these units, we are now able to realize higher rents on incoming leases. For the full year, same-property MH and RV NOI grew 5.4%, driven by a 5.7% increase in revenue and a 6.2% increase in expenses.
The strength of our portfolio is a direct result of our irreplaceable locations, the hard work of our team members, and our continued reinvestment in our communities. At our RV communities, we set another annual record for site conversions to annual leases. Full year transient same-property RV revenues grew by 3.1%, reflecting an average rate of growth of 14.1% despite an almost 10% reduction in available site nights from the strategic conversion of transient sites to annual leases. Occupancy in our same-property MH and RV portfolio remained strong, increasing 180 basis points during 2022 to end the year at 98.6%. Park Holidays portfolio is performing above our original underwriting, and the management team has done an excellent job integrating into Sun. The fourth quarter continued to show strength.
For the 31 properties Park Holidays has owned since at least January 2021, home sales rose 17%. Full year weighted average rental rates increased 5.4%, driving a 24% increase in home revenues. Marinas exceeded our expectations with a 10.4% increase in same-marina NOI during the quarter and a 7.7% increase for the full year. The outperformance is due to higher demand for wet slip and dry storage spaces. Like MH and RV, marinas continue to generate reliable growth due to the industry's favorable supply and demand dynamics. In terms of external growth, during 2022 and through the date of this call, Sun acquired 70 operating properties for $2.2 billion and spent approximately $62 million for developable land parcels. The acquired land can support over 2,500 future MH and RV sites.
Development is in Sun's DNA. For the full year 2022, Sun delivered approximately 1,160 expansion sites at 11 existing communities and over 840 sites at six development communities in the U.S. for a total of 2,000 future revenue-producing sites. Looking ahead, we have a solid development expansion pipeline that can deliver accretive growth for years to come, as well as the proven skill set and platform to sustain our growth. Going forward, we'll focus on delivering two to three new MH developments each year as well as continued expansions at our existing properties.
With regard to home sales, our average new home selling price in the U.S. was $196,000 for the quarter, reflecting the high demand at and strategic locations at our properties. Within our MH and RV portfolio, we gained over 2,900 revenue-producing sites for the year. Total portfolio occupancy of 96.8% includes newly delivered development and expansion sites. Included in our revenue-producing site gains were over 2,250 transient to RV annual lease conversions this year, a new record for Sun. We receive an approximate 50% uplift in revenue the first full year after conversion. Value proposition of an RV vacation one to three hours from home opens Sun to new customers who discover or rediscover the joy of a long-term RV experience.
With regard to the three properties most directly affected by Hurricane Ian, I would note that the cleanup is complete, and we have started the rebuilding process. We relocated as many people as possible to other properties, including our team members in the area. We have recently received our first permit to place new homes, and our new home sales program is largely set in anticipation of reopening sites in the second half of the year. Finally, I wanna express my gratitude to the entire Sun team for the privilege to serve as our president for the past eight years and as chief operating officer since 2008. We are an unparalleled team that has assembled a best-in-class portfolio and operating platform that has delivered impressive results over many years and continues to be positioned for future growth.
As I assume my new responsibilities focusing on our MH development efforts, I look forward to supporting Bruce and the entire team. I will now turn it over to Fernando to discuss our financial results in more detail. Fernando?
Thank you, John. For the year, Sun reported core FFO per diluted share of $7.35, a 12.9% increase from 2021. For the fourth quarter, we reported core FFO per diluted share of $1.33, a 1.5% increase from the prior year. Similar to last quarter, this quarter's outperformance was driven by total marina real property NOI, interest income, and U.K. tax favorability. As of December 31st, Sun had $7.2 billion of debt outstanding that carried a weighted average interest rate of 3.8% with a weighted average maturity of 7.4 years. On a run rate trailing 12-month basis, our net debt to EBITDA ratio was 5.8 times.
In terms of capital markets activity, during and subsequent to quarter end, we completed a $311 million add-on to an existing secured financing with a weighted average interest rate of 4.6%. Proceeds were used to repay amounts on our revolving credit facility. In January of this year, we issued $400 million of 10-year senior unsecured notes, which benefited from $250 million of treasury locks and used those proceeds to further reduce our line of credit balance. Since we achieved an investment-grade rating in 2021, we have now issued $2.2 billion of unsecured fixed-rate notes across four tranches. Pro forma for this activity, our floating rate debt was reduced to 16% of total debt, which has now decreased from 26% as of December 31, 2020. Turning to guidance for 2023.
As summarized in yesterday's press release, we are establishing full year guidance for core FFO per share in the range of $7.22-$7.42. We are also establishing guidance for first quarter 2023 core FFO per share in the range of $1.15-$1.20. Note that we expect first quarter results to reflect the seasonality of UK operations as outlined in our supplemental, which we acquired in April 2022. In 2023, we expect total same-property NOI across manufactured housing, RV, and marinas to increase between 4.9% and 5.9%.
At the midpoint of the ranges summarized in our press release, this total same-property NOI growth assumes 4.6% growth from manufactured housing, 5.8% growth from RV, and a 7% increase from marinas. Regarding average rental rate increases, we reiterate the guidance ranges provided back in October. At the midpoint, these rental increases are 6.3% for manufactured housing, 7.8% for RV, and 7.5% for marinas. On a total portfolio basis, we expect total revenues from real property to increase between 8.1% and 8.7% in 2023 and expenses to increase between 13.5% and 13.9%. Included in this expected expense growth is an approximately $18 million increase in property-related insurance costs.
We expect total real property NOI to increase between 4.5% and 5.7% during 2023 due to strong resident, guest, and member demand at our properties. Our U.K. operations are included in our guidance for total NOI. We are also providing certain guidance data points to help the investment community track Park Holidays performance. Our guidance assumes we increase revenue-producing sites by 2,800 to 3,100 sites in 2023, and we expect about 60% of these revenue-producing sites to come from RV transient site conversions to annual leases. We anticipate investing roughly $200 million in our ground up development and expansion activity. Throughout 2022, we continued to focus on corporate expense rationalization, including process efficiencies and reducing our office footprint.
Despite the high inflation environment for 2023, we expect G&A expense to run between $256 million and $262 million, which equates to minimal growth over 2022 at the midpoint. Importantly, we expect our G&A as a percentage of revenue to decline this year. The final note, increasing interest rates were a headwind on FFO growth in the back half of 2022 and continue to be a headwind in our 2023 guidance. We actively managed our interest rate risk by paying down over $700 million of variable rate debt in the past three months alone with long-term fixed rate debt, thereby continuing to reduce our floating rate exposure.
We believe our guidance reflects the current interest rate outlook at the time of this call and is informed by forward interest rate curves as of the time of providing our guidance. Our platform of recession-resistant best-in-class properties is positioned to continue generating strong cash flow growth for the benefit of our stakeholders. As a reminder, our guidance includes acquisitions, dispositions and capital markets activity through February 22nd, 2023, and the effect of a property disposition under contract expected to close in March 2023. It does not include the impact of prospective acquisitions, dispositions or capital markets activities which may be included in research analyst estimates. This concludes our prepared remarks. We will now open the call for questions. Operator.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on a telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from the line of Michael Goldsmith with UBS. Please go ahead.
Good morning. Thanks a lot for taking my question. My first question is on the insurance. You called out $18 million increase in property related insurance. When did your insurance renewal take place? How much is the insurance as a percentage of operating percentage? Like, just to try to frame it out, like, you know, if insurance is 15%-20% of expenses and it was 20% higher than anticipated, that'd be a 300-400 basis point headwind. X that drag, is the expense growth 6%-7% and matching kind of like the top line growth? Thanks.
Hi, Michael. Our insurance renewal occurred between November of last year and January of this year. Legal taxes and insurance of our same property portfolio are expected to represent about 10% this year. That is an increase of about 300 basis points over 2022. Your math as far as the headwind from an expense growth perspective tracks.
Got it. And then, thank you for that. My second question is just on the flow through of the NOI growth. Your NOI is expected to grow 4.5%-5.7%, and your same property NOI is growing 4.9%-5.9%, yet your guidance is calling for earnings to be down in 2023. Can you walk through some of the pressure or the factors that are below the line that's not letting you see the same property NOI growth flow through to the FFO?
Sure. The primary factor, as mentioned on the call, is going to be our interest expense, projected interest expense for 2023. We are actively and programmatically working on a number of strategies to continue to reduce our exposure to variable rate debt. Certainly, as we look out at expectations from a market perspective, there's potential for 2023 to set a baseline as far as interest expense, and then that either becomes neutral or a tailwind heading into future years.
Thank you very much. Good luck this year.
Thank you, Michael.
Thank you. Our next question is from the line of Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Hey, guys. I feel like throughout the fall, the messaging on the rate growth you were sending out was gonna line up with expense growth. Correct me if I'm wrong on-- That's kind of the message I got.
Sure. In our conversations over the course of the fall, Certainly, expectations for the rest of our expense line items do fall in line with that at the time, and mentioned during our NAREIT meetings with investors. We had yet to fully set our insurance program for the year, so that was the remaining item from that perspective, and we did realize a larger than expected increase for 2023.
Okay. I guess my real question is like, as I think about like a go-forward basis, like is that. Is this something you'll be able to recover in the future? Like, obviously, like insurance jumped up a lot this year, outside your control a little bit. Like, is there a way to kind of recover it kind of over the long term? Is that how you guys are thinking about it, or has something kind of shifted in the, in the model a bit?
Josh, it's Gary. We feel it's definitely recoverable. One of the key factors of our business is that we are able to pass on expenses in the form of rental increases. As we've talked about before, our business is really about reliable growth because of the strong demand and short supply. Our expectation is that we can pass through the expenses. With regard to insurance, you know, as we said, we've been public for 30 years and private before that. I would suggest that we're really seeing maybe a little bit earlier than others from a renewal standpoint, what everybody else has been or will be seeing going forward. It reflects the environment for insurance at this point in time. As we know, that can go up and down.
Our expectation is that we will pass through these costs through rental increases as we go forward because they're part of our operating business. That being said, we can't underscore the fact that with this increased cost, as Fernando mentioned, of $18 million, we're still seeing that same property growth of 5.4% at the midpoint. We also have the ability to continue negotiating our insurance through the year, and we will continue to do so. In the effort of being totally transparent of where our costs have gone to, that's what is included in our guidance.
Appreciate the color, Gary. One last one from me. I know at the marinas at Safe Harbor, you guys are there's a membership program where now you can get, if you're a annual customer, you can get gas at at cost. Is that the main reason the service, retail, dining, and entertainment NOI is declining year-over-year? How are you guys thinking about the kind of payback as you, as you kind of increase rate on the annual side? Like, is it a two-year kind of payback, three-year? How, how are you guys thinking about that?
I don't have the numbers right in front of me, and we can get back to you, but or perhaps Fernando does. You're absolutely correct. As everyone might recall strategically, we are always looking to convert lower margin business over to the stickier side of rent. While these aren't loss leaders, we are passing off gas, fuel at our cost to attract members. I think it's reflected by the fact that we now have a waiting list in 80% of our marinas. I think it's growing from there right now that we've noticed rental increases. What were they on the marina side, Fernando?
At the midpoint, we were expecting 7.5%, for this year. The, the wait list, we now have a wait list at 91%.
Okay.
-of, of our marinas. Josh, yes, the bulk of the SRD&E NOI year-over-year is coming from that active program on the fuel side, and that SRD&E is really there in the service, as Gary mentioned, right? Of, of having a member with us for an 8+ year period. We'll continue, we'll continue working through those strategies.
Strategically over time, we expect to more than capture that difference, certainly on a multiple basis for the stickiness of the rental revenue versus the lower margin business. That being said, we firmly feel that these SRD&E activities, especially the service, is very, very important to the occupancy and to the stickiness and demand for the Safe Harbor marinas as compared to marinas that don't offer the service.
Thank you.
Our next question is from the line of Steve Sakwa with Evercore ISI. Please go ahead.
Yeah, thanks. Good morning. I guess maybe for Gary, just on the home sales in general, whether it's U.S., U.K., are you seeing anything by region, by product type, by price point? Just curious how kinda the, I guess, economic uncertainties are kinda weighing on sales and whether you're, you know, seeing any bumps in the road as you kinda look into 2023.
Steve, I can share with you as of this point, and I'll let John go more into specific sales. New home sales are up. Average price was at.
196.
$196,000. I think it's one of the high points that we've seen. I think it totally reflects quality, location, and value of the assets in our portfolio. I think it clearly reflects the capital reinvestment that we've shared with our stakeholders before, that if we don't reinvest in our communities, we do strip the equity right out from underneath the homeowners. We have a stringent policy there. On the used, pre-owned home side of things, ironically, we've seen demand that's so strong that we've been able to buy less inventory over a period of the last 12 months or so.
Our new home or pre-owned home sales being down a little bit, it's just reflective of the demand, people staying in their homes longer, and the fact that they're direct selling their homes, so there's no interruption in rent to us, but we're not able to buy the inventory to flip into the used homes as we have been. That tracks over a 30-year period of time, that will go up and down a little bit, so we don't see that as anything negative whatsoever. On the U.K. side, we're seeing enormous strength on the higher end of home buying, the more expensive homes increasing. I turn to John, who's overseeing that, to talk a little bit more about the particulars of the U.K. home sales.
I mean, with respect to UK home sales, I mean, our team over there sold over 2,900 houses in 2022, which is a 23% increase year-over-year. Like Gary said, the demand continues to be very strong. Much so that I think we shared before that we've built out almost 700 expansion sites over the course finishing in 2022 that all sold out in 2022 and look to expand another 500 going into the season this year, which will be filled up by the end of 2023. Really strong demand. I think a lot of that has to do with the fact that, you know, there's higher costs for basic items, which is causing more people to holiday domestically in the UK rather than go to Europe.
We're fortunate that the higher income earners in the UK, which represent holiday homeowners in our portfolio, are benefiting from that, meaning that savings, they're bearing higher interest on their savings, their pensions are tracking with the pace of inflation. As we shared with the original information we provided on the deal, you know, Brexit still makes it difficult to travel in the continent. It's gotten more expensive. The pound is still devalued in comparison to this time last year. It's, you know, most people travel within two hours to get to the properties. You know. The other thing that I would add is looking out into 2023 from a strength perspective, 90% of our owners have already paid their 2023 pitch fees in full or committed on direct debit.
Things are rock solid.
That 90% is ahead of the same time last year and the previous years.
Great. Thanks for that answer. I guess just one for Fernando. On the balance sheet, now, obviously, you know, floating rate debts call a lot of people, maybe not by surprise, but certainly been more powerful and had a bigger negative impact. I guess in hindsight, you know, have you thought about the balance sheet and the way it wants to get constructed and maybe how you think about it philosophically on a go-forward basis in terms of fixed versus floating?
Sure, Steve. I think we've been pretty programmatic since achieving our investment-grade rating in the summer of 2021. We've done over $2.2 billion of IG unsecured bonds with that public market. We've also taken advantage of the fact that our assets that are still under secured financing or still have mortgages, because of their strong performance, we're able to borrow up on existing financings and did a $311 million one that closed between December and January over the course of the last couple of months. Today, we stand at about 16% floating rate debt. As we look strategically at the portfolio, Gary mentioned in his remarks, right?
We can, we look at our investment program and ground-up development and expansion. We will be able to practically self-fund our investment activity in 2023. Are selectively looking at opportunities on the capital recycling front. A couple of assets here and there that over time can also reduce variable rate debt. Would remind the market we have very manageable maturities, no looming towers over the course of the next couple of years. We have about $117 million-$118 million coming due in the second half of the year, and are being programmatic about locking in that cost today as we've done over the course of the last couple of years.
certainly, looking to actively manage our exposure to floating rate debt.
Great. Thanks. That's it for me.
Thanks, Steve.
Thank you. Our next question is from the line of John Kim with BMO Capital Markets. Please go ahead.
Thank you. I wanted to follow Steve's question, and he alluded to it. The rising rates is not necessarily a surprise, especially in the last few months. I'm guessing, can you just walk us through why you allowed floating rate debt to increase during the fourth quarter and then refinance it post-quarter?
John, these financings, as far as on the secured side, take us some time to work through. It's actually one that we started on in July of the second quarter. As far as debt increasing into the fourth quarter of last year, some of that, right, we had a significant amount of deliveries of ground up and expansion development sites. That is, you know, that explains some of the increase on the debt side, as well as purchasing the inventory that will ultimately start to produce income over the course of 2023. Those would be the primary reasons from that perspective.
About 20%-25% of it is the FX on the debt amount. From the end of September to the end of December, the GBP did appreciate significantly. That accounts for about an additional GBP 90 million of that quarter-to-quarter increase.
To further reduce the floating rate exposure, are you looking to use interest rate swaps or utilize fixed rate debt?
We've been quite programmatic from that perspective to support our issuance in the unsecured bond market. We did since December 2021, about 850 of treasury locks and swaps. We also did swap GBP 400 million of our pound sterling term loan in the UK. Yes, that does factor into our toolbox.
Okay. A follow-up question on insurance. How much is your increase in insurance due to your exposure to Florida? If you had, let's say, a different geographic mix, would your insurance costs be more moderate this year?
Yeah. It's a, it's a great question, and through the scale and size, John, I think we're able to get best in class pricing, so to speak. It is a question that we certainly asked. I think that majority of what we heard from the participants in the syndicate in our insurance underwriting have a graph that talks about flooding, hurricanes, freezing costs, and hurricane and storm damage. They look at the claims that they've paid out versus the premiums they've taken in. I think this is where, when I referred to the fact we're seeing the reality of what's out there overall, we're not going to reflect that different than our competitors in other asset classes.
When we get specifically to Florida, getting coverage was more challenging and more difficult in Florida. We don't have it broken down individually to Florida. We negotiate as a package. I would just point to the overall increase in insurance. The fact that we're in Florida, Texas, and California is by design. There's over 100 million people there, and we focus our geographic footprint and target the right markets to operate in. The demand for affordable housing has never been stronger in those markets. It speaks to the high occupancies, the ability to push through inflationary rental increases. We will closely evaluate and continue to evaluate our exposure that is impacted by insurance as we go forward.
I would just, you know, emphasize the point that Gary made, in his answer, which is that this has a lot more to do with what events are taking place across the world, okay? This is less of a.
Sun issue, an asset class issue, or anything like that. I mean, you look at everything, whether it's earthquakes in Turkey and so forth, that's impacting, you know, the cost of insurance for everybody. Really I think that, you know, sort of everybody is, for lack of better words, the beneficiary of those events happening in the form of higher costs.
I'm just wondering if that changes your view at all on where you allocate capital going forward, whether it's UK, Midwest, or some other markets where it may alleviate, you know, some of these factors.
I think that it absolutely does have a bearing on how we think about things and how we look at things. You bring it up, and we happen to be talking about it not that long ago. The fact of the matter is there's 22 million people in Florida, 320,000, I think, we talked about moved in there last year. Strategically, we do have to think about the cost return proposition in that state as we do everywhere. I would suggest that strategically, we're looking at it very carefully.
Appreciate it. Thank you.
Thank you. Our next question is from the line of Keegan Carl with Wolfe Research. Please go ahead.
Hey, guys. Maybe first on same-store revenue expectations for 23. They definitely came in looking pretty strong. Just a few questions. You know, first, how much pushback do you guys get on rate increases across your segments giving the elevated increases? Second, specifically on marinas, how much longer do you think you can push an elevated level? I think the past channel checks we've done, there's concern for a while that, you know, outsized price power is eventually gonna deteriorate because it's gonna break boat owners. Curious for your thoughts there.
I'll address the marine part, and you can talk about the rest of the portfolio, John. I think when we talk about supply-demand, we talk about over 11 million vessels registered for 8,900,000 wet and dry slips. As we spoke earlier, we're intentionally shifting a value proposition that will support continued rental increases by offering memberships, the other lower margin attributes such as fuel, such as discounted transient stays when there's open sites or slips available and other membership opportunities. With that kind of a supply demand out of balance, we're very comfortable and expecting to continue growth similar to what we've been experiencing. We don't currently see those type of headwinds that you're suggesting in the marina business.
I'll let John McLaren talk really about a 40-year history in manufactured housing.
Yeah. I mean, Keegan Carl, it's really, it's a balanced conversation, which is to say, obviously, looking at what expense growth is and applying to passing that on to our residents. We view rent increases like a marathon versus a sprint. You know, as we've shared before, you know, I think folks have heard me say it 100 times is that the most expensive site we have in our portfolio is a vacant one. I think our strategy has really stood the test of time. For, you know, 25 plus years, we've delivered positive revenue and NOI growth. Every year when others have seen ups and downs, we continue to deliver long-term cash flow stability. We maintain a solid relationship with our resident base, which is also our sales force.
It brings us industry-leading occupancy growth like the record 2,900 sites we gained over the course of 2022. At 196,000, commanding average home prices that exceed virtually all competitors in our asset class, which I think illustrates the unmatched quality and the value our communities represent. Really, in summary, our strategy is well-balanced, we believe, across all stakeholders, including our residents, that live in well-maintained communities and create that value in their homes. It's something that we, you know, watch and talk about very closely as we think about what, you know, increases and how we can push further on both MH and RV.
The only thing I add, and we've covered in our posted deck is the delta difference between alternatives, whether it being single-family residential, whether it be multifamily, where you still do provide 25% more space at 50% of the per square foot cost, offer a lot of advantages of being able to pull right up to the house, bring your groceries on, have your car in a carport or garage, et cetera. Then, while we certainly know there are headwinds on site-built housing, especially due to mortgage rates, the delta difference between a single-family residence and the overall cost of living in one of our manufactured housing communities is such that for many, many Americans, manufactured housing will be the only option available for homeownership.
I think, again, 40-year track record, 30 public, 10 private, indicates that we will be able to continue to get the correct growth based on the value proposition. That's same is true in the RV, affordable vacationing, and certainly in the U.K., as the second vacation home, an alternative to more expensive vacationing in the U.K.
Got it. you know, taking a step back, if we think about your, you know, both your real property excluding transient. On a like for like basis, if we exclude your transient conversion expectations for 23, where would the numbers shake out, both on excluding transient then transient as a whole, right? you're obviously expect to convert a lot of sites, which means the comparative pool for transient is gonna be much lower.
Keegan, I'll give you the comparative for same property. We were expecting about a 90 basis point increase year-over-year in revenue from transient RV. That is on a base of approximately 7.5%-8% fewer site nights. Right? It would on a like for like basis where would be much higher than that 1%. As John mentioned, or maybe I mentioned during in my section of the script, we are expecting another very strong year of conversions from transient sites to annual leases. Of the, you know, 3,100 at the high end, 60% is expected on the RV side. Right?
Once you've converted that site, you have a resident there for on average a five or plus year period of time, that is very likely making improvements to that site and bringing up the value of the community itself. We're very being hyper-focused on continuing the conversion program over to the annual side.
Just on the excluding transient portion too, right? What would the range be if you exclude your expectations? Because there's gonna be a bit of an uplift.
I don't have that broken out here in front of me. That's a very quick follow-up with you after the call.
Okay, great. Thanks, guys.
Thank you. Our next question is from the line of Wes Golladay with Baird. Please go ahead.
Hi, everyone. I just have a question on the service retail and dining guide. Just wanna make sure I'm looking at it correctly. It does look like it's going down a little bit year-over-year. More so a question on how we should think about modeling this line item going forward. I think you mentioned, and maybe in the prepared comments that it was almost like a loss leader. Should this only grow with acquisitions? Then second part, I did see a termination income. Is there anything impacting the guide this year on from the termination of a lease?
Yeah, Wes, it's Gary. I don't want anyone to think of it as a loss leader because it's not a loss leader. We've just elected to shift smaller margin over to higher valuation in the form of sticky rent. We're not losing money or subsidizing anything. When we talk about passing on gas at our cost, it's not just the cost we buy it at the pumper truck, but it's the cost associated with delivering it. It's a big advantage to paying the profits that other boat owners would have to pay elsewhere.
On the lease termination, we did mentioned in my remarks, we did rationalize some space in our main office, and got out of two floors in our offices here in Southfield.
Okay. Got it. You did mention the potentially asset recycling. Do you have a preference from proceeds, whether it is to pay down variable rate debt or to recycle or to buy assets? If you were to pay down debt, could you sell non-core assets and accretively repay down the variable rate debt?
I think everything is under view. We continue to evaluate parts of our portfolio where we think we can redeploy the capital with greater growth, certainly with the headwinds of interest rates today. That is one big focus, Wes. We're not running to shed assets, but we are reviewing them very, very carefully as to growth. As we've shared again, that today, one of the areas that I think differentiates us and gives us the greatest opportunity is the ability to create new ground up developments and expand our manufactured housing portfolio. Because there's a cost associated with the over 16,000 sites that we've already bought and paid for that are not yielding any return, we carry on debt.
By paying down that debt, if that's what we elect to do, we obviously recapture that lost interest rate. That is one area. The second area is certainly funding the development costs so that we can generate the high returns and create value for the stakeholders by increasing our manufactured housing portfolio. Third, of course, is that difficult economies often turn up opportunities, and we are looking at a number of opportunities from all of the different platforms.
There is nothing identified yet or nothing that is meaningful, but I believe in these periods of times, as I said before, as people have to refinance things at a whole new rate in a whole new world, opportunities may become available there that are accretive across our, across our current cost of capital. Paying down variable debt is, you know, probably something that allows us greater opportunity to create growth in the future or if there's something very accretive, we would look at that as well. There's no specific plan, I think just general good stewardship of how we think about reducing that variable debt.
I appreciate it. Thanks a lot.
Okay.
Thank you. Our next question is from the line of Robin Lu with Green Street. Please go ahead.
Hi. Good morning. I wanted to follow up on the previous question on home sale trends in the U.S. and U.K. Home sale prices fell by 15% from last quarter in the U.K., but were flat in the U.S. MH business. I understand the fourth quarter is typically a seasonally slow period in the U.K., but can you maybe talk to the weakness in the U.K. prices? Does the 15% reflect market prices or are you perhaps pushing discounts to get the volume?
I mean, it's not really discounts to push the volume, I think when we, when we walked in, I think part of the investment thesis that we shared in the beginning was the fact that we might send the margin a little bit to gain more sites and gain more ongoing revenue, okay, on those sites. We're basically, we're just executing the plan that we set out to do.
Yes, we'd pre-prefer the stickiness of the rent over the one-time margin on the home sales. You will continue to see an emphasis on that strategy as we go forward.
That doesn't re-reflect market prices, the 15%?
Sorry, Robin, what was the question?
The 15%, just to clarify, the 15% does not reflect market prices for U.K. home sales.
No, I think it reflects our strategic plan with management. It is interesting, as John pointed out, we've seen some higher growth on the higher end of what they refer to as the lodges. That's an area that we're focusing on, and there are also smaller margins on the lodges than there are on the lower base homes.
Yep. Thanks. My second question is, how are the forward bookings trending for holiday rentals in the U.K.?
They're actually trending a little bit ahead of this past year. Of course, as we shared before, is great because, you know, that is the feeder for more holiday home sales and more rent-paying sites.
In the Park Holidays portfolio, correct me if I get this wrong, 40% of all home buyers have stayed in one of the rentals in the property, and 60% of all buyers have stayed in a rental in a park, in a holiday property. It really is the feeder, if you will. Seeing the demand where it is now is very encouraging for us. I will add that we did speak to them the other day. There is a fair amount of competition out there and some discounting that's taking place outside of the Park Holidays in the more inferior properties. I think it's driving people to expect quality at Park Holidays.
With the addition of Park Leisure, which are really the high-end of holiday vacation parks, they have a much lower percent of fleet home ownership in those 14 properties.
Almost none.
Almost none?
Yeah.
Yeah.
Thank you.
Yep, we are seeing positive strength there.
Thank you. Our next question is from the line of Brad Heffern with RBC Capital Markets. Please go ahead.
Good morning, everyone. What are you seeing on the leading edge demand for transient RV? I know it's obviously the low demand time of year, but any color on what happened year to date and the forward bookings would be great?
Sure. I think from the from the booking pace perspective, right now we are trending just a little bit ahead of last year, which is great. We are nearly 95% booked, which is better than we were at this time last year for Q1, so we're running a little bit ahead. If you look out into the whole year, we're a little bit ahead in total booking pace, meaning, bookings that have actually happened at this point in time versus where we were last year.
I think I'd remind everybody we're going back to more of a pre-COVID normal pattern. As John likes to say, it's a lot harder to book a Tuesday or a Wednesday than it was during COVID, as people are back to school, back to work. Our expectation is for more normalized year-over-year transient growth. People are still positive about experiencing that outdoor vacation. There is an increase in the surveys that we've done and our competitors done with expectation of RV stay and camping this coming year. It's more back to normal, I think. Big focus that has really been there for almost 10 years now of the conversions that we talk a lot about. It is easier to forecast when we convert a transient to an annual.
It is more cost-effective in picking up that 50% increase on a per site basis for the first year. About 7.5% conversions last year of our transient to annual. Going forward, you know, we expect good solid growth this coming year, so we're gonna start to see a reduction of transient, which we'll have to rethink about maybe three to five years from now, as we're thinking out of how we have an inventory of transient to convert to annual, and that'll be a nice problem to solve.
Okay, thanks for that. On the UK, it looked like MH occupancy was down almost 300 basis points in the fourth quarter. Is that a demand impact? Is that seasonal, or is there some other explanation?
That's a result of adding sites to the portfolio through expansion.
Okay, got it. Thank you.
Okay.
Thank you. Our next question is from the line of Anthony Powell with Barclays. Please go ahead.
Hi, good afternoon. One quick one from me on acquisitions. Could you maybe go into the 3 deals you did in December, MHRV, Marina, in terms of cap rate sourcing? Would you expect your volume of acquisitions in 2023 to be lower or higher than 2022?
Trying to grab the paperwork here. I think that we don't typically provide guidance towards acquisitions and of course, capital marketplace activities. We've discussed the fact that cost of capital is such that we have sharpened our pencil razor thin. I don't believe we'll lose any opportunities because Sun always has a seat at the table, and just about all of the sellers will reach out to Sun, either directly or through a relationship or a brokerage. We never had a stronger balance sheet. We're very, very focused on bringing value and growth opportunity to our shareholders.
Currently, where we have not seen any major changes to cap rates, in the North America manufactured housing of institutional quality is still in the 4%, or in one case I just heard of below, for those high-quality assets, and very few of them trade RV in the low 4%-5%. Marinas, there's been a lot of competition and sort of in a ±6% range, currently is where we're seeing the institutional quality assets trade at. It's gonna take a real opportunity that has accretiveness and embedded growth where we can justify deploying capital in this environment and deliver the kind of growth our stakeholders are used to.
Short term, I think we'll be looking at selective acquisitions that return properly to our shareholders, but certainly investing in the expansion and developments in our manufactured housing portfolio.
Got it. Maybe a follow-up on that in terms of the development sites. you know, how have construction costs changed on those, and how has kind of the ROI profile of your development sites evolved the past 12 months?
Yeah, it's a great question. We certainly saw the cost of development spike up through the pandemic, short supply chain, et cetera. We have begun to see it decline. We're looking to build our new developments to a high single-digit unlevered IRR upon stabilization. Currently, we've adjusted our returns to low double-digit, in part because of the large rental increases as a reflection of CPI and inflation. As we model out going forward, our going in rents originally modeled them out. We believe we can still acquire, develop, if you will, a lot more beneficially than we can acquire out in the marketplace, as cap rates have not adjusted for manufactured housing.
Of course, because of the fundamentals that investors see in manufactured housing and because Sun being one of the largest consolidator has created a really dearth of acquisition opportunity there in manufactured housing.
Thank you for the color.
Thank you for the color. Yep.
Thank you. As there are no further questions at this time, I would like to turn the floor back over to Gary Shiffman for closing comments.
We always appreciate the opportunity to have these calls and speak about the business. Today marks a very special day, and really wanna take this opportunity to thank John McLaren for his unbelievable stewardship, both as President and Chief Operating Officer since 2008, if I've got that correct. Really look forward to John McLaren's tenure operating our communities, in particular manufactured housing, and being able to transfer that over to the 16,000 site inventory we now have to grow by. In his stewardship and direction over there, we believe we will derive great benefit for our shareholders as we go forward in an area that really differentiates us from all others in our asset class.
On behalf of the entire company from The Communities on up to senior management and executive team, I do wanna extend our appreciation to John. Job well done.
Thank you.
We look forward to our next call and certainly invite anyone to reach out to Fernando and his team with any follow-up questions. Thank you, everybody.
Thank you for your participation in today's conference. This does conclude the company's remarks. You may now disconnect.