Sun Communities Inc

NYSE:SUI

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for standing-by. Welcome to the Sun Communities Third Quarter 2019 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 meanings of the Private Securities Litigation Reform Act of 1995.

Although the Company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can provide no assurance that its expectations will be achieved. The factors and risks which could cause actual results to differ materially from expectations are detailed in yesterday's press release, and from time to time in the Company's periodic filings with the SEC.

The Company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release. Having said that, I would like to introduce management with us today: Gary Shiffman, Chairman and Chief Executive Officer; John McLaren, President and Chief Operating Officer; Karen Dearing, Chief Financial Officer.

After their remarks, there will be an opportunity to ask questions. I'll now turn the call over to Gary Shiffman, Chairman and Chief Executive Officer. Mr. Shiffman, you may begin.

[Gary Shiffman, Chairman and Chief Executive Officer]

Good morning and thank you for joining us for Sun Communities third quarter earnings conference call. We're pleased to report continued strong performance for the third quarter for both our manufactured housing communities and RV resorts. The need for affordable housing and vacationing in premier locations across North America continues to reinforce our industry leading results.

Core funds from operations for the quarter ended September 30, 2019 was a $1.46 per diluted share at the high-end of our guidance range and up 8.1% versus a year ago. Same community net operating income growth was similarly strong up 7.2% for both the third quarter and the first nine months of the year.

Given the greater visibility of our operations, as we approached the end of the year, we are once again raising core FFO, guidance and updating our expectations for our same community NOI. Karen will provide details when she reviews our financial results.

Our continued success in delivering strong results can be attributed to Sun's consistent organic growth as well as our ability to complement that growth with expansions, ground-up developments and accretive acquisitions. We were active across all three areas in the third quarter helping to lay the foundation for continued long-term success.

On the ground-up development front, we delivered almost 500 sites at four locations including Carolina Pines near Myrtle Beach, South Carolina; Jellystone Golden Valley in North Carolina and River Run Ranch and Smith Creek Crossing in Granby, Colorado. Upon completion, these properties will total over 2,600 operating sites.

Additionally, during the quarter, we commenced construction on our 280 site San Diego Bayfront RV resort. Our acquisition strategy remains focused on identifying opportunities in high demand areas with limited supply, diligently scouring the landscape for properties that meet our investment criteria is an ongoing process of Sun that helps us acquire one-off communities as well as consolidated portfolios.

During the third quarter, we announced the acquisition of a 31 property manufactured housing portfolio from the Jensen family for $344 million. The Jensen communities are approximately 75% age restricted and located in eight states, primarily across the Eastern U.S. The portfolio will add 5,230 manufactured home sites and over 460 additional expansion ready sites to Sun's platform.

The Jensen acquisition is noteworthy and that the seller has elected to take 80% or $275 million of the consideration in Sun common stock. The transaction is expected to close by October 31.

We believe that our experience in structuring a transaction that works for both Sun and the seller enable us to win this highly sought after portfolio. This is a strategy that we have used in the past to secure other portfolios including the American Land Lease and Carefree Transactions.

By using our advantageous cost of capital and in some cases issuing tailored securities to the sellers, we have captured transactions that have allowed our platform to grow, diversify, and generate attractive returns to the long-term. We see this as a competitive advantage, which should persist as long-term manufactured housing and RV resort property owners look for ways to monetize holdings, while simultaneously addressing the tax planning needs.

We also acquired four operating properties containing 948 sites in Delaware Louisiana, New Hampshire and Virginia for a total consideration of $93.5 million. Upon the closing of the Jensen transaction, we'll have invested nearly $800 million in the acquisition of 45 operating manufactured housing and RV properties year-to-date.

We're confident that we can continue to execute on our acquisition pipeline. This quarter's accomplishments are yet another example of excellent execution that contribute to our long history of sustained organic growth and accretive acquisitions. For nearly 45 years, we have developed and maintained a reputation as a trusted provider of attractive and affordable solutions for both housing and vacationing.

As a result of following the same tried and true strategy, we remain optimistic about our continued ability to deliver shareholder value well into the future. Our steadfast adherence to our four core capital allocation initiatives supports the growth of our platform. These include the consistent reinvestments in our operating properties to support continued high occupancy rates, accretive acquisition of operating properties; this performance can be further enhanced as they are integrated onto the Sun platform; save expansion within our existing communities and resorts, where we can drive highly accretive returns for new sites; and selective ground-up development of premier resorts and communities in highly desirable areas.

Let me now turn the call over to John and Karen to discuss the results in detail. John?

[John McLaren, President and Chief Operating Officer]

Thanks, Gary. During the third quarter, Sun once again delivered great operational results with strong contributions across portfolio. The consistent factor in our leading performance is primarily NOI growth from our same community portfolio, portfolio-wide occupancy gains and the contribution of our acquisitions year-to-date. This is our third consecutive quarter delivering same community NOI growth of 7.2% at the top end of our guidance range. The improvement was driven by a 6.1% revenue increase and a 3.9% expense increase.

Our same community revenue increases were comprised of a 6.4% increase in manufactured housing revenues, 10.2% increase from annual RV and a 3.4% increase from our transient RV revenue. For the nine months ended September 30, manufactured housing revenues increased 6.3%, annual RV revenues rose by 10.2% and transient RV revenue increased by 2.5% despite an almost 9% reduction in available site nights year-to-date given our strong site conversion activity.

Total portfolio occupancy improved 60 basis points to 96.7%, reflecting the addition of 766 sites in the third quarter and nearly 2,730 revenue producing sites over the last 12 months. In our manufactured housing expansion communities, over 200 sites are filled in the third quarter and over 730 sites were filled year-to-date. With respect to the RV transient site conversions to annual leases, we completed 470 conversions in the third quarter and almost 900 year-to-date.

Home sales volume continues to demonstrate healthy demand for our communities. In the third quarter, Sun sold 906 homes, of which 167 were new exceeding new home sales by 14.4% over the third quarter last year. Top new home sales locations where Florida, Michigan, Ontario and Texas, accounting for 70% of total new home sales, our renter to homeowner conversions have also been strong in 2019 with 317 renters becoming homeowners in the third quarter.

Year-to-date, we have converted 859 renters to homeowners, a 4.1% increase over the same period last year. In the third quarter, we completed the construction of approximately 180 vacant expansion sites across three operating manufacturing communities and RV resorts, bringing our year-to-date total vacant expansion site deliveries to 365. By the end of the year, we expect to be within the previously provided range of 1,200 to 1,400 vacant sites deliveries.

We also delivered almost 500 sites in four ground-up development projects, capping off a productive quarter. In the first-three quarters of 2019, we have delivered over 750 sites and remain on track to deliver between 800 and 1,000 total ground-up development sites for the year. These results are a direct reflection of the dedication ownership mindset that our team members bring to their communities every day. We truly have the best team in the business.

We are very pleased with our performance in the third quarter, as it reinforces our commitment to deliver superior service to our residents and guests. We believe that our sustained efforts to put our customers first translates directly into shareholder value.

With that, I will turn the call over to Karen to discuss our financial results. Karen?

[Karen Dearing, Chief Financial Officer]

Thanks, John. Sun reported $1.46 of core FFO per share for the quarter ended September 30, 2019 in line with the top end of previously provided quarterly guidance and 8.1% over the third quarter of 2018. As we mentioned earlier, these results were driven by the consistent strength of our same community NOI and contributions from home sales and our recent acquisitions.

Before moving onto the discussion of our balance sheet and updated guidance, we wanted to revisit the direct share issuance related to the Jensen Portfolio. As Gary mentioned earlier, we expect to close on the Jensen Portfolio acquisition of 31 manufactured home communities by the end of October. Total consideration for the portfolio was approximately $344 million comprised of the following: $274.8 million of Sun shares issued at $139.31 per share based on the trailing 20-day VWAP at the time we entered into the contract. This translates into $1.97 million incremental shares. The remainder will be paid in cash.

We would also like to note that in the fourth quarter, we will initiate the process to convert approximately 1 million shares of Series A-4 preferred stock and approximately 400,000 Series A-4 preferred OP units. The conversion which has been approved by our Board will occur in December. Each share of the Series A-4 preferred stock and preferred operating partnership units is convertible into approximately 0.44 shares of common stock or common OP units. This will translate into an incremental 647,000 common shares and units on the conversion date.

Conversion of these securities further simplifies our capital structure and reduces our quarterly cash distributions as the individual coupons for the Series A-4 preferred stock and OP units were 6.5%. With respect to other capital markets activities, we continued our efforts to incrementally reduce our funding costs. In the quarter, we completed a $250 million 10-year term loan that carries a 2.925% interest rate and also repaid a $134 million term loan in advance of its May 2023 maturity date.

Our weighted average interest rate is 4.3% and we continue to see opportunities to reduce that cost, given the current interest rate environment. We ended the quarter with $3.3 billion of indebtedness and $26 million of cash on hand. Our net debt to trailing 12 months of EBITDA on September 30 was 5.3 times, well within our target leverage ratio.

Moving on to guidance. We are tightening our core FFO per share guidance by $0.02 to $4.86 to $4.90. This reflects $0.01 increase at the midpoint. We are also tightening our same community NOI guidance range by 20 basis points, for a full year range of 6.8% to 7.2%. As is our practice, our guidance does not include the impact of prospective acquisition other than the announced Jensen transaction, which is expected to close in the next week. Our capital markets activities that may be included in analyst estimate.

This concludes our prepared remarks and we'd like to open up the call to questions. Operator?

[Operator]

Thank you. [Operator Instructions] Our first question is from Drew Babin with Baird. Please proceed.

[Drew Babin, Baird]

Hey, good morning.

[Karen Dearing, Chief Financial Officer]

Good morning, Drew.

[Drew Babin, Baird]

Quick question on the Jensen's portfolio, as it begins to flow into your guidance in the fourth quarter. I guess, can you give us any detail about year one yield expectations on the portfolio and kind of ultimately where you hope to be when it comes to intensive management, adding CapEx, adding sites, things like that to the properties. Can you maybe just give us a little more color as we model out in 2020 and beyond?

[Gary Shiffman, Chairman and Chief Executive Officer]

Sure, Drew. I think, well, we are cautious that things have not closed yet, but the expectation that will close shortly. We've underwritten to about a 4-7 yield for the first year, minimal impact with what's left in the balance of the year, I think about maybe just around a $0.005 and we believe much of that has been taken into account in the analyst world as it's been known and we've announced this for a while. Ordinarily, we wouldn't discuss acquisitions like this prior to them closing, but because we were issuing common currency. We did announce that at the time, we locked into this transaction, as far as other operating items. I turn it over to John.

[John McLaren, President and Chief Operating Officer]

Yes. I think – good morning, Drew. I think one of the things that I would add and – few of things that I would add, with respect to the Jensen Portfolio is, first off, from an operational perspective, we're thrilled to have won these irreplaceable assets. From our perspective – from my perspective, this may be one of the sharpest looking portfolios communities I've seen and I think it speaks very well to the high quality of the communities themselves and how closely match the Jensen team is with Sun, in terms of the care and stewardship they demonstrate every day.

With respect to sort of growth opportunities, there's really – there is approximately 400 sites in the portfolio today of organic growth based on their occupancy. In addition to that, there is 460 expansion sites that are primarily located in Mid-Atlantic states like South Carolina, North Carolina, Georgia, Maryland, which lines up really well with areas that we've targeted for growth and expansion and even ground-up development, like South Carolina. So it really fits nicely in terms of our overall strategy within the portfolio.

[Drew Babin, Baird]

Thanks for the color. And one follow-up on the San Diego project, obviously, manufactured housing is probably the most practical solution available for California's affordability issues and with the political environment the way it is, is there any more traction and potentially gaining more opportunities in that state to develop ground-up incorporating affordable components. Can you maybe give us an update on the temperature of those discussions?

[Gary Shiffman, Chairman and Chief Executive Officer]

Hi, Drew. It's Gary. There certainly is and certainly West Coast – certainly right up to the Northwest area of concentration where we feel we can actually develop communities to a better return for our shareholders than buying them at the cap rates that they're trading at currently. One of the outcomes of what we've been doing in other areas, yesterday, we had a visit by several municipalities to our new development in Granby, Colorado to show it off, as you will, as an example of how we can address affordable housing needs. And particularly in these key resorts in the mountains where the cost of housing is very, very high and as we get underway with Chula Vista, we think it will be another great example of working hand-in-hand with municipalities.

Chula Vista, San Diego has already reached out to us and we are in discussions with them of expanding and being able to lease additional land for another 90 sites. So we're thrilled about that. To set the stage, so that everybody recalls, we were selected after submitting proposals to work with the City of San Diego and its still was – over two years to get a shovel on the ground, as being selective and not have to go through the entitlement process.

So every aspect of development has got to be thought through, it is slow, it is deliberate and that's why we have to keep a full pipeline in order to be successful in one or two instances with the entitlement. But we do think San Diego will be a good example of how we can work hand-in-hand with municipality.

[Drew Babin, Baird]

Thanks, Gary and John. And one quick one for Karen, the new term loan, I assume that was probably Fannie Mae, please confirm this, the case and I guess the one that was paid off. What type of secured debt was that? And what was the rate and what was paid off during the quarter?

[Karen Dearing, Chief Financial Officer]

Yes. That’s a great execution, we love that execution on that 10-year loan, $250 million that below 3%. The $135 million loan that was maturing in 2023 was a CMBS debt. The new debt, you are right that was Fannie and the debt that we paid off carried an interest rate of 4.3%. That transaction also freed up three assets from the collateral pool and obviously, gave us $103 million of additional proceeds to deploy into the business. So we're really happy with the execution on that debt.

[Drew Babin, Baird]

Thanks, Karen. That's all for me. Thanks.

[Gary Shiffman, Chairman and Chief Executive Officer]

Thank you.

[Operator]

Our next question is from Joshua Dennerlein with Bank of America Merrill Lynch. Please proceed.

[Joshua Dennerlein, Bank of America Merrill Lynch]

Hey, guys. I guess, I had a kind of question on your same-store or same community NOI growth. How much of – can you maybe break that down into components, how much of that is from kind of rate growth, occupancy growth on existing sites, and then expansion sites that have been added to communities?

[Karen Dearing, Chief Financial Officer]

I'm sorry, could you – I'm sorry, would you repeat that question?

[Joshua Dennerlein, Bank of America Merrill Lynch]

Yes. I'm just trying to figure out with your same community NOI growth, how much is just driven by rate growth on existing sites? And then, the filling up of maybe sites that are just vacant, so occupancy gains and then also just new expansions coming online in the community and contributing for the NOI?

[Karen Dearing, Chief Financial Officer]

Okay. So just to do the revenue walk on same community, 4.2% weighted average – 4.5% weighted average rent increase, 2.1% occupancy gain, there was about 30 basis points of transient income growth and another 10 basis points in other. When you think about our occupancy growth that 2.1%, just want to – I mentioned that, it's really, that's a point in time occupancy gain at the very end of the quarter and revenues are impacted by when you gain that occupancy.

So the timing of an RPS gain that is gained at the very end of the quarter has less impact on the actual revenue growth, as does the transient to annual conversions that we do, where that incremental – it's just is incremental revenue growth from the transient income we had in the prior year of 40% to 60% incremental revenue growth. So that is the walk on the revenue. As far as the impact of our expansion sites, as a general rule, our – for NOI every 500 sites we fill of expansions on a pro rata basis over the year equals about 25 to 30 basis points of NOI growth. We filled 970 expansion sites in the last 12 months, which would equate to about 48 to 58 basis points of NOI growth.

[Joshua Dennerlein, Bank of America Merrill Lynch]

Okay, awesome, awesome. And so the expansion sites that you expect to complete by year-end, 800 to 1,000, how quickly can you build those sites?

[Gary Shiffman, Chairman and Chief Executive Officer]

Generally, on the MH side, those are going to fill at a pace of about six to eight per month on a per community basis, Josh.

[Joshua Dennerlein, Bank of America Merrill Lynch]

Okay, awesome. No more questions from me. Thank you, guys.

[Gary Shiffman, Chairman and Chief Executive Officer]

Thanks, Josh.

[Operator]

Our next question is from John Pawlowski with Green Street Advisors. Please proceed.

[John Pawlowski, Green Street Advisors]

Thanks. John, moving to next year, do you expect a stronger, a similar or weaker pricing power environment across the portfolio on the MH and RV side?

[Gary Shiffman, Chairman and Chief Executive Officer]

As far as – what – I'm not sure I followed the question.

[John McLaren, President and Chief Operating Officer]

No increases…

[Gary Shiffman, Chairman and Chief Executive Officer]

Yes. I would expect something similar to what we've been doing, John.

[John Pawlowski, Green Street Advisors]

Okay. Any markets within the portfolio average behaving meaningfully better or worse than you would have expected at this point?

[Gary Shiffman, Chairman and Chief Executive Officer]

I think generally everything has gone very well and as expected over the course of the year.

[John Pawlowski, Green Street Advisors]

Okay. And last one from me, I know a lot of you may be your Midwest portfolio has a disproportionate exposure to either direct automotive employment or indirect employment. So curious on the ground, what you're seeing in terms of the GM strike and problems forward is having any leading indicators, worrisome indicators in terms of bad debt or potential move-outs?

[Gary Shiffman, Chairman and Chief Executive Officer]

No, we haven't. I mean, that really hasn't impacted us, but I would add is, I have – as we've described before is that we described the business has been kind of recession-resistant. And so when you look at that and whether it's – wherever the economy might be whatever might be going on locally, there always seems to be a need for our product, whether it's in the form of housing or vacationing in the affordability that goes with that. So nothing that has really indicated us any sort of change to what our expectations are, John.

[John Pawlowski, Green Street Advisors]

Okay. Thanks for your time.

[Gary Shiffman, Chairman and Chief Executive Officer]

Yes.

[Operator]

Our next question is from Nick Joseph with Citigroup. Please proceed.

[Nick Joseph, Citigroup]

Thanks. Maybe following up on one of those questions. Can you walk through the process of setting rents for next year and what percentage of next year's rent increases have already been negotiated?

[John McLaren, President and Chief Operating Officer]

Sure. This is John. Well, the first step in the process is generally we take a look at what – what's going on in the market around us and we look at comparable rents as well as the quality of the resorts that are – communities that are around us. And just making sure that we are sort of in line with, what the market will bear. That's generally one of the things that we do perpetually at Sun is, we'd update our market comparables on a quarterly basis throughout the portfolio. So we kind of know what things look and feel like and we know our peers that are out there very well and sort of have a sense of that all the way along.

[Gary Shiffman, Chairman and Chief Executive Officer]

Yes. The other thing I'd add Nick is that management here is acutely sensitive to a lot that's going on in the rental environment. And we always talk about living within a range of 2% to 4% rental increases and we've seen a little bit of expansion beyond that. But everything that management focuses on all four of its core pillars of growth, if you will. We're very, very cognizant to thinking out past quarter-to-quarter and thinking about one, three, five years. So if we can live at the high end of rental increases and sustain the kind of growth, we've been able to sustain now for one, three and five years historically, and go out forward in a similar fashion. We will leave room in elasticity to be able to continue to get some more rental increases. When one might point to the fact that on a given year, we could perhaps push rents a little bit more so we're very cognizant of that.

And then I would suggest more so, I think than many of our competitors the vast majority at this point of a rental increase that goes into place is what takes place as CapEx in the community. So as I mentioned in my beginning remarks, rental increases do go hand-in-hand with maintaining the quality and the high demand for the community. So balance of rental increase and a balance of investment in the community is really what drives the rental increases.

With regard to what's in place right now by September, each year we generally have to notify the rental increases that are taking place in Florida, 90 days in advance of January 1. That represents about 30% of the portfolio. So currently that would be the approximate number of notified rental increases.

[Nick Joseph, Citigroup]

And for that Florida portfolio, what's the rent increase for 2020 and what was it for 2019?

[Gary Shiffman, Chairman and Chief Executive Officer]

For 2020, we were included in the guidance that we provide next quarter and for 2019. I don't know if we ever broken out.

[Karen Dearing, Chief Financial Officer]

I don't have it in front of me.

[Gary Shiffman, Chairman and Chief Executive Officer]

Okay. It's something we could not get back to you with.

[Nick Joseph, Citigroup]

Thanks. And then just with the Jensen Portfolio closing next week, what was the acquisition pipeline look like beyond that? And then are you currently pursuing any larger deals or is it more one-off acquisitions?

[Gary Shiffman, Chairman and Chief Executive Officer]

I would suggest that it's definitely more one-off acquisitions. The Jensen deal came to the market on its own if you will, where the family determined that they were ready to exit and ran a fully shaft process. So, the pipeline remains very, very full just as it has been for the last several years. It's a good balance from MH and a good balance of RV resorts, all age senior obviously we're very, very selective. We're really focused on managing our geographic diversification now and travel patterns, so that we can take advantage of a larger network across the country of people who are traveling with their RV. As I said, you'll see more activity from us. I think in the North West and Western regions of the country, but most of it will be in onesies and twosies.

[Nick Joseph, Citigroup]

Thanks.

[Gary Shiffman, Chairman and Chief Executive Officer]

Sure.

[Operator]

Our next question is from John Kim with BMO Capital Markets. Please proceed.

[John Kim, BMO Capital Markets]

Thank you. It looks like Jensen got an attractive price on your shares based on, I guess strong performance of your shares recently. But can you remind us, is the 20-day VWAP standard when you pay in consideration with stock and also can you comment on why the seller chose not to take OP unit?

[Gary Shiffman, Chairman and Chief Executive Officer]

It's Gary. And I can’t comment on why the sellers elected OP or common. You'd have to discuss that with them directly. There was a lot of tax consultation that went in. There are 60 family members, if you will that are taking those common units. And I think, I missed the first part of your question, John?

[John Kim, BMO Capital Markets]

If it's standard that you use the 20-day VWAP when you...

[Gary Shiffman, Chairman and Chief Executive Officer]

Yes, I would say that there is standard of anything. We've used 10-day, 20-day, 30-day. I would share with the markets that when we first started getting into serious discussion as the leading candidate to acquire the property. The common was trading at about $120 a share. We were very concerned over the fact that when it closed – it had a VWAP of $139, but we assume that the Jensen's are very pleased with where it's trading at right now.

So there is no singular point where you can make a call about a stock going up and down. It could obviously have gone down. In this case, it went up. So the VWAP seems like a fair way for both parties to lock into a pricing before a transaction is taking place.

[John Kim, BMO Capital Markets]

Okay. I think this quarter you provided more disclosure on your ground-up development and you've added Smith Creek Crossing in the quarter. Is our four active ground-up developments, the most you've had in your history and can you envision doing more than one to two new ground-up development per year?

[Gary Shiffman, Chairman and Chief Executive Officer]

So historically...

[Karen Dearing, Chief Financial Officer]

We go back a long time.

[Gary Shiffman, Chairman and Chief Executive Officer]

Karen when I first came to the company as our Accountant and Control of New Development, there were times when we would have nine to 11 new developments going at any given time, when we were a much younger company and developing much more on our own. And the stated current goal is that we would like to have a pipeline that allowed us to develop three to four new communities each year. We have not been able to develop the land parcel pipeline to achieve that yet.

We're getting very, very close, but again the entitlement process is very cumbersome takes a long period of time as well as determining the financial feasibility. So, we're really reviewing 8, 10, 12 parcels of land at any given time with the hopes that one or two of them make it all the way through to entitlement approval.

So, if we could be in a level of three to four new developments a year, it would be terrific. I think, this year we're closer to two. Although, we have overlap in any given year because of the length of time it takes to start a development and finish it.

[John Kim, BMO Capital Markets]

A couple of questions on Ingenia. The presentation that they had when they raised capital discussed $22 million of earnings that they could achieve from developments, which assumes that they exercise the right to acquire 100% of the projects including your stake. Do you envision that, that's going to happen and how do you think that plays out?

[Gary Shiffman, Chairman and Chief Executive Officer]

Well, there is a lot of things to take into account with regard to the joint venture. I mean at this point, we are under construction with one new joint venture development that we hope will be completed and then we will be moving homes in there by the second quarter this coming year. We've closed on a second parcel and it will start construction shortly. And we've identified in the JV a third parcel for a larger community that we are under due diligence right now.

So, I think what I would suggest again, these are long-term projects. They're are done in phases. We haven't really opened the first phase yet. So, I think Sun will continue to monitor what's going on over the next 12 months. We'll share with the marketplace, what we are seeing. We are very pleased at how Ingenia performed through their year-end, which was June 30.

Guidance is very positive for the coming year from every indication they're performing. And to think about what may or may not be the returns that far out would just be hard for me to speculate on, but I can assure you, we will share in all of our calls, updates with how the performance is going as well as what additional thoughts we might have with regard to our investment in Australia.

The final thing, I would share with everybody is that we did participate in our pro rata share. They did a $131 million offering at about $3.93 per share. So Sun's investment was an additional $13 million for about 3.3 million shares. So that's pretty much the remarks, I would have on Ingenia. I am glad to answer any other questions.

[John Kim, BMO Capital Markets]

Can I just ask a follow-up on that.

[Gary Shiffman, Chairman and Chief Executive Officer]

Sure.

[John Kim, BMO Capital Markets]

What would it take for you to increase your stake in Ingenia to 20% from 9.9% today?

[Gary Shiffman, Chairman and Chief Executive Officer]

It's a great question. And not that there is any plan, but the governing rules in Australia, if we were to ever get to 19%. It's considered a hostile takeover. So the process becomes quite complex. I think that, for right now, we are in a lock-up and that lock-up expires sometime in May. We are very, very pleased with our relationship at Ingenia. And as I said, we'll just take it kind of one JV deal at a time and continue to look at it.

[John Kim, BMO Capital Markets]

Very helpful. Thank you.

[Operator]

Our next question is from Todd Stender with Wells Fargo. Please proceed.

[Todd Stender, Wells Fargo]

Hi. Thanks. Further back to the Jensen Portfolio, Gary, I think you gave a yield expectation or was that the 4.7 yield was that a trailing 12 months number?

[Gary Shiffman, Chairman and Chief Executive Officer]

That's an in-place.

[Todd Stender, Wells Fargo]

In place, okay. Can you provide some occupancy and some rate numbers around the portfolio. Just to maybe back into a stabilized yield expectation.

[Gary Shiffman, Chairman and Chief Executive Officer]

The occupancy...

[John McLaren, President and Chief Operating Officer]

Yes. The occupancy today is at approximately 92.5%,

[Gary Shiffman, Chairman and Chief Executive Officer]

Average rent? No.

[John McLaren, President and Chief Operating Officer]

I don't have right in front of me,

[Gary Shiffman, Chairman and Chief Executive Officer]

I don't think we have it right off hand. But if you reach out to John. I'm sure, he will be glad to share with you.

[Todd Stender, Wells Fargo]

Sure. And then kind of a stabilized number, this is a multi-year I guess is that, is it good sized portfolio you put some money into it, maybe get a stabilized yield up around six, something like that?

[Gary Shiffman, Chairman and Chief Executive Officer]

That would certainly be a minimal goal for us.

[Todd Stender, Wells Fargo]

Okay. Just switching gears, new home sales were up, it looked like a surprise to me, I guess, but pre-owned home sales were down. Is there any incentive differences right now for your sales force to maybe push new home sales versus pre-owned any color there?

[John McLaren, President and Chief Operating Officer]

No. Nothing from an incentive standpoint, Todd. I mean, really I would say, though, I think our sales results speak, do speak for the focus we placed on new home sales quantum margins over the last few quarters because we've had a lot of really solid growth on that side. On the pre-owned side, when we've placed a bit more emphasis on price and margin growth on that and I think we've seen it and you can see it in the numbers as well, where the margins on pre-owned have grown to roughly about 34.8% year-to-date on pre-owned versus 32.9% all of last year.

We've also benefited from that focus on the pricing increase on pre-owned to – from about 35,900 to 40,600 year-over-year, which is almost 13% increase. One of the things that's kind of added to that as well as we've seen growth on our brokered resident to resident home sales that we broker has grown along with some increase in pricing on that side of the sales business as well.

So it's really more about, we took a concerted effort to just put more focus and emphasis into the new home sales and we're seeing it in the growth for both the quant and the margins on those and the home prices.

[Todd Stender, Wells Fargo]

Okay. That's helpful. Thank you, John.

[John McLaren, President and Chief Operating Officer]

Yes.

[Operator]

[Operator Instructions] Our next question is from Wes Golladay with RBC Capital Markets.

[Wes Golladay, RBC Capital Markets]

Hey. Good morning, everyone. Just looking at the transient RV revenues, it looks like you mentioned, it still have a nice increase of 2.5% despite having 9% less sites. What is driving that? Is it all rate driven or if you were to look at it occupancy gains, adjusted for transient conversions or what would that look like?

[John McLaren, President and Chief Operating Officer]

Yes. This is John. It's primarily rate driven.

[Wes Golladay, RBC Capital Markets]

Okay. And then maybe looking at the supply I guess, competitive supply for transient RV sites. It looks like you're doing a lot of conversions or others in the industry doing a lot of conversions? And what is the development I guess maybe, are we seeing a net contraction in supply of available transient sites?

[John McLaren, President and Chief Operating Officer]

Well, I think that – I mean, there is always been sort of an economic advantage in terms of the RV sites. There is over 9 million registered RV's in the United States and that's like a 9 or 10 to 1 ratio. Even before all this for sort of relevant resort sites that are available out there. I think some of our peers are doing what we're doing, which is to make those conversions as well. We've had a program to do this for well over a decade, where we've done these conversions, and it's a very refined process and it comes down to, if you're a transient guests in an RV resort and you love it and you want to be there and you've sort of built your circle of friends around you, and you come back every year, it's just, it's simple and it makes sense and it's got a great value proposition. So it's definitely played into. It's one of the core tenets of our strategy of growth throughout the portfolio.

[Wes Golladay, RBC Capital Markets]

And so I guess what do you think over for the industry. Would you say that transient sites are contracting year-over-year? I'm not sure there's much new development going on.

[John McLaren, President and Chief Operating Officer]

Yes. There is some new development going on, but still not a ton. I mean I think that we're still sort of leading the pack from that perspective.

[Gary Shiffman, Chairman and Chief Executive Officer]

I don't think we'd see a great deal of contraction because there are cases to be made in the transient resorts that are located in areas where the revenues will be greater and higher as a transient resort then they will be as seasonal or annuals. We do have some of those within our portfolio, where we will not convert because it's usually a loss of revenue. I think it's a good question. I think it's something we should continue to address as time goes on.

[Wes Golladay, RBC Capital Markets]

Okay. And then for developments, I mean with cap rates going down for acquisitions. Has that impacted your willingness to develop at a lower yield for your developments or is it just mainly an entitlement issue like you mentioned?

[Gary Shiffman, Chairman and Chief Executive Officer]

It's good question. I would say the compression of cap rates have been where they've been for a while, I mean there are things dipping into the three handles, coastal and very unique situations that have existed for the last three, four years is, there are a lot more entrants interested in the space right now, but there hasn't been further contraction. So we're seeing the same thing on the acquisition so, although they're harder and harder to turn up and fewer and fewer of them as the consolidation continues. On the development side, we underwrite to the risk associated with the development. So, I wouldn't expect to change that risk profile at all.

[Wes Golladay, RBC Capital Markets]

Great. Thank you.

[Operator]

There are no more questions at this time, I would like to turn the conference back over to management for closing remarks.

[Gary Shiffman, Chairman and Chief Executive Officer]

On behalf of the entire Sun Company, we thank everybody for participating today and we look forward to sharing year-end and fourth quarter results with you. Thank you.

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.