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spk36: Good day, everyone, and thank you all for joining us to discuss Equity Lifestyle Properties fourth quarter 2022 results. Our featured speakers today are Margaret 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 release 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 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 meetings of the federal security 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 SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable gap 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. You may begin.
spk39: Good morning, and thank you for joining us today. I am pleased to report the final results for 2022. The strength of ELS can be seen in all facets of our business. We continued our record of strong core operations and FFO growth, with full year growth in NOI of 5.7%, which translated into a 7.4% increase in normalized FFO per share. Our MH portfolio is 95% occupied. Importantly, 96% of our sites are occupied with homeowners. The pride of ownership is evident in the well-kept homes and landscaping throughout our communities. The stability of our resident base can also be seen in the high FICO scores for incoming residents. For the year, we experienced an all-time high for new home sales with over 1,100 new home sales. Due to the strength of our operating markets, we were able to increase sales prices by 22% for the year. Our strongest performing properties for home sales were in Florida with a 16% increase in sales volume and a 28% increase in home prices. It is important to note that while home prices have increased to an average of $106,000, they remain significantly lower than other housing options in the immediate vicinity of our community. Turning to our RV properties, in 2022, the demand was strong for RV sites across the country. It is estimated that 67 million Americans plan to take an RV trip in the next 12 months. These trips will strengthen the commitment to the RV lifestyle. Our quarterly surveys indicate that our viewers plan to camp more this year. The reasons cited for their desire to camp more include spending time outdoors and traveling with their pets. In the year, we continue to see new transient guests converting to a longer-term commitment, with nearly 4,000 guests increasing their commitment to us after their initial transient stay. Our transient revenue increased 26% from pre-pandemic levels, with an increase in the average rate being the largest driver of that increase. In 2022, our Thousand Trails membership properties performed well. We sold over 23,000 camping passes and initiated 28,000 RV dealer activations. These passes and activations are the seeds for future growth in the Thousand Trails portfolio. Turning to 2023, we have issued guidance of $2.84 at the midpoint for next year, which is a 4.1% growth in normalized FFO per share. The demand for our MH communities continues to increase. Over the last five years, we have sold over 4,000 new homes in our community. These new homes further enhance the look of the community as new and existing homeowners throughout our portfolio showcase their pride of ownership. We have noticed rent increases for approximately 67% of our residents and anticipate growth of 6.5% in core MH rent revenue. Our guidance for 2023 reflects the strength in our business. Our guidance is built based on the operating environment of each property, including a robust market survey process and continuous communication with our residents. In 2022, our acquisitions and development teams focused on strategic RV investments and added over 1,600 sites to the portfolio. In addition, we purchased six parcels of land with approximately 300 acres of development potential. Our vacant land is geographically diverse and will positively contribute to our future growth. Next, I'd like to update you on our 2023 dividend policy. The Board has approved setting the annual dividend rate of $1.79 per share, a 9.1% 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 dividends. Historically, we have been able to take advantage of opportunities due to the free cash flow generated by our operations. That will continue in 2023 as the dividend increase of $29 million is roughly equivalent to our anticipated increase in FFO for 2023. In 2023, we expect to have in excess of $100 million of discretionary capital after meeting our obligations for dividend payments, recurring capital expenditures, and principal payments. Over the past five years, we have increased our dividend by an average of 10.2%. We had a strong finish to the year due to the hard work of the ELS team members. The well-being of our residents and guests were prioritized. The dedication at the property, regional, and corporate level is impressive. I will now turn it over to Paul to walk through the numbers in detail.
spk19: Thanks, Marguerite, and good morning, everyone. I will review our fourth quarter and full year 2022 results. and provide an overview of our first quarter and full year 2023 guidance. Fourth quarter normalized FFO was 66 cents per share. Strong performance in our core portfolio generated 7.3% NOI growth for the fourth quarter. Core NOI growth of 5.7% for the full year contributed to our normalized FFO per share growth of 7.4%. Core community-based rental income increased 5.8% for the full year compared to 2021. Rate increases contributed 5.4% growth, while occupancy generated the additional 40 basis points. During 2022, we increased homeowner occupancy by 637 sites. Full-year core resort and marina-based rental income increased 9.1% compared to 2021. Growth from annuals was 8.8%, with 6.7% from rate increases and 2.1% from occupancy gains. In our seasonal RV income, the strong demand trend for stays of a month or more continued in the fourth quarter, generating 17.4% growth over 2021. The full year increase in seasonal RV income was almost 40%. Full year growth in seasonal RV rent offset the decrease in full year transient income These rental streams combined generated 9.5% growth. For the full year, net contribution from our membership business, which consists of annual subscription and upgrade sales revenues, offset by sales and marketing expenses, $74.4 million, an increase of 4.9% compared to the prior year. Subscription revenues increased 8.4%, reflecting a 3.2% increase in the member base, and a rate increase of approximately 5.2%. During 2022, we sold almost 4,700 upgrades with an average sale price of approximately $7,400. Full year growth in core utility and other income is mainly the result of increases in utility income. Our recovery percentage of 44% remained consistent in 2022 compared to 2021. Fourth quarter core operating expense increased 2.1% compared to the same period in 2021. We experienced some moderation in growth in utility and payroll expenses compared to earlier quarters in 2022. In addition, during the quarter, repairs and maintenance and insurance and other expenses decreased from prior year. Overall, full year 2022 core property operating expenses increased 6.7% compared to 2021. Utility expenses represent more than 27% of our core operating expenses, and they increased 10.6% for the full year. Payroll and repairs and maintenance expenses generally increased in line with inflation for 2022. Our non-core properties, including the assets we reclassified to this group in the fourth quarter as a result of suspended operations following storm damage, contributed $5.8 million in the quarter and $41.2 million for the full year. Property management and corporate G&A were $119 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, $32.5 million for the year. Interest and amortization expenses were $116.6 million for the full year. Our full-year weighted average debt balance was $3.275 billion, and the weighted average rate was 3.4%. We've modified our income statement presentation to include a line item, casualty-related charges, recoveries, net, hurricane-related expenses incurred through year-end, along with offsetting revenue accruals for expected insurance recovery, are presented in this line item. The Press Release and Supplemental Package provide an overview of 2023 first quarter and full year earnings guidance. The following remarks are intended to provide context for our current estimate of future results. All growth rate ranges and revenue and expense projections are qualified by the risk factors included in our Press Release and Supplemental Package. Our guidance for 2023 full-year normalized FFO is $2.84 per share at the midpoint of our guidance range of $2.79 to $2.89. We project core property operating income growth of 5.5% at the midpoint of our range of 5% to 6%. We project the non-core properties will generate between $18 and $22 million of NOI during 2023. Our non-core portfolio includes properties acquired during 2022, as well as the six properties with interrupted operations. Our budget assumes stabilized NOI at these six properties from a combination of resumed operations and business interruption insurance proceeds. We intend to recognize business interruption proceeds upon receipt, and as a result, we may experience some variability in recognition of income during the year as compared to our budget assumptions. Our property management and G&A expense guidance range is lower than our 2022 actual expense, primarily as a result of legal activity in 2022 that we don't expect to recur. We've also provided guidance ranges for our weighted average debt balance and interest expense. Our guidance model includes the impact of all acquisitions we've announced. The full-year guidance model makes no assumptions regarding other capital events for the use of free cash flow we expect to generate in 2023. In the core portfolio, we project the following full-year growth rate ranges, 5.7 to 6.7% for core revenues, 6.7 to 7.7% for core expenses, and 5 to 6% for core NOIs. Full-year guidance assumes core MH rent growth in the range of 6 to 7%, We assume occupancy and our stabilized MH portfolio will be flat during 2023. Full-year guidance for combined RV and marina rent growth is 5.7% to 6.7%. Annual RV and marina rent represents two-thirds of the full-year RV and marina rent. We expect 8% growth in rental income from annuals at the midpoint of our guidance range. Our full year core expense growth assumptions include our current projections for future utility rate increases and the potential impact of our April 1st insurance renewal. Our first quarter guidance assumes NFFO per share in the range of 70 cents to 76 cents, which represents approximately 26% of full year normalized FFO per share. Core property operating income growth is projected to be in the range of 4.4 to 5% for the first quarter. First quarter growth in MH and combined RV and marina rents are in line with our full year assumptions. We project first quarter annual RV and marina rent to be approximately $67.1 million at the midpoint of our guidance range. Our guidance assumes first quarter seasonal and transient RV revenues perform in line with our current reservation pacing. I'll now provide some comments on the financing market and our balance sheet. During 2022, we invested cash of approximately $150 million in operating properties, development properties, and land for future development. The investments were funded with available cash and proceeds from our line of credit. At year end, our unsecured line of credit balance was $198 million. Current secured debt terms are 10 years at coupons between 4.75% and 5.5%. 60 to 75% loan-to-value, and 1.4 to 1.6 times debt service coverage. We continue to see strong interest from GSEs, life companies, and CMBS lenders to lend for 10-year terms. High-quality, age-qualified MH assets continue to command best financing terms. We have approximately $92.5 million of secured debt maturing in 2023. The in-place rate on this maturing debt is 4.9%. Our $500 million line of credit currently has approximately $265 million available. Our ATM program currently has $500 million of available liquidity. Our weighted average debt maturity is approximately 10 years. Our debt to adjusted EBITDA is 5.3 times, and our interest coverage is 5.6 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.
spk36: Thank you. Ladies and gentlemen, to ask the question, you may press star 11 on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Again, that's star 11 and wait for your name to be announced. As a reminder, we ask that you limit yourself to two questions. Please stand by while we compile the Q&A roster.
spk40: Our first question comes from the line of Nicholas Joseph, Luke City.
spk36: Your line is open.
spk31: Thank you. Just in terms of the properties that were still interrupted from Hurricane Ian, can you give us an update of what's actually happening on the ground there and when you would expect things to return to normal? And then related to that, what the business interruption and other insurance recoveries are assumed in 2023 guidance?
spk14: Yes, sure, Nick. That's Patrick. So just as a reminder, with six properties in the greater Fort Myers market, four of those are RV with 1,550 sites, and two of those are marinas with 550 slips. Four properties have resumed operations, and two will resume operations in the next few months. We're working through infrastructure repairs and improvements in order to bring those properties back online. And by the time we get into mid-2023, all properties will be operational and we'll bring them up to full operations over the next few quarters.
spk19: And as far as the expected contribution, Nick, those properties, it's a little bit less than half of the non-core NOI that we'd expect in total from those properties.
spk31: Perfect. Thank you. And then just broadly on the transaction market, it looks like there are a handful of RV acquisitions. Some may be a bit more interesting with JVs or development in the quarter. But just broadly, what are you seeing on the transaction market today across RVs and MH? And has there been any movement in cap rate or pricing?
spk39: Sure. Thanks, Nick. So yeah, in the quarter, we closed three deals. One was near the shore in New Jersey. It's a property that had 80% annuals, I think, at And it was really a great access to a large RV customer base and population. And then we also continued our growing relationship with RVC and invested in a new development in Sandusky, Ohio. And then we entered into a 50-50 joint venture with KOA in the foothills of the Blue Ridge Mountains. So we were pleased about those acquisitions in the quarter. I'd say in general, the acquisition volume was kind of down across our industry in 2022. I haven't really seen a real pickup in activity so far this year. There are certainly sellers in the market, but they're not really in a rush to sell when there's uncertainty with respect to cap rates and valuations.
spk42: Thank you very much.
spk36: Thanks, Nick. Thank you. Please stand by for our next question. Our next question comes from the line of Anthony Powell with Barclays. Your line is open.
spk06: Hi, good morning. I guess a question on the RV annual revenue growth, which is pretty strong. Could you remind us how you go about pricing those annual contracts and what kind of the outlook looks like for kind of future kind of ongoing growth for annual revenue growth in RVs going forward?
spk39: Yeah, Anthony, thanks. I think Patrick can talk you through kind of our market survey approach to how we get to the RV annual rate.
spk14: Yes, Anthony, it's similar to the process that we go through in our other business lines, particularly on the MH front. These are long-term customers, and they typically own a unit that's located on our property for years, if not more than a decade. So we review the... directly competing properties, as well as other choices for hospitality and that type of weekend getaway in the local submarkets. We come to a determination of what we feel to be representative of the market, and then we send out the rate increases. Similar to the MH process, we may very well have more moderate rate increases for in-place long-term customers. And as new customers come in, they'll be charged a full market rate.
spk06: Thanks. Maybe switching gears to the same for expense guidance and the hurricane and the insurance impact. How much of the growth is driven by the resetting of the insurance rates? And do those insurance resets cover just the impact of properties for it as a whole, the entire portfolio? Maybe more detail there would be super helpful.
spk19: Yeah, I guess kind of as I think about our guidance assumptions for expenses, I'll cover insurance and utilities both, because I think those are the two key areas to focus on. Those line items on a combined basis represent about a third of our total core property operating expenses. Regarding the insurance, we're in the process of negotiating with our insurance carriers, so I'm not really inclined to disclose too much on this call. I will remind you though that we've talked about over the past five years or so, we've seen premium increases around 20% each year. Our policy renewal is April 1st, and we plan to provide an update on the first quarter call as far as how we progress. With regard to utilities, our growth assumptions are based on various factors, including projections of rate increases that we've identified directly from the utilities to the extent we have noticed. We also have two third-party advisors that we rely on for this information, and the EIA.gov website for the Energy Information Administration. So take all of that information, triangulate that, and come up with our model for utility expense increases.
spk00: Okay. Thank you.
spk36: Thanks, Anthony. Thank you. Please stand by for our next question. Our next question comes from the line of Brad Heffron with RBC. Your line is open.
spk07: Hey, thanks. Good morning, everyone. You had a strong fourth quarter in operating expenses with the 2.1% growth, but the guidance obviously shows a reacceleration to a figure that's a little bit above what you reported in 2022. Can you walk through first what led to the low figure in the fourth quarter and why you would expect that to pick back up meaningfully?
spk19: I think our experience in the fourth quarter, we had some moderation in expenses, primarily moderation in our payroll and our utility expense. And then I did mention that R&M and our insurance lines were down in the fourth quarter. I'll cover the year-over-year reductions first. We have an annual process related to our casualty insurance lines. And we take a look at the reserves that we have established. As we reviewed the activity at the end of the year, we identified favorable development and that supported a reduction in the reserves on the balance sheet and thereby reduced the insurance expense. The R&M expense savings resulted really from a favorable comp that we had because there were some elevated expenses in R&M in 2021. The moderation in utility expense attributes that primarily to a change in the mix of operations from the third quarter to the fourth quarter as we exited the summer season. And payroll expense growth moderated mainly as a result of reduced reliance on overtime. As we stabilized staffing to pre-pandemic levels in 2022, we reduced our reliance on overtime, which generated savings year over year in the fourth quarter.
spk07: Okay, got it. So I guess why, like, for instance, the payroll, presumably you'd have easier comps in 2023 as well. So is that just being overwhelmed by, you know, the insurance and the utility expense? Is there something else going on there?
spk19: No. Well, I think it's less about the fourth quarter being an indicative run rate and more about kind of the fourth quarter activity. I think looking to the full year of 2022, considering where we are with CPI headed into 2023. Those are the key drivers. And then, as I said a moment ago, keep in mind that a third of our expenses are utilities and insurance, and we're talking about increases that are meaningfully higher than CPI expected from a third of our expense base.
spk07: Okay, got it. And then moving to the transient business, I guess can you talk about what the underlying assumption is that's in the guide. And then, you know, in the core numbers, I think transient was down 16% or so in the fourth quarter. I know there can be some moving pieces there with the side count. So I'm curious if that's a comparable number and then what your expectations are for 23.
spk19: Yeah. I think if you take a look at the guidance page in the supplemental, you'll see our footnote disclosure. that provides the expected percentage contribution from annual rents. And from that, you can derive our expectations for combined seasonal and transient in the first quarter as well as the full year. I'll say that we anticipate the strong demand for longer-term stays, that kind of monthly stay that drives the seasonal business. Anticipate that strong demand will continue and will offset unfavorable impact, if any, on transient rents resulting from Availability of fewer sites, market-specific demand trends, and perhaps weather. We expect these combined rental income streams to deliver modest growth in 2020.
spk39: And I think, Brad, you know, we've experienced, you know, operating with RV parks over the last 15 years. We're very experienced. And when you look at annual, seasonal, and transient results over that time, transient revenue has had the most volatility by far. We've seen, you know, periods of negative growth, flat growth, outsized growth, and that's why we're really focused on the business of the annual rental stream to reduce that volatility.
spk29: Okay. Thank you.
spk36: Thanks, Brett. Thank you. Please stand by for our next question. Our next question comes from the line of Samil Canal with Evercore. Your line is open.
spk28: Oh, thank you. Marguerite or Paul, I'm just curious, are you doing anything differently this year from a projection standpoint for expenses, sort of get a better read on utilities? I know last year, you know, there was sort of two guidance increases on expenses. So, just wondering how you're thinking about that line, utilities from a projection standpoint, and how much sort of conservatism you've baked in this time around.
spk19: I think Certainly the approach, I mentioned the sources that we use to build our model. I'll say that we've refined our approach historically because of the consistency that we saw in utilities over our long history. We did place a greater reliance on our past experience when developing our annual model. This year, we stepped away from that a bit and, you know, looked to these, excuse me, other sources to provide insight and develop the model.
spk28: Okay, got it. And then just on new home sales, you know, gross revenues, saw a meaningful decline sort of year over year in that number. Is that just a function of sort of the macro environment or just maybe a little bit more color you can provide on that?
spk14: Yes, Patrick. For the quarter, we were down 35% new home sales. There's a few drivers there really largely impacted by the hurricanes that came through Florida in late September and then Nicole, mid-November. We have seen some pressures just with respect to construction activity and the number of new homes that we have ready. for the full quarter. That was exacerbated in Florida as a result of the hurricanes. Likewise in Florida, the disruption in just kind of the cadence of home sales, the marketing, the showing, and then eventual closing of those transactions to new home buyers experienced some disruptions that led to a push of about 50 new home sales. Some of that is a mix of potential buyers just reassessing and potentially pulling back from purchasing home at this time. And the balance was for just delayed closings as we work through the timing disruptions of the hurricanes.
spk27: That's it for me. Thank you.
spk36: Thanks, Tamir. Thank you. Please stand by for our next question. Our next question comes from the line of Keegan Call with Wolf Research. Your line is open.
spk22: Yeah, just to exchange the questions, maybe just on the communities that were moved from the same store pool but are now up and running, could you provide some color on occupancy and your expectation for leasing those communities back and were there material move-outs that took place?
spk14: Yeah, so just as a reminder, for those properties, it was four RVs and two marinas. So, we don't have any of the direct impacts with respect to NH occupancy trends. And as we're bringing those properties back online, I would expect them to largely reach full operations in late 2023, but we have resumed operations at all but two of those properties to this point. Those are modified operations on a few key categories. but our core customers are engaged and have access to the properties with amenities coming online over time.
spk39: And what we've seen is a real desire for our customers to come down and come back to their place in Florida and get out of the winter and come down and start to fix their home if it was impacted or fix their RV if it was impacted.
spk22: Just shifting gears on the transient revenue, obviously it was down in the quarter, but it was relatively offset by the seasonal growth. Just kind of curious on transient, are you guys seeing any relative softness and demand, or is it primarily just a function of having less sites available?
spk39: I think it's really a function of that, having less sites available. We're seeing people choose to stay with us longer, so they're staying with us on a seasonal basis and staying with us on an annual basis. So that's just having, we have less available sites.
spk21: Got it. Thanks for your time, guys.
spk39: Thank you.
spk36: Thank you. Please stand back for our next question. Our next question comes from the line of West Gola Day with Barrett. Your line is open.
spk25: Thank you. Hey, good morning, everyone. I just noticed that the Thousand Trails membership dipped in the fourth quarter sequentially. Is this just seasonality having a play here? And then what is your expectations for subscription income growth this year? I think it was around 5% in 2022.
spk39: I think, you know, year to date, I'd say our Camp Pastels are down, I think they're about down 3%. Upgrades are down a little bit, down about 18%. The Camp Pastels are really a decline from a heightened interest in 2021. And the upgrade decline is really a result of a new product that we launched in 2021. where we typically see outsized demand in that time when we launch the product.
spk19: And our expectation for subscription revenue in 23 is right in line with our experience in 22. Okay.
spk25: That's all from me, everyone. Thank you.
spk36: Thanks, Wes. Thank you. Please stand by for our next question. Our next question comes from the line of Anthony Hall with Truist. Your line is open.
spk26: Hey, guys. Thanks for taking my question. What is the market market on the Amish portfolio when a new tenant replaces an existing tenant? Is it still 10% to 11% after the recent rent increase?
spk14: Yes, that trend is holding.
spk39: And, Anthony, we look at that trend on a monthly basis and, you know, As you look at it, roll it up for the quarter. Every quarter, I think in 2022, it was somewhere between 10.5% and 11.5%. Okay.
spk26: And so shipping gears to RV. There's a lot of articles about the Airbnb bus. I know this might not be true in your markets, but in some markets, occupancy for Airbnb is down like 8% to 9%. Just curious, what do you think the implication could be for RVs?
spk39: Yeah, I think the demand is very strong for our RVs. Our locations are where people want to be either in the winter or in the summer. So I think that I don't see a change to that. I do see that we have less available sites, like I just mentioned, so that's going to have an impact. But we've been able to push rate on the transient side, and we continue to be able to do that. So I think that shows the strength of the market. Yeah.
spk26: And just one last question for me. So I see that the quarter-over-quarter oxide sites for the core portfolio was down 130. I know that's not a material number, but I don't think I've seen this since ELS started reporting this metric. Can you provide some color on what you see on the ground today?
spk19: Well, I think you're talking the sequential quarter, the full-year occupancy was essentially flat. I think we were down 15 sites for the year. Yeah. And in the quarter, you know, there was some impact associated with the storm on our occupancy.
spk39: And that impact was a result of, you know, homes coming back to us, but also our inability to sell homes through the hurricane, you know, and during the hurricane.
spk24: Okay. Thanks for the question, guys.
spk36: Thank you. Thank you. Please stand by for our next question. Our next question comes from the line of Joshua Dinnerline with the Bank of America Securities. Your line is open.
spk05: Yeah. Good morning, everyone. I guess there were two same-store expense line items we didn't touch on, payrolls and real estate taxes. I guess just curious what kind of trend you assumed in both of those for your guide. And then if you could remind us on the real estate taxes, like is that – projection at this point, like a best assumption, or is that kind of already known?
spk19: For the most part, to your latter question, for the most part, real estate taxes are a projection. Obviously, our greatest exposure is in the state of Florida. Florida taxes are billed in the current year, same calendar year, bill as Hayman's. But we don't have visibility into the expected increases until August or September. The assumption is, you know, call it a mid-single-digit type increase for real estate taxes, which is right in line with our historical experience. And then with respect to payroll, I would characterize that assumption as being closer to PPI.
spk18: through 2023.
spk05: Closer to headline CPI or core CPI? Yeah, headline CPI. Okay, great. And then just for your guide, the same-store revenue, it's lower than your same-store expense growth guidance. Just kind of curious how we should be thinking about that on kind of a more go-forward basis. Is this kind of a one-off approach? Or should we kind of assume that same-store revenues can exceed expenses on a more normalized, go-forward basis?
spk19: I mean, I think if you look at our long history, certainly we've not found ourselves in an environment with CPI showing as much volatility as it has in the last 12, 15 months. our long history certainly our increase in revenues was call it a hundred basis points higher than CPI and yeah I kind of trending close to that and our expenses trending close to that I think going forward kind of as we settle out the opportunity for us is to identify where we would be able to maintain and or improve margins in that type of . There are opportunities in the form of automation and technology implementation and so forth that we would look to, but I don't necessarily look at 223 as the model for the forever future.
spk39: And, you know, Josh, I just also remember that we're here in January. We have really good visibility into the revenue side, and we've talked about that, you know, in October, on our call in October. But expenses, you know, we have less visibility into. So that's how we create our model for the year.
spk04: Okay. Great. Thanks, guys.
spk36: Thanks, Josh. Thank you. Please stand by for our next question. Our next question comes from the line of John Polosky with Green Street. Your line is open.
spk32: Hey, thanks for the time. My first question is on the trajectory of manufactured housing rent increases. So I think last quarter you anticipated the first batch, the first 50% of MH rent increases to go out in the low to mid 6% range. Just curious, as the year unfolds, do you expect that growth to accelerate, be stable, or come back down?
spk19: John, we have an assumption that is kind of tied to a projection of CPI that anticipates that CPI moderates throughout the year. But one thing to keep in mind is that the notices that we send The last notices that we send that will have impact in 2023 will be in the month of August. So it's really looking at CPI from now through, call it July. And so our model steps it down a bit to 5% from a starting assumption of 7%. Okay, that's helpful.
spk32: I apologize if I missed this. Can you let us know how seasonal bookings and actually the 1Q reservations are trending versus last year?
spk19: Yeah. I think that I guess the way I would talk about it is the guidance model that we built is based on our current reservation pacing for seasonal and transient. I think I mentioned earlier, but consistent with the trend we saw during 2022, we're seeing strong demand for the longer-term stays. People just want to be with us a month or more. So if you walk through the math that we provided on the guidance page, our first quarter and full year combined rent growth for seasonal and transient is between 2% and 3%. That's based on where we are with pacing. Advanced visibility in the transient business, as you know, John, it's challenging. About 60% of those rents are booked within five to seven days of arrival. So it's just tricky on a forward basis beyond the first quarter.
spk32: Okay. Last one for me on the financing markets. Paul, I'm just curious if you've seen secured financing terms or just the availability of debt change at all for really hurricane-prone properties along waterfronts?
spk19: I'll say it's a little early to say there's been a change. I think that, I think there's, we are not in the market right now. So, but what I'm hearing is, you know, more questions around it, a bit more time spent on underwriting, but I haven't seen an indication of reduced capacity or appetite from them.
spk30: Okay, thank you. Thanks, Jen.
spk36: Thank you. Will you stand by for our next question? Our next question comes from the line of Michael Goldsmith with UBS. Your line is open.
spk03: Good morning. Thanks a lot for taking my question. Your 2023 FFO guidance calls for a 10 cent range, which is consistent with the range you provided last year. So presumably you have a similar level of insight into the year. I guess I was wondering, What are the factors or line items that you have maybe less or limited visibility in 2023 to accommodate this range?
spk19: Well, certainly the transient RV business is the line item that provides the greatest exposure to us. After that, I would point to our membership upgrades. and just our home sale activity at the level of the properties. As we look at the economic landscape and we kind of think about projections for 2023 and talk of potential recession, it harkens back a bit to 2008, and we certainly saw impact from the slowdown in the single-family home sale market on our business. despite the fact that we continue to see very strong demand for our home sales in our properties today, I'd adjust that as an area.
spk03: So would you say you have less visibility into kind of like the top line than you do to the expense growth for the year?
spk19: Well, I think that, as I mentioned earlier, you know, there's We have refined the way that we review our utility expense, which created a significant amount of exposure in the expense line item in 2022. So I think that to ask whether we have greater visibility, I think that we have a model that looks to different sources of information. And based on the recent experience that we have had, and our testing of that model, we think will be more reliable than our method.
spk03: Got it. That's helpful. And then are you seeing any change in bad debt? Was there a change in trajectory in the fourth quarter, or are you expecting any change in 2023? Is that built into the guidance in any way?
spk19: So, you know, our rent collection rates, they remain strong in the MH and the RV properties. There were eviction moratoriums following the onset of the pandemic, and that did cause a slight increase in our delinquent MH rents. As those restrictions have begun to ease, we've been collecting past due rents from residents interested in resolving their delinquencies. Our reserve policy takes a look at collectability, and we've seen an increase in the gross receivable resulting from the delay in processing evictions across the MH portfolio since the beginning of the pandemic, that pressure started to ease in 2022. So our bad debt expense moderated to be in line with historical levels. And our historical levels are about 40 to 50 basis points of base rent. So I think that Tad Piper- kind of return to historical normal is what I would otherwise expect in 2023 absent some legislative impact that extends moratoriums or you know challenges our ability to collect rent.
spk03: Tad Piper- One last one for me is just you've been acquiring land, and you know. and you've been looking at expansion sites, you know, would, you know, given the current backdrop, is this a good time to continue to push on that? And then, you know, how have expected yields on expansion sites changed? Is there any difference for 23 versus maybe in the past?
spk39: Yeah, you know, we purchased land, you know, a fair amount of land during the pandemic and, you know, last year. I think we'll continue to do that where it makes sense. Certainly, land that's adjacent to our properties is something that is highly accretive. There have been cost pressures placed just on construction in general, but we think that we're acquiring the land at a price that makes sense, and we'll continue to do that, and you'll see us do that this year and beyond.
spk02: Thank you very much. Good luck in 2023.
spk36: Thanks, Michael. You too. Thank you. Please stand by for our next question. We have a follow-up from the line of Joshua Dinaline with Bank of America. Your line is open.
spk05: Yeah, thanks for the follow-up. Paul, I just wanted to follow up on your comment that payroll should be in line with headline CPI for 2023 guidance. Is that in Is that kind of backwards-looking CPI, like the current CPI, or kind of how CPI trends over the next 12 months?
spk19: We took a look at current CPI.
spk05: Current, so the latest print. Okay. Awesome. Thank you, Paul.
spk35: Thanks, Josh.
spk36: Thank you. Ladies and gentlemen, this concludes the question and answer session at this time. I would now like to turn the call back over to Marguerite Nader for closing remarks.
spk39: Thank you very much for joining us on today's call. We look forward to seeing you at all the upcoming events. Take care.
spk36: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you. Thank you. Thank you. Thank you.
spk01: music music
spk36: Good day, everyone, and thank you all for joining us to discuss Equity Lifestyle Properties fourth quarter 2022 results. Our featured speakers today are Margaret 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 release 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 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 meetings of the federal security 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 SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable gap 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. You may begin.
spk39: Good morning, and thank you for joining us today. I am pleased to report the final results for 2022. The strength of ELS can be seen in all facets of our business. We continued our record of strong core operations and FFO growth, with full year growth in NOI of 5.7%, which translated into a 7.4% increase in normalized FFO per share. Our MH portfolio is 95% occupied. Importantly, 96% of our sites are occupied with homeowners. The pride of ownership is evident in the well-kept homes and landscaping throughout our communities. The stability of our resident base can also be seen in the high FICO scores for incoming residents. For the year, we experienced an all-time high for new home sales, with over 1,100 new home sales. Due to the strength of our operating markets, we were able to increase sales prices by 22% for the year. Our strongest performing properties for home sales were in Florida, with a 16% increase in sales volume and a 28% increase in home prices. It is important to note that while home prices have increased to an average of $106,000, they remain significantly lower than other housing options in the immediate vicinity of our community. Turning to our RV properties, in 2022, the demand was strong for RV sites across the country. It is estimated that 67 million Americans plan to take an RV trip in the next 12 months. These trips will strengthen the commitment to the RV lifestyle. Our quarterly surveys indicate that our viewers plan to camp more this year. The reasons cited for their desire to camp more include spending time outdoors and traveling with their pets. In the year, we continue to see new transient guests converting to a longer-term commitment, with nearly 4,000 guests increasing their commitment to us after their initial transient stay. Our transient revenue increased 26% from pre-pandemic levels, with an increase in the average rate being the largest driver of that increase. In 2022, our Thousand Trails membership properties performed well. We sold over 23,000 camping passes and initiated 28,000 RV dealer activations. These passes and activations are the seeds for future growth in the Thousand Trails portfolio. Turning to 2023, we have issued guidance of $2.84 at the midpoint for next year, which is a 4.1% growth in normalized FFO per share. The demand for our MH communities continues to increase. Over the last five years, we have sold over 4,000 new homes in our community. These new homes further enhance the look of the community as new and existing homeowners throughout our portfolio showcase their pride of ownership. We have noticed rent increases for approximately 67% of our residents and anticipate growth of 6.5% in core MH rent revenue. Our guidance is built based on the operating environment of each property, including a robust market survey process and continuous communication with our residents. In 2022, our acquisitions and development teams focused on strategic RV investments and added over 1,600 sites to the portfolio. In addition, we purchased six parcels of land with approximately 300 acres of development potential. Our vacant land is geographically diverse and will positively contribute to our future growth. Next, I'd like to update you on our 2023 dividend policy. The Board has approved setting the annual dividend rate of $1.79 per share, a 9.1% 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 dividends. Historically, we have been able to take advantage of opportunities due to the free cash flow generated by our operations. That will continue in 2023 as the dividend increase of $29 million is roughly equivalent to our anticipated increase in FFO for 2023. In 2023, we expect to have in excess of $100 million of discretionary capital after meeting our obligations for dividend payments, recurring capital expenditures, and principal payments. Over the past five years, we have increased our dividend by an average of 10.2%. We had a strong finish to the year due to the hard work of the ELS team members. The well-being of our residents and guests were prioritized. The dedication at the property, regional, and corporate level is impressive. I will now turn it over to Paul to walk through the numbers in detail.
spk19: Thanks, Marguerite, and good morning, everyone. I will review our fourth quarter and full year 2022 results. and provide an overview of our first quarter and full year 2023 guidance. Fourth quarter normalized FFO was 66 cents per share. Strong performance in our core portfolio generated 7.3% NOI growth for the fourth quarter. Core NOI growth of 5.7% for the full year contributed to our normalized FFO per share growth of 7.4%. Core community-based rental income increased 5.8% for the full year compared to 2021. Rate increases contributed 5.4% growth, while occupancy generated the additional 40 basis points. During 2022, we increased homeowner occupancy by 637 sites. Full-year core resort and marina-based rental income increased 9.1% compared to 2021. Growth from annuals was 8.8%, with 6.7% from rate increases and 2.1% from occupancy gains. In our seasonal RV income, the strong demand trend for stays of a month or more continued in the fourth quarter, generating 17.4% growth over 2021. The full year increase in seasonal RV income was almost 40%. Full year growth in seasonal RV rent offset the decrease in full year transient income These rental streams combined generated 9.5% growth. For the full year, net contribution from our membership business, which consists of annual subscription and upgrade sales revenues, offset by sales and marketing expenses, $74.4 million, an increase of 4.9% compared to the prior year. Subscription revenues increased 8.4%, reflecting a 3.2% increase in the member base, and a rate increase of approximately 5.2%. During 2022, we sold almost 4,700 upgrades with an average sale price of approximately $7,400. Full year growth in core utility and other income is mainly the result of increases in utility income. Our recovery percentage of 44% remained consistent in 2022 compared to 2021. Fourth quarter core operating expense increased 2.1% compared to the same period in 2021. We experienced some moderation in growth in utility and payroll expenses compared to earlier quarters in 2022. In addition, during the quarter, repairs and maintenance and insurance and other expenses decreased from prior year. Overall, full year 2022 core property operating expenses increased 6.7% compared to 2021. Utility expenses represent more than 27% of our core operating expenses, may increase 10.6% for the full year. Payroll and repairs and maintenance expenses generally increased in line with inflation for 2022. Our non-core properties, including the assets we reclassified to this group in the fourth quarter as a result of suspended operations following storm damage, contributed $5.8 million in the quarter and $41.2 million for the full year. Property management and corporate G&A were $119 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, $32.5 million for the year. Interest and amortization expenses were $116.6 million for the full year. Our full-year weighted average debt balance was $3.275 billion, and the weighted average rate was 3.4%. We've modified our income statement presentation to include a line item, casualty-related charges, recoveries, net, hurricane-related expenses incurred through year-end, along with offsetting revenue accruals for expected insurance recovery, are presented in this line item. The press release and supplemental package provide an overview of 2023 first quarter and full year earnings guidance. The following remarks are intended to provide context for our current estimate of future results. All growth rate ranges and revenue and expense projections are qualified by the risk factors included in our press release and supplemental package. Our guidance for 2023 full-year normalized FFO is $2.84 per share at the midpoint of our guidance range of $2.79 to $2.89. We project core property operating income growth of 5.5% at the midpoint of our range of 5% to 6%. We project the non-core properties will generate between $18 and $22 million of NOI during 2023. Our non-core portfolio includes properties acquired during 2022, as well as the six properties with interrupted operations. Our budget assumes stabilized NOI at these six properties from a combination of resumed operations and business interruption insurance proceeds. We intend to recognize business interruption proceeds upon receipts, and as a result, we may experience some variability in recognition of income during the year as compared to our budget assumptions. Our property management and G&A expense guidance range is lower than our 2022 actual expense, primarily as a result of legal activity in 2022 that we don't expect to recur. We've also provided guidance ranges for our weighted average debt balance and interest expense. Our guidance model includes the impact of all acquisitions we've announced. The full-year guidance model makes no assumptions regarding other capital events. for the use of free cash flow we expect to generate in 2023. In the core portfolio, we project the following full-year growth rate ranges, 5.7 to 6.7% for core revenues, 6.7 to 7.7% for core expenses, and 5 to 6% for core NOIs. Full-year guidance assumes core MH rent growth in the range of 6 to 7%, We assume occupancy and our stabilized MH portfolio will be flat during 2023. Full-year guidance for combined RV and marina rent growth is 5.7% to 6.7%. Annual RV and marina rent represents two-thirds of the full-year RV and marina rent. We expect 8% growth in rental income from annuals at the midpoint of our guidance range. Our full year core expense growth assumptions include our current projections for future utility rate increases and the potential impact of our April 1st insurance renewal. Our first quarter guidance assumes NFFO per share in the range of 70 cents to 76 cents, which represents approximately 26% of full year normalized FFO per share. Core property operating income growth is projected to be in the range of 4.4 to 5% for the first quarter, First quarter growth in MH and combined RV and marina rents are in line with our full year assumptions. We project first quarter annual RV and marina rent to be approximately $67.1 million at the midpoint of our guidance range. Our guidance assumes first quarter seasonal and transient RV revenues perform in line with our current reservation pacing. I'll now provide some comments on the financing market and our balance sheet. During 2022, we invested in cash of approximately $150 million in operating properties, development properties, and land for future development. The investments were funded with available cash and proceeds from our line of credit. At year end, our unsecured line of credit balance was $198 million. Current secured debt terms are 10 years at coupons between 4.75% and 5.5%. 60 to 75% loan-to-value, and 1.4 to 1.6 times debt service coverage. We continue to see strong interest from GSEs, life companies, and CMBS lenders to lend for 10-year terms. High-quality, age-qualified MH assets continue to command best financing terms. We have approximately $92.5 million of secured debt maturing in 2023. The in-place rate on this maturing debt is 4.9%. Our $500 million line of credit currently has approximately $265 million available. Our ATM program currently has $500 million of available liquidity. Our weighted average debt maturity is approximately 10 years. Our debt to adjusted EBITDA is 5.3 times, and our interest coverage is 5.6 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.
spk36: Thank you. Ladies and gentlemen, to ask the question, you may press star 11 on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Again, that's star 11 and wait for your name to be announced. As a reminder, we ask that you limit yourself to two questions. Please stand by while we compile the Q&A roster.
spk40: Our first question comes from the line of Nicholas Joseph, Luke City.
spk36: Your line is open.
spk31: Thank you. Just in terms of the properties that were still interrupted from Hurricane Ian, can you give us an update of what's actually happening on the ground there and when you would expect things to return to normal? And then related to that, what the business interruption and other insurance recoveries are assumed in 2023 guidance?
spk14: Yes, sure, Nick. That's Patrick. So just as a reminder, with six properties in the greater Fort Myers market, four of those are RV with 1,550 sites, and two of those are marinas with 550 slips. Four properties have resumed operations, and two will resume operations in the next few months when we're working through infrastructure repairs and improvements in order to bring those properties back online. By the time we get into mid-2023, all properties will be operational and we'll bring them up to full operations over the next few quarters.
spk19: And as far as the expected contribution, Nick, those properties, it's a little bit less than half of the non-core NOI that we'd expect in total from those properties.
spk31: Perfect. Thank you. And then just broadly on the transaction market, it looks like there are a handful of RV acquisitions. Some may be a bit more interesting with JVs or development in the quarter. But just broadly, what are you seeing on the transaction market today across RVs and MH? And has there been any movement in cap rate or pricing?
spk39: Sure. Thanks, Nick. So yeah, in the quarter, we closed three deals. One was near the shore in New Jersey. It's a property that had 80% annuals, I think, at And it was really a great access to a large RV customer base and population. And then we also continued our growing relationship with RVC and invested in a new development in Sandusky, Ohio. And then we entered into a 50-50 joint venture with KOA in the foothills of the Blue Ridge Mountains. So we were pleased about those acquisitions in the quarter. I'd say, in general, the acquisition volume was kind of down across our industry in 2022. I haven't really seen a real pickup in activity so far this year. There are certainly sellers in the market, but they're not really in a rush to sell when there's uncertainty with respect to cap rates and valuations.
spk42: Thank you very much.
spk36: Thanks, Nick. Thank you. Please stand by for our next question. Our next question comes from the line of Anthony Powell with Barclays. Your line is open.
spk06: Hi, good morning. I guess a question on the RV annual revenue growth, which is pretty strong. Could you remind us how you go about pricing those annual contracts and what kind of the outlook looks like for kind of future kind of ongoing growth for annual revenue growth in RVs going forward?
spk39: Yeah, Anthony, thanks. I think Patrick can talk you through kind of our market survey approach to how we get to the RV annual rate.
spk14: Yes, Anthony, it's similar to the process that we go through in our other business lines, particularly on the MH front. These are long-term customers, and they typically own a unit that's located on our property for years, if not more than a decade. So we review the... directly competing properties as well as other choices for hospitality and that type of weekend getaway in the local submarkets. We come to a determination of what we feel to be representative of the market, and then we send out the rate increases. Similar to the MH process, we may very well have more moderate rate increases for our in-place long-term customers. And as new customers come in, they'll be charged a full market rate.
spk06: Thanks. Maybe switching gears to the claims for expense guidance and the hurricane and the insurance impact, how much of the growth is driven by the resetting of the insurance rates? And do those insurance resets cover just the impact of properties for it as a whole, the entire portfolio? Maybe more detail there would be super helpful.
spk19: Yeah, I guess kind of as I think about our guidance assumptions for expenses, I'll cover insurance and utilities both, because I think those are the two key areas to focus on. Those line items on a combined basis represent about a third of our total core property operating expenses. Regarding the insurance, we're in the process of negotiating with our insurance carriers, so I'm not really inclined to disclose too much on this call. I will remind you, though, that we've talked about over the past five years or so we've seen premium increases around 20% each year. Our policy renewal is April 1st, and we plan to provide an update on the first quarter call as far as how we progress. With regard to utilities, our growth assumptions are based on various factors, including projections of rate increases that we've identified directly from the utilities to the extent we have noticed. We also have two third-party advisors that we rely on for this information, and the EIA.gov website for the Energy Information Administration. So take all of that information, triangulate that, and come up with our model for utility expense increases.
spk00: Okay. Thank you.
spk36: Thanks, Anthony. Thank you. Please stand by for our next question. Our next question comes from the line of Brad Heffron with RBC. Your line is open.
spk07: Hey, thanks for coming, everyone. You had a strong fourth quarter in operating expenses with the 2.1% growth, but the guidance obviously shows a reacceleration to a figure that's a little bit above what you reported in 2022. Can you walk through first what led to the low figure in the fourth quarter and why you would expect that to pick back up meaningfully?
spk19: I think our experience in the fourth quarter, we had some moderation in expenses, primarily moderation in our payroll and our utility expense. And then I did mention that R&M and our insurance lines were down in the fourth quarter. I'll cover the year-over-year reductions first. We have an annual process related to our casualty insurance lines. And we take a look at the reserves that we have established. As we reviewed the activity at the end of the year, we identified favorable development and that supported a reduction in the reserves on the balance sheet and thereby reduced the insurance expense. The R&M expense savings resulted really from a favorable comp that we had because there were some elevated expenses in R&M in 2021. The moderation in utility expense attributes that primarily to a change in the mix of operations from the third quarter to fourth quarter as we exited the summer season. And payroll expense growth moderated mainly as a result of reduced reliance on overtime. As we stabilized staffing to pre-pandemic levels in 2022, we reduced our reliance on overtime, which generated savings year over year in the fourth quarter.
spk07: Okay, got it. So I guess why, like, for instance, the payroll, presumably you'd have easier comps in 2023 as well. So is that just being overwhelmed by, you know, the insurance and the utility expense? Is there something else going on there?
spk19: No. Well, I think it's less about the fourth quarter being an indicative run rate and more about kind of the fourth quarter activity. I think looking to the full year of 2022, considering where we are with CPI headed into 2023. Those are the key drivers. And then, as I said a moment ago, keep in mind that a third of our expenses are utilities and insurance, and we're talking about increases that are meaningfully higher than CPI expected from a third of our expense base.
spk07: Okay, got it. And then moving to the transient business, I guess can you talk about what the underlying assumption is that's in the guide, and then, you know, in the core numbers, I think transient was down 16% or so in the fourth quarter. I know there can be some moving pieces there with the side count, so I'm curious if that's a comparable number and then what your expectations are for 23.
spk19: Yeah. I think if you take a look at the guidance page in the supplemental, you'll see our footnote disclosure. that provides the expected percentage contribution from annual rents. And from that, you can derive our expectations for combined seasonal and transient in the first quarter as well as the full year. I'll say that we anticipate the strong demand for longer-term stays, that kind of monthly stay that drives the seasonal business. Anticipate that strong demand will continue and will offset unfavorable impact, if any, on transient rents resulting from Availability of fewer sites, market-specific demand trends, and perhaps weather. We expect these combined rental income streams to deliver modest growth in 2020.
spk39: And I think, Brad, you know, we've experienced, you know, operating with RV parks over the last 15 years. We're very experienced. And when you look at annual, seasonal, and transient results over that time, transient revenue has had the most volatility by far. We've seen, you know, periods of negative growth, flat growth, outsized growth, and that's why we're really focused on the business of the annual rental stream to reduce that volatility.
spk29: Okay. Thank you.
spk36: Thanks, Brett. Thank you. Please stand by for our next question. Our next question comes from the line of Samil Canal with Evercore. Your line is open.
spk28: Thank you. Marguerite or Paul, I'm just curious, are you doing anything differently this year from a projection standpoint for expenses, sort of get a better read on utilities? I know last year, you know, there was sort of two guidance increases on expenses. So just wondering how you're thinking about that line, utilities from a projection standpoint, and how much sort of conservatism you've baked in this time around.
spk19: I think... Certainly the approach, I mentioned the sources that we use to build our model. I'll say that we've refined our approach historically because of the consistency that we saw in utilities over our long history. We did place a greater reliance on our past experience when developing our annual model. This year we stepped away from that a bit and, you know, looked to these other sources to provide insight and develop the model.
spk28: Okay, got it. And then just on new home sales, you know, gross revenues, saw a meaningful decline sort of year over year in that number. Is that just a function of sort of the macro environment? Just maybe a little bit more color you can provide on that.
spk14: Yes, Samir, it's Patrick. For the quarter, we were down 35% new home sales. There's a few drivers there really largely impacted by the hurricanes that came through Florida in late September and then, Nicole, mid-November. We have seen some pressures just with respect to construction activity and the number of new homes that we have ready for the full quarter. That was exacerbated in Florida as a result of the hurricanes. Likewise in Florida, the disruption in just kind of the cadence of home sales, the marketing, the showing, and then eventual closing of those transactions to new home buyers experienced some disruptions that led to a push of about 50 new home sales. Some of that is a mix of potential buyers just reassessing. and potentially pulling back from purchasing home at this time. And the balance was for just delayed closings as we work through the timing disruptions of the hurricanes.
spk27: That's it for me. Thank you.
spk36: Thanks, Damir. Thank you. Please stand by for our next question. Our next question comes from the line of Keegan Call with Wolf Research. Your line is open.
spk22: Yeah, it's interesting, the questions. Maybe just on the communities that were moved from the same store pool but are now up and running, could you provide some color on occupancy and your expectation for leasing those communities back and were there material move-outs that took place?
spk14: Yeah, so just as a reminder, for those properties, it was four RVs and two marinas. So, we don't have any of the direct impacts with respect to NH occupancy trends. And as we're bringing those properties back online, I would expect them to largely reach full operations in late 2023, but we have resumed operations at all but two of those properties to this point. Those are modified operations on a few key categories. but our core customers are engaged and have access to the properties with amenities coming online over time.
spk39: And what we've seen is a real desire for our customers to come down and come back to their place in Florida and get out of the winter and come down and start to fix their home if it was impacted or fix their RV if it was impacted.
spk22: Got it. Just shifting gears into transient revenue. Obviously, it was down in the quarter, but it was relatively offset by the seasonal growth. Just kind of curious on transient, are you guys seeing any relative softness and demand, or is it primarily just a function of having less sites available?
spk39: I think it's really a function of that, having less sites available. We're seeing people choose to stay with us longer, so they're staying with us on a seasonal basis and staying with us on an annual basis. So that's just having, we have less available sites.
spk21: Got it. Thanks for your time, guys.
spk36: Thank you.
spk21: Thank you.
spk36: Thank you. Please stand back for our next question. Our next question comes from the line of West Gola Day with Baird. Your line is open.
spk25: Thank you. Hey, good morning, everyone. I just noticed that the Thousand Trails membership dipped in the fourth quarter sequentially. Is this just seasonality having a play here? And then what is your expectations for subscription income growth this year? I think it was around 5% in 2022.
spk39: I think, you know, year to date, I'd say our Camp Pass sales are down, I think they're about down 3%. Upgrades are down a little bit, down about 18%. The Camp Pass sales are really a decline from a heightened interest in 2021. And the upgrade decline is really a result of a new product that we launched in 2021. where we typically see outsized demand in that time when we launch the product.
spk19: And our expectation for subscription revenue in 23 is right in line with our experience in 22. Okay.
spk25: That's all from me, everyone. Thank you.
spk36: Thanks, Wes. Thank you. Please stand by for our next question. Our next question comes from the line of Anthony Hall with Truist. Your line is open.
spk26: Hey, guys. Thanks for taking my question. What is the market market on the Amish portfolio when a new tenant replaces an existing tenant? Is this still 10% to 11% after the recent rent increase?
spk14: Yes, that trend is holding.
spk39: And, Anthony, we look at that trend on a monthly basis and, you know, As you look at it, roll it up for the quarter. Every quarter, I think in 2022, it was somewhere between 10.5% and 11.5%. Okay.
spk26: And so shipping gears to RV. There's a lot of articles about the Airbnb bus. I know this might not be true in your markets, but in some markets, occupancy for Airbnb is down like 8% to 9%. Just curious, what do you think the implication could be for RVs?
spk39: Yeah, I think the demand is very strong for our RVs. Our locations are where people want to be either in the winter or in the summer. So I think that I don't see a change to that. I do see that we have less available sites, like I just mentioned, so that's going to have an impact. But we've been able to push rate on the transient side, and we continue to be able to do that. So I think that shows the strength of the market. Okay.
spk26: And just one last question for me. So I see that the quarter-over-quarter occupied sites for the core portfolio was down 130. I know that's not a material number, but I don't think I've seen this since ELS started reporting this metric. Can you provide some color on what you see on the ground today?
spk19: Well, I think you're talking the sequential quarter or full-year occupancy was essentially flat. I think we were down 15 sites for the year. Yeah. And in the quarter, you know, there was some impact associated with the storm on our occupancy.
spk39: And that impact was a result of, you know, homes coming back to us, but also our inability to sell homes through the hurricane, you know, and during the hurricane.
spk24: Okay. Thanks for the question, guys.
spk36: Thank you. Thank you. Please stand by for our next question. Our next question comes from the line of Joshua Dinnerline with the Bank of America Securities. Your line is open.
spk05: Yeah. Good morning, everyone. I guess there were two same-store expense line items we didn't touch on, payrolls and real estate taxes. I guess just curious what kind of trend you assumed in both of those for your guide. And then if you could remind us on the real estate taxes, like is that – a projection at this point, like a best assumption, or is that kind of already known?
spk19: For the most part, to your latter question, for the most part, real estate taxes are a projection. Obviously, our greatest exposure is in the state of Florida. Florida taxes are billed in the current year, same calendar year bill as payment, but we don't have visibility into the expected increases until August or September. The assumption is, call it a mid single digit type increase for real estate taxes, which is right in line with our historical experience. And then with respect to payroll, I would characterize that assumption as being closer to CPI for 2023.
spk05: Closer to headline CPI or core CPI? Yeah, headline CPI. Okay, great. And then just for your guide, the same-store revenue, it's lower than your same-store expense growth guidance. Just kind of curious how we should be thinking about that on kind of a more go-forward basis. Is this kind of a one-off, or should we kind of assume that same store revenues can exceed expenses on a more normalized go-forward basis?
spk19: I mean, I think if you look at our long history, certainly we've not found ourselves in an environment with CPIs. showing as much volatility as it has in the last 12, 15 months. So our long history, certainly our increase in revenues was, we'll call it 100 basis points higher than CPI, and CPI kind of trending close to that. And, sorry, expenses trending close to that. I think going forward, kind of as we settle out, The opportunity for us is to identify where we would be able to maintain and or improve margins in that type of environment. I think there are opportunities in the form of automation and technology implementation and so forth that we would look to, but I don't necessarily look at 223 as the model for the the forever future.
spk39: And, you know, Josh, I just also remember that we're here in January. We have really good visibility into the revenue side, and we've talked about that in October, on our call in October. But expenses, you know, we have less visibility into. So that's how we create our model for the year.
spk04: Okay. Great. Thanks, guys.
spk36: Thanks, Josh. Thank you. Please stand by for our next question. Our next question comes from the line of John Polosky with Green Street. Your line is open.
spk32: Hey, thanks for the time. My first question is on the trajectory of manufactured housing rent increases. So I think last quarter you anticipated the first batch, the first 50% of MH rent increases to go out. in the low to mid 6% range. Just curious, as the year unfolds, do you expect that growth to accelerate, be stable, or come back down?
spk19: John, we have an assumption that is kind of tied to a projection of CPI that anticipates that CPI moderates throughout the year. But one thing to keep in mind is that the notices that we send. The last notices that we send that will have impact in 2023 would be in the month of August. So it's really looking at CPI from now through, call it July. And so our model steps it down a bit to 5% from a starting assumption of 7%. Okay.
spk32: That's helpful. I apologize if I missed this. Can you let us know how seasonal bookings and actually the 1Q reservations are trending versus last year?
spk19: Yeah, I think that I guess the way I would talk about it is the guidance model that we built is based on our current reservation pacing for seasonal and transient. I think I mentioned earlier, but consistent with the trend we saw during 2022, we're seeing strong demand for the longer term stays. People just want to be with us a month or more. So if you walk through the math that we provided on the guidance page, our first quarter and full year combined rent growth for seasonal and transient is between 2% and 3%. That's based on where we are with pacing. Advanced visibility in the transient business, as you know, John, it's challenging. About 60% of those rents are booked within five to seven days of arrival. So it's just tricky on a forward basis beyond the first quarter.
spk32: Okay. Last one for me on the financing markets. Paul, I'm just curious if you've seen secured financing terms or just the availability of debt change at all for really hurricane-prone properties along waterfront?
spk19: I'll say it's a little early to say there's been a change. I think that, I think there's, we are not in the market right now. So, but what I'm hearing is, you know, more questions around it, a bit more time spent on underwriting, but I haven't seen an indication of reduced capacity or appetite from Lynn.
spk30: Okay, thank you. Thanks, Jen.
spk36: Thank you. Will you stand by for our next question? Our next question comes from the line of Michael Goldsmith with UBS. Your line is open.
spk03: Good morning. Thanks a lot for taking my question. Your 2023 FFO guidance calls for a $0.10 range, which is consistent with the range you provided last year. So, presumably, you have a similar level of insight into the year. What are the factors or line items that you have maybe less or limited visibility in 2023 to accommodate this range?
spk19: Well, certainly the transient RV business is the line item that provides the greatest exposure to us. After that, I would point to our membership upgrades. and just our home sale activity at the level of the properties. As we look at the economic landscape and we kind of think about projections for 2023 and talk of potential recession, it harkens back a bit to 2008, and we certainly saw impact from the slowdown in the single-family home sale market on our business. despite the fact that we continue to see very strong demand for our home sales in our properties today, I'd adjust that as an area.
spk03: So would you say you have less visibility into kind of like the top line than you do to the expense growth for the year?
spk19: Well, I think that, as I mentioned earlier, you know, there's we have refined the way that we review our utility expense, which created a significant amount of exposure in the expense line item in 2022. So I think that, you know, to ask whether we have greater visibility, I think that we have a model that, you know, looks to different sources of information and based on the recent experience that we have had, and our testing of that model, we think would be more reliable than our method.
spk03: Got it. That's helpful. And then are you seeing any change in bad debt? Was there a change in trajectory in the fourth quarter? Or are you expecting any change in 2023? Is that built into the guidance in any way?
spk19: So, you know, our rent collection rates, they remain strong in the MH and the RV properties. There were eviction moratoriums following the onset of the pandemic, and that did cause a slight increase in our delinquent MH rents. As those restrictions have begun to ease, we've been collecting past due rents from residents interested in resolving their delinquencies. Our reserve policy takes a look at that collectability, and we've seen an increase in the gross receivable resulting from the delay in processing evictions across the MH4 portfolio since the beginning of the pandemic, that pressure started to ease in 2022. So our bad debt expense moderated to be in line with historical levels. And our historical levels are about 40 to 50 basis points of base rent. So I think that of return to historical normal is what i would otherwise expect in 2023 absent some legislative impact that extends moratoriums or you know challenges our ability to collect rent one last one for me is just i you've been acquiring land and you know
spk03: and you've been looking at expansion sites, you know, would, you know, given the current backdrop, is this a good time to continue to push on that? And then, you know, how have expected yields on expansion sites changed? Is there any difference for 23 versus maybe in the past?
spk39: Yeah, you know, we purchased land, you know, a fair amount of land during the pandemic and, you know, last year. I think we'll continue to do that where it makes sense. Certainly, land that's adjacent to our properties is something that is highly accretive. There have been cost pressures placed just on construction in general, but we think that we're acquiring the land at a price that makes sense, and we'll continue to do that, and you'll see us do that this year and beyond.
spk02: Thank you very much. Good luck in 2023.
spk36: Thanks, Michael. You too. Thank you. Please stand by for our next question. We have a follow-up from the line of Joshua Dinaline with Bank of America. Your line is open.
spk05: Yeah, thanks for the follow-up. Paul, I just wanted to follow up on your comment that payroll should be in line with headline CPI for 2023 guidance. Is that in Is that kind of backwards-looking CPI, like the current CPI, or kind of how CPI trends over the next 12 months?
spk19: We took a look at current CPI.
spk05: Current, so the latest print. Okay. Awesome. Thank you, Paul.
spk35: Thanks, Josh. Thank you.
spk36: Ladies and gentlemen, this concludes the question and answer session at this time. I would now like to turn the call back over to Marguerite Nader for closing remarks.
spk39: Thank you very much for joining us on today's call. We look forward to seeing you at all the upcoming events. Take care.
spk36: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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