Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Equity Lifestyle Properties Inc (ELS, Financial) reported a 6.4% increase in NOI for the first six months of 2024 compared to the previous year.
- The company raised its full-year guidance for normalized FFO to $2.91 at the midpoint, reflecting strong portfolio performance.
- The MH portfolio, which makes up 60% of overall revenue, is approximately 95% occupied, indicating high and sustainable occupancy levels.
- The RV business segment showed strong performance, with an anticipated growth rate of 7% for the full year 2024.
- ELS has a strong social media presence, with over 2 million followers across various platforms, enhancing customer engagement and brand visibility.
Negative Points
- Seasonal and transient RV revenues were weak during the quarter, impacted by weather conditions and other factors.
- The company noted a slight decrease in annual RV revenue guidance by 10 basis points at the midpoint, attributed to leap year adjustments and other minor factors.
- There was a reduction in annual RV accounts due to the departure of workers involved in hurricane cleanup, affecting overall revenue growth.
- The transaction market for acquisitions has slowed significantly, with increased cap rate expectations from buyers but slow adjustments from sellers.
- Transient RV revenue is prone to volatility, largely driven by weather events, which can impact overall financial performance.
Q & A Highlights
Q: On seasonal revenues being weak during the quarter, can you remind us how you define the seasonal customer and provide additional details?
A: The seasonal customer is one who stays with us longer than a month and shorter than six months. This applies to both RV and Marina, but predominantly, our marina customers are annual with limited shorter-term stays. (Patrick Waite, COO)
Q: On the RV and marina revenue outlook, I saw you lowered the annual guidance by 10 bps at the midpoint. Any particular reason for this revision?
A: The slight 10 basis point movement is mostly attributed to refining our estimates as we progress through the year. There is no meaningful difference between RV and marina rates, with RV rates being slightly higher by about 50 basis points. (Patrick Waite, COO)
Q: Can you give more color around the lower operating expense guidance? How much of it is due to adjustments to lower RV expectations versus true savings?
A: Utility, payroll, and repairs and maintenance (R&M) expenses, which are two-thirds of our expenses, are increasing almost 2%, about 100 basis points lower than the July CPI print. This mainly results from a favorable year-over-year comp in R&M. The remaining third, including real estate taxes and insurance, are going up over 7%. (Paul Seavey, CFO)
Q: What is your view on home sales for the balance of the year, and how do you envision that impacting your rental homes portion of the business?
A: We continue to see consistent demand for manufactured homes, with 225 sales in the quarter, up 13% year-over-year. The rental homes portion, now below 3% of total occupied sites, may continue to decrease slightly. (Patrick Waite, COO)
Q: Can you talk about the transaction market and any movement on cap rates?
A: The transaction market has slowed significantly, with buyers' cap rate expectations increasing, but sellers have been slow to adjust. Institutional quality assets continue to command strong cap rates, but there is a lack of product for sale. (Marguerite Nader, CEO)
Q: Can you comment on annual RV retention if you strip out the change in hurricane cleanup people?
A: Our long-term turnover for annual RV customers is very similar to the MH portfolio, with customers staying with us for about 10 years, resulting in roughly a 10% turnover rate. (Paul Seavey, CFO)
Q: Have you seen any incremental price sensitivity among customers in the annual RV, RV membership, or transient RV business?
A: We have seen rate stability and strength across all three business lines. The fundamentals of the business remain strong, with consistent growth in both occupancy and rate. (Patrick Waite, COO)
Q: How much of the same-store expense guidance adjustment lower was due to savings associated with lower transient RV usage?
A: The favorable year-over-year comp from smaller scale storm events is a significant contributor this year, more so than the variability in expenses associated with transient activity. (Paul Seavey, CFO)
Q: Can you talk about your ability or history of converting RV sites to MH?
A: While it's a relatively low percentage across the portfolio, there are opportunities, especially in properties with multiple uses. For example, a 400-site expansion in Phoenix, Arizona, saw a significant number of RV customers purchasing MH units. (Patrick Waite, COO)
Q: Where do you see MH rent increases going, considering the recent deceleration and CPI trends?
A: Historically, our rent increases have been roughly 140 basis points higher than the COLA increase. We expect this trend to continue, with a more moderate long-term view on managing rent increases. (Patrick Waite, COO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
