And we shared that in the market. With regard to the UK, I think that, we’ve discussed that certainly the macro headwinds have impacted home sales. And at the same time real property contribution has been growing during the current difficult financial environment in the UK and guidance reflects flat but a little bit of growth for 2024. So our goal at this time based on market in the UK and the fact that we have really well-located properties and an excellent management team is managing through these difficult times, that we will continue to operate the platform with maximize growth and value with what we consider a great management team, and make determinations on a quarterly and annual basis, as to best decisions moving forward.
Operator: Thank you. And our next question comes from Samir Khanal with Evercore ISI. Please state your question.
Samir Khanal: Hi. Gary and Fernando, I guess just can you expand on the UK home sales a little bit more here? I know when you look at the sales volume, I think you’re expecting it to be sort of flat to down, but then, kind of what you alluded to in the prior question. You’re saying the contribution will be up. So maybe help us think through that maybe the margins you’re assuming for the business. Thanks.
Fernando Castro-Caratini: Thank you, Samir. You’re correct. At the high-end of the range, we are expecting flat volume for — on a year-over-year basis at the midpoint, about a 3.5% decline in volume. On an adjusted basis 2023 UK NOI from home sales margins, were just above $21,000 per home. For 2024, our margin expectations are higher than in 2023, given the contribution to overall margin from home sales at Sandy Bay, which is now as Gary had stated being operated by the Park Holidays team. Given that this community is a year-round primary home community, that typically sees higher home prices and gross NOI dollar margins above $110,000 per home. To frame expectations of volume at Sandy, we are expecting somewhere within 30 to 50 homes sold in that community which is driving overall margin for the year up above the 2023 levels.
Samir Khanal: Okay. Got it. And if I could just ask one more here on the expense side, I know insurance growth has moderated this year, but expense growth is still expected to be higher than what we were anticipating. Maybe give us color around sort of the components of expenses and kind of what you’re –how you’re thinking about the various line items? Thanks.
Fernando Castro-Caratini: Sure, Samir. During 2023, we had active cost containment strategies in place mainly across payroll, utilities, supply and repair and advertising that are budgeted to return to normalized — at the normalized state in 2024. This is leading to that expense growth year-over-year in North America, same property of 8.6% at the midpoint. So certainly in supply and repair, we saw a decrease year-over-year for example in 2023, and we are growing off of that base north of 10%. From an expectation standpoint, we certainly will look to continue managing our costs in response right to any revenues, especially on the RV side. And so that could right, that could change over the course of the year. But those are the primary drivers that are taking, call it, overall expense growth higher than in 2023.
Samir Khanal: Thank you, Fernando.
Operator: Our next question comes from Keegan Carl with Wolfe Research. Please state your question.
Keegan Carl: Yes. Thanks for the time guys. So going to take a more bigger picture approach here. I guess, first, maybe on Marinas. Gary, I mean, how should we think about pricing power going forward? And then, I guess, specifically, where are you seeing your waiting list demands at today? And how does that compare to last year?
Gary Shiffman: Good questions, Keegan. Obviously, as we’ve stated in our remarks that we continue to see strong demand for wet slip and dry storage. At over 80% of the Marina portfolio, we’re experiencing continued weight lift of at least one size. So there’s still continuing demand. We’ve had over 7% and over 11% same-property growth in 2022 and 2023. And as we’ve guided in 2024, we still expect continued growth. I think that we look at everything in our core businesses as a marathon. As we’ve shared even with the headwinds that we had in 2023, obviously, we’re all aware of how the portfolios performed. So in thinking through rental increases, expense control, CapEx investment for the long-term, our expectation is that for all of our businesses, including Marinas, we look forward to continued steady growth, the type of core growth that we’ve exhibited and seen throughout Sun’s ownership of these platforms.
So and we feel very good going forward. And we’re laser-focused on resolving the things that we want to resolve to be able to translate that growth to our stakeholders going forward.
Keegan Carl: Got it. That’s really helpful. And then, I guess, just shifting to the other big picture theme here on Park Holidays. I know we spent a lot of time on the call on it. But with the impairment behind you, I guess, I’m trying to get more clarity on what the outlook is for the business going forward. And I guess I’m looking more from, what are your plans for this platform, right? If you’re gaining market share, if the business delevers and the macro environment improves, and in theory, this business outgrows your portfolio average, should we expect you to grow your exposure to this platform over time? And if not, why?
Gary Shiffman: I can say at this time, we’re very comfortable with where our exposure is. I go back to the same thing. The reasons for the investment there were to gain continued exposure to manufactured housing revenue, which is highly sticky, highly valued. It had a disproportionate fair to home sale, disproportionate share of contribution from home sales. We’ve committed to working through that on a five to seven-year basis. We’re over two years into that right now, and we’re continuing to see the benefit where we reduce home sales margin, whether intentional or not, and seek to increase occupancy and contribution through real property rent and lease payments, if you will. That’s all going very well. Certainly, as we’ve shared, the disproportionate attention and focus in the downward guidance we experienced in 2023 are all areas that we are focused on.
And as we continue to focus in 2024 to grow the company, to create value, to take on the assets that they’re now operating and to create value from them, we’ll make a determination. There are no determinations made at this time. But as always, all options are on the table, and we’re excited for the management team to turn in the best results to take in 2024.
Fernando Castro-Caratini : And Keegan, if I can add, similar to our non-strategic asset capital recycling program here in the US, we are under those plans in the UK as well, where we can potentially monetize a few assets from the portfolio over the course of this year.
Keegan Carl: Great. Thanks for the time guys.
Gary Shiffman: Thank you.
Operator: Our next question comes from Eric Wolfe with Citibank. Please state your question.
Nick Joseph: Thanks. It’s Nick here with Eric. Gary, at the end of last week, you obviously announced the cooperation agreement and the standstill on the two new Board appointees but also the Capital Allocation Committee. So, I was hoping if you could dive into that a bit in terms of what the Capital Allocation Committee will be doing? How it’s different than what you were doing previously and kind of what additional rigor you think it brings to your investment decisions?
Gary Shiffman: Yes. Thanks Eric. I think that we’re very pleased with the fact that the Board has established the Capital Allocation Committee to review the company’s use and investment of capital and to make recommendations to the full Board. It’s a more formalized process what has always taken place at a Board level. We’re pleased to have Craig Leupold serve on that Capital Allocation Committee, and we will have two independent Board members on that committee as well. And we have formulated and begun to formulate a charter for that. So we look forward to their contribution. And we think it will be a continued benefit as we move forward and strengthen the Board and the company in the future.
Eric Wolfe: Hey. It’s Eric here. I guess since everyone’s breaking the rule, so just a quick one on your CapEx guidance. I was just curious if you can maybe give us a sense for what’s included in terms of recurring nonrecurring CapEx as well as free cash flow? And I think you mentioned that you might have some free cash flow that would be used to pay down debt but trying to understand how then you would sort of get to that $360 million of interest expense that’s in your guidance, because the fourth quarter run rate would suggest something that’s a bit lower. I understand the $5 million of secured borrowing impact it still seems like there’s another call it $10 million or so more get to your guidance. Thanks.
Fernando Castro-Caratini: Eric, on the interest expense quickly right there were increases to underlying rates over the course of 2023. So, there is a full year of that impact at the higher rates than where they started in 2023, which should help bridge that gap. As it relates to recurring capital expenditures for our business, we are expecting $120 million, $125 million of recurring CapEx across our platform in total currently, and this is something that we are continuing to work through. But we are underwriting and all other categories, right? We’ve mentioned expansion ground-up development and redevelopment, but spending over 50% less in CapEx in the other categories than we did in 2023.
Eric Wolfe: Thank you.
Operator: Our next question comes from Wes Golladay with Baird. Please state your question.
Wes Golladay: Hey, everyone. If I could just follow-up on the interest expense question, what do you think for capitalized interest this year?
Fernando Castro-Caratini: Given that we are spending less on the ground-up development and expansion side, there is a production year-over-year in capitalized interest. Wes, let me get back to you with that exact amount. I don’t have it in front of me.
Wes Golladay: Sounds good. Okay. And then can you talk about what drove the reclassification of the indirect expenses this quarter?
Fernando Castro-Caratini: Sure. So Wes, this is in an effort to better refine the indirect expenses to their revenue drivers. This is no different. If you’ll recall when the Marina portfolio joined the same-property pool we did have a re-class exercise between real property and SRD&E mainly. As the Park Holidays portfolio joined our same-property pool, we did undertake the same exercise in aligning and — best aligning those indirect expenses to the revenue drivers. While there are — there is some impact across other categories, the primary ones are in home sales and SRD&E. The indirect expenses being reallocated or payroll — shared payroll benefits, and taxes, advertising, utilities, credit card processing fees that are now best going to those revenue drivers themselves.
Wes Golladay: Okay. Thank you very much,
Fernando Castro-Caratini: And there’s no impact of overall NOI productivity from the properties themselves.
Wes Golladay: Got it. Thank you.
Operator: Our next question comes from Brad Heffern with RBC Capital. Please state your question.
Brad Heffern: Hi, everybody. Thanks. So for the properties received in the UK receivership process, how far away are those from being meaningful earnings contributors? And do you plan to market those or to hold them?
Gary Shiffman: I think it’s an excellent question again. As it relates to the five, what we call non-Park Holidays UK assets that are now going to be managed by Park Holidays, they consist of two operating assets, Brad, and three development parcels, four of which were related to the UK loan. So now that we have full ownership of them and operational control, we’re able to really assess best how to move forward with them and how to maximize value with them. So I think we’re going to be able to share that with you over the next couple of quarters. But there are only two of the properties that are actually contributing to guidance this coming year, and the other three will have to determine what next steps will be with the undeveloped properties.
Fernando Castro-Caratini: And Brad, to frame roughly on the UK home sales NOI, Sandy is expected to contribute about 10% of our — of the overall NOI contribution for the year. The other asset that Gary mentioned, [indiscernible] has a nominal contribution to real property, about $1 million.
Brad Heffern: Okay. Thank you for that. And then for the Arizona and Florida communities that you’re selling, can you give the details of what those assets are and also the expected cap rate?
Gary Shiffman: I’m going to suggest Fernando might have the exact number of the sale. But as we discussed, we are looking at the disposition of properties on an accretive basis. And as we are discussing with interested parties, those properties’ cap rates come into play. And at an appropriate time in the future where we’ve completed the transactions, we’ll be able to share the specifics of the cap rates with you.
