Equity Lifestyle Properties, Inc.

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.

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.

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.