Equity Lifestyle Properties, Inc.

Good day, everyone, and thank you all for joining us to discuss Equity Lifestyle Properties third 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 meanings of the federal securities law. Our 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 for our third quarter earnings call. Our third quarter results released yesterday show strong trends. Our MH communities are showing their resiliency through difficult times. We continue to increase occupancy and see high levels of engagement and pride of ownership from our residents. The daily routines at our properties have always been filled with activities, and during these times, our residents have found new opportunities to create safe outdoor activities to continue to enrich their experiences at our properties. Within our MH communities, We saw a high volume of home sales, an increase in MH applications, and a shift to virtual engagement to view homes and communities. Year over year, we increased new home sales by 42%. The sales were concentrated in Florida, Arizona, and Minnesota. Our applications for residency were up 25% for the quarter, fueled by an improved online application experience. We have seen an increase in conversions from virtual tours, and we continue to upgrade the content of our website to allow prospective customers the chance to view our homes and communities. We saw increased demand for our RV parks during both our traditional weekend holidays as well as during the week. Our properties have benefited from our customers' flexible schedules. Our online transaction activity continues to escalate. In the quarter, our RV revenue through digital channels increased 121%, and our sales of online camping passes increased by 56%. Our transient bookings continue to shift to digital, with nearly 60% of all transient bookings completed online, compared to 43% last year. Sales of RVs have increased significantly over this summer. Our partnerships with RV dealers throughout the country continue to bear fruit as we engage with customers as they begin their travel adventure. In the quarter, we activated 6,400 trial memberships through the Thousand Trails Preferred RV Dealer Program, an increase of 15% from last year. We are attracting new, younger customers to our RV resorts with our digital marketing. Analytics show strong demand among customers under 34 years old, with 18- to 24-year-olds showing increases of over 300%, and 25- to 35-year-olds showing increases of over 140% in online revenue compared to last year. These trends represent an opportunity to grow in future years by providing an excellent customer experience and retaining these newer customers. Providing a best-in-class customer experience contributes to our strong customer loyalty. TripAdvisor recognized our high customer ratings with 76 of our RV resorts receiving the TripAdvisor Traveler's Choice Award and 15 parks receiving the Hall of Fame for five straight years of top customer reviews. Turning to 2021, Each year, we finish our budget process in October and provide detailed projections for the following year. This year, because certain line items require additional time to determine the full year impact, we have decided to issue our detailed guidance on our January call. Within our MH portfolio, by the end of October, we will have noticed 48% of our residents for rent increases and anticipate a 4% rate growth in core MH revenue. We have had success filling our communities while continuing to increase rents in line with market conditions for in-place residents. Based on rates we have set for over 90% of our RV annual customers for the 2021 season, our core RV annual rate rental rate is anticipated to grow 4% in 2021. These two line items have historically represented over 70% of our overall revenue. Our seasonal and transient revenue requires more visibility as we monitor the impact of travel restrictions. I would like to now comment about our 2021 annual dividend. Each year, to arrive at a recommendation, we review our projected growth in FFO and our outstanding obligations with the goal of ensuring our underlying financial flexibility. In addition, we stress test our future obligations to ensure we can continue to meet both our financial obligations and customers' expectations. This year, management plans to make a recommendation to the Board of Directors upon completion of the 2021 budget process and intends to use the same methodology to shape that recommendation. The stress test reveals the strength of our balance sheet, which has been fortified over the years with longer-term maturities. Currently, our average term to maturity is 13 years, which is more than double the REIT sector average. We are focused on long-term value creation. Our team in the field and in the home and regional offices have done a great job servicing our residents, members, and guests. I thank all of them for their efforts and look forward to turning our attention to our winter season activities. I will now turn it to Paul to walk through the numbers in detail.

Thank you, Marguerite, and good morning, everyone. I will review our third quarter results, including a brief discussion of the operations update included with our earnings release. I will close with some comments on our balance sheet and the successful refinancing of our scheduled 2021 secured debt maturity. For the third quarter, we've reported 55 cents normalized FFO per share. As part of our refinancing activity, we incurred approximately $9.7 million in early debt retirement costs. Consistent with our normalized FFO definition and past practice, we've added these costs back in our calculation of NFFO. Our core MH rent growth of 4.3% consists of approximately 3.8% rate growth and 50 basis points related to occupancy gain. We've increased occupancy 196 sites since December with an increase in owners of 270 while renters decreased by 74. Core RV resort-based rental income increased 5.2% for the third quarter and 90 basis points year-to-date compared to the same periods last year. Rents from annuals have shown consistent growth since the onset of the pandemic, with growth of 5.2% and 5.8% for the quarter and year-to-date periods, respectively. The driver of rent growth from annuals in the quarter was the increased rate of approximately 4.2% compared to the prior period. Year-to-date core resort-based rent from seasonals increased 2.3% compared to 2019. Our core RV transient business delivered gross for the quarter of 7.3%. Membership dues revenue increased 2% compared to the prior year. During the quarter, we sold approximately 7,400,000 Trails Camping Pass memberships. This represents a 24% increase for the year. The net contribution from membership upgrade sales in the quarter was flat compared to last year. Sales volumes increased almost 20% while the mix of products sold changed, resulting in a lower average sales price. In addition, the expenses include commissions on higher volume of Camping Pass membership sales. Core utility and other income was about 6.5% higher than third quarter 2019. The main contributor to this increase is an accrual of insurance recovery revenue related to losses experienced from Hurricanes Hannah and Isaias. Core property operating expenses include approximately $2.8 million resulting from the hurricanes in July and August. Hannah made landfall in Texas and caused damage at 12 of our properties, while Isaias made landfall in North Carolina and affected 40 properties. Excluding these expenses, the main contributors to our property operating maintenance expense growth over the prior year period for utility expenses, including labor costs associated with sewer, water, and electric distribution systems, insurance, and real estate taxes. In summary, year-to-date core property operating revenues have increased 3.7%, and core property operating expenses have increased 5%, resulting in an increase in core NOI before property management of 2.7%. Income from property operations generated by our non-corp portfolio, which includes our marina assets, was $4.1 million in the quarter. Property management and corporate G&A expenses were $24.2 million for the third quarter of 2020 and $75.5 million for the year-to-date period. Other income and expenses generated a net contribution of $4.3 million for the quarter. The decrease from prior year is attributed to income recognized in 2019 related to our loggerhead portfolio acquisition. Interest in related loan cost amortization expense was $25.2 million for the quarter and $77.5 million for the year-to-date period. This includes the impact of the refinancing activity I'll discuss in more detail shortly. Before closing with remarks about our balance sheet, I'll briefly discuss the operations update we included in our earnings release. Our properties continue to be open, subject to state and local guidelines. While certain property amenities remain closed, we are welcoming transient guests at all RV communities. We expect to complete our annual budget process in the coming weeks. In the past, we've completed our budget in early October and provided detailed preliminary guidance with our third quarter earnings release. A significant factor in our process that has long given us confidence to provide initial guidance earlier than others in the REIT space is the early visibility we have into expected rent rate growth from our core MH and RV annual revenue streams. On a combined basis, these revenue streams have historically represented more than 70% of our total core revenues. Our earnings release provides information about noticed MH rent increases and the rates we've established for our RV annuals for the 2021 season. This information supports our preliminary expectations of 4% rent rate growth from core MH and core RV annuals. Our suspension of guidance continues to be influenced by the lack of visibility we have into other areas of our business, including our seasonal and transient RV revenues. We anticipate providing performance updates and 2021 guidance in advance of our January earnings call. Before we open the call up for questions, I'll discuss our refinancing activity, debt markets, and our balance sheet. During the quarter, we closed on a $386.9 million secured credit facility with Fannie Mae. The facility has two tranches and carries a weighted average coupon of 2.55%, with a weighted average maturity of 13.4 years. We used proceeds to repay our $200 million unsecured term loan and our scheduled 2021 secured debt maturities. We incurred approximately $9.7 million in early debt retirement costs, As a result of the accretive refinancing we've closed in the first and third quarters of 2020, the weighted average rate on our outstanding debt has decreased almost 35 basis points to 3.7%, and our weighted average debt maturity has extended 1.5 years to 13 years. Current secured financing terms available for MH&RV assets range from 55% to 75% LTV, with rates from 2.75% to 3.5% for 10-year money. We continue to see lenders place high value on sponsor strengths, and ELS continues to be highly regarded. High-quality, age-qualified MH assets will command preferred terms from participating lenders. Our cash balance after funding our October dividend was more than $50 million. We have available capacity of $350 million from our unsecured line of credit. We have $200 million of capacity under our ATM program. and we have no scheduled debt maturities before February 2022. We continue to play high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Our interest coverage ratio is 4.9 times, and our debt to adjusted EBITDA RE is 5 times. Now we would like to open it up for questions.