Equity Lifestyle Properties Inc Q3 FY2021 Earnings Call

Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties Third 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. 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 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. In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release, our supplemental information and our historical SEC filings. At this time, I would like to turn the call over to Marguerite Nader, our President and CEO.

Thank you. Good morning and thank you for joining us today. I am pleased to report the results for the third quarter of 2021. The third quarter represents our most active camping season and our results show the demand for our product offerings. For the second quarter in a row, we have achieved high watermarks for our new home sales and profit. Our normalized FFO growth was 18% in the quarter and 21% when compared to the third 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 75%, contributing to the high quality of occupancy at our MH communities. Homeowners grew by 268 in the quarter, driven by a record number of new home sales. Our MH communities have maintained an occupancy level of over 95%. We have seen a heightened interest in owning new and resale homes in our communities. The quality of the community and the elevated homeownership base contributes to the demand for our properties. Homeownership transfers were 28% higher than last year indicating strong demand for the homes owned by our residents. Our digital marketing efforts contributed to the growth of the home sales pipeline. The unique traffic to our website has grown over 24% compared to the same time prior to the pandemic. The growth in our website traffic is being fueled by our digital marketing efforts including search engine optimization, partnerships with home listing websites and digital advertising. We had virtual home tours in 2020 as a response to the pandemic, and we have seen a 38% increase in views on our online home tours this quarter compared to last year. Our RV property saw an increase in revenue of 14% as compared to last year. The revenue growth was strong across annual, seasonal and transient customers. Our midweek activity continued to pick up with a 12% increase in nights from 2020. Our subscription-based Thousand Trails Camping revenue showed continued growth in the quarter. Our dues base, which is the largest portion of the revenue base, increased 12%. The dues growth was driven by strong new member signups throughout 2021 combined with improvements in member retention. Our upgrade volume increased 34% as we saw more members focus on increasing their commitment to us and enjoying additional benefits. Based on a recent survey we conducted among our customers and prospects, two thirds plan to camp more next year than they did in 2021. More than half of the respondents who are working remotely said that they would consider an extended stay in the Sunbelt due to their flexible work arrangements. Turning to capital deployment. Year-to-date, we have completed over $500 million of acquisitions. In the quarter, we closed on an 800 site parcel within a high quality RV park in Myrtle Beach, South Carolina for $111 million. Additionally, we purchased our joint venture partners interest in an 1,800 site high quality RV park in Tucson and achieved efficient execution through an exchange of ELS operating partnership units. Turning to 2022, we anticipate continued demand into next year. Within our MH portfolio, by the end of October we will have notified 48% of our residents for rent increases and anticipate a 4.7% rate growth in core MH revenue. We anticipate our track record of increasing occupancy will continue and our new expansion sites will provide additional growth. Based on rates we have set for 95% of our RV annual customers for the 2022 season, our core annual RV rental rate is anticipated to grow 5%. These two line items have historically represented over 71% of our overall revenue. Our primary camping season is now behind us. We welcomed over 350,000 guests and members during our 100 days of camping. I'd like to thank our team members for continuing to deliver excellent service as we have seen from our positive feedback scores. We are now turning our attention to the winter season where we will welcome our snowbirds as they escape the winter. I will now turn it to Paul to walk through the numbers in detail.

Thank you, Marguerite, and good morning, everyone. I will review our third quarter and year-to-date results and highlight our guidance assumptions for the fourth quarter and full year 2021. I will close with some comments on our balance sheet and debt market condition. In our earnings release, we reported third quarter and year-to-date normalized FFO per share of $0.65 and $1.90, respectively. Our core MH rent growth of 4.7% consists of approximately 4.2% rate growth and 50 basis points related to occupancy gains. We've increased occupancy 213 sites since December with an increase in owners of 551, while renters decreased by 338. Core RV and marina base rental income increased 14.1% for the third quarter and 11.9% year-to-date compared to the same period last year. Strong growth in rent from annuals of 7.8% and 6.5% for the quarter and year-to-date periods, respectively, reflects the demand for our properties and the outdoor recreation opportunities they provide. For the third quarter, rate growth of 5% was slightly higher than our guidance and we realized 280 basis points of growth from occupancy. Annual rent from our marina business represents less than 10% of total core annual rent and the year-to-date growth rate is 8%. As a reminder, more than 95% of our marina rent is generated from annual customers. Core rent growth from the seasonals increased 37.5% in the quarter. While the third quarter has not historically been a meaningful contributor to our full year seasonal rent, we saw an increase in customer demand for stays of a month or more driving the uptick in seasonal rent. Our core RV transient business delivered growth for the quarter of 21.1%. This is approximately $2 million higher than our July guidance, which we based on reservation pace at that time. Despite smoke from wildfires in western states that impacted transient stays at certain properties, transient demand continued to build throughout the quarter. Membership dues revenue for the third quarter increased 12.5% compared to the prior year. Year-to-date, we have sold approximately 200,000 Trails Camping Pass memberships, an increase of 23% compared to the same period last year. The net contribution from membership upgrade sales in the quarter was almost 130% higher than last year. Core utility and other income was slightly higher than third quarter 2020 and includes utility and pass through income that offset some of our expenses, as well as late fees that we reinstated in late 2020 after suspending them earlier in the year. Third quarter core property operating and real estate tax expenses increased 4.9% compared to the prior year period. Drivers of the increase include utilities and real estate taxes. Electric expense in California and the West was a large contributor to the increase with some of the increase partially offset by utility recovery. The increase in real estate tax expense is the result of Florida TRIM notices received in September that reflect increased assessments at certain properties. In addition, payroll expense increased almost 5% compared to the same quarter last year. This comparison is impacted by the timing of hiring in 2020, as our RV properties started to experience increased demand during the third quarter and in 2021, our efforts to retain employees and fill open positions. In summary, year-to-date core property operating revenues have increased 8.5% and core property operating expenses have increased 7.8% resulting in an increase in core NOI before property management of 9%. Income from property operations generated by our non-core portfolio, which consists primarily of the assets we've acquired in the trailing four quarters, was $5.9 million in the quarter. Property management and corporate G&A expenses were $27.4 million for the third quarter of 2021 and $80.1 million for the year-to-date period. Other income and expenses generated a net contribution of $6.5 million for the quarter and $16.7 million year-to-date. Interest-related loan cost amortization expense was $27.4 million in the quarter and $80.8 million year-to-date. The press release provides an overview of fourth quarter and full year 2021 earnings guidance. As I provide some context for the information we've provided, keep in mind my remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints in our guidance range and are qualified by the risk factors included in our press release and supplemental financial information. We provide no assurance that our actual results will be consistent with our guidance, and we assume no obligation to update guidance as conditions change. We expect fourth quarter normalized FFO at the midpoint of our range of approximately $115.7 million, with a per share range of $0.57 to $0.63. We projected core NOI growth rate range of 6.5% to 7.1%. MH and RV annual rate growth assumptions for the fourth quarter and full year remain consistent with our prior guidance. Significant factors in our guidance assumptions for the remainder of 2021 include the recent announcement opening the Canadian border and its impact on seasonal RV occupancy; the overall level of demand for transient RV stays as indicated by current customer reservation trends and a moderation of the growth in upgrade sales we've experienced year-to-date. Our full year 2021 normalized FFO is $2.50 per share at the midpoint of our range of $2.47 to $2.53. Normalized FFO per share at the midpoint represents an estimated 14.8% growth rate compared to 2020. Core NOI is projected to increase 8.4% at the midpoint of our range of 8.1% to 8.7%. The core NOI growth rate increase from our prior guidance is the result of our third quarter outperformance as well as updates to our expectations for the fourth quarter. We have updated our guidance to include MH occupancy gains in the third quarter, current RV reservation trends and expense adjustments based on the year-to-date activity. As a reminder, we make no assumptions for storm events or other uninsured property losses we may incur. Our guidance for the full year and fourth quarter includes the impact of the acquisition activity we've closed, including the October investment activity announced in our earnings release. We make no assumptions for additional acquisitions during the remainder of the year. Before we open the call up for questions, I'll discuss debt markets and our balance sheet. Current secured financing terms available for MH and RV assets range from 55% to 75% LTV with rates from 2.5% to 3.25% for 10-year money. We continue to see lenders place high value on sponsor strength and ELS continues to be highly regarded. High quality, age qualified MH assets will command preferred terms from participating lenders. Our cash balance at quarter end was more than $40 million. We have available capacity of $280 million from our unsecured line of credit. We have $200 million of capacity under our ATM program. And we have only $80 million of debt maturing in 2022. We continue to place high importance on balance sheet flexibility and we believe we have multiple sources of capital available to us. Our interest coverage and debt to adjusted EBITDAre ratio are 5.5x. Now we would like to open it up for questions.

Our first question comes from the line of Michael Goldsmith from UBS. Your line is now open.

Good morning. Thanks a lot for taking my questions. Can you walk through the thought process on the preliminary 2022 rent growth assumptions? Why is 4.6 to 4.8 the right growth rate for MH and 4.8 to 5.1 the right growth rate for RV? Thanks.

Sure, Michael. I'll start by just reminding everyone of the structure of our leases, specifically in the MH portfolio. So about a quarter of our leases with our residents have a link to CPI. Roughly half of those are directly tied to CPI or some fraction of CPI and the other half have floors of 3%. The remaining three quarters of the leases are market driven. So just kind of framing that for the benefit of listeners, and maybe Patrick can kind of walk through what we're seeing in the market and is driving the raise.

Yes. Thanks, Paul. So we're working through our budget process. And as we get into the latter part of the year, we typically go through meetings with our regional and property staff on recommendations for rent increases for the full year. That's going to include, as we work our way through the balance of the year, conversations with homeowner associations across the portfolio. Florida is a good example. They actually have a statutory setup for property owners and managers to sit down with HOAs and have conversations, not only about rent increases, but just the overall operation of the property. So while we're walking through that process, we share our view of the market and recommended rent increases. They share their view. Usually their view is lower than ours, and we have a reasonable conversation about what we're seeing in the market as well as presenting an opportunity for us to discuss priorities for the properties, particularly from the HOAs’ perspective. And that's activities, services and typically improvements to the property. They want some additional pickleball courts, other improvements maybe to the way that ours at the pool, pool furniture, etc. So that's the kind of view of how we come to our rate increases, including some color of our interaction with our residents.

That's really helpful. Regarding the opening of the Canadian border, in 2019, you generated about 27 million in RV revenue from Canadian customers. How much of that was impacted in 2020 and what is expected in 2021? Additionally, how much do you think you can start to recover next year?

So I guess I'll quantify it just in terms of the quarters. So fourth quarter of last year, what we experienced was a reduction or a loss, so to speak, of about $2 million, which is prime in the seasonal revenue and that was primarily driven by the Canadian customers. Our estimate for the impact in the first quarter was about $10 million. We backfilled some of that during the first quarter and the result was about 8 million.

Do you think because of this disruptions, you may have lost Canadian customers overall who may choose not to return?

I think our Canadian customers are thrilled about the border opening and very excited to come into Florida and Arizona and enjoy the sun.

Thank you very much.

Thanks, Michael.

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

Thanks. Paul, I appreciate the comments on the CPI and the floor. When you think on the MH growth rate for 2022, do you expect a meaningful difference between the age restricted versus the all age MH properties?

It's interesting that you asked that question. A number of our all age properties are located in California and are subject to rent control. Given the level of CPI, there is some benefit in the notices we're sending out now for 2022 compared to last year or the year before because the summer CPI numbers, especially out West, which is the index for many of the increases, were higher.

And we also have all age properties that are in summer destination locations where we are able to push rate a little bit more.

Okay, thanks. And then just on the acquisition pipeline, obviously there'd be the two deals this quarter. How does the pipeline look? And especially as we get towards the end of the year and the potential tax changes, could that shake loose any additional properties? Are you seeing any changes to the actual pipeline today?

Yes. I think that there's certainly market activity out there. A lot of it is auction based and we've kind of chosen not to participate in that but instead really focused on areas where we can create strategic advantages or part of a longer term relationship that we have in the industry. We started this year focused on that marina platform that was very similar to our Loggerhead portfolio that had a high quality cash flow stream. And then we did a transaction with KOA, which was really further strengthening that relationship. And then we just did the two large RV deals with longstanding joint venture partners. And then increasing our presence in the key Myrtle Beach market was important for us. So I think you'll see us kind of continue to do more transactions like those in the future. And I think the pipeline looks pretty good for those types of transactions.

Thanks. Are those fewer relationship deals available going forward do you think, just given the interest in the space more broadly?

Certainly, while we have long-term relationships with owners, there are times when they prefer to engage a broker and participate in an auction process.

Our next question comes from the line of Anthony Powell from Barclays. Your line is now open.

Hello, Anthony.

Pardon me. Anthony Powell from Barclays, please check your mute button. You might be on mute.

Gigi, maybe we should move on to the next and then we can get back with Anthony.

Our next question comes from the line of John Kim from BMO Capital Markets. Your line is now open.

Thank you. Good morning.

Good morning, John.

Hi, Marguerite. There's been some discussion among some of the RV dealers of higher turnover amongst them in the new and recent RVers as the economy reopens. And there's more travel options. It sounds like from your commentary that you're not seeing that on the transient side. Paul mentioned a moderation upgrade sale. So I just wanted to get your views on potentially some of these new RVers and a lot of them sticking around in this appetite.

Sure, John. So the RV business was incredibly strong before the pandemic. And we're in an environment where there are roughly 1 million sites and 11 million RVers on the road. And the pandemic has really expanded our customer channels so that we're seeing more and more outdoor enthusiasts visiting our sites without RVs. In the quarter, we saw an increase in new customer return traffic as compared to 2020. So while there may be some customers who don't think that this lifestyle appeals to them, there's really ample demand in the marketplace. So I think we're going to continue to see that demand.

And the moderation of an upgrade sale that was on Thousand Trails.

That's primarily due to seasonal factors. During the summer, there are more camping opportunities, which correlates with an increase in enthusiasm for membership upgrades.

Okay, got it. Paul also mentioned marina has been growing at 8% year-to-date. I think last quarter you mentioned 4%. So can you just elaborate on that what seems like a huge acceleration in revenue growth? And if you're seeing acquisition opportunities for the type of marinas that you're looking for, the high storage rental income marinas.

On the first part, John, I think there might just be some mixing. The 8% I mentioned is the revenue growth. The 4% is NOI growth. So we see the NOI growth at 4%.

And then, John, in terms of acquisitions, as we've mentioned in the past, we are looking for a particular type of marina than we are seeing some properties of interest, and we will disclose them as we close.

Paul, what was the revenue growth in the second quarter?

It was right around 8%. I don't have it right in front of me, John, but I can find that and follow up.

Okay, great. Thank you.

Thanks, John.

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

Hi. Thanks, guys for taking the questions. I guess first just touching back on marinas, it seems like you guys are more optimistic than on the last call. So are you willing to actually expand your exposure to it relative to where it currently is in the percentage of your portfolio?

Certainly, if we come across a transaction that aligns with what we've discussed, we would definitely pursue it. However, I don't believe this indicates any change from our previous stance. We have specific criteria that we prefer within the marina sector, and if we identify those, we would certainly complete those transactions. This is consistent with our previous statements that we will maintain a similar percentage of marina revenue as we currently have, while also expanding across all RV, MH, and marina segments.

Got it. And could you just give us some more color on how you've been mitigating inflationary pressures, specifically on the competitive labor market side of things?

Yes, Keegan, I think that what we have done in that regard is implement some technology initiatives to hopefully enhance the customer experience while reducing over the long term our reliance on labor at the properties. We have a huge focus pre-COVID on developing an online check in process. And we have implemented that and it's had great success. We also are testing tools, such as SMS texting for guests who are on the property so that they can communicate with the staff on property, and not necessarily have to step into the office. Another thing that we've done across our MH portfolio is focus on electronic payments. So those initiatives we expect, as I said, over the long term to drive labor costs. I think Patrick maybe has some other color to provide.

Yes, it's specifically related to filling vacant positions. And just for a perspective, compared to the third quarter of 2019, we were down about 200 full-time positions across the portfolio of more than 400 properties. And that really leans towards our RV properties, which have a higher seasonal component. That represents about 80% of those vacant positions. And if you think about it, it's a little bit more than 200 RV properties. That's a few positions at each property. And our property operations teams and regional management teams, they've really done a great job accommodating those unfilled positions by cross training and sharing responsibilities across various positions. So that's a successful way for us to adapt and fill those gaps when we've got wage pressures, but specifically just filling open positions. And just as a reminder, our customer service scores have remained consistently high. For the year 2021, 54 of our properties received the TripAdvisor Travelers' Choice Awards and 25 of our properties were included in the TripAdvisor Hall of Fame, and that's a very high standard where you maintain that Travelers' Choice Award rating for five consecutive years. So the teams have done a nice job dealing with the overall management of on-site staffing and it's really come through in our customer service.

Got it. So you guys don't feel like you lost on any revenue because of the staffing shortage, correct?

That's correct. We were able to.

That's it from me. Thank you.

Thank you.

Sorry. Thanks, Marguerite.

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

Hi, Marguerite.

Hello.

Good morning. I don't know if you cover this, but maybe what were the cap rates on kind of the recent deals you disclosed in the quarter?

Sure. The transaction that we did in Myrtle Beach equates to a 4.5 cap rate. And the deal that we did in Tucson was a 4 cap.

Okay. And then maybe just taking a step back, you can talk generally about what you're seeing in pricing, not only for RVs and MH but just kind of elaborate a little bit on marinas maybe?

I believe that there hasn't been much change in pricing and cap rates. Well-located RVs and mobile homes that are near each other will likely have similar cap rates. Currently, marina cap rates are between 5.5 and 6, while mobile homes and RVs fall in the range of 4 to 5.

Okay, great. And then, Paul, just to remind us, what percentage of your expenses are related to payroll? We discussed wage pressures in the last question, but I'm trying to understand what that impact could be on expense growth next year.

Yes. I think when you think about our expenses, utilities and payroll combined, which we talk about a fair amount having pressures, that's about 50% of our expenses.

Okay, great. Thanks.

Thanks, Samir.

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

Hi, Marguerite, Paul and Patrick. Hope you guys are doing well. I guess I wanted to ask about the ground lease acquisition you did. Curious on just getting more color on that and then maybe what the strategy is?

Sure, Josh. So the property is currently under a ground lease that's been in place for over 25 years and it expires in 2025. Our plan is to work with the ground lessee. And we have many options, including extending the ground lease, renegotiating the ground lease or taking over the operations of the property. So we just closed on it. We're just starting discussions. But this was a market that we've always been interested in. And a property that doesn't trade frequently at all, which is where our interest was. And this was a way to gain access to it.

I would think that a ground lease would result in cap rates being lower than they would be otherwise. Is that the correct assumption?

The cap rate stands at 4.5. The funds from operations generated by the ground leases correspond to this 4.5 cap rate. I believe there are significant opportunities once this asset joins the ELS family.

Okay, so it sounds like you'll try to get the whole asset if I'm thinking about it correctly?

We're in early stages of talking with the ground lessee right now.

Got it. And then I just wanted to ask about the midweek activity on the RV side. What sort of maybe the profile of the midweek customer is it?

What we see is that the midweek activity, as I mentioned that it's a 12% increase, and the nights with the largest variance was Sunday and Monday nights. So we really see more customers extending their weekend with us. So there's really no differential in what the customer looks like. It's more just they're taking their Sunday night and Monday night and perhaps the flexibility in their work schedules helps, and that positively impacts the results. We don't see that same effect on Tuesday and Wednesday. So it's really a Sunday-Monday effect that helps to drive up that increase in nights.

Got it. Okay, interesting. I'll leave it there. Thank you, guys.

Thanks, Josh.

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

Thank you for taking the time. Good morning. Paul, could you share the revenue and expense growth assumption that underpins the fourth quarter NOI forecast? I'm just trying to get a sense for the moderation of NOI growth you guys are predicting?

Yes, regarding revenue, the moderation rate we're discussing is around 3% for expenses and closer to 5% for revenues. When we consider the transient factor, we analyze our reservation pace and overall demand, which is strong but was also robust in the fourth quarter of last year. Our guidance assumes significant rates, reflecting nearly 50% growth in transient year-to-date, which is expected to moderate to high single digit growth. Additionally, last year the seasonal impact was about $2 million, and with the Canadian border now open, we anticipate those customers returning without the risks we faced last year. As Marguerite noted, upgrade sales typically see a decline in volume as properties go out of season, so we are projecting mid single digit growth for that segment as well compared to last year.

Okay. Could you share the seasonal RV growth assumption for the fourth quarter? I'm not overly concerned about one quarter; I just want to understand the trajectory for the next few years, especially considering the easier comparison from last year.

It is kind of a 25% to 30%-ish number relative to last year. So it's a healthy growth rate. But again, we're recovering those dollars that we lost.

Could you help us think about the RV business over the next few years, particularly regarding the insight you mentioned that two-thirds of your tenant base plans to camp more next year than this year? There will certainly be a lot of movement between annual, seasonal, and transient membership upgrades. Can you help us translate those survey insights into an understanding of the expected structural run rate for RV revenue growth going forward?

Yes, I think it's important to consider three different aspects. We have provided some guidance on the expected annual rate and how it will trend, which we believe is a positive figure. We have also observed a significant increase in annual memberships year-to-date, with over 1,000 more added. This is contributing to our growth rates. Regarding seasonal trends, it really depends on each season's circumstances. For instance, we are looking at 2022, when the Canadian border opened, and with the Farmers' Almanac predicting a very cold winter, we expect high demand for those reasons. As for the transient memberships, we have noted that it is challenging to predict them far in advance, but we have recently reached a larger customer base, which should help us continue to fill those transient sites.

Okay. So when you see this survey data and you see the kind of real-time trends in terms of the appetite for RV, do you expect transient RVs to decline on an absolute basis next year, or everything should still grow?

The transient side is a very kind of up to the minute rate adjustment. So as we see demand, as this is supply and demand equation, so we'll be adjusting that as we see it. So it's a little early to tell. But people are very excited. Our customers are very excited to get out on the weekends. And then when they do that, they tend to want to say, I like this lifestyle and then they go to commit on a longer term basis.

Okay. Thank you for your time.

Thanks, John.

Thank you. Our next question comes from the line of Anthony Powell from Barclays. Your line is now open.

Hello, Anthony.

Hello. Good morning. Sorry for earlier. Thanks for having me back on the call. So a question about actually home sales, which was doubled again in the quarter and very strong. Just curious, are you seeing any new demographics kind of with buying homes from you guys? And looking forward is there any profit for maybe higher margins in the segment? I know it's not a big focus for you except your margins. But given the volume sales, is that something that you can maybe push a bit further?

It's Patrick. I'll touch on the color around the homebuyers. And Paul, if you want to put a fine point on margins. But the buyer that we see coming through the door today is pretty similar to our typical new homebuyer in particular, and they're around 60 years of age. I think we reported on an earlier call that from a financial stability perspective, FICOs have consistently been over 700. That's trending somewhat higher at 730 plus for the year-to-date. So we're seeing a more well qualified homebuyer come through the door. And we're also seeing an increase in out of state inbound homebuyers. And really all that reflects is that while there was a kind of a longer transition from maintaining your residence up north and setting up your roots in call it, Florida, you'd come through as a homebuyer who was coming from a transitional housing as you were kind of setting up your roots and buying a home with us. We've seen that process shorten up and people choose to make this step-in in one move, buy a house and move down to the Sunbelt to setup their roots for retirement.

As we consider margins on home sales, I would describe it as primarily a low to no margin business for us in the new homes sector. Our main focus is on the total cost for the customer, which includes not only the cost of purchasing the house but also the rent. When we price it at equilibrium, the margin on the house sale is quite low.

Got it. Thanks. And maybe one more for me. You mentioned that you bought the parcel of land in Florida for initial development sites. When could you maybe start development there? And could you just maybe go over your development pipeline over the next couple of years? How many sites do you add near to your existing sites now every year?

Sure. So just with respect to the land that we bought, we bought 40 acres of land adjacent to a 400 site property, age-restricted property near Sarasota. That property has been full for many years and this was really a great opportunity for us to expand the footprint of the community. We think we would get the development going on that in the next couple of years, one to two years, I would say. And maybe, Patrick, if you could walk through the development pipeline.

Yes, the development pipeline over the last couple of years, our target has been to deliver north of 1,000 completed sites. We achieved that last year with a little over 1,100. We're tracking to just over 1,000 for the current year. And for the foreseeable future, I would expect us given our pipeline to be able to deliver in the 1,000, 1,200, 1,300 sites on an annual basis. A lot of that's going to be driven by just the timing of entitlements and the process for getting projects completed and CO-ed. In today's environment, we're seeing a little bit of pressure with the timing that we're seeing with our GCs. Likewise, responsiveness from local administrative offices on inspections, certificates of occupancy, utility companies in particular, connections with the electric company tend to be challenging from a timing perspective.

Got it. Have construction costs impacted any expected near-term yields for you, or are you still anticipating positive results?

Yes, we're expecting positive results of it. Our yields are in the high single digits typically with some of our projects in the low double digits. There's no question that we're seeing some impact from construction costs across the portfolio, but the demand profile allows us to help to support those yields.

Great. Thank you.

Thanks, Anthony.

Thank you. Our next question comes from the line of John Kim from BMO Capital Markets. Your line is now open.

Yes.

Thank you. The 4% cap rate on Voyager.

Yes.

Is this the new norm for a Class A RV resort or is it unusually low because of the expansion opportunity adjacent to it?

Certainly, we have been operating this property for 10 years, which gives us a solid understanding of its value and the transactions that have occurred in the surrounding area. The overall market conditions in Tucson and the high quality of our property are key factors in this.

Can you comment on the timing and the number of sites you could expand this to?

Sure. Patrick?

The adjacent land with the expansion consists of 300 sites on approximately 60 acres. We anticipate starting construction in 2022, beginning with the first phase of 150 sites, followed by the next phase after completion and leasing.

Great. Thanks.

Hi, John.

Thanks, John.

Thank you. Since we have no more questions on the line, at this time I'd like to turn it back over to Marguerite Nader for closing remarks.

Thank you all for joining us today. We look forward to updating you on our next quarter's call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.