Equity Lifestyle Properties, Inc.

Today, everyone, I thank you for joining us to discuss Equity Lifestyles Properties' first quarter 2022 results. Our featured speakers today are Marguerite Nader, our President and CEO, Paul Febe, our Executive Vice President and CFO, and Patrick Waite, our Executive Vice President and COO. In advance of today's call, management will release earnings. Today's call consists of open remarks and a Q&A session with management relating to the company's earnings release. For those who would like to participate in a Q&A session, management asks that you limit yourself to two questions, so everyone who would like to participate has ample opportunity. As you're watching this call, it's being recorded. Certain matters discussed during this conference call may contain forward-looking statements in the meaning of federal security laws. Our forward-looking statements are subject to certain economic risks 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 Regulations G. Reconciliation of these non-GAAP financial measures to comparable GAAP financial measures are included in our earnings relief, our supplement information, and our historic SEC policy. 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 results for the first quarter of 2022. We continued our record of strong core operations and FFO growth with a 14% growth in normalized FFO per share in the quarter. At the core of ELS's strategy is a commitment to quality. We have built our organization focused on high-quality team members, properties, cash flow, and capital allocation. The result of this shared focus is sustained value for our residents, customers, and shareholders. Our properties are well located in areas where the demographic trends create tailwinds for ELS. we focus our acquisition strategy on increasing our concentration of assets in high-demand markets for the baby boomer population. That strategy continues to bear fruit as we see outsized demand and population growth in our key operating states. Our high-quality cash flows are reflected in our reported results and historical trends. The quality of our cash flow is seen in our annual revenue stream. Our long-term relationships with our customers in our manufactured home communities, RV resorts, and marinas are one of the hallmarks of our success. The average tenure of our manufactured home residents is over 10 years. Within our RV resorts, we see customers return for generations as they pass along the camping tradition. During the quarter, we saw our new home sales increase 36%. The primary driver of the new home sale volume increase was our Florida sales program, where we saw an increase in the volume of over 100%. The increased demand for living in Florida is seeing an increased home sales, occupancy, and lead flow. Over 95% of these new homebuyers were cash buyers. This investment is consistent with our entire portfolio as the vast majority of our residents have made a capital commitment to live in our communities. That commitment from our homeowners results in pride of ownership and a long-term resident base. Core RV revenue increased over 21% in the quarter, driven by the rebound of seasonal demand in the south and the west as we welcomed back our Canadian guests and our domestic customers were able to travel without restrictions. Our first-time transient customers from last year showed a desire to strengthen their relationship with us, with 18% becoming an annual seasonal or member. Our internal surveys, as well as RV industry surveys, support our view that our customers are looking forward to spending outdoors and our properties. The internal survey results indicate that the desire to be outdoors, affordability, and safety are the primary reasons for planning to camp more this year. A flexible work environment has propelled interest in camping, with two out of three RVers indicating that having a flexible work in a remote environment influenced their decision to camp. We consider it a great responsibility to own and operate lifestyle-oriented properties among diverse landscapes and natural habitats and to ensure our properties remain desirable destinations for future generations. We focus on improving the environment within our footprint and will continue to focus on preserving the natural amenities and biodiversity at our property. I wish to express my gratitude to the entire ELS team for another great quarter. Our operating team will now turn their attention toward the summer season properties and will focus on delivering excellent customer service to our residents, members, and guests as they explore our properties this summer. 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 first quarter 2022 results and provide an overview of our second quarter and full year 2022 guidance. First quarter normalized FFO was $0.72 per share. Strong performance in our core portfolio generated 9% NOI growth for the first quarter, contributing to normalized FFO per share growth of 13.8%. Core community-based rental income increased 5.6% for the quarter compared to 2021. Rated growth of 5.1% exceeded our expectations. Growth in occupancy generated the additional 50 basis points of core MH rent growth compared to last year. Our first quarter core occupancy increase included a gain of 191 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 4.8% of our MH occupancy. First quarter core resort and marina based rental income increased 21.4% compared to 2021. On a full year basis, more than 75% of our resort-based rent is generated from long-term annual and seasonal stays, and 99% of our marina rents are from annual customers. Rent growth from annuals in the first quarter was 8.6%, with 5.5% from rate increases and 3.1% from occupancy gains. First quarter rent from core RV seasonal increased 65% compared to first quarter 2021, which was impacted by the Canadian border closure and other travel restrictions. Core rent from transient customers increased 21.2% for the quarter, consisting of 11% from rate and 10.2% from occupancy. For the first quarter, the net contribution from our membership business was $17.4 million. Subscription revenues increased 11%, reflecting a 5.3% increase in the member base and a rate increase of 5.7%. The increase in average rate includes the impact of dues related to our trails collection product, which provides access to RV properties. At the end of the quarter, 21% of our members held a trails collection pass. This compares to 13% at the same time last year. The increase in subscription revenues compared to last year offset the reduced contribution from upgrade sales following the introduction of the new Adventure product last year. We continue to see steady demand for upgrades. including the adventure product. During the first quarter, 2022, the adventure upgrade represented almost 25% of our upgrade sales. The average upgrade sales price was 9.4% higher than last year. Core utility and other income increased 12%, mainly as a result of increases in utility income and real estate tax pass-throughs. Utility expense was the largest contributor to core property operating expense growth. we've added a table to our core income from operations page in the supplemental that shows utility income and expense with a recovery rate for the first quarter compared to the first quarter last year. The recovery rate we achieved in the first quarter of 2022 is consistent with our long-term historical experience. Increases in repairs and maintenance expense compared to last year are attributed to repairs to property utility system infrastructure, building and common area maintenance, and snow removal following events in the Midwest and Northeast. In terms of property payroll, staffing levels were consistent with prior year. The payroll expense increase was mainly the result of wage increases, along with a modest increase associated with overtime hours and temporary staffing to cover open positions. Core property operating revenues increased 9.5% compared to the midpoint of our guidance of 7.6%, while core property operating expenses increased 10.3% compared to the midpoint of our guidance of 7.9%, resulting in growth in core NOI before property management of 9% compared to the midpoint of our guidance of 7.4%. Our non-core properties contributed $10.5 million in the quarter. This group of properties has performed in line with our pro forma underwriting expectations. The first quarter represents approximately 30% of our full-year NOI expectation for this group of properties. Property management and corporate G&A were $30.2 million for the first quarter. Other income and expenses net, which includes our sales operations, joint venture income, as well as interest and other corporate income, was $6.5 million for the quarter. And interest and amortization expenses were $27.5 million in the quarter. The press release and supplemental package provide an overview of 2022 second 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 $2.73 per share at the midpoint of our guidance range of $2.68 to $2.78. We project core property operating income growth of 6.8% at the midpoint of our range of 6.3% to 7.3%. Full-year guidance assumes core rent rate growth in the ranges of 5.1% to 5.3% for MH, and 5.9 to 6.1 percent for annual RV rents. We assume occupancy in our stabilized MH portfolio will be flat to first quarter. Our guidance model includes the impact of all acquisitions we've announced and the impact of the debt 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 second quarter guidance assumes normalized FFO per share in the range of 59 cents to 65 cents. Core property operating income growth is projected to be 3% at the midpoint of our guidance range for the second quarter, which represents approximately 22% to 23% of our expected full-year core NOI. Our second quarter and full year guidance assumptions include our expectations for combined seasonal and transient growth of approximately 4% and 14% respectively. The total sites table in our supplemental package shows sites occupied by annual and seasonal customers, as well as sites available for transient stays. A comparison to last year shows that customer demand for longer term stays has reduced our inventory available for transient stays. We expect the first six months of 2022 will generate approximately 51 percent of the full-year core seasonal and transient rental income. This compares to 2021, when approximately 46 percent of full-year core seasonal and transient rent was generated during the first six months. I'll now provide some comments on the financing market and our balance sheet. As noted in the earnings release and supplemental package, we have closed on a $200 million secured debt refinancing at 3.36 percent for a 12-year term. Loan proceeds were used to repay all secured debt maturing in 2022, as well as to repay all amounts outstanding on our line of credit. We are pleased with the execution of this refinancing as it further fortifies our rock-solid balance sheet. In this time of heightened volatility and uncertainty, our debt maturity schedule shows that we have only 15% of our outstanding debt maturing over the next five years. This compares to an average of approximately 45% for REIT. I'll also remind you that approximately 23 percent of our outstanding secured debt is fully amortizing and carries no refinancing risk. Current secured debt terms have moved significantly since mid-February when we locked rate on our refinancing. Current 10-year loans are quoted between 4.25 and 3.25 percent, 60 to 75 percent loan-to-value, and 1.4 to 1.6 times debt service coverage. We continue to see solid interest from life companies and GSEs to lend for terms 10 years and longer. While we haven't tapped the CMBS market in some time because pricing has been wide relative to our other options, we understand that that market has been experiencing some instability. High-quality, age-qualified MH assets continue to command best financing terms. In terms of our liquidity position, we have $500 million available on our line of credits. During the quarter, we expanded our ATM program to provide $500 million of capacity. Our weighted average secured debt maturity is approximately 12 years, adjusted for the impact of the refinancing I mentioned. Our debt to adjusted EBITDA is around 5.2 times, and our interest coverage is 5.7 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.