Ladies and gentlemen, thank you for standing by, and welcome to the Sun Communities First Quarter 2015 Earnings Conference Call on the 23 of April 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 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 SEC.

The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of its release. Having said that, I'd like to introduce management with us today, Mr. Gary Shiffman, Chairman and Chief Executive Officer; and Ms. 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 Mr. Gary Shiffman. Please go ahead, sir..

Thank you, operator and good morning. Today, we reported funds from operations of $50.2 million or $0.90 per share for the first quarter of 2015 compared to $38.3 million or $0.95 per share in the first quarter of 2014. These results exclude certain items that is detailed on today’s press release.

Revenues for the quarter increased by 37.3% from $111.2 million in 2014 to $152.7 million in 2015. After completing the previously announced Orlando manufactured housing acquisition this month, we thought it would be helpful to summarize some of the changes in the size, scale and balance sheet of the organization over the last three years.

The number of communities we own and operate has increased by 57% from 159 to 249, and sites under management of approximately 92,500 which are comprised of 74,300 manufactured homes sites and 18,200 RV sites, represents a 69% increase from December of ’11.

We’ve expanded the number of states in which we operate from 18 to 29, and now have a solid presence across the eastern seaboard from Old Orchard Beach, Maine, down to Homestead, Florida, and have also increased our assets in the western United States.

This expansion has improved not only our size as we are now the largest owner operator of manufactured housing sites in the country, but also the overall portfolio quality and asset mix.

Our acquisitions have also increased the percentage of revenues from RV resorts from 9% in 2011 to an estimated 16% in 2015 by strategically focusing on destination locations where demand for high quality RV sites outpaces the availability of such sites.

During this time, we have also strengthened and enhanced our balance sheet, more than doubled our market capitalization, improved our debt maturity ladder, refinanced debt at advantageous rates and successfully reduced leverage.

Our momentum of positive operating measures throughout this time of expensive property acquisitions I believe is an indication of the operating experience expertise and scalability of our systems and team members across the country as well as the staff supporting them from our headquarters.

And now, we are pleased to present our first quarter 2015 results which indicate continued positive trends. So turning to our portfolio overview, during the first quarter of 2015, we added 499 revenue producing sites bringing total portfolio occupancy to 92.9% at quarter-end as compared to 90.2% at March 31, 2014.

Guidance for 2015 includes occupancy improvement of 2,100 sites which will bring portfolio occupancy to approximately 94% at the end of 2015.

I'd note that the nearly 5-point reduction of occupancy in our Florida portfolio result from the inclusion of the American land lease communities which had a lower average occupancy than the existing Sun Florida portfolio.

This represents additional growth opportunity in our portfolio in a market that is favored destination lives for the ever increasing population of baby boomers reaching retirement every day. Revenues in the same site portfolio increased by 6.8% while expenses increased by 2.1% resulting in NOI growth for the quarter of 8.6%.

Same site occupancy increased by 1.5% from 92.5% March 31, 2014 to 94% at March 31, 2015. Revenue growth was 30 basis points higher than expected primarily due to our performance in transient RV revenues and expenses were 280 basis points lower than internal estimates.

We believe that approximately $525,000 of the expense savings were items budgeted in first quarter that did not actually occur and they are expected to be performed in the second quarter. Home sales for the quarter were 543 as compared to 369 sold during the first quarter of 2014 or an increase of 47.2%.

Home sales in the same site portfolio were 405 in the first quarter of ’15 as compared to 350 in the first quarter of 2014, an increase of 16%. New home sales increased by 144% from 27 sales to sales primarily due to sales in Florida and Arizona where we continue to see growing demand.

Pre-owned sales in that same site increased by 39.5% driven by strong sales in the Midwest and Colorado.

Turning to our RV portfolio, we continue to generate positive results and both our long term and transient RV guest stays as RV revenues which are included in same site revenues grew by 9.5% year-over-year and same site occupancy increased by 2.6% from 87.7% to 90.3% quarter-over-quarter.

We continue to generate higher average daily rates and revenues per available site driven by the capital investments made to reposition these resorts post acquisition and the strong demand for quality sites in these destination locations.

Reservation through our Sun RV website increased 19.3% when comparing the average daily amount of reservations booked in first quarter ’15 to first quarter ’14 and a 51% increase in inbound cost to our call center generated a 60% increase in net reservation revenue per day when compared to the first quarter of 2014.

Turning to expansion, during the first quarter, we completed a 76 site expansion at Summit Ridge near San Antonio, Texas, which is one of eight communities with a total of 800 new expansion sites we expect to bring online this year.

We experienced strong returns on our expansion sites based on the small amount of additional incremental expense load per site as most fixed community expenses are already in place. The 375 manufactured housing expansion sites developed in 2014 continue to experience strong demand with absorption rates averaging between eight and 12 sites per month.

The integration of the American land lease properties was smoothly accomplished and we are experiencing strong performance from the portfolio. Home sales exceeded budgets by nearly 50 sales generating higher than budgeted home profits while property operating NOIs also exceeded budget.

On April 01, 2015 we completed the acquisition of the six manufactured home communities located in and around Orlando, Florida for just over $256 million. This high quality portfolio includes 3,130 developed sites with an occupancy of 96% and includes 380 sites available for expansion.

We anticipate bringing the first 100 of these expansion sites online in early 2016. The addition of these communities brings our holdings of age restricted assets to 25% of our portfolio. The pipeline for acquisitions remains strong with near term opportunities for both RV and the manufactured housing communities.

We are currently in various stages of due diligence on approximately $130 million of communities. In January, we completed the sale of Valley Brook, a 798 site manufactured housing community located in Indianapolis, Indiana.

As part of our ongoing asset management strategy, we intend to bring to market up to 19 communities for sale, comprised of nearly 5,400 sites the majority of which are in the Midwest.

And finally, as stated in our press release this morning, we have revised 2015 FFO guidance to $3.55 to $3.65 per share, an increase of $0.02 per share at the midpoint and a provided guidance of $0.82 to $0.84 for the second quarter of 2015.

While we outperformed our internal estimates for the first quarter, we expect certain community expenses budgeted but not performed in the first quarter to be completed in subsequent quarters.

Guidance includes the acquisitions through April 23, 2015 and the add back of related transaction costs, but no perspective community acquisitions or dispositions are included. And at this time operator, both Karen and I would be available for questions..

Thank you. [Operator Instructions] And we’ll take our first question from Nick Joseph with Citi..

Thanks. Gary, you mentioned the current pipeline of quality acquisition opportunities.

Can you talk about if those are more MH or RV-focused, and then how you balance the desire for additional acquisitions with on-boarding the ALL and Orlando portfolios?.

Sure. I'll take it a little bit backwards. ALL, we had the benefit of the same software and management systems. We also had the benefit of a seller that was becoming a shareholder and investor in the company. So our ability to prepare for on-boarding ALL was much different than a normal acquisition. We were welcomed in before the closing.

We were able to bring in all of the management, all of the office staff well in advance of the closing. We brought them in two groups and they each spent five days training on our operations manual and with our staff here at our headquarters.

So we feel very, very good with regard to our ability to move forward to the Orlando transaction which as I said we closed in April 06.

And the Orlando transaction was also the case of a very good relationship with the sellers one in which we closed two large communities almost 20 years ago and have remained very, very close looking at the opportunity that we might have to acquire the balance of that portfolio.

They too took a significant stake in the company through the operating partnership units both in the first acquisition and they were satisfied with that 20 years ago and again in this most recent acquisition. So again, I would only indicate we had great cooperation before the closing, the ability to work with the staff.

They are in Orlando where we have a heavy concentration and could lever the existing management staff as well as the systems there. So we will look to share second quarter results with everybody but right now we are feeling very comfortable with the integration of both of those portfolios.

With regard to acquisitions going forward, I think that important to recall that we have shared with the marketplace a desire to increase our RV communities as a percentage of our overall portfolio.

We announced the market, about two years ago, the strategy of increasing our holdings to about 20% to 25% of the overall portfolio as we saw significant growth opportunities and acquisition opportunities. We got to the upper 20% point prior to the recent acquisitions. We are now down at around 15%, 16% of the entire portfolio being RVs.

So we will focus on bringing that backup to the designated strategy of slightly over 20%. I would say that the acquisitions that we are looking at right now have a little bit of a disproportionate percentage on RVs and that’s more of happenstance than specific design, although they fit well with our strategy of focusing our increase on RV.

And the one thing that I’d point to is that whether they’d be RV or manufactured housing communities, we’re really focused on buying the right communities where we can really do what we do best, which is accelerate growth and enhance the value of what we buying..

Thanks. Appreciate all the color on that.

What was the cap rate on the disposition in Indiana?.

I don’t have it handy, but our dispositions averaged at 7% cap rate. That’s my recollection. But we can get back to you with that specific cap rate..

Thanks.

And then just finally, just sticking with Indiana, what do you need to see to have occupancy in that state kind of at least approach what you are seeing in all the other markets you’re in?.

So, it’s really a good question, it’s something that really comes up more in our asset management meetings as we determine where to best deploy the capital.

And I think that the rental program was really not driven in the Indiana market initially, so as we began in Texas with the rental program, then in Colorado, and filled those vacancies, we moved it into Michigan and now we are determining how much capital we want to deploy in Indiana.

And I think that a lot of our disposition focuses on particular assets in Indiana where we think the capital could be deployed in a different manner for the shareholders. So we will be looking to sell some of those communities and focus on ones where we can deploy the rental program.

And we think that we can then convert the renters into homeowners, which is what we seek to do at about 10% a year. So it really is the rental program that we will have to deploy there to see an improvement..

Thank you..

And we will take our next question from Jana Galan with Bank of America Merrill Lynch..

Thank you. Good morning.

As you’ve been very active in the acquisitions and you’re increasingly looking at dispositions, could you talk more broadly on cap rates for RV and MH as you see kind of more bidders out there for properties as well as new buyers?.

Sure. There is – as I said, I think, on the last couple of calls, there has been cap rate comparison as we have had more competition out there in the market. I think that I’ve always shared with the market that my view on cap rates for the 20 plus years I’ve been in that business, which I should correct this, probably 30 or more now.

It’s a broad range of 6 to 8, 6 being for the highest quality communities. And I shared with the market, I think on the last two calls, we’ve seen a 50 basis point compression. So that range looks to be in the mid-5%s to the mid-7%s. And for Sun, what it’s meant is that we have to be more and more cautious with what we’re acquiring out there.

There are several acquisitions that we just walked away from because of the cost far outweighing the growth that we think we can get. So, we will be aggressive as anybody when we think we can get outsized growth. And I think American Land Lease is a good example of that where we bought in the mid-5%s or slightly higher.

And we see the opportunity in fact are starting to experience the type of enhancement we can create for the growth and turn something around or a growth of NOI in the 15% to 20% range in a 2- to 5-year period of time..

Thank you. And just on the new home sales, you saw a nice increase there. You mentioned it was driven by demand in Florida and Arizona. I was curious if there is any changes on the financing environment..

So, it’s an interesting question, something that we are looking at all the time and a long discussion that took place at our board most recently.

And there seems to be additional interest in the chattel financing today, I think as many funds and much capital are looking for returns and our Chief Operating Officer would be with us today on the call as he normally is with the exception of the fact that he is touring with a group of three banks today, who expressed interest in providing financing for the type of lending that would be suitable in Sun’s portfolio.

So I can share with you that there has not been a lot of change, but we believe there is a potential. And Sun will be pretty focused on developing some more sources that we hope to be able to talk about in the near future..

Thank you..

And our next question is from Drew Babin with Robert W Baird..

Well, I was hoping you could walk through the funding strategies for the ALL and Berger portfolios, just given the implied cap rate, your stock was at on average in the first quarter.

How do you explain why there wasn’t more of a common equity/common OP unit components in the funding strategy and how you think about that going forward? How do you think about 2016 debt maturities sort of in that context? [indiscernible] vis-à-vis the overall leverage ratio..

Drew, I’m sorry, but you were kind of fading out in some of your questions.

Could you repeat that for us please?.

Sure.

Can you hear me a little better now?.

Yes, thank you..

Okay, sorry. I was hoping you could walk through the funding strategies of ALL and Berger portfolios. And just given where your stock price was in the first quarter and the implied cap rate, it was a very good time to issue equity as far as cost of equity perspective goes.

I’m just curious as to why there wasn’t more of a common equity component to the funding strategy..

Well, in regard to Berger portfolio, Drew, the use of the common LP units and preferred units is really more about seller-drive opportunity for us. So many sellers have tax situations that would create large gains and the use of the common LP and preferred LP units differs that gain for them.

So we utilize that strategy as an opportunity to bring more sellers to the table..

Okay.

And how do you think about your overall leverage ratios right now? Here are the ones [indiscernible] most specifically with regard to further acquisition opportunities and with regards to the 2016 debt maturities?.

If you look at our debt to EBITDA, which is normally the ratio that we look at and I think we’ve been fairly consistent that we are comfortable with the debt to EBITDA ratio, net debt to EBITDA of around 7, maybe a little bit lower 7 times. It certainly is up a little bit this quarter, if you look at it on a trailing 12 basis.

But when we look forward, let’s say, if just use the Q4 – Q1 annualized EBITDA, we’d be in the mid-6s. So right around at 7 times debt to EBITDA leverage is where we are comfortable and we should be back down below there by the end of the year based on having the remainder of the new acquisition EBITDA in the portfolio..

Thank you. That’s helpful. And another question just based on your recent discussions for next year on the MH side.

How would those negotiations go on now in sort of [indiscernible] inflation environment versus maybe last year when there is a little more kind of steam behind inflation, to what degree the CPI [indiscernible] in those discussions and what other factors kind of come into the conversation with community representatives negotiating rent increases for next year?.

Drew, you are definitely breaking up on us. Just sort of fading on us. Our ears are close to the speaker and we apologize that we are trying hard to hear the actual question..

Okay. I’m very sorry.

Is it better now?.

That’s 100% better..

Okay. So your leasing discussions for next year, this will obviously be more of a topic as the year goes on. I was hoping if you could talk about them in a lower headline inflation environment versus previous years where headline inflation has been a little bit higher.

Talk about to what degree CPI comes into the conversation and other factors that you’re able to use as negotiating tools in discussions with community representatives in terms of setting rent increases for next year?.

So, I think a couple of things come into factor, the ability to be more aggressive with rents due to the fact that our occupancies are reaching levels, and we usually define that as 94% to 95% will help us to continue to have good solid rental increases.

Secondly, the vast majority of our leases are related to market driven fundamentals and as we see multifamily and housing pricing increasing, although it seems a little bit add-outs with CPI, we believe we will be able to get the type of revenue increases or rent increases that we’ve been forecasting.

As well as the fact that, I think one of the things that differentiate Sun is the fact that we have maintained a strong CapEx investment in all of our communities, and in particular, our newest acquisitions that I’ve talked about repositioning through investing in them.

And we’ve had a strong philosophy at the company that when we are putting the dollars in to keep the communities at their nicest level, we’re not stripping the equity out of the homeowners ability to sell their homes and I think it makes the difference and I think that is kind of differentiating our ability to get our types of rental increases in by keeping up the common areas, the amenities, the roads, those types of things.

So we don’t have a lot of pressure by CPI specifically in any of our existing leases..

Okay..

Some of that takes place in Florida, but it would usually be a percent maximum versus CPI, which has ever greater or market driven..

Okay. Thank you very much. That’s helpful. And I apologize for the connection problems..

Much better now..

All right. Thank you..

[Operator Instructions] We will take our next question from Todd Stender with Wells Fargo..

Hi, good morning. Sorry, Gary, if I missed this.

Did you disclose the cap rate on the Orlando acquisition?.

I did not disclose the cap rate on the Orlando acquisition because I think we disclosed it before. So, Todd, I don’t have – Karen, do you have it? We don’t have it at our fingertips. But I would be glad to share with you, Todd, and I know that we’ve done it in the past..

Sure. And just generically, it looks like a 60:40 split between age-restricted and all age..

Yeah..

Is there a cap rate difference between the two, just generically across the industry?.

I think that when you get to Florida, I don’t know that there are specifically a cap rate differential for us. As a company, we’ve really focused on where we can create value, both near- and short-term with a particular acquisition, we feel good we can do so there.

The difference throughout the country, I would say, when you get out to the resorts is that you will get probably a 50 basis point difference for all things being given equal. But as I’ve shared before, we get stronger rental increases more typically in the non-age restricted communities. So that’s when the economy is doing well.

So, we expect to be able to do so in our portfolio..

And then any breakout between what the rents were and what they could be at these new communities, I know you mentioned is 96% occupancy, just to see if the rents are below market and what kind of ability do you have to raise those?.

So, I think that we have a small below market situation it’s not great, but we do intend to take advantage of that in the next couple of rental periods. We are going to go through some extensive capital improvements, generally when we do that we are able to get a little bit more aggressive.

One of the things that we really look for in that portfolio is the 380 sites of expansion.

So, it is actually just handed something from staff that tells me it was a 6.45 cap rate, is that correct? Or the Orlando acquisition so, if that’s helpful, but so we have a little bit of market rent to gain there, but we have a great ability to be able to develop out those expansion sites and fill them up where there is always 96% occupancy. .

That’s helpful, and maybe this is more for Karen, but when you look at the preferred OP units, the common OP units and you look at kind of the range of coup-ons that you are offering and then when you look at what your common stock is offering, nearly 4%, how do you guys arrive at some of these prices that’s part one and part two is the size of the annual dividend increase on the common.

When you guys recommend that to the board how do you guys think about that of making your OP unit as attractive as possible to potential seller, when they are trying to replace some of their income and how they think about yield?.

Sure. I will take the second part first and then Karen maybe can talk about the first part. The dividend is a discussion that takes place with the full board and if we might make a recommendation it really is discussed very early.

So, I like to think of it as a board decision as we’ve shared in the past and with regard to how we like to use the OP units, I think that there are different aspects to them there are the preferred OP units, the convertible units that we use, the perpetual.

So depending upon how a given seller is looking at what they want to replace in their income and what kind of risk they want to take in the staking profile. If it’s preferred obviously it’s above the [indiscernible] behind the equity.

So, we will create lower returns for that and if it is the operating partnership unit pier it might reflect what their conversion price might be that we are willing to debt and a lot of that is a function of determining the growth rate that we can get out of the properties that we acquire.

So, I don’t think that we drive our dividend by what we can use the OP units to acquire properties with. I think the focus mostly is by the board as to the rate fundamentals and risk profile and benefits to the shareholders of retained earnings versus increasing the dividend.

So, I don’t know if that answers your question or not, you would have to tell me. .

It does Gary, just thinking about using OP units as a currency, which seems pretty attractive and appears to be one of your best competitive advantages I’d say at this point, but just – how do you think about the yield that’s offered on that and how a seller is certainly going to get proceed in his pocket, but he still wants to replace some of his lost income.

So, what does that account?.

So that is the very balance of the negotiations when someone is looking for a text differed sale and it has to obviously work with both parties. So, I’m not sharing anymore. Some of our internal ways of proprietary getting certain types of deals done. .

Thank you, Gary..

And we will take our next question from Dave Bragg with Green Street Advisors..

Thank you good morning.

Regarding leverage, which was touched on earlier Karen you shared a level that you are comfortable at, but could you line us what’s the long term target?.

Long term target I would say Dave is around 6 times debt to EBITDA..

Okay thank you for that. And on AOL you shared a multi-year outlook for NOI growth.

That’s how [indiscernible] to nice reminder of where that portfolio could head, but what is the 15 outlook for NOI growth?.

I would tell you when we announced the transaction we had an outlook that we shared with the analyst and I don’t think any of us have that with us Dave, but we would be glad to look back up always shared and shared with you. .

So it is unchanged from what you said at the time of the deal..

It is unchanged ….

Getting better or worse?.

It is unchanged in our budget however we did rather significantly beat our budget. I think in guidance and into my comments that I only shared that a lot of it came from home sales that were far greater than we expected. So, the demand was higher and there was a big NOI beat.

Revenues were slightly above budget, but we had a very large expense savings some of which were just timing issues. The balance of which we are going to wait a quarter or two until we have little bit more history to determine at those savings will be sticky or not..

Alright. Thank you for that.

Next question just relates to lower gas prices and can you please share your view as it relates to the potential impact on your RV portfolio?.

It is a great question and one that comes up a lot. Certainly I’d like to remind everybody something that management always reminds me. The vast majority of our residence in RV are coming within an hour and a half to two hours of their home location.

So they are not driving long distances as one might think and that being said, the slinging gas isn’t unnoticed, but it has never seemed to have as big or a significant of a change as we might expect it. At over $4 mark, we were looking to see what patterns change.

They didn’t seem significant year-over-year last year, but we saw growth last year and now we are continuing to see pretty significant growth especially in transient. So, there could be a positive factor in there, but it hasn’t been long enough for us to determine if it’s something we can actually identify..

Okay thank you for that. Last question relates to the fact that news reports have suggested that there has been weaker vehicle traffic coming into the U.S. from Canada, due largely to the stronger dollar to what degree are you observing that or expect that to have an impact..

So that is an interesting question. We look at our Canadian business as kind of east and west.

We see a lot from Ontario, Quebec down in the Southern Florida and our Eastern Seaboard and we’ve actually continued to see growth as I explained in my last comment and on the west we tend to get a lot of it from the Vancouver area and we really not at the point we haven’t seen the summer season take place yet to be able to share anything in our Northern Communities and as I said so far in our Southern Communities, we continue to see good growth.

So, we haven’t experienced any change. .

Okay thanks for that.

Just a follow-up on my first question for Karen, I forgot to ask her, you showed the target for leverage of six times, but when do you want to be there?.

I would expect we would be there in around two to three years..

Okay thank you..

Sure..

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

Well I want to thank everybody for participating today on this call. As always Karen myself and the rest of the staff are available for any kind of follow-up and we certainly look forward to sharing with you our second quarter report. And with that thank you and we will close..