Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Sun Communities' Third Quarter 2016 Earnings Conference Call. 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 any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in 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 revise or update any forward-looking statements to reflect the events or circumstances after the date of this release. Certain statements made during this call contain non-GAAP financial measures. These non-GAAP financial measures have been reconciled to their closest comparable GAAP measures. And those reconciliations are included in this morning's earnings release which can be found on the Investor Relations section of our Web site, www.suncommunities.com. Having said that, I would like to introduce management with us today, Gary Shiffman, Chairman and Chief Executive Officer; and Karen Dearing, Chief Financial Officer. With that, I will turn the call over to Gary Shiffman. Gary, you may begin.

Good morning, and thank you for joining our third quarter earnings conference call. We had a very productive third quarter as we continued with the integration of the Carefree assets, acquired additional high-quality communities, and completed a number of capital markets activities, all while delivering another quarter of strong operational results and earnings growth. Demand for the manufactured housing and RV communities that we provide remains robust. In the third quarter, same site NOI increased by 6% as we delivered balanced growth driven by a combination of rental rate increases and occupancy expansion of 3.6%, and 220 basis points respectively. In particular, these are strengthened home sales with unit sales of 43% in the third quarter and 38% year-to-date. Furthermore, the average sales price of a new home was more than $90,000 in the quarter, demonstrating the quality of our communities, the desirability of our locations and repositioned portfolio. It also reinforces the attractive supply-demand dynamic in our industry which supports consistent steady cash flow with opportunity for continued growth. The integration of our recent Carefree acquisition is going extremely well. Acquisition integration is becoming one our hallmarks, and proving to be one of our core competencies. We have brought the assets on to our platform, integrated staffing, and are utilizing our sales and marketing programs and management expertise to leverage potential revenue opportunities. I'm pleased to report that these communities are performing well as we've realized the benefits of the platform we have spent years enhancing. And we anticipate that Carefree will as accretive and productive a contributor to our platform as our previous acquisitions have been. We have a number of prospects for ongoing growth. First is the opportunity within our existing portfolio where there is still room to deliver both rent and occupancy growth, which we have…

Thanks, Gary. For the third quarter ended September 30, 2016, Sun Communities delivered funds from operations of $1.13 per share as our home sales and performance from our newly acquired Carefree Communities tracked ahead of our expectations. Our reported FFO excludes certain items detailed in today's press release. Revenues for the third quarter rose by 35% to 249.7 million from the same period in 2015, primarily due to the Carefree acquisition. The growth in revenues also reflects the strong performance across all of our business lines as we continue to benefit from our organic growth initiatives, including delivering site expansions. We delivered another quarter of consistent same community performance revenues increased by 5.9% driven by a 3.6% weighted average rate increase and a 220 basis point increase in occupancy from the prior year to 96.4%. As Gary mentioned, included in the occupancy gain for over 900 revenue producing sites generated through filling expansion sites and converting transient RV guest to annual guests, these strong top line results help deliver a 6% same community NOI increase compared to the third quarter of 2015. Manufactured housing revenues increased by 5.3% in the same community portfolio and RV revenues increased by 6.9% compared to the same quarter in 2015 comprises of a 10.3% increase in annual seasonal revenues and a 4.2% increase in transient revenues. While these results show the ongoing strength of our platform transient RV revenues in a few East Coast communities were impacted by weather, particularly Hurricane Hermine in August and through the important Labor Day weekend. As noted earlier, home sales are one of the highlights of the third quarter. Home sales revenues on a combined basis were up 64% and unit sales were up 43%. New home sales were up 110% on a revenue basis and 73% on…

Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Nick Joseph with Citigroup. Please go ahead with your question.

Thanks. Can you quantify how far ahead Carefree is performing versus I guess original underwrited [ph] maybe in terms of expected Year 1 cap rate versus what you initially expected?

Hi, Nick, it's Gary. I don't think we've really gone back and done that calculation with regard to cap rate, but the couple of pennies outperformance that we've seen early on third quarter and fourth quarter just kind of lead us to believe that the benefits that we talked about really of even taking a finely tuned portfolio, Carefree was -- were good operators, as were American Land Lease, but we do see the benefit of the experience in the systems that take place when we move over on to the Sun platform. So in guidance for fourth quarter we've taken that into account. And I think what we'll really be able to do is share with everyone what our outlook is when we release 2017 guidance. And I think that will help everyone clearly see what we expect that additional performance to look like.

Thanks. You talked about 55% as a Year 1 NOI actually occurring in the first half of next year. Is the out-performance that you've seen so far pulling forward any of that NOI or do you still expect that breakout?

It's really unrelated to anything that we would look forward. Going forward it's just basically performance that is equal to or slightly greater than how we forecast and budgeted, and attributable to I think again just having as much recent experience over the last few years of integrating large portfolios and acquisitions. So I think we take somewhat of a conservative approach, and tried very hard to be able to convey to the market what our best thoughts are. And when there's a little bit of an upside surprise like this we're obviously very pleased with the staff that's accomplishing it here, but nothing is really being pulled forward.

Thanks. And then just I guess turning to the RVs quickly. You talked about converting transient sites to seasonal and annual. What percentage of sites today are transient, and what's your target level for that?

So we have about 17,000 sites that are transient sites in the portfolio right now, Nick. And there are certain properties that will remain transient and more profitable when the sites are building a transient management because of the nature of the communities themselves. But if we could bring, in a portfolio where you have maybe a 60-40 annual versus transient RV mix, to take that up to about 80% annual versus transient is probably where our goal would be.

Thanks.

Our next question is coming from the line of Drew Babin with Robert W. Baird. Please proceed with your questions.

Good morning.

Good morning, Drew.

I was hoping to discuss kind of the implied ranges among the revenue growth and expense growth side for fourth quarter based on the new same property guidance, kind of assuming that the same property revenue growth that you had year-to-date, it would look like expense growth. Maybe business is tough in the fourth quarter also, but if you could maybe put some numbers on that?

Yes, your calculations are right, Drew. We'd wind up NOI -- implied NOI for the fourth quarter as looking to be around 8%. I think that if we looked at same community, the budget across the year, it was building every quarter, and fourth quarter was and is expected to be the highest NOI growth. It is a function of some reduction -- lower expense growth than what we've seen in prior quarters. What I can say about that is that our operations group has really been performing in-line with what their budget has been. There's only been two items that have been impacting same community, and that's the transient RV revenues due to weather, and the real estate taxes, and the [indiscernible] really doesn't have much to do with either of those. So when it comes to their items, they've been performing as expected throughout the first three quarters. And so I would have some confidence that they'd be able to produce their budget for Q4.

Okay, and as it pertains to next year on the property tax growth side, do you expect things to kind of run-rate similarly. Obviously there'll be some quarter-to-quarter lumpiness, but do you expect any kind of change either way in that regard going into next year as we begin to model out?

I don't have any very clear information into 2017 on real estate taxes to share with you at this point in time, Drew. We haven't seen anything in resent assessments that would expect that there would be much of a change.

Okay. And lastly, the acquisitions from 3Q and subsequent to quarter end, can you provided a cap rate on this? I mean, obviously it sounds like there's going to be some pretty heavy inversion activity or expansion activity, but if you just strain the total expenditure potential on expansions, and timing of what NOI that may contribute over time, that would be helpful.

I think you cut out a little bit in your question, Drew.

Sorry about that. The acquisitions from third quarter and fourth quarter, it sounds like it's going to be tough to give an NOI cap rate given the expansion activity and the repositioning you plan on doing. But how should we model NOI contribution from those assets going forward?

So that's a really good question. And I can answer it a couple of different ways. We can obviously go through some of them so that everyone can have a better understanding of what the opportunity is with the four acquisitions. But generally we take a look at the return on our investment. So three of these four communities require repositioning, expansion, in one case development, but we look for that 8% to 9% return on investment that will kind of trip the lever for us to move forward on one of these opportunities. And secondly, we look at the quality of the actual locations, the destination, locations, the desirability of the market, the demand in the market. And all four of these had those characteristics. But maybe this will be helpful if you want to think through the [indiscernible], the Colorado property is really in the foothills of the Rockies, it's about an hour drive from Denver, so it hit all the market characteristics that we want. We paid about $4.7 million for that property, it was a seven cap rate and in-pace income, but more importantly, we were able to entitle and simultaneously close on 60 adjacent acres for about $2.7 million, where we can expand that community by 350 sites. So if we look at an expansion of 80 to 100 sites per year, once we're in gear there you're at a four to five year period of time. And as we've shared with the market before, we look for anywhere from 12% to 14% returns on our expansions. The Virginia property is actually located on 800 feet of beachfront on Chesapeake Bay. So it's a very interesting development. It's the second time we've acquired a property from this developer who specializes in scraping functionally obsolete communities to the ground, and taking advantage of the entitlement and underlying zoning. They have built a completely new 350 site development, which opened this summer. We acquired that for about $18 million and then we, as we did in the previous acquisition, leased it back to them for a 7% return on our $18 million investment, and because it is a new community just opened up. We have a certain options to end that lease during the five-year period of time for making the payments to them. I think we've bought -- is it $13 million?

$9.8 million contingent consideration liability.

So, a little bit more complicated, but 7% return on our initial investment there. And then the other two communities are strictly opportunistic. One was acquired from a bank in New York. We actually did acquire the in-place NOI at about an eight cap rate. I think we paid about $2.5 million to the bank and about 6,500 a site. So we will have to invest considerable CapEx in that project, but we'll look to do the same thing that we market and that will grow the NOI in a three to four-year period of time by 15% to 20%, hopefully more in that particular case. And then finally the Petoskey Michigan Community has no income in place. We paid about $3.5 million for it. It is a very, very high quality amenitized community right off of Lake Michigan in the destination location of vacation and travel for northern Michigan. And it was built as a fee simple or for sale developments with an individual that we look to do more business with and a case of just great distance between that property and his other core business and we will look to convert the fee simple aspect and turn it into a rental community. And again we'll look to generate that 7% to 18% return on investment probably in a four-year period of time up there.

Great detail. Thank you.

Sure.

Our next question is coming from the line of Paul Adornato with BMO Capital Markets. Please proceed with your questions.

Thanks. So, given the very strong home sales, I was wondering if you are rethinking of size or maybe even the existence of the rent to own program.

So, I think that certainly our conversions are up over last year. They're on pace to do 10% to 12% conversions as we have done in prior years. We take a pretty deliberate approach to doing our rental conversions. It's sort of maximizing the return of the original capital on those home sales. But I would say, Paul, there are certain communities that are high occupancy where we are -- renter moves out of the home, there are homes turning to for sale only just because of the demand for home sales.

And the only thing that I add to it, yes, Paul, that we've shared before I think that most of our rental activity in the future will be aligned with the opportunistic acquisitions, the type of which I just discussed where we can buy on a cap rate or for some other reason and be able to accelerate growth through the rental program and then convert them into owners and we definitely, as we've shared, are seeing the highest occupancies in our communities in history. So, with those occupancies as Karen indicated, in the core portfolio we'll continue to see a reduction and probably utilize the rental program most in expansion and acquisitions.

Okay. Great. Are you mentioned as one developer or redeveloper out there that specializes in the obsolete communities? Just wondering if you could perhaps just speak a little bit more generally about capital flowing into the industry both in terms of developers, development capital as well as just to your financial capital?

So, I would say the landscape on the development side is pretty unchanged. I mean on the manufactured housing side other than Sun communities and some sporadic things that I hear about, there is nothing really that I'm aware of in new development taking place out there. In the expansion side, again it's sporadic and subject to individual owner operators. But we see a little bit of it taking place on the East Coast with developers like we're working with out there. So, it's not a huge amount on the development or expansion side other than what some of the bigger companies do internally. So, I'm not much going on there. And in the general acquisition area, I think that, yes, as we've all experienced some of the larger funds, pension funds, financial investment funds have been very focused over the last couple of years in the industry paying more than anything and for the investors on the phone and the shareholders, it's not surprising the stickiness of the revenue, the stability of cash flows, I think has gotten the attention of a wider market. So, there are the transactions we all know about the big portfolios, they're changing hands currently or have just changed hands. So, there is a heated up interest in the acquisition. It has made it more challenging out there. Not impossible, but we are seeing other people in the marketplace and we'll watch that and continue to work to everyone to see a change. And our pipeline today in the acquisitions is pretty much identical to what it's been aside from making I think strategic and prudent decision to raise equity and reduce our leverage. We also want to be in a situation where we have the capital to continue to expand in our communities and so that takes capital and continue to acquire the flattened communities of our pipeline. So, I don't think much changes for us, but there is nothing changing in the development area, but he did activity out there in the acquisition area.

Okay, great. Thanks so much.

Our next question is from the line of Ryan Burke with Green Street Advisors. Please proceed with your question.

Thank you. Gary, what's the latest on the potential disposition portfolio?

Ryan, the fact is there is nothing that we really have new to report. We are still reviewing a couple of inbound inquiries. We continue to review them as they come in. We've been talking to one of the parties for a bit of time now and provided them with most substantial information, so, nothing new to report. We do take seriously and evaluate all opportunities. But one nice thing that's sort of happening and I've discussed before that we're very steadfast that we believe anything that we were to sell with commando type of premium that we acquired the portfolio at. But as we're operating it now and actually seeing the performance of all the Carefree portfolio, including anything we might consider, we're seeing growing NOIs. So, I think that we're going to remain pretty patient and I probably will be in a position to give a further update certainly if anything changes. But with regard to what our thought process is when we do provide guidance in 2017, but we are very pleased with how Carefree portfolio is and we have invited our President John McLaren to actually join in on our fourth quarter call and kind of give a full recap of Carefree at that time.

Okay. So, it sounds like it's still in process, but potentially less likely that you are actually going to sell it, is that a fair characterization?

I don't know that I would characterize it that, but I would say the following that I had shared previously, we had one very, very active group and thought we were moving forward with the transaction and something fell on to their desk was much more in the sweet spot of what they were looking for unrelated asset class and we didn't move forward on that. Subsequent to that, I would say there are three inbound inquiries that we're responding to right now, but I just really don't have anything to report on them.

Okay. Thanks. Karen, you mentioned that operations except for a couple of moving pieces, have been relatively as expected through the third quarter, but you did bring down the high-end of your NOI growth guidance by about 90 basis points. Can you quantify the components of that change for us?

Yes, those two items are really about $1.6 million through the third quarter and real estate taxes will have an ongoing impact into Q4 with another $230,000 or so, so upwards around $2 million.

Okay. So, does that account for the majority of that decrease or are there other moving pieces?

Yes, yes.

Okay. Thank you.

Yes.

Our next question is coming from the line of Todd Stender with Wells Fargo. Please go ahead with your questions.

Thanks and thanks Gary for the details on the RV acquisitions you've recently made. Is there an aggregate capital number you're budgeting for to put into these four properties?

There are individual capital numbers. I don't have them in front of me, but if you follow up with Karen and I -- or we'd be glad to share that with you.

Okay. Thanks. And just to get a sense of the value-add that you're brining to the portfolio. Do you have an all-in cost per se that you imagine these costing, I just wanted to get a comparison of maybe what you should pay for a stabilized asset if it existed in those particular markets?

Sure. Yes, I think I don't have them relative to the market, because the all-in cost per se than the stabilized community would strictly be a function obviously of NOI and opportunity, but assuming all things equal and strictly a function of NOI and growth as to what we would apply on a per se phases, so it makes this very, very challenging to look at this and be able to take a community, for example, that we spend 6500 hours per se and buying something out of foreclosure from a bank, let's just say that we add capital to it that makes it cost a $15,000 a site and that's just a hypothetical. We could buy that site depending upon return anywhere from 40,000 to 100,000 hours. So, it really depends on the specific market and the return that we can get. So, I don't have it on an individual basis for these properties, but I can as I've said and indicated to you, the capital investments we're planning to make.

Okay. Great. And then, Karen, just can you give us more color, I'm not sure if I missed this, on the expense side, we saw some expense inflation and payroll benefits and then also on that on taxes, real estate taxes?

On the payroll benefits side, we did some increases to benefits for our full-time hourly employees this year, so benefits are going to be higher. There's also -- the other piece of it is wage increases. And on the property tax side, it's really something -- we started talking about in Q1. We had some higher than budgeted assessments in Colorado and in Texas, and those are really -- those two states, although under our PL, those [indiscernible] are under our PL, they are basically generating the higher than expected real estate tax increases.

Okay. That's helpful. And so you book it now and then if you're [indiscernible] it'll reverse, maybe…

Right. That's correct.

Okay. Thank you.

Our next question is from the line of Quinn [indiscernible] with Evercore ISI. Please go ahead with your question.

Hi, good morning. I may have missed this, but could you give us the implied expense growth as for the same-store in Q4?

I didn't give the exact expense growth, but NOI implied at 8% on similar revenue and so expense growth can probably be about 1.5%, 1.6%.

Okay. That's helpful. Thank you. And then kind of shifting gears, can you talk about how you would go about finding a large scale acquisition at this point in time?

Well, I think that anything large scale would certainly be dependent on availability of capital in the marketplace. Currently as I would kind of view the marketplace that Sun has had great success on a large scale acquisition and creating opportunity accretiveness and shareholder value both short-term and long-term for the shareholders. So, if we were fortunate enough to have an opportunity for a large acquisition, it would be totally dependent on capital availability on the marketplace. I think the company is really, really well positioned right now to take advantage of the growth opportunities as we see it in the foreseeable future. So, there is no need to grow for just growth sake to expand or be larger. It would have to be an opportunity that we could demonstrate to the market would be very, very accretive and value creative to the shareholder and if it were, I would hope that we could come to the marketplace and find the capital for it.

Okay. So, I guess, just in terms of your leverage and then close to seven times you are at today, if you were to fund the deals, do you think that could go higher just short-term?

So, that's a good question. I think we've always shared we're comfortable at debt to EBITDA of seven times or lower. That's something that we're very pleased that once we are able to get the full year's EBITDA from Carefree by second quarter, we'll be in the mid-sixes, so we have a little bit of room there and we have a little bit of cash availability still. So, we do have to monitor carefully the fact that we are committed to kind of a debt neutrality of that seven times or below, and that's how we would approach anything that we did in the marketplace.

Okay. That's helpful. Thank you.

Thank you. There are no additional questions at this time. Mr. Shiffman, would you like to make some additional closing remarks?

I'd just like to thank everybody for participating and as I always end, Karen, myself, or anyone in operations is always available for any follow-up questions, and we look forward to talking to everybody after fourth quarter. Thank you, Operator.

You're welcome. This concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time.