John Pawlowski: Okay. Can you just give us any sense of magnitude of the — in your guys’ minds what’s a reasonable base case for the level of impairment of the $360 million loan?
Gary Shiffman: Yeah. I think that based on what we have shared we have had third-party appraisers throughout the process at the beginning, and as recently as June 1st, provide appraisals and the overall appraisals, I think, last came out about 80%.
Fernando Castro-Caratini: At the midpoint of value. We — the loan is covered at 80%.
John Pawlowski: Okay. Back in June 1st and so it’s a lot lower now, is that fair?
Fernando Castro-Caratini: No. That’s not the assumption. The valuations do cover a wide range of scenarios in that analysis with our third-party providers and appraisers. So, no, that would not be the assumption.
John Pawlowski: Okay. Last one for me. Can you just give us, I guess, what specific expense control initiatives were rolled out to result in such a large reduction to expense growth guidance this year and should we expect these benefits to continue into 2024?
Fernando Castro-Caratini: Sure. John, I would say, the primary driver has been in response to normalizing transient revenue growth and given normalizing occupancy, any variable expenses at the property level have been managed across payroll, supply repair and utilities. As it relates to our Marina portfolio, for example, we have some of the growth capital that we have invested have been in solar projects that are driving lower utility expense year-over-year for those properties. So, yes, much of that would be sustainable and the — our expense control on the variable side is in response to topline. So we would continue to look to mitigate the impact of lower revenues, if that would be the case.
John Pawlowski: Okay. Thanks for taking all the questions.
Gary Shiffman: Thank you.
Operator: Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.
Brad Heffern: Hey. Thanks everybody. Thinking back to last year, you obviously gave some impressive rate indications in 3Q 2022, but we were all surprised by how that translated into FFO when the full guide came out. Obviously, you are not going to give 2024 guidance yet, but just given a similarly high set of increases, do you think we will see Sun return to a more normal level of FFO growth next year or are there other headwinds like this loan that might prevent that from happening?
Gary Shiffman: Brad, our expectation is with 90%-plus of our revenue being derived from those real property operations and with the fact that 30% to 40%, maybe by year-end close to 50%. Those rental rate increases will all be out there with good expense control, should continue to see the benefit of high occupancy, solid rental increases and expense control, as Fernando just referred to.
Fernando Castro-Caratini: Brad, you have seen operational leverage at the corporate level with more muted G&A growth and we believe any activity, as it relates to episodic capital recycling events, right, will reduce not just leverage, but then also any interest expense impact of growth, that we did see this year and was a large contributor to the flow-through from same-property growth not showing up in FFO per share growth.
Brad Heffern: Okay. Got it. Perfect. And then on the 2024 rate indications, I think, you just said, close to 50%. But I am curious if you could just talk about how locked in those are and I assume that there’s different numbers across the different businesses for how many of those rates have been fully set for 2024?
Fernando Castro-Caratini: Sure. So by the end of October, just over 40% of our manufactured housing portfolio will have been noticed and those have been at about a 5.4% increase. They will be around half of the portfolio will happen notice by the end of the year. On the RV side, about 60% of our residents have been noticed at this point. In the U.K., 100% of residents have been noticed at this point. And Marinas, essentially our Southeastern or Southern Marinas have been noticed and the rest are rolling over time.
Brad Heffern: Okay. Appreciate it.
Fernando Castro-Caratini: Thank you.
Operator: Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.
Nick Joseph: Thanks. It’s actually Nick Joseph here with Eric. Gary, you mentioned in the press release, I think, on the call as well, implementing the select changes. It sounds like you have talked about CapEx spend and dispositions to pay off floating like debt and some other opportunities that you think will get back to earnings growth and it sounds like that earnings growth will be in 2024. But how about on the G&A side and the integration on the back end of some of these portfolio companies on the U.K. and the Marinas. What’s the opportunity there and can you frame some time in around it as well, please?
Gary Shiffman: Yeah. I think, I don’t know if that was directed to me or to Fernando, but I will start out with it. I mean, summarizing you are exactly correct. The steps that we are thinking about, the fact that we have shared, we stopped new development and the acquisition, continuing converting transient to annual or when you think about those conversions in the last three years, we have actually converted about 20% of our transient sites or will have by the end of this year to annual leases and we will continue to do so. As Fernando mentioned, we sold our stock position in Ingenia, all looking to recirculate more free cash flow and capital to pay down debt and demonstrating the operational leverage, which you are referring to, is something we are very hyper focused on for 2024.
We have continued to see a slowdown and even minor reduction in the growth that we have seen for the last five years, seven years, and certainly, for the last two years, three years as we brought these portfolios in. And Eric, we are working really hard and look forward to sharing with you the outlook for 2024. As we have owned the portfolios and will have owned the portfolios for two years to three years and I think that, that will also underscore how we are able to deliver bottomline FFO growth moving forward.
