Earnings Call Transcript - SUI Q2 2021

Operator, Operator

Greetings. Thank you for joining us today for Sun Communities' Second Quarter 2021 Earnings Conference Call. I would now like to turn the conference over to your host, Gary Shiffman, Chairman and Chief Executive Officer. Thank you. You may begin.

Gary Shiffman, CEO

Good morning, and thank you for joining us as we discuss our second quarter 2021 results. We are pleased with the continued outstanding performance of all our business segments. In the second quarter, we delivered 61% growth in core FFO per share to $1.80 as compared to the second quarter of 2020, exceeding the high end of our guidance of $1.63 as our ongoing momentum accelerated beyond our forecasted expectations. Comparing to a non-COVID impact quarter, our second quarter FFO per share was 53% greater than the second quarter of 2019. This outperformance, along with a positive outlook for the third and fourth quarters, once again, led us to raise our core 2021 FFO guidance range by $0.31 at the midpoint to $6.25 to $6.37 per share. The change is being driven by continued outperformance of Transient RV, Marinas, the sustained strength in our manufactured housing portfolio and our robust acquisition activity, particularly as we begin to realize the meaningful Marina industry consolidation opportunity. Complementing our operational performance was Sun's well-received inaugural unsecured bond issuance and following our investment-grade rating from S&P and Moody's. We issued $600 million of senior notes in an oversubscribed offering in mid-June. Sun's access to the bond market provides us with enhanced financial flexibility to most efficiently match fund our investment activities. With a healthy pipeline of internal and external growth opportunities, we believe this was the right time for this step, and we'll look to continue enhancing our credit metrics over time for improved ratings. For the quarter, same community NOI grew 21.6% over last year, reflecting the continued demand in each of our segments and our favorable strategic positioning to capture that demand. We entered the quarter with same community occupancy of 98.8%, a 160 basis point improvement over the second quarter of 2020 with manufactured housing same community NOI growing by 5.4% and RV same community NOI growing by 85.1%. Year-to-date, we have filled more than 1,000 revenue-producing manufactured housing and annual RV sites and have delivered more than 580 ground-up and expansion sites that will continue providing the runway for growth over subsequent quarters. New site deliveries are one of Sun's key levers that we anticipate continuing to contribute to a sustained growth profile and value creation. As of quarter end, we had approximately 9,400 sites available for development that we anticipate delivering over time. We have also remained active in growing our portfolio, adding 18 properties in the second quarter and through this earnings call, deploying over $719 million of capital and adding more than 5,000 sites, wet slips and dry storage spaces. This brings year-to-date acquisition volume to over $853 million across 28 properties. Our acquisition teams remain extremely active, sourcing deals and channeling them through our underwriting process. We are very enthusiastic about the opportunities we are seeing across each of Sun's businesses. Our excellent reputation as a transaction partner and our structuring flexibility gives us access to off-market transactions across manufactured housing communities, RV resorts and marinas. Subsequent to quarter-end, we completed the disposition of 2 manufactured housing assets that no longer fit our core strategy. We sold these assets at a 4.3% cap rate, which we believe is a very positive indicator of the value and quality of our core portfolio. Our RV resort business is benefiting from the demand for outdoor experiences. As we have been discussing throughout the pandemic, once travel restrictions began to lift, RV travel quickly emerged as a vacation option of choice. Importantly, even as broader travel has picked up, it is clear that people who have experienced the benefits of RV travel and the quality and amenities that Sun Resorts offer are becoming repeat customers. There has been no waning of demand for RV vacationing even as other forms of leisure travel have become available and bounced back. As John will discuss, we are confident this segment will remain strong for several reasons, including our solid forward bookings for transient and our annual site conversions. In our marina business, results continue to track ahead of underwriting, and we are in the midst of an active boating season. In summary, we are pleased with our results and optimistic about our outlook. We continue to achieve strong operational results and realize internal and external growth opportunities. Furthermore, with our equity raised in the first quarter and our recent bond issuance, we are well positioned to execute on each of these prospects. Finally, I want to take a moment to recognize and thank the entire Sun team for their unwavering hard work and dedication. Our team members are the reason we continue to deliver the type of outperformance we have been discussing. We believe that one element of that success is our commitment to ESG matters, which are becoming increasingly woven into all aspects of our business. As part of that enhanced focus, there is one element I wanted to highlight today. We are proactively adjusting our pay structure at the property level to ensure that pay is properly aligned with a number of factors, including job responsibilities, tenure service and appropriate living wages. While this is resulting in a payroll expense increase, we are committed to making Sun the best employer, which will facilitate us continuing to foster a dedicated, skilled and healthy team. I will now turn the call over to John to discuss our operational performance.

John McLaren, COO

Thank you, Gary. Sun delivered a strong second quarter across the board, outperforming our prior expectations in RV, marinas and manufactured housing. Our results reflect the combination of the stability of our best-in-class portfolio as well as the incremental benefits of our growth initiatives across our 3 business lines. For the second quarter, combined same community manufactured housing and RV NOI increased 21.6% from the second quarter 2020. The growth in NOI was driven by a 22.5% revenue gain, supported by a 160 basis point increase in occupancy to 98.8% and a 3.3% weighted average rent increase. This was offset by a 24.7% expense increase compared to the second quarter of last year when we had implemented expense-saving measures, including furloughs of properties impacted by COVID-related closures. Same community manufactured housing NOI increased by 5.4% from 2020 and same-community RV NOI increased by 85.1%. The RV growth reflects both the impact from COVID-related delayed opening of 44 of our resorts on last year's results as well as the incredibly strong transient demand this year. Given the stay-at-home orders that were in place during the second quarter of 2020, we think it is helpful to look at these results relative to the second quarter of 2019. For all of our comparisons to 2019, we are utilizing last year's same community pool of 367 communities. Compared to 2019, the portfolio's NOI CAGR was 9.7%, and the CAGR for revenues and expenses were 8.5% and 5.9%, respectively. The RV NOI CAGR was up by 18.6%, including a 19.6% increase in transient RV revenues. Looking at the most recent holiday weekends further illustrates how demand has escalated. For Memorial Day weekend, RV revenue was up 39% compared to 2019. Similarly, for the 4th of July weekend, revenue improved 35% compared to 2019 and 36.5% compared to 2020, driven by a 10.5% increase in occupancy and a 19% increase in average daily rate. We are pleased that so many new consumers have recently taken initial RV vacations. Moreover, we are confident that many of these vacationers have discovered the joy of RV travel and the quality outdoor experience at a Sun RV Resort. Therefore, even as other forms of travel have reopened or are deemed to be safe again, we are seeing demand persist through the second half of 2021. I would like to highlight a few metrics which illustrate the increasing interest in Sun vacations and the engagement and loyalty of our guests. Traffic to our Sun RV Resorts website was incredibly strong in the first half of 2021, up almost 80% from the first half of 2020 and 158% compared to 2019. Within this growth, we are seeing a shift to a younger audience with significant increase in guests aged 18 to 34. Our social media efforts are attracting the largest following and engagement in the industry with over 1.3 million followers on 3 of the largest social media platforms, Instagram, TikTok and Facebook. A big element of a Sun vacation is the community and the activities we provide and these channels are in an ideal way to continue to showcase what we offer and to nurture the community element to drive repeat guests. From the same community perspective, first-time guests to our resorts increased 80% during the first half of the year compared to 2019. We are also piloting a new RV resorts loyalty program where guests can earn points for stays and redeem them for benefits, discounts or free nights on future vacations. With the size of the Sun portfolio and the geographic variety we offer, we believe this program will further encourage guests to choose a Sun RV Resort as their vacation destination. As we look to the back half of the year, our transient forecast is trending 15.2% ahead of our original 2021 budget. There are a number of dynamics supporting the continuation of these positive demand trends. One is a strong sale of new RVs. According to the RV Industry Association, 2021 RV unit sales are projected to be 34% higher than in 2020 and reached a new industry record. Additionally, there are a few promising venture-backed platforms, including RVShare and Outdoorsy, which allow owners to rent their personal RVs, providing a new option for consumers seeking an outdoor vacation without the capital outlay of buying an RV. These platforms help activate otherwise idle RVs, which we believe will fuel additional demand for RV resorts. With respect to the total MH & RV portfolio, in the second quarter, we gained 583 revenue-producing sites. Of our revenue-producing site gains, over 350 transient RV sites were converted to annual leases, with the balance being added to our manufactured housing expansion communities. With the increase in RV guests, we're able to realize the opportunity to convert transient sites to annual leases and achieve an average 50% increase in site revenues during the first year of conversion. Moving on to new construction. In the second quarter, we delivered approximately 220 new sites, 100 of which were ground-up developments and 120 were expansion sites. The ground-up development deliveries include RV sites at our newly opened camp Fimfo outside of Austin and Texas Hill country. This marks the first delivery in a planned series of new ground-up family-focused RV resorts within one of our JV partnerships. Those of you wondering, Fimfo stands for fun is more fun outdoors. These completed expansion and ground-up development sites will contribute to revenue growth in 2021 and beyond as they fill up and stabilize. Manufactured housing home sales in the second quarter is another area where we saw a tremendous increase compared to the same period last year. Total sales volume was up approximately 90% year-over-year as we sold more than 1,100 homes in the quarter. Compared to 2019, this sales volume represents an increase of 25%. We believe the growth is due to a number of factors, including pent-up demand from limited home moves during the pandemic, the attainable nature of the homes in our communities in an increasingly tight real estate market, and lower relative increases for the construction and material costs of our product versus site-built housing. Average home prices during the quarter for new and preowned homes rose 11.6% and 23.3%, respectively, underscoring the overall geographic mix as well as sustained demand for our product and the strong desire to live in a high-quality Sun community. This favorable demand environment helped support attractive gross margin results for both new and preowned home sales which expanded 50 basis points and 14.6 percentage points, respectively, compared to the prior year period. Additionally, brokered home sales volume was up 113% compared to the second quarter of 2020 with the average home value increasing by 26%. In terms of our operations, in our manufactured housing business, we are benefiting from sustained strength and fundamentals and demand for affordable housing. Applications to live in a Sun Community were up more than 20% compared to 2020 in the second quarter and year-to-date. Turning to the marina business. We ended the quarter with 114 properties comprising nearly 41,300 wet slips in dry storage spaces, which includes the acquisition of 4 properties for approximately $423 million completed in the second quarter. Better-than-expected performance for the marina portfolio continues to come from demand for wet slips and dry storage spaces. Same marina rental revenue growth for the portfolio of 75 properties owned and operated by safe harbor since the start of 2019 was almost 17% for the first half of 2021 over 2019. This is a CAGR increase in rental revenue of 9.7% for the quarter and 8% for the first half of 2021. Overall, the marinas are performing ahead of expectations and the safe harbor team continues to source attractive acquisitions as Gary discussed. According to the National Marine Manufacturers industry, both dealers are seeing record levels of demand. New boat sales reached a 13-year high in 2020, and they remain at elevated levels with the most recent reported sales data through March 2021, up 30% compared to the 2020 average. In summary, we are very encouraged by our performance across all of our businesses year-to-date and our outlook for the remainder of the year. Secular demand trends are acting as a tailwind, and Sun has the platform and expertise to capture that demand and realize attractive growth. The combination of the favorable macro environment, along with the strategy Sun has been implementing for years, has positioned us very well to continue to execute on our initiatives, drive industry-leading growth and create long-term value for all stakeholders. Karen will now discuss our financial results in more detail.

Karen Dearing, CFO

Thanks, John. For the second quarter, Sun reported core FFO per share of $1.80, 60.7% above the prior year and $0.17 ahead of the top end of our second quarter guidance range. Outperformance was achieved across all business lines. Our manufactured housing business experienced higher-than-forecasted revenue, including rental home revenue and other community-related fees and charges as well as lower-than-expected operating expenses. Annual RV revenue as well as transient and vacation rental revenues drove strong results in the RV segment, partially offset by higher operating expenses including wages and benefits, utilities and supply and repair costs. And the marina business was bolstered by higher boat slip, storage and service revenues, offset by higher payroll costs as well as utility and repair costs. During the quarter and subsequent to quarter-end, we acquired over $719 million of operating properties, bringing our year-to-date total to over $853 million, adding 28 properties totaling over 7,600 manufactured housing and RV sites, marina wet slips and dry storage spaces. To support our operations and growth activities, we have been active in enhancing our balance sheet and in capital markets activity, which provide the capacity and flexibility to pursue our ongoing growth pipeline. As Gary mentioned, we are pleased to have received investment-grade ratings with stable outlooks from both S&P and Moody's. We followed this news with a successful $600 million inaugural bond offering in mid-June. Additionally, during the second quarter, we drew on the remainder of the forward equity sales agreement we had entered into in March. We settled 4 million shares with net proceeds of $540 million, the majority of which was used to fund our acquisitions and pay down our line of credit. Finally, we recast our revolving line of credit agreement. We replaced the prior $750 million line and safe harbor's prior $1.8 billion line with a combined $2 billion revolver with a $1 billion expansion option. We ended the second quarter with $4.3 billion of debt outstanding at a 3.5% weighted average rate and a weighted average maturity of 10.4 years. As of June 30, we had $104 million of unrestricted cash on hand and a net debt to trailing 12-month recurring EBITDA ratio of 5.1x. We are raising our full year 2021 core FFO guidance to a range of $6.25 to $6.37 per share, a $0.31 increase at the midpoint from our prior range, which represents year-over-year growth of 24% at the midpoint. Approximately $0.17 of the increase is due to our outperformance in the second quarter with the remainder due to contributions from our recent acquisitions and increased expectations across each of our businesses, particularly transient RV. This is offset by approximately $8 million of property-level proactive wage increases for the remainder of the year, which Gary previously discussed, of which approximately half had been included in prior issued guidance. Additionally, we estimate an impact of $0.11 per share for the remainder of the year from the settlement of the forward equity offering completed in the second quarter. We expect core FFO for the third quarter to be in the range of $2 to $2.06 per share representing 27% year-over-year growth at the midpoint on top of the 10% growth we delivered in 2020 over 2019. We are also revising full-year same community NOI growth guidance to a range of 9.9% to 10.7%, up 230 basis points from the previous midpoint of guidance of 8%. This revised NOI growth range is inclusive of the aforementioned increased property level payroll expenses. As a reminder, our guidance includes acquisitions through the date of this call, but does not include the impact of prospective acquisitions or capital markets activities, which may be included in research analyst estimates. This completes our prepared remarks. We will now open up the call for questions.

Operator, Operator

Our first question comes from Nick Joseph with Citigroup.

Nicholas Joseph, Analyst

Gary, you mentioned the robust acquisition pipeline. So I'm wondering if you're seeing any differences in competition for assets or relative value between the different business lines?

Gary Shiffman, CEO

Nick, the competition stays pretty similar as to what we've expressed in the past. There are a number of newly formed platforms that we're encountering out there, small to midsize looking to grow their portfolios. We announced the sale of 2 properties as dispositions in our earnings release that went to a group that is certainly growing their platform. Lots of competition out there in the MH, the RV side, and we're starting to see it a little bit on the marina side. Cap rates, although I know it wasn't part of your question, seemed pretty similar to where they've been and what we've shared in the past. The MH and RV all falling generally for us in the 4% to 5% cap rate range, and we're seeing them dip even sub-3% in some cases. So a lot of capital looking to acquire fewer and fewer available assets out there today.

Nicholas Joseph, Analyst

That's helpful. And you mentioned the dispositions. How many more properties are noncore? And what should we expect you to sell into transaction market?

Gary Shiffman, CEO

I think that John would share these sentiments and feel free to add anything that we, from time-to-time, do a very close look at our assets and generally where we find assets that don't fit the growth pattern of the rest of the portfolio. We'll look at the potential disposition. You'd have to go back, I think, all the way to 2014 or '15 to the last dispositions that we did. I think in assembling a best-in-class RV and MH platform over the last 10 years or so in the industry, there is just a little bit of calling that will take place every so often when we don't meet those growth trajectories or have other reasons for selling assets.

Nicholas Joseph, Analyst

Are there any more properties right now that aren't meeting those criteria that could be sold in the near term?

Gary Shiffman, CEO

There's a handful of fiber under properties that were identified on our disposition that may remain non-transact in the near future.

Wesley Golladay, Analyst

Just wondering with the strength you're seeing in the transient RV, does it make sense to hold back some of the annual RV sites at certain locations?

John McLaren, COO

Wes, this is John. Yes, I want to reiterate some of the metrics we shared earlier, particularly the web traffic, which has seen an 80% increase in first-time guests compared to 2019. A significant factor contributing to this is the 11 million registered RVs out there, compared to about 1 million sites. Platforms like Outdoorsy and RVShare make that number feel much higher. We’re unsure of the exact figure; it could be 12 million or 13 million as vital RVs are engaged across America. The activity is quite impressive. Traditionally, we convert between 1,000 to 1,100. We consistently evaluate each property on a site-by-site basis to find the right balance between revenue per site and whether it remains a transient site or converts to an annual site. We’ve still seen growth in the annual side of the business, having converted over 744 so far this year, which is above our usual pace. Overall, it’s about maintaining a balance at each property, which we will continue to monitor closely as always for execution.

Wesley Golladay, Analyst

Got it. And then when we look at the marinas, you obviously acquired another pretty fast clip here. Have you started to redevelop any of the sites that you've acquired already?

Gary Shiffman, CEO

Yes, it's Gary. Absolutely. There is a higher demand for bigger and longer slips, as both being sold tend to be longer in length. Therefore, we are converting smaller slips into those that are in higher demand, which is an ongoing process. In the not-too-distant future, we plan to open a brand-new marina development directly across the river from the Lauderdale Marina that we just acquired, allowing us to expand that marina facility. This approach is similar to what Safe Harbor management has done with Sun's MH and RV platform by studying existing assets and creating value through redevelopment and reinvestment of capital where possible.

Wesley Golladay, Analyst

Got it. And I just have one quick modeling question. You have that new metric, the SRDE. There's a lot of seasonality to it. Should we expect 3Q results to be largely comparable to 2Q?

Karen Dearing, CFO

Yes. The Q3 results, as we've mentioned, are highly driven on transient RV and marina. So in the marina side, it's service really that's driving it. And on the RV side, it's retail dining, entertainment and other fees and charges. So I would expect continued outperformance from those areas in Q3.

Keegan Carl, Analyst

I think just given all your recent transactions in the marina space, is there a percentage of the business that you actually cap marina revenues at? Or are you going to continue to be aggressive just given the attractive cap rates you're seeing?

Gary Shiffman, CEO

Keegan, when we announced our acquisition of Safe Harbor, we mentioned that the rental income from Safe Harbor would account for about 17% of Sun's rental revenues at that time. Today, despite all the acquisitions we've made, it now represents about 18% of our rental revenues. Initially, we set a goal for our stakeholders, similar to what we achieved in the RV business, where we increased our RV rental revenue from about 11% in the mid-2000s to approximately 25% to 30% currently. We aimed to reach 20% to 25% in marina rental revenue, but we've seen significant success with a strong pipeline in the manufactured housing and RV sectors. As a result, we've increased the marina contributions by about 1 percentage point with the acquisitions we've made so far.

Keegan Carl, Analyst

Got it. And then as far as the marina acquisition strategy, should we expect more yacht-focused marinas in the future? And how do the cap rates compare on these just to a traditional marina?

Gary Shiffman, CEO

Yes. Similar to real estate, the key factors are location and demand in any given area. I want to highlight that we are achieving results comparable to what we accomplished at Sun in RV and MH by concentrating on the East Coast. We have a strong presence in Florida, as Safe Harbor expands northward all the way to Maine, creating a network that allows Safe Harbor members to travel seamlessly within the system. This is a significant differentiator, showcasing the robust platform that Safe Harbor is establishing. We will also extend our efforts to the West Coast, mirroring our previous successes in MH and RV. We have already initiated several acquisitions there and aim to develop membership patterns and traffic from regions like Seattle down to San Diego. Ultimately, our goal is to ensure a consistent quality of experience throughout the Safe Harbor membership, so members will prefer to stay at Safe Harbor marinas if we provide the necessary infrastructure.

Keegan Carl, Analyst

Got it. And just one final one on the investment-grade ratings that you guys received. Can you maybe go through the process you went through working with the ratings agencies? And was it ahead of your internal expectations to receive them?

Karen Dearing, CFO

I'm sorry, could you ask the question again? Was it ahead of our internal ...

Gary Shiffman, CEO

Yes, we worked through it. I believe it was even quicker than we anticipated. When we made the decision, we considered it during our first quarter review with our Board of Directors and senior management, assessing all aspects of Sun, including the balance sheet. We concluded that the timing was appropriate, and the efforts put into maintaining Sun's balance sheet, along with its history and investment-grade status prior to 2004, contributed to a swift approval and the investment-grade rating we achieved. Our objective is to keep collaborating with the agencies to showcase a process that can enhance our rating as we progress.

Samir Khanal, Analyst

Gary, I guess my question is around the acquisition pipeline. I mean, you've been very active on that front. Looking at the numbers you could do more than $1 billion this year. Do you think that's sort of sustainable into even next year as we think about your growth profile over the next 12 to 24 months, just given the amount of capital chasing deals today? I just want to kind of get your view on that.

Gary Shiffman, CEO

That's an excellent question, Samir. Each year we consider this both externally and internally. We're fortunate to have a strong acquisitions team, and we've also brought in the marina acquisition team at Safe Harbor. The competition is increasing from small investors as well as well-capitalized large platforms. The 1031 exchange competition adds to the challenges. One of the key factors in our success with acquisitions has been the strong relationships and history we've built over the last decade. As a result, we have access to almost every transaction in the MH and RV sectors, allowing us first looks at opportunities. Many transactions come to us directly, and while we also compete well in brokered auctions, we focus on opportunities that align with our growth strategy. In short, it is becoming increasingly challenging, but I believe we will continue to thrive. Our pipeline looks quite similar to what we've communicated in previous quarterly calls. We plan to enhance our new community development efforts, currently having around 8,400 sites under contract at various stages of closing or entitlement and rezoning. We anticipate that these new developments will yield high single-digit unleveraged IRRs upon stabilization over the next 3 to 5 years. If we encounter any shortfall in acquisitions, we believe we can compensate with growth from our new community development initiatives.

Joshua Dennerlein, Analyst

Gary, Karen and John, I hope you're all well. Curious on the RV side. I know at NAREIT, we discussed the rollout of your Campspot RV revenue management system. How much of a contributor of that is driving the strength in transient RVs?

John McLaren, COO

Josh, it's John. The Campspot reservation process significantly contributes to our performance, particularly because the system has an embedded algorithm that optimizes rate and occupancy. It's like solving a jigsaw puzzle every weekend; the system automatically maximizes the occupancy grid. This is just one aspect of our overall contribution on the RV side. From a revenue management perspective, if we experience lower occupancy during weekdays, we can lower rates to increase occupancy in the community. Historically, Sun has focused on maximizing revenue during the shoulder months of our Snowbird season, and now we can apply similar strategies throughout the week. We're seeing positive contributions by adjusting both rates and occupancy levels within each community.

Joshua Dennerlein, Analyst

It's great to see this. Looking at Page 22, I noticed a column in the table titled growth projects. I'm not sure if this is new, but I saw that in 2019, it was significantly smaller than in 2020 and 2021. I'm curious if most of these growth projects are primarily driven by the marinas.

Karen Dearing, CFO

Well, Josh, you noticed this. It used to be called revenue producing. And when we brought the Marina portfolio and we changed it to growth projects. So you're correct. There is a piece of this is what these projects are or projects that are either revenue-producing or expense savings. So they include things like our solar project, other utility conservation projects. From the Safe Harbor side, it includes the slip configuration, the dry storage improvements and some of their water suite rental boats that they're including. So about $11-plus million of it is from the MH, RV side and the remainder of it is Safe Harbor.

John Pawlowski, Analyst

I just like to follow up on Josh's question there, John, I'd just like to hear how you think through the intermediate term trajectory of just total RV and net dollars? So you've got Campspot rolled out some of this transient demand will probably go away, but other sources of demand in a post-COVID world will stick. So will absolute RV dollars go down over the coming years? Will it go up? Just help me think through the stickiness of this demand you're seeing?

John McLaren, COO

Yes, great question, John. I appreciate it. I have a lot of metrics to share. For example, our RV same community NOI grew by 85% in the second quarter. Revenue growth for Memorial Day and the 4th of July increased by 39% and 35% compared to 2019. The growth in our community has been robust, with a healthy balance between occupancy and ADR. Our web traffic is up by 80% compared to the first half of 2020 and 158% compared to 2019. We’ve also seen an 82% increase in travelers aged 18 to 24 and a 39% rise in those aged 25 to 34. We have 1.3 million followers across Instagram, TikTok, and Facebook. The RV Industry Association estimates 575,000 RV sales in 2021. Additionally, we are seeing an 80% increase in first-time guests at our locations. While it’s true that some people may revert to old vacation habits and travel by plane, the resurgence in airline travel is evident. I’m heading to the airport tomorrow and am glad to have clear to get through faster due to the busyness. However, the prospects for RV travel have never been stronger. Many new individuals have discovered and enjoyed the outdoor lifestyle, and we expect to retain a portion of them, which is an incremental improvement for us. Lastly, we need to consider the new entrants in the market, like Outdoorsy and RVShare, who are receiving significant investment. Many RVs that have been parked in people’s yards and driveways are being utilized again, creating a situation where it feels like we have more than the 11 million RVs available for every 1 million sites. This is certainly a positive development. As I’ve mentioned in previous calls, and Gary echoes this sentiment, the discovery phase is real, and it's a net benefit for us moving forward.

John Pawlowski, Analyst

Understood. That's certainly a powerful statistic. So your sense if you had to bet on it, is your sense that just take year-to-date $170 million in RV revenue. Is that a sustainable base to grow off of these next few years?

Gary Shiffman, CEO

Yes, I think we're all aware that we have been growing for the last 10 years at a healthy rate. As John mentioned, if we continue to grow as we have historically and capture any incremental share of the available demand going forward, even with some fluctuations, we should be able to provide solid returns to our shareholders. Additionally, I want to emphasize the importance of our strategic planning in our acquisition activities. We're not just acquiring to expand but to build a set of assets that enhance customer retention, similar to what Safe Harbor does within the Sun RV Resort program. We also have a significant loyalty program and various branding initiatives that will be launched in the next 12 months, aimed at fostering sustainable loyalty to our brand. Overall, we feel very positive about our potential growth moving forward.

John Kim, Analyst

John, you mentioned the typical 50% increase in revenue you get when you convert transient RV to annual seasonal. But can you talk about the conversion rate? Has that changed or come down dramatically just given the change in the demographic of your transit RV customers?

John McLaren, COO

No, it's actually running ahead of the 744 that we've achieved. Some of this can be attributed to the increased demand in the asset class, as more visitors are coming to the resorts and showing greater activity and interest. Additionally, I've mentioned this for years, the positive experiences they have play a significant role. It makes sense for those who love the outdoors to choose a resort where they can return and build friendships with fellow guests, leading to them wanting to gather together. We're very pleased with the success, and I believe we could potentially exceed the typical annual range of 1,000 to 1,100.

Gary Shiffman, CEO

That's a great question. The answer is we do not have a definitive stance, but it is difficult to ignore the current climate concerns. Our entire company is very focused on this issue. Regarding Safe Harbor, you might remember that during the board-level review of the transaction, we placed significant emphasis on climate considerations, processes, and the financial implications of climate change. The first step we took was to enhance our property and casualty insurance related to named storm impacts, and we have already implemented that. After the acquisition, Safe Harbor conducted a study at Brown University, led by a professor named Kurt Falling. The study projected that, under a worst-case scenario over the next 15 years, there could be $10 million in ground damage, primarily due to 90% of the marina assets being on the water and affected by water levels. This situation impacts what occurs on land. Following the acquisition, Safe Harbor has re-engaged with Brown University and we anticipate receiving updated results on climate impact for Safe Harbor Marinas in the next quarter or so. We look forward to sharing that information with everyone once it is completed in the next couple of quarters.

Michael Goldsmith, Analyst

Marina NOI doubled from the first quarter to the second quarter. I think the guidance at the beginning of the year called for a 60% sequential increase. You've acquired more marina since then, but can you, like, help break down where that outperformance came from?

Karen Dearing, CFO

I believe the increase in marina NOI is primarily due to seasonality. The marina's lowest season is likely in the fourth quarter and first quarter, while the second and third quarters generate the highest marina NOI. Thus, it's important to consider seasonality along with the acquisitions you mentioned when looking at that growth.

Michael Goldsmith, Analyst

We can discuss that later. However, the guidance for the implied fourth quarter core FFO is between $1.19 and $1.25. The midpoint is slightly lower than the guidance provided at the start of the year. Is there more influencing this than just share issuances and wage increases in the fourth quarter? This translates to a core FFO growth rate of 3% to 8% on a more standard comparison. Is this a reasonable way to consider the potential for FFO growth moving forward?

Karen Dearing, CFO

To your first point, in Q4, again, I think there's some misalignment of seasonality on estimates in ours and analysts. I think the impact of the equity offering, as you mentioned, is in there in Q4. And there is not only the higher level payroll costs, there's also $4 million of costs associated with the branding of our RV platform that Gary mentioned and some higher corporate wages and incentive comp based on outperformance that we've been experiencing as an organization. And I'm sorry, what was your other question?

Bradley Heffern, Analyst

Regarding the marinas and in connection with the previous question, after completing all the acquisitions, you stated that the performance has been better than the underwriting expectations. Can you provide an estimate of the current run rate NOI?

Karen Dearing, CFO

For the second quarter, marina outperformance was higher than our internal estimates by about $9.5 million. As we look towards the rest of the year, our guidance range of $0.31 includes about $0.09 to $0.10 from the marinas segment.

Bradley Heffern, Analyst

Yes. I understand. You mentioned that you have a new marina development coming online across from Lauderdale. Will this be a significant source of organic growth moving forward, or is it just a one-time occurrence? Are you planning to invest more capital in newly developed marinas?

Gary Shiffman, CEO

I'd like to think we have more opportunity there. But due to the difficulty and length of entitlement and the ability to build new marinas, it's likely to be more of a one-off, and I would expect we'll have other one-offs. But not a lot of opportunity to build new marina, and that is one of the things that attracted us to the marina platform very similar to what attracted us to manufactured housing and the RV platform.

John Kim, Analyst

John McLaren, COO

No, it's actually performing better than expected, reaching 744 so far. This is likely due to increased demand in the asset class, as more people are visiting the resorts and showing interest in the activities offered. Additionally, the experiences provided play a significant role. It's quite natural for those who enjoy being outdoors to return to a resort and form friendships with others they meet, leading them to spend time together. We're very pleased with this success and believe we might exceed the usual annual range of 1,000 to 1,100.

Gary Shiffman, CEO

That's a great question. The answer is we do not, but it's hard not to pay attention to all the climate concerns that are out there today. We're very focused on it as a company. Regarding Safe Harbor, you may recall that when we reviewed the transaction at the board level, we concentrated heavily on climate considerations and the financial impacts of climate change. The first step we took was to increase our property and casualty insurance related to name storm impacts. We've already done that. After the acquisition, Safe Harbor conducted a study with Brown University on climate control, led by Professor Kurt Falling. The study indicated that in a worst-case scenario, looking over a 15-year period, there could be $10 million in property damage. This is largely because 90% of the marina assets are on the water and are affected by the water level, impacting what happens on land. Post-acquisition, Safe Harbor has reengaged with Brown University, and we expect to receive the results of an updated climate impact study on the Safe Harbor Marinas over the next quarter or so. We're looking forward to sharing that with everyone once it’s completed in the next quarter or two.

Michael Goldsmith, Analyst

Karen Dearing, CFO

I believe the increase in marina NOI is primarily due to seasonality. The marina season typically sees the lowest activity in the fourth quarter and the first quarter, with the highest NOI generation occurring in the second and third quarters. So, it’s likely that this seasonal aspect contributed to the growth, along with the acquisitions you've mentioned.

Michael Goldsmith, Analyst

We can discuss that later. The guidance for the expected fourth quarter core FFO is between $1.19 and $1.25. The midpoint is slightly lower than what was projected earlier this year. Are there factors beyond just share issuances and wage increases affecting the fourth quarter? That translates to a core FFO growth of 3% to 8% compared to a more typical comparison. Is that a reasonable way to consider the future growth rate of FFO?

Karen Dearing, CFO

Bradley Heffern, Analyst

On the topic of marinas and in response to the previous question, you've completed several acquisitions, and you noted that the performance has been better than expected. Can you provide an estimate of what you think the current run rate NOI is?

Karen Dearing, CFO

For the second quarter, marina outperformance exceeded our internal estimates by approximately $9.5 million. Looking ahead for the rest of the year, our guidance range of $0.31 incorporates about $0.09 to $0.10 attributable to the marinas segment.

Bradley Heffern, Analyst

Yes, I understand. You mentioned you have a new marina development opening across from Lauderdale. Will this be a significant source of organic growth moving forward, or is it just a one-time opportunity? Do you plan to invest more capital in new marina developments?

Gary Shiffman, CEO