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spk11: Good day, everyone, and thank you all for joining us to discuss Equity Lifestyles Properties second quarter 2023 results. Our featured speakers today are Marguerite 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 a question and answer session, management asks that you limit yourself to two questions, so everyone who would like to participate has ample opportunity. As a reminder, this call is being recorded. Certain matters discussed during this conference call may contain forward-looking statements in the meaning of the federal securities laws. Our forward-looking statements are subject to certain economic risks and uncertainty. The company assumes no obligation to update or supplement any statements that become untrue and because of subsequent events. In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release, our supplemental information, and our historical SEC filings. At this time, I would like to turn the call over to Marguerite Nader, our President and CEO.
spk08: Good morning, and thank you for joining us today. I am pleased to report the results for the second quarter of 2023. Our performance exceeded our expectations in the quarter, driven by continued strength in our annual revenue and reduced expenses throughout our portfolio. The quality of our revenue streams and the strength of our balance sheet continues to allow us to report impressive results. Our core NOI exceeded our guidance in the quarter with 3.5% growth year over year. Our MH portfolio is approximately 95% occupied. Over the last 10 years, we have sold over 6,000 new homes in our community. These new homes contribute to the quality of housing stocks in the community. Our residents have enjoyed the ability to resell their homes in a timely manner, and ELS benefits from bringing a new resident into the community at a market rate increase. Year-to-date, the mark-to-market for new homeowners has been over 13%. Currently, less than 4% of our occupancy is comprised of rental homes. The high level of occupancy in our portfolio is sustainable, and based on demand, we believe we can continue to increase occupancy throughout our portfolio. Our communities offer an incredible value proposition. The cost to purchase a manufactured home is significantly less than a single-family home. The average cost of a site-built home in the U.S. is approximately $500,000, while our homes sell for an average of $102,000. Manufactured housing is an efficient way to address the housing shortage in the U.S. The affordability of manufactured homes coupled with the high-quality amenities in our communities create the continued demand for our properties. Prospective residents' interest in our community remains solid. We sold 226 new homes during the second quarter, contributing to stable portfolio occupancy. While home sales are down compared to the historical highs of last year, our home sale business is strong by comparison to typical years. With respect to our RV business, our annual segment, which represents the largest portion of our RV revenue stream, performed well in the quarter, and we anticipate growth rates of 8.3% for the full year 2023. The full year guidance and results for the quarter for our transient business are impacted by California storms and a reduced number of transient sites. Our team's focus on providing best-in-class customer experience helps drive guest retention and attract new prospects to our RV properties. TripAdvisor collects customer reviews and uses the information to spotlight the very best destinations with the Traveler's Choice Award. In June, TripAdvisor announced that 49 ELS RV properties were named winners of the Traveler's Choice Award. These awards acknowledge the efforts of our property teams to create lasting memories with friends and families across our portfolio. We continue to engage our guests, members, and prospects through our social media strategy. We have grown our fan and follower base to 1.8 million. Across Instagram, YouTube, TikTok, Facebook, and other social platforms, we are currently in the middle of our 100 Days of Camping campaign that focuses on the days of summer camping between Memorial Day and Labor Day. In May, we announced the passing of our chairman, Sam Zell. A debt of gratitude is owed to Sam for ELS's long and successful track record. In the 1980s, he saw what others didn't and invested in this asset class. Before others accepted the asset class as institutional grade, Sam knew it and acted on that belief. Sam grew the company from 41 properties at our IPO with a market cap of $300 million in 1993 to 450 properties with a market cap of $16.5 billion today. Sam was instrumental in laying the foundation for the modern REIT era. While most people listening know Sam for his extensive real estate successes, he is equally well-known and appreciated for his philanthropic contributions dedicated to helping others. Sam was a willing mentor to many both inside the equity world and beyond. In line with our succession plan, Tom Henehan was appointed as chairman of our board. Tom was most recently the vice chairman of ELS and has been an integral part of the organization for the past 28 years. Tom is a proven leader and his extensive knowledge of the MH&RB industry will serve us well. I would like to thank our employees for their continued contributions this quarter. Their diligent efforts to service our customers are the primary reasons for our continued success. I will now turn the call over to Paul to provide further details on our financial performance.
spk15: Thank you, Marguerite, and good morning, everyone. I will review our results for the second quarter and June year to date, highlight our guidance assumptions for the third quarter and full year 2023, and close with a discussion of our balance sheet. For the second quarter, we reported 66 cents normalized FFO per share. Core and non-core property operating income outperformed our expectations. Core MH rent increased 6.7% in the second quarter and 6.6% year to date compared to the same periods last year. Rent growth in the second quarter includes approximately 7% rate growth as a result of our rent increases to in-place residents and our 13% mark to market on turnover when a new resident moves in. Core RV and marina annual base rental income which represents approximately two-thirds of total RV and marina-based rental income, increased 7.8% in the second quarter and 8.1% year-to-date compared to prior year. Annual RV and marina rate increases generated approximately 7.1% growth in the year-to-date period, with occupancy contributing close to 90 basis points of growth. Since June 2022, we've increased our core annual occupied sites by 240. Year-to-date in the core portfolio, seasonal rent increased 9.2%, offsetting some of the transient decline we've experienced as a result of challenging weather patterns and site usage increasing for longer-term stays. We also experienced offsetting reductions in variable expenses that I'll discuss shortly. On a combined basis, core seasonal and transient rent decreased approximately 3.2% in the year-to-date period compared to prior year. Membership dues revenue increased 3.8% and 4.6% for the quarter and year-to-date, respectively, compared to the prior year. Year-to-date, we've sold approximately 11,300,000 trails camping pass memberships. This represents a 10% increase over pre-pandemic membership sales in the first half of 2019. Also during the year-to-date period, members purchased approximately 1,900 upgrades at an average price of approximately $9,000. Core utility and other income was in line with our expectations for the quarter. The increase in the quarter compared to the same period last year was mainly the result of higher utility income. Our utility recovery rate for the year-to-date period was 45.6%, compared to 44.7% in the same period last year. Also, during the quarter, We recorded approximately $1.3 million of revenue associated with sites leased to provide housing for displaced residents in the Fort Myers, Florida market. Core property operating expense growth was 7% in the second quarter and 7.2% year to date. The second quarter growth rate was 340 basis points lower than the midpoint of our guidance range. Our three main operating expense line items, utility, payroll, and repairs and maintenance expenses all showed moderation in second quarter year-over-year growth rates when compared to the first quarter growth rates. In the second quarter, property operating and maintenance expenses were approximately $3.7 million favorable to our guidance. Utility expense and property payroll on a combined basis represented more than 85% of this favorable variance. As we reviewed the expense savings at properties with lower than forecast transient revenues, we saw a strong correlation. Essentially, the transient RV revenue variance to our forecast was offset by expense savings and utility and payroll expense. In summary, second quarter core property operating revenues increased 5%, and core NOI before property management increased 3.5%. For the year-to-date period, core property operating revenues increased 5.7%, and core NOI before property management increased 4.6%. As mentioned in our earnings release, in the second quarter, two properties were moved to the non-core portfolio from the core portfolio. These California Thousand Trails properties, which combined generated modest NOI in 2022 of a few hundred thousand dollars, were impacted by storms and flooding events earlier this year. Following the storms, we suspended operations, resulting in the determination to present them with our non-core portfolio. Income from property operations generated by our non-core portfolio was $9 million in the quarter and $14.9 million year to date. These results outperformed our expectations as a result of lower than expected utility and payroll expenses. Property management and corporate G&A expenses were $36 million for the second quarter of 2023. and $67.1 million for the year-to-date period. The second quarter and year-to-date amounts include the expense associated with accelerated stock compensation vesting. Other income and expenses, which includes home sale profits, brokered resales, ancillary retail and restaurant operations, interest income, as well as JV and other corporate income, generated a net contribution of $7.9 million for the quarter. and $14.5 million year-to-date. Interest in related loan cost amortization expense was $33.1 million for the quarter and $65.7 million for the year-to-date period. The press release provides an overview of third quarter and full year 2023 earnings guidance. As I provide some context for the information we've provided, keep in mind my remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints in our guidance range and are qualified by the risk factors included in our press release and supplemental financial information. A significant factor in our guidance assumptions for the remainder of 2023 is the level of demand for shorter-term stays in our RV communities. We have developed guidance based on current customer reservation trends. We provide no assurance that our actual results will be consistent with our guidance and we assume no obligation to update guidance as conditions change. We have increased our full year 2023 normalized FFO guidance to $2.85 per share at the midpoint of our range of $2.80 to $2.90 per share. Full year normalized FFO per share at the midpoint represents an estimated 4.5% growth rate compared to 2022. We expect third quarter normalized FFO per share in the range of 68 to 74 cents. Full year core NOI is projected to increase 5.4% at the midpoint of our guidance range of 4.9% to 5.9%. We project a core NOI growth rate range of 5.2% to 5.8% for the third quarter and expect NOI for the quarter to represent 25% of full year core NOI. Full year guidance assumes core rent growth in the ranges of 6.3% to 7.3% for MH, and 7.8% to 8.8% for our annual RV rents. Our guidance assumptions for the third and fourth quarters include MH occupancy gained in the second quarter with no assumed occupancy increase in the second half of the year. Our assumptions for expense growth reflect current expectations based on year-to-date activity and our review of property level and consolidated expense projections for the remainder of the year. As a reminder, we make no assumptions for storm events that may occur. The midpoints of our guidance assumptions for combined, seasonal, and transient show a decline of 6.2% in the third quarter and decline of 2.5% for the full year compared to the respective periods last year. Our guidance for the full year during the year. We also assume the debt capital transactions announced in our earnings release will close during the third quarter and use of proceeds will be consistent with the comments I'll make in a moment. The full-year guidance model makes no assumptions regarding other capital events or the use of free cash flow we expect to generate in the remainder of 2023. Now some comments on our balance sheet. In our earnings release, we announced secured debt transactions that are expected to generate proceeds of approximately $464 million at a weighted average interest rate of 5.05%. The primary use of proceeds from these transactions include repayment of our 2023 and 2024 secured debt maturities and the balance on our unsecured line of credit. The weighted average maturity of these loans is eight years. We are extremely pleased with the execution of these loans, which leveraged a long-standing life company relationship and demonstrated the value of a structured facility with one of the GSEs. that included terms allowing incremental borrowings as property values increase over time. After closing these loans and repaying secure debt maturities, we will have addressed all debt scheduled to mature between now and April 2025. Our debt maturity schedule will show 22% of our outstanding debt matures over the next five years. This compares to an average of approximately 50% for REITs. In addition, 21% of our outstanding secured debt is fully amortizing and carries no refinancing risk. Current secured debt terms available for MH and RV assets range from 50% to 75% LTV, with rates from 5% to 6% for 10-year maturities. High-quality, age-qualified MH will command best financing terms. RV assets with a high percentage of annual occupancy have access to financing from certain life companies as well as CMBS lenders. Life companies continue to express interest in high-quality communities, though some have set limits on capacity and pricing. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Our debt to EBITDA RE is 5.2 times, and our interest coverage is 5.4 times. The weighted average maturity of our outstanding secured debt is approximately 10.6 years. Now we would like to open it up for questions.
spk11: Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
spk10: One moment for our first question.
spk11: Our first question will come from Josh Dennerlein from Bank of America. Your line is open.
spk13: Yeah. Hey, everyone. Morning, Josh. Yeah. Hey, Margaret. So curious on the ability to flex expenses on the transient side. I kind of don't really recall that happening in the past. Has something changed? And can you kind of walk us through, like, you know, is that just a summer event or something you can do throughout the year?
spk15: Yeah, Josh, I think there are a few things to highlight as we talk about expense growth experience in the second quarter. and our expectations for the full year. So first, I'll talk about utility expenses. Excuse me. As I mentioned, we experienced continued moderation and growth in electric rates during the quarter. So the average increase in rate was approximately 8% for the quarter. In the most recent billing period, it was closer to 6% year over year. This compares to the rate increases in the mid-teens that we experienced in the second half of last year. that had moderated to around 9% in the first quarter. In addition, the reduced site usage and the transient footprint during the second quarter resulted in lower utility usage overall. Then with regard to payroll expense, we have a large population of hourly workers that support our guest experience in the RV communities. And I'll remind everyone that we discussed on the April call that we were experiencing some unfavorable weather patterns, including delayed openings at certain of our northern resorts. These delays resulted in expense savings relative to our forecast. In addition, in the ordinary course of business, as we monitor upcoming reservations, we continually review property staffing levels. And if the transient reservation pace is not matching our plan, we do have the ability to adjust schedules for those hourly employees on property. So as I mentioned in my remarks, payroll and utility expenses generated savings compared to our forecast. Essentially, they offset the unfavorable variance in the transient rent, and those savings were generated from the combination of variables that I just highlighted.
spk13: Okay. No, that's good additional color. Maybe on the two assets that were moved into the non-same store pool, can you just provide a little bit more detail on how long you expect those to be? Are they down, or they just moved out of the pool, and what happened there, and any impact on the same store? growth rates as a result?
spk15: Yeah, I think on the last call Patrick talked a little bit about the fact we had 3000 trails properties that were impacted by storms in California. At the time, one of them had partial disruption to operations and the other two had suspended operations. During the second quarter, as we assessed the condition of those properties, we determined that the time to return those two properties that had suspended operations to normal operations was going to be longer than expected and so that it'll extend into 2024. So we moved them to our non-core portfolio in the second quarter. As I mentioned in my remarks, the NOI contribution in 2022 from those two properties was modest. It was a few hundred thousand dollars. So they are Thousand Trails properties, so the dues revenue overall isn't impacted by the fact that the properties are offline. It's any of ancillary or incremental revenue that is generated at those locations.
spk04: Okay. Thank you. Appreciate that. Sure. Yep.
spk10: One moment for our next question. Our next question comes from the line of Brad Heffern from RBC. Your line is open.
spk09: Hey, everyone. On the expense guide, obviously it moved lower, and you talked about that being due to lower transient activity. I'm curious, is all of the reduction due to the lower transient volumes, or have some things on the expense front also come in better than expected, excluding the transient piece of it?
spk15: Yeah, Brad, as I was just walking through, I mean, we definitely have seen moderation in electric expense on the utility side. So that moderation, you know, in the quarter, the average rate increase quarter over quarter compared to last year dropped to 8%. It was down to 6% by June. That compared to 9% in the first quarter, and it compared to, you know, the mid-teens last year. So they're definitely across the portfolio is a favorable impact associated with the utilities.
spk08: And that's bread that's rate. And then there's also a reduction in usage because there's, you know, less transient guests. Right.
spk09: Yeah. Okay. Perfect. Got it. And then on the hurricane impact from last year, I saw you got another 4 million of business interruption this quarter. Can you give an update on where those hurricane affected properties stand right now? And are we currently in a situation or will we be in a situation at some point where you're sort of over-earning because you're getting business interruption proceeds on a lag and the parks are back up?
spk15: I can take the latter part of the question, and then maybe Patrick will talk about the condition of the properties. There's definitely a timing issue with respect to the recovery. So as we've talked before, business interruption proceeds are recognized upon receipt. And so we, excuse me, as of the end of 2022, we had not recorded the or not received business interruption proceeds. The event did occur in the end of the third quarter last year. So there was definitely impact in 2022 and proceeds started to be received in 23. So we do have a timing lag. Those properties are now out of season because they're Florida properties. And so as we're working on our submission, we're definitely collecting proceeds and arrears.
spk14: And just with respect to the timing of those properties returning to operations, all but one are operating at some level of operations at the property currently as we go through repairs and improvements to bring the properties fully back online. The one remaining property will come online in the third quarter. at partial operations and will continue to, you know, to build capacity over the next few quarters. I would expect, you know, roughly half of those properties to be online by the end of the year and the other half to come on in subsequent quarters, depending on the scale of the build back that's required.
spk03: Okay, thank you.
spk08: Thanks, Brad.
spk10: Victor, do we have another question?
spk11: One moment. Our next question comes from the line of John Kim from BMO. Your line is open.
spk06: Thank you. Hey, Marguerite. On your transient RV decline in revenue of 13.9%, how much would you attribute this to lower demand from the storms, which you cited, versus fewer transient sites? And I ask this because when you look at the number of transit sites you have on page 12 of your supplement, it's kind of bounced around the last three quarters, but it has averaged 14,900, which is what you had in the second quarter. So it seems like it's more of a demand issue than a site issue, but just wanted to get your comments on that.
spk08: Yeah, John, maybe Patrick can walk through the demand and just the difference on the transient, and maybe Paul will touch a little bit on the site count.
spk14: So, John, I think a way to think about it is longer-term stays, weather disruptions, and that normalizing of demand that you just referenced. Think of it relatively evenly split across each one of those categories. The longer-term stays, as we've talked about, our view of the predictable, stable revenue on the annual front is a consistent theme for us, and we continue to grow that business. Uh, Paul really touched on the, the weather disruptions. Um, one thing that I'd highlight there is, uh, we have a property, uh, at Yosemite, uh, adjacent to the national park. That property was pretty significantly impacted by, uh, heavy snow, snowfall, uh, then snow melts, uh, coupled with rainfall, uh, that led to a road closures, uh, around the park, uh, and around our property. in April and June, so that had kind of an outsized impact. I think Paul also mentioned Pennsylvania. We had a very cool start to the summer camping season, and that was a headwind. And lastly, that point that you're talking about is just a normalization of demand. We see that coming through broadly, but also you think about kind of our key destination resorts, the Keys in Florida, A significant property flagship property that we have in the Orlando area, a couple of our flagship properties on the East Coast, as well as the Pacific Northwest. And that's where we've seen because of the destination nature and the significant pickup in demand, you know, immediately following COVID is that's normalizing. That's where that's where that type of impact has been more concentrated.
spk08: And I think, John, as you see in our press release, we kind of compare just on a total nights basis compared to 2019, and we're up about 8% on a total nights basis.
spk15: And, John, just in terms of sites, when you think about the transient, the presentation in the supplemental is total, and the growth rate that we're talking about is core. So there's a difference there. And we do have the – There's kind of a change that occurs on a quarterly basis that is the result of the expansion sites that we add to the portfolio, which I'll just give you the example of the past quarter. I think we were down about 100 sites if you look at first quarter compared to second quarter. We actually had about 400 sites that moved to annual, and we added 200-plus expansion sites to the portfolio. So that kind of nets to the 100 difference.
spk06: And can you remind us of how you define transient versus seasonal? Like what's the number of days they need to stay for it to be considered a seasonal site?
spk15: Longer than 30.
spk06: Okay. So on Patrick's commentary that the length of stay isn't as long, that's purely on the transient side. Like people are coming but not staying as long as they had pre-COVID. Okay.
spk08: That's correct, yeah.
spk06: Cool. Thank you so much.
spk08: Thanks.
spk10: One moment for our next question. And our next question will come from the line of Eric Wolf from Citi.
spk11: Your line is open.
spk07: Hey, thanks. It seems like most are predicting that the cost of living adjustment for Social Security will be around 3% this year. Can you just give a sense for what that will mean for your rate growth negotiations on the MH side? And would it be possible, for instance, to get over 5% rate growth if the cost of living adjustment is closer to 3%?
spk08: Yeah, I think that, Eric, it depends. It's obviously on a property-by-property basis. But within our MH portfolio, about 70% of our portfolio is age-qualified. And so our residents really are focused on that Social Security increase. The average Social Security right now check for an individual is around, I think, $1,700 and about $2,700 for a couple kind of living in our community. Over the last couple of years, they've seen some large increases in Social Security in line with the CPI. And current estimates are for COLA to increase about 3%, which would be about a $51 to $80, I think, increase in monthly benefits for our customer base. And kind of just for reference, our average rent in our portfolio is $800. And the average rent increase over the last 10 years has been about $26. So I think those are important components that we talk to our residents about. I think it's You'll note that our adjustments, we've historically outpaced the COLA adjustments, and I would imagine that we would continue to do that. But it really is a buildup on a property-by-property basis that starts now, frankly, and kind of continues into the fall.
spk07: That's really helpful. I guess, historically, how much have you sort of outpaced the COLA adjustments?
spk08: You know, I don't have that number in front of me. I think it's by 150 basis points, 200 basis points, something like that. We can get back to you, Eric, unless, Paul, you know that.
spk15: I was just going to say, I think over the long history, that's true. Keep in mind, Eric, there was a period of time when the COLA adjustment was zero.
spk08: Right.
spk15: And we were achieving rent increases that were in the, you know, 4-ish percent range. But over a long history, I think Marguerite's right about 150 basis points.
spk07: Thanks, Paul. Nick here with Eric, just quick question on, I guess, the decision to take out the California properties from the same store pool, more just kind of how you think about it from a policy perspective, obviously, whether events continue to happen. So kind of what is the test to remove a property versus keep it in that pool?
spk15: Yeah, it really, Nick, it's actually an interesting question to ask in this quarter because we had an example of a property that was partially disrupted and we had two properties that had suspended operations. And our practice that we established a number of years ago following Hurricane Irma has been to move those properties when operations are completely suspended. And so as we consider the circumstances of these locations, the other element that we think about is the length of time that operations will be disrupted. And because they are going to extend into the subsequent calendar year, that fits our definition of when it's appropriate to move the property to non-core.
spk08: And then they would come back into the core in 2025. to create an apples-to-apples comparison within our numbers. Sounds good. Thank you. Thanks.
spk10: One moment for our next question. And our next question comes from the line of James Feldman from Wells Fargo. Your line is open.
spk12: Thank you, and good morning.
spk08: Good morning.
spk12: Hi, how are you?
spk08: I'm good. How are you?
spk12: I am doing well. Thank you. So the annual RV and Marina growth rate of 8.3%, down from 8.4% in your last guidance. Can you break that out by RV versus Marina and how that's changed versus the last guidance?
spk15: Oh, shoot. I don't have that in front of me, Jamie. RV versus marina. I'll say that the marina rate is essentially in line with our last guidance, which is about a 4.5% increase. And so the slight variability came from the RV. And the marina represents about, it's around 10% of that total rent.
spk12: Okay. And then we're focusing a lot on the transient RV business. Can you talk about the marina business? I know it's heavily weighted towards annual leases, but are you seeing weather impact there, or is this pretty much an RV discussion we're having about some of the impacts you've seen in the quarter?
spk08: The impacts we've seen in the quarter really relate to the transient piece, and we don't have a large piece of transient business inside of the marina space, but Patrick can certainly walk through where we're at in the marina space.
spk14: In the annual business, as Marjorie pointed out, I mean, that's the significant majority. It's almost exclusively the revenue stream in our marina business. So our occupancies have been consistently stable around 90%. Paul just referenced rate increases and called that 4% to 5% range. So good stability there. And we've seen consistent demand from a launch perspective. Year to date, our launches are up pushing 4%. And just a little perspective for the 4th of July weekend, we were up double digits with respect to launches year over year. So our customers have been sticky, occupancy is stable, and usage has been high.
spk12: Okay, great. Very helpful. And then just thinking about, you know, in the quarter, you really didn't have acquisitions or disposition activity. Is that more a function of just nothing, you know, you felt ready to get done either on the sales side or nothing out there to buy? Or is there something in price discovery right now where you're kind of questioning if it's a good time to put capital to work or to sell assets?
spk08: Yeah, Jamie, I would say that kind of deal flow is down across the industry. As usual, we're viewing all deals, but we really haven't seen many deals of interest right now. The owners of MH and RV, they're not distressed sellers. They have the flexibility to take more time with a potential sale or take an asset off the market entirely, and that's kind of what we're seeing over the last few months. You know, I think it takes a few more months for that acquisition activity to return, but we're still fully engaged with potential sellers and, you know, and we'll announce deals as we close them.
spk12: Okay. But in terms of pricing, you kind of feel comfortable, you know, where underwriting is and, you know, given the moving rates and things like that, like you have decent visibility on where you'd want to put capital to work? and what assets should be worth?
spk08: Yes, we definitely have good visibility. We have our target list of properties that we want to buy, and we're working with owners as to what the right pricing is.
spk12: Okay. All right. Thank you.
spk08: Thanks, Jamie.
spk10: One moment for our next question. And our next question comes from Anthony Powell from Barclays.
spk11: Your line is open.
spk01: Hi, good morning. Good morning. On transient RV, you talked about the, I guess, demand normalization and certain of the destination-oriented, I guess, communities. And I know this year was the first year that we've had the full return of capacity of things like cruise lines and international travel. Do you think 2023 is the proper year where we'll see kind of normalized demand for transient RV, or is there any more, I guess, normalization to happen in future years?
spk08: I think that's kind of, Anthony, why we're pointing to 2019. 2019, 2018, those were kind of what we would consider normal demand years, and we're up from a NICE perspective from those. So I think that there is a little bit of the normalization, but in addition, some of the items that... Patrick's pointing out on the weather-related issues, and that conversion to annual is certainly a factor.
spk01: Okay, and I guess in terms of maybe July 4th versus Memorial Day, and if you can exclude weather impacts, was there strengthening or weakening in kind of transient RV trends between those two holidays?
spk14: I would say there was a moderate strengthening. We finished up Memorial Day this down about 7.8% year-over-year. And for the July holiday, we improved that by about 100 basis points to down about 6.8%. Okay. Thank you.
spk08: Thank you, Anthony.
spk10: One moment for our next question. Our next question will come from the line of Samir Canal from Evacor.
spk11: Your line is open.
spk04: Good morning, everyone. Hey, Paul. Hi there. So when I look at your membership data, I guess page 13, your member count, if you go back to sort of pre-COVID, was about 115 to 116,000, something like that. And then you saw a big jump in COVID, right? That 125, 128. I guess, and I know there's been a lot of questions about normalization, but where do you eventually go back, you think? Just curious. I mean, do you go back to that 115 kind of pre-COVID or Or where do you kind of normalize, you think?
spk08: Yeah, I think, Samir, we've seen a decrease in the total member count since the start of the year. That decrease can really be attributed to less free RV dealer activations and less transient activity at the property, which is how a large majority of those sales occur. RV dealer activations, they're down about 11% compared to last year. And that's consistent with the reduction in RV sales at the dealerships. And the two of those items, the two of the items of the RV dealer and then the transient activity kind of accounts for that 1,500 reduction in members. But really, I think the strength in our dues number, our revenue number, comes from members coming in at an increased rate with more expensive products that have a higher dues base.
spk04: Okay. And then, I'm sorry if this was asked before, but occupancy in the quarter was down sequentially, which is normally we don't see that. I mean, maybe you can comment on that.
spk14: Yeah, sure. It's Patrick. I addressed this on the last couple of earnings calls. As we've worked our way through the aftermath of Ian, we have had some headwinds in Florida. Those are subsiding, I would expect, as we work our way through the next couple of quarters. Florida will make more of a contribution. And we also have seen somewhat of normalization. You can see that coming through in some ways on our new home sales volumes. A couple of drivers on those new home sales trends, has been, one, filling up a couple of expansions that we had so that they're no longer contributing to some of that growth, but also similar to the RV side of the business, just kind of a normalization of demand. Selling 226 new homes in the quarter from a pre-COVID perspective, we would have considered, we'll call it 150, 175 new home sales in a quarter, to be a solid quarter on a new home sales perspective. So, you know, that number is normalizing somewhat from the year-over-year comparison that was almost 360 in the quarter.
spk10: Thank you.
spk08: Thank you.
spk10: One moment for our next question. Our next question will come from Keegan Carl from Wolf Research.
spk11: Your line is open.
spk03: Hey, guys. I hate to belabor transient RV, but I guess I'm just trying to better understand the weather impact. So I know cancellations are a decent-sized portion of that business that can come up, but if we take a step back and just look at the advanced booking levels that might have been canceled as weather issues came up, how would that have trended on a revenue growth basis if you kind of exclude the the excess level of cancellations.
spk15: Yeah, Keegan, I do think the booking window is an important thing to talk about, especially, I mean, certainly in this time period, the second quarter and headed into the busy summer season. As we look at reservations that are made during the 30 days before arrival, the average time between booking and arrival is eight to nine days. This activity represented about 55 to 60% of our total reservations by the end of the third quarters in the past few years. And it was similar in the second quarter. I'll set aside 2020. Go back to pre-pandemic 2019 and then look at 21 and 22. It was kind of eight to nine days in advance of arrival, represented 55 to 60% of the reservations. And when you look inside that population of reservations, those that were made within 30 days, when we look at those that were made seven days before arrival, the average time between booking and arrival is two days. And that represented a third of the total reservations that are made. So there's a significant population of reservations, people coming to our properties who are making their decision just a couple days before they arrive. And we've talked before about how close people live to our properties. They're just driving 60 to 90 miles. So it's easy enough for them to decide they want to visit our properties.
spk03: Okay. No, that's helpful. But I guess when like, for example, like the Yosemite park, like I'd imagine people are booking more than two days out for that. Right. And, you know, did you experience any cancellations on some of your, your bigger assets where, where there's probably demand further out?
spk15: Well, certainly, I mean, Patrick talked about the road closures and so forth. Specific to Yosemite, certainly cancellations were generated as a result of weather. People who had booked in advance because they were planning their trip, but they couldn't make it to the property. Or people who are watching the weather and hoping they're going to be there. But I'll say that when it's a destination like that, they're more likely to bring rain gear and, you know, kind of tough it out, so to speak. It's more likely to be kind of a significant access or other issue that would cause them to cancel.
spk08: And Keegan, we do have, you know, certainly advanced bookings that come up, which is the inverse of what Paul's talking about. It's just that there's an awful lot that come through, you know, at the last minute or within those seven days. So people do plan their trip for July 4th well in advance, a year in advance maybe, but things may happen that would cause them to not take that trip.
spk03: Okay, that's helpful. And then just shifting gears here, I know you're a decent way out on the renewals, but just what are your broader thoughts in the insurance market? What are you guys seeing as far as improvement, if there is any? And if not, is it time to maybe think about taking on more risk to sort of alleviate the expense pressure from that line item?
spk08: Yeah, so our, you know, our new insurance policies in effect, you know, for the last four months, we really still see a hard insurance market due to the industry losses, inflation, and rising interest rates. So we really haven't seen any change. I think the claim history for this year will be an important contributor to, you know, what happens for next year. So I think we'll let you know, you know, as we head in towards the end of the year. how we think we would reconstitute our insurance.
spk03: Great.
spk08: Thanks for the time, guys. Thank you.
spk10: Thank you. One moment for our next question. Our next question will come from the line of Wesley Galladay from Baird.
spk11: Your line is open.
spk05: Hey, good morning, everyone. Got one more seasonal transient RV question for you. It looks like you're forecasting another soft patch here in 3Q, but then inflecting in 4Q. Are you seeing anything in your bookings to give you the confidence in the 4Q guide and anything intra-quarter, any acceleration going on?
spk15: I think, Wes, the short answer to that is the limited visibility that we have just given what I walked through a moment ago in the booking window. So we're kind of holding the fourth quarter steady, so to speak, and don't really have visibility into what the transient reservation pace is for the fourth quarter yet.
spk05: Okay. And then if we go back to that MH rate question, I think you were talking about going 150 basis points over COLA. Would that be mainly driven by, I guess, the alpha of the 150 basis points? Would that be driven by just the new lease? And I think you mentioned 13% new lease growth, or is that 150 basis points over just strictly tied to renewal and having a 450 basis point renewal growth?
spk08: That's mainly tied to the renewal. That increase that I mentioned in my comments has been something that we've seen over the last few years. It's not really consistent with what we've seen across our portfolio over the last 30 years. So my commentary relative to the 150, 200 basis points is on the renewals.
spk05: Got it. And then can you remind us again what the turnover typically is? Is it about 10%? It's 10%, yes. Got it. Thanks, everyone.
spk10: One moment for our next question. Our next question will come from John Pawlowski from Green Street.
spk11: Your line is open.
spk02: Thanks for the time. Welcome back, John. Oh, thank you very much. Patrick, are you also seeing kind of a step backward in leading demand indicators for the seasonal RV business that you're seeing in the transient side?
spk14: You know, I... I guess I'd emphasize a little bit of what Paul just said with respect to the visibility that we have into the fourth quarter and the seasonal business really comes through during the winter season and the sunbelt as we build up to those colder months. We saw consistent demand as the last winter season wound down. So I would anticipate that we had some favorable Canadian trends, favorable trends from our domestic customers. I haven't seen anything that would say that that would subside.
spk02: Okay. And I just want to make sure I'm interpreting the comments on the transient RV business properly. When I hear normalization of demand towards 2018, 2019 levels, I interpret that as like a reasonable base case is modest declines in the absolute level of revenue over the next few years. Is that how you guys were thinking through the business? Did you guys underwrite, you know, transient RV acquisitions? It's kind of a slow bleed towards, you know, 18 and 19 levels.
spk08: Well, I think as we underwrite acquisitions, it's certainly a view to what's happening in the local markets. As it relates to our portfolio, it's really a function of the annual conversions and then weather events that happen that you don't know they're going to happen. We're talking about them on a backward basis. So we've always said, and I think, John, we've had this conversation about there is volatility in that transient revenue line item. Paul's walked through the booking window. You kind of don't know it until you're right up against it, whether or not you're going to have a good quarter or not, which is why we have really focused our efforts on building that annual base and seasonal base, which is just a far more predictable cash flow.
spk02: Okay. Last one from a – Patrick, just curious where you think you can operate the MH occupancy portfolio, where you can get MH occupancy to and when, just given the affordability gap that you referenced in your opening remarks, no new supply, demographics, everything on paper suggests occupancy should be closer to 100% than 95%. So where do you think peak occupancy is in this portfolio? When can you get there?
spk14: I would suggest that I agree with you. There's the opportunity to grow occupancy in the MH portfolio. As we work our way through the – there's this normalization piece we talked about a little bit earlier, as well as some of the headwinds from the last hurricane. That will – We'll get that behind us as we move through the back half of this year and into 2024. I think we consistently see a strong demand profile. We've talked about rate a couple times on this call. That 13% mark to market, which Marguerite pointed out, was outsized compared to our history. It still points to very strong demand, as do our run rate, rate increases in our core occupancy. So given that roughly half of our properties are 95% occupied or less, we have an opportunity to drive those occupancies higher. And I think Marguerite's touched on this on several earnings calls in the past. We have a significant number of properties that are 100% occupied. So I think there is opportunity to continue to grow occupancy. I'd also highlight that the percentage piece can be a little misleading just because we do develop MH. Our pipeline from 23 to 2024 is going to add several hundred sites to our overall site count in a couple of core markets, including coastal Florida.
spk08: And I think, John, that once we are getting that occupancy up to that 98%, 100%, it can stay there for a very long time. And we have properties that have been 100% occupied for 25 years. it's really sustainable due to the investment the customer is making when, you know, picking out a community, they're making a long-term commitment for themselves and a long-term commitment for the home that they're putting in the community or buying. So I think that's helpful that once that occupancy gets up there, it can stay for a very long time.
spk02: Okay. Great. I appreciate you taking all my questions.
spk08: Thank you.
spk10: One moment for our next question. Our next question comes from Michael Goldsmith from UBS.
spk11: Your line is open.
spk16: Good morning. Thanks a lot for taking my questions. Your CSR revenue guidance kind of just bounced around a little bit, you know, going from 6-2 to start the year, up to 6-5 at the midpoint. Now we're back at 6. So just maybe to kind of tie everything that we've talked about together is, the business just more difficult to forecast or more volatile? How can you look to make it a little bit more consistent overall?
spk08: Am I breaking it up? You were breaking it up, but I think we got it.
spk15: I think you were asking about consistency of revenues, Michael, and I think it It really speaks to the transient that we've been talking about really during the call. I think there's been tremendous consistency on the MH and the annual revenue streams for the RV. It's really been a discussion around the transient and the impact in 2023 of some of the weather events that we've experienced, as well as the shifting in that transient from shorter-term states to longer-term states based on customer demand.
spk16: And then just as a follow-up, July 4th, the Friday of July 4th shifted into the second quarter of this year, and there was a four-day weekend. So can you talk a little bit about how maybe some of those moving pieces
spk15: uh may have impact results in the third quarter and just if you can help us quantify how big the fourth of july weekend typically is as a percentage of the whole quarter that would be helpful thank you yeah i think i mean historically we've talked about the the large holiday weekend that it's kind of being two million dollar weekends for us fourth of july is a little bit trickier than memorial day and labor day because the date fluctuates so it can be midweek as compared to the weekend but In any event, I would give those amounts as a general guide for the holiday weekend. And, you know, our guidance for the third quarter includes the experience that we had in the 4th of July as well as our anticipated reservation pace for the third quarter based on current reservation pacing.
spk16: Thank you very much. Sure. Thanks, Michael. Thanks, Michael.
spk10: One moment for our next question. And our next question on the conference line, Eric Wolf from Citi.
spk11: Your line is open.
spk07: Hey, thanks for taking the follow-up. I know the call's going a little long here. And sorry to ask another question. I'm seasonal and transient. But just trying to understand the math in the back half of the year. So you're guiding to the full year around 2.5% down. You're at 3.2% through the first half of the year, sort of implies around 2%-ish in the back half of If I look at the second quarter, you're down 9.3% combined. So I'm just curious, like what is sort of improving in the third and fourth quarter off the second quarter run rate to get there? Is transient going to be a bit better or seasonal is going to be a larger percentage? Just trying to understand, you know, how you get to that, to call it 2% in the back half of the year. Thanks.
spk15: Sure. I mean, you can see what we have forecast for the third quarter. I think that when you think about the transient for the fourth quarter and As I said a moment ago in response to another question, you know, we have not adjusted meaningfully the budget assumption that we had. The short visibility on the transient is one that, you know, causes us to just have a view that as we put our budget together and make an assumption, we don't have a basis for changing that. So we've left that in place for the fourth quarter.
spk07: Okay, meaning that you've left the cloud down 13% in the fourth quarter.
spk15: No, I think if you take a look at what we have in the forecast for the third quarter, you would show stabilization in the fourth quarter for the transient.
spk07: Okay. All right. Got it. Thank you.
spk08: Sure. Thanks, Eric.
spk11: Thank you. And since we have no more questions on the line, At this time, I would like to turn it back over to Marguerite Nader for closing comments.
spk08: Thank you for participating today. We look forward to you joining us on our third quarter call. Thanks very much.
spk11: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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