This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Good day, everyone, and thank you all for joining us to discuss Equity Lifestyle Properties, third quarter, 2023 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 released 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 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 meanings of the federal security laws. Our forward-looking statements are subject to certain economic risks and uncertainty. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events. In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC Regulation G, reconciliation 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 now like to turn the call over to Margaret Nader, our President and CEO.
spk12: Good morning, and thank you for joining us today. I am pleased to report the results for the third quarter of 2023. The quality of our revenue streams and the strength of our balance sheet continue to allow us to report impressive results. Our MH portfolio is approximately 95% occupied. We have had continued success in the quarter selling new homes. Year-to-date, 51% of our new home sales have been in Florida communities and 13% in Arizona. Year-to-date, the mark-to-market increase for rent increase for new homeowners has been approximately 13%. Our team has done an exceptional job of selling available inventory, and we are currently at near record low levels of rental homes in our portfolio. Our communities continue to offer an affordable option to purchase a home amid a single-family housing market with limited availability and high price points. Today's national headlines highlight that homebuyers are grappling with housing affordability driven by a lack of affordable homes and rising mortgage rates. These broader national housing trends have enhanced the appeal of our communities for prospective homeowners. Two-thirds of our RV and marina income is generated from our annual customers. Core annual RV and marina revenue increased 8% compared to the third quarter of last year. Core seasonal and transient revenue for the quarter was impacted by an increase in annual site usage, reducing site availability, and weather-related property disruptions. Our social media strategy leverages engaging content, targeted advertising, and partnerships to expand our reach and boost customer engagement with our RV members, guests, and prospects. This summer was the ninth year of our 100 Days of Marketing campaign, which celebrates the time between Memorial Day and Labor Day. The campaign recorded 32 million impressions, the highest we have ever experienced, across social media platforms, including TikTok, Instagram, and Facebook. Turning to 2024, we anticipate continued demand into next year. Within our MH portfolio, we anticipate sending 2024 rent increase notices to approximately 50% of our MH residents. These rent increase notices have an average growth rate of 5.4%. For our RV portfolio, we have set annual rates for 95% of our annual sites. The RV annual rate increases have an average growth rate of 7%. Our Snowbird residents and guests are anxious to head back to Florida and Arizona for the season. Our teams are prepared for their arrival and will continue to focus on providing outstanding customer service. I would like to thank our team members for all their efforts this year to support our residents and guests. I will now turn the call over to Patrick to provide further details on our portfolio operations.
spk15: Thanks, Marguerite. As we wind down our summer season and move into our winter sunbelt season, I wanted to provide some additional color on the drivers of the 80% of our $1.3 billion of total revenue that comes from annual residents and guests in our MH, RV, and Marina properties. Consistently through the years, the MH portfolio has been the key driver of our business, with a trend of high-quality occupancy achieved by increasing homeowners. Today, nearly 97% of our occupancy is long-term homeowners who are typically with us 10 years or more. I'll do a summary around the horn on those markets collectively representing 70% of our MH portfolio. First, Florida occupancy is 95%. Florida is the leading state for net in-migration, and we see demand most directly in our east submarkets like Tampa, St. Pete, and Clearwater, and west submarkets like Fort Lauderdale and West Palm Beach, which are consistent with historical trends. Demand in east Florida comes from the northeast U.S., New York, New Jersey, and Massachusetts, which are among some of the top states leading on migration. While demand in West Florida comes from the Midwest, states like Illinois and Minnesota, which are also leading on migration. Given this demand, we have an opportunity to continue to grow MH occupancy, including through our development program. We developed more than 750 sites in Florida and have more than 1,000 MH sites in the expansion pipeline. Over the last three years, we have sold more than 1,400 new homes in Florida, indicating consistent demand. Our next largest markets are California and Arizona. Those portfolios are 97% occupied, and we have opportunities to convert rental homes to homeowners, marginally increase run rate occupancy, as well as grow through expansions. Portfolio-wide for MH, over the last three years, we've sold 2,600 new homes, enhancing quality of occupancy by meeting important demand from homebuyers. Moving on to the RV and marina businesses. Over the last 20 years, we added RV and marinas to our portfolio with a focus on long-term annual revenue streams that pay similarly to the MH portfolio. Our RV properties are predominantly located in Sunbelt locations, and our marinas are mostly coastal Florida and coastal Carolinas. Coming out of the summer season, we continue to see consistent demand from RVers, especially our core annual guests. As noted in the press release, our 2024 rate guidance for RV annuals is 7%. For perspective, average annual RV rate is approximately $500 a month, so the 7% increase translates to $35 a month, or a relatively reasonable amount for long-term annual customers valuing their leisure options. For the marina portfolio, we have continued to maintain an occupancy of 90%, and boat launches have been consistent year over year, evidencing consistent demand from our long-term marina customers. Those are the highlights on the drivers of the property operating results, with some market and property detail on our annual MH, RV, and marina revenues. Together, they represent more than 80% of our portfolio revenue, as well as the highest quality durable revenue streams at ELS. I'll now turn it over to Paul to walk through the results in detail.
spk18: Thank you, Patrick, and good morning, everyone. I'll provide a summary of our results for the third quarter and September year-to-date periods, provide some information about the assumptions included in our updated guidance model for the full year of 2023, and close with some comments on our balance sheet and debt market conditions. In our earnings release, we reported third quarter and year-to-date normalized FFO per share of $0.71 and $2.12, respectively. Core MH rent increased 6.8% in the third quarter and 6.7% year-to-date compared to the same periods last year. Rent growth in the third quarter includes approximately 7.1% 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 rent increased 8% in the third quarter and 8.1% year-to-date compared to prior year. Annual RV and marina rent increases generated approximately 7.4% growth in the year-to-date period, with occupancy contributing close to 70 basis points of growth. Rent from seasonal and transient customers on a combined basis in the core portfolio represents approximately 10% of our core revenue. Core seasonal and transient rent combined decreased approximately 4.8% in the year-to-date period compared to prior year. Core seasonal rent increased 5.5% year-to-date, offsetting some of the transient decline we've experienced as a result of challenging weather patterns and site usage increasing for longer-term stays. Membership dues revenue increased 4% in the year-to-date period. During the quarter, we sold approximately 6,100,000 trails camping pass memberships. Membership upgrade sales volume in the third quarter was slightly lower than last year, while the average sale price increased approximately 12%. Total core utility and other income increased 7.9% in the year-to-date period. Utility income increased 10% during the same period, somewhat offsetting a 7% increase in utility expense. Year-to-date, our utility recovery rate is approximately 45%, compared to 43.5% in the first nine months of last year. Other income includes $2.2 million of revenue associated with sites leased to provide housing for displaced residents in Fort Myers, Florida during the year-to-date period. Core property operating expenses were in line with expectations during the third quarter. Our two largest expense line items, utility and payroll, were favorable to our forecast for the third quarter and increased 1.2% over prior year on a combined basis. Utility expense favorability was mainly the result of relatively cool and wet conditions across the Midwest and Northeast in August and September. The 30-day mean temperatures for those months in those areas were at or below the long-term average. In addition, many areas of the Northeast experienced record levels of rainfall. Payroll expense in the third quarter was 1.7% lower than the same period in 2022. Our property operations team remains focused on rationalizing staffing to meet customer demand. Repairs and maintenance expense was elevated in the quarter relative to our expectations. We incurred expense related to local storm events across the portfolio, primarily tree removal, debris cleanup, and costs to operate on-site utility systems during periods of heavy rainfall. Our year-to-date core property operating revenue growth of 5.4%, and core property operating expense growth of 6.5% contributed to an increase in core NOI before property management of 4.5%. As I switch topics to discuss guidance for the remainder of 2023, I'd like to highlight some initiatives that illustrate our well-established approach to managing our business, which involves continually challenging the status quo and promoting innovation. Over the years, we've implemented process improvements focused on automation and reporting enhancements that include historical weather data, employee staffing trends, and publicly available market-driven housing data. These and many other innovations enable the day-to-day decision-making that generates impressive results quarter after quarter as we continue to focus on our strategic objectives. The press release provides an overview of fourth quarter and full year 2023 earnings guidance. Our long-standing practice has been to report quarterly guidance with a range of six cents per share from high to low end of the range. As a result, each year when we report full-year guidance at this time, with only one quarter remaining in the year, we report full-year guidance with a similar six cents per share guidance range. 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. Our fourth quarter guidance assumption for shorter-term stays in our RV communities was developed 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. Our full year 2023 normalized FFO guidance is $2.85 per share at the midpoint of our range of $2.82 to $2.88 per share. Full year normalized FFO per share at the midpoint represents an estimated 4.5% rate growth compared to 2022. We expect fourth quarter normalized FFO per share in the range of 70 cents to 76 cents. Full year core NOI is projected to increase 5.1% at the midpoint of our guidance range of 4.8 to 5.4%. We project a core NOI growth rate range of 6.3% to 6.9% for the fourth quarter and expect NOI for the quarter to represent almost 26% of full year core NOI. Full year guidance assumes core rent growth in the ranges of 6.5% to 7.1% for MH and 8% to 8.6% for annual RV rents. Our guidance assumptions for the fourth quarter include MH occupancy gained in the third quarter with no assumed occupancy increase in the fourth quarter. Our assumptions for expense growth reflect current expectations based on the 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 4.9% in the fourth quarter and a decline of 4.8% for the full year compared to the respective periods last year. Our guidance for the full year and fourth quarter includes no assumption for acquisitions closing before year end. The full year guidance model makes no assumption regarding other capital events or the use of free cash flow we expect to generate in the remainder of 2023. Before we open the call up for questions, I'll discuss our balance sheet and current debt market conditions. Our balance sheet is extremely well positioned with a debt maturity schedule that shows approximately 11% of our outstanding debt matures over the next three years and around 23% of our outstanding total debt matures over the next five years. This compares to an average total debt maturity for REITs of approximately 45% over the next five years. In addition, 22% of our outstanding secured debt is fully amortizing and carries no refinancing risk, and we have no year in our schedule when more than $350 million of outstanding debt matures. Current secured debt terms available for MH and RV assets range from 50% to 75% LTV, with rates from 6% to 6.75% 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 is 5.3 times, and our interest coverage is 5.3 times. The weighted average maturity of our outstanding debt is approximately 10 and a half years. Now we would like to open the call up for questions.
spk07: Thank you. Ladies and gentlemen, to ask the question, please press star 11. You will then hear an automated message advising your hand is raised. And then wait for your name to be announced. To withdraw your question, please press star 11 again. As a reminder, we ask that you limit yourself to two questions. Please stand by while we compile the Q&A roster.
spk09: Our first question comes from the line of Josh Dinnerline with Bank of America.
spk07: Your line is open.
spk17: Yeah. Hey, everyone. Appreciate the time. Morning, Josh. Morning. Just curious on, I appreciate all the color on 2024 on the rate growth that you're sending out. Could you remind us of the timing of when you send out the other 50% of the manufactured housing rate notices, and then what's the framework for how you set that rate? Is it just a function of CPI at the time, or what other kind of factors go into that?
spk15: Yeah, Josh, it's Patrick. As Paul covered in his commentary, about half the increases will be sent out by this time. So by the time we hit the first quarter, the majority of the rent increases have been noticed and go into effect. Over the balance of the year, it's mostly ratable. To the extent that there is a CPI-based lease, it will likely reference updated CPI as you move through the course of the year. And then to the extent that there are market rate increases, we'll revisit uh markets that we've uh we have a view right now that we go through our budget process and to the extent that we feel it's appropriate to update uh quarter by quarter uh we'll update it as those notices uh go out accordingly i appreciate that patrick and then i get a lot of questions on just pop-backs um is there any kind of like framework you can provide us as far as like moving pieces as we look forward any
spk17: or any base effects. And then I know insurance is pretty topical. I know you're renewing April 1st. Just kind of any kind of color you can draw on that insurance line, too.
spk18: I guess, Josh, what I would say with respect to expenses on a forward view into 2024 is We, in the quarter, second quarter and also into the third quarter, have seen moderation in utility rates. We also have seen, with respect to our payroll, obviously the ability to flex that payroll based on demand in the properties that have variable demand, the transient RV properties primarily. With respect to the going back to the utilities for a moment, I think that on a go-forward basis, we would probably see a more steady level to what we're seeing now. So we were at about 6% growth at the end of the second quarter. That moderated further in the third quarter. And so I think we would anticipate that continuing. The last thing I'll touch on is R&M. I think that, you know, But for the local weather events that I mentioned in my opening remarks, I think that there is some easing of pressure that we've seen in the last couple of years in terms of contract labor for maintenance at our properties as well as the cost of supplies.
spk12: And then, Josh, with respect to insurance, as you point out, our property level insurance policies renew on April 1st of next year. So we have seven months of experience behind us, five months left to go. So far, our claims of experience this year has been good, but we're only 60% through the year. So we'll have a better idea after we meet with our brokers in January and be able to incorporate into our 2024 guidance. Great.
spk10: Appreciate the time, guys.
spk09: Thanks, Josh. Thank you. Please stand by for our next question. Our next question comes from the line of James Feldman with Wells Fargo. Your line is open.
spk10: Great. Thank you, and good morning.
spk08: Good morning, Jamie.
spk02: So I guess I just want to kind of think big picture here. You know, we've been talking a lot with investors about, you know, the opportunity for recapitalizations of private entities. You've got one of the better cost of capital in the space. You know, opportunities don't last forever. Windows don't stay open forever. Just How are you thinking about your cost of capital? You know, what's on bank balance sheets, those impairments, where assets might trade and a window here where you could really put a lot of capital to work. It's pretty attractive returns. I know you said in the past, it's kind of hard to find stuff to buy and you like to focus on, you know, expanding your, your, uh, communities, but just kind of big picture, where's your head and what do you think we might be able to see, uh, over the next year, a couple of years, I guess we'll see how long this window even remains open. You have this opportunity.
spk12: Sure. So, you know, obviously my focus is on the ELS, our portfolio. We've been very deliberate in the years, over the years, in adding to our portfolio with a focus on, you know, really long-term stable cash flow. And we like the, you know, the MH business and the RV annual business. We think it, you know, it really, it meets the needs of so many Americans who want to own their own home in a vacation destination location. We think the MH business is great for a lot of reasons, and it's unique because of the fact that there's really no new supply. And, you know, we do know the properties we want to own, and we'll continue to work with owners to grow our portfolio, really with an eye towards buying assets that have the same cash flow characteristics as our existing portfolio. So I think we'll be keeping in line with what we've always done in the disciplined approach to growing our business.
spk10: Okay. Thank you. That's helpful.
spk02: And then, you know, your commentary on Florida and the Florida markets being so strong, both on the east coast and west coast. I mean, speaking to some of our industry contacts, there's real questions around commercial real estate insurance in Florida going forward. I mean, how do you balance that when you think about putting fresh capital to work or even staying in those markets? That's the one market that keeps coming up where people are scratching their head of, you know, how's this even going to work over the long term?
spk12: I think what we've seen is the demand is so strong for people to come to Florida and experience the affordable lifestyle that we have and to get out of the Northeast, to get out of the Midwest. And we just see that continuing. As far as insurance as it relates to our residents, while we don't keep track of who has insurance and who doesn't, Over the years, we kind of have an idea that not a large percentage of our homeowners, our residents, have homeowners insurance.
spk02: And then just in terms of where you think rates are going, I know you said you don't find out until April next year, but I guess the commercial real estate insurance on your side, you're just kind of comfortable that it'll work itself out?
spk12: Well, you know, we'll know certainly, I think, as I said, over the last few months, our claims experience is going to be a big factor in, you know, in what our renewal is going to be. So, as I just mentioned, we've had good claim experience so far this year, but we still have more, you know, months to go before the renewal.
spk10: Okay. All right. Thank you.
spk09: Thanks, Jamie. Thank you. Please stand by for our next question. Our next question comes from the line of John Kim with BMO Capital Markets.
spk07: Your line is open.
spk06: Thank you. Your 24 MH rate growth, now that the Social Security cost of living adjustment came in at 3.2% and multifamily rents have really just stalled out in the third quarter, How confident are you that you're able to achieve and push that 5.4% on the remaining leases? And can you remind us, is that 5.4% on the base rate change only, or does that include any pass-through of expenses?
spk18: Excuse me, John. The 5.4% is on the base rate. It does include the residents that moved in and assumed in-place leases. understanding that they would go to market upon renewal in January. So it does include the impact of the 13% mark-to-market that we've talked about for those residents. But I think Patrick has some more color.
spk15: Yeah, so, John, as we worked our way through our budget process, and that includes a review literally property-by-property in the respective submarkets and a review of the competitive set, not only other manufactured home communities, but other competitive housing in those direct submarkets. As Marguerite touched on, we compare very favorably just with respect to the all-in cost and the value that a resident moving to one of our communities gets in our locations. So as we worked our way through, while it's a fair point and the The CPI, our spread historically has been in the 150 to 200 basis points. We're kind of in that range with the mark to market that Paul just referenced. And we did have that 150 to 200 basis point historical spread to CPI with respect to our rate increases. kind of front in mind as we were working through where we were going to set increases, particularly for our in-place long-term residents. So we feel pretty confident that it's a good value proposition and that those rents will come through.
spk05: Any sense of timing or the quantum of the renewal rate increases in marinas?
spk15: The marinas are basically ratable over the course of the year. So they'll come through over the, you know, quarter by quarter.
spk18: And those annual renewals, John, are included in the 7% that we quoted for the RV marina annual rent.
spk10: Got it. Thank you.
spk08: Thanks, John.
spk09: Thank you. Please stand by for our next question. Our next question comes from the line of Eric Wolf with Citi. Your line is open.
spk03: Hey, thanks. Looks like you're guiding to a sequential increase in FFO and 4Q as well as an increase in your annual RV growth to I think it's 8.8% from 8%. What's driving both of those?
spk18: Yeah, I think, Eric, when you think about the fourth quarter of 23, kind of have to remember all that happened in the fourth quarter of 22. So with respect to the RV, I'll take that first. The impact of Hurricane Ian in Q4 of 22, really what we're seeing in 23 is the benefit of the occupancy that we gained following the loss in the fourth quarter of last year. That's primarily what it is. There is also some contribution that's coming from rate increases that are effective in the fourth quarter. And then in terms of the FFO change, When I look at the non-core contribution, there's about $5 million year over year that's coming from the non-core properties this year that we didn't have. We had six properties that were offline following the hurricane last year that did not generate any NOI, and we did not have any business interruption contribution from most of those locations. And then we had some contribution from acquisitions in 22 and 23, as well as some one-time adjustments. So there were a number of things that were happening in the fourth quarter of last year that make favorable comp this year.
spk03: Got it. That's very helpful. And I guess for the non-estate school that you referenced there a second ago, I guess, are you seeing any business interruption insurance proceeds in the fourth quarter of And then thinking about how we should model this for next year, do you think that the sort of total NOI that you're showing there for this year is a good base from which to grow into 2024, meaning that we shouldn't, you know, make any sort of one-time adjustments or other things. We can use that as a one-way going into next year for those properties.
spk18: Yeah. I mean, it's a little bit challenging because we do have properties that'll switch from non-core into core next year. And when you think about the business interruption specifically, Part of the outperformance in the third quarter from the non-core properties was those properties that were offline last year that I just mentioned returning to operations maybe at the same time that we are receiving business interruption for prior periods. So we have this timing issue that we've talked about before in terms of the receipt of the business interruption cash. I think that'll taper off. and those properties will return to normal operations. So that's really what we're expecting here. Okay. All right.
spk10: Thank you.
spk09: Thanks, Eric. Thank you. Please stand by for our next question. Our next question comes from the line of Brad Hepburn with RBC.
spk07: Your line is open.
spk00: Hey, good morning, everybody. Just as a follow-up to that last question on the business interruption, in the fourth quarter, are you in the same position where you're maybe over-earning a little bit or getting BI proceeds from prior periods that's having a positive impact on earnings, or when does that kind of cross over?
spk18: I think the fourth quarter is a little bit lighter because the fourth quarter looks back to the summer season for properties in Florida. So it kind of evens itself out, so to speak, in the fourth quarter.
spk00: Okay, got it. And then for the 50% of the MH communities that have been noticed already, is that representative of the other 50% that has not? Or is there a difference in how those are priced?
spk18: It's a little bit more heavily weighted to the long-term agreements that we've talked about. Those tend to have January renewals. So as Patrick mentioned earlier in the call, the impact of the CPI and the market increases, they have greater influence as we move through the rest of the 50% during 2024. Okay, got it.
spk00: And then I was wondering if you could just talk through what cap rates you're seeing currently across the business and if anything is transacting. I suspect the answer is no if you're saying that cost of debt is in the sixes, but in color, that would be great.
spk12: Certainly. So as an industry, there really haven't been a lot of transactions. We look at all marketed deals as well as continuing all of our outbound efforts and staying connected with owners, waiting for them to kind of become sellers. Up to this point, we haven't seen a lot of stress from owners in terms of refinancing or distressed sales. I really think that the page will turn on the calendar really before there's a pickup in activity. So it's difficult to quote cap rates when there just really haven't been a lot of transactions.
spk00: Okay. Thank you.
spk09: Thanks. Thank you. Please stand by for our next question. Our next question comes from the line of Samir Canal with Evercore.
spk07: Your line is open.
spk16: Hi, good morning, everyone. Hey, Paula or Marguerite. You know, when I look at seasonal, so that seasonal slash transient business, you know, you do the math, it's down about 6% for the year now. I guess, how are you thinking about that segment into next year? You know, it's been one era that's been sort of hard to model for the last couple quarters here. I mean, did you... kind of big picture, do you think that growth sort of turns positive next year, or do you think that's sort of still another year where you're sort of giving back, you know, what you may have, you know, over-earned over the COVID years?
spk18: I guess, thinking about seasonal, what we're seeing, excuse me, is that revenue, particularly in the third quarter and the fourth quarter, I'll just talk to those for a minute, when you look at the seasonal, roughly 20% of the seasonal rent comes in the month of October and 50% comes in the month of December. And you'll remember that the biggest quarter that we have for the seasonal business historically has been and continues to be the first quarter. And we had significant growth in the first quarter, and it's driven by those customers that are spending the winter months in the South. What we did experience during the pandemic was activity that was a month or more in other parts of the country or even in the South during the summer months. That activity was modest. but it was a contributor of growth. I think that that's what we saw leveling off to a degree in 2023. And for 2024, I think that we'll see a return to our kind of historical business, which is primarily the fourth and first quarters for the seasonal business, with strong demand leading into 2024.
spk12: And with respect to transient business for 2024, it's too early to talk about that. you know, where we think we focus a lot. We've talked a lot about how the transient business is heavily dependent on weather, so obviously that's difficult to project a year out, but we'll have a better clarification on that as we go into in January when we report and provide our guidance for 24.
spk16: I guess as a follow-up to that, I mean, in terms of guidance, and I know you haven't provided that, but will there be sort of a change in the way you kind of look at guidance? Because again, you know, transient and seasonal, when you started off the year, I think you were expecting that number to be slightly up, right? So now you're down six for the year. So I'm thinking, is there sort of a change in mentality or how you're going to provide guidance as you think about next year as you get into January?
spk18: I guess my view on it is, you know, there's an expectation across the business that we continue to perform. As Marguerite said, there's a great deal of variability specific to the transient business that comes from weather. I think that our historical baseline expectation has been, as we enter a year, that that transient business has a modest level of growth, kind of low to mid single digit growth on an annual basis. I don't see a reason for or a thought that we would change that practice. I think we will continue that and we'll provide updates on a quarterly basis as we historically have on that revenue stream, which, you know, again, represents about 6% of our total revenues.
spk10: Thanks so much.
spk09: Thanks. Thanks, Samir. Please stand by for our next question. Our next question comes from the line of Anthony Powell with Barclays.
spk07: Your line is open.
spk01: Hi, good morning. Good morning. Maybe one more on transient RV. If you strip out the impact of weather and also the impact of site conversions, how did demand in the quarter trend relative to earlier in the year? Did you see any improvement, any weakening, just any directional commentary would be great.
spk18: I think that what we saw overall in the north, again, if we're going to qualify it by weather, is demand from the customers for stays in our properties. And I would point to the ability to put through increases in rates as support for that demand. So our ability to increase transient nightly stays in our properties, even in a time when the weather is challenging, and achieve those rates is the indicator that I would look to.
spk01: Kyle, thanks. And maybe one more on the 13% increase in rent to new homeowners. How does that compare to history? And is there any opportunity to push that even higher? And how do you think about that segment in the business overall? It seems like a pretty good supporter of growth in your AMH business. I wanted to see kind of how that should trend over time.
spk15: Yeah. Well, let me start by, I guess, setting the stage over the last couple of years. We've been through a period of particularly high demand for our properties and our locations, especially in the Sunbelt. That's been evidenced from really record new home sales. which are moderating. But if you think about that level of demand, including higher CPI, just the base level rate increases for our customers have been higher, right? So the comp set has been higher over the last couple of years and market rate increases have been higher over the last couple of years. And if you think about our long-term customers with us, typically 10 years or more, there's kind of an embedded, Increase or net loss to lease, right? A bump to market on turnover, which is what Paul summarized. And that's why that the reason that number is escalated into the, you know, call it that 10-13% range is because we've come through those periods of high demand and high CPI. But the turnover of our resident base hasn't changed in any meaningful way. So over time, I would expect that bump to market to tend to moderate. And historically that bump to market has been call it in the, you know, five to 6% range as opposed to the double digits that we're seeing now.
spk01: Okay. So, uh, how quickly should that bump to market moderate? Is that something that will moderate over the next year or just, you know, maybe a timeframe would be great.
spk15: I don't know that I can do the math in my head that quickly, but a basic construct would be, we have 10% turnover. in our resident base on an annual basis, so it would moderate over time. All right.
spk10: Thank you. Sure.
spk09: Please stand by for our next question. Our next question comes from the line of Keegan Call with Wolf Research.
spk07: Your line is open.
spk13: Yeah, thanks for the time, guys. I guess first, your MH occupancy is down 30 basis points year over year in the core portfolio. What's it going to take to get that number to start trending higher?
spk15: Well, let me start by just putting a little bit of context there that we still have roughly 150 units of headwinds from Hurricane Ian. And we'll work through replenishing that housing stock. And those submarkets in Florida, as I touched on in my opening comments, are seeing a very consistent period of high demand. So taking that out of the equation or looking forward to a 2024, I would expect you're going to start to see occupancy increases that are more reflective of the historical business. And you just saw that we increased a little over 40 units met in the quarter.
spk12: And I think it's just important to point out that over 50% of our properties are 98% occupied and have been for a number of years. These customers are making, their residents are making a long-term commitment to stay in the community. So we've seen properties stay fully occupied for long periods of time, 10 plus years.
spk13: And then shifting gears to home sales, and obviously it's slowing down. I think the clear reason would be existing home sales or the lack thereof. But I'm curious if there's something else that you're seeing because it is interesting to see the used home sales seem to be kind of leveling out as opposed to new home sales declining.
spk12: Yeah, the used home sales is just a function of what available inventory we have. So it's really not a function of demand at the property. If we had more, we'd be selling more. So that's the way I think of it on the used home side. And the new home sales is really just moderating back to pre-COVID levels, but very strong demand, especially in our key markets.
spk10: Got it. Thanks for the time.
spk09: Thank you. Please stand by for our next question. Our next question comes from the line of Anthony Howe with Truist.
spk07: Your line is open.
spk19: Hey, guys. Thanks for taking my question. I noticed that the TTC sales is down 10% this year and TTC membership is also down again this quarter. Can you provide a little bit more color on what's driving this decline and which pass experiencing a slowdown? Is it the cabin pass or is it the camping pass?
spk12: It's the camping pass. We've seen a reduction in RV dealer activations. I think it's about a 10% decline in activations, which means it's coming from the point of sale at the RV dealer. And then we've also seen a decline due to reduced transient activity at the property level. So if there's not a lot of people coming through, you just see a reduction in sales.
spk19: Gotcha. Can you talk about how these automated reports are helping with decision-making? How are you guys using the historical weather data and what publicly available market-driven housing data you guys are using that you weren't using before?
spk18: Anthony, it's not that we weren't using it before. I want to be clear on that. I was mentioning over the years the things that we've done to enhance our reporting. By way of example, I'll take the weather data to kind of share that in my remarks, I had commentary around the historical weather patterns, the impact, the amount of the rainfall and so forth. And we have internally in our regular reporting information that flows out to our operations and sales and marketing team leaders about the weather patterns, the forecasts of those weather in the locations that are in focus, depending on the time of year. Those are used, as I mentioned, to drive the decisions as far as where to target our marketing, how to communicate with our customers as to when a weekend is going to be nice or how we might direct our activity and encourage them to visit the properties. That's just one example of, you know, some of the reporting enhancements that we've implemented over the years. And, you know, we'll continue to do so.
spk12: And we're also using, within our home sales website, we use AI to kind of strengthen the descriptions of homes that are available for sale and also develop alternate email headlines and social media posts that that could kind of improve our performance. And we've seen that work well over time.
spk19: Great. And then, like, on social media, I think you mentioned that you had 32 million impressions this year. Like, how should we think about that number? Like, what is the click-through rate per impression? Like, what is the conversion rate on those leads? Is it also, like, driving your marketing cost down as well?
spk12: Yeah, I mean, the way I would look at it is the impressions are really just the total number of times our content was seen. So we gauge that and we see that increase over time. So that's a positive for us. And it really, you know, measures our ability to get our message out in front of our target audience. So that's what our focus is. And, of course, click-throughs and then what ends up being a reservation, which is the goal. And we have an increasingly high number of our reservations online. are booked online or through the call center over time, it's increased significantly to where it's now 70% of the overall activity.
spk10: Gotcha. Thank you. Thanks, Anthony.
spk09: Please stand by for our next question. Our next question comes from the line of John Polofsky with Green Street.
spk07: Your line is open.
spk04: Thanks. Good morning. I was curious as a follow-up to the membership question just there. Can you speak to the retention trends in the business as camping demand normalizes towards pre-COVID levels? Do you expect near-term declines in annual membership revenues and membership upgrade sales?
spk12: Yeah, I think that we still see very strong demand for our camping pass product. It is really a low-cost product that we offer to our members as an incentive to kind of start their camping journey with us. So we see strong demand. I don't see that stopping us. as we head into next year. I think there is just that moderation that happened as a result of, you know, in the post kind of COVID environment, but I believe it's still very strong.
spk04: Okay. And then, Paul, I'm not sure I understood the response to the one question about the first 50% of MH rate increases represented in the total portfolio. Did I interpret it right that the 5.4% on the first batch was elevated because of the longer-term stays at a higher mark-to-market, and we should expect the second batch to be lower than the 5.4%. Is that accurate?
spk18: Well, I think you have two things happening. One, for those – it's specific to Florida. So for those increases on turnover that occurred during 2023 – In Florida, those residents can assume the remaining term of the existing lease and they'll go to market in January when their lease renews. So that cohort is moving to market come January 1st. During 2024 in other states, we'll see a mark to market as well. So we'll have the benefit of that. The other thing that I was saying is the long-term agreements are more heavily weighted toward January 1st. So that actually, those tend to have a lower average increase then the market and the CPI increases given where CPI is right now. So, you know, a little bit of a balancing between those two factors. So I would anticipate a relative level of consistency across the year.
spk12: And I think, John, if you just look at last year at this time, you know, giving the same type of information and the portfolio is basically the same, you could take a look at that and see how that kind of, you know, played out, you know, this year, year over year, similar to what Paul's saying.
spk04: Okay, makes sense. Last one for me. You share how seasonal are the bookings for the fourth quarter and the first quarter compared to a year ago?
spk18: Compared to a year ago, I don't have that in front of me, John. But what I can say is that we're seeing the, as I mentioned earlier, the seasonal activity builds in terms of the percentage bookings. for each month in the fourth quarter. And as we move out of the northern season, those customers that are with us a month or longer in that part of the country and move toward the southern season, we see that pace increasing over that time period and following that increase into the first quarter.
spk10: Okay.
spk09: Thanks for the time.
spk08: Thanks, John.
spk09: Please stand by for our next question. Our next question comes from the line of Michael Goldsmith with UBS.
spk07: Your line is open.
spk14: Good morning. Thanks a lot for taking my question. Good morning, Michael. Good morning, Marguerite. Maybe just to wrap up the conversation on weather, we've talked a lot of different things about forecasting and marketing driven off of that, but I guess just to sum it up is, you know, was this a particularly weaker transient season because the weather was less favorable and that potentially creates a more favorable setup for transient in 2024? Am I interpreting that right?
spk18: I think it's pretty clear that the weather was very challenging this summer. How that plays out next year is obviously entirely dependent on the weather patterns next year. But yes, it was an extremely challenging year in 2023.
spk14: Thanks for that. And my follow-up question is about the conversations that you've had with residents on the 2024 rent increases. I was wondering if there were areas where you were getting the most pushback from residents. You know, are the residents understanding kind of the moving pieces of, you know, this is a moderating CPI environment, but insurance costs are up, elevated costs are up. You know, I'm trying to size, like, you know, Last year, you weren't able to push rent as hard as expenses were elevated. I'm just trying to better understand how residents reacted to this and the ability for rents to continue to outpace expenses going forward.
spk15: Let me start by saying that it's shaping up to be very similar to our historical practices and our historical feedback. And particularly with the rates that have just recently gone out, we'll have more conversations with residents and homeowners associations. You know, I've referenced before in Florida, there's a kind of a well-organized statutory process for a review and a discussion of rate increases. We take that opportunity to have a conversation with our homeowners and brought a resident base on priorities for the properties in addition to the rent increase. So it's a little early in the process to give you a full view, but what's shaping up so far is pretty typical with our historical experience.
spk14: Got it. And just one final clarification for me. We talked quite a bit about properties turning over and then getting a 13 percent increase which i think takes some uh which kind of commences in the start of 2024 did you provide what percentage of properties are turning over that are going to receive that it's the it's the resident turnover um and across our portfolio generally we have about 10 percent turnover so that individual residents not not properties right Yeah, so about 10% of the MH residents are going to see something similar to that 13% increase upon the start of the year.
spk18: Over the course of 2024, that will happen. Okay, great. Specific to Florida, it's effective January 1st, but in the other states, it happens throughout the course of the year.
spk10: Super helpful. Thank you very much. Good luck in the fourth quarter.
spk08: Thanks, Michael.
spk07: Thank you. Since we have no more questions on the line, at this time, I would like to turn the call back over to Marguerite Nader for closing remarks.
spk12: Thank you for joining us today. We look forward to seeing you all at NAIRI. Take care.
spk07: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Disclaimer