Sun Communities, Inc. (SUI) Earnings Call Transcript & Summary

Good morning, everybody, and hopefully, if you're listening in and not present, you're going to hear okay. On behalf of Sun Communities and all of us here in the U.K. to do a little touring and a little discussion on our Park Holidays acquisition. Welcome. We couldn't be more pleased that you took the time out from your schedules to join us today. We're especially pleased with the fact that you have the opportunity to meet management, management is a big part of the decision that we made, along with the quality assets and the other things that you're going to hear about today with regard to Park Holidays. I'd like to start off by asking you how many have you traveled from the U.S. to be here today by show of hands. Okay. And if you have any delays? Anyone delays? 1 delay, 2 delays. FYI, you should be going on an RV trip. One of the wonderful Sun Outdoor resorts, stay close to home, don't spend so much money on fuel and have a terrific time. So think about that. You can look on 1800 outdoors, I think, sunoutdoors.com. There you go. And starting out just a deep appreciation for being here today and taking the time. I think they talk about a picture being worth many, many words. In this case, we have an exciting tour plan for you, and you'll get to see on your own why we're excited about the opportunity for our stakeholders there, and that's what it's all about. We thought long and hard with regard to the entry into a foreign market, the U.K. market, obviously, the fact that there's a common language here speaks strong to our ability to, I think, step over seamlessly and perform and grow a part of our most valued segment of business, as we view at the manufactured housing segment with all the characteristics that manufacturer housing is noted for. I think aside from welcoming everybody, had start out just talking about that exceptional opportunity. It's not an opportunity just to be larger, it's an opportunity to create long, medium-term and short-term growth for our shareholders and I think that we're going to emphasize the similarities between what you're going to see today in the Park Holidays business and our manufactured housing business on the U.S. side and in particular, to our Snowbird business, where so many of our manufactured housing owners are in our communities with a second home, if you will. We referenced them as our Snowbird. They come down to have their winter holiday when it's cold up North to the South to places like Arizona, Florida, Texas, California. Their typical holiday season is November, December to March, mid-April. And Park Holidays is the same. While a majority of Park Holidays communities are open 10.5 months a year. they're most used during the summer season. So anywhere from when they begin -- begins turning on here or they open up March to September, October with the heaviest usage July, August, September season when schools out. So very similar characteristics. Our Snowbird's then leave and go back to North for that same period of time, and there's a vacationing here in the U.K. It's been a history for everybody who's wondering how we began looking at Park Holidays. Over 10 years ago, Sun was introduced to a company called Bourne Leisure in the U.K. And we spent a great deal of time and due diligence I personally and the head of our acquisitions toward all of the Bourne Leisure properties, and it resulted in a very serious offer made to the company, at which ownership accepted that offer only after which to receive from management an offer to match Sun's offer, and they actually acquired it. So it's a management buyout. I don't like to think that we were used as a stocking horse. But in essence, that's what turned out foreign holidays grew from there. And the important thing is that from that period on, we continue to study and watch the U.K. market because there were so many similarities to what it is we do in the U.S. And there are half dozen companies we've maintained contact with. One of them was not Park Holidays until we got an introduction where Park Holidays was going to enter a process marketed by who are the bankers? Okay. And much, I suppose, to the sugaring of the investment banks and like Sun likes to do. We put our foot right in the door. We shred out the management, broke the process, spent a good deal of time over here, getting to meet them, touring the properties. And John and I, my second trip over here, just had our eyes open to the quality the nature of their properties. And if it weren't for Bourne Leisure and all that time, we've spent studying the market here, we would not have acquired the platform. And of course, it goes without saying, I'll discuss management and the quality management before I turn it over to them. Just one note. I'll talk very briefly up here what I'm excited about and what Sun's U.S. team is excited about is the opportunity for all of you to meet directly to talk to, to ask questions of the management team hear directly from them and their tenure and seasoning and the business speaks for itself. But the history started with Bourne Leisure and brought us all the way to where we are today. In April, up to go forward, down to go forward, down to go forward. It's kind of like an elevator floors here, okay. Okay. In April, we acquired Park Holidays, 40 communities, plus 2 communities that are managed as a third party, just about 16,000 sites. I think I would describe them, and I hope you find them this way, as John and I did, as just irreplaceable, high-quality assets in incredible locations, predominantly seaside, seaside communities throughout what's referenced as the affluent South of England. We've shared many of the similarities that we feel are identical to Sun's manufactured housing communities with some of the noteworthy points that I would reference here. In order to buy a home or become a homeowner in a Park Holiday community, you must, by law, and regulation, own a primary residence. So you have to have a primary residence. 78% of the home buyers who are acquiring a home are paying cash for that home to the Park Holidays group, approximately 80% of the home buyers about pay cash directly, and about 78% of the homebuyers are 50 years or older. So I think what this translates into is a higher credit quality. And as you hear from management as they look back through COVID and as they look back through great financial crisis, there's the same kind of stickiness and continued demand in the Park Holiday resorts as there are in the Sun manufactured housing communities. And I think the interest of the platform is the fundamental dynamic that we talk about in all 3 of our platforms. High demand, very limited supply and huge barriers to entry. The scarcity of land that can be approved here in the U.K., very similar to what we have in the U.S. Typically, almost every other usage you can think of would be approved before a Park Holiday community would get it. And what they have found is through their experience over 15 years is that it's much easier to expand right next to an existing community, a much better chance of success to get the land approved by the local counsels to expand. So there are 2,900 expansion sites that came with the portfolio. Since the acquisition, about 700 expansion sites have been built out and are just completed or almost nearly completed. So great growth opportunity through expansions. We demonstrated this for a long period of time at our MH communities in the U.S., the highest margins or the greatest margin of operations drops to the bottom line because all the fixed prices are in place. It's similar over here. Only there's even a more interesting thing to point out over in Park Holidays. It costs about $20,000, $22,000 to develop an expansion site and the average margin on selling a home would be what? Pardon me? $30,000. So one thing that's different over here is the capital basis, if you will, of building that site gets returned upon the home of the sale plus some and then the coupon as we like to refer to as the reoccurring rent from the license on the site continues for an average license period of 20 years. I think licenses can be 20 to 30 years. So when you buy a home, you sign a license for 20 to 30 years. The average stay of a resident is 7 years, and then that home has either sold in place bought by Park Holidays, resold, moved to another site, sold to a different third party and then typically an upsized home will be sold on to that site. And in those cases, Jeff, and the management will take you through it. The selling of a home, especially a larger large home can lead from an average GBP 3,500 a year all the way up to GBP 5,500, GBP 5,600 a year. So as there's progression on that site, and you'll hear more about it today, the rental increases over the period of that license to the renewed license that takes place. As the resident gets closer to the license period, the license runs with the home. And if it's resold, the license is still good for the new resident as long as they meet the qualifications of the community. And that being said, the closer you get towards the end of the license, the more ability Park Holidays has to either buy that home or reissue a new license or upsell a larger home, bringing in more and more rent. So one of the things that management will talk to about what we're seeing in the larger and larger home sales where they tend to be increasing now into lodges. So the average rent increases on average from around $3,500 a site to $5,500, $5,600 a site on those upgrades. When we talk about internal and external growth, why the attraction. The fundamentals we've talked about, the high demand, low scarcity of sites. One of the things that we point to is the increased demand for vacationing domestically in the U.K., particularly through Brexit, where owning a vacation home outside the U.K. is much more difficult. And the cost is much more difficult and the regulatory issues are much more difficult, some of which ensure management will go into. So there is this increased demand to vacation domestically and on your vacation home domestically, and it's really been a little bit of wind at the back even through COVID as growth takes place in Park Holidays. Let's see here. Over 2,900 expansion sites came with the portfolio. So great internal growth opportunity. I mentioned 700 are now developed out. So Park Holidays sales team is getting busy for the holiday season to sell those homes. We have another 700 homes behind it, getting ready for -- that are actually now approved and getting ready for development. So one of the big growth opportunities at Sun in the U.S. and the MH business has been through expansion. I think it can be even accelerated here and as John and I and the ops team work with the Park Holiday's management team, we're really focused on acquiring contiguous land where we can expand the site count. And you're going to hear there's a glossary at the end for the words they reference sites here as pitches. As I said, our leases or licenses and they're very focused on the word license because the lease here gives certain legal privileges to the lessor that don't exist in the U.S. So they're just licenses to occupy the land, but they can't touch land and they don't own the land. Fragmentation outside of Park Holidays. I don't know if it's 7 or 10 of the largest holiday park owners own less than 7% of the total stock of over 3,000 mom-and-pop holiday parks that are out there. So great opportunity. And I guess I would suggest the vast majority of those have a lot of the very appealing low-hanging fruit of a really qualified and experienced team like Park Holidays to be able to extract market rent, reconfiguring the sites upgrading through capital investment and it all translates into higher rental opportunity and growth for Sun stakeholders as we go forward. So great internal growth, organic growth. Growth also through upgrading from the standard home to the large home to the large home, again creeping up the rent. Building on new sites, selling the homes and bringing rental out the other side as well as the external growth opportunities. So I think that I'll stop there because really more than anything, I wanted to get the opportunity to introduce management and have -- you have an opportunity to meet them. Well, questions -- time reserved at the end for questions. And then on each one, we'll break down into 3 buses and travel today. And tomorrow, you'll have Park Holidays management team on the buses, where they can address any questions. But I think here's where a picture is worth a thousand words and then visiting a safe will be worth even more. One of the things we were thinking of doing was to have a little fun and lock out the Sun and the Park Holiday name. But as you'll see from the pictures and some will just see virtually, you can't tell the difference between the type of communities over there and over here. A little bit more, and I've touched on most of this. I would suggest for those of you who aren't aware, part of the holiday business, I want to say roughly 10% of the sites are occupied, 10%, 12% by fleet holding, 13%, 15%. Our rentals similar to what we have in the U.S., our Park model rentals and other type of rentals, where you can test drive a stay at one of the holiday parks and then buy a home, 80% of all the homebuyers have stayed first in a holiday vacation or fleet home, as they call it. And in particular, almost 1/3 of the buyers at Park Holidays have stayed in a Park Holiday vacation rental or fleet home. So really strong feeder to the business. And then those homes are turned over every 5 years and actually is sold. The average age of the rental fleet -- rental is 2.5 years. So I think that speaks to why they get such a big portion of the 80% choosing to stay in a Park Holiday instead of one of the other Park Holiday properties just because of the newness, the freshness of the stock and the fact that they pay attention to turning it over. I think that the last thing I'll close with is the ability to pass on inflationary expenses. We talk a lot about it, both in the MH and the RV and the marina industry back in the U.S. very similar here, these licenses provide for a pass-through or an annual rent increase that can be CPI or greater. So strong ability to pass on inflationary costs even in this environment. And then interesting point, and we talk about this a lot in the U.S. is that the vast majority of the homeowners live within 2, 2.5 hour ride, 2.5 hour ride of the community. So even in these times of high gas prices, it's not seen as a complete negative fact probably causes some of the residents to spend more time in their vacation homes instead of going back and forth. But no indication whatsoever that gas is having any impact on sales velocity. I get to sit in yesterday in a meeting where the sales deposit numbers came in for the -- the day of the week, last week. And they were pleasingly strong. So they made ourselves very good, and you'll have an opportunity to ask those questions, as we go further. In the interest of time, I'd like to ask Jeff Sills to come up here for a moment, CEO of the company. He's been here since his founding.

No, no, no. No, no, no. I'm not that old.

How long have you been here?

16 years.

He's been here 16 years. I'm fact checking. Okay. So through the sale 3x process, and hopefully, you have nice things to say about Sun, but I think that goes without saying the opportunity to be affiliated with a company that has longer than a 3- to 5-year timeline cost every time I say management tool, $25,000 of their equity and it corrects GBP 25,000 pounds.

Million.

$25 million. Big difference. I always showed accounting, guys, somehow. And I also talked earlier about a small deal, I think, $180 million. So I'm giving my numbers. Could be the jet lag. But Jeff and his team are one of the principal reasons that John and I and the rest of the management team and Sun's Board of Directors who weighed in heavy, okay, as we thought through this acquisition and they step into the market. I remind everybody, Karen has agreed in the transition from Fernando, taking over role as CFO of the company. Karen is in charge and oversight of strategic activity and currently very, very focused on transitioning all the accounting, the financial reporting so that it can be properly integrated to American GAAP accounting and to our filings. And that was very, very important to the Board and the company. I can't think of anybody else who could do a better job than Karen, who's been with us for 25 years. So great opportunity there. John stepped in as an active role to get things rolling and started. And great exchange, I don't want to speak, probably you will, of ideas going back to us and from us to the Park Holidays team. So it's been a wonderful start, and I can share with you that performance has outpaced underwriting. So we're very, very pleased to this time. And I'll turn it over to Jeff to introduce the rest of the team and to take you through the rest of the presentation. Thanks.

Thank you, Gary. Good afternoon, everyone. Thank you for such kind words, Gary. So I'm Jeff Sills. I'm the Chief Executive, Park Holidays. I've been with the business for 16 years. This is my 17th season. But prior to that, my career, as it says up there, was with Grand Metropolitans. So you may remember, if you're old enough, that ultimately span out InterContinental Hotels, Compass Group. I think at one time, we owned Pillsbury, Burger King, Wimpy's, got those what else. I think eventually became the idea when it merged with Denny's. 20-odd years in the license trade, bars and restaurants, and then came across Park Holiday from 16 and 17 years ago. I'll just briefly introduce the rest of the Board that are listed there. So I've got Richard Ullman, just to my right. Richard, please stand up. Richard is our Chief Operating Officer, been with the business for the last 9 years. But myself and Richard worked together for 6 years in a previous life in Magic Pub Company and Greene King. Next to Richard is Danny, who isn't actually listed on here because Danny is on our exec. He's the ops director for the company. He's joining us on the tour this afternoon. And next to Danny is Tony, who is our stalwarts of the sector. That you and I have been together for 16, 17 years, and you've done 37, is it? Yes, since god was a child. And then finally, Chris, who is our CFO, who has been with us nearly 3 years and has brought COVID and acquisitions at all sorts with you. So just moving on. I appreciate this is quite a busy slide. As Gary said earlier, we are the second largest operator in the U.K. by a number of parks, well, properties. We would be #3 by a number of sites. The 2 larger operators are Haven, which is part of the Bourne Leisure Group that Gary was referencing earlier. They also own Butlin and Warner Hotels. And then PDR, Parkdean Resorts, which was a merger of Parkdean and Park Resorts about 5 years ago. 42 holiday parks which I'm pleased to announce has just increased this morning by another 11. We have just acquired a group called the Park Leisure Group, which Richard will cover in a bit more detail as we go through the presentation. Just short of 16,000 sites at the end of March of this year. And again, as Gary mentioned earlier, the expansion of potentially 2,900 to add. Just in terms of our history, the business was founded in 1985 by 2 entrepreneurial individuals who built the business over a period of time, but it's sort of 19 or so sites or parks. And then myself and Tony got involved in late 2005 through a private equity house, which was Graphite Capital. And it was effectively a BIMBO management buyout of the 2 partners who founded the business. One took all his money off the table and one rolled into the new business. It was originally called Cinque Ports from the old Brexit 5. We changed the name quite quickly because Cinque Ports, believe it or not, doesn't do very well on search engine optimization. It is a real nightmare. And it goes back to the time of Edward the Confessor. So we did 8 years with Graphite right through the GFC, where we still managed to maintain our profits and EBITDA. And we then sold in 2013 into Caledonia. It's a FTSE-listed business with a private equity arm. We thought it would be a longer-term capital play. But because we've been a bit capital starved for a few years, we actually had a remarkable uptick in trading and Caledonia decided to exit after a short period of time into a company called ICG that used to be a mezzanine finance house, again, publicly listed with a private equity arm. And we spent the last 5 years with them until we completed the deal. I think it was mid-November, Gary, of last year, but then have had to wait for FCA approval. So the deal was actually only completed 8th of April. So we're only some 10 weeks with Sun, but it builds a lot longer for all the right reasons. As Gary mentioned earlier, there's only a handful of operators that are at the size and scale that we are. And even then, those largest operators with more than 10 parks only have about 7% of the total stock of parks in the U.K. And as you see at the bottom there, operators with 2 to 10 parks for about another 12%. But by far, the largest is the mom-and-pop operators. Lifestyle business is often inherited because of their background of location, probably came from farming land where licenses have been granted over the years for them to trade those holiday parks. And that is the sweet spot where we can nip into those businesses, pay good money to buy them out, but when they've got massive accretive value for us. Just talking through the 4 segments of our business. Site rentals are our sticky site fees that, as Gary said earlier, the average customer tenure is in excess of 7 years. But as we premiumize and enhance the amenities on the part, and people are committing more and more money, they are committing to stay for even longer. So this is a big cash generator for us. We worked to negative working capital. We will invoice in about September of this year for next year's site fees. And to give you an idea, 50% of next year's fees will be paid by the end of December and another 30% will be committed on direct debit. So we get a lot of money upfront that pays for our capital expansion and upgrades over the winter period. Holiday home sales, which make up 37% of our GP, very capital light. We buy stock on finance through the manufacturers. It sits on our parks, on our show grounds, and we typically only pay for it after either 180 days or when we sell it. We make big margins and make no apologies for it on our holiday homes, and that's largely driven because of the quality of our assets and the quality of the locations that we're trading. And we have maintained those robust margins right through the economic cycles, whether that be the GFC or Brexit or COVID or anything else. Holiday rentals are very important to us. This is the feeder of people holidaying with us that today's holiday maker is tomorrow's buyer. They are typically younger people with families use much more of the ancillary facilities that we have, the amenities that we have on the parks. But actually, that's what drives the character and the liveliness on some of the parks as well. And then in terms of our site fees, as I mentioned earlier, reliable and recurring. You can see there our ownership numbers are increasing at a very steady rate over the last 5 or 6 years with a CAGR of 11.6% in terms of number of owners of holiday homes at each year-end. And again, as Gary mentioned, we have a track record of increasing both site fees and a higher than inflationary rate. You'll also see there that our ownership mix down in the bottom right is to continue to increase for larger units and lodges, and I'll come on to that in a second in terms of what they look like. Again, they tend to be the more expensive units. The more that people are spending, the more committed they are, but longer they typically stay with us. Just to give you an idea of the units, and you'll see all of these later on today. We refer to a standard unit as being anything up to 12-foot wide. We then -- when it goes from 12-foot to 14-foot, we call it a large. And when it goes to 20-foot or anything above 16, but typically 20-foot, we call it a lodge, both lodges are from the U.K. would have seen them in 2 halves going down to ways with 1 side sheeted up. They're actually delivered in 2 sections and put together on site. The site fees that we generate on those rise proportionately as the units get larger and larger. And with that, I'll hand over to you, Richard.

Good morning, everyone. I couldn't help the irony as opposed to go by trading, but anyway. So I'm Richard Ullman, I'm the Chief Operating Officer, as said I've been with the business for about 10 years. And I just want to share with you a little bit more detail about a couple of aspects of the business and then look a little bit more forward to where we are with acquisitions and how we develop our sites. So Gary and Jeff have touched on this already, but holiday homes for us. It is a fundamental part of what we do. It's an incredibly resilient part of the business all through every economic cycle we've been through it's carried on growing and incredibly resilient. But the primary purpose of it is it drives pitch fees. And the reason why it drives pitch fees is it fills vacant sites for us. So whether that's through expansion or through natural turnover of our owners moving on. So this is the key driver in terms of getting those pitch fees to move forward for us. We get sales from 2 sources. One is new business. So that as our marketing team is bringing people into the parks and we sell on and we fill a vacant pitch or people are enjoying themselves so much with us. They're part exchange with us, so they're looking to upgrade to a newer unit or as Jeff was touched on a minute ago, we're increasingly building larger pitches, more large pitches, more lodge pitches, so people then aspire to have a bigger unit. So it's neighbor next door, what have they got? I want to move up to that. So that's what drives through Caravan sales there. Typically, I'll only stay with us 7 to 9 years, 7 years for an ordinary holiday home, 9 years if you're a lodge owner. We have increasingly led the way within the market in terms of making standard large and lodges that you see over there. We love that because the bigger the pitch we get -- the greater the site fees. Gary touched on it earlier. It's $3.7 for standard average Caravan pitch. It's $5.5 for the lodge pitch. So one of the benefits of being now with Sun is we can increase our upgrade program, driving more large and lodge pitches, which will further drive Caravan sales force. Holiday home rentals. In its own right, holiday home rentals for us is a fantastic profit contributor. But as Gary touched on, the primary reason we do holiday rentals, it is our shop windows, the consumers of tomorrow or the caravan owners of tomorrow. So if I just take that 80% of homebuyers have holidays on a U.K. holiday park. And really, one of the important things I want to get across here in the U.K., going on a short holiday vacation, in a holiday park, it's part of our DNA. So Chris, our CFO, he was holidaying there with his family this weekend. Last year, I holidayed there with my family. It's what we do. But most importantly, this stat here. Last year, 33% of people who bought with us have holidayed on a Park Holidays park, yes. So it's a fantastic shot window, brilliant piece of marketing for us. And the reason why we invested very heavily in our fleet over the last 10 years is that we want to bring that standard up. People who are new to the market, they don't understand how far the quality of a holiday home has come on. And you'll get to see that when we go to Rye Harbour. But we put them in the very best units. They understand the quality of them, give them a great experience. We get great TripAdvisor reviews and other social media reviews. When people are researching whether or not they want to buy on the park, they're looking up at all this stuff. They've had a great experience. It leads them to be the buyers of the future. That might be in 1 year or 2 time, that might be in 10 years' time when their kids have grown up, they've got more disposable income. But what's been crucial is that all feeds through to the site piece, sticky, sticky side fees. And you can see across here, although the quantum of our fleet has grown over the years of the business, the percentage of our sites, which are occupied by fleet does not change. It fluctuates between 13% and 15%, and that's because we deploy our fleet strategically. When we make an acquisition, we typically are buying that part because either we can build those expansion pitches or it's got lots of vacant pictures. So we'll drive fleet in there in the early days for holiday rentals. Those go through it helps market the part. As the part then grows and matures and more owners are coming through and more site fee revenues coming through, we'll reduce that fleet back. And again, we'll go to a couple of parks on the tours where you can see where that fleet has come right back from where it used to be. So then in terms of robust organic growth and how we acquire the business. We're quite unique. We have our own planning department, which no other business in the sector has, and we have our own property department. And between that, that is what's driven the robust pipeline of 2,900 sites that we still have to build and expand. And the way we go and expand our businesses, we either get planning on land we already own. We love to convert the touring business, which is the RV business in the U.S. That's quite easy to convert across in terms of additional sites. We love to buy bolt-on land or bolt-on parks beside our existing parks. It's a much easier way to grow in terms of planning. And then we like to acquire standalone parks or even ground-up parts. And one of the real attractions for us with partnering up with Sun is you can see in the light blue column here, on the back of the investment coming in and the encouragement from the team is Sun, we put more sites into the ground than we've ever done before this winter. So we're flying away with that, and we've got to put another 700 in next year. And the other really exciting part is we're now in a position that we can go ahead and buy ground-up sites. So we can build from the ground up, which is a position we've never been in before. And most of our competitors are currently backed by private equity the returns need much more patient and long-term vision, and they're not in a position to do it. So it gives us a unique advantage in the acquisition market. And once we build the parks out it's absolutely fantastic. We got that very strong site fee revenue coming through, but then the maintenance CapEx becomes very low. And so the great news is, as Jeff touched on, we closed on Park Leisure today, it's a fantastic acquisition for us, 11 parks primarily across the North of England and down in Cornwall. It dovetails brilliantly with Bridge Leisure acquisition we made just over a year ago, which then just strengthens our footprint further up with country. These are premium parks, really premium parks. We get immediate cost reductions in closing the head office. But we've got all the usual advantages that been out of dry fleet in there. The rental growth, we've got expansion growth in there. And then a key point there and here is, that already this is a heavily established owner occupied business. You can see where the average unit margin is at $35,000. So that's a premium on what we make. But the site fees are actually at suboptimal level at the moment. So we got a fantastic opportunity to drive the site fees much harder here. That strengthens our position geographically, multiple avenues of growth, and it gives us a broader range of parks, premium parks, all the way down to then the sort of more holiday-driven parts. And there's just a couple of pictures to give you an idea of the quality of the state. Over on the right-hand side, that's Plas Coch, which is up on Anglesey, which is North Wales. And then you've got Ribble Valley in Yorkshire there and Oyster Bay down here in Cornwall really, really fantastic top quality parks. And just one more slide from me. Just wanted to touch on our ESG prudential. So we're super proud. We worked with Veolia, a waste recycling firm in the U.K. None of our waste goes to landfill. It all goes to their recycling centers. We're working hard in terms of other recycling programs and energy efficiency savings, working very hard with the manufacturers who are primarily based in Hull about more sustainable use of solar energy, wind energy because we're out by the coast should be achievable. And then we do a lot of work around the community, and we've been working very hard with the guys already over at Sun in terms of sharing ideas. But in particular, we support give us time, which is -- supports military families in the U.K. And then every park will also have their own preferred community programs and charities, which they support. So all in all, we're very excited to be now part of the Sun family and working forward with Sun. Gary.

Okay. I think that concludes our formal presentation. And if we have anything else that you wanted to cover before we open up to Q&A. We've got slides, few more slides, okay. Okay. We covered, I think, most of the things. In closing, we talked about the site scale of the acquisition. The similarities of how we're viewing the cash flow and now over a period of time, we expect to expand, develop, acquire, sell homes very much like our MH model for those that followed us 10, 12, 14 years ago where we'd love to buy on a cap rate and acquire vacancies and/or expansion sites under the cap rate that we're paying for the cash flow that existed. We've talked a bit about operating through the difficult cycles, increased demand right now brought by Brexit and the whole concept of staying closer to home for vacationing that I think we've all experienced in the U.S. as well. The industry trends and the track record. So oh my, there are slides there. Total market value in '21, this is a per location site for the parks. We talked about the close proximity. 75% of the current market is within a 90-mile drive of Park Holidays community, excellent opportunity. The increase in geographic footprint. Also with the transaction was a Bridge Properties before we bought the portfolio and then Park Leisure now allows the scalability of the branding, if you will, staying on a Park Holidays lead home for a short vacation leads into a better opportunity to buy a home and for us to sell in, domestic holidays, Brexit we touched on, and we just talked a little bit about ESG. So that does take us to the end. So you brought me up here to just summarize before we turn it over to you. Again, someone had asked a question before about stamp duty. One of the unique things about the classification of the second home holiday business is there is no stamp duty on these homes. So a bit of favorable taxation, if you will, and otherwise actable society. And with that, I'm going to turn it over to management and myself -- John, you have something to add.

Yes.

Yes, absolutely.

In a holidays parks, I think one of the distinctions for Park Holidays is the fact that, that 80%, what that means is that when consumers are making a long-term decision to own a home and a holiday park, we have an outsized number that are coming to Park Holidays for that decision. And it really speaks to what you're going to see today in terms of the quality of the assets that you see across these 6 properties and why consumers make those decisions. The other thing I wanted to just emphasize a little bit was on the upgrades, which is very similar to what we have in the United States. There's a life cycle with the consumer and sort of how they graduate through within the holiday parks. And so a consumer might start with a smaller home, like Jeff was talking about 12 wide house that would be more of an entry-level holiday home that a holiday homeowner would purchase. Then after time, they would upgrade to a bigger home or a lodge. And so when you're looking at that 7 years that we were talking about, that figure is actually longer, if you actually go through the life cycle, how they stay in the community, how they upgrade. But then what's better, what's on top of that, I should say, is that we resell that home, again, to somebody else setting up another recurring revenue stream that happens within the community. And so that's one of the ways -- that's one of the reasons why we've gone further as a team in terms of the acceleration of the development base that we're going to do an expansion within in the communities themselves. So again, I think for many of you, you'll find, hopefully, you're already hearing that much of the story that we're telling about how it works here. sounds very familiar to what we shared with you in terms of the United States and how our business runs there. And that's, like Gary said, when I got here with Gary, I got to my first parks, it took me about 10 minutes to recognize a couple of things, which you'll see today. One was the very high quality of the properties themselves. The talent of the management team here, as well as the similarities to our MH business, which hopefully you all will say by the end of these 2 days is exactly what you saw as well. So anyway, I will step away from the podium.

Okay. So great time for Q&A. What's our schedule from here? 1-5, okay. So I would open it up at this time. And feel free, anyone from the management team, if you want to address any question as it's asked to step up here. I'll leave the mic up here.

How the economics work if they resell the home. If it's a 20-year license, is the home base depreciating at least 5% per year?

Right. So depreciation on a new holiday home, yes? Much the same as a car. When you take it out of the showroom, there's a pretty hefty hit upfront. So it's not a straight line depreciation. So it actually plays into our hands when we're recycling our used fleet, as Richard said earlier. All of our fleet is no more than 5 years old. So the average 2.5 years, as Gary mentioned as well. So 5-year old fleet bands being available to a sales stock. They've had a massive chunk of the depreciation in them, and we can, therefore, retail them at sensible retail prices, but still make a very good margin on it. Does that help?

Yes. How do you make the margin?

Because we're actually still retailing it for more than we paid for that unit in the first place.

I'm just wondering why that second home buyer would pay high home price if there's only x amount of years.

Just the market. Just in terms of the -- we make very strong margins on something that comes into us new from factory. We can reduce that retail price to match the depreciation of a used unit, but still make good margin.

Very strong barrier. So if you've got a premium park, you get on to that park, it is very difficult to get the premium in terms of the margin. Give a concept of demand for the site or the pitch would allow for the profit above and beyond the price per pitch.

So what happens if someone buys the home with 5 years remaining on the license? Is this 5 years remaining license as an example, what happens to that homebuyer?

So if somebody is buying -- so what we typically do is want a 20-year license on a Caravan, which is the 12 and 14 foot units you saw there, and a 30-year license if it's on a lodge. If somebody is getting close to the end of that license period or if we're selling something that's close to the end of the license period in terms of the age of the unit, we will always grant a minimum of 5 years and be very upfront with people in terms of when their license actually expires. As Gary mentioned earlier and as Richard has mentioned, what quite often happens is people could see well in advance what's likely to happen and therefore, upgrade before they get to anywhere near the end of that term.

Perfectly somewhere near 5 years that is [indiscernible] in the amount of money. So the conversion is more than fleet.

So within 5 years, they have to buy a new home on that lot?

Yes, 5.

So there is pressure that goes with when you get to the license that which take action have less and how long to stay in the upgrading is a majority of the time it will be out there.

Where do these homes go when they're sold off site? Like are other parks?

We can move homes within our own parks because we've got more premium parks and obviously then it moves up and down the scale, you'll see that on the tours. But when they can go to a one Caravan traders, and then they can typically be traded off to be put in farmers' fields to be used for seasoned employees. Quite a lot gets shipped off to the continent and then recycled and refurbished.

For the license holder, like someone who moves into the community, can they only buy through your company or can they go to like a dealer and buy?

They can only buy through us or they can privately buy through a private sale, which we take a commission on, which is they're already buying some of this unit, which is already sited.

Is that part of what keeps like the pricing elevated like for the sale?

Yes.

Is your license expiration schedule pretty consistent over the next couple of years? Is it lumpy? Do you have any outsized exploration?

It's very linear. Yes.

So do you expect the pace of upgrades to be consistent as well? Or is that increasing in frequency given what's going on with the economy or the market in general?

[indiscernible].

Gary, how are you thinking about allocating capital of Park Holidays versus the other verticals, especially if it becomes more scarce?

Well, certainly, there already is more scarce with the marketplace weighing in. But actually, for those of you who have followed the company. And I think with a very sharp pencil, I think we've always had a sharp pencil. We've had to sharpen it even further. We got out of the day of meetings yesterday carefully talking about that discussion. And within our platforms and within what we've discussed before, I mean, we look at our free cash flow, we look at the unused equity that we have to take down on a forward. We look at our availability of debt. We look at our recirculation of potential capital, all those opportunities as a company as a whole. And then from within there, we're very cautious about how we think of things. I think right now, we're going to be very focused over here on the opportunity growth through expansion and development. It has the highest returns. In the U.S., those returns have always been in the 12% to 14% range. Again, fixed prices are in place, the amenities are in place and so forth. So I think it will be the greatest return for our shareholders. I think with the Park Leisure opportunity of really being, I think we underscored it really the highest grade holiday resorts that exist today, holiday communities from North to South there's a great footprint, great ability to scale that. Obviously, the management team here will absorb a lot of the G&A that exists over there at the properties. So for the foreseeable future, onesies and twosies, but mostly everything that we looked at yesterday was scalability of expanding existing properties. So it's mostly what we're thinking up here. I emphasize again, we have no mind whatsoever it could be anywhere but the U.K. So there is any intention of moving outside the U.K. and really focusing on the platform we have here as it was described today. So well within our capital means.

From a geographic perspective, I guess, how does your portfolio compare to your larger peer group? And given that the Park Leisure acquisition, it seems like you now have some more exposure in the North. Is that primarily going to be focused on the premium assets? Or is there appetite to kind of just grow there?

Yes. Primarily, we've always been Southern based, in particular around London and Southeast, which has been very economically strong. As we expand further North, it is primarily be driven at high-quality assets. The Park Leisure estate is right in the top quality. We're looking at some other bits and pieces, all of that is top quality. And we are very much focused on an owner-driven business. So yes, so very much high quality further North you go. Very strong demographics in the Southeast.

[Indiscernible] the point everyone has been mentioning, the cross-selling of ownership towards actually the makers. We didn't have a location to be able to do that in the North, now we do. So that cross-selling becomes a stronger part of the business going forward, derisks and increases the proportion of sticky pitch fees as we move forward.

Could you guys talk a bit of the zoning and the planning process involved in getting your greenfield to what it is?

Yes. So on planning process, it's similarly to the U.S., it's not a straightforward exercise in terms of every local planning authority works within a 5-year framework. So they set a framework, and that will ultimately set out how far they want to expand with holiday market and how they've gone. And then you just have to -- the reason why we have our plan in houses, they work very closely. They've built up long relationships with all the planning authorities around this. They understand what is and isn't feasible. So if we're looking at a piece of land or an acquisition, then we've got a full analysis done on it before we even make an offer about what our prospects are of expanding that. And then we tend to work with the friendlier local authorities, where we know we're going to find good growth and a good response to tourism. And then you just go through a process, ultimately, where we usually put a pre-application in which takes 6 weeks to get an initial response. You then go through a 12-week planning process. And then if that is unsuccessful, you then have an opportunity to appeal that, if that isn't. And that is all -- should all be driven by framework and the appeal process is all absolutely driven by framework. You can get a little bit of a nimbyism in the local areas, but you always have the fall back of an appeal process.

So on average, what would you say...

So Matt, who's our Planning Director, he's got an 85% success rate in terms of our planning applications. That's probably against an average, which we picked up from a number of the agents, which is about 73%. So we have a distinct advantage having this in-house planning team, and it's really won us some great rewards.

How does the pricing work on the annual license fees? Is that explicitly RPI or CPI linked? And is the spot kind of license annual fees, is that growing in excess of RPI or CPI over time?

There's no regulation. That's not cap to talk. That's residential. So we can put it up by what we can justify. So with investments in the parks, wage inflation, all of those things we can pass through CPI plus. There's no regulation even planned or coming that we can see on that and on the other side.

And do you think you can still really do CPI plus this year, even with CPI or is it going to be in kind of high single digit?

Our inflation -- the cost on our inflation will be less than CPI, and we'll be able to recover that.

Just enter Park Leisure, what's the demographic mix of that customer relative to the traditional holiday park customers? It seems like there's a bit more higher end, but maybe if you can give some more details, it would be great.

I haven't got -- I don't think we've got any specific statistics, but it's definitely coming. It's definitely a very affluent demographic. It's pulling from.

So they're older and older and more affluent, hence a segment that we, the holiday make face and the fact that they're able to pay cash goes to that higher demographic.

So can you sell cross -- can you cross-sell eventually? Can you sell upgrade from your traditional customer base to that customers base? And how we work overtime?

Yes, absolutely. There's no demographic changes as they get old that the demographic suits the ownership model.

Maybe just one more in terms of, I guess, availability of homes. There's a shortage of MH homes in the U.S. Are there a lot of Caravan homes available for purchase here in the U.K.? Or is it still limited like you see other types of classes.

It's been lumpy. So COVID has impacted the manufacturing process at different times have been shortage of doors, windows soft furnishings. We work very closely with manufacturers to take a long-term view and make sure we've got orders in place. But yes, at times, there have been more customers than we've had product to sell. Thanks to that is now easing through and our go-forward look on stock is something you're happy with.

Are there any implications of Park being halting its sale process on the business? Or how should we think about the implications of that on the sector as a whole?

Thank you. Not sure, this is recorded. The -- I don't think there is any implication in terms of the future, particularly sort of the short to medium term just reading sort of Bloomberg yesterday in terms of CPI, RPI in the U.K. may hit 3%. Myself and Chris, we're just having a conversation this morning that 3% is well below the average if you go back enough years. So I can certainly remember. So I don't think we're looking at inflation at sort of Black Monday that we had when it hit 15% in the '80s or whatever. But I think clearly, the fact that there is increasing inflation and the fact that all this talk about recession has maybe had an impact on the Parkdean Resorts process. But I think the Parkdean Resorts business model is materially different to ours. They focus very much more on a fleet driven operation with a high secondary spend which is much more akin to the old Haven model and still is what Haven do day in, day out to this day. We are far more oriented towards the owner model, and we can operate in smaller parts because we haven't got that massive amenity overhead in terms of life guards and entertainers and all the rest that goes with it. So we are actually able to be more nimble in terms of what we can purchase when it becomes available. And we're not constrained by our brand in terms of what it represents either. So our parks are very diverse. They're not cookie cutter, and they appeal to different sectors of the market where Haven in particular and Parkdean Resorts increasingly are targeting just one sector of the market. That is a very much more discretionary spend in my view.

To add, it's been easier for us to premiumize our product because we're not in that demographic. And for us, it's about quality, not just quantity. And without wanting to rubbish announces business model, their model is more about quantity, and we have surpassed them in terms of quality over the recent years.

A follow-up question on the annual increases on the licenses. Could you give us a sense for the last 2 or 3 years what was the rate of the annual increases and what you expect over the next 2 or 3 years?

For over the last 2 to 3 years. And I would expect this is going forward in terms of what owners are expected.

Just because of the headlines around RPI and CPI? But as Chris mentioned earlier, we don't suffer the full effect of that headline inflationary rate. So we will more than recover any increase in cost in our G&A.

Final one for me. The proportion of the total profits from home sales, I think high 30% today. Where do you expect that to be 5 years from now?

I think as we increasingly expand the portfolio, the site fee element will inevitably increase the ancillary spend from main fees will probably stay much the same as a fixed figure but will decrease as a percentage. And I think the holiday home margin contribution, if you like, will decrease a bit as well, but it will be all in favor within that 100% sort of full amount. It will all be in favor of the site fees going forward.

Can you give me a sense of how much it will shrink to 37 or 38? Are you still talking 35, 30, 25, 10?

It would be 30.

30, yes. So as far as being in -- yes, like if we looked at the map of the U.K., most of your properties are in the Southeast. Is that kind of just your footprint? Or could you expand like around the whole country? Just what does the industry look like?

That's our footprint. If you looked at the fixed map of Park Dean Resorts or Haven, it's very broadly spread across the country and primarily coastal.

The distribution is lumpy. And that goes to the history of planning in the sector. It's difficult to get planning consent now. So it's quickly where parks are developed in the '50s and '60s. So there are certain areas which a lumpy and to guide us to Lincolnshire, for example, part at the North Wales Coast, where we're not there at the moment. There is a higher supply there. So we've tried to focus on areas where a relatively low supply, where we can work for the premiumized model.

Some talks about what of the defining characteristics of its businesses being low new supply. How much is new supply these days or recent history as a percentage of stock? And why should new supply be low over time?

Do you want to answer that?

Yes, sure. It's less than 1% increase in the pitches maybe take a few since the 1970s. There's actually fewer pitches today than there were then, and part of that is the redevelopment parks for larger homes, small numbers on the site. So -- and it goes to what's been said about planning. So zoning has been described in the U.S. is very, very difficult when you see some of the sites that are in beautiful locations. And if you had farmland and authority, would like to develop the Caravan park with these beautiful views out to see, the answer would be no. So what just developed today is pretty much what's going to exist forever. There are opportunities on the joining land, et cetera, and the change use of some low use assets that topics, but new parks a version possible. Hence, the premium value.

Thank you very much for joining. We have now just finished the presentation and Q&A. Thank you.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.