Sun Communities Inc (SUI) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Communities Fourth Quarter and Full Year 2017 Earnings Conference Call.

At this time, management would like me to inform you that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved.

Factors and risks that could cause actual results to differ materially from expectations are detailed in 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; and Karen Dearing, Chief Financial Officer. (Operator Instructions)

I'll now turn the call over to Gary Shiffman, Chairman and Chief Executive Officer. Mr. Shiffman, you may begin.

Good morning, and thank you for joining us on our 2017 Fourth Quarter and Year-End Earnings Conference Call.

2017 was another exceptional year for Sun Communities and its shareholders. Our strong results and industry-leading internal growth are a direct reflection of our team's intensive focus on execution as well as our best-in-class manufactured housing and RV portfolio.

For the year ended 2017, Sun delivered a 10% increase in core FFO per share as we drove industry-leading same-community revenue and NOI growth of 6% and 6.9%, respectively; saw a strong performance from the Carefree portfolio acquired in 2016, and added 9 operating communities to our portfolio during the year. We ended 2017 with total portfolio occupancy of 95.8%, providing ample room for continued occupancy gains across the portfolio.

In 2017, we delivered nearly 1,800 manufactured housing expansion sites and over 300 RV expansion sites, bringing the total expansion site deliveries to more than 2,100.

We entered 2018 well positioned to once again deliver superior internal growth with expected weighted average same-community rental rate increases of 3.8%, occupancy gains of 170 basis points and a full year of NOI from our 2017 revenue-producing site gains and acquisitions.

The desirability and affordability of being a Sun resident was clearly evident throughout 2017 given the almost 49,000 applications received for our available homesites, our highest total number of applications ever to live in a Sun community. Of these 49,000 total applications, almost 16% of them were sales applications, a figure that has trended higher year-over-year for the past 5 years.

This sustained demand for our product supports our consistently strong occupancy, ability to drive rental increases and helps fuel our home sales business. In the fourth quarter, home sales grew by 11.6% as we sold 850 homes, and our annual home sales rose to a record of nearly 3,300 homes. Of the homes sold during the year, approximately 1,200 or 36% were to existing renters who have elected to become homeowners in the Sun community, continuing to demonstrate the effectiveness of our rental program's life cycle. We look forward to another strong year of home sales as we continue to fill our available inventory.

On that note, in 2017, we grew revenue-producing sites by nearly 43% as compared to 2016 by leasing over 2,400 sites. Of these, roughly 575 revenue-producing sites were filled in the fourth quarter. Over the course of 2018, we expect to fill between 2,700 and 2,900 revenue-producing sites which will continue to drive elevated organic growth.

During the year, we completed approximately $150 million of acquisitions in 9 operating assets, which added approximately 2,700 sites to our portfolio and 1 land parcel. This included 2 properties for a total of $52 million acquired in the fourth quarter. These were a 201-site combination manufactured housing and RV resort in Panama City, Florida for $19.5 million, and a 383-site age-restricted manufactured housing community in Port Orange, Florida for $32.5 million.

The land parcel purchase in the second quarter of 2017 is being developed into an 840-site RV resort in Myrtle Beach, South Carolina. As we have discussed in the past, this resort is one of several developments that we have underway where we feel we can capture high demand and create value at a cost below acquiring existing properties in these areas.

We currently have 3 development communities which will collectively add approximately 1,500 net sites as the projects are delivered in multiple phases over the next several years. They include: Carolina Pines in Myrtle Beach, which I just mentioned; Cava Robles, a 332-site RV resort in California, Wine County; and Jellystone Larks Bird, a 500-site redevelopment project just outside of Denver, Colorado. Of these, we expect to see Cava Robles completed and open for business by the end of second quarter this year.

Each of these new development properties represent 12 to 24 months of entitlement and permitting work prior to closing on the acquisition and the land, we then develop.

On the acquisition front, we continue to actively vet and underwrite a number of opportunities in both the manufactured housing and RV property types, covering both age-restricted and all-age communities. Our strategy remains similar to 2017, as we pursue one-off transactions and small portfolios that complement our footprint and offer the ability to create value.

We've been strategically focused on constructing an operating platform that delivers compelling current returns as well as future growth. Our portfolio of age-restricted and family communities and premier resort destinations reach a broad demographic with a common theme: the desire to live or vacation in high-quality affordable communities. Our resident base is highly stable, providing a level of visibility on future cash flows that is hard to replicate in other real estate asset classes.

Consistent annual rent increases, opportunities to capture occupancy gains, the development and lease-up of our available expansion sites and the conversion of transient RV sites to annual leases provide us with a runway to deliver sustainable, attractive results in 2018 and beyond. This solid operating backdrop, coupled with our strong balance sheet, led us to announce a 6% or $0.16 raise to Sun's common dividend of $2.68 to $2.84 for the 2018 fiscal year.

I'd like to thank the Sun team for their dedication and hard work during 2017, and I look forward to continuing 2018 with great enthusiasm. And with that, I'd like to turn the call over to John and Karen to discuss our results and annual guidance in more detail.

Thank you, Gary. Before I begin sharing our performance metrics for the fourth quarter and the year, I wanted to note that our fourth quarter performance was one of the strongest in our history. This level of performance would not have materialized without Sun's decades-long focus on superior customer service and the constant refinement of our operating systems.

Sun delivered a total portfolio revenue increase of 10.7% in the quarter and 17.9% for the year. Revenue increases across our different business lines were also strong with manufactured housing revenues increasing 6.6% for the quarter and 13.5% for the year. Inclusive of the approximate 1,000 vacant manufactured housing expansion sites delivered during the fourth quarter, year-end manufactured housing occupancy was 94.6%. Even when taking into account these expansion site deliveries, 132 of our manufactured housing communities exhibit 98% occupancy or greater. We believe we have ample room in our portfolio to push manufactured housing occupancy higher and continue to deliver strong revenue growth from this business line.

Annual RV revenues rose 14.1% for the quarter and 41.9% for the year. Transient RV revenues rose by 14.1% for the quarter and 34% for the year. Annual and transient RV revenues for Carefree included in total portfolio rose 14.6% and 1.3% for the fourth quarter.

In addition, home sales revenues increased by 26.5% in the quarter and 15.3% for the year, as total homes sold increased by 3.5% for the year. Our average new home selling price exceeded $118,000 for the quarter, with over 80% of new home sales occurring in Florida, South Carolina, Arizona and Michigan.

Along with a record average new home sales price for the fourth quarter, we also saw a margin improvement in new home sales of 170 and 100 basis points for the quarter and the year, respectively. We gained over 2,400 revenue-producing sites in our total portfolio, an approximate 43% increase over nearly 1,700 revenue-producing site gains in 2016. 60% or approximately 1,400 of our gains were in manufactured homesites, and 40% or just under 1,000 sites, where RV transient to annual conversions.

Our same-community portfolio continues to deliver solid year-over-year growth resulting from the strategic positioning of the portfolio over the last 5 to 7 years. Revenues rose 6.4% for the quarter and 6% for the year, driven by a 3.6% weighted average monthly rental rate increase and a 190-basis point occupancy gain to 97.3%. This resulted in same-community NOI growth of 7% for the quarter and 6.9% for the year.

Both revenue and NOI growth percentages exceeded our top end of our 2017 annual guidance range. Same-community manufactured housing revenues rose 5.9% for the quarter and 5.7% for the year. For our same-community RV properties, revenues continued their upward trend with annual RV revenues increasing by 8.3% for the quarter and 7.8% for the year, while same-community transient RV revenues were up 4.5% for the quarter and 5.5% for the year.

We've had a great start to the winter RV season, with budgeted first quarter 2018 reservations at 95%, ahead of this time last year by approximately 7%. Overall, for the year, we expect to achieve a mid-5% revenue growth contribution from our same-community transient portfolio despite a 7% year-over-year expected decline in available transient sites.

The decline in available site nights is a product for our transient site conversions to annual RV leases, where, as Gary has mentioned before, we experienced a 40% to 60% revenue increase per site for the first full year after conversion. Our revenue management programs allow us to see increases in revenue per available site to rate an occupancy optimization. We have also seen a tremendous growth through our digital marketing efforts, where we engage you and repeat Sun guests through our broad range of social media and other traditional online campaigns.

In addition, we expect to complete the construction of approximately 1,350 expansion sites in 2018, with 1,000 manufactured housing expansion sites in 12 communities and over 350 RV sites across 4 resorts. Each of these operating metrics point to the exceptional capabilities of our operations team to drive growth for our shareholders while maintaining outstanding levels of customer service to our residents and guests.

Sun enjoys a number of attractive fundamental tailwinds, the increasing cost of site-built housing, the limited supply of high-quality affordable housing and the strong demand for manufactured housing and RV lifestyles, leaves Sun well positioned to deliver industry-leading internal growth for the coming years. Karen?

Thanks, John. Sun reported $0.98 of core FFO per share for the quarter ended December 31, 2017, in line with our previously provided guidance. For the 12 months ended December 31, 2017, core FFO per share was $4.17, up 10% from the prior year. Included in core FFO is an add-back for lost earnings, net of insurance deductibles from the Florida Keys properties damaged during Hurricane Irma, which totaled roughly $300,000 for both the quarter and the year. These properties are out of service and are now part of our redevelopment pipeline.

As Gary detailed earlier, we acquired 9 operating communities for a total of $145 million and 1 land parcel for approximately $6 million in 2017. Our deployment of roughly $150 million in acquisitions for the year is in keeping with our efforts to deepen our presence in the desirable and complementary markets. 5 of the communities were located in California, 2 in Florida and 2 in the Midwest.

With respect to capital markets, we were very active in the fourth quarter and early 2018, retiring high coupon debt and preferred units. These transactions included the November redemption of our $85 million Series A Preferred Stock that carried coupon of 7.125%, the December and January redemptions of $8.6 million of Series B-3 units with a coupon of 8%, and the December defeasance of the $38.6 million mortgage with a 5.25% fixed rate. Concurrent with the defeasance, we entered into a $100 million mortgage with an interest rate of 4.25% encumbered by the same property.

In January 2018, we have also retired $7.6 million of mortgages maturing in 2019, with a weighted average interest rate of 6.25%. Our forward debt maturity schedule is well balanced and very manageable. During 2018, we have just $26.2 million of remaining loan maturities. We will continue to pursue the restructuring or paydown of liabilities maturing in 2018 and beyond to drive down our cost of funds.

At December 31, 2017, Sun had $3.1 billion of debt outstanding with a weighted average interest rate of 4.5% and a weighted average maturity of 8.9 years. Our net debt to trailing 12-month recurring EBITDA was 6.3x, an attractive level that provides us the capacity to continue to support our 2018 growth initiatives.

On the equity side, we issued roughly 322,000 shares of common stock through our ATM program in the fourth quarter at a weighted average price of $93.33, raising roughly $30 million. The proceeds of the ATM issuance were used so match-fund our acquisitions in the fourth quarter.

Now let's turn to guidance. For 2018, we expect full year core FFO per share in the range of $4.48 to $4.58, and core FFO per share for the first quarter of $1.12 to $1.14. Additionally, please keep in mind the following considerations. On the operating front, we are expecting a same-community weighted average rental rate increase of 3.8%, and expect to capture same-community occupancy growth of roughly 170 basis points during the year. We are anticipating full year same-community NOI growth of 7% to 7.5%. The same-community portfolio has increased to 336 communities as compared to 231 communities in 2017, reflecting the inclusion of the Carefree portfolio.

We are expecting an increase of 2,700 to 2,900 additional revenue-producing sites. Of the estimated revenue-producing site additions in 2018, approximately 2/3 are in manufactured housing sites and 1/3 in RV conversions from transient to annual leases.

Our core FFO guidance includes an add-back for lost earnings from the 3 off-line Florida Keys communities, which we expect to recover through the business interruption insurance claim process. The estimate is based on historical NOI contributions from these properties and totals $1.3 million or $0.015 per share for 2018.

I would also note that our guidance does not include any impact from prospective acquisitions or capital markets activities, which may be included in analysts' estimates. Please refer to our supplemental document for additional guidance on home sales, same-community and core FFO seasonality by quarter, general and administrative expenses, and other details. This completes our prepared remarks, and we'd like to open up the call to questions. Operator?

(Operator Instructions) Our first question comes from the line of Drew Babin with Robert W. Baird & Company.

A quick question on the deals that were executed in the first -- sorry, in the fourth quarter. Can you give cap rates on those deals? And I guess, give, kind of, your update on what's out there in the transaction market? Whether anything has changed in terms of deal flow or I guess the volume of opportunities that you're seeing?

Yes, sure. There's an awful lot in each part of that question. I'll start with the easiest. The blended cap rate for the acquisitions in the fourth quarter was 5.5%. And then moving on to a little bit of what Sun's pipeline looks like, I think that I would suggest that it just remains very, very constant and similar to what we've experienced for the last several years. And when you separate out the large portfolio transactions, in 2015, we did about $100 million of single-type acquisitions; in '16 income, about $200 million; and in '17, $150 million. So with the pipeline that we see in front of us right now, we would expect to be very, very similar to that average range in there. We're seeing and have under review manufactured housing both age-restricted and all-age as well as RV resorts. I think we've got good, solid opportunity there. But I'd suggest that strategically we're very, very focused on acquiring properties that can grow at least equal to our current portfolio, if not value-add opportunities where we can accelerate outsized growth through management of systems and experience over here, like we've done in the past. That being said, what do we see in the market? I would share with everybody that we continue to see contracting cap rates. I think that fundamentally, there is a lot more interest in the asset category from both public and private investors. Generally, we talk about cap rates in the 5% to 7% range. And I can share with everybody that we have seen transactions 100 to 150 basis points below that range and a lot less discernment between the quality of the assets. And even the fact of whether they're age-restricted, all-age or in fact, RV communities. So, we're seeing that compression take place out there. Haven't really seen any impact by interest rates, I think in large part due to the amount of equity interest in the asset class as well as the continued interest by lenders, I think, for all the fundamentals that characterize manufactured housing and the RV resort. So whether it be the life companies, CMBS, or other type of funding, it's still readily available and very, very competitive out there. So we're definitely very disciplined in what we're doing, but the expectation from the existing pipeline we'll just continue to selectively acquiring properties as we've done over the past few years.

That's great color. And John, a quick question for you. In the last couple of days, we've heard some news about both building permits and housing starts kind of jumping a little bit going into this year. Demand is strong and things like homebuilders are getting a little more active at the margin. I guess, in your kind of experience, do you see any type of higher-density value-oriented amenity-heavy type of homebuilding going on in any of your markets? Or do you see that as -- I guess, why are homebuilders trying to, in some way, capture this opportunity as far as [its restraints], things holding them back, land scarcity. If you could just speak to that a little bit and just give us an update on whether you're actually seeing anything on the ground in that forum?

Yes. So my thoughts on that, Drew, are -- it's -- obviously, within our communities, it's a whole different lifestyle, and it goes frankly, a little bit beyond even the amenities. Amenities support it, and we've got a very, very healthy stack within our communities to do that. But really, it has to do with the experience that happens on the property. I think one of the other sort of distinctions between us and maybe some of this going on is the fact that there are still -- when you're looking at stick-built single-family, the barrier to entry is higher from a financial outlay standpoint for somebody to buy a single-family home as compared our product. And so when you look at sort of the square footage values that we have by comparison, and then like I said, the amount that they have to pull out of pocket to that, I think it puts us into an advantage, because I don't -- the only thing that really kind of -- and we've talked about this before, impact at us was before the mortgage crisis, when there was unqualified credits that were allowed to buy single-family homes. And so that still factors into us. So I still think that from a competitive standpoint, whether it's the amenities themselves, the experience at the properties and the barrier to entry to own a home puts us still at an advantage.

Our next question comes from the line of Nick Joseph with Citigroup.

This is John here with Nick. A question on the same store. Could you quantify the benefit to 2018 same-store NOI growth from adding the new properties to the same-store pool?

Adding the Carefree communities to the pool?

Yes.

So, yes. As we've said in the past, when we purchased Carefree, and as we underwrote that, we did anticipate that Carefree would be outperforming our core portfolio. And in fact, that is what is occurring. That acceleration of the same-community NOI growth to 7% to 7.5% from where we were in '17, is really driven by that higher growth rate in the Carefree portfolio than in the core portfolio.

And I guess, along those lines, how long would you expect that to occur for us? Or how much longer at a year or 2 for that outsized clip, roughly?

Yes. When we looked at it, it was for another -- how should I say this? We underwrote it -- after our first year of acquisition, it would outperform our portfolio for another 2 to 3 years.

Our next question comes from the line of John Kim of BMO Capital Markets.

You guys mentioned in your prepared remarks about increasing your revenue-producing sites. Your main competitor in public space, DLF, said pretty much does the same thing on expansion opportunities. What about the private owners? I mean, do you get a sense that they're expanding as quickly as possible just given the strength in the market? And how do you see new supply this year versus in recent years?

Yes. It's Gary, John. I think that we've shared before that in the backdrop of what we're aware of going on in our markets and across the country, there's certainly very little new greenfield development, although there is a pocket here or there we're starting to hear about right now. And Sun, of course, has been focused on the new development side. We're trying to deliver 2 to 3 communities per year. And other than that, nothing on the new development. On the expansion side, I would say it's really unchanged. I can't point to anything, and I'd ask John, that it's different today that we see expansion-wise across the general board. We did note that our competitors, I think, were looking at expanding their communities at a rate probably much higher than in the past. And I think that as we've shared, it's a very healthy way for us to create growth, the fixed place -- fixed costs are in place, and the margins are higher when we expand. But I can't really sit here and tell you that we are aware of a lot of other expansion taking place out there. It does play a big role in acquisitions, as I've said before, where we can acquire properties that have contiguous land that either comes with the acquisition or that we can acquire separately. It's strategically important for Sun to continue to gain that type of extra additive growth. So, what I would say is that most of what I see out there is opportunities on acquisitions that might have some embedded expansion opportunity in it, but not a lot that I see that's really taking place out there.

Could you give us a ballpark on new supply this year in MH and RV?

Yes. Manufactured housing, new supply, we're doing 2 to 3 communities. And if there's another 2 to 3 communities going on across the entire country, I am not aware of them. Same is true basically on RV and MH. I may be aware of a handful, 3 to 5 communities, owners that I've spoken to in one way or another, either for acquisition purposes or other purposes, that might have expansions pending. So you might put that at maybe a dozen across the country. And again, these are just estimates. And I'll turn it over to John, are you aware of anything on that?

No, that's okay. I would echo what you said before, too, Gary, which is that -- I mean, similar to what we're talking about what some of these -- with the previous question today, I mean, the barrier to entry is difficult. The entitlement process is difficult, the zoning process is difficult. It can take 12 to 24 months to get through that process. And so it's just -- it's hard to do, which I think plays into the fact why there's just not that much going on. That's part of it.

Okay. And then John, you mentioned that the 2018 RV reservations are at 95% in the fourth quarter and it's up 700 basis points. What is that driven by? Is that the strong economy or are there other factors?

Well, I think a lot of it, frankly, is driven by -- obviously, there's a lot that we do from a social and a web online presence that drives a lot of business to our communities. But I think more important than that is really what we -- what happens at the resort itself, okay, and it's really -- it's that experience that happens on the ground. Because when we -- we have a lot of focus on service and the relationship that we have with our guests and residents and what that turns into is really building your resident and guest sales force for your brand. And that by itself is our largest segment of marketing that we have. And so it's -- it really is a product of that. And I think one of the things that really is the biggest example or that demonstrates that is the success that we've had in having guests that were transient guests become annual guests in our communities. We've had -- we grew by nearly 1,000 sites in 2017 with that conversion. And when they do that, I mean, they're committing to being there for the long-term. So that's I think -- again, I think what happens on the ground drives that the most.

Okay. And then finally I had a question on your guidance, especially on the expense side it looks like property, operating and maintenance you're expecting 2.8% increase at the midpoint. In the fourth quarter, you had payroll increase of 8%, legal tax and insurance, 16% increase and there was also kind of other. But how do you manage the OpEx being -- [going so low] compared to the fourth quarter and maybe compared to inflationary pressure?

I think that we're known for our operating expertise, and certainly, it's just a focus that we have internally. Last year, we did have some increases in health care claims and some utility costs and things like that. I don't think that the guidance for the year-to-date for last year, expense growth was 3.8%. And so, we're guiding to a little bit less than that in this year at the midpoint at 3.3%. And in -- we're very active in our real estate taxes also as far as -- I just lost my train of thought really. Assessment -- fighting assessments that come in. And we've been really successful in receiving some refunds on our prior assessments for our communities.

Yes. The only thing I would add is fundamentally for those who want to really look at one of the main characteristics of operating these communities is that we don't have any real vertical structures. We don't have things to maintain like the apartment or multifamily does. The customer that owns their home is responsible for maintaining their own lawn, their own site. So the actual areas where we can come under pressure, I think, are just fewer. That doesn't mean we don't experience the inflationary increases and other related increases, but they are a lot smaller in total than other asset classes.

And can you just remind us what's in the other bucket in OpEx? Because that's the one that's kind of moderating last year's expense growth.

I'm trying to find that page.

I'm referencing Page 14.

Yes. Advertising is in there, bad debt expense is in there. Those are the 2 that are coming to my mind right now.

(Operator Instructions) Our next question comes from the line of Joshua Dennerlein with Bank of America Merrill Lynch.

Could you maybe walk us through, like, how the Board got to the 6% dividend increase this year? Do they kind of thing about it as a percentage of AFFO payout?

Yes. I think that there was a -- it's Gary, a lot of deliberation and careful thought that went into it. We have been a company that most recently has used as much of our retained earnings and definitely been into the equity marketplace to restructure the balance sheet, to grow the opportunity for the shareholders through the transformational acquisitions. And with much of that behind us right now, we did think it was in order to increase the dividend for the shareholders. And I think part of that certainly was looking at AFFO and a lot of other metrics, seeing how the company is positioned against the rest of the company's -- the REITs that are out there. And so I'm comfortable that we were very, very close to the average range and that's helped govern us along with how we viewed growth in the company through 2018 and the foreseeable future. And it was all of those types of things that went into the thought process to arrive at that dividend increase.

Okay. And also for the revenue-producing sites in 2018, in the figure, you're forecasting 2,700 to 2,900, how much of those sites are just from pure occupancy gains versus expansion sites that you've built out but aren't revenue-producing yet? Is that something that you'd want to break out?

Do we have that?

I think approximately 1,200.

It's just about -- I think it's like 1,200.

Yes.

Is with expansion site [fills].

And then just one last one from me. For 2018, you're forecasting at 3.8% weighted average monthly rent increase. How does that compare to historical rent bumps? And is there any possibility that as inflation picks up, you could see the monthly rent increase going forward accelerate?

Yes, so this is John. I think that -- well, to give you some history, I think approximately our rent increase in 2016, weighted average was 3.4%, which went to 3.6% in 2017, and now like you said guidance of 3.8% for 2018. And it continues to be at the higher end of the 2% to 4% range that we've gotten for the last 20-plus years. I think it's important to note that high occupancies provide multiple benefits. And one of the things I think that differentiates Sun is our experience and expertise in filling vacant sites and creating additional avenues for growth. We create lease-up opportunities by expanding our existing communities, acquiring communities on an accretive basis with additional vacancies to fill and by building new communities. And really associated with the lease up of those occupancies that we buy or create are the multiple levers that we talk about that drive overall growth. Those levers are rent increases, but also include occupancy gains, home sales, conversion of transient RV sites to annual seasonal sites. And of course, rent increase drives solid year-over-year growth, but it's only one of those levers. And I think it's important that -- to us, it's important to strategically balance all those different levers as we try to optimize the annual revenue growth and maximize the returns for shareholders.

(Operator Instructions) Our next question comes from the line of Todd Stender with Wells Fargo.

And just on the timing of those new expansion sites coming online, can you estimate when they're coming? How long they take to generally fill up, just to get a sense of maybe the dilution you're assuming? And then if it's quicker than expected, maybe the little upside?

Yes. It's Gary, and then John, you can add anything else in. But I think the way that we look at it is occupancies in the expansion are generally 4 to 8 per month. As John and Karen shared, we're looking to fill up about 1,200 of the over 2,100 sites that were developed in '17. So, the lag is really as we build sites in 2018, they won't be filled in until 2019. I think any dilution is kind of built in from the standpoint that in '17, we did 2,100 and '18, we'll be doing somewhat less. So, we would expect to see a slight pickup as these sites are filled versus the amount of capital being put out in 2018 for new sites. And finally, with regard to how we look at things that if we're going to fill 1,200 sites this year, they'll fill sort of ratably over the year. So, we expect the full benefit to equal something like 50% on the weighted average of what we'll experience in additional revenue from those sites.

And I guess just switching back to the renter to owner conversions. Can you speak to the length of stay that you're seeing the renters rent before they buy? And then maybe just go through the cost difference of renting versus owning.

Yes. I mean, generally speaking, our average renters in the home between 18 and 24 months. That's been the case for a long, long time we've had the program. Generally speaking, the rents within that program have continued to grow and even in comparison to other multifamily and certainly other rental opportunities that are out there on the market. It's -- once again you're in a situation within Sun's communities where we've got amenities and other services that are provided that are different than some of the others out there. And one of the things that Gary noted during his remarks was that 36% of our home sales were to existing home renters, which is -- it's 1/3 of our sales. It's over 1/3 of our sales. I think one of the things that I -- that -- really that process of having a rental home program is one of the things that fuels our sales overall and brings in new revenue into Sun. And I think it's important to note that out of the 3,282 homes that we sold in 2017, which was a record, that 1,600, or nearly 50% of those homes were -- had previously been rented. And what does that do? Is it -- I think it's a strong indicator of the demand that we continue to see for our homes and our communities. And ultimately, for that incremental gain above the 1,200 or so that we sold, it generates a new revenue stream on top of that versus somebody simply converting as a renter to an owner within the community.

Can you quantify some of that just to get a sense of what your site rent is? And if you can convince someone to now own it, maybe their [amount of] loan payment is actually less than renting. Is there that dynamic?

Yes. Yes.

Interestingly enough, we've always shared with the market that we do see high-teen returns on our capital invested in the rental program. And we do, in fact, trade off some FFO when we convert them into a homeowner. However, the concept that I'd remind everybody is that with the average turnover of homes moving out of our portfolio less than 2% a year, and another 6% to 8% that actually sell their homes but we get continuous rent. Once we convert from a renter to an owner, we have an income stream of a minimum of 40-plus years then. And so while we do lose a little bit of FFO, we do gain that security of the income stream.

Mr. Shiffman, there are no further questions. I'll turn the floor back to you for any final comments.

Well, we'd certainly like to thank everybody for participating on our year-end fourth quarter call. We do look forward to having everybody join us for our first quarter earnings call. And both John, myself and Karen, always encourage anybody to fill free to reach out to us for any additional information. Thank you.

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