Equity Lifestyle Properties, Inc.

Good day, everyone, and thank you for joining us today to discuss Equity Lifestyles Properties' fourth quarter and full year 2021 results. Our featured speakers today are Marguerite Nader, our President and CEO, Paul Zevery, 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, any 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 please limit yourself to two questions so that 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 constitute forward-looking statements in the meaning of the federal securities laws. Our forward-looking statements are subject to certain economic risks and uncertainties. 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 the SEC Regulation G. Reconciliations of these non-GAAP financial measures to comparable GAAP financial measures are included in our earnings release. our supplemental information, and our historical SEC filings. At this time, I'd 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 final results for 2021. We began 2021 in an uncertain environment with the Canadian borders closed and changed travel patterns throughout our portfolio. The year progressed to show a heightened demand for our properties and locations. Our teams worked each day to accommodate our customers and meet the unprecedented demand. We continued our record of strong core operations and FFO growth with full year growth in NOI of 8.8%, which translated into a 17% increase in normalized FFO per share. Our demographic profile and the increased flexibilities in personal schedules create tailwinds for future growth. In 2021, Our core MH portfolio increased occupancy by 323 sites. We saw an increased demand for homeownership with a gain of 785 homeowners and a decrease in rental occupancy of 462. We saw an increase in the credit quality of our new residents moving in with an average FICO score of 727. We experienced an all-time high for new home sales with an 81% increase from last year with over 1,100 new home sales. Due to the strength of our operating markets, we were able to increase sales prices by 25% for the year. Additionally, we had robust sales activities and used home sales and resales this year. Turning to RVs, in 2021, the demand was strong for our RV sites across the country. Full-year growth in RV income was 13%, driven by annual RV revenue growth of 7%, where we increased core annual revenue RV occupancy by approximately 1,200 sites for the year and transient RV revenue growth of 43%. In the quarter, we saw an increase in RV revenue of 16%. This growth was fueled by marketing campaigns for fall and winter camping opportunities. The demand continues to accelerate for weekday camping. In the fourth quarter, weekday occupancy increased 18% as customers extended their typical weekend trips into Monday, Tuesday, and Wednesday. The extended length of stay was driven primarily by our properties in Florida and California. The trend has been evident throughout the pandemic. In 2021, our Thousand Trails membership properties performed better than expected. Our dues revenue increased nearly 10% to $58 million. We sold almost 24,000 camping passes, an increase of over 16% from 2020. The channel with the largest increase was our online channel with a 30% increase in sales. Our upgrade sales increased almost 15 million, fueled by the new upgrade product that we launched in the first quarter. Our quarterly survey results show the entry of younger RVers and remote work flexibility has increased interest in our RV resorts and campgrounds. Among those that reported plans to camp more, 26% reported flexibility to work remotely as a driving reason. About two-thirds of customers and prospects surveyed said that they plan to travel in their RV or stay in a campground more in the coming year than they did last year. Turning to 2022, we have issued guidance of $2.69 at the midpoint for next year, which is a 6% growth in normalized FFO per share. The demand for our MH communities continues to increase. Over the last five years, we have sold approximately 2,600 new homes in our MH communities. These new homes improve the look of the community as the homeowners throughout our portfolio showcase their pride of ownership. We have noticed rent increases for approximately 65% of our residents and anticipate a 4.8% rate growth in core MH rent revenue. Our guidance for 22 reflects the strength in our business. Our guidance is built based on the operating climate of each property, including a robust market survey process and continuous communication with our residents. In 2021, we have deployed over $800 million of capital. Through these transactions, we added approximately 5,600 RV sites and 4,000 marina slips to the portfolio in 2021. We were pleased to close on the acquisition of MH Village Data Comp. MH Village is the premier online marketplace dedicated to buying and selling manufactured homes, and Data Comp provides industry information including market surveys and manufactured home appraisal reports. Additionally, in 2021, We closed on three parcels of land totaling 725 acres. This additional acreage brings our total undeveloped acres to 6,500. Our vacant land is geographically diverse and will positively contribute to our future FFO growth. Next, I'd like to update you on our 2022 dividend policy. The Board has approved setting the annual dividend rate at $1.64 per share, a 13% increase. The Board will determine the amount of each quarterly dividend in advance of payment. The stability and growth of our cash flow, our solid balance sheet, and the strong underlying trends in our business are the primary drivers of the decision to increase the dividend. Historically, we have been able to take advantage of opportunities due to the free cash flow generated by our operations. This new dividend increase of $37 million is roughly equivalent to our anticipated increase in FFO for 2022. In 2022, we expect to have in excess of $110 million of discretionary capital after meeting our obligations for dividend payments, recurring CapEx, and principal payments. Over the past five years, we have increased our dividend on average 11%. Since the start of the pandemic, we have asked a lot of our team members. Our team members are focused on providing excellent customer service in the new operating environment. Their results have been impressive, and I'm grateful for their continued energy and excitement that's dedicated to each role. I will now turn it over to Paul to walk through the numbers in detail.

Thanks, Marguerite, and good morning, everyone. I will review our fourth quarter and full year 2021 results and provide an overview of our first quarter and full year 2022 guidance. Fourth quarter normalized FFO was $0.64 per share. Strong performance in our core portfolio generated 8.2% NOI growth for the fourth quarter. Core NOI growth of 8.8% for the full year contributed to our normalized FFO per share growth of 16.6%. Core community-based rental income increased 4.7% for the full year compared to 2020. Rate increases contributed 4.2% growth, while occupancy generated the additional 50 basis points. Our 2021 core occupancy increase included a gain of 785 homeowners. The continued strong demand for home sales has reduced inventory available for rental as we have focused on growth in occupancy from home sales. Our rental homes currently represent 5% of our MH occupancy. Full-year core resort and marina-based rental income increased 12.9% compared to 2020. Growth from annuals was 6.8%, with 4.3% from rate increases and 2.5% from occupancy gains. Full-year rent from core RV seasonal was flat to 2020. Strong demand for stays of a month or more drove outperformance in the second, third, and fourth quarters and offset the unfavorable impact of travel restrictions in the first quarter. Full-year core rent from transient customers increased 43.2% for the year, consisting of 24% from rate and 19% from occupancy. For the full year, net contribution from our membership business was $13.3 million higher than 2020, an increase of 23%. Dues revenues increased almost 10%, reflecting a 3.5% increase in the member base and a rate increase of approximately 6.5%. The increase in average rate includes the impact of dues related to our trails collection product, which provides access to RV properties outside the Thousand Trails Network. At year end, 18% of our members held a trails collection pass. Strong demand for our upgrade products is evidenced by the full year increase in sales volume of 44%. Full year growth in core utility and other income is mainly the result of increases in utility income. Utility income is generated from billings to our customers based on their usage. Our recovery percentage remained consistent in 2021 compared to 2020. Our earnings release and supplemental package includes line item detail for core expenses with comparisons to prior periods for the quarter and full year. Overall, full year 2021 core property operating expenses increased 7.7% compared to 2020. Setting aside sales and marketing expenses that are directly related to the performance of our membership upgrade sales, utilities and insurance and other expenses show the highest percentage growth. Overall, we experienced a mid-single-digit rate increase across all utility expense types with usage driving the remainder of the increase. Our utility income recovery rate remained consistent with our historical level at approximately 45% for the year. We've previously discussed the impact of our April insurance renewal, which is the main driver of increased expense in that category. The remaining expense line items generally had inflationary increases in 2021. Our non-core properties contributed $7.9 million in the quarter and $22.4 million for the full year. This group of properties has performed in line with our pro forma underwriting expectations. Property management and corporate G&A were $106.1 million for the full year. Other income and expenses net, which includes our sales operations, joint venture income, as well as interest and other corporate income, was $20.7 million for the year. And interest in amortization expenses were $108.7 million for the full year. The press release and supplemental package provide an overview of 2022 first quarter and full year 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 package. Our guidance for 2022 full-year normalized FFO is $2.69 per share at the midpoint of our guidance range of $2.64 to $2.74. We project core property operating income growth of 5.9% at the midpoint of our range of 5.4% to 6.4%. Full-year guidance assumes core rent rate growth in the ranges of 4.6% to 4.8% for MH and 5% to 5.2% for annual RV rents. We assume occupancy in our stabilized MH portfolio will be flat to year-end 2021. Our guidance model includes the impact of all acquisitions we've announced, and the impact of the debt and equity capital events we disclosed in our earnings release and supplemental package. The full year guidance model makes no assumptions regarding other capital events or the use of free cash flow we expect to generate in 2022. Our first quarter guidance assumes NFFO per share in the range of 66 cents to 72 cents, which represents approximately 25 to 26% of the full year normalized FFO per share. Core property operating income growth is projected to be 7.4% at the midpoint of our guidance range for the first quarter. The comparison to prior year is impacted by the results from our RV business, particularly the seasonal RV rent in the first quarter of 2021. Our guidance assumes first quarter seasonal and transient RV revenues perform in line with our current reservation pacing. Our customer reservation trends continue to indicate strong interest in visiting our properties during the remainder of the winter season. As a reminder, in years prior to 2020, the first quarter represented approximately 50% of our seasonal RV revenues for the year. I'll now provide some comments on the financing market and our balance sheet. As noted in the earnings release and supplemental package, we've raised equity from stock sales using our ATM and closed an unsecured term loan to generate total proceeds of approximately $366.4 million. During 2021, we invested cash of approximately $650 million, net of assumed debt and OP units, in acquisitions. This investment was funded with available cash and proceeds from our line of credit. At year end, our unsecured line of credit balance was $349 million. After using proceeds from our equity and debt capital events, the current line of credit balance is approximately $69 million. Current secured debt terms are 10 years at coupons between 2.95% and 4%, 60 to 75% loan to value, and 1.4 to 1.6 times debt service coverage. We continue to see strong interest from life companies, GSEs, and CMBS lenders to lend at historically low rates for terms 10 years and longer. High-quality, age-qualified MH assets continue to command best financing terms. We have approximately $74 million of secured debt maturing in 2022. Our $500 million line of credit currently has approximately $430 million available. Our ATM program currently has approximately $30 million of available liquidity. Our weighted average secured debt maturity is approximately 12 years. Our debt adjusted EBITDA is around 5.6 times, and our interest coverage is 5.5 times. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Now we would like to open it up for questions.