Ladies and gentlemen, thank you for standing by, and welcome to the Sun Communities' Third Quarter 2015 Earnings Conference Call, on 27 October, 2015. At this time management would like me 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 the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in its forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in this morning's press release form, 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'd like to introduce management with us today, Gary Shiffman, Chairman and Chief Executive Officer; and Karen Dearing, Chief Financial Officer. Throughout today's recorded presentation all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator instructions] I would now like to turn the conference over to Gary Shiffman. Please go ahead, sir.

Thank you, operator, and good afternoon, and welcome to Sun's third quarter conference call. The third quarter was a busy and productive one for us, as we continued to execute on our long-term strategic growth plan, as well as actively managing and strengthening our balance sheet. Today, we reported funds from operations of 61.5 million or $1.05 per share for the third quarter of 2015, compared to 42.1 million or $0.97 per share in the third quarter of '14. For the nine months of 2015, funds from operations were 158.5 million or $2.83 per share, compared to 113.2 million or $2.72 per share. These results exclude certain items as detailed in today's press release. Revenues for the nine months ended September 30, 2015 increased to 506.5 million, from 362.3 million for the same period in 2014. Revenues for the third quarter were 185.4 million, an increase of 54.8 million from 136.6 million reported for the same period ended in 2014, an increase of 42%. We're pleased to announce another strong quarter of operating results, and first we will review our total portfolio. At September 30, 2015, total portfolio occupancy was 93.7%, as compared to 92.5% at September 30, 2014. Revenue producing sites increased by 1,357 for the nine months ended September 30. Occupancy has grown in each of the last seven years, and currently, all of our major markets with the exception of Indiana are above occupancy of 92%. Net operating income for the company has increased by 50% and 47% for the quarter, and year-to-date respectively, when compared to the same periods last year. Continuing to support our acquisition emphasis, as our operations team does an excellent job of both integrating new communities and maximizing revenue growth. Let's turn to our review of the major drivers of our third…

Thank you. [Operator Instructions] We will take our first question from Nick Joseph with Citi.

Thanks. This is actually John here with Nick. Going back to the acquisition pipeline, you mentioned a steady flow of opportunities. Could you give a little more color on that, I guess in terms of these more one-off deals, portfolio deals, and what I guess is the general mix of RV versus MH assets?

Yes. I think that as we filter through the pipeline, it’s pretty similar to what we have experienced and shared on the past calls, where in general most of what we are continuing to review are what we refer to as high quality, high opportunity single assets or small-to-medium sized portfolios, anywhere from five to 12 communities. And I would say the mix is about half and half, half manufactured housing and half RV. We’ve also shared with shareholders and the analyst community that our intention is to bring RV communities to represent something around 22% to 24% of the overall portfolio.

Okay, that’s helpful. And then how would you go about funding future acquisitions?

I think that what Sun has done successfully is to be able to explore and structure opportunities to acquire acquisitions that might not otherwise be available with company securities structure, so that it’s a win-win for both the company and the seller of the properties as well as continue to acquire for cash. We have the new credit facility available to us, and of course we are committed to keeping the net neutral basis intact on our balance sheet right now. And when we can acquire on accretive basis, we would look to market to support those acquisitions.

Okay. Thank you. And then final question on disposition, you just said three in 3Q and three here in October, do you have a cap rate on those?

Oh, we do. I can take a look for you. The three properties that we announced today – so last quarter – had an average cap rate of 6.25, and for the six sold in 2015, they averaged right around 6.5 cap rate.

All right, perfect. Thanks for the help.

[Operator Instructions] We will next to Jana Galan with Bank of America Merrill Lynch.

Thank you. You did some good work on your balance sheet this quarter. I was curious what the plans were to address the 2016 debt maturities?

Jana, I think as we have done with our 2015 debt, we are really proactively looking at alternatives on the $191 million of debt that’s coming due in 2016. We’ve got 85 million of it that matures in July 1, and has open prepayment penalty beginning on January 1st. That is secured by eight properties. There is another three properties that have $48 million of debt on it that – they mature in August, and that prepayment went out in February, and a single property of $54 million. So, we are looking at our current capital needs, looking at our financing sources including the GSEs and life companies. We are seeing very strong nice interest rates from those companies, and whether or not we are going to repay or refinance the debt will really be determined after we look at our 2016 budgets and our cash needs there, and consideration of each of the capital alternative. So in the marketplace now we are looking at borrowing rates on 10-year debt at around to 4% to 4.25%.

Thank you. And maybe just if there is any updates on the chattel lending front that you have been hearing? Anything from the FHFA?

I think, like those who are following it, we are hearing the general discussion that there is an expectation that the Federal Housing Finance agency is expecting to issue a proposal soon. But we have – assumed [ph] to us has been a longtime coming, so that we are not certain that anything will happen in the near-term, but we are optimistic that because the GSE’s charter requires that they make a market for all forms of housing, this will eventually have a positive impact on our residents and on Sun and other communities. But we just have to wait to see what movement takes place and really what the restrictions and regulations would look like in order to determine how it can positively affect our business, so nothing new really to report.

Thank you.

We will go next to Ryan Burke with Green Street Advisors.

Thank you. Gary, you mentioned on the first quarter call that John McLaren was touring three banks that were potentially interested in entering chattel lending. Is there any movement on that front? I guess I am curious in the level of interest, even if Fannie and Freddie do not enter the space.

Well, all I could say at this time is that there is – that interest continues in ongoing dialog, and it has been very, very positive. We have identified one particular opportunity in source, and John along with a group from the company, and Ron Klien, one of our board members who has vast expertise in financing have been working closely to try and put together an actual structured opportunity that would be now one of three or four different sources that we have access to. So, hopefully if that goes forward, we'll be able to share it on the next conference call.

Okay, and it sounds like this is something where you would be bringing a third party in and it would be an arrangement that is unique to Sun, or is it something where this third party would be opening up lending arrangements on a wider base?

Initially, I believe it will be set up uniquely to Sun, but structured, so it could be open to a wider base. And the particular parties involved are looking to expand their ability to acquire manufactured homes and the service and process for their business venture.

Thank you. And Karen, on the balance sheet, it looks like the book value of rental homes decreased by about 10% this quarter, what caused that?

Book value of rental homes?

I am looking at the rental homes and improvement line item on the balance sheet.

Yes. So, we have sold rental homes with disposition. So, over the year, we’ve I think sold around 400 of those homes, and there will be more coming off with the acquisition or the disposition that occurred in October. So that’s there. And then there is 600 rental homes sales. More specifically than that, I would have to look a little bit further for you.

Okay, but no meaningful change in the perceived value of those individual rental homes themselves I guess is what I am looking for.

Oh, no, no.

Okay. That is all from me. Thank you.

Thank you.

We will go next to Paul Adornato with BMO Capital Markets.

Hi, good afternoon. Gary, with the portfolio now in the mid-90s in terms of occupancy, was wondering if you could talk a little bit about pricing power. I don't know if I remember a time when the portfolio has been so highly occupied. So, could you talk about pricing power, perhaps segment-by-segment?

Yes. So, it’s a really great question, Paul. And I think it addresses what we are trying to address looking out into 2016 and 2017, so that we can certainly continue to provide guidance and the type of growth we have been experiencing over the last four-five years. Obviously, higher demands and occupancy equal higher rental rates. And as we look at it here, similar annual RPS growth that we’ve experienced is going to equal similar NOI contributions and FFO growth. So, finally, we look at how we can determine that continued RPS growth, and we look at our current portfolio occupancy of around 93% and look at our taxes for example that’s above 97%. So we are growing 100 or 200 basis points in occupancy a year. We can look out to a couple of years and feel pretty comfortable with the growth that we have internally, but we also look to our expansion sites because similar increasing expansion growth is what we’ve been experiencing while also equal similar RPS growth, and it is the RPS that grows the outsized growth that we are experiencing now. And so, I think while we are preparing our budgets and looking forward to sharing 2016 guidance with the marketplace, we have two great opportunities. We have the ability to increase and seek good solid rental increases because of higher demand in occupancy, and we have a sufficient amount of sites in our portfolio before we hit optimum occupancy, and with the 1,100 expansion sites on stream in 2016, a great opportunity to improve and increase RPSs from the expansion site. So that’s where we see the kind of continued growth going through ’16, and we look forward to sharing that with the market when we present guidance.

Thanks. Just a couple of related questions, what percentage of your portfolio is subject to rent controls, either by the municipality, or by the charter of the property?

Paul, a small piece of it of the portfolio is CPI sort of related. I think the last time I looked at it was just after the Berger acquisition, and it’s around 14% to 15% of the portfolio, and a significant piece of those pieces have strong floors of between 3% to 5% rent increases.

Okay, great. And another one, given the health of the industry overall, do you see any Greenfield developments out there?

So I think, Paul, nothing significant. We have the one Greenfield development in Paso Robles that we shared on our call about a year ago that we acquired, rezoned, and under construction to build about 300 RV sites in an area, where we have two other highly occupied RV communities in California, and see it as a great opportunity to enter the market at a cost that’s far better than having to acquire out there. And I think that as a company that has its roots in development, we would look for one to two development communities per year, that’s kind of the max of any development exposure that we would take. But again, we would look for sites that are AAA in location, and that we couldn’t otherwise penetrate or acquire acquisitions and to be able to go and develop anything.

Okay, great. And finally just on the RV side, I was wondering if you could give kind of a longer term picture of supply and demand? How many new sites do you think have been added industry-wide? And what about the installed base that you have seen?

Well, obviously it's pretty anecdotal, because unfortunately it’s similar to the manufactured housing industry there just aren’t great national metrics or indexes of communities and sites that are out there. But frequently what we refer to is kind of that nine million to one million demand ratio where there is nine million RVs said to be out there in the U.S. market and about one million are recognized RV communities. So, those fundamentals I think are what really drive the strength in our RV resorts and other RV resorts. And then if you consider that, there are an awful lot of high-end RVs out there that can only power up and pull into certain kind of RV communities that can’t go into the functionally obsolete communities, the demand gets even stronger. So, I don’t see new Greenfield development taking place out there in any way that would impact or satisfy the demands that are out there. So, well, if we do see them well, we'll share with the market that we're very focused on is repositioning functionally obsolete RV communities, even when we can go in there, and scrape them to the ground, so to speak, for their location and for their entitlement, all the way up to what we did in the Morgan properties, which is go in there and just rehabilitate the communities and add all new facilities to what they already have. So nothing much that I see that will change the fundamentals. Nothing much that I'm aware of on the new development side, but I do think those are the type of opportunities that we're looking for, whether it be one or two new developments in the right locations or a continued rehabilitation or renovation, if you will, or repositioning of existing older more tired communities is what we have to look at in front of us.

Thank you so much.

Thank you.

We’ll go next to Drew Babin with Robert W. Baird.

Good afternoon. I wanted to start off with a modeling question going forward. The Series A convertible preferreds, is there potential that the remainder of that could be a repurchased next year? Or is that something you are looking at?

Yes, that's not in the – it's not under consideration right now, Drew.

Okay. Shifting gears, just looking at your same property rate and occupancy growth in 3Q, getting slightly over 3 on rates and about 150 bps on occupancy, adding those together doesn't quite get to the 6.6% same property revenue growth. The variance there is the whole – so does the year-over-year 16% increase in site rent included in income from real property from the rental properties? Is that whole 16% year-over-year increase baked into the same property NOI print – or the same property revenue print for 3Q? That whole absolute number?

Well, let me try to answer the question maybe in a – if I understand your question correctly, just looking at what's making up the same site revenue growth performance. I'll look at it from a nine-month basis because that's what I have in front of me, Drew. But yes, the rental program is a piece of our outsized growth. It's about 170 basis points of our revenue increase. But beyond that, we also have our weighted average rent increase to 3.3%. We've got increases in our transient portfolio, along with occupancy gains, and rent increases in our seasonal and annual RV sites. And we're also benefiting from additional fees and charges that a lot of the RV communities have within their fee structure. So it's all of these things, along with occupancy increases that are driving the revenue growth in the same site portfolio.

Okay. I guess to clarify my question. On page 10 of the supplemental, it breaks out the site rent included in income from real property that they come from the rental homes. That number, in 3Q '15 versus 3Q '14, increased by over 16%. Does that whole 16% number factor into the same property print or is that somehow converted into a same property metric? Or do you essentially just look at – because the…

That is total portfolio in the rental programs summary, that's total portfolio. But a portion of that, and a significant portion of that will go to the same site portfolio, and that's the 170 basis points that I talked about.

Okay, that's helpful. And then on your balance sheet, leverage, although it improved a bit between 2Q and 3Q, is still relatively elevated versus a year ago. As you go forward into next year, are you comfortable with your current leverage levels or would you ideally like to bring that down a bit as time goes on?

We've talked about leverage several times on these calls. And we really are targeting a net debt to EBITDA below seven times. Yes, you're right. When you look at trailing 12 it does look at bit elevated. Certainly the EBITDA for a trailing 12 period don’t include all the acquisition EBITDA that we have. So when we pro forma it forward based on forecasted EBITDA, we will end the year somewhere around 7.1 net debt to EBITDA, and would look to decrease that in a minor way in the near term.

Okay. And just one last follow-up on the rental program, can you break out the amount, ignoring the rental units that were sold with the properties in 3Q, what was the new investment in rental homes during 3Q?

I don’t have the investment dollars in front of me, because the table includes – it's a whole year. And it includes also the rental homes that we purchased with our acquisitions. So there's some amount of investment included there. So to get you a more specific number I'd have to do something after the call.

Okay, that's helpful. Thank you.

We'll go next to Todd Stender with Wells Fargo.

Thanks. Gary, just to go back to the Paso Robles RV park, since this is a new concept for you and for us in terms of dealing with new construction, how do you measure the success of lease up in RV? I mean, not that we're used to MH lease up, but just kind of a natural lease up period with new homebuyers. And I know this is built near one of your existing RV parks. So maybe it's just a benefit from spillover, but how do you look at that?

Well, first of all, we do look at it as a total benefit for spillover from – it's Wine Country, and I forget the name of the Vines that are the two other communities there that, during peak season we continue to struggle to meet the demand. So that gave us the initiative to try and grow out in that area, and also strategically, as we've shared, we'd like to get a bigger foothold in the West. So, what we look to do is reach what we look for – basically a 12% IRR upon stabilization, which is generally five years from the period of time that we construct. In this case, Paso Robles, we see it happening in between three-and-a-half, and four years out. So I can't address what I could call the absorption, because I don’t have anything in front of me. But the modeling that the ops department did in that area led us to conclude that we could successfully do that, and get a comfortable return on investment between 8% to 9% at stabilization.

Okay, that's very helpful. And this might be for Karen. Can you just talk about what went into the decision to repurchase the convertible preferreds? It looked like it was bought back at a pretty rich premium. Just seeing if it was your choice or was that the investors'?

You can answer that. I can't. I think that that was a decision that I brought to Karen's attention, and that we saw it as an expensive instrument originally to allow us to acquire the ALL portfolio. The reason I was concerned about is, Karen and I discussed it with our board is, with I think over 6 million outstanding shares at the time, we were concerned that that overhang was going to come out there. And felt that if we could bring it in on a basis that was neutral or better, and we believe it was slightly better than neutral, we feel that it was the best interest in the shareholders. And the fact that we knew that we could put it back out, the same security, at about 100 basis points lower than where we issued it, collectively with a few other thoughts. That was my approach, and Karen, and trying to buy back it at that time.

And did that ultimately contribute to the narrowing of guidance? It looks like you took on the high end of the range of $372 million. You issued equity to redeem – well, to pay off the line. Is that all kind of part of the math behind that?

As far as the narrowing, we just went from a $0.10 to a $0.05 range with the same midpoint. So, really the preferred impact was probably positive, and we had other items going on dispositions that would have had negatives, but we didn’t really change guidance between second – after second quarter earnings and now just simply narrowed the range.

Got it, thank you.

It appears there are no further questions at this time. Mr. Shiffman, I would like to turn the conference back to you for any additional or closing remarks.

I appreciate everyone's participation today, and Karen and I, and all management continues to make itself available for any follow-up questions. Thank you.