Q4 2019 Earnings Call
Discuss equity lifestyle properties fourth quarter and year end 2019 results.
Our feature speakers today, our Marguerite Nader.
President and CEO .
Paul Seavey, our executive Vice President and CFO .
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 the question and answer session with management relating to the company's earnings release.
As a reminder, this call is being recorded.
Certain matters discussed during this conference call may contain forward looking statements in the 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 where 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 FCC regulation G.
Reconciliations of these non-GAAP financial measures to comparable GAAP financial measures are included in our earnings release, our supplemental information and our historical FCC filings.
At this time I would like to turn the call over to Marguerite Nader, our president and CEO .
Good morning, Thank you for joining us today I'm pleased to report the final results for 2019.
We continued our record of strong core operations enough AFFO growth with an 8.2% growth in normalized FFO per share.
The fundamentals of our business remains strong with demographic and economic trends, creating tailwinds for future growth.
While baby Boomers, our core customer for both manufactured housing in RV, we see a steady influx of younger customers.
2019, with a year marked by solid demand are in each portfolio increased occupancy by 401 sites for the year.
We saw continued strength that are MH properties with a full year rate growth of 4.7%.
The rental program is being used as a trial prior to homeownership. He does a low barrier entry point into our community.
The key to the conversion from a renter to a homeowner is community engagement.
We finished the year with a conversion rate of 33%.
Our RV resorts, including doesn't trails performed well this year with a 6% overall broken income.
The demand is strong for RV sites across the country, we completed our fiftyth year anniversary ever thousand trails portfolio with a 4000 member count increase in a 7% increase in annual revenue.
RV resorts are primarily dedicated to accommodating long term customers with 80% of our revenue coming from annual seasonal customers.
We've seen an increase in appetite for upgrades within our thousand trails portfolio, our customers see the value when having increased access to our properties.
Our product is in demand and the demographic trends are in our favor over the past five years, there's been a steady increase in genex and millennial campers the popularity of the outdoor lifestyle and increasing younger RV buyers and new unique accommodations in our properties, including renting a tiny house or cabin should continue to contribute to growing.
Demand for offerings.
Our guidance for 2020 reflects the strength in other isn't it.
Excuse me if someone that needs to go on mute ugly.
Operator.
Thank you.
Our guidance for 2020 reflects the strength in our business each market is evaluated to arrive at our proposed rental rate increases the individual market surveys provide support for our views and incorporate all housing indication options in the local area.
Our customers are increasingly completing their travel plans on line.
We have seen significant growth in online bookings driven by greater use of mobile devices to book as day.
Since the beginning of smartphone technology in 2007, we've increased our total online reservation activity to represent 43% of all transient RV bookings.
Our marketing team is focused on eliminating point of sale barriers for our customers.
Processes have been streamlined with a focus on conversion through self service in 2019, we increase our social media fan base to over 650000.
Finally, I'd like to thank our employees for delivering another great year in 2019 as well as a strong start to 2020 I will now handed over to Paul to walk through the numbers in detail.
Thanks, Marguerite and good morning, everyone.
I will review, our fourth quarter and full year 2019 results update our full year 2020 guidance and discuss our detailed first quarter guidance.
Core portfolio and apply for the fourth quarter was in line with guidance and contributed to 5% growth for the full year.
Fourth quarter normalized AFFO was 52 cents per share a penny ahead of guidance.
Full year core community base rental income growth was 5.3% with 4.7% coming from rate and 60 basis points coming from occupancy.
Our 2019 core occupancy increase included a gain of 387 homeowners at the end of the year rental homes represented 5.9% of our core occupancy.
Fourth quarter core resort base rental income growth was 5.3% compared to prior year.
During the fourth quarter seasonal revenues were higher than expected and reflects strong demand for our southern resorts as we transitioned into the went into the winter season.
Full year growth of 6% in annual revenues includes approximately 40 basis points from occupancy gains at properties with expansion sites.
For the full year net contribution from our membership business was $4.1 million higher than 2018, an increase of more than 8%.
Dues revenues increased 6.8%, mainly as a result for the 6.3% increase in our paid member count.
We continue to see strong demand for upgrade products.
During the fourth quarter, we sold 32% more upgrades in the prior year and the average sale price of our upgrades was approximately 6% higher than the fourth quarter of 2018.
Core utility in other income was higher than guidance, mainly because of insurance proceeds related to prior insured losses as we've mentioned in the past its difficult to predict the timing of receipt of insurance proceeds during the claim settlement process.
Fourth quarter core property operating maintenance and real estate taxes were approximately $2 million higher than guidance.
Approximately half of that variance resulted from real estate tax increases in Florida.
As I mentioned on our call in October we received notices of assessed value increases and we appealed those assessments.
So most of the appeals remain open we have accrued our estimate of the taxes for the properties.
Impacted.
Keep in mind that Florida since tax bills in the fourth quarter for the full year. So the accrual represents an adjustment for the full calendar year, even though the additional expense posted in the fourth quarter.
Aside from the realistic tax increase we experienced higher than planned repairs and maintenance expenses and utility expenses in the fourth quarter.
In the fourth quarter, our core revenue growth was 5.3% and core NOI growth was 4.6% full year core revenue growth was 4.7% and core NOI increased 5%.
Our non core properties contributed contributed seven and a half million dollars in the quarter and $24.2 million for the full year.
Overall the properties included in noncore performed as expected.
Property management, and corporate DNA were $21.7 million for the fourth quarter.
Interest and amortization expenses were $26.3 million in the quarter.
The press release and supplemental package for by 2020 full year in first quarter guidance in detail as I discuss guidance keep in mind. My remarks are intended to provide our current estimate of future results all growth rates in revenue and expense projections represent midpoints in our guidance range.
Our guidance for 2020 normalized FFO is $426.7 million or $2.22 per share at the midpoint of our range.
The main changes to 2020 guidance since our release in October relate to updated core MH and RV annual revenues based on Truing up rate and occupancy following the end of the fourth quarter.
For the year growth in core NOI before property management is expected to be approximately 5.5%.
We assume flat occupancy in our MH properties for 2020.
Base rent is expected to grow 4.4% with 4% from rate and 40 basis points from occupancy as we realized the full year impact of sites filled in 2019.
In our core resort business, we project revenue growth of 5%. We see continued strong demand for our RV properties and we continue to see opportunities to increase rate as we focus on occupancy across the portfolio.
We expect 5.5% growth in our annual is for 2020.
Our full year guidance for seasonal and transient has been adjusted to reflect strong seasonal demand that we anticipate will have an impact on sites available for transients stays in the first quarter.
We have reviewed our first quarter reservation pace for our seasonal and transient businesses and incorporated that pacing into our guidance update.
Our membership business, which includes annual membership subscriptions membership upgrade sales and sales and marketing expenses shows a net contribution to $57.3 million.
We've increased our upgrade sales assumptions based on the continued success of this program.
Page 15 of our supplemental package shows aggregate revenue generated by our thousand trails properties, we project $118.6 million in 2020 from membership subscriptions annual seasonal and transient stays upgrade sales and other income.
The midpoint of our core utility and other income guidance is approximately $95.1 million the increase from prior guidance reflects the pass through income we expect as a result of the real estate tax increases I mentioned earlier.
This revenue increases offset by or increased real estate tax expense and therefore has no impact on core and a lie.
Core expenses are approximately $421.8 million at the midpoint of our guidance range. The main driver the increase from prior guidance is real estate tax expenses I just mentioned.
Keep in mind that the increase was effective for the full year 2019 of the expense adjustment was booked in the fourth quarter.
Quarterly guidance for 2020 assumes the increased expense will be approved each quarter.
Membership sales and marketing also increased along with increased revenue assumption.
As a reminder, we don't make assumptions regarding expenses, we may incur to recover from property damage events.
Our guidance includes $11.9 million of end of life from our non core properties.
As a reminder, our properties in the Florida keys will be included with our core properties during 2020.
We expect $96 million and property management and corporate expenses in 2020 and $10.2 million of other income and expense.
Full year guidance model makes no assumptions regarding capital events and the use of free cash flow, we expect to generate in 2020.
Our first quarter normalized AFFO guidance is approximately $114.8 million or 60 cents per share at the midpoint of our guidance range.
We expect our core to generate revenue growth of 5.4% expense growth of 4.9% and why growth of 5.7% in the first quarter.
Our first quarter core base rent growth of 4.9% assumes a 4.3% rate increase and 60 basis points related to occupancy gains we achieved in 2019.
We do not assume incremental first quarter occupancy gains in our guidance.
With the first month of the quarter almost complete we expect growth of 6% from our core RV business in the first quarter revenues from annuals are expected to grow 6.6% in the quarter.
As previously mentioned our current reservation pace is driving our expectation of 6.8% and 2.8% growth in seasonal and transient revenue respectively in the first quarter.
First quarter guidance assumes core expense growth of 4.9% the main drivers of expense growth, our real estate taxes and payroll.
As a reminder, our annual insurance renewal occurs April 1st so expense growth in the first quarter includes the impact of our 2019 renewal last April .
We expect to provide an update on our 2020 renewal during our call in April to discuss first quarter results.
We expect our noncore properties to contribute approximately $2.7 million it and align the first quarter consistent with prior guidance.
I'll now provide some comments on the financing market and our balance sheet.
Her unsecured debt turns or 10 years at coupons between 3.5% and 4.5%, 60% to 75% loan to value and 1.4 to 1.6 times debt service coverage.
We continued to see strong interest from life companies, Gses and CMBS lenders to lend at historically low rates for terms of 10 years and longer.
Hi quality age qualified MH assets continue to command best financing terms.
Of approximately $48 million of secured debt maturing in 2020.
At year end, our 400 million dollar line of credit had $160 million outstanding.
Our ATM program has $140 million of available liquidity.
Our weighted average secured debt maturity is more than 13 years, our debt to adjusted EBITDA is around 4.8 times and our interest coverage is 4.9 times.
We continue to place high importance on balance sheet flexibility and we believe we have multiple sources of capital available to us.
Now we would like to open it up for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press star one on your telephone.
If your question has been answered or you wish to move yourself from the Q. Please press the pound Keith.
And our first question comes from the line of Nick Joseph with Citi.
Thanks books becomes a quite fourth quarter in terms of transactions through just wondered if that is a result since the timing of closing of deals or anything on the side for the pipeline versus what you talked about in the past.
Sure Nick So, yes, you're right we didn't close on any new communities in the quarter, but we have a very engaged acquisitions group that's consistently underwriting deals.
We are in active discussions with sellers and have properties in all stages of the acquisition process.
And that but consistent with what we've seen over the last few years, there's a lot of interest for our product types. So there are there are some options going on out there, but at this time, we didn't close anything order.
Thanks.
I'd like to marinas or you see many opportunities to add exposure there and if so is that something that youd look to deal.
Sure I mean, we the loggerhead portfolio that that we bought as continued to operate in line with our expectations.
Have you know as you know 80% of that revenue is from annual cash flow and the occupancy rate was really high out and we're pleased with demand as we still a as we see and where I don't have very many vacant sites as we head into our our high season now.
There are certainly opportunities and but that each marina is unique and some have a highly transient based with a significant amount of ancillary revenue on and we're focused on assets that fit our acquisition criteria and close on deals that make sense to us and are closer to that loggerhead portfolio than not.
Thank you.
Thanks, Nick.
Thank you and our next question comes from the line of drew Babin with Baird.
Hey, good morning 40, Andrew.
Just wanted to dig in a little bit more on trends.
I think for the past few quarters via the pace of transient RV revenue growth has been a little more have.
CPI plus and I guess, you mentioned in the parents of just kind of a strategic move to push for that business either into longer term churn or would it be season or annual or just in the membership program. I guess this is strategic what we're seeing orders or anything in the booking pace well you indicated that pace is kind of normalizing.
The economic factors as well.
Well I think I think that couple of things to keep in mind, we've long talked about the limited visibility on the transient business.
The first quarter represents about 20% of the of the total so it's not the it's not the biggest quarter for us.
And as we think about the winter season.
Snowbird customers that were attracting in that season, we have as I mentioned in my remarks seen increased demand on the seasonal side.
Which is driving a bit of the reduction in the expectations for growth in the transient just in the first quarter, but definitely.
65% roughly of that transient revenue comes in the second and third quarters. So as we get through the rest of the year, we'll we'll be watching that activity closely Andrew from a strategy standpoint, I think you know we prefer to keep our transient business to a small percentage really spread across many properties.
So that we provide access to new customers, who may decide to stay with us on a longer term basis, because we're really focused on that conversion rather than the transients day.
Great and that makes complete sense and just one more for me the tick up in a recurring capex up in the first quarter risk reward year over year, you've talked about before.
Using free cash flow to kind of fun revenue enhancing capex or things like that I guess was there anything lumpy in the first quarter or are those year over year increases in capex likely to persist through the rest of the year.
I think.
For for 2019, I'll, just talk about that full year, we had $52 million and recurring capex.
And we define that recurring capex is as items that exclude site development.
Related to placing new homes in our properties our expansion investment.
The storm related and other nonrecurring.
Ill fated team is focused on conservation efforts in in 2019, we identified opportunities to invest in infrastructure improvements, mainly electrical water sewer systems. We think this is going to reduce our energy usage and resource consumption and potentially reduce utility expenses going forward.
Right.
Okay perfect scope.
Thanks Peter.
Thank you and our next question comes from line of Samir Khanal with Evercore.
Hey, good morning, everybody, So so Paulo and what I.
I know you're forecasting expenses are lower than 3% now.
I guess with the revision yesterday M&A, what gives you that confidence that that rates achievable because.
Look at that for you when you look at last year in 19, we were up over 4% you started the year with.
Being up 1%.
There is something that kind of gives you. The confidence is trying to see if there is a sort of a pass through to the customers or anything that we're missing here.
I think a couple things to keep in mind one.
Just as you look at of the rate of increase.
We provide our guidance in the fall of 2000 of the prior year as a follow up last year and we didnt have full year actual results.
So, though it looks like there was a reduction because the rate went down there is actually an increase in overall expenses expected in the budget for next year.
As it relates to that 2.9% growth expectation.
The assumption is the same as our 10 year average core expense growth rate Oh, we have discussed in the past volatility.
Resulting from cost to recover from storm events, as well as utility and payroll pressures.
That long term average of 2.9% includes the volatility.
Associated with those items and provides a benchmark for our expectations of core expense growth.
Okay got it and I guess as a follow up or second question here.
Guys weren't active on the acquisition side as we kind of heard before.
I know your active on looking at assets, but can you maybe even just elaborate a little bit talked about sort of pricing of us sort of what you're seeing out there.
Sure I mean, the pricing I think first in 2019, we closed on about a $150 million that transactions or roughly in the five five and a half cap range and I haven't seen.
Theres been some some compression in that.
Those cap rates over over the last year, but it's a it's consistent.
And and so we are in the I would take more globally and while we don't we don't talk about specific deals or.
The industry really has progressed to the point, where broker market is now institutional grade and that means really the vast majority that deals are professionally market with a a bidding at an auction process. So you know as means to say we're involved in all of that activity.
Got it okay, great. Thanks, so much inked here.
Thank you.
As a reminder, ladies and gentlemen, if you have a question. Please press Star then one on your telephone if you have a question. Please press Star then one.
Our next question comes from the line of John Polaski with Green Street.
Thanks, Paul maybe just a follow up on the expense growth comments could you share what your base case assumption for the insurance premium increases for 2020.
Yes.
We have a.
Call it.
Mid teens assumption in there for that for that to increase.
Lastly, we saw closer to a 20% increase we don't have great visibility because we're really in the early stages of those discussions, but that's what our assumption it and I think John Paul mentioned that that would be something we would update on the next quarter's call because it. It comes up they have renewal comes up at the end of March beginning.
Sure Okay.
Rick one on the on the site counts at the end of the year I think this the first time in several years, where you saw a slippage from annuals going down and seasonal and transient going or at least transient going up I'm. Just curious if you can give any color on why the transient count mix actually increase this quarter.
I think that John that's really a function of thus truing up we true up on an annual basis those numbers.
And.
As we went through an identified.
There there was some changes in.
Just the mix broadly across the portfolio that I don't think it's reflective of.
Anything as far as strategy.
Okay and.
And then last one from me Marguerite are actually Patrick actually want to go back to the dispositions of the five all age communities. This time last year in Indiana, Michigan.
I understand there from the hometown portfolio and there are a lower quality, but curious if you can give some comments on what specifically about the underlying real estate and dirt in those markets that looks like longer term laggards.
From our lands from miles and miles away, there's still some assets you own in like a Minnesota, Wisconsin, a rural Pennsylvania that share some similarities though lower growth, Indiana, Michigan lease then demographics story, so what specifically about those five assets sold a year ago costs.
RG to sell.
Sure. So for those they were all each properties and there were a lot of moving parts that really don't exist on the age restricted side and looking at the local areas around those properties.
And as we did that and we did an analysis we thought it was it a good timing if you remember as we did that in in January of last year. There was also a trade into Florida locations. So it was really looking at I think it was about $100 million transaction, a disposition and a 100 million dollar acquisition.
Roughly covering it so it was our view that we thought we could grow more in that space in that the acquisitions that we bought and those were properties that were I'm, you're correct that they were from the hometown transaction in something that we had been considering selling for a while and if I remember.
I think they were they were inside of some debt pool that had just a kind of the when do I just open. So it was an appropriate time for us.
Okay. Thank you thanks Jen.
Thank you and our next question comes from the line of Steve Sakwa with Evercore.
Hi, good morning.
I guess for Paul Marguerite as it relates to insurance not so much on pricing, but are you seeing anything from the insurance companies as it relates to actual coverage of properties and whether there's any sort of change in the types of properties I guess I'm thinking more specifically places like the Florida keys and.
Given the storms that have come through and just rising you know sort of see sea levels. In general is there anything that's come out of being insurance companies about coverage and deductibility is that that's a little bit more of a systemic change I mean, certainly the carriers are very familiar with our portfolio there very familiar with the storms that.
Taking place certainly within our portfolio, India, but any more larger global effect of what's happened.
But we do not see the carriers, having other than other than the increase as we discussed here, we don't see them stepping away in any sense and they're engaged and they understand they understand our asset class more than they did before so I think thats a positive.
And Dan it's always helpful for us to have some storms behind us we had a good year in 2019, and we hope to.
Continue that trend.
Okay. Thanks.
Thanks, Steve.
Thank you and our next question comes from the line of John Kim with BMO capital markets.
Thank you.
Can you provide an update on what you delivered as far as expansion sites in 2019, and also what you're expecting for this year.
Sure John as Patrick for 2019, we delivered.
723 sites that was six projects about equally split between MH and RV. We had another two projects with more than 200 sites come online in the first few weeks of January so call. It roughly a thousand sites I delivered.
For 2019, and as we look forward to 2020.
We expect somewhere in the neighborhood of 10 to 12 projects with 1100 1200 sites.
That will be a little bit overweight MH, but it is continues to be a mix of MH and RV.
And just as a reminder, timing that we have those 5000 acres of vacant land adjacent to our properties. So we have.
Room to continue to grow.
Okay. So the 11 to 1200 being delivered this year does that include what you delivered in January .
The salaries in overall includes a we delivered in January so that would be 2019, and then the 1100 1200 is a look forward to 2020 and that excludes the contribution for the overall thousand.
Where we're looking at the you know the first few weeks of January's inclusive in 2019.
So for the 1100 1200 without include January 2021 deliveries or was this year just know unique here, okay and.
I think Paul mentioned that the this contributed 40 basis points to revenue growth.
Last year can you provide that same figure for whatever contribute the threerd revenue growth is the one thing to keep in mind as I provide that on the MH side, we do hedge out that occupancy so we excluded that incremental occupancy gain from our.
Guidance assumptions, but we have we do have in 2020 about.
Similar number 40 basis points about 20 basis point contribution to an ally overall inside the core coming from those expansion sites.
And that's to our overall growth as well as same store results that's to same store.
And then I know I'm, just a follow up on the investment activity.
For.
I was wondering for this year can you provide any.
Color on what do you expect as far as the volume of acquisitions.
2020 years last year and also the mix is that going to be similar mix of.
I mean, as RV and MH yeah.
I can't really provide color on where we're going to end the year in 2020 on acquisitions I would say it would be.
And even mix between RV and MH and to the extent, there's a marine up up deal our portfolio that looks good and that is similar to the assets. We already own we would be interested in that but I would think it skews more towards the RV and MH.
Got it okay. Thank you.
Yes, Jeff.
Thank you and since we have no more questions on the line at this time I would like to turn the call back over to Marguerite Nader for closing comments.
Thank you very much we look forward to updating you on next quarter's call.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating and you may now disconnect.