Equity Lifestyle Properties, Inc.

Good day, everyone, and thank you all for joining us to discuss equity lifestyle property second quarter 2021 results. Our featured speakers today are Marguerite Nader, our president and CEO, Paul Seedy, 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. For those who would like to participate in the question and answer session, management asks that you limit yourself to two questions. So everyone who would like to participate has ample opportunity. 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 laws. 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 today. I am pleased to report the results for the second quarter of 2021. Our properties experienced unprecedented demand in the quarter. Our MH revenue, RV revenue, home sales, and subscription revenue exceeded our expectations. We continued our record of strong core operations and FFO growth, with a 30% growth in normalized FFO per share in the quarter. While this growth rate is significantly impacted by the negative comps from 2020, it represents 28% growth from the second quarter, 2019. New customer growth in both MH and RV contributed to the positive results in the quarter. Year-to-date new home sales grew by 122%, contributing to the high quality of occupancy at our MH community. Homeowners grew by 179 in the quarter, driven by a record number of new home sales. Our residents recognize the high quality and value of homes in our communities and are especially motivated to buy, given trends in the broader real estate market. We continue to focus on digital marketing and our website experience as a catalyst for growing our home sales pipeline. The unique traffic to our website has grown over 35% compared to the same time prior to the pandemic. Within our RV platform, we saw increased demand during holidays and weekends, as well as strength in weekday activity. We saw an increase in customers committing to us on an annual basis. The resort lifestyle appeals to our customers as they choose an ALS property for their second home. We are attracting a larger number of new guests than in previous years, and new customers look a lot like our pre-pandemic guests, indicating stability in our growing customer base. The number of new customers added to our database during the first half of 2021 is up 25% compared to 2019. These first-time RVers are drawn to camping because of an increased desire to spend time outside and the feeling that camping is a safe activity. We see our new customers choosing to increase engagement with us. Our subscription-based Thousand Trails Camping Pass showed significant growth in the quarter. Over 8,000 new members purchased the Camp Pass, which was an increase of 40% over the second quarter of 2020. We reached a new high, with almost 50% of all Camp Passes being sold online. With increased RV sales, we saw our RV dealer pass activations increase 39%. In our customer surveys, our new customers are indicating that they intend to camp more even after returning to other vacation travel, including plane travel and hotel stays. In 2020, to help support the safety of our guests and team members, we launched a new online check-in option for our RV guests. Since launch, over 250,000 reservations were completed through the online check-in process, allowing them to get to their site more quickly and with less direct interaction. The 2021 TripAdvisor Traveler's Choice Awards have been announced, and we are pleased that 54 of our properties won this year. Twenty-six of those properties are Hall of Fame winners as they have maintained a Traveler's Choice Award for five years. Our guests reported high satisfaction levels based on the experience provided by our teams at our properties. Based on the second quarter survey results, guests responded to customer experience questions with a rating of 4.46 out of 5. In May, we released our annual sustainability report highlighting our commitments to American forest and marine life as well as our ongoing projects centered around energy efficiency at our properties. We have increased our efforts to bolster diversity through our CEO Action Pledge, expanded learning curriculum, and recruitment efforts. The report highlights all the ways that we unite people, places, and purpose within our communities. I want to thank our team members for continuing to focus on delivering excellent customer service to our residents, members, and guests. We are halfway through our primary camping season, and the feedback we have received is a testament to the hard work of our teams in the field and in the home and regional offices. I will now turn it over to Paul to walk through the numbers in detail.

Thank you, Marguerite, and good morning, everyone. I will review our second quarter results, highlight our guidance assumptions for the third quarter and full year 2021, and discuss our balance sheet and debt market conditions. For the second quarter, we reported 61 cents normalized FFO per share, seven cents ahead of the midpoint of our guidance range. The main drivers of outperformance compared to our guidance were core RV rent revenues and membership revenues, including upgrade sales. Our core MH rent growth of 4.7% consists of approximately 4.1% rate growth and 60 basis points related to occupancy gains. We have increased occupancy 153 sites since December with an increase in owners of 283, while renters decreased by 130. While our occupied sites increased during the second quarter, our reported occupancy percentage reflects the impact of expansion sites we've added to our portfolio. Core RV resort-based rental income from annuals increased 7.5% for the second quarter and 5.6% year-to-date compared to the same periods last year. Annual RV rate increases continue to be in line with our expectations. Increased occupancy from annual RV residents in our northern properties was higher than expected during the quarter. The average annual rates in these locations are lower than our southern and western resorts, so the increased occupancy slightly reduced our core portfolio average rate. For the quarter, RV rent from seasonals increased 31% and rent from transients increased 180% compared to 2020. The comparison to prior year is impacted significantly by COVID-related property closures and shelter-in-place orders that were in effect during the second quarter of 2020. Strong demand in the quarter is evidenced by seasonal and transient growth rates of 19% and 50%, respectively, over 2019. Membership dues revenue increased 10.1% and 7.2% for the quarter and year-to-date, respectively, compared to the prior year. Year to date, we've sold approximately 13,500,000 Trails Camping Pass memberships. This represents a 50% increase over the same period in 2020 and an increase of 32% over the same period in 2019. The net contribution from membership upgrade sales year to date is $5 million higher than 2020. During the quarter, members purchased more than 1,200 upgrades at an average price of approximately $7,400. Core utility and other income was higher than expected during the quarter as a result of the receipt of insurance proceeds related to Hurricane Hannah in 2020. We recognized approximately $2.3 million of income in the quarter related to that storm event. Core property operating maintenance and real estate tax expenses were generally in line with our expectations for the quarter. Higher-than-expected utility expenses were offset by lower payroll expense as we faced challenges filling open positions across the portfolios. The comparison to second quarter 2020 shows an elevated expense growth rate as a result of the COVID-related limited operations conducted across our portfolio during the second quarter last year. In summary, second quarter core property operating revenues increased 14.9%, and core property operating expenses increased 13.9%, resulting in an increase in core NOI before property management of 15.6%. For reference, the second quarter core NOI growth CAGR from 2019 is 8%. Income from property operations generated by our non-core portfolio was $5.2 million in the quarter. This result was higher than our expectations, in part because of the NOI contributed by Pine Haven, the RV resort we acquired during the quarter. Revenues from annual customers at the marinas and other properties in the non-core portfolio generated more than 90% of total non-core revenues in the quarter and year-to-date periods. Property management and corporate G&A expenses were $26.8 million for the second quarter of 2021 and $52.7 million for the year-to-date period. Other income and expenses generated a net contribution of $5.7 million for the quarter. New home sales profits, along with a recovery in our ancillary retail and restaurant operations, contributed to an increase of $4 million in sales and ancillary NOI compared to the second quarter of 2020. Interest and related loan cost amortization expense was $27.1 million for the quarter and $53.4 million for the year-to-date period. The press release provides an overview of third quarter and full year 2021 earnings guidance. As I provide some context for the information we've provided, keep in mind my remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints in our guidance range and are qualified by the risk factors included in our press release and supplemental financial information. A significant factor in our guidance assumptions for the remainder of 2021 is the level of demand for transient stays in our RV communities. We have developed guidance based on our current customer reservation trends. We provide no assurance that our actual results will be consistent with our guidance, and we assume no obligation to update guidance if conditions change. Our full year 2021 normalized FFO is $2.47 per share at the midpoint of our range of $2.42 to $2.52 per share. Normalized FFO per share at the midpoint represents an estimated 13.4% growth rate compared to 2020. Core NOI is projected to increase 7.9% at the midpoint of our range of 7.4% to 8.4%. The core NOI growth rate increase from our prior guidance is mainly the result of our second quarter outperformance. Our expectation for the third and fourth quarters has been updated to include MH occupancy gains in the second quarter current RV reservation trends, and expense adjustments based on year-to-date activity. As a reminder, we make no assumptions for storm events or other uninsured property losses we may incur. Our guidance for the full year and third quarter includes the impact of the acquisition activity we've closed in the first and second quarters, with no assumptions for additional acquisitions during the year. We've also included the impact of the financing activity we've disclosed including the recast of our unsecured credit facility. We expect third-quarter normalized FFO at the midpoint of our range of approximately $119.5 million, with a per-share range of 59 cents to 65 cents. We expect the third quarter to contribute 25% of full-year normalized FFO. We project a core NOI growth rate range of 8.7 to 9.3%. MH and RV annual rate growth assumptions for the third quarter and full year remain consistent with our prior guidance. We've built our transient RV revenue assumptions for the third and fourth quarters using factors including current reservation pace compared to both 2020 and 2019. Our guidance for the third quarter assumes a growth rate of approximately 23% compared to 2019. This represents a core transient RV revenue increase of approximately $3.5 million compared to 2020. Our fourth quarter assumptions include a reopening of the Canadian border and a return of those customers for the upcoming winter season. Now some comments on debt markets and our balance sheet. Current secured debt terms available for MH and RV assets range from 50% to 75% LTV, with rates from 2.5% to 3.5% for 10-year maturities. High-quality, age-qualified MH will command best financing terms. RV assets with a high percentage of annual occupancy have access to financing from certain life companies as well as CMBS lenders. Life companies continue to quote competitively on longer-term maturities. 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 REIT is 5.4 times, and our interest coverage is 5.4 times. The weighted average maturity of our outstanding secured debt is approximately 12.5 years. Now we would like to open it up for questions.