Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties Fourth Quarter and Year-end 2020 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 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. 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 because of subsequent events.

Good morning, and thank you for joining us today. I am pleased to report the final results for 2020. Our performance shows the resiliency of our business. In 2020, our teams met each challenge with confidence and conviction. Our teams focused on providing a safe experience for residents, customers and employees. We were able to serve our residents and customers in a challenging operating environment while maintaining our impressive customer feedback scores. We continued our record of strong core operations and FFO growth with a 10% growth in normalized FFO per share in the quarter. The fundamentals of our business remain strong with demographic and economic trends creating tailwinds for future growth. In 2020, our MH portfolio increased occupancy by 293 sites. We experienced continued strength at our MH properties with full year rent revenue growth of 4.6%. We saw fewer move-outs this year primarily due to shelter-in-place orders. We adjusted our sales and marketing efforts, and we were able to access new customers and efficiently showcase our homes in a virtual environment. Throughout the fourth quarter, there were over 100 virtual home tours on our website. Website visitors looking at our listings were three times more likely to express interest in the community and share their contact information for a follow-up from our team after reviewing a virtual tour on our website. We see this as an opportunity to further grow our lead base. Turning to RVs. In 2020, the demand was strong for RV sites across the country. In the quarter, we saw an increase in core transient revenue of 15%. This growth was fueled by marketing campaigns for fall and winter camping opportunities. Our customers are interested in experiencing vacations in a safe environment. We also see increased flexibility in customer schedules that will continue to benefit us. In 2020, our Thousand Trails membership portfolio performed in line with pre-pandemic expectations. Our dues revenue increased over 4% to $53 million. We sold over 20,000 camping passes, an increase of over 6% from 2019. Our upgrade sales increased 15% over 2019 as we found more customers interested in increasing their commitment to the Thousand Trails system.

Thanks, Marguerite, and good morning, everyone. I will review our fourth quarter and full year 2020 results and provide an overview of our full year 2021 guidance. Fourth quarter normalized FFO was $0.57 per share. Strong performance in our core portfolio generated 3.6% NOI growth for the fourth quarter. Core NOI growth of 2.9% for the full year contributed to our normalized FFO per share growth of 3.9%. As Marguerite mentioned, full year core community-based rental income growth was 4.6%. Rate increases contributed 4.1% growth, while occupancy generated the additional 50 basis points. Our 2020 core occupancy increase included a gain of 345 homeowners. Our rental homes continue to represent less than 6% of our MH occupancy. Full year core resort base rental income growth from annuals was 5.6%, with 4.9% from rate increases and 70 basis points from occupancy gains. Core RV seasonal and transient revenues declined 3.7% and 8% respectively for the year. Fourth quarter seasonal RV revenues were approximately $2 million less than last year mainly due to the travel-related restrictions impacting Canadian and U.S. domestic customers' decisions to spend the winter season in our southern resorts.

Thank you. Good morning. I was wondering if you could discuss the decline that you're expecting in transient and seasonal RVs in the first quarter. I think, Paul, you mentioned half of that were the Canadian customers, but what was the reason for the remaining $5 million?

Sure. To provide some context, we previously discussed the impact of seasonal variations and our Canadian customers. In a typical year, those customers account for about 10% of our RV revenue. About two-thirds of that comes from approximately 3,500 annual customers. Additionally, 25% of the Canadian revenue is seasonal, with most of it generated in the fourth quarter and a significant amount in the first quarter. The ongoing effects of COVID-19 have influenced our customers' travel decisions, resulting in a $2 million decline in fourth quarter seasonal revenue. Key factors affecting the first quarter include the closure of the Canadian border, concerns among domestic customers regarding travel guidelines in their states, and uncertainty surrounding vaccine distribution. Moreover, favorable weather in the northern regions has led some customers to opt for staying home instead of traveling to warmer locations.

And John, what we're seeing, really the decline in the revenue is primarily coming from Orlando, Rio Grande Valley of Texas, and Arizona. Those are kind of the key areas where we're seeing the decline from the U.S.

And so what are you projecting for the remainder of the year? I realize the first quarter is seasonally high as far as the impact from Canada. But as far as seasonal transient, what's your projections for the remainder of 2021?

The seasonal revenue is largely concentrated in the first and fourth quarters, making up about 95% of it. The second and third quarters contribute very little, approximately $0.5 million. As for transient revenue, we don’t have sufficient insight yet. It will take time to see how that shapes up as we approach the season. However, we expect a return to a more typical environment compared to what we experienced in 2020.

And then we're seeing, as Paul mentioned in his comments, an increase in people just pushing their deposits forward into next year. So that's four times greater than what we've seen in previous years.

Okay. On the Thousand Trails membership, the revenue was up year-over-year and was up from the third quarter's run-rate, but the membership count was down, I think, higher than it has been seasonally, it was down about 1.5% sequentially. Did you lose more members because you pushed rate higher this quarter or was it because of just demand in the product, in RVs?

I wouldn't describe this as a change in demand; rather, it was a small increase in the attrition rate of legacy members. Some customers chose not to remain at the properties in the current environment. Historically, when customers stop using the product, we notice that reflected in attrition. This slight increase was balanced by the products we sold throughout the year. With a relatively stable member base, we experienced a change in the mix of dues related to the products sold, which is what really influenced the rate.

We observed an increase in the upgrades, which enable guests to enjoy longer stays at our properties with fewer restrictions and advanced booking options. This also led to a heightened interest in those upgrades.

Got it. Okay. Thank you very much.

Thanks, John.

Thanks, John.

Thank you. Our next question comes from the line of Keegan Carl with Berenberg. Your line is now open.

Hey, guys. Thanks for taking the questions. So I guess, first off, it appears your property operating expense growth kind of outpaced your rental income this quarter. Can you walk us through some of the components that drove the expenses higher, including insurance? And were there any one-offs in there?

Sure. Given the variability in expenses we've seen this year, it's probably best to discuss our operating expenses for the full year. Utilities make up over 25% of our total core expenses, payroll is just over 20%, and real estate taxes and repairs and maintenance are each around 15%. Together, these account for 80% of our total expenses. I previously mentioned Hurricanes Hanna and Isaias, as well as COVID, as factors contributing to our expense increase this year. Combined, these events represent more than $5 million in expenses we incurred. Adjusting for that, our run-rate expense would be closer to 3.5%. As we've discussed in previous calls, we are facing expense pressures that contribute to this growth, including property and casualty insurance and wage pressures. Moreover, due to COVID and the eviction moratoriums, we experienced an increase in bad debt expense this year as we were unable or delayed in resolving issues with delinquent tenants.

Okay. That's very helpful. Thank you. And then kind of a follow-up here. Can you give us some more color on the Marina acquisition? Is the makeup of it similar to your Loggerhead portfolio? And in regards to kind of the annual revenue sources, is there minimal revenue that's going to flow through the TRS?

Sure, it's Patrick. I'll provide an overview of the Marker 1 acquisition. This property is situated in Dunedin, Florida, and features nearly 500 slips located on the north side of the peninsula that forms Tampa Bay. We also own Loggerhead, St. Pete on the south side of the peninsula. With these two premier marinas in excellent locations, both have direct access to the gulf. They are well-equipped with amenities such as captain's lounges, pool showers, and substantial amenity areas. The asset's profile is similar to Loggerhead and offers a direct comparison to St. Pete, featuring high stable annual occupancy. It aligns with our marina portfolio goals as it includes fee simple ownership.

Great. Perfect. That's it from me, guys. Thank you.

Thank you. Our next question comes from the line of Samir Khanal with Evercore ISI. Your line is now open.

Yeah. Hi, Marguerite. I guess on the acquisition side, can you provide a little bit of color on what you're seeing in the pipeline? It clearly did more last quarter. I guess, how should we think about the pace of acquisitions over the next sort of 12 months to 18 months based on what you have in the pipeline under maybe due diligence?

Sure. So I'm pleased with our deal flow in 2020 and also heading into 2021. We have seen and we've often discussed more and more sellers are holding auctions to complete a transaction. Our acquisition team looks at all of the transactions that are out there and underwrites the deal to determine whether or not it's a strategic fit for ELS. I think what you've seen, Samir, over the last probably 4 or 5 years, we tend to have a pretty high concentration of our deals in the fourth quarter. I can't exactly explain why that tends to happen, but we tend to be focused in that fourth quarter. So our pipeline, we're pleased with where we're at with talking with sellers and in various stages of LOI and purchase and sale agreements. And as we close them, we'll certainly disclose and discuss them.

And remind me, if I missed this, I apologize, but did you disclose the cap rates on the properties that you acquired?

We did not. No, I did not. I'm happy to talk about it. So the properties, as I mentioned in my remarks, they're geographically diverse, with an average cap rate of about 4%. The deal flow that we had was really, in terms of the sourcing for the deals was in line with what we've seen in the past, in that we relied on our strong relationships for the majority of the deals and then a couple of the deals came through our broker network.

Okay. And I guess one last one from me. Paul, I guess from a modeling perspective, is there a prepayment penalty on the '22 debt that you're planning to repay here?

There will be. We negotiated a 50% reduction on the prepayment penalty because the deal is with an existing lender and involves refinancing properties with loans already in place. So, it will amount to about a $2 million prepayment when we close.

Got it. Okay. Thanks very much.

Thanks, Samir.

Thanks.

Thank you. Our next question comes from the line of Nick Joseph with Citi. Your line is now open.

Thanks. I appreciate the color on, I guess, really early 2022 booking pace. How are you thinking about pricing or rate relative to this year and I guess relative to 2020 as well?

As we assess the summer rates we have established, we have not yet set the rates for next year. However, we are observing very strong demand as people are able to move around, which has been a consistent trend for some time. I anticipate that we will continue to be able to increase our rates, while also making appropriate investments in our communities to support those rates.

I guess my question is more toward the seasonal, you had mentioned that the booking pace for 2022. So isn't that just a deposit at this point or are there already kind of rate conversations?

Yeah. That's just a deposit at this point.

Okay. And then how are deposits for this year being treated? Are they rolling forward to 2022? Are they being refunded for anything in this first quarter?

We have a flexible reservation policy that allows customers to receive a refund if they choose. However, our marketing and sales team is very focused on encouraging customers to extend or delay their reservations. Due to the level of interest, we are definitely seeing customers rollover or push forward their reservations.

Our customers are eager to secure their reservations because they believe there will be increased demand, and they want to ensure they can visit us when the time is right next season.

Makes sense. Thank you.

Thanks, Nick.

Thanks, Nick.

Thank you. Our next question comes from the line of Joshua Dennerlein with Bank of America. Your line is now open.

Hey, Marguerite. Hey, Paul. Hope you're doing well.

Hi, Josh. Hope you're doing well as well.

Good. I wanted to pick up on Paul's comments to the spring-summer reservation pace is accelerating. Curious, what's driving that?

I don't know about you, Josh, but I'm feeling a bit tired of being at home. I think many people are starting to think about spring and summer vacations. Just the other day, I had a conversation with someone planning a spring break for 2022, and it made me wonder if people might actually be able to travel in spring of 2021. We are seeing a demand similar to what we experienced last fall when some of the shelter-in-place orders were lifted. People are eager to be outside and definitely see our RV resorts as safe places to do just that.

We are also noticing a rise in transactions and an increase in participants in our RV dealer program, with activations up 20%. These activations create opportunities for our customers to visit our resorts and campgrounds, which is another factor contributing to the heightened demand.

Okay. Awesome. And then I wanted to touch base on that development property you bought in Arizona. Is that a truly ground-up development or more of an expansion of the adjacent property?

No, it's an expansion of the adjacent property. It's a high-quality, age-qualified property with 484 existing sites. There is a small amount of vacancy, around 30 or 40 sites, within that footprint, and there are an additional 228 sites adjacent to the property for development.

Okay. Okay. Great. Good color. I'll leave it there. Glad you guys are doing well.

Thanks.

Thanks, Josh.

Thank you. Our next question comes from the line of Todd Stender with Wells Fargo. Your line is now open.

Hi, thanks. Get back to Marguerite, I think you mentioned a four cap on the new acquisitions. Can you give us color maybe on how the rents are compared to market and any color on occupancies? I guess I want to try to start to get to more of a stabilized yield, which I would think would be closer to a six, if not accurate.

I think when I look at the two- and three-year yields, the five RV properties will greatly benefit from institutional ownership as we invest more in capital expenditures and adjust rates in the market. One of the RV resorts we acquired has potential in filling annual sites, which are currently under-occupied. We believe that addressing these vacancies will provide opportunities for growth. Additionally, three of the properties have potential for expansion, particularly the one I mentioned with 225 sites. I believe there is definitely the opportunity to achieve an increase of up to 200 basis points over the next two to three years.

All right. That's helpful. And then just kind of switching gears to new homes, we saw this morning just new home prices remain strong, just with the Case-Shiller Index on single-family. And your new home sales continue to be strong. Can you speak to the price points that you're selling at right now and maybe how that's compared to maybe this time last year?

Sure, it's Patrick. Well, you noted our new home sales for the quarter were up 8% and were up 30% for the full year. So it's a good consistent demand profile. We've seen consistent pricing. Where we do have an opportunity to push price, we will. That tends to skew toward more of our premier assets to assets that Marguerite just summarized in our new acquisition in the Greater Phoenix market will present an opportunity for new home inventory in increasing prices as well. But the prices have been relatively consistent year-over-year and I would describe them as having a significant lift, but that is coupled with strong demand and we'll be looking for opportunities to raise prices where we see that opportunity.

And I think what we're seeing, as I mentioned in my comments, is the ability for us to access the customer while they're at home in the north via the virtual tours has been really helpful for them to appreciate what we have to offer. At this point, I think we have a total of two homes that were sold sight unseen, physically sight unseen. I know two is not a big number, and that number is going to be a bigger number in a year and a couple of years from now, but I just want to highlight that, that's just another avenue that we're pursuing.

That's helpful. I have one last question regarding expansion sites. In 2020, there were 1,058 expansion sites added, with 549 being MH. Do you have the numbers for 2021?

For 2021, we expect to deliver between 1,000 and 1,100, with a slight preference toward RV in the mix. Our target is to maintain that range on a run rate basis for the foreseeable future.

Great. Thank you.

Thanks, Todd.

Thank you. Our next question comes from the line of John Pawlowski with Green Street Advisors. Your line is now open.

Hey, good morning, and thank you for the time. Going back to...

Good morning, John.

Good morning. Going back to the transactions, I appreciate the color on the four cap in terms of average. Could you break out that number between MH, the one big MH deal, and RVs and the marina?

The cap rates range from 3.5% to 5.5%, with high-quality manufactured housing at the lower end, recreational vehicles throughout, and marinas at the top end of that range.

Okay, great. Regarding your comments, I'm happy with the deal flow as we head into this year. Is approximately $200 million in acquisitions a reasonable expectation for this year? Would you lean towards more or less than that amount?

I don't think I'm supposed to be betting or making predictions on anything, John. So I would say I'm pleased with where we're at. I think we have strong engagement with our sellers and we'll pursue deals that make sense for us. Does that work for you, John?

I have one final question. I wanted to clarify the commentary regarding the pent-up seasonal and transient demand related to COVID, in relation to the guidance which seems to assume a return to a normal year like 2019. The mention of pent-up demand suggests to me that the revenue is expected to be significantly higher than the pre-COVID rate in late 2019. Did I misinterpret the guidance assumption of a normal year? Any clarification would be appreciated.

I think we're still in the midst of a pandemic, right? Our guidance assumes a return to normalcy. We do see some early indicators of pent-up demand that could potentially benefit us. However, each week, we encounter another headline about added or lifted restrictions, making it a really challenging environment to predict a revenue stream with limited visibility, especially more than 90 days out in a typical year.

Okay. Understood. Thank you.

Thanks, John.

Thanks, John.

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 comments.

Thank you very much. We look forward to updating you on our next earnings call. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.