Gary A. Shiffman - Executive Chairman, Chief Executive Officer, Member of Executive Committee and Director of Sun Home Services Inc Karen J.

Dearing - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Corporate Controller, Treasurer and Secretary

Nicholas Joseph - Citigroup Inc, Research Division Jana Galan - BofA Merrill Lynch, Research Division Ryan Burke David Harris - Imperial Capital, LLC, Research Division Thomas J. Lesnick - Robert W.

Baird & Co. Incorporated, Research Division Joshua Patinkin

Thank you, and good morning. Today, we reported funds from operations of $30.6 million, or $0.78 per share for the fourth quarter of 2013 compared to $26.2 million or $0.80 per share in the fourth quarter of 2012.

For the year, FFO was $121.5 million or $3.22 per share compared to $96.7 million or $3.19 per share in 2012. These results exclude transaction costs incurred in connection with acquisition activity.

Revenues for 2013 increased 22% from $339 million in 2012 to $415.2 million in 2013. Now turning to a review of the portfolio.

During 2013, revenue-producing sites increased by 1,885 compared to 1,069 in 2012 and the original 2013 guidance of approximately 1,500 sites. The 2013 increase nearly equals the increase of the 2 prior years combined, each of which represented a historic high for occupancy improvement.

Guidance for 2014 occupancy improvement of 1,900 sites will bring portfolio occupancy to approximately 92% by the end of 2014. And turning to same property performance.

The same property portfolio of 159 communities, revenues grew by 5.1% in 2013 while expenses increased by 3.2%, resulting in NOI growth of 5.9%. The 2014 same property portfolio guidance is based on 173 communities and revenues are expected to increase by 5.9% while expenses increased by 3.2%, resulting in NOI growth of 7.1%.

Same-site occupancy increased from 87.1% at December 31, 2012, to 88.9% at December 31, 2013. Turning to home sale.

During 2013, 1,929 homes were sold compared to 1,742 in 2012, an increase of approximately 11%. The guidance for 2014 projects home sales to increase by 14% to approximately 2,200.

Better home sales approximate 50% of home sales for each of the periods noted. Applications, which are a prime measure of customer demand for our affordable housing product continue to surge.

For 2013, we took 30,700 applications to live in our communities, an increase of nearly 18% from the 26,100 in 2012. Expansion of sites and communities is experiencing strong demand and continues to be on plan.

We expect to add approximately 765 sites and 6 communities in our Texas and Colorado markets where occupancies are virtually full. The fill rate is estimated at 6 to 8 sites per month, so when all 6 expansions are open, it will be filling at an aggregate rate of over 40 sites per month.

And this is anticipated to be an annual experience over the next several years as we build out our inventory of existing expansion sites. I'd also like to note that we have also been selectively acquiring communities that have additional expansion opportunity and/or entitled and zoned land for expansion.

With that, I'd like to focus a little bit on our acquisitions. In the last 6 weeks of 2013, we bought 3 communities for approximately $40 million.

In 2014, we have bought an additional 4 communities for $106 million. 6 of the communities are recreational vehicles communities and 1 is a manufactured housing community.

We now have communities in 27 states, expanding our geographic footprint in many desirable destination locations along both coasts. These communities are very high quality and together with other recent acquisitions, represent many of the premier communities that are in our portfolio.

Where necessary, we've been able to reposition RV communities through capital investments and upgrades in management system and practices that should create accelerated growth. These recent acquisitions perfectly fit our acquisition model, which is to focus acquisition efforts in the highest quality RV communities, which have latent earnings power and our manufactured housing communities, which present the opportunity for growth through occupancy improvement, a capability we have demonstrated frequently over the last few years.

Demand for sites in RV communities is also a function of the increase of shipment of recreational vehicle, which are expected to increase by approximately 6% in 2014 marking the fifth consecutive annual increase in shipments. Also, the aging of the nation's population is a positive, as adults over 55 years of age account for over 40% of total demand for our refi[ph].

Finally, I just add that we have a full pipeline of acquisition opportunities, which fit our model, criteria of quality, location, geographic diversity and potential for earnings growth. Our debt-to-EBITDA multiple is projected to be 6.9 by the end of 2014, down from 9.8 in 2011.

And in December and January, we refinanced approximately $240 million of debt at attractive long-term rates. Our debt maturities for 2014 and 2015 are $11.5 million and $56.3 million, respectively.

We anticipate that the company's FFO per share for the year 2014 will be in the range of $3.52 to $3.62 per share. At the midpoint of guidance, this reflects an increase of 11% per share and a strong increase in profitability, provided the basis for an increase in our annual dividend from $2.52 to $2.60.

And at this time, management will be pleased to take any questions. Operator?

What are the cap rates on the acquisitions, if you could break that down between the 6 RV communities and the 1 MH community?

I don't have them broken down, Nick, but they average together about 7.2% cap or 7.2 cap. I think that one thing that I've pointed out to everybody is that when we look at cap rates, we look at the cap rates based on the trailing 12 months and without any adjustments to the seller's operating financials.

So one of the things I think is causing some of the accelerated growth opportunity for us is to be able to get into those communities whether as we position them or our fill occupancy and really get a lot of growth increase both in NOI and a return on investment that we've looked at after we're comfortable with [indiscernible] operating the quality of the [indiscernible] community.

Okay. And then in your remark in the release.

You mentioned the substantial pipeline of acquisition opportunities. Could you talk about the size of that pipeline and break it down, I guess, between RV and MH or mostly be RVs?

I think that we're still strategically looking to grow our RV communities so that we can have good movement and good marketing between the various communities and hence whether north and south on either coasts or a little bit of midwest down to warmer weather for the Snowbirds. We'll continue to focus on the RVs.

But last year, we bought about $185 million of communities. In 2012, $315 million and in 2011, about $175 million.

With the fact that we have $106 already acquired in the first 45 days of the year, I would expect to be at the higher end of those numbers.

I wanted to clarify us the guidance on -- does it currently not include the $56 million of acquisition you closed in February?

Yes, Jana, it does not include those additional acquisitions. We're still looking at the ultimate long-term financing on those and we'll look to revise guidance once we have a little bit better picture of that.

And then on the acquisition that closed in January, I think that from the January press release to your earnings press release, there was an increase in the purchase price by a little over $4 million. True?

Is that are you adding kind of your expectations for CapEx there or kind of what you look to change?

The difference, Jana, is primarily in the homes and notes that we purchased that weren't in the original purchase price dollar amount.

And then just 1 more on expenses. I was curious what's in the other category that drove year-over-year decrease?

Could you be a little bit more specific on that, Jana?

[indiscernible]?

Other expenses in for the quarter? That's a decrease of about $300,000.

That's primarily a decrease in advertising costs.

Just continuing with the last question, is that decrease in advertising costs something that we should expect going forward or was it more of a one-time decrease?

I think that is something that will be a one-time decrease.

Okay. And then just on your guidance, if you can just elaborate on what you're seeing on the ground that is driving the strong projection of occupancy gain for the year and perhaps just provide an update on how that affects your thinking on the rental program?

Well, I think that the occupancy is going to be a function of the strong growth and applications that we've shared, I think, in the past. Certainly, our thoughts and the success of the rental program will be used as a tool to fill up what would otherwise be a vacancy.

And I think we also indicated on the last call that the growth in the rental program from this point further would mostly be related to expansions on acquisitions as in places like Texas and Colorado. Do you know how many communities is there Karen, that decreasing or as a percent?

Yes, if you're looking at the rental program and looking into 2014 guidance, we're really seeing in the rental program about 28% of our communities are projecting a decline. In Texas, about half of the rental program communities are budget to decline.

Colorado, as Gary mentioned, another full occupancy state is 3 or 4 communities and also we're looking at declines in Michigan in about 19 communities where -- they are primarily the Kentland portfolio, that's out full occupancy now, the portfolio that we purchased in June of 2011.

So the applications result in both [indiscernible] in the rental and they help us accelerate the growth. So I think that accelerated occupancy and same-site growth goes hand-in-hand with the success of that program.

I think also if you just look at occupancy gains, Ryan, Michigan, Indiana, Ohio are still driving 50% of our occupancy gains. Michigan is about 45% of that.

We are continuing to project -- we have some room there in occupancy, so we'll continue to get health gains there and Indiana, I think, it gained 290 basis points in 2013, so we'll see some additional gains there.

Great thanks for the insight. That's definitely helpful.

Just going back to the 18% increase in application. I assume that's a total portfolio number.

Do you happen to have more of the same store number in front of you by chance?

I do, just in case someone asked that question. It's about 13.5%.

Just a reminder, do you include the rental occupancy in your overall occupancy stats and is it included in your same store NOI numbers as well?

Yes, the rental program occupancy is included in our total portfolio, and our same-site occupancy, and the rental program is about 17% of total occupancy.

Just to stay on that theme, what is the average length of stay for renters in your communities currently?

In the rental program, we have about -- I think it's about 65% renewal rate. And so it's about 2 years.

Okay. And what are your expectations for recurring CapEx for those sites in the coming year.

Looks like you took it up a bit in 2013 and I'm just wondering about the pace in [indiscernible] 2014.

I think we talked about it in the earlier call that we did do about $4 million of onetime really improvements, particularly in our Midwest portfolio in 2013. So and guidance has about $11.5 million or $160 per site in it for 2014.

Good to see the dividend increase. Gary, I wonder if you could share with us the factors that you and the Board consider when setting the growth rate and also what factors do you think might be relevant in that consideration as we go forward?

I think that the Board look carefully at the fact that the last dividend increase, I believe, was in 2005. And before that, we had a policy, basically looking for a payout ratio of 80% or so as a trigger point.

And when we were at that level, which we are again today, we generally had a Board that was looking to balance the cost of capital and the use of the capital by the company versus increasing the dividend, and the policy generally was to increase it at a level around CPI. And I think that there was a lot of discussion with the Board of Directors, looking at the same types of things in where we are right now and the potential for putting capital will work as well as growing the dividend for the shareholders.

And after discussion, this being the first increase of dividend that we've had in such a long period of time, we had come to that agreement in principle that it's a good place to start and we would hope that based on the continued growth that we're expecting to see that there would be more of it as we examine it in the future.

Well, just to elaborate on that. There's a big difference between CPI and what your -- the 80% ratio would get us to.

Is it something sort of -- is it reasonable to think that it's going to be something down the middle, I mean I know, you don't want to get ahead of the board decision here. But is that a fair assessment as we sit here today?

I wouldn't forecast anything out into the future as to where it would or wouldn't be. But the discussion really triggered around putting the retained earnings to work.

As I discussed, we do have a lot of acquisition opportunity. We are and have been committed to being pretty debt neutral moving forward with the balance sheet.

So I think it was the right message to shareholders that we didn't want to increase the dividend, but that's the amount that the board felt comfortable doing at that time.

Okay. Now you talked about the expansion and maybe I missed this, you'll forgive me.

Did you talk about the dollars expanded in '13 on around expansions and what you might be looking to spend this year?

Expansion, capital expenditures were, I think about $18 million in 2013 and we will expect a similar number in 2014.

Okay. And I have another question for you, Karen.

I think you are sticking by your first quarter guidance of $0.92 to $0.94 per share that was issued in mid to late January. We've had an awful lot of snow since then?

I mean is there a question that we should be thinking about some higher snow removal cost at the very least on the expense line?

That's an excellent question. 2 very mild winters might have caused us to decided to paid by the snowfall and then something like this takes place and we're bombarded by a very snowy winter.

But there is nothing that I'm aware of that would be significant with regard to snowfall. I think that I've been watching closely with the ops department as to the effect on applications.

And I must share with you that the cold weather doesn't serve to advance the application like we would like, but I really, at this particular time, on a quarterly basis, would not expect to see any significant changes due to the weather.

You understand where my question is motivated from due to number of days and hours I've spent shoveling my drive sir.

Good morning. I'm standing in for Paula.

Looks like legal taxes and insurance was up pretty significantly year-over-year. How do you expect that trend to continue into 2014?

I think that increase in the quarter Tom, is about 50% legal costs and 50% property and casualty reserve. I don't expect there to be a significant increase in that year-over-year, '13 and '14.

Okay. And then just looking at G&A, real property G&A sequentially, looks it got a little bit of a bump there.

How should we be thinking about that run rate going forward

I think that if you look at the quarter, it's up about $2.2 million, excluding deferred compensation, amortization is up about $1.6 million. That's primarily salaries, wages and some incentives.

I think what our G&A is showing is that while we definitely do a great job of leveraging our team members in our system, we really did have to make an incremental investment in our support staffing system, and realizing that we've increased our properties by 40% in the past couple of years. The number of employees in the field have increased by about 60% and your transaction accounts just really continue to climb, things such as invoice processing are up 60%.

So I think we're confident we've made the appropriate investments in our staffing and we're doing -- making the investments in technology to be in efficiencies in our workflow. So I think that with the guidance that we have out there for 2014, we really are confident we we've provided the scalability in admin staff to support the acquisitions going forward.

Building on the G&A discussion, I'm curious to understand what kind of incremental investments you've made in your online reservation system and call-center, for the additional RV communities and where are most of the RV reservations made today? Is it a variety of sources or is it increasingly moving to the web?

That's an interesting question, Josh, because with the increase in G&A and as Karen shared with the influx of all the additional work by the growth of the company, it's something that I have been watching [indiscernible] standpoint. There's been a significant pushing of the investment to develop online web presence where the reservation can actually be made fully automated.

So there is no need to actually speak to a person. We have seen growth in online reservation, mind you, at a very small base of several hundred percent since it's been implemented, approximately 2.5 months ago.

I think the investment in social media is a good part of the technology being put in place and the balance of it is that while we were only 6 months in the RV business as we've shared, because we were in the South, we've now expanded to a northern presence, which is the office of Steven's and while we're levering the systems and the personnel, in large part, what we have to do is put in enough support staff to be scalable for the additional acquisition. So in my asking the same question of management what to expect with regard to G&A?

Because certainly, we would like it to become a lower percentage of our asset value. I am quite confident that the growth that took place now will be most of what's in place for the next couple of years.

So I wouldn't expect it to keep going.

Okay, interesting. And you said you mentioned that your online system has been up for a few months now and do the people that you buy these RV communities from have any functionality along those lines and what do you think you can do with revenue at those communities, just based on its greater interface to the customer?

So I would invite you to call or I'll have our Chief Operating Officer who's intimately involved with the growth rates, with the expectations and the budgeting. But I can share with you that their expectations are for high-growth online.

Additionally, one of the things I left off is that we moved our call center from Florida, up to our home office so we could have more oversight and it's now more central to all of our communities that we've acquired in the RV business. So that call-center investment is also in place, made up and running and incrementally, it seems to be reason for a lot of the double-digit growth we're anticipating for 2014 reservation.

But if you want, I'd invite you to reach out to John McLaren and he could give you exact expectations.

Well, I'd like to thank everyone for participating. We feel that we really are proud and pleased to have presented results for year end and looking forward to reporting results for each of the quarter in 2014.

As usual, if you have any questions for Karen, myself or anyone else in the company, we're available at any time and we'll wind it up right there and I hope that the snow slows down a little bit for everybody on the East Coast. Thank you.