Q3 2021 Equity LifeStyle Properties Inc Earnings Call
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 so 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 acquisition.
<unk> 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 purchase our joint venture partner's interest in in 2800 site high quality RV Park in Tucson.
And achieved efficient execution through an exchange of Eos 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 noticed 48% of our residence for rent increases and anticipate a four 7% rate growth in core MH revenue.
We anticipate our track record of increasing occupancy will continue.
And our new expansion sites.
We'll 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.
<unk> our primary campaign season is now behind US we welcomed over 350000 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 escaped the winter I will now turn it.
I want 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'll close with some comments on our balance sheet and debt market conditions.
And our earnings.
To pass we reported third quarter and year to date normalized <unk> per share of <unk> 65, and $1 90, respectively.
Our core MH rent growth of four 7% consists of approximately four 2% rate growth and 50 basis points related to occupancy gains.
We've increased occupancy 213 sites.
<unk> released December with an increase in owners of 551, while renters decreased by 338.
Core RV and Marine base rental income increased 14, 1% for the third quarter and 11, 9% year to date compared to the same periods last year.
Strong growth in rent from annuals of seven.
Seven, 8% and six 5% for the quarter and year to date periods, respectively reflects the demand for our properties in 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 in 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 seasonal increased 37, 5% in the quarter.
While the third quarter has not historically been a meaningful contributor to our full year seasonal brand.
Saw an increase in customer demand for stays of a month or more driving the uptick in seasonal ramp.
Our core RV transient business delivered growth for the quarter of 21, 1%. This was approximately $2 million higher.
Higher than our July guidance, which we based on reservation pace at that time.
Despite smoke from wildfires and 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 20 200000 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.
Second quarter 2020, and includes the utility index 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 nine.
That 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.
Perceived 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.
Through the third quarter.
In 2021, our efforts to retain employees and fill open positions.
In summary year to date core property operating revenues have increased eight 5% and core property operating expenses have increased seven 8%, resulting in an increase in core NOI.
During more property management of 9%.
Income from property operations generated by our noncore 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 and 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 July 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 mid points 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 <unk> at the midpoint of our range of approximately $115 $7 million with a per share range of 57 to 63.
We projected core NOI growth rate range of six 5% to seven 1%.
MH and RV annual rate.
Rate growth assumptions for the fourth quarter and full year remain consistent with our prior guidance.
Significant factors in our guidance assumptions for the <unk>.
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 stage.
<unk> is indicated by current customer reservation trends in.
And a moderation of the growth in upgrade sales we've experienced year to date.
Our full year 2021 normalized <unk> is $2 50 per share at the midpoint of our range of $2 47 to $2 53.
Normalized <unk> per share at the midpoint represents an estimated 14, 8% growth rate compared to 2020.
Core NOI is projected to increase eight 4% at the midpoint of our range of eight 1% to eight 7%.
The core NOI growth rate increase from our prior guidance is the result.
<unk> 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.
<unk> 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.
Our 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 two 5% to 3.25% for 10 year money.
We continue to see lenders place high value on sponsor strength in <unk> continues to be highly <unk>.
Part of it.
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 <unk>.
Graham.
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 EBITDA ratio of five five times.
Now.
We would like to open it up for questions.
As a reminder to ask a quick question you wanted to cross Star one on your telephone.
Sure Your question press the pound key.
We ask that you please limit yourself to one question and one follow up question. Please standby with bump all.
The Q&A roster.
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 question can you walk through the thought process on the preliminary 2022 rent growth assumptions.
Four 6%.
Is the right growth rate for MH and four nine to five one in the right growth rate for EMS for RV.
Sure Michael I'll start by.
Just reminding everyone of the structure of our leases specifically in the MH portfolio, so about a quarter.
<unk> of our leases with our residents have a linked to CPI.
Roughly half of those are directly tied to CPI or some fraction of CPI.
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 rates.
Yes, Thanks, Paul So we're working through our budget process and as we get into the latter part of the year.
We typically.
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 homeowners associations across the portfolio.
Florida is a good example, they actually have.
Statutory.
<unk> set up for property owners and managers to sit down with the HOA and have conversations.
Not only about rent increases that just the <unk>.
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.
Regional conversation about what we're seeing in the market as well as <unk>.
Resenting an opportunity for us to discuss priorities for the properties, particularly from the HOA is perspective and Thats.
Activities services.
Particularly improvements to the property they want some additional pickle ball courts.
Other improvements maybe the way that our just the pool.
<unk> furniture et cetera.
So that's the that's the kind of a view of how we come through our rate increases, including some color of our interactions.
And tip of our residents.
That's really helpful.
Topic is the opening of the Canadian border.
In 2019, you generated about $27 million in RV revenue from Canadian customers, how much of that was pressured in 2020 and 'twenty.
<unk> expected in 'twenty, one and how much do you think you can start to get back 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.
Production or a loss so to speak.
About $2 million, which is in the seasonal revenue and that was primarily driven by the Canadian customers.
Estimates our estimate for the impact in the first quarter was about $10 million, we backfill some of that during the first quarter and the result was about $8 million.
Do you think you are do you think.
Because of this discussions you may have lost.
Canadian customers overall, who may choose not to kind of return.
I think our Canadian customers are ecstatic about the border opening and very excited to come into Florida, and Arizona and enjoy that.
At this time.
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 in the floor when you think on.
The growth rate for 2022, do you expect a meaningful difference between the age restricted versus the all age MH properties.
Well.
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.
So there.
Given the level of CPI.
There is some benefit in the notices that we are sending out now for 2022 relative to last year or the year before because of the summer CPI numbers.
Especially out west which is the <unk>.
Index for many of the increases was was.
There is.
And we also have it all age properties that are in some are destination locations, where we are able to push rate a little bit more.
Okay. Thanks, and then just.
Neil acquisition pipeline, obviously you did.
The two deals this quarter.
How does the pipe.
And especially as we get towards the end of the year.
Central tax changes could that.
Could that shake loose any additional properties or 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.
<unk> really focused on areas, where we can create strategic advantages are 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.
By the way, which was really further strengthening that relationship and then we just did the two large RV deals with long standing joint venture partners.
And then and then increasing our presence in the key Myrtle Beach market, what's important for us. So I think youll see us 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 there fewer relationship deals available going forward.
Just given the interest in this space more broadly.
Certainly the deals that we have long term relationships with.
With owners, but they do tend to want to in some instances go out to a broker and make it part of an auction process.
Thank you.
Thanks, Nick.
Thank you. 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.
Yeah.
Yeah.
Suzanne Thank chevron 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.
Yeah.
Thank you good morning.
There's been some.
Hey, Margaret there's been some discussion.
Some of the RV dealers.
Of higher turnover amongst some of the new and recent rvs.
The economy reopens and.
There's more travel options I mean, it sounds like from your commentary that youre not seeing that on the transient side.
<unk>.
Yeah.
Paul mentioned, a moderation of upgrade sales I just wanted to get your your views on potentially some of these new rvs in.
And a lot of them sticking around it.
Okay.
And this appetite.
Sure sure John So the RV business was incredibly strong before the pandemic and we are in an environment, where there are roughly 1 million sites in $11 million Rvs on the road and the pandemic has really expanded our customer channels. So that we're.
Are seeing more and more outdoor enthusiasts visiting our sites without rvs.
In the quarter, we saw an increase in new customer returned traffic as compared to 2020.
So while there may be some customers, who don't think that this lifestyle appeal to them, there's really ample demand in the marketplace.
So.
We're going to continue to see that demand.
And the moderation of upgrade sales.
1000 trails.
Right and Thats, just more that's more of a seasonal effect.
And you would just see Theres, just more camping opportunities in the summer, which goes along with people getting more excited about about upgrading.
I think Russia.
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 youre seeing acquisition opportunities for the type of marinas that.
And remember for the high storage rental.
Income Marina.
On the first part John I think there might just be some mixing the the <unk>.
8% I mentioned is the revenue growth of 4% as NOI growth.
So okay.
We see the NOI growth at Forbes and then John in terms of acquisitions.
You are looking.
As we've mentioned in the past we are looking for a particular type of marine and we are seeing some.
Some proper.
Properties of interest and we will disclose them as we as we close.
Paul what was the revenue growth in the second quarter.
Yeah.
Right around 8% I don't have it right in front of me, John but I can I can find that in follow up.
Okay, great. Thank you.
Thanks, Jeff.
Thank you. Our next question comes from the line of Keegan Karl from bearing Berg. Your line is now open.
Hey, Thanks, guys for.
Question I.
I guess first just touching back on marinas I mean, it seems like you guys are more optimistic than on the last call. So are you willing to actually expand.
Your exposure to relative to where it currently is the percentage of your portfolio.
Well I think certainly if we if we see a transaction that fits within the parameters.
What we've been talking about we would we would definitely move forward with it but I don't think Theres I don't think Thats any change from where we were before we have.
Certain attributes that we like inside of the Marina Bay Sands.
And to the extent that we find those we would we would certainly closed on those transactions, but I don't think it is.
<unk>, what we said, which is we'll be in and about the same percentage of Marina.
<unk>.
Overall revenue as we are right now will just be growing out.
RV MH and Marina.
Got it and can you just give us some more color on how you've been mitigating inflationary pressures specifically.
Any different additive labor market side of things.
Yes kian.
I think that.
What we have done in that regard.
<unk> is implemented.
Technology initiatives.
To hopefully enhance the customer experience while.
Reducing over the long term our reliance on labor at the properties.
A huge focus pre COVID-19 on developing an online check in process and we have implemented that 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.
Not necessarily have to step into the office.
Another thing that we've done across our MH portfolio is focused on electronic payments.
So that.
Those initiatives, we expect as I said over the long term too.
Drive labor costs I.
I think Patrick maybe has some other color to provide.
Yes.
It's specifically related to filling vacant positions and just for perspective compared.
Compared to the third quarter of 2019.
We were down about 200.
Hundred full time positions across the portfolio.
More than 400 properties and that really leans towards.
Our RV properties, which have a higher seasonal components that represents about 80% of those vacant positions.
And if you think about it it's a little bit more than 200 RV properties.
A few.
New positions at each property and our property.
<unk> teams and regional management teams have really done a great job accommodating those unfilled positions by cross training and sharing responsibilities across various positions. So.
So that's a successful way.
For us too.
DAP 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.
We received the Tripadvisor Traveler's choice awards, and 25 of our properties.
Included in the Tripadvisor Hall of Fame and Thats, 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 <unk>.
Managements of on site staffing and its really come through in our customer service.
Got it. So you guys don't feel like you lost on any revenue because it staffing shortage correct.
That's correct.
Okay. That's it for me thank you.
Thank you alright, thanks Margaret.
Thank you. Our next question comes from the line of Samir Khanal from Evercore ISI. Your line is now open.
Yes, Hi, Margaret Hello, Good morning, I don't know if you covered this but maybe what were the cap rates on kind of the recent deals you've disclosed in the quarter.
Sure.
The.
Transaction that we did in Myrtle Beach with equates to a four five cap rate.
And the deal that we did in Tucson was a four cap.
Okay, and then maybe just taking a step back you could talk generally about.
What youre seeing in pricing I mean, not only for RV.
<unk> and MH, but just kind of elaborate a little bit on marinas maybe.
Sure.
So I think that not much has changed in terms of in terms of pricing and cap rates, I think rvs and MH well located RV.
<unk> that are.
Close to close together.
The same locations will trade approximately at the same cap rates.
Do see.
The Marina cap rates are five five to six.
And the MH and the RV are somewhere in the.
Four to five range.
Okay great.
Great and then and then Paul I guess just to remind US can you can you.
I guess what percent of your expenses are related to payroll.
We've talked in sort of in the last question about wage pressure that you're seeing but trying to get a sense of.
What that impact could be on kind of an incline expense growth next year.
Yes, I think.
<unk>.
When you think about our expenses utilities and payroll combined which we talked about a fair amount having pressures that's about 50% of our excel.
Okay.
Okay, great. Thanks.
Sure. Thanks Tahira.
Thank you. Our next question comes from the line.
Joshua Denner line from Bank of America. Your line is now open.
Hey, Margaret Palm Patrick.
You guys are doing well.
I guess I wanted to ask about the.
The ground lease acquisition you did.
Curious on just getting more color on that and then many of what the strategy.
Strategy is.
<unk>.
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 are taking over.
The operations of the property. So we just closed on it we are just starting discussions but this was this was a market that we've always been interested in.
And properties.
Property that doesn't trade frequently at all which is that which is where our interest was.
And this was a way to gain access to it.
Okay, I would imagine just given the ground lease cap rates lower than if it was the.
I would imagine it's a pretty low cap rate is that a correct assumption or.
Separate ways.
It's a four five cap rate or the <unk> generate.
By the ground leases equates to a four five.
Cap rate.
I think there are certainly.
Opportunities when witness asset becomes part of the.
Part of the Eos family.
Okay. Okay. So it sounds like Youll try to.
To get the whole asset.
Thinking about it correctly.
I mean, I think we're in early stages of talking with the ground lessee right now.
Got it and then just one.
Wanted to ask about the midweek activity on the RV side.
So many of the profile.
The mid week customer is it.
Okay.
What we what we see.
Is that the midweek activity I mentioned that it's a 12% increase and the night 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 and what the customer looks like its more just there.
Taking their Sunday night, and Monday night and perhaps.
I think thats 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 is a Sunday Monday effect.
That helps to drive up that.
That increase in nights.
Oh 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 allow scheme from Green Street. Your line is now open.
Thank you for taking the time.
Good morning, Paul could you can you share the revenue.
New 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, I think on the I think on the revenues as I mentioned the moderation.
Sure.
Rates that we're talking about it's kind of a three ish percent number on expenses and revenues are closer to five.
The moderation when we think about I'll start just with the transient.
Just the process that we go through taking a look at our reservation pace and so forth.
The strong but it was also strong in the fourth quarter of last year.
And so the guidance assumption.
It includes that the heady rates kind of almost 50% growth.
Growth rate in transient that we've seen year to date moderates meaningfully to kind of high single digit mid to high single digit growth.
Demanded a seasonal I mentioned in response to another call you'll remember it was about a $2 million impact last year and given the opening of the Canadian border, we expect to see.
Those customers come back and don't see risk that we saw last year at this time and then as Marguerite mentioned the upgrade sale.
That revenue stream as those properties go out of season, we typically see rich.
A reduction in the upgrade sales volumes and so we're looking at kind of a mid single digit growth rate for that as well relative to last year.
Okay could you could you share the.
I'm not overly concerned about one quarter I'm just trying to understand the trajectory for the next few years could you share the seasonal RV growth assumption.
Fourth quarter, because you still have that easy comp from a year ago.
Yeah.
Again that is.
It is.
It is.
Kind of a.
25% to 30 ish percent number relative to last year.
So it's a healthy growth rate, but again, we're recovering that.
Those dollars that we lost.
And then a question for anybody.
Could you just help us think through the next few years in terms of the R&D business and that specifically that you lead with two thirds of your tenant base suggests they're going to camp more next year than they did this year, obviously, there can be a lot of churn between annual seasonal and.
And transient membership upgrades, so help us just kind of dial that that serve those survey anecdotes into kind of what's the structural run rate.
<unk> revenue growth going forward.
Yes. Thank you.
Can look at it in the three different buckets. So we've provided some.
Some guidance for what.
We think about the annual rate.
How that's going to trend, which we think is a healthy number.
And then there is the increase in annual and we've seen an increase.
Increased year to date of annually.
<unk> number 1000 plus.
So that's been that's that.
Thats contributing to what you see in our growth rate.
On the seasonal side, it's really dependent on.
What happens in any given season, obviously, we're looking at it we look at 2022.
With the Canadian border opening.
And with anticipated farmer.
Farmer's almanac anticipate that.
Cold Winter this winter and.
And we would anticipate high demand for that for that reason for for those reasons.
And then as you look at the transient side, we've always said it's difficult.
To predict too far into the future on those and we will be sticking with that although.
We've just been able to.
Access a wider customer base, which I think is going to be helpful. For us to continue to fill those those transient site.
Okay. So when you see this survey data and you see the kind of real time trends in terms of the appetite for our being.
Do you expect transient rvs can decline on an absolute basis next year everything should still grow.
The transient side is.
Very kind of up to the minute.
Rate adjustment, though as we see as we see demand as the supply and demand equation.
So.
We will be adjusting that as we see it so it's a little early to tell.
But but but.
People are very excited our customers are very excited to get out get out on the weekends and then when they do that they tend to want to say I like this lifestyle and then and then they go to commit on a longer term basis.
Okay. Thank you for your thoughts.
Thanks, John.
Thank you. Our next question comes from the line of Anthony Powell from Barclays. Your line is now open.
Hello, Hello, Hello, Good morning, sorry for earlier, thanks for being on the call.
Yes.
<unk> about.
Actually home sales, which have doubled again in the quarter and very strong just curious are you seeing any new demographics kind of.
Buying homes from you guys and.
Forward are there any profit for maybe higher margins in the segment I know, it's not a big focus for you in terms.
Margins, but given the volume of sales is that something that you can maybe push it.
A bit further.
Yes.
I'll ask Patrick I'll touch on the color around the homebuyers.
Paul 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.
They are on six years of age.
We reported on an earlier call.
From a financial stability perspective, FICO has consistently been over 700, that's trending somewhat higher at seven 730 plus.
For the year to date, so we're seeing more well quality.
Five.
Homebuyer come through the door and we're also seeing a.
The increase in.
Out of state inbound homebuyers and really all that reflects is that while there was kind of a longer transition from maintaining your residents up north.
And setting up your roots in golf, Florida.
You would come through as a homebuyer, who was coming from.
Transitional housing as you were kind of setting up your roots and buying a home with US we have seen that that process shorten up and people choose to make this step in one move by house and move down to the Sunbelt.
But they're there for retirement.
And I can jump in Anthony just as.
As we think about as we think about margins on home sales.
I would characterize it as kind of a low to low to no margin business for us on the new homes, our focus is on.
On the overall cost for the customer in there.
Of course, they are cost of purchasing the house as part of that but it's the rent as well and if we if we priced at equilibrium.
Where we're at.
A low margin on the sale of the house.
Got it thanks, and maybe one more from me you mentioned that you bought.
Parcel of land in Florida for initial development sites when could you maybe start development there and could you just maybe drove redevelopment pipeline over the next couple of years, how many do you add near to your existing sites every year.
Sure and so just with respect to the land that we bought we bought 40 acres of land adjacent to our.
A 400 site property age restricted properties 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.
Development pipeline over the last couple of years, our target has been to deliver north of the 1000 completed sites.
We achieved that last year with a little over 1100, we're tracking to just over 1000.
For the current year.
For the foreseeable future I would expect us given our pipeline to be able to deliver in the third.
12500 sites on an annual basis.
A lot of that is going to be driven by.
Just the timing of entitlements and in the process for getting projects completed.
<unk> and <unk>.
In today's environment, we're seeing a little bit of pressure with.
The timing that we're seeing with our gcs.
Likewise.
Sponsored newness from local administrative offices on inspections certificates of occupancy utility companies in particular.
<unk>.
In connections with the electric company tend to be challenging from a timing perspective.
Got it and have construction costs kind of impacted any expected near term yields for you guys or is that youre still.
I think pretty positive results there.
Yes, I mean, we're expecting positive results of our yields.
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.
To help to support those yields.
Alright, 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.
Thank you.
Bank.
4% cap rate on Voyager.
Yes is this the new norm for a class a RV resort or was it unusually low because of the expansion opportunities adjacent to it well certainly the expansion opportunity I mean, we've operated this property for 10 years. So we have a real good indication of the value of the property and we know.
Deals that have traded in and around that area.
<unk>.
So it's really a function of the Tucson marketplace.
And the high quality at the property.
Can you comment at all on the timing and the.
Number of sites you could expand into.
Sure Yes.
Recently and with <unk>.
Spansion.
Is 300 sites.
Roughly 60 acres and we would expect to you.
Get a shovel on the ground in 2022.
That will be the first phase of 150 sites.
With the next phase to follow upon completion and Lisa.
Thanks.
John Thanks, Yeah, I can just follow up.
Your question earlier, I can close that out too since you hop back in.
Sure and just getting things off the list here. This is fantastic, Okay second quarter Marina annual rent that growth rate was eight 7%.
Okay.
Thank you very much.
Sure.
Thank you John.
Thank you since we have no more questions on the line at this time I would 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.
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Good.
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.
Oh 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 asked that you limit yourself to two questions. So everyone, who would like to participate.
It 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 or 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 are.
Dissipate until information and our historical SEC filings.
At this time.
I'd 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.
The third quarter.
We're 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 <unk> growth was 18% in the quarter and 21% when compared to the third quarter of 2019.
New customer growth in both.
<unk> 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 are MH communities have maintained an occupancy level of over 95%.
Sent we've 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.
These 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 added virtual.
So home tours in 2020 as a response to the pandemic and we have seen a 38% increase in views on our online home towards this quarter compared to last year.
Our RV properties 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.
Actual activity continue 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 <unk> growth was driven by strong new member sign ups throughout 2021 combined.
We get to improvements in member retention.
Our upgrade volume increased 34% as we saw more members focused on increasing their commitment to us and enjoying additional benefits.
Based on a recent survey we conducted among our customers and prospects two thirds planned to camp more next year than they did in 2021 more than half of the responded.
And we're working remotely so 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.
<unk>, we purchase our joint venture partner's interest in an 1800 site high quality RV Park in Tucson, and achieved efficient execution through an exchange of Eos 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 noticed.
<unk>, 48% of our residence for rent increases and anticipate a four 7% rate growth in core MH revenue.
We anticipate our track record of increasing occupancy will continue and our new expansion sites will will provide additional growth.
Based on rates, we have set for 95% of our RV annual customers for the 2000.
22 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 campaign season is now behind US we welcomed over 350000 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 escaped 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.
<unk> and year to date results and highlight our guidance assumptions for the fourth quarter and full year 2021.
I'll close with some comments on our balance sheet and debt market conditions.
In our earnings release, we reported third quarter and year to date normalized <unk> per share of <unk> 65, and $1 90, respectively.
Our.
Our core MH rent growth of four 7% consists of approximately four 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.
R.
Our RV and marine of base rental income increased 14, 1% for the third quarter and 11, 9% year to date compared to the same periods last year.
Strong growth in rent from annuals of seven 8% and six 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 in the year to date growth.
Right at 8%.
As a reminder, more than 95% of our Marina rent is generated from annual customers.
Core rent growth from seasonal 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.
Customer demand for stays of a month or more driving the uptick in seasonal ramp.
Our core RV transient business delivered growth for the quarter of 21, 1%. This was 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 20 200000 trails camping pass memberships an increase of 20.
23% compared to the same period last year.
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 index.
Pass through income that offset some.
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 four 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.
<unk> 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.
In 2021, our efforts to retain employees and fill open positions.
In summary year to date core property operating revenues have increased eight 5% and core property operating expenses have increased seven 8%, resulting in an increase in core NOI before property management of 9%.
Income from property operations generated by our noncore 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 and related loan cost amortization expense was $27 4 million in the quarter and $88 million year to date.
The press release provides an overview of fourth quarter and.
Full year July 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 mid points in our guidance range and are qualified by the risk factors included.
<unk> 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 <unk> at the midpoint of our range of approximately $115 7 million.
With a per share range of 57 to 63.
We projected core NOI growth rate range of six 5% to seven 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.
<unk> assumptions.
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.
<unk> year to date.
Our full year 2021 normalized <unk> is $2 50 per share at the midpoint of our range of $2 47 to $2 53.
Normalized <unk> per share at the midpoint represents an estimated 14, 8% growth rate compared to 2020.
Or NOI is projected to increase eight 4% at the midpoint of our range of eight 1% to eight 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.
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 two 5% to 3.25% for 10 year money.
We continue to see lenders place high value on sponsor strength in Eos 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.
We have available capacity of $280 million from our unsecured line of credit.
$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 EBITDA ratio of five five times.
Now, we'd like to open it up for questions.
As a reminder to ask a question you will need to press star one.
On your telephone to withdraw.
Sure Your question press the pound key.
Thank you please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
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 question can you walk through the thought process on the preliminary 2022 rent growth assumptions.
For six months before the right growth rate for MH and four nine to five one in the right growth rate for EMS for RV. Thanks.
Sure Michael I'll start.
Bye.
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 linked 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 just kind of framing that.
For the benefit of of listeners and maybe Patrick can kind of walk through what we're seeing in the market and is driving the rates.
Yeah.
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.
Meeting with our regional and property staff and 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 homeowners associations across the portfolio.
Florida is a good example, they actually have.
Statutory set up for.
Property owners and managers to sit down with HOA and have conversations now.
Not only about rent increases that just the <unk>.
Overall.
Rates 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 <unk>.
Conversation about what we're seeing in the market as well as <unk>.
Presenting.
An opportunity for us to discuss priorities for the properties, particularly from the HOA is perspective and Thats.
Activities services typically improvements to the property they want some additional pickle ball courts.
Other improvements maybe you did the way that.
Hours at the pool pool.
Pool furniture et cetera.
So that's the that's the kind of a view of how we come to our rate increases, including some color of our interaction with our residents.
That's really helpful and on the topic of the opening of the Canadian border.
19, you generated about $27 million in RV revenue from Canadian customers, how much of that was pressured in 2020 and 'twenty one.
Our expected in 'twenty, one and how much do you think you can start to get back next year.
So I guess.
I'll quantify.
Just in terms of the quarters.
So fourth quarter of last year.
We experienced was.
Production 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.
Estimates are estimate.
<unk> for the impact in the first quarter was about $10 million, we backfill some of that during the first quarter and the result was about $8 million.
Do you think you are do you think.
Because of this.
Discussions you may have lost.
Canadian customers overall, who may choose not to kind of return.
I think our Canadian customers are ecstatic about the border opening and very excited to come into Florida, and Arizona and enjoy the enjoy the sun.
Thank you very.
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 in the floor.
When you think on the MH growth rate for 2022.
Do you expect a meaningful.
The difference between the age restricted versus all age MH properties.
Well.
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.
And so there is given the level of CPI.
Sure.
There is some benefit in the notices that we are sending out now for 2022 relative to last year or the year before because of the summer CPI numbers.
Especially out west which is the.
Index for many of the increases was was higher.
And we also have it all.
All age properties that are in some are destination locations, where we are able to push rate a little bit more.
Okay. Thanks, and then just.
Acquisition pipeline, obviously it would be.
The two deals this quarter.
How does the pipeline look and especially as we get towards the end of the year within the potential tax changes.
Could that.
Could that shake loose any additional properties or 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.
<unk> advantages are 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 <unk>, which was really further strengthening that relationship and then.
We just did the two large RV deals with long standing joint venture partners.
And then and then increasing our presence in the key Myrtle Beach market was important for us. So I think youll 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.
<unk>.
Are there fewer relationship deals available going forward do you think.
Just given the interest in this space more broadly.
Certainly the deals that we have long term relationships with with owners, but they do tend to want to in some instances.
Go out to a broker and make it part of an auction process.
Thank you.
Thanks, Nick.
Thank you. Our next question comes from the line of Anthony Powell from Barclays. Your line is now open.
Hello Anthony.
Part of me Anthony Powell from Barclays. Please check your mute button you might be on mute.
Yeah.
Yeah.
Suzanne Chevron 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.
Okay.
Thank you good morning, good morning, Joe.
There has been some.
Hey, Margaret there's been some discussion.
Some of the RV dealers.
Of higher turnover amongst some of the new and recent rvs as the economy reopens and there's.
There's more travel options I mean, it sounds like from your commentary that you're not seeing that on.
The transient side.
<unk>.
Paul mentioned, a moderation of upgrade sales I just wanted to get your your views on potentially some of these new rvs in.
A lot of them sticking around it and then within this.
And it must appetite.
Sure sure John So.
The RV business was incredibly strong before the pandemic and we are in an environment, where there are roughly 1 million sites in $11 million our views 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.
Turned 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 we're going to I think we're going to continue to see that demand.
And the moderation of upgrade sales.
We're bidding on.
1000 trails.
And that's just that's more of a seasonal effect.
And you can just see it theres just more camping opportunities in the summer, which goes along with people getting more excited about about upgrading their membership.
Okay got it.
Paul also mentioned Marina has been growing at eight.
8% year to date, I think last quarter, you mentioned, 4%.
So can you just elaborate on that.
Seems like a huge acceleration in revenue growth and if youre seeing acquisition opportunities for the type of marinas that youre looking for the high storage rental.
Marina.
On the first part John I.
I think there might just be some mixing the.
The 8% I mentioned is the revenue growth of 4% as NOI growth.
Okay.
We see the NOI growth at Forbes and then John in terms of acquisitions.
As we've mentioned in the past we are looking for a particular type of marine and we are seeing some.
Some prop.
Properties of interest and we will disclose them as we 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 I can find that in follow up.
Okay, great. Thank you.
Thanks, Jeff.
Thank you. Our next question comes from the line of Keegan Karl from bearing Byrne. Your line is now open.
Hey, Thanks, guys for taking the questions.
First just touching back on marinas I mean, 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 the percentage of your portfolio.
Well I think certainly if we if we see a transaction that fits within the parameters of what we've been talking about.
Would we would definitely move forward with it but I don't think there is I don't think thats any change.
From where we were before we have.
Certain attributes that we like inside of the Marina basin.
And to the extent that we find those we would we would certainly closed on those transactions, but I don't think it's any different than what we said, which is we'll be in and about the same percentage of Marina.
Overall.
<unk> revenue as we are right now will just be growing all.
RV MH and Marina.
Got it and can 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 kian.
I think.
What we have done in that regard.
<unk> is implemented.
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-19.
<unk> on developing an online check in process and we have implemented that it's had.
Great success.
We also are testing tools, such as SMS texting for guests who are on the properties. So that they can communicate with the staff on property, but not necessarily have to step into the office.
Another thing that we've done across our MH portfolio is focused on electronic payments.
So that.
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 perspective.
Paired 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 components that represents about 80% of those vacant positions.
If you think about it it's a little bit more than 200 RV properties.
A few positions at each property.
And our property operations teams and regional management teams.
<unk> 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 in 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 Traveler's Choice Awards and 25 of our properties were included in the Tripadvisor.
Advisory Hall of Fame and Thats, 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 onsite staffing and it has really come through in our customer service.
Got it so you guys don't feel like you've launched.
<unk> revenue because of the staffing shortage correct.
That's correct.
We were able okay. That's it for me. Thank you service our customers.
Thank you alright, thanks Margaret.
Thank you. Our next question comes from the line of Samir Khanal from Evercore ISI. Your line is now.
Hi, Margaret 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 with equates to a four five cap rate.
And the deal that we did in Tucson.
That's a four cap.
Okay, and then maybe just taking a step back you can talk generally about.
What youre seeing in pricing I mean, not only for rvs and MH, but just kind of elaborate a little bit on marinas maybe.
Sure.
I think that.
Not much has changed in terms of.
In terms of pricing and cap rates, I think rvs and MH well located rvs at MH that are.
Close to close together in the same locations will trade approximately at the same cap rates.
We do see the.
The Marina cap rates are five five to six.
Hum.
And the MH and the RV are somewhere in the you know.
Four to five range.
Okay, Great and then and then Paul I guess just to remind US can you can you.
I guess what percent of your expenses are related to payroll.
We've talked in sort.
First.
Question about wage pressure that you're seeing but trying to get a sense of.
What that impact could be on kind of an expense growth next year.
Yes, I think.
When you think about our expenses utilities and payroll combined which we talked about a fair amount having pressures that's about 50% of our expense.
Okay, great. Thanks.
Sure. Thanks Amir.
Thank you. Our next question comes from the line of Joshua Denner line from Bank of America. Your line is now open.
Hey, Margaret Palm Patrick 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.
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.
Plan is to work with the ground lessee and we have many options, including extending the ground lease renegotiating. The ground lease are taking over the operations of the property. So we just closed on it.
Starting discussions, but this was and this was a market that we've always been interested in.
And properties.
Property that doesn't trade.
<unk> frequently at all which is which is where our interest was.
And this was a way to gain access to it.
Okay I would imagine.
Given our ground lease cap rates lower than if it was.
I would imagine it's a pretty low cap rate is that a correct assumption or.
Hey.
This will separate was before it's a four five cap rate or the <unk> generate.
By the ground leases equates to a four five cap rate and I think there are certainly.
Opportunities win.
This asset becomes part of the.
Part of the Eos family.
Okay.
Okay. So it sounds like you will try to.
Okay.
The whole asset.
Thinking about it correctly.
I mean, I think we're in early stages of talking with the ground lessee right now Scott.
Got it and then I just wanted to ask about the midweek activity on the RV side whatsoever.
Many of the profile.
The mid <unk> customer is it.
Okay.
What we what we see is that the midweek activity I mentioned that it's a 12% increase and the night with the largest variance was Sunday and Monday nights. So we really see more customers extending their weekend with us.
So theres really no differential and what the customer looks like its more just there.
Their Sunday night, and Monday night and perhaps.
I think thats 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 is a Sunday Monday.
Correct.
That helps to drive up that.
That increase in rates.
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 allow scheme from Green Street your.
Now open.
Thank you for taking your time.
Good morning, Paul could you can you share the revenue and expense growth assumption that underpins the fourth quarter NOI.
NOI forecast I'm, just trying to get a sense for the moderation of NOI growth you guys are predicting.
Yes, I think on the <unk>.
Think on the revenues as I mentioned the moderation.
The rates that we're talking about it's kind of a three ish percent number on expenses and revenues are closer to five.
And the moderation when we think about I'll start.
Just with the transient.
The process that we go through taking a look at our reservation pace and so forth demand is strong but it was also strong in the fourth quarter of last year.
And so the guidance assumption.
It includes that the heady rates, the kind of almost 50% growth.
Growth rate in transient that.
Year to date moderates meaningfully to kind of high single digit mid to high single digit growth.
The seasonal I mentioned in response to another call you'll remember it was about a $2 million impact last year and given the opening of the Canadian border we expect.
Two.
We've seen those customers come back and don't see risk that we saw last year at this time and then as Marguerite mentioned the the upgrade sales that revenue stream as those properties go out of season, we typically see.
A reduction in upgrade sales volumes and so we're looking at kind of a mid single.
Growth rate for that as well relative to last year.
Okay could you could you share the again I'm not overly concerned about one quarter I'm just trying to understand the trajectory for the next few years could you share the seasonal RV growth assumption.
Fourth quarter, because you still have that easy comp from.
<unk> did.
Uh huh.
That is.
It is.
It is.
Kind of a <unk>.
25% to 30 ish percent number relative to last.
So it's a healthy growth rate, but again, we are recovering that.
Those dollars that we lost.
Okay, and then a question for anybody.
Could you just help us think through the next few years in terms of the RV business and that specifically that you lead.
Last year, two thirds of your tenant base suggests theyre going to cap more next year than they did this year.
It can be a lot of churn between annual seasonal and transient membership upgrades. So help us just kind of dial that that serve those survey anecdotes into kind of what's the structural run rate.
RV revenue.
<unk> Court.
I think you can look at it in the three different buckets. So we've provided some.
Some guidance for what we think about the annual rate.
How that's going to trend, which we think is a healthy number.
And then there is the increase in annual and we've seen an increase.
Growth increased year to date of annuals of a significant number of 1000 plus.
So that's been that's that's contributing to what you see in our growth rate on.
On the seasonal side, it's really dependent on.
What happens in any given season, obviously, we're looking at.
We look at 2022.
With the Canadian border opening and with anticipated.
The farmers almanac anticipate the very cold winter this winter.
And we would anticipate high demand for that for that reason, but for those reasons.
And then as you look at the transient side, we've always.
And it's difficult.
To predict too far into the future on those and we'll be sticking with that although.
We've just been able to.
Access a wider customer base, which I think is going to be helpful. For us to continue to fill those those transient site.
So when you see this survey data and you see the kind of real time trends in terms of the appetite for our being.
We expect transient RV to decline on an absolute basis next year everything should still grow.
The transient side is it's.
Very kind of up to the.
Rate adjustment, though as we see as we see demand as the supply and demand equation.
So we will be adjusting that as we see it so it's a little early to tell.
But but but.
People are very excited our customers are very excited to get out get out on the weekends and then when they do that.
Many tend to want to say I like this lifestyle and then and then they go to commit on a longer term basis.
Okay. Thank you for that Doug.
Thanks, John.
Thank you. Our next question comes from the line of Anthony Powell from Barclays. Your line is now open.
Hello, Hello, Hello, Good morning, sorry for earlier, thanks for coming back on the call.
Problem, yes.
Question about actually home sales, which have doubled again in the quarter and very strong. Just curious are you seeing any new demographics kind of.
Buying homes from you guys and looking forward are there any.
Profit for maybe higher margins in the segment I know, it's not a big focus for you in terms of margins, but given the volume of sales is that something that you can maybe push a bit further.
Yes.
Patrick I'll touch on that.
The color around the homebuyers.
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 around 60 years of age.
We reported on an earlier call.
From a financial stability perspective.
FICO has consistently been over 700.
That's trending somewhat higher at seven 730, plus.
For the year to date.
We're seeing a more well qualified.
Homebuyer come through the door and we're also seeing an.
An increase in.
Out of state inbound homebuyers and really.
All of that reflects is that while there was kind of a longer transition from maintaining your residents up north in setting up your roots in Gulf, Florida.
You would come through as a home buyer who was coming from.
Transitional housing as you were kind of setting up your roots of buying a home with us.
That's.
Our process shorten up and people choose to make this step in one move by our house and move down to the Sunbelt us out there which for retirement.
And I can jump in Anthony just as.
As we think about as we think about margins on home sales.
Scott.
I'd characterize it as kind of a low to low to no margin business for us on the new homes. Our focus is on the overall cost for the customer in there.
Of course, the cost of purchasing the house as part of that but it is the rent as well and if we if we priced at equilibrium.
We're at.
Quite a.
On the sale of the house.
Got it thanks, and maybe one more from 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.
Low Mark every year.
Sure.
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.
Yes.
Development going on that in the next couple of years. It one to two years I would say and maybe Patrick if you could walk through the development pipeline.
The development pipeline over the last couple of years, our target has been to deliver north of a thousand completed sites.
See that last year with a little over one.
Get.
We're tracking to just over 1000.
For the current year.
And for the foreseeable future I would expect us given our pipeline to be able to deliver in the 1000 <unk> hundred sites on an annual basis.
A lot of that is going to.
100 <unk> bye.
The timing of entitlements and in the process for getting projects completed in <unk>.
In today's environment, we're seeing a little bit of pressure with.
The timing that we're seeing with our gcs.
Likewise.
Our response.
Janus from local administrative offices on inspections and certificates of occupancy utility companies in particular.
In connections with the electric company.
To be challenging from a timing perspective.
Got it and have construction costs kind of impacted any expected near term yield.
Or is that still.
Pretty positive results there.
Yes, I mean, we're expecting positive results of our yields are in the high single digits typically.
With some of our projects in the in the low double digits.
There's no question that we're seeing some impact from construction cost across.
The portfolio.
But the demand profile allows us to tell.
To support those yields.
Alright, great. Thank you.
Thanks Anthony.
Thank you. Our next question comes from the line of John Kim from BMO capital markets.
Line is now open.
Thank you.
Bank, the 4% cap rate on Voyager.
Yes is this the new norm for class, a RV resort or is it unusually low because of the expansion opportunities adjacent to it.
Certainly the expansion opportunity I mean, we've operated this property.
For 10 years, so we have a real good indication of the value of the property and we know the.
Deals that have traded in and around that area. So it's really a function of the Tucson marketplace.
And the high quality of the property.
Can you comment at all on the timing.
<unk> and the and the number.
Number of sites you could expand into.
Sure Yes.
Recently and with the expansion.
Is 300 sites.
Roughly 60 acres and we would expect to you.
Get a shovel on the ground in 2022.
With that that will be the first phase of 150 sites.
With the next phase to follow upon completion and Lisa.
Great. Thanks.
Hey, John Thanks, Jim I can just follow up your.
On your question earlier I can close that out too since you hop back in a second.
Secondary.
Just getting things off the list here. This is fantastic, Okay second quarter Marina annual rent that growth rate was eight 7%.
Okay.
Thank you very much.
Sure.
Thank you John.
Thank you since we have no more questions on the line at this.
Time, we would 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.