Equity Lifestyle Properties, Inc.

Good day, everyone, and thank you all for joining us to discuss equity lifestyle properties first quarter 2020 results. Our featured speakers today are Marguerite Nader, our president and CEO, Paul Seavey, our executive vice president and CFO, and Patrick Waite, our executive vice president and COO. In advance of today's call, management released earnings. Today's call will consist of opening remarks and a question and answer session with management relating to the company's earnings release. As a reminder, this call is being recorded. Certain matters discussed during this conference call may contain forward-looking statements in the meaning of the federal securities laws. All forward-looking statements are subject to certain economic risk and uncertainty. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events. In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release, our supplemental information, and our historical SEC filings. At this time, I would like to turn the call over to Marguerite Nader, our president and CEO.

Good morning, and thank you for joining us today. To begin, I wish everyone on the call the best in these challenging times. Before we discuss our results, I want to say thank you to the entire ELF team for the work they have done and continue to do since the COVID-19 crisis began. We have adapted procedures with the safety of our employees and customers in mind while also continuing to serve our residents and customers in a difficult environment. We have seamlessly transitioned to work from home in our corporate and regional offices. The effort and dedication that our teams have shown during these past five weeks is admirable. We have successfully navigated through new regulatory protocols and operating environments at an impressive pace while maintaining our high-quality standards. I am proud of our team. Our first quarter was strong, with an NOI growth rate of 5.2%. We saw strong demand on the MH side of the business with a 4.9% increase in rental revenue. We wrapped up our snowbird season and have a total RV revenue growth rate of 4.8%. The drivers of that revenue were a 7.4% growth rate in annual revenue, a 7% growth rate in seasonal revenue, and a 7.6% decline in transient revenue. Let me first address our MH business. Since the middle of March, we have taken steps to increase social distancing, include closing the common area amenities, and opening our offices by appointment only. We have been and remain focused on ensuring the health and well-being of our employees, residents, members, and guests. Our customers have appreciated the importance of these steps and have followed the new guidelines. We have an occupancy rate of 95% in our core portfolio. We have often focused on the occupancy rate, but at this time, I think it's important to focus on the quality of our resident base. Our residents are homeowners who have generally paid cash for their home. Our residents are committed to their communities, they care about the community, and they actively display a pride of ownership in their home. Our overall occupancy consists of less than 6% renters. We see our renters as future owners. In 2019, 33% of all home sales were the result of a renter conversion. In April, we saw continued strength in our MH platform with 96% of our residents paying us timely. We have a deferral plan in place for April rental payments for those residents facing financial hardship due to the impact of COVID-19. Moving to our RV business, we have had an acquisition strategy over the years of buying RV resorts that are heavily focused on annual and seasonal revenue streams. 80% of our RV revenue is longer term in nature. and 20% comes from our transient customers. Our properties have been impacted by local shelter-in-place orders, which call for reduced or eliminated travel activity inside a jurisdiction. Our RV annual customer generally has developed roots at the community. The annual customer tends to own a park model, resort cottage, or has an RV on the site that has add-ons that create a more permanent footprint. For the first quarter, the annual revenue grew by 7.4%, comprised of 5.8% rates, and 1.6% occupancy. Our northern RV resorts generally open in April. Our annual customers at these locations pay a deposit in advance and then complete their payment when they arrive for the season. These are summer homes and weekend getaways for our customers. This year, the opening of 46 of our RV resorts has been delayed until at least the end of April. While we have begun collecting the annual rent due, the delay in opening has caused a change in the normal payment pattern for these customers. Our seasonal revenue stream comes from customers who have a reservation of 30 days or more. Our seasonal revenue primarily comes from our Sunbelt locations with 70% of the revenue generated between November and March. The first quarter, which represents half of the full year anticipated seasonal revenue, grew by 7%. The second quarter seasonal revenue is generally our slowest quarter with approximately 15% of the overall seasonal revenue in 2019 occurring in the second quarter. For April, we have seen a decline in seasonal revenue as described in our press release. Our transient business represents under 6% of our total revenue. We have always said that this piece is the most difficult to forecast. Our transient customer stays with us an average of three nights. The transient business serves an important role for us as we seek to convert that transient customer to a seasonal or annual customer. Most of our RV resorts have a small portion of their overall revenue stream focused on the transient business, which becomes a lead generator for the rest of the business. Towards the end of March, we stopped accepting transient reservations for the remainder of March and all of April. As a result of following shelter-in-place orders, we reduced activity to protect our employees and residents from any potential risk associated with transient traffic. At this point, the shelter-in-place orders are limiting our ability to accept transient reservations. With respect to our membership business, we have seen strong demand from the members during this pandemic. As shown in our supplemental, cash receipts are similar to last year at this time. We made the decision to withdraw guidance because we are operating under unprecedented conditions and thought it would be more meaningful for us to provide an outlook when there are updates to regulatory protocol. Our business has held up extremely well during these circumstances. We are seeing the best of humanity from our employees, residents, guests, and members. We have often described the sense of community at our properties, and we have seen this in full display over the past month. We see neighbors caring for neighbors, working together to support the greater community. The demand is high for our properties as seen by our April results. Based on feedback that we have received, our customers are very much looking forward to enjoying the outdoors lifestyle at our properties this season. I would like to close by again thanking our employees, residents, and customers. The ELS team has reacted to an evolving climate in an impressive manner, and for that I am grateful. I will now turn it over to Paul to walk through the numbers in detail.

Thank you, Marguerite, and good morning, everyone. I will provide an overview of our first quarter results, highlight operating performance in April, including the results of our recent annual property and casualty insurance renewal, and discuss our balance sheet and liquidity position. For the first quarter, We reported 59 cents normalized FFO per share. Our results reflect the initial impact of COVID-19, which primarily affected our transient RV business. Core MH rent growth of 4.9% includes 4.4% rate growth and approximately 50 basis points related to occupancy gains. Core RV rental income from annuals and seasonals outperformed expectations for the quarter. Our transient revenues, which were pacing ahead of guidance through February, ended the quarter down 7.6% compared to last year. As Marguerite mentioned, we began closing our reservation grid to incoming customers in mid-March. First quarter membership dues revenue as well as the net contribution from upgrade sales were higher than guidance. Dues revenues increased 6.1% as a result of rate increases and an increase in our paid member count of 4.3%. During the quarter, we sold approximately 3,200,000 trails camping passes, We upgraded 727 members during the quarter, 15% more than the first quarter last year. Core utility and other income was in line with guidance for the quarter and includes the year-over-year increase in real estate tax pass-throughs resulting from the Florida reassessments we discussed in January. First quarter core property operating maintenance and real estate tax expenses were unfavorable to forecast, mainly as a result of higher than expected R&M expenses. We incurred expenses to recover from storms in California and certain northern properties. In summary, first quarter core property operating revenues were up 5.4%, and core NOI before property management increased 5.2%. Property operating income from the non-core portfolio, which includes our marina portfolio as well as assets acquired during 2019, was $2.8 million in the quarter. Overall, the acquisition properties continue to perform in line with expectations. Property management and corporate G&A were higher than guidance in the quarter because of the timing of expenses related to certain administrative matters. Other income and expenses generated the net contribution of $1.4 million for the quarter. Ancillary retail and restaurant operations were impacted by COVID-19 and were lower than expected. Interest in related amortization was $26.1 million and includes the impact of the refinancing we completed during the quarter. I'll provide some detail on this transaction shortly when I discuss our balance sheet. We included a COVID-19 update with our earnings release and supplemental financial information. In addition to describing our operational response to the pandemic, the update highlights cash collections and liquidity as indicators of April performance. In our MH properties, we've collected 96% of April rent. The collection rate is net of approximately $180,000 of rent deferral requests we've approved. Our largest population within the MH portfolio, age-qualified properties, have the highest collection rate at 97% collected. Our renter population, while a very small portion of our portfolio, has the lowest rate of collection with approximately 91% collected. At this time of year, our RV collection efforts are focused on the northern resort's annual customers, as they typically are returning to begin their season of camping. As detailed in the update, 46 of these properties have delayed openings, which has affected typical payment patterns. To date, we have collected approximately 61% of the April and May annual RV renewals, as compared to 71% collected at this time last year. Our seasonal revenue in April was impacted by cancellations as certain customers chose to leave early. However, we also saw customers extend their stays and are currently showing a revenue decline of 12% in April. My last update relates to our recent property and casualty insurance renewal. On April 1st, we completed the renewal of our property, general liability, workers comp, and other ancillary insurance programs. While terms and conditions are substantially similar to the expiring policies, Adverse market conditions resulted in a higher-than-expected premium increase of 27%. The resulting insurance expense for the remainder of the year is approximately $1.1 million higher than our expectation. Now we'll discuss our refinancing activity in the first quarter, highlight current secured debt market conditions, and provide some comments on our balance sheet, including our current liquidity positions. During the quarter, we closed a $275.4 million secured facility with Fannie Mae. The loan has a fixed interest rate of 2.69%, which is the lowest coupon we've seen on a secured 10-year deal in the MHRV space. With the proceeds, we've repaid our secured debt maturing in 2020, which carried a weighted average interest rate of 5.2%, and the outstanding balance in our line of credit. The remaining proceeds funded working capital, primarily our expansion activities. As I provide an update on the secured debt market, bear in mind that the current environment is quite volatile. Conditions have been changing rapidly, and we anticipate they'll continue to do so for some time. That said, current secured financing terms available for MH and RV assets range from 55% to 75% LTV, with rates from 3% to 3.75% for 10-year money. As we have seen in challenging times in the past, sponsor strength is highly valued by lenders, and ELS continues to be highly regarded. High-quality, age-qualified MH will command preferred terms from participating lenders. As mentioned in our earnings release, subsequent to quarter end, we borrowed $100 million from our line of credit. In these uncertain times, we decided it was prudent to increase our available cash balance. As noted on our COVID-19 update page, we have a current available cash balance of $126 million with no debt maturing in 2020. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Our debt to EBITDA and our interest coverage are both around 4.9 times. The weighted average maturity of our outstanding secure debt is almost 13 years. Now we would like to open it up for questions.