Equity Lifestyle Properties Inc Q3 FY2024 Earnings Call

Good day, everyone, and thank you for joining us to discuss Equity LifeStyle Properties' Third Quarter 2024 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 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 uncertainties. 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'd like to turn the call over to Marguerite Nader, our President and CEO.

Good morning, and thank you for joining us today. I am pleased to be able to report on the third quarter today and provide some insights into the strengths we see in 2025. Turning to the results for the third quarter. We delivered strong normalized FFO growth of 5.3%. Over the last several years, we have seen increased demand for owning a home in our properties. Our rental pool is at the lowest point since 2010, with 2.9% of our occupancy comprised of rental homes. Over 95% of these new homebuyers were cash buyers. This investment is consistent with our entire portfolio as the vast majority of our residents have made a capital commitment to live in our communities. The commitment from our homeowners results in a pride of ownership and a long-term resident base. Our RV annual revenue continues to show strength with growth of 6.9% year-to-date. The attractive price point of the vacation cottage product at our properties drives a stable annual revenue base. Our first-time transient customers returning from last year showed a desire to strengthen their relationship with us. I would like to turn to focus on our access points for new customers. In the last decade, ELS has made significant investments and developed partnerships with leading publishers and Internet listing services to reach our target customers in the U.S. and Canada. Our digital marketing efforts seek audiences that share characteristics similar to those of our existing customers. We focus on the lifestyle-driven decisions of our customers. 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 10th year of our '100 days of camping' marketing campaign, which celebrates the time between Memorial Day and Labor Day. The campaign recorded 38.7 million impressions, the highest we have experienced across several social media platforms. Before I talk about our expectations for 2025, I would like to highlight some of the demand drivers for the MH business. There are 7 million manufactured homes in the country, housing over 18 million people, making up 6% of the housing, and when you go outside of the metro areas, that number increases to 14%. In 1994, the HUD code was updated which increased the construction and safety standards for manufactured housing. Our homes fit the needs of our core demographic. The average price of a new home in our property is approximately $90,000, which is about 75% less than a similar home in the neighborhood. We offer incredible value, and our available audience is significant with nearly 70 million baby boomers and 65 million Gen Xers included in our targeted base. Our customers seek out our properties for the vacation destination locations, high-quality home product at an affordable price, and the sense of community. We are pleased to be able to provide you with insight into the strength we see ahead in 2025. Within our MH portfolio, by the end of October, we anticipate sending 2025 rent increase notices to approximately 50% of our MH residents. These rent increase notices have an average growth rate of 5%. For our RV portfolio, we have set annual rates for more than 95% of our annual sites. The RV annual rate increases have an average growth rate of 5.5%. We are engaged with our residents discussing the appropriate areas for capital allocation within our communities. These results set us up for continuing our long-term track record of REIT leading revenue growth. Our supplemental report included information on the impact of Hurricanes Helene and Milton. The strength of the infrastructure, particularly the new homes in the communities has been evident after the storms. Our teams have shown incredible resilience and dedication to the residents and community. This commitment from our employees and residents reinforces the sense of community found at our properties. 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. We are able today to report the results from operations, provide a positive update about our cleanup efforts, and provide an advanced view into 2025 results because of our 4,000-plus team members who are actively engaged to support our residents and customers and to deliver shareholder value. Their focus on meeting the needs of the residents and customers is the reason we are able to report REIT leading operating statistics over the last 20-plus years. I will now turn the call over to Patrick to provide an overview of property operations.

Thanks, Marguerite. I'll start by providing a bit more detail regarding our assessments of the impact of Hurricane Milton on our properties in Florida. In the days since the storm made landfall, I've toured properties, and I have seen the great strides our team members have made in cleanup and restoration efforts. Hurricane Milton impacted a number of our properties in Florida locations. The affected properties experienced flood, wind, wind-blown debris, fallen trees and tree branches. We have seen damaged homes, carports, screen rooms, and onyx. Our team members and third-party contractors are in the process of cleanup projects at the impacted properties, and we're working towards quickly returning our properties to full operating condition. Our storm operation plan was enacted prior to landfall, helping to ensure our ELS team members were safe at the properties, and we're prepared for the weather. Our teams and contractors were staged and ready to be deployed after the storm. This strategic normalization ensures that we have third-party vendors available to start work as soon as reasonably possible. I visited storm-impacted properties after every large storm event, and each time I visit, I am impressed by the stability of the infrastructure of our properties throughout Florida, as well as the impact the residents have as they gather to help others in their communities who may be in need. Turning to our third-quarter results, our summer camping season is punctuated by three major holidays and supported by our annual '100 days of camping' campaign. For the 14 weeks between Memorial Day and Labor Day, total RV revenue increased 2.5% over last year, largely driven by an annual increase of 6.3%. As we have discussed in recent quarters, we are seeing a normalization of demand in the RV space from the peak COVID demand period when we experienced flexible life schedules and the desire to spend time with one socially distanced group of family and friends. We now shifted our focus to the winter season when activity picks up in our Sunbelt Resorts. In the MH portfolio, our properties are 95% occupied and delivered consistent revenue growth. Florida, California, and Arizona collectively represent about 70% of our stable MH portfolio revenue. We continue to see strong demand for our homes and communities in these Sunbelt markets, supporting stable long-term rate growth. Florida has historically been the leading state for net in-migration. Our development program continues to deliver opportunities for home sales and occupancy growth, and we have more than 1,500 MH sites in the expansion pipeline in Florida to support future growth. Our California and Arizona portfolios are 97% occupied. Those MH properties in Arizona benefit from strong Sunbelt locations, while California locations offer tremendous value to customers given they are in high-demand markets and the high cost of alternatives to ELS properties in those markets. I'd like to thank the ELS team for their efforts. The progress at the properties over the last 12 days, often under difficult circumstances, shows a great deal of commitment and teamwork, and that progress is meaningful to residents and guests at the impacted properties. I'll now turn it over to Paul to walk through the results in detail.

Thanks, Patrick, and good morning, everyone. I will discuss our third-quarter and September year-to-date results, review our guidance assumptions for the fourth quarter and full year 2024, and close with a discussion of our balance sheet. Third quarter FFO and normalized FFO were $0.72 per share, in line with our guidance. Strong core portfolio performance generated 5.8% NOI growth in the quarter, 130 basis points higher than guidance. Our results include JV income resulting from a distribution following a secured loan refinancing that was included in our guidance model. Core community-based rental income increased 6.2% for the quarter compared to the same period in 2023, primarily because of noticed increases to renewing residents and market rent paid by new residents after resident turnover. Rent growth from occupancy was 40 basis points compared to the third-quarter 2023. We increased homeowners by 111 sites in the quarter. Core RV and Marina annual base rental income, which represents approximately two-thirds of total RV and Marina-based rental income, increased 6.2% in the third quarter and 6.9% year-to-date compared to the prior year. Year-to-date in the core portfolio, seasonal rent decreased 4.4% and transient decreased 4.3%. We continue to see offsetting reductions in variable expenses. For the September year-to-date period, the net contribution from our membership business was $43.6 million. Membership dues revenue increased 1% for the year-to-date period compared to the prior year. Year-to-date, we've sold approximately 16,100 Thousand Trails Camping Pass memberships. During the year-to-date period, members purchased approximately 2,900 upgrades at an average price of approximately $9,000. Core utility and other income increased 7.1% for the September year-to-date period compared to the prior year, which includes pass-through recovery of real estate tax increases from 2023. As a result of our continuing efforts to unbundle utility expense, our utility income recovery percentage was 46.7% year-to-date in 2024, about 200 basis points higher than the same period in 2023. Third-quarter core operating expenses increased 2.8% compared to the same period in 2023. Expense growth was 150 basis points lower than guidance, mainly resulting from savings in payroll, utilities, and repairs and maintenance expenses. Core NOI before property management increased 5.8% and 6.2% for the third quarter and year-to-date periods, respectively. Income from property operations generated by our non-core portfolio was $2.1 million in the quarter and $10.7 million year-to-date. During the third quarter, we recorded an accrual of approximately $1 million, representing our estimate of expenses incurred following Hurricane Helene, the expenses presented in the casualty-related charges, recoveries, net line in our income statement. The press release and supplemental package provide an overview of 2024 fourth-quarter and full-year earnings guidance. The following remarks are intended to provide context for our current estimated future results. All growth rate ranges and revenue and expense projections are qualified by the risk factors included in our press release and supplemental package. We have increased our full-year 2024 normalized FFO guidance $0.01 per share to $2.92 per share at the midpoint of our range of $2.89 to $2.95 per share. Consistent with historical practice at this time of the year, we have narrowed our full-year guidance range to match the $0.06 per share range we use for quarterly guidance updates throughout the year. Full-year normalized FFO per share at the midpoint represents an estimated 6% growth rate compared to 2023. We expect fourth-quarter normalized FFO per share to be in the range of $0.73 to $0.79. The fourth-quarter guidance range we provided includes no assumptions related to impact from recent storms. As Patrick mentioned, we are in the early stages of assessing the impact on our portfolio. As we continue the process, we may identify expenses to be accrued, including any impairment write-off resulting from Hurricane Milton. At this time, we have not identified any property with an operational disruption significant enough to consider a non-core designation. We project full-year core property operating income growth of 6.3% at the midpoint of our range of 6% to 6.6%. Full-year guidance assumes core base rent growth in the range of 5.8% to 6.4% for MH, and 2.7% to 3.3% for RV and Marina. The midpoints of our guidance assumptions for combined seasonal and transient show a decline of 6.6% in the fourth quarter, a decline of 4.7% for the full year compared to the respective periods last year. Core property operating expenses are projected to increase 2.6% to 3.2% for the full year. Our full-year expense growth assumption includes the benefit of savings in repairs and maintenance and payroll expense during the first nine months of 2024, as well as the impact of our April 1 insurance renewal for 2024. The full-year guidance model makes no assumptions regarding the use of free cash flow we expect to generate in the remainder of 2024. Our fourth-quarter guidance assumes core property operating income growth is projected to be 6.7% at the midpoint of our guidance range. In our core portfolio, property operating revenues are projected to increase 4.5% and expenses are projected to increase 1.4%, both at the midpoint of the guidance range. I'll now provide some comments on our balance sheet and the financing market. As noted in the earnings release and supplemental package, earlier this month, we raised net proceeds of approximately $314 million from the sale of shares using our ATM program. The gross sale price per share was $70. We used the proceeds to repay our $300 million unsecured term loan with a maturity date in April 2026. In connection with the repayment of the term loan, we terminated the interest rate swaps with fixed interest at 6.05% through maturity. We're pleased with this execution, and we estimate it is $0.03 per share accretive to normalized FFO per share on a full-year basis. On a pro forma basis for this transaction, we project debt-to-EBITDAre will be 4.6 times, interest coverage will be 5.5 times, weighted average interest rate would be 4.05%, and weighted average maturity for all debt would be nine years. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Current secured debt terms vary depending on many factors, including lender, borrower, sponsor, and asset type and quality. Current 10-year loans are quoted between 5.25% and 6%, 50% to 75% loan-to-value and 1.4 times to 1.6 times debt service coverage. We continue to see solid interest from life companies and GSEs to lend for 10-year terms. High-quality, age-qualified MH assets continue to command best financing terms. In terms of our liquidity position, we have approximately $450 million available on our line of credit, and our ATM program has approximately $185 million of capacity. Now, we would like to open it up for questions.

Our first question comes from Jeffrey Spector from Bank of America Securities. Please go ahead with your question.

Hey, everyone. It's Josh Dennerlein here. Regarding the preliminary rate growth guidance for 2025, could you remind us about the 2024 notices you sent out and the increase you experienced throughout the year from new customers joining the portfolio? I'm trying to understand what the current mark-to-market situation is across the portfolio.

What we're seeing in terms of the rents charged to new residents after turnover is 13%. It has moderated a bit in 2024. We started the year in the first quarter closer to 16%, but that's moderated back to about 13%, similar to what we observed in 2023. We have included in our preliminary rate growth estimate the impact of that adjustment for the residents who received notices on January 1. So that 50% of the residents is included in that estimate. However, going forward, it's important to note that there is potential for that to have an impact.

And including that is similar to the way it was last year. So that's keeping with the same methodology.

Okay. No, good to know. And then maybe just on the other side of the equation, the expenses, I mean, year-to-date have been pretty low, especially the payroll expense. Just kind of take you through, was there any kind of adjustments that you are making on the payroll front? And then just how should we think about this as a go forward? Like, should it kind of normalize out towards just like standard wage growth inflation going forward or is there something you guys can do to keep it lower than inflation?

Certainly, Josh. I’d like to discuss the trends we’re seeing this year. For the quarter, we experienced favorable payroll results primarily due to a 5% improvement in the number of employees at our properties, which is a year-over-year comparison. This improvement is largely attributed to the RV properties as we progress through the summer RV season. The open positions are somewhat influenced by the competitive job market. We are also concentrating on effectively managing schedules at the property, which has positively impacted our overtime and temporary payroll. We achieve this through cross-training and sharing responsibilities, resulting in better overall payroll management and headcount favorability. I want to emphasize that while we navigate these scheduling adjustments in the RV properties, we continue to maintain high customer experience scores.

Thanks for that.

Thank you. And our next question comes from the line of Brad Heffern from RBC. Your question, please.

Yeah. Thanks. Good morning, everyone. For the MH rate increases, the past few years have seen the guided base rental income growth be higher than the noticed rate growth figure. I think some of that's obviously the CPI linkage, which presumably won't be a tailwind next year. But can you go through the composition of the other 50% that hasn't seen notices and whether you would expect those to be higher or lower than the 5% figure on the first 50%?

Yeah. I think that there are a couple of things to keep in mind. First, we are talking about rate. So let's just understand that there are two components to revenue growth overall, rate and occupancy. So this is the rate only component. When we look at the remaining 50%, the population that received notices or are receiving notices for January 1 is a bit more heavily weighted to the longer-term agreements, as we call it, 25% of the population. So the remaining 50% are a bit more heavily weighted to market increases and the CPI associated with rent control.

Okay. And then can you talk through the decision to pay off the term loan with equity? Is that building balance sheet capacity for maybe potential acquisition activity or are you trying to move just to a lower leverage level overall?

I think that in the ordinary course – in the first week of October, we had the opportunity. We sold 4.5 million shares at the $70 price that I mentioned, and we are pleased with the execution and the enhancement to our financial flexibility.

Okay. Thank you.

Thank you.

Thank you. And our next question comes from the line of Eric Wolfe from Citi. Your question, please.

Hey, thanks. Maybe just a follow-up there. I mean, you just entered into the swaps, I think, around April. I'm assuming there was an early termination payment for them. Maybe correct me if I'm wrong. So I'm just again, trying to understand the raising $300 million. This is the largest amount you've raised since, I think, the fourth quarter of 2021. So is it just because it's accretive, you're trying to deleverage? Just trying to get a better sense for why now raising $300 million?

Well, the first part of that, yeah, there was a cost associated with it. It was about $5 million to unwind and then write-off unamortized loan costs associated with it. And I think from our perspective, when we look at the capital stack, the opportunity to take out debt that was carrying 6.05% interest until 2026 and create the flexibility. We just in July, renewed our credit facility with our bank group. And the opportunity to position ourselves to be able to tap that market in the future if an opportunity shows up was something that we found attractive, just kind of thinking about the levers that we can pull.

And Eric, as Paul had mentioned in his opening comments, we looked at our balance sheet statistics and increasing our term to maturity to nine years and decreasing our exposure to debt maturing through 2026 to 3% was important for us.

Right. Yeah. It makes sense. It was really more the timing that was sort of interesting to me. And I guess you mentioned a second ago that in case opportunities do arise at some point, I mean are you seeing signs that there could be more opportunities. It's been pretty quiet for a while now. And so just curious if you're starting to see something that suggests we're going to see larger transactions in the future.

Sure. I think addressing the 2026 debt made sense for us, and we don't think it limits but rather improves our position to be able to act quickly on acquisition opportunities. With respect to the transaction market in general, there's been a significant slowdown in recent years. I think the volume of transactions for institutional-quality assets like what we're looking for is very low, and there's just a lack of available inventory. We are seeing some smaller deals that don't really fit into our portfolio, and they're often sold using seller financing. But maybe it's helpful to just kind of point out on our available acquisition set with 50,000 manufactured home communities in the United States. And when you remove the smaller kind of non-investment-grade assets, you get to about 3,000 assets, and we own 200 of those. And then on the RV side, kind of using the same metrics, it's about 16,000 RV parks. Half of those are owned by the State and Federal government. That leaves about 8,000 private campgrounds. 1,200 of those assets are what we consider investment-grade, and we own about 200 of those. So the opportunity set is large, and we've always said that the acquisition market can be kind of lumpy, and we’re seeing that continue.

Thank you.

Thanks, Eric.

Thank you. And our next question comes from the line of John Kim from BMO Capital Markets. Your question, please.

Thank you. It looks like the impact of Hurricane Milton may not be as severe as that of Hurricane Ian. I’d like to discuss how the situation with Ian unfolded and what we might expect with Milton. If I remember correctly, two years ago around this time, you provided guidance for the full year, identified six assets, and closed on them. I'm unsure if those assets have all reopened, but they aren't part of your same-store pool. It seems you incurred about $55 million in cleanup costs and business interruption, and you only recognized the insurance proceeds once they were received back into earnings. I'm interested in your thoughts on how Hurricane Milton may develop since it's still early in your assessment of the damage.

Sure. It's still early after the storm, just 12 days since it hit. We can observe differences between Hurricane Ian and Hurricane Milton. Currently, no properties are being removed from our Core, which was the case shortly after Ian. Our teams on the ground, both in Chicago and Florida, have been working hard to ensure the safety of our customers and residents, and they have done an excellent job. There are significant differences between the impacts of Ian and Milton. However, as it’s only 12 days post-storm, it will take some time to assess the final numbers. Notably, the fact that we are not removing any properties from the Core is an important point to consider regarding the storm's impact.

And what happened to those six assets from Ian? Are they closed permanently or are they reopened?

No.

No. We've resumed operations at those properties. They're partial operations, but we have resumed just the way that we manage our Core portfolio. Those assets didn't return to that condition until 2024, which means the earliest that they would appear in the Core is the beginning of 2026.

Okay.

But the properties are back in operation.

And I know it's really early. So last year, following Ian, you had a 58% insurance renewal increase. Where do you think this year's renewal rate, how does that play out, given the damages were less, but there were two occurrences this time around and it was just two years after the last one?

I believe, as you mentioned, it’s still too early to provide a clear answer. We will have more information after we go through our renewal process. It's important to note that the effects will be felt in nine months in 2025 since we already have data for the first quarter due to an April 1st renewal. Similar to previous years, the primary factor influencing the rate is our claims history. We have noted the events related to Helene and are currently addressing the situation with Milton, so we will need to determine the outcome based on those claims.

Great. Thank you.

Thanks, John.

Thank you. And our next question comes from the line of Keegan Carl from Wolfe Research. Your question, please.

Yeah. Thanks for the time, guys. I mean maybe just big picture, where is your head at on Florida? I know you called out the expansion and development sites, but are you reconsidering, maybe your geographic exposure to the state at all? And would there be any appetite to reduce your exposure over time, just given we've now had two pretty catastrophic events in three years?

Thank you. The recent storm obviously influences people's opinions, but it's important to recognize our extensive history with storm events in our portfolio. We have a geographically diverse portfolio that has experienced weather events consistently over the past 30 years. Despite these challenges, we have consistently achieved leading results in the REIT sector. Florida has always been a strong market for us, and we plan to continue acquiring assets there regardless of the economic conditions in Florida or the broader country. Properties in Florida have excelled. In previous calls, I pointed out that our average NOI as a company over the last 20 years is around 4.1%, which is favorable compared to the REIT industry. When examining Florida separately, it has outperformed our overall portfolio by more than 100 basis points, even with storms occurring every few years. Our team has analyzed storm events and other significant factors, like economic cycles and election years, to better understand what drives Florida's success, and the results continue to show strong performance.

No. Thanks. That's really helpful. And I guess just pivoting to transient. Look, I know it's a much smaller portion of your guys' business, but there's always questions around it. So I guess a few part question here: It's always tough to gauge expectations, but how does it perform relative to your expectations within the quarter, and how much of an impact was there on weather? And then just if we look out to next year, I mean, what are your general views on transient? Do you think we might have hit a relative trough and we could start to see it accelerate, or should we just always expect some downward pressure given your ability to convert transient to annual sites?

Yeah, Keegan. Just in terms of the performance in the quarter, the transient rent performed in line, I'd say, generally speaking, through August. In September, we did lose some traction, and the properties in the North and Northeast caused them in our September results because of inclement weather in certain areas. We've talked in the past about the large variance that can be caused by individual locations. And just when I think about the impact in September, three properties represented almost 50% of the variance to our forecast. So it was weather-driven as we've typically talked about, and again, a relatively small number can have that type of effect.

And just on the '25 outlook, I mean, is it fair to assume that maybe transient is starting to hit a trough, or I mean, I guess, like how should we just big picture be thinking about that business?

We've discussed the idea of normalizing demand, and it's important to consider the influence of the weather. I anticipate that we will perform well, as we usually do, during favorable weather conditions, but our performance will not be the same when the weather is unfavorable. That's about all I can share at this moment regarding next summer's season.

No worries. Thanks for the time, guys. I really appreciate all the insights.

Okay. Thank you. Take care.

Thank you. Our next question comes from the line of Samir Khanal from Evercore ISI. Your question, please.

Hey. Paul or Marguerite, on the seasonal side, you were down, it was like 13% in the quarter. I'm just trying to get a better understanding of, maybe provide a bit more color around that for both RV and Marina? Thanks.

Yeah, Samir. It's Patrick. We've talked about some of the shifts, particularly driven by Florida with respect to the seasonals. And then construction and other transitional workers responding to Hurricane Ian have been winding on their activity in the state. That's been really a key with respect to the headwinds that we've seen. I'd point out overall, however, that we had a number of markets that performed well. Throughout the West, California, and the Pacific Northwest have been consistent, and Florida, given that transition, has really been the key factor.

And Samir, I'll just follow on kind of piggybacking on what I said a minute ago to Keegan. When we look at revenue growth by property in the third quarter, and we look at the seasonal in particular, at a majority of our locations, we saw growth compared to the prior year. The minority is really driving the overall decline. So just to kind of walk through that, 90% of our properties generated 2.3% growth year-over-year in seasonal revenue. It was the remaining 10% that really drove the variance that caused the negative performance.

Okay. Got it. And I guess, Paul, on the expense side, I mean, you've done a good job on the Payroll segment, but is that primarily a function of the RV business at this point? I'm just trying to understand how much more you can do or lower expense on Payroll if transient sort of starts to normalize or at least hit a trough as we heard from the previous question, and start to stabilize in the next year? And then how much Payroll plus can you do into next year as we think about '25?

Yeah, Samir. It's Patrick. I guess I'll add on to the earlier question, we've been able to manage, particularly this is driven by the summer RV business, right, which has a high seasonal employment component, and we've been able to manage a couple of variables. One is in those competitive markets where we're competing for employees along with other seasonal businesses. We've had some challenges filling some positions. So we've responded to that by managing efficiencies at the property level, and that cross-training and sharing responsibilities has helped us modify our approach to the run rate business, and that's created some efficiencies, but also being very diligent in managing overtime and other types of periodic expenses like temporary labor. I would hesitate to say that there are further efficiencies to be gained. Certainly, we're always looking for opportunities as well as technology to help improve the operations of the business, and we'll continue to focus on that in 2025. But I think the results that you've seen this year are reflective of us responding to those drivers at the property level.

Thank you.

Thank you. And our next question comes from the line of Jamie Feldman from Wells Fargo. Your question, please.

Great. Thanks for taking the question. Could you comment on any difference between RV annual renewal rates and Marina annual renewal rates? Just trying to get some color on how those two compare? And then additionally, are you thinking better or worse pricing power for annual RV in any specific geographic regions or is the 5.5% expectation broad-based?

I would start by discussing the Marina, as it is a smaller part of the business. As you mentioned, it represents a high 90% of our revenue and has a very consistent turnover. Unlike the RV business, which follows a more calendar-based pattern, the Marina portfolio's revenue is more evenly distributed across the months and quarters, leading to regular renewals. The turnover for both sectors is fairly stable in the mid-single digits, and RV turnover aligns with the overall rates we anticipate for 2025 and beyond. For the RV sector specifically, the key markets driving annual revenue mainly during the summer season include Maine, New Jersey, New York, Illinois, and Wisconsin. We have seen some normalization in peak demand across the RV segments, which has led to a slight increase in turnover. However, we are successfully rebuilding the business, acquiring new customers at rates similar to those before the pandemic. In terms of the strength within submarkets, we are seeing broad support overall. Notably, the Eastern Seaboard showcases very robust locations, along with some key sites outside major metropolitan areas and several properties near Chicago, particularly in Wisconsin. The performance remains steady around the mid-5% range, with some of our most desirable locations showing stronger demand.

Okay. Thanks for that. And then I guess just bigger picture, I mean the transient business, especially RV seems to be taking up a lot of time on the calls and creating a lot of noise. I mean, what are your thoughts on guiding for next year, super conservative just to make sure there's more upside than downside? Like do you think you might change how you're presenting this business? And then I guess just longer term, I mean, what do you even feel about the RV business? Is it really worth growing? Would you like to shrink it, get rid of it completely or is it really a core asset for you?

So Jamie, we really like the RV business. We got into the business because it had all the hallmarks of the manufactured housing business, and we focused on the annual base, and we continue to focus on the annual base, and you've seen the results of those efforts with really strong annual numbers. The transient, absolutely has volatility in it, and it has for 25-plus years. So there's nothing new there. I think it's important to remember that the transient base and the transient customer is a paying lead. So it's a customer that pays us, a lead that's paying us as opposed to the other way around, to be able to experience our properties and then become an annual. So we really like the RV business and the amount of discussion on the call with respect to the transient business, I think, is a function of everything else going so well in our company.

Okay. Thank you.

Thanks.

Thank you.

Good morning. Thanks a lot for taking my questions. First question is, on the 2025 base rent increase, it seems like that where inflation is down 100 basis points from last year and the MH kind of came down 40 basis points, and while the RV base rent increase is coming down a bit more than that. So I guess, is that kind of what you're getting at with the prior question is that there are some markets where some of the annual RV is facing a little bit more pressure. And so you went with the later rider base rent increases for '25? Are there some other implications why the base rent increase for annual RV came down so much more than MH? An increase in the mid-5% range still appears quite positive. It's important to note that while there is a correlation between rate growth, rent growth, and CPI, these factors are primarily influenced by demand at the property level and the competitive environment we're experiencing. We have navigated through a period of heightened demand due to COVID, which we observed across all our business lines, particularly in the RV sector for both annual seasonal and transient use. We experienced very strong demand and rate growth during that time, which is now normalizing. Therefore, the mid-5% rate growth reflects ongoing demand across our annual portfolio while recognizing that we are currently seeing more moderate rate increases compared to times of peak demand.

Got it. And then my follow-up question is related to issuing equity and just like thought process about issuing equity versus debt? Do you have a target leverage ratio? Is that sort of still in play? And how do you think about the short-term accretive nature of issuing equity versus potentially the longer-term dilutive pressures of that? Thanks.

We don't. Michael, we do not have a leverage target. We have not, in our history, had one. Our focus has been historically on financial flexibility, making sure that we are ready for opportunities. And so that's the answer to the first part of that. The second part of just kind of thinking about the opportunity to remove higher-cost debt and remove uncertainty associated with that, that's long been a hallmark of our strategy in terms of managing the debt stack.

Thank you.

Thank you. Our next question comes from the line of Omotayo Okusanya from Deutsche Bank. Your question, please.

Yes. Good morning, everyone. Quick question on the $5 million distribution on the JV side. Could you just talk to us a little bit about the nature of that distribution?

Sure. Just as a reminder, we own interests in seven joint ventures. There's an aggregate investment. It's less than $100 million across those JVs. Our third-quarter guidance included the income contribution from refinancing of loans secured by one of our JV assets. In the ordinary course of ownership, transactions like this generate this type of income and consistent with GAAP guidance and our past practice, we recognized distribution of JV income in the quarter.

Okay. So the debt was refinanced and that led to a distribution?

Correct. And so GAAP guidance states that distributions are applied to your book investment until the basis reaches zero. And when the basis reaches zero, then the excess cash is recognized as income.

Okay. So that's what's happening. So the basis is not below zero. Okay, that makes a lot of sense to me. That is helpful. Thank you.

Thank you.

Thank you.

Thank you. Our next question comes from the line of David Siegel from Green Street Advisors. Your question, please.

Hi. This is John on, actually. Quick question on seasonal RVs. Based on leading indicators, you see right now for fourth quarter and first quarter, do you expect year-over-year declines in revenue for seasonal RV winter season or growth?

Well, I can speak first to fourth quarter. Seasonal is tracking slightly ahead of the forecast that we have for the quarter, and we are reserved 92% for the fourth quarter rent. That's slightly higher than this time last year. I'll just tuck in transient there since I'm in the topic. Transient is essentially flat to our guidance in terms of the reservation pacing.

Okay. But any color, Paul, on the very busy first quarter, just given how much of a weight in the full year revenue, the first quarter seasonal business is? How is leading demand indicators shaking out for the first quarter?

Yeah. I think that with respect to the first quarter, it's early. I think the leading indicators are flat to maybe down slightly. And we're anticipating that, that will pick up as we continue through the end of the year.

Okay. And then a question on just how to think through the translating of annual rate growth on the RV side to revenue growth. I know there's probably some modest drag from kind of short-term workers leaving this year. But I've been a bit surprised that conversions from transit's annual hasn't boosted annual RV revenue growth more above the rate growth. So of the 5.5% rate growth assumed, do you expect any additional drags on the flow through from rate to revenue or should we expect some accretion above that 5.5% from conversions from transients to annuals next year?

I do think that next year we'll continue to have a bit of a drag. We've talked about the displaced residents that we're occupying some RV annual spaces across the core portfolio. And as we kind of transition to stabilized operations at those locations or in other words, don't have that incremental revenue. There could be some offset to occupancy that we might otherwise gain in the annual. I think on a net basis, we would anticipate being up, but not as significantly as otherwise.

Okay. And one more follow-up question. Thanks for bearing with me. Have you noticed an increase in attrition among tenants who have recently converted from transient to annual in recent years? Is that part of the issue?

Hi. Yeah, John. It's Patrick. I think that's a reasonable way to think about it. As I was kind of walking through earlier, we moved through that post-COVID period where people were able to move around, but there was still a high degree of focus on isolating within your own social group and family that lines up very well with the RV camping and lifestyle. So we saw really significant demand that led to growth in occupancy, as well as very strong rate growth. And now we're more at a point where the build back of normalized attrition isn't keeping pace with just the higher occupancy. So occupancy went up. We have a level of attrition. That's a fair point, although I can't speak to any level of detail. It's a fair point that there might be a higher level of attrition on that broader group. But we're working through that, and we're building back the business consistent with pre-COVID acquisition of new customer pace. So it's kind of an interaction of the two. And as we work our way through that process, as Paul highlighted, I would expect we'd revert to something that looks more like our run rate business pre-COVID with respect to occupancy and turnover.

All right. That’s it for me. Thank you.

Thanks, John.

Thank you. Our next question comes from the line of Mason Guell from Baird. Your question, please.

Hey. Good morning, everyone. Another question on insurance. Less on rate, but maybe more in the structure. Do you plan to make any changes to your insurance deductibles and limits or are you comfortable where you are at?

I believe it's too early to make any determinations. We do a good job of providing details on our coverage after each renewal, and we will keep doing that. However, it's still early in the process to identify any changes in coverage, as it really depends on what is available in the market, and we haven't begun those discussions yet.

Thank you. And do you expect a meaningful uptick in demand from hurricane relief workers?

Historically, after a few weeks following a hurricane or storm event, as people settle in and understand their needs, we typically see an increase in occupancy. It just takes some time for the situation to unfold and for the demand for assistance to become clear.

Great. That’s all for me. Thank you.

Thank you very much.

Thank you. And our next question comes from the line of Anthony Hau from Truist Securities. Your question, please.

Hey, guys. Thanks for the question. Hey, Paul. Can you quantify the drag from displaced residents for next year? I think you mentioned that earlier.

Yeah. It was a little over $1.5 million in 2024.

And do you think that drag will continue in 2025, like another $1 million in 2025?

No. I mean $1.5 million is what we earned in 2024. So potentially, that eases to zero over time.

Okay. And you mentioned that like the mark-to-market for new tenants remained at 13%, unchanged from last year. But at the same time, right, you guys are renewing leases at like 5%, 6%. So doesn't that mean that the market rent growth is much higher than that? And just curious like what are you guys seeing in terms of market rent growth in your portfolio?

I'm not sure I'm tracking your question, Anthony. When a resident leaves and a new one comes in, they're paying a rent that is 13% higher than the customer who was there.

Anthony, maybe helps to think about it this way. As we move from a period of low-to-moderate inflation, and we've reached a period of higher inflation, significant demand in the MH space or across all our business lines. We saw growth in occupancy, and we saw sequential increases in rates that we were charging in the market based on demand. And clearly, there's a correlation to inflation as well. So higher inflationary period, higher demand. Rates went up a couple of years at a rate that was just higher than we've seen in our history. So that led to market rates taking those full increases of 6%, 7%, 8%, sometimes higher depending on the particular property. And our long-term residents, we have a very long-term view, we'll be getting an increase significantly less than that, something in the mid-single digits. So if you go through a couple of years of that, you start to create a larger gap between the rate that's charged to our run rate customer or long-term MH residents and an incoming customer or a new homebuyer, used homebuyer, one of our properties. That's what really drove the, call it, the earn-in of a double-digit mark-to-market.

This concludes the question-and-answer session. At this time, I'd like to turn the program back to Marguerite Nader for any closing comments.

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

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.