Sun Communities - Q1 2015
April 23, 2015
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by, and welcome to the Sun Communities First Quarter 2015 Earnings Conference Call on the 23rd of April, 2015. 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 this morning's press release form and from time to time in the company's periodic filings with 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'd like to introduce management with us today, Mr. Gary Shiffman, Chairman and Chief Executive Officer, and Ms. Karen Dearing, Chief Financial Officer. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. At that time, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. I would now like to turn the conference over to Mr. Gary Shiffman. Please go ahead, sir.
Gary Shiffman (Chairman and CEO)
Thank you, operator, and good morning. Today, we reported funds from operations of $50.2 million, or $0.90 per share for the first quarter of 2015, compared to $38.3 million, or $0.95 per share in the first quarter of 2014. These results exclude certain items, as detailed in today's press release. Revenues for the quarter increased by 37.3% from $111.2 million in 2014 to $152.7 million in 2015. After completing the previously announced Orlando manufactured housing acquisition this month, we thought it would be helpful to summarize some of the changes in the size, scale, and balance sheet of the organization over the last three years.
The number of communities we own and operate has increased by 57% from 159 to 249, and sites under management of approximately 92,500, which are comprised of 74,300 manufactured home sites and 18,200 RV sites, represents a 69% increase from December 2011. We've expanded the number of states in which we operate from 18 to 29 and now have a solid presence across the Eastern Seaboard, from Old Orchard Beach, Maine, down to Homestead, Florida, and have also increased our assets in the Western United States. This expansion has improved not only our size, as we are now the largest owner/operator of manufactured housing sites in the country, but also the overall portfolio quality and asset mix.
Our acquisitions have also increased the percentage of revenues from RV resorts from 9% in 2011 to an estimated 16% in 2015 by strategically focusing on destination locations where demand for high-quality RV sites outpaces the availability of such sites. During this time, we've also strengthened and enhanced our balance sheet, more than doubled our market capitalization, improved our debt maturity ladder, refinanced debt at advantageous rates, and successfully reduced leverage. Our momentum of positive operating measures throughout this time of extensive property acquisitions, I believe, is an indication of the operating experience, expertise, and scalability of our systems and team members across the country, as well as the staff supporting them from our headquarters. Now, we are pleased to present our first quarter 2015 results, which indicate continued positive trends. Turning to our portfolio overview.
During the first quarter of 2015, we added 499 revenue-producing sites, bringing total portfolio occupancy to 92.9% at quarter end, as compared to 90.2% at March 31, 2014. I'd note that the nearly 5-point reduction of occupancy in our Florida portfolio results from the inclusion of the American Land Lease communities, which had a lower average occupancy than the existing Sun Florida portfolio. This represents additional growth opportunity in our portfolio in a market that is favored destination-wise for the ever-increasing population of Baby Boomers reaching retirement every day. Revenues in the same-site portfolio increased by 6.8%, while expenses increased by 2.1%, resulting in NOI growth for the quarter of 8.6%.
Same-site occupancy increased by 1.5% from 92.5 at March 31, 2014, to 94% at March 31, 2015. Revenue growth was 30 basis points higher than expected, primarily due to outperformance in transient RV revenues, and expenses were 280 basis points lower than internal estimates. We believe that approximately $525,000 of the expense savings were items budgeted in first quarter that did not actually occur and that are expected to be performed in the second quarter. Home sales for the quarter were 543, as compared to 369 sold during the first quarter of 2014, or an increase of 47.2%.
Home sales in the same-site portfolio were 405 in the first quarter of 2015, as compared to 350 in the first quarter of 2014, an increase of 16%. New home sales increased by 144%, from 27 sales to 66 sales, primarily due to sales in Florida and Arizona, where we continue to see growing demand. Pre-owned sales in that same-site increased by 39.5%, driven by strong sales in the Midwest and Colorado. Turning to our RV portfolio, we continue to generate positive results in both our long-term and transient RV guest stays, as RV revenues, which are included in same-site revenues, grew by 9.5% year-over-year, and same-site occupancy percent to 90.3% quarter-over-quarter.
We continue to generate higher average daily rates and revenues per available site, driven by the capital investments made to reposition these resorts, post-acquisition, and the strong demand for quality sites in these destination locations. Reservations through our Sun RV website increased 19.3% when comparing the average daily amount of reservations booked in first quarter of 2015 to first quarter of 2014. A 51% increase in inbound calls to our call center generated a 60% increase in net reservation revenue per day when compared to the first quarter of 2014. Turning to expansions, during the first quarter, we completed a 76-site expansion at Summit Ridge near San Antonio, Texas, which is one of 8 communities with a total of 800 new expansion sites we expect to bring online this year.
We experienced strong returns on our expansion sites based on the small amount of additional incremental expense load per site, as most fixed community expenses are already in place. The 375 manufactured housing expansion sites developed in 2014 continue to experience strong demand, with absorption rates averaging between eight and 12 sites per month. The integration of the American Land Lease properties was smoothly accomplished, and we are experiencing strong performance from the portfolio. Home sales exceeded budget by nearly 50 sales, generating higher than budgeted home profits, while property operating NOIs also exceeded budget. On April 1, 2015, we completed the acquisition of the six manufactured home communities located in and around Orlando, Florida, for just over $256 million.
This high-quality portfolio includes 3,130 developed sites with an occupancy of 96% and includes 380 sites available for expansion. We anticipate bringing the first 100 of these expansion sites online in early 2016. The addition of these communities brings our holdings of age-restricted assets to 25% of our portfolio. The pipeline for acquisitions remains strong, with near-term opportunities for both RV and manufactured housing communities. We are currently in various stages of due diligence on approximately $130 million of communities. In January, we completed the sale of Valley Brook, a 798-site manufactured housing community located in Indianapolis, Indiana.
As part of our ongoing asset management strategy, we intend to bring to market up to 19 communities for sale, comprised of nearly 5,400 sites, the majority of which are in the Midwest. Finally, as stated in our press release this morning, we have revised 2015 FFO guidance to $3.55-$3.65 per share, an increase of $0.02 per share at the midpoint, and have provided guidance of $0.82-$0.84 for the second quarter of 2015. While we outperformed our internal estimates for the first quarter, we expect certain community expenses budgeted but not performed in the first quarter to be completed in subsequent quarters.
Guidance includes acquisitions through April 23, 2015, and the add back of a related transaction cost, but no prospective community acquisitions or dispositions are included. At this time, operator, both Karen and I would be available for questions.
Operator (participant)
Thank you. Again, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, press star one to ask a question. We'll take our first question from Nick Joseph with Citi.
Nick Joseph (Senior Equity Research Analyst)
Thanks. Gary, you mentioned the current pipeline of quality acquisition opportunities. Can you talk about if those are more MH or RV focused, and then how you balance that desire for additional acquisitions with onboarding the ALL and Orlando portfolios?
Gary Shiffman (Chairman and CEO)
Sure. I'll take it a little bit backwards. ALL, we had the benefit of the same software and management systems. We also had the benefit of a seller that was becoming a shareholder investor in the company. So our ability to prepare for onboarding ALL was much different than a normal acquisition. We were welcomed in before the closing. We were able to bring in all of the management, all of the office staff, well in advance of the closing. We brought them in in two groups, and they each spent five days training on our operations manual and with our staff here at our headquarters.
We feel very, very good with regard to our ability to move forward to the Orlando transaction, which, as I said, we closed on April sixth. The Orlando transaction was also the case of a very good relationship with the sellers, one in which we closed two large communities almost 20 years ago and have remained very, very close, looking at the opportunity that we might have to acquire the balance of their portfolio. They, too, took a significant stake in the company through the operating partnership units, both in the first acquisition, and they were satisfied with that 20 years ago, and again, in this most recent acquisition. Again, I would only indicate we had great cooperation before the closing, the ability to work with the staff.
They are in Orlando, where we have a heavy concentration, and could leverage the existing management staff, as well as the systems there. So, we will look to share second quarter results with everybody, but right now, we are feeling very comfortable with the integration of both of those portfolios. With regard to acquisitions going forward, I think that it's important to recall that we have shared with the marketplace a desire to increase our RV communities as a percentage of our own overall portfolio. We announced to the market about two years ago the strategy of increasing our holdings to about 20%-25% of the overall portfolio as we saw significant growth opportunities and acquisition opportunities.
We got to the upper 20% point prior to the recent acquisitions. We're now down at around 15%-16% of the entire portfolio being RVs. So we will focus on bringing that back up to the designated strategy of slightly over 20%. I would say that the acquisitions that we're looking at right now have a little bit of a disproportionate percentage on RVs, and that's more of happenstance than specific design, although they fit well with our strategy of focusing our increase on RV.
The thing that I would point to is that whether they be RV or manufactured housing communities, Nick, we're really focused on buying the right communities where we can really do what we do best, which is accelerate growth and enhance the value of what we buy.
Nick Joseph (Senior Equity Research Analyst)
Thanks. Appreciate all the color on that. What was the cap rate on the disposition in Indiana?
Gary Shiffman (Chairman and CEO)
I don't have it handy, but our dispositions averaged a 7% cap rate, as best of my recollection, but we can get back to you with that specific cap rate.
Nick Joseph (Senior Equity Research Analyst)
Thanks. Then just finally, just sticking with Indiana, what do you need to see to have occupancy in that state, kind of at least approach what you're seeing in all the other markets you're in?
Gary Shiffman (Chairman and CEO)
So it's really a good question. It's something that really comes up more in our asset management meetings as we determine where to best deploy the capital. And I think that the rental program was really not driven in the Indiana market initially. So as we began in Texas with the rental program, then in Colorado and filled those vacancies, we moved it into Michigan, and now we're determining how much capital we want to deploy in Indiana. And I think that a lot of our disposition focuses on particular assets in Indiana, where we think the capital could be deployed in a different manner for the shareholders.
So, we'll be looking to sell some of those communities and focus on ones where we can deploy the rental program, and we think that we can then convert the renters into homeowners, which is what we seek to do at about 10% a year. So it really is the rental program that we'll have to deploy there to see an improvement.
Nick Joseph (Senior Equity Research Analyst)
Thank you.
Operator (participant)
We'll take our next question from Jana Galan with Bank of America Merrill Lynch.
Jana Galan (Director)
Thank you. Good morning. As you've been very active in the acquisitions, and you're increasingly looking at dispositions, could you talk more broadly on cap rates for RV and MH as you see kind of more bidders out there for properties as well as new buyers?
Gary Shiffman (Chairman and CEO)
Sure. There's, as I said, I think on the last couple of calls, there has been cap rate compression as we have had, more, competition out there in the, market. I think that, I've always shared with the market that my view on cap rates for the 20-plus years I've been in the business, which I should correct, is probably 30 or more now. You know, it's that broad range of six to eight, six being for, the highest quality, communities. And I shared, with the market, I think on the last two calls, we've seen a 50 basis point compression, so that range looks to be in the mid-five, to the mid-,seven.
For Sun, what it's meant is that we have to be more and more cautious with what we're acquiring out there. There are several acquisitions that we just walked away from because of the cost far, far outweighing the growth that we think we can get. So we will be aggressive as anybody when we think we can get outsized growth. I think American Land Lease is a good example of that, where we bought in the mid-fives or slightly higher, and we see the opportunity. In fact, are starting to experience the type of enhancement we can create for the growth and, you know, turn something around, or a growth of NOI in the 15%-20% range, in a three to five year period of time.
Jana Galan (Director)
Thank you. Just on the new home sales, you saw a nice increase there. You mentioned it was driven by demand in Florida and Arizona. I was curious if there's any changes on the financing environment?
Gary Shiffman (Chairman and CEO)
So it's an interesting question, something that we're looking at all the time in a long discussion that took place at our board most recently. There seems to be additional interest in the shadow financing today, I think, as many funds and much capital are looking for returns. Our Chief Operating Officer would be with us today on the call, as he normally is, with the exception of the fact that he is touring with a group of three banks today who expressed interest in providing financing for the type of lending that would be suitable in Sun's portfolio. So I can share with you that there has not been a lot of change, but we believe there is the potential, and Sun will be pretty focused on developing some more sources that we hope to be able to talk about in the near future.
Jana Galan (Director)
Thank you.
Operator (participant)
Our next question is from Drew Babin with Robert W. Baird.
Drew Babin (Senior Research Analyst)
Well, I was hoping you could walk through the funding strategy for the ALL and Burger portfolios. Just given the implied cap rate your stock was at, on average in the first quarter, could you explain why there wasn't more of a common equity slash common OP unit components in the funding strategy, and how you think about that going forward? How you think about 16 debt maturities, sort of in that context, and how you might approach those, usually the overall leverage ratios?
Karen Dearing (CFO)
Drew, I'm sorry, but you were kind of fading out in some of your questions. Could you repeat that for us, please?
Drew Babin (Senior Research Analyst)
Well, I'm sure. Can you hear me a little better now?
Karen Dearing (CFO)
Yes. Thank you.
Drew Babin (Senior Research Analyst)
Okay. Sorry. I was hoping you could walk through the funding strategy for the ALL and Burger portfolios. And just given where your stock price was in the first quarter and the implied cap rate, you know, it was a very good time to issue equity, as far as a cost of equity perspective goes. I'm just curious as to why there wasn't more of a common equity component to the funding strategy.
Karen Dearing (CFO)
Well, in regards to the Burger portfolio, Drew, the use of the common OP units and preferred units is really more of a seller-driven opportunity for us. So many sellers have tax situations that would create large gains, and the use of the common OP and preferred OP units defers that gain for them. So we utilize that strategy as an opportunity to bring more sellers to the table.
Drew Babin (Senior Research Analyst)
Okay. How do you think about your overall leverage ratios right now, sort of the ones to key in on and target, most specifically, with regard to, you know, further acquisition opportunities and with regards to the 16 debt maturities?
Karen Dearing (CFO)
If you look at our, you know, debt to EBITDA, which is normally the ratio that we look at, and I think we've been fairly consistent, that we are comfortable with the debt to EBITDA ratio, net debt to EBITDA of around seven, maybe a little bit lower, seven times. It certainly is up a little bit this quarter if you look at it on a trailing twelve basis. But when we look forward, let's say if you just use Q1 annualized EBITDA, we'd be in the mid-6s. So, right around 7x that EBITDA leverage is where we're comfortable.
And we should be back down below there by the end of the year, based on having the remainder of the new acquisition EBITDA in the portfolio.
Drew Babin (Senior Research Analyst)
Thank you. That's helpful. And another question, just looking at the recent discussions for next year on the MH side, how would those negotiations go now in sort of a low headline inflation environment? What degree does CPI factor into those discussions, and what other factors kind of come into the conversation with the community representatives, you know, in terms of negotiating rent increases for the next year?
Gary Shiffman (Chairman and CEO)
Hey, Drew, you're definitely breaking up on us, just sort of fading on us. So we're, our ears are close to the speaker, and we apologize, but we're trying hard to hear the actual question.
Drew Babin (Senior Research Analyst)
Okay, I'm very sorry. Is this better now?
Gary Shiffman (Chairman and CEO)
That's 100% better.
Drew Babin (Senior Research Analyst)
Okay. Yeah, so you're leading the discussions for next year. This will obviously be more of a topic as the year goes on. I was hoping you could talk about them, you know, in a lower headline inflation environment versus previous years, where headline inflation's been a little bit higher. Talk about to what degree CPI comes into the conversation and other factors that you're able to use as negotiating tools, in discussions with the community representatives, in terms of setting rent increases for next year.
Gary Shiffman (Chairman and CEO)
So I think a couple things come into factor. The ability to be more aggressive with rents due to the fact that our occupancies are reaching levels, and we usually define that as 94%-95%, will help us to continue to have a good, solid rental increases. Secondly, the vast majority of all our leases are related to market driven fundamentals, and as we see multifamily and housing pricing increasing, although it seems a little bit at odds with CPI, we believe we will be able to get the type of revenue increases or rent increases that we've been forecasting.
As well as the fact that, I think one of the things that differentiates Sun is the fact that we have maintained a strong capital of our communities, and, in particular, our newest acquisitions that I've talked about repositioning through investing in them. And we've had a strong philosophy at the company that when we are putting the dollars in to keep the communities at their nicest level, we're not stripping the equity out of the homeowners' ability to sell their homes. And, I think it makes a difference, and I think that is kind of differentiating our ability to get our types of rental increases in by keeping up the common areas, the amenities, the roads, those types of things.
So we don't have a lot of pressure, by CPI, specifically, in any of our existing leases.
Drew Babin (Senior Research Analyst)
Okay.
Gary Shiffman (Chairman and CEO)
Some of that takes place in Florida, but it'd usually be 1%, maximum versus CPI, whichever is greater or market driven.
Drew Babin (Senior Research Analyst)
Okay. Thank you very much. That's helpful, and I apologize for the connection problems.
Gary Shiffman (Chairman and CEO)
Now, much better now.
Drew Babin (Senior Research Analyst)
All right, thank you.
Karen Dearing (CFO)
As a reminder, it is star one for questions. We'll take our next question from Todd Stender with Wells Fargo.
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
Hi, good morning. Sorry, Gary, if I missed this. Did you disclose the cap rate on the Orlando acquisition?
Gary Shiffman (Chairman and CEO)
I did not disclose the cap rate on the Orlando acquisition, because I think we've disclosed it before. So Todd, I don't have it. Karen, do you have it? We don't have it at our fingertips, but I'd be glad to share it with you, Todd, and I know that we've done it in the past.
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
Sure. And just generically, it looks like it's 60/40 split between age-restricted and all-age.
Gary Shiffman (Chairman and CEO)
Yeah.
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
Is there a cap rate difference between the two, just generically across the industry?
Gary Shiffman (Chairman and CEO)
I think that when you get to Florida, I don't know that there's specifically a cap rate differential. For us, as a company, we really focus on where we can create value, both near and short term, with a particular acquisition. We feel good, we can do so there. The difference throughout the country, I would say, when you get out to the resorts, is that you will get, probably a 50 basis point point difference for all things being given equal. But, as I've shared before, we get stronger rental increases, more typically, in the non-age-restricted communities. So, that's when the economy is doing well, so we expect to be able to do so in our portfolio.
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
And then, any breakout between what the rents were and what they could be at these new communities? I know you mentioned it's 96% occupancy. Just seeing if the rents are below market, and what kind of ability do you have to raise those?
Gary Shiffman (Chairman and CEO)
So I think that, we have a small, below-market situation, it's not great, but we do intend to take advantage of that, in the next, couple of rental periods. We're going to go through some extensive, capital improvements. Generally, when we do that, we are able to, get a little bit more aggressive. One of the things that we really look for, in, that portfolio is the 380 sites of expansion. So I was actually just, handed, something from staff that tells me it was a 6.25 cap rate. Is that correct? For, the Orlando, acquisition, so if that's helpful. But,
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
Yes. Thank you.
Gary Shiffman (Chairman and CEO)
We have a little bit of market rent to gain there, but we have a great ability to be able to develop out those expansion sites and fill them up where there's already 96% occupancy.
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
That's helpful. Maybe this is more for Karen, but when you look at the preferred OP units, the common OP units, and you look at kind of the, the range of coupons that you're offering, and then when you look at what your common stock is offering on nearly 4%, how do you guys arrive at some of these prices? That's part one, and part two is the size of the annual dividend increase on the common. When you guys recommend that to the board, how do you guys think about that, of making your OP unit as attractive as possible to a potential seller when they're trying to replace some of their income and how they think about yield?
Gary Shiffman (Chairman and CEO)
Sure. I'll take the second part first, and then Karen and I can talk about the first part. The dividend is a discussion that takes place with the full board, and if we might make a recommendation, it really is discussed very thoroughly. So I like to think of it as a board decision, as we've shared in the past. And with regard to how we like to use the OP units, I think that you know, there are different aspects to them. There are the preferred OP units, the convertible units that we've used, the perpetual.
So depending upon how a given seller is looking at what they want to replace in their income and what kind of risk they want to take in the stacking profile, if it's preferred, obviously, it's above the debt, but behind the equity, so we'll create lower returns for that. And if it is the Operating Partnership unit, pure, it might reflect what their conversion price might be that we're willing to set. And a lot of that is a function of determining the growth rate that we can get out of the properties that we acquire. So I don't think that we drive our dividend by what we can use the OP units to acquire properties with.
I think that the focus mostly is by the board as to the right fundamentals and risk profile and benefits to the shareholders of retained earnings versus increasing the dividend. But I don't know if that answered your question or not. You'd have to tell me.
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
It does. It does, Gary. Just thinking about using OP units as a currency, which seems pretty attractive and appears to be one of your best, competitive advantages, I'd say, at this point. But just how do you think about the yield that's offered on that and how a seller is certainly going to get proceeds in his pocket, but he still wants to replace some of his lost income. So if that helps.
Gary Shiffman (Chairman and CEO)
So that is the very balance of the negotiations when someone's looking for a tax-deferred sale. And it has to obviously work with both parties. So I'm not sharing any more. Some of our internal ways of proprietary getting certain types of deals done.
Todd Stender (Managing Director - Senior Equity REIT Analyst.)
Thank you, Gary.
Gary Shiffman (Chairman and CEO)
Mm-hmm.
Operator (participant)
We'll take our next question from David Bragg with Green Street Advisors.
David Bragg (Managing Director)
Thank you. Good morning. Regarding leverage, which was touched on earlier, Karen, you shared a level that you're comfortable at, but could you remind us, what's the long-term target?
Karen Dearing (CFO)
Long-term target, I would say, David, is around six times debt to EBITDA.
David Bragg (Managing Director)
Okay. Thank you for that. And on the call, you shared a multiyear outlook for NOI growth. That's helpful. It's a nice reminder of, of where that portfolio could head. But what's the 2015 outlook for NOI growth?
Gary Shiffman (Chairman and CEO)
I'll tell you, when we announced the transaction, we had an outlook that we shared with the analysts, and I don't think any of us have that with us, David, but we'd be glad to look back up what we shared and share it with you.
David Bragg (Managing Director)
So it's unchanged from what you said at the time of the deal?
Gary Shiffman (Chairman and CEO)
It's unchanged-
David Bragg (Managing Director)
You're not getting better or worse?
Gary Shiffman (Chairman and CEO)
It's unchanged in our budget. However, we did rather significantly beat our budget, I think, in guidance and under my comments that I only shared that a lot of it came from home sales that were far greater than we expected, so the demand was higher, and there was a big NOI beat. Revenues were slightly above budget, but we had a very large expense savings, some of which were just timing issues, the balance of which we're gonna wait a quarter or two until we have a little bit more history to determine if those savings will be sticky or not.
David Bragg (Managing Director)
All right. Thank you for that.
Gary Shiffman (Chairman and CEO)
Mm-hmm.
David Bragg (Managing Director)
Next question just relates to lower gas prices, and can you please share your view as it relates to the potential impact on your RV portfolio?
Gary Shiffman (Chairman and CEO)
So it's a great question, and one that comes up a lot. Certainly, I'd like to remind everybody something that management always reminds me. The vast majority of our residents in RV are coming within 1.5-2 hours of their home location, so they're not driving as long distances as one might think. And that being said, the swing in gas isn't unnoticed, but it has never seemed to have as big or as significant of a change as we might expect it. At the over $4 mark, we were looking to see what patterns changed. They didn't seem significant year-over-year last year, but we saw growth last year, and now we're continuing to see pretty significant growth, especially in transient.So, there could be a positive factor in there, but it hasn't been long enough for us to determine if it's something we can actually identify.
David Bragg (Managing Director)
Okay. Thank you for that. Last question relates to the fact that news reports have suggested that there has been weaker vehicle traffic coming into the U.S. from Canada, due largely to the stronger dollar. To what degree are you observing that or expect that to have an impact?
Gary Shiffman (Chairman and CEO)
So that's an interesting question. We look at our Canadian business, as kind of, east and west. We see a lot from, Ontario, Quebec, down into Southern Florida and our Eastern Seaboard. And, we've actually, continued to see growth, as I explained, in my last comment. And on the west, we tend to get a lot of it, from, the Vancouver area. And, we're really not at the point. We haven't seen the, summer season take place, yet, to be able to share anything in our, northern communities. And as I said, so far in our southern communities, we continue to see good growth, so we, we haven't experienced any change.
David Bragg (Managing Director)
Okay. Thanks for that. Just to follow up on my first question for Karen, I forgot to ask her, you shared the target for leverage of 6x, but when do you want to be there?
Karen Dearing (CFO)
I would expect we'd be there in around 2-3 years.
David Bragg (Managing Director)
Okay. Thank you.
Gary Shiffman (Chairman and CEO)
Sure.
Operator (participant)
It appears there are no further questions in queue. At this time, I would like to turn the conference back to Mr. Gary Shiffman for any additional or closing remarks.
Gary Shiffman (Chairman and CEO)
Well, I wanna thank everybody for participating today on the call. As always, Karen, myself, and the rest of the staff are available for any kind of follow-up, and we certainly look forward to sharing with you our second quarter report. With that, thank you, and we will close.
Operator (participant)
This concludes the Sun Communities 2015 first quarter conference.