Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties Second Quarter 2021 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.

Good morning, and thank you for joining us today. I'm pleased to report the results for the second quarter of 2021. Our properties experienced unprecedented demand in the quarter. Our MH revenue, RV revenue, home sales, and subscription revenue exceeded our expectations. We continued our record of strong core operations and FFO growth with 30% growth in normalized FFO per share in the quarter. While this growth rate is significantly impacted by the negative comps from 2020, it represents 28% growth from the second quarter of 2019. New customer growth in both MH and RV contributed to the positive results in the quarter. Year-to-date new home sales grew by 122%, contributing to the high quality of occupancy at MH Community. Homeowners grew by 179 in the quarter driven by a record number of new wholesales. Our residents recognized the high quality and value of homes in our communities and are especially motivated to buy given trends in the broader real estate market. We continue to focus on digital marketing and our website experience as a catalyst for growing our home sales pipeline. The unique traffic to our website has grown over 35% compared to the same time prior to the pandemic. Within our RV platform, we saw increased demand during holidays and weekends, as well as strengthened weekday activity. We saw an increase in customers coming to us on an annual basis. The resort lifestyle appeals to our customers as they chose an ELS property for their second home. We are attracting a larger number of new guests than in previous years. New customers look a lot like our pre-pandemic guests, indicating stability in our growing customer base. The number of new customers added to our database during the first half of 2021 is up 25% compared to 2019. These first-time RVers are drawn to camping because of an increased desire to spend time outside and the feeling that camping is a safe activity. We see our new customers choosing to increase engagement with us. Our subscription-based Thousand Trails camping pass showed significant growth in the quarter. Over 8,000 new members purchased a camp pass, which was an increase of 40% over the second quarter of 2020.

Thank you, Marguerite, and good morning everyone. I will review our second quarter results, highlight our guidance assumptions for the third quarter and full year 2021, and discuss our balance sheet and debt market conditions. For the second quarter, we reported $0.61 normalized FFO per share, $0.07 ahead of the midpoint of our guidance range. The main drivers of outperformance compared to our guidance were core RV rent revenues and membership revenues including upgrade sales. Our core MH rent growth of 4.7% consists of approximately 4.1% rate growth and 60 basis points related to occupancy gains. We have increased occupancy at 153 sites since December with an increase in 283, while renters decreased by 130. While our occupied sites increased during the second quarter, our reported occupancy percentage reflects the impact of expansion sites we've added to our portfolio.

Just to start on the transient guidance, you have the $3.5 million increase. You have the strong 4th of July. I know the first quarter was up about $2.5 million on a number that wasn't really COVID affected. So can you just walk through kind of what's behind that number and if there's upside to it?

I think the $3.5 million for the quarter, as I said, is based on our current reservation pace. It does incorporate the 4th of July that 20% translates into about $400,000 of growth. And as we look at the current pace compared to 2020 and 2019, that's the estimate that we have right now.

And then maybe switching to acquisitions. Can you talk about the cap rate on that Pine Haven acquisition, and then just any thoughts in general across the three businesses on how the acquisition market was?

So we closed on the property Pine Haven in Cape May. It's very well located near other ELS assets. And just to give you a sense of it, it is about 91% occupied annually and so it’s highly annualized revenue base, and the cap rate for the transaction was 5%. With respect to going forward this year, we've deployed over $350 million of capital into 14 properties, and our acquisition team did a great job of underwriting all the deals. It's really difficult to say when properties are going to close. But currently, we have them in various states in the acquisition process.

I know this you touched on earlier, but could you give us a bit more color on what's driving the core RV annual rate growth guidance down? Was it exclusively just higher northern bookings or was there something else on there?

It really is the change in the occupancy mix. So as I think I explained maybe on the January or the April call, 90% of the annual residents in the RV footprint were notified of their rate increase by last fall. So that increase is pretty steady throughout the year. But as we noted in the quarter, as we see a change in the occupancy mix, it does have an impact on the weighted average rate.

But there is nothing we should be worried about as far as like downside or concerns in occupancy in other regions. It's just because of the weighting to the north?

That's correct, yes.

And there is an increase in overall annual occupancy and it's just the weighting and the rate is different.

And then I think kind of going back to transient. Can you give us the breakout of what was the function of volume versus price in the quarter? Is it one or the other that's kind of standing out?

I think similar to what we just discussed on the annual side, what we've seen on the transient side is a shift in the mix as well. So the demand in the transient was very strong in some of our higher price locations like the Florida Keys. And so the rates contribution is a pretty heavy number, frankly, but it's a function of where people stayed rather than an increase in the rate implemented at individual locations.

And it was also a function of increases in cottage stays, which is a higher price point.

And then I mean just kind of on the transient, can you give us a feel for bookings quarter to date outside of the 4th, or do you guys feel like it's trending well above 2019 or how should we think about that?

The 20% number we discussed for the 4th of July indicates that $3.5 million represents a 23% increase over 2019 for the quarter. Considering our guidance for the third quarter and examining the actual results from Q3 2019, we have analyzed the percentage of full quarter revenues at similar points in the year, and it appears we are on track to achieve those results.

This is Nick. Just one other question. I just want to go back to the transaction market, Marguerite. I'm wondering if you're seeing new entrants into the space at all and how that's impacting either bidding or how many people are showing up for these opportunities?

We haven't seen any new major players in the last year or so. While we have previously discussed the new entrants that emerged over the last five or six years, there has been nothing new recently. These assets continue to be highly sought after and well-marketed.

So I guess, Marguerite, can you provide a little bit more color around what growth has been like, I guess, in the marinas business year-to-date as things have started to reopen and normalize here? I think you have close to 25 marinas today with the acquisition. Just trying to figure out how that segment is tracking versus RV or MH here.

So our marina portfolio in the quarter performed in line with our expectations. We generally have long-term revenue streams, we've updated the technology for our customers. And what we're seeing is about 4% growth in revenue on the marina side.

And then I guess my second question is around transactions. Clearly, bidding is very aggressive on that front. I mean where is the opportunity set for you today when you kind of look at maybe over the next year, is it the marina side, is it the RV side? I mean, how should we be thinking about that?

I believe that as we evaluate our acquisition pipeline, we have opportunities in the manufactured housing, recreational vehicle, and marina sectors. As I mentioned earlier, it's challenging to predict when a specific asset will close. However, there has been greater interest from various parties in the market over the past five years, especially from new entrants. Our long-term relationships with asset owners certainly provide us with a competitive edge to initiate discussions. In many cases, this leads to a bidding process. Nevertheless, there are still many opportunities available, as evidenced by our performance so far this year.

And I guess my final question is, have you seen any sort of inflationary pressures in the business today?

I think that overall, Samir, we have seen inflationary pressures. We've seen pressure on wages. It's offset somewhat by the challenge in attracting and recruiting employees. We're facing similar challenges to many who are trying to recruit hourly employees today. But wages are definitely increasing. And that is also translating into repairs and maintenance expenses with those third parties that we engage for landscaping and other activities at our properties. And then just overall energy costs are pretty volatile, especially given the severe weather patterns that we've been seeing. The demand on energy is significant across the country and we're seeing that play out in our utility expenses.

My first question is kind of on the guidance. You beat the high end of your FFO guidance in the quarter, full year you went up by more than that. So what are the changes in your assumptions for the back half of the year, and is there anything else there other than on the transient RV side?

The second half of the year, as I mentioned, the core occupancy, so we don't make an assumption just in our standard guidance; we don't make an assumption for future occupancy gains. But on a quarterly basis, we do update for occupancy that we have gained during the prior quarter. So we've done that. We've adjusted our RV revenue growth assumptions. And as I mentioned, that's expected to be $3.5 million higher than last year. And then we did have some adjustments to expenses but I'd say the revenue drivers are most significant.

And then clearly, there's a lot of strength in the transient RV business and the membership subscriptions. As you look back historically at times with elevated RV demand, how sustainable or captive is this group so it drives the business in future years? And looking forward, does that show up through your annual revenues? I guess, said another way, like can RV revenues remain at these new elevated levels going forward?

As we look ahead, years ago, a few years ago, the installed base was 9 million RVers, now it's 11 million. And in total across the United States, there's about 1 million RV sites. So that ratio bodes very well for us. We really see it's a transition going from transient to a seasonal to an annual, and you'll see that throughout our portfolio. We've certainly seen an increase in members over the last Thousand Trails members and subscription-based revenue over the last couple of years, and I think that just comes from the demand in RVs overall and the demand for getting out and being outdoors with your family.

And just if I could squeeze one last one in, maybe it's similar to Brad's question in the beginning. But is there anything to read into July 4 weekend being up 21% relative to 2019 while Memorial Day was up 30%, are you starting to see a deceleration here?

I think what you observed was more related to the weekend. Last year, many areas of the country were essentially closed. During July 4th last year, we were much more open, and people were able to travel across the country more freely.

Just a quick question on how much of your business is on the books now for the quarter for the transient segment?

Certainly, 4th of July, as I said, is up about $400,000 just in terms of the way that we think about it. Labor Day is a big weekend for us as well. The interesting thing about it is how August and September will develop; weather is a huge factor. To the extent that we have poor weather, there's going to be an impact on the next couple of months. So I think that it's not quite a third, a third, a third in terms of the three months in the quarter, because September typically drops off. Last year in September was a very strong month for us because the weather was good and people were able to be out at our properties.

And Wes, the booking window can be pretty tight. So you know what, as your weekend fills up, it may be Thursday or Friday before you know how it's shaping up.

My question is trying to understand if the surprise in the last two quarters is related to those near-term bookings. Is that where you're seeing it?

Right, that's exactly where it is. And we're seeing an increase, as I mentioned, in weekday traffic that we hadn't seen on a pre-pandemic basis.

Can you provide the revenue uplift from transitioning transient to seasonal and from seasonal to annual?

I mean, I think that it depends on a property-by-property basis because it really depends on where you are in the area of the country. We can circle back with you and provide some guideposts on a regional basis. We don't have that in front of us right now.

And then have you started any developments year-to-date and do you have many going on right now?

Yes. We're tracking to, as mentioned on previous calls, our 1,000 to 1,100 sites to be delivered for the full year, which will represent roughly a dozen projects. That's tracking basically in line with our previous year, which is around 10 or 11 projects and about the same number of sites.

Are those mostly expansions or are those ground-up?

Those are mostly expansion; there's an initial phase of one ground-up. But predominantly, those are driven by expansions and it's skewing a little bit towards RV for 2021.

On Thousand Trails, it looks like your membership increase was the most in at least a decade. Can you remind us what the typical renewal rate is for members?

We have about a 90% renewal rate on members. So we have 10% of the members fall off in any given year.

Do you expect that rate to continue over the next 12 months, or do you think there'll be more volatility just given so many new members joined this year?

I don't really see that attrition rate changing much; it hasn't varied significantly over time despite going through multiple cycles. We sold a lot of camp passes this quarter, which marks the highest sales level since we started this 10 years ago. It's great that 50% of those sales were made online, as it's an efficient sales method. Additionally, we still have a very loyal customer base.

And Marguerite, can you remind us if there's a seasonality when you add members? I know in past years, you provided guidance for the year. This time you're providing real up-to-date member counts, but you typically have more members in the second and third quarter of the year.

The summer is a big season for us for adding new members, and then it trails off a little bit as you head into the winter.

Looking at your marina business, is it fair to assume that most of the leases are annual leases and not seasonal or transient? I'm just comparing your core versus your total RV and marina business.

Yes, more than 90% of the revenue comes from annual customers in the marinas portfolio that we have.

And so what was the occupancy on the marinas?

I think we're at like 90% or 91%.

On the topic of occupancy, can you provide the occupancy for the transient RV business in the second quarter and what you expect it to be for the remainder of the year?

We don't really quote an occupancy statistic on the transient, John, because the mix of site changes as we use sites for seasonal; they may become transient and we may fill a site that is transient with annual. So that's not a metric or a statistic that we track or provide.

Which is what you saw, John, us doing in the first quarter when we had difficulty filling the seasonal from the Canadian aspect, the Canadian customer base, and then they became transient. So that's one of the reasons it's difficult to quote that number.

What about like a total occupancy number then for RVs?

Yes, the same thing. We don't track or we don't quote a number for that purpose.

But we provide, John, in the supplemental, it shows the number of sites that are transient and that does adjust every quarter.

I might have missed this but have you provided or can you provide an update on your expansion site delivery expectations for this year?

It should be around 1,000 to 1,100 sites for the full year.

I saw the new home sales, the volume looks like it is up a lot and then the gross revenues were up as well. Curious if there's any underlying theme that you're seeing driving that and if you expect it to kind of continue to tick higher across the rest of the year?

I'll take the volume first. The volume obviously was up significantly, more than double over the same time last year. So what we're really seeing is strong demand from home buyers. So a big driver of that increase was us selling homes to meet increased buyer demand. Some of that is just a mix of sales and rentals. If you look at Q1, our rentals were, for the most part, flat year-over-year. For Q2, they were down more than a hundred and a piece of that is really just more buyers coming through the door interested in purchasing a home as opposed to renting. So that's kind of a high level on the unit counts. And then just with respect to sale price, sale price was up almost 30% year-over-year. Some of that is really driven by the mix of some higher-priced units, and that will happen depending on where transactions are happening in any particular quarter. If we look at similar models year-over-year, they're up roughly 10% from a sales price perspective.

Curious like that 10% kind of I guess, same kind of unit number you quoted, like do those unit prices kind of track the overall home price market from that basis? I know we've seen significant gains. So I guess, from my perspective, I'm trying to think if like you keep seeing stick build homes, prices go up, and it becomes super competitive, maybe you could end up with more customers.

I mean, I would say that in any particular submarket, at a minimum, it will be directional. Just high level, Case-Shiller was up 16% for the quarter. It was up 12% for the quarter in Q1. So we're seeing a similar trend. When I said 10%, we're actually up 11% for the second quarter. And in Q1, we were up 6%. So you're seeing an acceleration in that pricing just based on that high level of demand.

Patrick or Marguerite, could you give me a sense for how meaningful the shift in weekday bookings have been? And if it's enough of a needle mover to change how you think through the risk of the transient business, because ostensibly that would put a little bit of less pressure on weaving the needle on weather driving the need.

I mean we've seen an increase. It's probably been a 4% or 5% increase overall in the nights in occupancy. So I don't think that changes the metric as how we think about transient overall. And we also think that there's some amount of work flexibility that's factoring into that and that seems to be changing over time as people return to office.

So in the past, you've kind of made the claim that or the statement that transient RV parks are kind of mispriced relative to annual or relative to MH in a post-COVID world with more work-from-home flexibility. Do you still stand by that or are the trends in RV becoming more interesting at current pricing?

Well, I think that we will always tend to want to invest in assets where you have a long-term customer base that you don't have to go out and market every weekend for. So I would still stand by the annual seasonal business; the stickier business, a higher quality cash flow than what you see on the transient side. On the transient side in certain locations where it's extremely well located, there may be an opportunity there. But for the most part, where we will be sticking with the annual seasonal business that's been performing very well. Thank you all for joining us today. We're available for any additional questions. Have a great rest of the summer.

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