Q3 2022 Equity LifeStyle Properties Inc Earnings Call

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Good day, everyone and thank you all for joining us to discuss equity lifestyle properties third quarter 2022 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 CFO .

Vance 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.

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 has ample offers.

As a reminder, this call is being recorded.

Certain matters discussed during this conference call.

It may contain forward looking statements in the meaning of the federal securities laws or forward looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement any statements that become untrue.

Because of subsequent events. In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC.

Reconciliation of these non-GAAP financial measures to comparable GAAP financial measures are included in our earnings release, our supplemental information and our historical SEC filings at this time I would like to turn the call over to Marguerite Nader, our president and CEO .

Good morning, and thank you for joining us.

Yesterday afternoon, we issued our supplemental and provided additional information about the impact of Hurricane Dorian, which made landfall in Florida 20 days ago.

Our team members, some of whom separate personal losses from the storm.

Worked tirelessly to restore our properties and assist our residents and guests.

The results of the cleanup and restoration efforts over the last 20 days are nothing less than extraordinary.

We have prioritized the safety of employees residents as we began the cleanup effort in some cases hampered by a lack of utility.

The strength of our infrastructure and the whole generic community in particular newer homes with evident in Florida after the storm.

Over the years, we have developed a detailed hurricane preparation plan, which includes significant advance planning.

As soon as the storm passes our property cleanup and restoration efforts connect.

We have a coordinated program, including having vendors on call to arrive at communities as soon as the storm passes to mitigate additional damage and returned to normal operations as quickly as possible.

And just 20 days, we have made significant progress towards cleaning up and restoring our community.

You see the best in our homeowners with neighbors, helping neighbors.

After the storm, we've seen an increase in customer traffic driven by displaced residents as well as emergency workers looking for location to send the winter months.

Our teams will continue to work with those impacted you accommodate those customers at our RV parks across Florida.

We believe we have adequate insurance subject to applicable deductibles to cover the expenses associated with hurricane including business interruption insurance.

The timing of payment under business interruption insurance May result in revenue recognized in subsequent periods.

We will have a better estimate of the timing of the proceeds in the coming months.

I want to thank the Florida teams for protecting our communities and supporting our residents during this time.

Patrick will provide additional details on restoration efforts at the conclusion of my comments.

Turning to the results for the third quarter, we delivered strong normalized <unk> growth of eight 5%.

Our MH revenue grew by five 9%.

Over the last several years, we have seen increased demand for owning a home in our property.

Our rental pool is at the lowest point since 2010 with four 3% of our occupancy comprised of rental homes.

Our portfolio is comprised of 96% homeowners.

This quality of our resident base is important.

Following storm events, we see our resident base quickly addressing any damage to their homes caused by the storm.

Our RV revenue performed in line with our expectation with a growth of eight 6% seen in annual revenue and a decline of 2% in seasonal and transient RV revenue.

This decline is a result of the decreased number of available transient sites after being converted to an annual site over the last year.

Our first time transient customer returning from last year showed a desire to strengthen their relationship with us.

Nearly 20% of those returning coming in annual seasonal our member.

Inflationary pressures, specifically with respect to utility costs negatively impacted our performance in the quarter.

Paul will provide a more detail on the specific drivers for the increase in our expenses.

During the quarter, we sold 331 new homes.

Over 95% of these new home buyers are cash buyers.

This investment is consistent with our entire portfolio as the vast majority of our residents have make a capital commitment to live in our communities.

The commitment from our homeowners results in pride of ownership and a long term resident base.

Turning to 2023, we anticipate continued demand into next year within.

Within our MH portfolio by the end of October we anticipate ending 2023 rent increase notices to approximately 51% of our MH residents.

These rent increase notices have an average growth rate in the range of $6 two to six 6%.

For our RV portfolio, we have set annual rates for 95% of our annual site.

<unk> annual rate increases have an average growth rate of seven 6% to 8%.

Our snowbird residents and guests are anxious to head back to Florida, and Arizona for the season. Our teams are prepared for their arrival and we will continue to focus on providing outstanding customer service.

I will now turn it over to Patrick to provide an operational update.

Thank you Marguerite and good morning, everyone.

During the two weeks following hurricanes, making landfall in.

Florida is at properties impacted by the storm.

Our <unk> team members are extraordinarily committed to cleanup and restoration efforts to return the properties. They are pre storm condition.

The majority of our properties suffered limited damage to the extent they were closed for this storm.

We opened shortly after the scorn path.

Several properties that were closer to the center of the storm suffered damage from high winds and flooding for storm search.

After a storm event. The primary cleanup efforts are focused under debris removal and by pre staging vendors to move in as soon as possible after the storm.

The level of response was quickly underway at all accessible properties.

I'll restoration efforts of properties are hampered by road our bridge access not yet.

Historic to full capacity.

And in some cases partial power or the lack of power of the property.

We have six properties, where we need some additional time estimate the timeframe for reopening.

Two of those properties are located in areas successful by regions.

Images caused by Hurricane Maria our early access to those properties was limited.

We now have access to those properties from the mainland over historic ranges.

Our storm response included U S teams, providing assistance to residents and guests.

Bottled water and food prepared and served by our <unk> wireless coordinating local restaurants food trucks and resident groups.

Through our make a difference program, we made donations to groups and organizations supporting our communities.

We also work to coordinate with local county state response on the ground wherever necessary.

And for residents who suffered hardship as a result of.

Our charity consider others provides financial grants.

<unk> same guests through difficult times.

We are focused on restoring our properties and in the process of assisting members our U S team presence and guests of our communities experienced losses from this storm.

I'd like to take this opportunity to thank all of you all as team members, especially the properties.

Supported residents guests and each other through the challenges of hurricane.

I'll now turn it over to Paul to walk through our results.

Thanks, Patrick good morning, everyone.

I will provide a summary of our operating results for the third quarter and year to date periods, including the driver of our core operating expense growth during the third quarter.

I'll also provide some information about the assumptions we used to build our updated guidance model for the full year 2022.

Close with some comments on our balance sheet and debt market condition.

In our earnings release, we reported third quarter and year to date normalized <unk> per share of <unk> 70.

$2 seven respectively.

These represent growth rates of eight 5% and 9% for the quarter and year to date periods respectively.

Core property operating revenue increased five 3% and six 5% in this quarter and year to date periods, respectively compared to prior year.

Growth drivers for MH and RV rents were discussed by Mercury.

Touch on the drivers for the remaining 20% of our revenue.

Membership dues revenue for the third quarter increased six 1% compared to prior year.

During the quarter, we sold approximately 7000 200000 trails camping pass memberships.

While membership upgrade sales volume in the third quarter was lower than last year.

Bridge sale Thats more profitable primarily as a result of an average 20% increase in upgrade sale price.

Yes.

Utility and other income was higher than expected during the quarter in part as a result of utility income that offset higher than expected utility expense.

In a moment I will discuss the elevated increase excuse me increases in utility rates, particularly related to electricity to continued during the third quarter.

Year to date, our utility recovery.

Approximately 44% take rate we experienced in the first nine months of last year.

Property operating expenses were higher than expected during the third quarter.

I will note that given the timing of hurricane Ian making landfall at quarter end, we were not able to estimate probable costs to restore affected properties there.

And therefore, we did not accrue expense in the third quarter related to cleanup or restoration effort.

Utility expense was the primary driver of increased expenses in the quarter compared to prior year.

<unk> expense increased almost 17% compared to last year.

The expense increase is comprised of average electric rate increases of 14%.

<unk> of the increase caused by increased usage.

RV communities in the south and northeast experienced rate increases ranging from 16% to almost 30%.

These elevated rate increases have been implemented by electric utilities will advance notice.

It's challenging to predict the impact on our expenses our year to date core property operating revenue growth of six 5%.

Property operating expense growth of eight 3%.

Due to an increase in core NOI before property management.

3%.

I will now discuss our full year 2022 guidance update.

As a result of the potential impact of the hurricane on our fourth quarter results.

We provided updated guidance for full year 2022 per share net income <unk> normalized <unk> and <unk>.

Withdrew guidance for core revenue expense and operating income growth rates for the remainder of 2022.

The full year guidance ranges. We provided include various assumptions related to impacts from the hurricane.

These include possible loss of occupancy increase in bad debt expense.

Costs to remove damaged homes held for sale or rental and impacted communities across Florida.

We've also made assumptions related to the temporary interruption of operations certain impacted properties, including the six that are currently closed.

As we stated in our earnings release, we believe we have adequate insurance coverage subject to deductibles business interruption.

We're unable to predict timing or amount of insurance recovery.

Pursuant to GAAP elements of insurance recovery, including business interruption or to be recognized as revenue upon receipt.

Before we open the call up for questions I'll discuss debt markets and our balance sheet.

In this period of volatility and broad economic uncertainty.

Is well positioned with the debt maturity schedule that shows less than 6% of our outstanding debt matures over the next three years and around 20% of our outstanding total debt matures over the next five years.

This compares to an average total debt maturity for rights of approximately 45% over the past five years.

In addition, 23% of our outstanding secured debt is fully amortizing securities no refinancing risks.

No year in our schedule with more than $300 million of outstanding debt matures.

Current secured debt terms available for MH and RV assets range from 50% to 75% LTV with rates from five 5% to 6% for 10 year maturity.

High quality age qualified MH will command best financing terms.

RV assets with a high percentage of annual occupancy access to financing from certain life companies as well as the MBS lenders.

Life companies continue to express interest in high quality communities.

Some has set limits on capacity and pricing.

We continue to place high importance on balance sheet flexibility. We believe we have multiple sources of capital available to us.

Our debt to EBITDA is five two times and our interest coverage was five seven times.

The weighted average maturity of our outstanding secured debt is almost 11 and a half years.

Now we would like to open it up for questions.

Ladies and gentlemen, if you have a question or a comment. Please press star one on your Touchtone telephone we will pause for a moment, while we compile our Q&A roster one moment for our first question.

Our first question comes from Michael Goldsmith with UBS. Your line is open.

Good morning, Thanks, a lot for taking my question can you talk about the.

Good morning, Margaret can you talk about the thought process.

Behind the MH rent increases of six two to six 6% kind of fall short.

Of where inflation has been trending through the year and more.

And more recently so what.

What factors would keep the rent growth below inflation.

At this time.

Sure Michael I think Patrick can walk you through our methodology.

Process that we go through every year and then arrive at a number in September and October So maybe packaging.

Yes, so as we as we move towards the back half of the year and are preparing for our annual budgets. We worked through market surveys that includes comparable MH properties as well as alternative housing in the submarkets around each one of our properties.

And we come up with recommended a rate increase.

I'll speak to Florida, so about half of the portfolio.

The statutory process in place where.

The owner of the community sit down with the HOA in the community.

They come with their view of the process that I, just described and we walk you through it.

And discussed and the respective views on the market and settle on a rent increase going forward.

That also includes as well as on an ongoing basis conversations about our properties with respect to.

Our homeowners priorities, where do they want to see.

Improvements changes in things like activities. So that we're on the same page with respect to the long term operations of the property.

Just with respect to the overall mix the rate increases.

We have market rate increases across the portfolio, that's about half of our overall rate increases to.

To your point I would expect that that would approximate CPI, although it's going to be driven by market forces across the portfolio.

Our CPI rate increases are about 25% of the overall portfolio.

And depending on how CPI trends.

Month over month and quarter over quarter, that's going to drive the exactly what that number works out through for the full year.

And then in Florida, we have.

Two to three year typically.

Long term agreements.

As I mentioned in that process earlier, we may land at a view towards two to three year rate increases for an HOA.

And that May lag the CPI expectations, so that could be easily be in the four 5% range.

Over time, those will trend toward market.

Including the recognition of Cpi's impacts and just as a reminder, also.

In Florida when.

Current homeowner ourselves through new homeowner.

That new homeowner will paid the market rates upon renewal of that lease on an anniversary date.

It kind of touches on all the buckets if that answers your question.

Maybe just a related follow up on that is.

And you have your conversations with your customers or your tenants.

Yes.

Are they looking to maybe pushed back certain capital projects in order to keep kind of rent growth lower in the near term.

Given that.

It increases our rent increases are higher than usual with the expectation that maybe some of these projects are done in future years, and that would kind of that would raise rent rents in future years.

Well I mean, I think what we're seeing.

Michael is that the in place residents, where theres been some mark to market. So some of those rent increases have already incurred and we've seen that about 11% for the year.

That type of increase.

And new customers coming in very willing to pay that we do have the discussion about what what the capital needs of the property are but I think people are cognizant of what's happening with CPI.

The discussions have been going well very well so far on being able to talk about where we should spend capital.

And what the rent increases should be.

Got it.

For my second question the gap between.

Do you expect in 2023, MH rent increase of six two to six six and RV annual rent increase of seven 6% to eight is 140 basis points last year.

At this time the gap was 30 basis points. So what's kind of the difference in the pricing power that you're seeing on the RV side relative to <unk> and how sustainable is that.

I mean, I think we see real demand on the RV side, specifically on the annual people wanting to.

Spend spend this season our spend spend.

<unk>.

Come down and you have to stay with us on an annual basis. So thats really driving it it's really market forces. We look at our market survey, we look around and see what's happening.

Around our communities and that's what forms that that rent increase.

Thank you very much.

Okay.

One moment for our next question.

Our next question comes from Nick Joseph with Citi. Your line is open.

Thank you.

It was obviously a quiet quarter for transaction volume.

This most recent quarter, but what are you seeing more broadly across the transaction market.

As Catholics adjustment higher interest rates and capital costs.

Yes, good morning, Nick.

In the quarter you are right we were quiet relatively quiet, we purchased two pieces of vacant land adjacent to one of our manufactured home communities in Florida, and then one near one of our manufactured home communities in Chicago.

Those are properties that we put under contract over the last year and then we intend to develop over the next couple of years. So that's kind of what happened in the quarter and then relative to just the pipeline and what we're seeing is similar to what we've seen in the past, but not a real notable change in cap rate.

But I think that tends to take a little bit of time owners are seeing less buyers, but they still have barely.

Many interested owners and potential owners that are interested in buying their property.

The brokers do a great job of marketing deals.

<unk> continued rising interest rates may present, an incentive.

Really for for owners to become sellers.

When theres a refinancing term on the horizon. So I think some of those opportunities may may come up in the near future.

Thank you that's helpful. And then just on the insurance recoveries I recognize it's very hard to forecast, but just historically.

If other storms what was the.

Timing and percentage recovery associated with.

So the cleanup.

Yes, Nick our best our Best example, on the recovery is looking back to Hurricane Irma in 2017.

And given the.

The experience we had done when we think about the business interruption, which is a key component as I mentioned in my remarks that is recognized upon receipt.

Storm occurred in earlier.

Earlier in September of 2017, and it was the first quarter of 2018, when we started to recognize those business interruption proceeds. We continued it was about an 18 month timeframe.

We collected those proceeds on a quarterly basis.

Thank you.

One moment for our next question.

Our next question comes from John Kim with BMO. Your line is open.

Thank you and good morning.

The lowering of the guidance for the year came at the negative surprise to the market just given a couple of weeks ago on your assessment of Ian you stated that the hurricane will not significantly impact the results of your operations.

I'm just wondering what happened in the last couple of weeks with the assessment worse than originally expected.

Or are you basically saying that there's other factors that the reduction of guidance Besides hurricane Ian.

I think I think John potentially we have a timing issue I think there is an expectation on our side that we will have recovery of insurance proceeds to offset the impacts. So overall when you think about our financial condition.

Our view is that there's not a significant impact there is however, a timing impact in the fourth quarter as it relates to.

The expense that we would incur or the experience that will have relative to closure of certain properties and then as I just discussed the timing of the receipt of business interruption proceeds.

Okay.

So on the fourth quarter implied guidance, how much of the reduction is due to that timing impact versus <unk>.

Rising interest rates. So you got the transient RV that came in lower than expected.

What else the utility costs I'm, just wondering how much of that utility expenses, a one time <unk>.

Increase in rate versus something that normalizes over time, but what were the what was the component of the other factors Besides hurricane Ian on fourth quarter guidance.

Sure I appreciate it I mean, there's a lot that goes into our forecast model and every quarter our team conducted a review.

Identify potential changes to the prior model, it's almost like we prepare many budget every three months.

And as I think about our third quarter results and the potential influence. They may have had an assumption.

We might have made for the fourth quarter.

For the hurricane.

Hypothetical we're talking about I will say, we would've had adjustments to revenues and expenses likely both of them increasing.

And.

That likely would have resulted in a potential decrease in our core NOI compared to prior guidance I'll also say, though that we would have adjusted our expectations for other line items and based on trends, we saw in the quarter and that we've seen year to date. These may have offset the decline in NOI.

And all of this is hypothetical because of the impact of the hurricane.

At the end of the day based on our model.

Easy.

Yes.

We find ourselves in a situation where the potential impact of the hurricane is the is equivalent to the reduction.

In our guidance.

For the rest of the year.

So just to clarify and I realize there's a lot of moving parts as the majority of that.

Reduction due to the hurricane Ian or can you ballpark.

What percentage of that is.

The reduction when I think about.

And I think about the potential for lost occupancy when I think about the closure of the of the properties Mb.

The impact of those lost revenues.

Potential for us to as I said during my opening remarks after loans incurred bad debt and so forth all of that rolled together is.

The reduction to our guidance the written rate so John the reduction to <unk> because of the hurricane.

That's very helpful. Thank you.

One moment for our next question.

Our next question comes from Samir Khanal with Evercore ISI. Your line is open.

Hey, good morning, everybody.

Margaret Paul My question is around expense growth I guess, putting the hurricane a site.

How should we think about expense growth maybe into next year I mean, you guided to five 7% clearly above that.

That sort of range for the year.

We're trying to figure out how sticky are these higher expenses there'll be think about 23.

Sure.

So year to date, our expense growth is eight 3% in the core I think the reported increase in CPI averaged eight 3% for both the quarter and year to date. So all in we're essentially in line with CPI, Utah.

Utilities payroll and repairs and maintenance are about two thirds of our expenses those categories.

Excuse me have increased about 10, 5% in the year to date period, and it's really utilities and repairs and maintenance that have been elevated payroll essentially has been in line with what.

CPI.

Our utility expense.

Almost 30% of our core expenses and electric expense is the largest component of our utilities represents somewhere between 35% 40% of the total annual.

Year to date electric expenses increased 16% driven by outsized rate.

The increases that we've seen are in line with increases in the electric component of CPI.

September CPI leads showed electricity.

Year over year was up more than 15%.

As I mentioned in my remarks, these rate increases occur suddenly little or most often no advance notice before the bill arrives.

Well you have.

<unk> rate volatility in the past certainly in our history, we've not experienced such rapid and significant increases in utility expenses were experiencing this year.

Overall, we do recover.

Somewhere in the 44% to 45% range in terms of expenses on an annual basis.

See some fluctuation quarter to quarter, because the RV properties don't recover.

Utilities from transient customers.

Long term strategy that we have to mitigate utility costs is to unbundle and charge residents and guests for their usage, but that is challenging with the transient RV guests.

And then with respect to R&M.

It's about 15% of our core expenses.

Included in this expense category, our expenses related to unplanned events.

<unk> storms, we have wind and rain events.

That result, and cleanup costs or other maintenance can be significant but over time.

They don't rise to the level of insured loss.

As we look at it we kind of see that representing about 5% of our R&M expense on an annual basis long term mitigation plans with respect to those expenses include investment in infrastructure.

Reduces our exposure to cost following those significant rain event as well as <unk>.

Landscaping tree trimming and so forth to mitigate the wind related damage.

And I think <unk> seen in 2022, we've really we provided additional detail about the composition of our core expenses and Paul has just gone through a lot of that.

Which we think is very helpful to creating earnings model. So that you can see the components of the expenses.

Right no I understand that we were just finding it a little bit difficult to.

To kind of model expenses right I mean, you started the year with $4 eight.

But I think with your guidance and then.

And then you get the $5 seven and now you are tracking close to 8%. So we're just trying to figure out for.

23, how to kind of model that and I guess as a follow up.

I mean, how are you thinking about electricity rates into next year.

We think about it is this another year, where you kind of remodel another 7% to 8% for next year, that's kind of it.

The reason for the question.

Yes, I mean, I think it's early for us to talk too much about 2023.

Our call in January we'll certainly talk about our budget.

But.

The pressures in the areas where our.

Our properties are located in that we've highlighted for the northeast and the south in particular.

On the <unk>.

Pricing for natural gas that drive electric energy prices.

Continued to be elevated.

I think that.

We are watching closely the monthly CPI reports, the energy component, particularly electric and natural gas.

And I think that that'll be a key factor as we develop our our budget for 2023.

Given how quickly and significantly these rates have changed.

We are subject to that volatility on a go forward basis.

Got it and then I guess I'll follow up for me when I look at your <unk> Guide you did come down 6% at the midpoint and then you.

You talked you talked about sort of the primary reasons.

Hurricane.

So the impact from the hurricane but but.

Which is about I think $12 million hit right.

Think about it maybe maybe provide some guidance around hurricane Irma were you able to get how much of that the impact of Hurricane Irma did you fully recover I mean with a 90% was 80%.

How much do you expect to recover so the $12 million over time.

Yes.

Excuse me if you walk through.

Our public filings I think that Youll see.

I think that Youll see total when you think about the overall claim.

Youll see a total estimate in the range of about 35% to $36 million.

The recovery that we noted is around $31 million.

Now.

In terms of the P&L impact I'm talking I'm talking cash.

<unk> and <unk>.

<unk>.

In terms of the P&L impact.

The lion's share of the.

The lion's share I mean 95 ish percent.

The expense that we recognized.

Recover.

Got it that's very helpful. Thank you.

Thanks Tommy.

For our next question.

Okay.

Our next question comes from Brad Heffern with RBC. Your line is open.

Hey, good morning, everyone. Thanks.

You talked about the timing mismatch from the hurricane So just to clarify once the business interruption insurance kicks in would you expect any meaningful ongoing financial impact.

Well.

I guess the way I would answer that Brad is.

B.

The business interruption will likely be recovered on a lag.

And so.

It won't be it won't necessarily be a perfect match in the time period that we receive it but over time the expectation is would be to to recover proceeds equivalent to the law.

But the focus is on getting the properties back up and running so that we don't rely on the business interruption insurance.

The plan.

Yes, okay, Okay got it.

And then I guess broadly are you seeing any signs of stress in the portfolio.

You can kind of take that where you wanted to take it but I'm sort of thinking about things like bad debt.

Maybe unusual levels of cancellations on the RV side anything like that.

Now, we're seeing I mean, as we showed for the rate increases I mean, thats a very recent finding in terms of the rent increases that we just sent out in the annual on the annual RV side and on the MH side, So real strength, there real demand from a home sale perspective.

So I think that's been very positive and as we're heading into our season now continued demand for for people to come down as David lives on a seasonal basis.

First quarter is the big is our biggest part of our seasonal business happens in the first quarter and we're seeing we're seeing strength there.

We do watch we do watch.

What youre talking about there and look for look for signs of weakness, but overall, we feel very comfortable.

We continue to have a waiting list for homes for people wanting to buy our homes. They are just difficult to get the homes as quickly as people want to buy them.

So overall feeling very positive about the demand characteristics for our portfolio.

Okay. Thank you.

Well remember for next question.

Our next.

Comes from Josh <unk> with Bank of America. Your line is open.

Hey, Margaret Paul.

Patrick Hope you guys are doing well.

I guess I was just curious on the expense side is there anything you can do to kind of control the expenses in the near term.

I guess in particular, maybe on the labor front.

I know some of the peers have kind of implement that kind of changes during COVID-19 and post COVID-19.

I'll help on that front anything that you can do to platform.

Yes, I think I think.

Josh we have talked about some technology initiatives.

We'll say that.

The decentralized nature of some of our operations Hasnt resulted in some of the efficiencies compared to maybe the resi peers that have shared service centers and are able to automate function and reduce.

Reduce.

Labor costs as a result.

<unk>.

Or is it spread across all of our properties in terms of their responsibility for things like administration oversight of expenses.

So on.

But I do think that debt.

We've implemented with a focus on improving it.

<unk> and guest experience.

Over time, as we are able to leverage that I think that.

You should see that.

Should see some savings in our overall cost structure and then we're also focused on that utility recovery piece of the business.

Maximizing that and making certain.

That we're doing whatever we can from a submarine urine samples and crown major billing standpoint to that to collect that revenue, which will offset the expense on the utility side.

Is there a way anyway on the utility side feel like put a surcharge on when do you see the rate.

Volatilities spiking.

Like just trying to get at like more near term.

There is regulations around that around what you can and cannot charge and what it is what it is called.

But we do have where we can we have a sub meter and we read the sub meter and then recharge the b.

The appropriate rate.

Where possible.

There's always the ability here within the within the transient revenue.

Can get increased rates too.

Kind of.

Handle some of that that increased expense that you have on utility side.

What about.

Have you thought about hedging utilities at all just to kind of smooth it out with all these big spikes with swings or.

Do you expect.

I guess.

Our focus has been more on deregulated markets, where we can enter into contracts to fix those costs.

Certainly relevant in Texas. It is relevant in the northeast, although it has been somewhat challenging to find.

Opportunities that.

Yes.

And it worked.

In terms of the economics.

Okay I'll leave it there thanks guys.

Okay. Thanks, just one moment for our next question.

Our next question comes from Robert Lee with Green Street. Your line is open.

Hi, good morning.

I just wanted to ask about the MH rent increases again based on current trends do you bet.

The next call or the next batch of MH residents to see rate increases.

Follow up Bill.

Average.

As disclosed in the spot.

Yes, Patrick I would expect it's going to continue to trend in <unk>.

A similar fashion.

Just one point I'll make with respect to the next.

Got it.

And just a little earlier is that a new resident coming in to the extent that there is a gap to market pays it.

The incoming market rate.

And that has been true.

Lending, 10% plus.

The year over year.

So just.

Just some context around that sorry, 11% what would that have been.

A few months ago.

Okay.

It's pretty it's pretty much spent 11% throughout the year, what we've seen on the mark to market right. So.

So robin we've seen we have about 10% turnover so we've seen it.

An uptick of about 100 basis point pickup related to those market increases.

Yes.

Got it.

<unk>.

Wanted to shift towards the transaction market has been.

Thanks, Andy.

Widening cap rate.

Seasonal and transient RV properties relative to annual all these in recent months.

There haven't been I'd say Robin there haven't been a lot of transactions that have happened. So it's difficult to kind of pull together those data points.

In general.

I would say that.

I've always said that transient RV parks.

Should trade at a higher cap rate just because of the volatility inside of that income stream, but I really don't have anything to point to for for transactions that have happened over the past call. It six months or even year to date relative to that.

Great. Thank you.

Thank you Ryan.

One moment for our next question.

Our next question comes from Anthony Powell with Barclays. Your line is open.

Hi, Good morning, a question on the home sales I think you mentioned that it was good morning, it was harder to get homes to sell to get prospective new customers could you maybe talk about the availability of homes to sell and maybe just trends in that market given what you're seeing elsewhere in the foreseeable residential market across the country.

Sure it's Patrick.

What we've seen and this is Ben.

Pretty consistent.

The post Covid new normal.

Is.

We have.

<unk> been able to do it too.

Acquire.

Remanufactured to maintain occupancy growth in that call. It 30 to 60, a quarter range on a net basis.

And we could be growing our occupancy more than that if we could if we could get more homes.

There have been challenges on the manufacturer's side with respect to.

Labor and supply chain.

As we've seen in many other industries.

I would expect at the pace that we're moving out at this point is going to continue until.

There are some structural ways or some structural shifts.

Pick up the <unk>.

Volume of manufacturing.

Got it. Thanks, So maybe one more just maybe on the guidance you met the phone numbers for this year next.

<unk> guidance for full year 'twenty three in January we will be including perspective insurance receipts in that guidance or is that something that you would kind of what happened in report adds as it comes in.

I guess, it's a little early to determine what we would be including we will certainly be receiving proceeds.

In 2023, but we probably will probably have a better update certainly at NAREIT and then certainly as we head into the first quarter.

January call.

Great. Thank you.

Thank you Anthony one moment for our next question.

Our next question comes from Jason <unk> with RW Baird. Your line is open.

Okay.

Hey, good morning, everyone. Thanks for taking my question have you seen any change to seasonal bookings for next year. Following hurricane Ian I guess do you expect us to be more unsure of how the surrounding area will be.

Doing with all the rebuilding.

Yes, we've seen.

Increase in seasonal reservation.

In general, but that's.

What we generally see as the storm passes.

Hurricane season, we get out of Hurricane season, which is November we get through hurricane season, the phones start ringing.

It gets really cold in Chicago gets really cold in New York and people people tend to forget about the hurricane and they come on down.

Obviously, if there is impacted areas, where they are no longer able to stay because the hurricane impacted that have impacted that particular area specifically they tend to go to another area.

Just focused on getting out of the winter cold the cold winter months and same thing with us in Florida, Arizona, where the Sun is that it's going to be there for January February and March.

That's all for me thank you.

One moment for our next question.

Our next question comes from John Kim with BMO. Your line is open.

Thanks for taking the follow up.

You have a footnote about not taking an impairment charge this quarter.

But you reduce the carrying value.

By $3 $7 million I know thats, not a huge amount, but I thought those two items there is not a man so I.

I was wondering if you could clarify that.

Yes, I think maybe maybe I might fall into the category of.

Learning too much or knowing too much John but let me just walk you through so our accounting policy for impairment identified natural disasters as a potential indicator of impairment and as a result, we took a look at the impacted properties and there is an exercise we have to test the recoverability of net book value through estimated future cash flows.

All of those tests showed the net book values are recoverable, but from that perspective. There was no. There was no impairment of long lived assets based on Recoverability.

Then there's a second part to the impairment analysis, which we conducted over the past 20 days an extensive review of the condition of the properties that were impacted by the hurricane.

Our internal ops and asset management teams third parties were visiting the properties during that review the team did identify assets suffered significant damage from the storm based on their informed opinions of the extent of the damage and any other relevant information that we currently have you reduced the carrying value.

Are those damaged assets to match the current condition and that that is the expense the impairment effectively that you see from the damage to the asset on that line item in our income statement.

And are those damages on homes that you had planned to sell or rent or is it.

Wider than that.

Yes, there is a portion of a portion of the assets that were damaged our holdings that we held for sale and rent in the in our property.

We're in the process, we're in the process of repairing those homes.

And getting them ready for sale and for rentals rental as appropriate.

Okay.

Yes.

My second question is there's been some estimates out there on homeowners insurance in Florida, increasing by as much as 50% next year.

And I'm wondering how that impacts do.

Do you expect to have a similar increase in your insurance in Florida or are you sure good morning NPD level.

And if you could remind us how your tenants are insured.

Typically have homeowner insurance.

Sure. So why don't I take the last half of that first just in terms of the homeowners.

I mentioned in my opening remarks that 96% of our residents.

Our homeowners they own a home versus renting for.

For the vast majority of that group they paid for their homes with cash and therefore, they have equity in pride of ownership in those homes.

We don't track or require insurance for our homeowners we have seen in prior storms and a lot of insurance adjusters come out activity at the properties as they as they work through.

Worked through their claim but there that right now as you drive through Petrobras Dragovic driving through the properties over the last couple of weeks and seeing an awful lot of people out there are preparing their homes and going through the normal things that they go through ads.

As the storm passes.

Yes.

With respect to our insurance our current programs expire in April of next year.

Lloyd's of London has led our MH RV property insurance program since 2009.

We think we haven't really mutually beneficial relationship.

Markets will assess the impact of the hurricane and other loss events.

And the.

Although I think that 2023 market, which is a long way off april's along with lots of things can happen. It will depend on the 2022 hurricane season, but our real experience is that the underwriters. They assess the risks risks by the portfolio and each insurance portfolio composition, and then the loss experience and Thats.

Determined their pricing for 2023.

Following hurricane Irma.

Market adjusted and we renewed our program and.

It wasn't an issue so more to come on that as we as we start the new year.

Do you recall what the.

But the increase of loss after Irma.

Yes.

We've seen 20% increases.

In our insurance expense when you look back over the past five years since Irma incentive out a 20% increase per year.

Okay got it great.

Great.

Eric.

Thank you Dan.

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 for joining us today, we look forward to updating you to joining us.

Today's call take care.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Good day, everyone and thank you all for joining us to discuss equity lifestyle properties third quarter 2022 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 CFO 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.

At least for those who would like to participate in the question and answer session mentioned, but ask that you limit yourself to two questions. So everyone, who would like to participate have ample operation.

As a reminder, this call is being recorded.

Certain matters discussed during this conference call May.

It contained forward looking statements within the meaning of the federal securities laws or forward looking statements are subject to certain economic risk 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 Reg.

Reconciliation of these non-GAAP financial measures to comparable GAAP financial measures are included in our earnings release, our supplemental information and our historical SEC filings at this time I would like to turn the call over to Marguerite Nader, our president and CEO .

Good morning, and thank you for joining us today.

Yesterday afternoon, we issued our supplemental and provided additional information about the impact of Hurricane Ian which made landfall in Florida 20 days ago.

Our team members some of whom separate personnel losses from this storm have worked tirelessly to restore our properties and assist our residents and guests.

The results of the cleanup and restoration efforts over the last 20 days are nothing less than extraordinary we.

We have prioritized the safety of employees residents and guests as we began the cleanup effort in some cases hampered by a lack of utility service.

The strength of our infrastructure in the homes in our communities in particular newer homes with evident in Florida after the storm.

Over the years, we have developed a detailed hurricane preparation plan, which includes significant advance planning.

As soon as the storm passes our property cleanup and restoration efforts connect.

We have a coordinated program, including having vendors on call to arrive at communities as soon as the storm passes to mitigate additional damage and returned to normal operations as quickly as possible.

And just 20 days, we have made significant progress towards cleaning up and restoring our community.

We see the best in our homeowners with neighbors, helping neighbors.

After the storm, we've seen an increase in customer traffic driven by displaced residents as well as emergency workers looking for a location to spend the winter months.

Our teams will continue to work with those impacted to accommodate those customers at our RV parks across Florida.

We believe we have adequate insurance subject to applicable deductibles to cover the expenses associated with hurricane Ian including business interruption insurance.

The timing of payment under business interruption insurance May result in revenue recognized in subsequent periods.

We will have a better estimate of the timing of the proceeds in the coming months.

I want to thank the Florida teams for protecting our communities and supporting our residents during this time.

Patrick will provide additional details on restoration efforts at the conclusion of my comments.

Turning to the results for the third quarter, we delivered strong normalized <unk> growth of eight 5%.

Our MH revenue grew by five 9%.

Over the last several years, we have seen increased demand for owning a home in our property.

Our rental pool is at the lowest point since 2010 with four 3% of our occupancy comprised of rental homes.

Our portfolio is comprised of 96% homeowners.

This quality of our resident base is important.

Following storm events, we see our resident base quickly addressing any damage to their homes caused by the storm.

Our RV revenue performed in line with our expectations with a growth of eight 6% seen in annual revenue and a decline of 2% in seasonal and transient RV revenue.

This decline is a result of the decreased number of available transient sites after being converted to an annual site over the last year.

Our first time transient customer returning from last year showed a desire to strengthen their relationship with us.

Nearly 20% of those returning coming in annual seasonal our member.

Inflation.

Ordinary pressures, specifically with respect to utility costs negatively impacted our performance in the quarter.

Paul will provide a more detail on the specific drivers for the increase in our expenses.

During the quarter, we sold 331 new pump.

Over 95% of these new home buyers are cash buyers.

This investment is consistent with our entire portfolio as the vast majority of our residents have make a capital commitment to live in our communities.

The commitment from our homeowners results in pride of ownership and a long term resident base.

Turning to 2023, we anticipate continued demand into next year within.

Within our MH portfolio by the end of October we anticipate ending 2023 rent increase notices to approximately 51% of our MH residents.

These rent increase notices have an average growth rate in the range of six two to six 6%.

For our RV portfolio, we have set annual rates for 95% of our annual site.

<unk> annual rate increases have an average growth rate of seven 6% to 8%.

Our snowbird residents and guests are anxious to head back to Florida, and Arizona for the season. Our teams are prepared for their arrival and we will continue to focus on providing outstanding customer service.

I will now turn it over to Patrick to provide an operational update.

Thank you Marguerite and good morning, everyone.

During the two weeks following hurricane Ian making landfall in Florida is at properties impacted by this time.

Our <unk> team members are extraordinarily committed to cleanup and restoration efforts to return the properties. They are pre storm condition.

The majority of our properties suffered limited damage to the extent they were closed for the storm a reopening shortly after this call and Pat.

Several properties that were closer to the center of the storm.

Core damage from high winds and flooding for storm surge.

After a storm event. The primary cleanup efforts are focused under debris removal and by pre staging vendors to move in as soon as possible after the storm.

Every level of response was quickly underway at all accessible properties.

I'll restoration efforts of properties are hampered by road our bridge access not yet.

Historic to full capacity.

And in some cases partial power or the lack of power at the property.

We have six properties, where we need some additional time estimate the timeframe for reopening.

Two of those properties are located in areas accessible by bridges.

Images caused by hurricane in our early access to those properties was limited.

We now have access to those properties from the mainland over historic bridges.

Our storm response included U S teams, providing assistance to residents and guests.

Bottled water and food prepared and served by our <unk> team coordinating local restaurants food trucks and resident groups.

Through our make a difference program, we made donations to groups and organizations supporting our communities.

We also work to coordinate with local county state response on the ground wherever necessary.

And for residents who suffered hardship as a result of the storm.

Our charity consider others provides financial demands of residents and guests through difficult times.

We are focused on restoring our properties in the process of assisting members.

Our U S team presence and guests of our communities experienced losses from this storm.

I'd like to take this opportunity to thank all of you all as team members, especially the properties supported residents guests and each other through the challenges of hurricane.

I'll turn it over to Paul to walk through our results.

Thanks, Patrick good morning, everyone.

I will provide a summary of our operating results for the third quarter and year to date periods, including the driver of our core operating expense growth during the third quarter.

I'll also provide some information about the assumptions we used to build our updated guidance model for the full year 2022.

Close with some comments on our balance sheet and debt market condition.

In our earnings release, we reported third quarter and year to date normalized <unk> per share of <unk> 70.

$2 seven respectively.

These represent growth rates of eight 5% and 9% for the quarter and year to date periods respectively.

Core property operating revenue increased five 3% and six 5% in the quarter and year to date periods, respectively compared with prior year.

Growth drivers for MH and RV rents were discussed by Mercury.

Touch on the drivers for the remaining 20% of our revenue.

Membership dues revenue for the third quarter increased six 1% compared to prior year.

During the quarter, we sold approximately 7000 200000 trails camping pass memberships.

While membership upgrade sales volume in the third quarter was lower than last year.

Bridge sale Thats more profitable primarily as a result of an average 20% increase in upgrade sale price.

Yes.

Utility and other income was higher than expected during the quarter in part as a result of utility income that offset higher than expected utility expense.

In a moment I will discuss the elevated increase excuse me increases in utility rates, particularly related to electricity continued during the third quarter.

Year to date, our utility recovery.

Approximately 44% same rate we experienced in the first nine months of last year.

Property operating expenses were higher than expected during the third quarter.

I will note that given the timing of hurricane landfall at quarter end, we were not able to estimate probable costs to restore affected properties there.

And therefore, we did not accrue expense in the third quarter related to cleanup or restoration effort.

Utility expense was the primary driver of increased expenses in the quarter compared to prior year.

<unk> expense increased almost 17% compared to last year.

The expense increase is comprised of average electric rate increases of 14%.

<unk> of the increase caused by increased usage.

RV communities in the south and northeast experienced rate increases ranging from 16% to almost 30%.

These elevated rate increases have been implemented by electric utilities little advance notice.

It's challenging to predict the impact on our expenses our year to date core property operating revenue growth of six 5%.

Property operating expense growth of eight 3%.

Due to an increase in core NOI before property management.

3%.

I will now discuss our full year 2022 guidance update.

As a result of the potential impact of the hurricane on our fourth quarter results. We provided updated guidance for full year 2022 per share net income <unk> normalized <unk> and we withdrew guidance for core revenue expense and operating income growth rates for the remainder of 2022.

The full year guidance ranges. We provided include various assumptions related to impacts from the hurricane.

These include possible loss of occupancy increase in bad debt expense.

Costs to remove damaged homes held for sale or rental and impacted communities across Florida.

We've also made assumptions related to the temporary interruption of operations certain impacted properties, including the six that are currently closed.

As we stated in our earnings release, we believe we have adequate insurance coverage subject to deductibles business interruption, but we are unable to predict timing or amount of insurance recovery.

<unk> GAAP elements of insurance recovery, including business interruption or to be recognized as revenue upon receipt.

Before we open the call up for questions ill discuss debt markets and our balance sheet.

In this period of volatility and broad economic uncertainty.

Is well positioned with the debt maturity schedule that shows less than 6% of our outstanding debt matures over the next three years and around 20% of our outstanding total debt matures over the next five years.

This compares to an average total debt maturity for rights of approximately 45% over the past five years.

In addition, 23% of our outstanding secured debt is fully amortizing and there is no refinancing risk we have no year in our schedule with more than $300 million of outstanding debt matures.

Current secured debt terms available for MH, and RV assets range from 50% to 75% LTV.

From five 5% to 6% for 10 year maturity.

High quality age qualified MH will command best financing terms.

RV assets with a high percentage of annual occupancy access to financing from certain life companies as well as the MBS lenders.

Life companies continue to express interest in high quality communities.

<unk> has set limits on capacity and pricing.

We continue to place high importance on balance sheet flexibility.

We have multiple sources of capital available to us.

Our debt to EBITDA is five two times and our interest coverage was five seven times the.

The weighted average maturity of our outstanding secured debt is almost 11 and a half years.

Now we would like to open it up for questions.

Ladies and gentlemen, if you have a question or comment. Please press star one on your Touchtone telephone we will pause for a moment, while we compile our Q&A roster one moment for our first question.

Okay.

Our first question comes from Michael Goldsmith with UBS. Your line is open.

Good morning, Thanks for taking my question can you talk about the.

Good morning, Margaret can you talk about the thought process.

That's behind the MH rent increases of six two to six 6% kind of fall short.

Of where inflation has been trending through the year and more.

More recently so.

What factors would keep the rent growth below inflation at this time.

Sure Michael I think Patrick can walk you through our methodology.

A process that we go through every year and then arrive at a number in September and October So maybe packaging.

Yes, so as we as we move towards the back half of the year and are preparing for our annual budgets.

Worked through market surveys that includes comparable MH properties as well as alternative housing in the submarkets around each one of our properties.

And we come up with a recommended a rate increase.

I'll speak to Florida, so about half of the portfolio and there is no statutory process in place.

The owner of the community she found with the HOA in that community.

They come with their view of the process that I, just described and we walk you through it.

And discussed.

The respective views on the market and settle on a rent increase going forward.

That also includes as well as on an ongoing basis conversations about our properties with respect to.

Our homeowners priorities, where do they want to see.

Improvements changes in things like activities. So that we are on the same page with respect to the long term operations of the property.

Just with respect to the overall mix of the rate increases.

We have market rate increases across the portfolio, that's about half of our overall rate increases to.

To your point I would expect that that would approximate CPI, although it's going to be driven by market forces across the portfolio.

Our CPI rate increases are about 25% of the overall portfolio.

And depending on how CPI trends.

Month over month and quarter over quarter, that's going to drive the exactly what that number works out to for the full year.

And then in Florida, we have.

Two to three year typically.

Long term agreements.

As I mentioned in that process earlier, we may land at a view towards two to three year rate increases for an HOA.

And that May lag the CPI expectations, so that could be easily be in the four 5% range.

Over time, those will trend toward market.

Including the recognition of Cpi's impacts and just as a reminder, also.

In Florida when.

Current homeowner yourselves through new homeowner that new homeowner will pay the market rate.

Upon renewal of that lease on an anniversary date.

It kind of touches on all the buckets I hope that answers your question.

Maybe just a related follow up on that is.

And you have your conversations with your customers or your tenants.

Yes.

Or are they looking to maybe pushed back certain capital projects in order to keep kind of rent growth lower in the near term.

Given that the rate increases or rent increases are higher than usual with the expectation that maybe some of these projects are done in future years, and that would kind of that would raise rent rents in future years.

Well I mean, I think what we're seeing.

Is that the in place residents, where theres been some mark to market. So some of those rent increases have already incurred and we've seen that about 11% for the year.

That type of increase.

And new customers coming in very willing to pay that we do have the discussion about what what the capital needs of the property are but I think people are cognizant of what's happening with CPI.

The discussions have been going well very well so far on being able to talk about where we should spend capital and what.

What the rent increases should be.

Got it and then for my second question the gap between.

Do you expect in 2023, MH rent increase of six two to six six and RV annual rent increase of seven six to eight is 140 basis points last year.

At this time the gap was 30 basis points. So what's kind of the difference in the pricing power that you're seeing on the RV side relative to <unk> and how sustainable is that.

I mean, I think we see real demand on the RV side, specifically on the annual people wanting to.

And then the season our spend spend.

Come down and you have to stay with us on an annual basis. So thats really driving it it's really market forces. We look at our market survey, we look around and see what's happening in.

In and around our communities and that's what forms that that rent increase.

Thank you very much.

Okay.

One moment for our next question.

Our next question comes from Nick Joseph with Citi. Your line is open.

Thank you.

A quiet quarter for transaction volume.

This most recent quarter, but what are you seeing more broadly across the transaction market.

Catholics adjustment higher interest rates and capital costs.

Yes, good morning, Nick.

I think in the quarter you are right, we were quiet relatively quiet repurchased two pieces of vacant land adjacent to one of our manufactured home communities in Florida, and then one near one of our manufactured home communities in Chicago.

Those are properties that we put under contract over the last year and then we intend to develop over the next couple of years. So that's kind of what happened in the quarter and then <unk>.

Relative to just the pipeline and what we're seeing is similar to what we've seen in the past, but not a real notable change in cap rate.

But I think that tends to take a little bit of time owners are seeing less buyers, but they still have barely very many interested owners and potential owners that are interested in buying their property.

So brokers do a great job of marketing deals I think fear of continued rising interest rates may present, an incentive.

For for owners to become sellers.

Especially when there is a refinancing term on the horizon. So I think some of those opportunities may may come up in the near future.

Thank you that's helpful and then just on the <unk>.

Terence recoveries I recognize it's very hard to forecast, but just historically.

Other storms.

Timing and percentage recovery associated with the images.

So the cleanup.

Yes, Nick our best our Best example, on the recovery is looking back to Hurricane Irma in 2017.

And given the.

The experience we had done when we think about the business interruption, which is a key component as I mentioned in my remarks that is recognized upon receipt.

Storm occurred earlier.

Earlier in September of 2017, and it was the first quarter of 2018, when we started to recognize those business interruption proceeds. We continued it was about an 18 month timeframe that we collected those proceeds on a quarterly basis.

Thank you.

One moment for our next question.

Our next question comes from John Kim with BMO. Your line is open.

Thank you and good morning.

Good morning, the lowering of the guidance for the year came at the negative surprise to the market just given a couple of weeks ago on your assessment of Ian you stated that the.

The hurricane will not significantly impact the results of the operations.

I'm just wondering what happened in the last couple of weeks with the assessment worse than you originally expected.

Or are you basically saying that there's other factors like the reduction of guidance Besides hurricane Ian.

I think I think John potentially we have a timing issue I think there is an expectation on our side that we will have recovery of insurance proceeds to offset the impacts. So overall when you think about our financial condition.

Our view is that there's not a significant impact there is however, a timing impact in the fourth quarter as it relates to.

The expense that we would incur or the experience that will have relative to closure of certain properties and then as I just discussed the timing of the receipt of business interruption proceeds.

Okay and Paul.

So on the fourth quarter implied guidance, how much of the reduction is due to that timing impact versus <unk>.

Rising interest rates you got the transient RV that came in lower than expected.

What else the utility costs I'm, just wondering how much of that utility expenses.

One time.

Increase in rate versus.

That normalizes over time, but.

What were the what was the component of the other factors Besides hurricane Ian on fourth quarter guidance.

Sure I appreciate it I mean, there's a lot that goes into our forecast model.

And every quarter our team conducted a review to identify potential changes to the prior model. It's almost like we prepare many budget every three months.

And as I think about our third quarter results and the potential influence. They may have had an assumption.

We might have made for the fourth quarter.

For the hurricane.

Hypothetical we're talking about I will say, we would've had adjustments to revenues and expenses likely both of them increasing.

And.

That likely would have resulted in a potential decrease in our core NOI compared to prior guidance I'll also say, though that we would have adjusted our expectations for other line items and based on trends, we saw in the quarter and that we've seen year to date. It may have offset the decline in NOI.

All of this is hypothetical because of the impact of the hurricane.

At the end of the day based on our model.

Easy.

Yes.

We find ourselves in a situation where the potential impact of the hurricane is the is equivalent to the reduction.

In our guidance.

For the rest of the year.

So just to clarify and I realize there's a lot of moving parts as the majority of that.

Reduction due to the hurricane again or can you ballpark.

What percentage of that is.

The reduction when I think about.

And I think about the potential for lost occupancy when I think about the closure of the of the properties and the.

The impact of those lost revenues.

Potential for us to as I said during my opening remarks, after which the bones incur bad debt and so forth all of that rolled together is.

The reduction to our guidance the written rate so John the reduction to <unk> because of the hurricane.

That's very helpful.

Thank you.

One moment for our next question.

Our next question comes from Samir Khanal with Evercore ISI. Your line is open.

Hey, good morning, everybody.

Marguerite or Paul My question is around expense growth I guess, putting the hurricane a site.

How should we think about expense growth maybe into next year I mean, you guided to five 7% clearly above that.

That sort of range for the year.

We're trying to figure out how sticky are these higher expenses there'll be think about 23.

Sure.

So year to date, our expense growth is eight 3% in the core I think the reported increase in CPI averaged eight 3% for both the quarter and year to date. So all in we're essentially in line with CPI <unk>.

Utilities payroll and repairs and maintenance are about two thirds of our expenses those categories.

Accuse me have increased about 10, 5% in the year to date period, and it's really utilities and repairs and maintenance that have been elevated payroll essentially has been in line with with CPI.

Our utility expense.

Most 30% of our core expenses and electric expense is the largest component of our utilities represents.

Somewhere between 35%, 40% of the total annual.

Year to date electric expenses increased 16% driven by outsized rate.

The increases that we've seen are in line with increases in the electric component of CPI.

September CPI needs showed electricity year over year was up more than 15%.

As I mentioned in my remarks, these rate increases occur suddenly little are most often no advance notice before the bill arrives.

We have experienced rate volatility in the past certainly in our history, we've not experienced such rapid and significant increases in utility expenses were experiencing this year.

Overall, we do recover.

Somewhere in the 44% to 45% range in terms of expenses on an annual basis, you see some fluctuation quarter to quarter, because the RV properties don't recover.

The utilities from transient customers.

The long term strategy that we have to mitigate utility costs is to unbundle.

And charge residents and guests for their usage.

That is challenging with the transient RV guests.

And then with respect to R&M.

It's about 15% of our core expenses.

Included in this expense category, our expenses related to unplanned events.

<unk> storms, we have wind and rain events.

That result, and cleanup costs or other maintenance can be significant but over time.

They don't rise to the level of insured loss.

As we look at it we kind of see that representing about 5% of our R&M expense on an annual basis long term mitigation plans with respect to those expenses include investment in infrastructure.

Reduces our exposure to cost following those significant rain events as well as landscaping tree trimming and so forth to mitigate the wind related damage.

And I think <unk> seen in 2022, we've really we've provided additional detail about the composition of our core expenses and Paul has just gone through a lot of that which.

Which we think is very helpful to creating earnings model. So that you can see the components of the expenses.

Right no I understand that we were just finding it a little bit difficult to.

Kind of model expenses right I mean, you started the year with $4 eight.

I think with your guidance and then.

And then you get the $5 seven and now you are tracking close to 8%. So we're just trying to figure out for.

23, how do we kind of model and I guess as a follow up.

I mean, how are you thinking about electricity rates into next year.

We think about it is this another year, where you kind of remodel another 7% to 8% for next year, that's kind of it.

The reason for the question.

Yes, I think it's early for us to talk too much about 2023.

Our call in January where we will certainly talk about our budget.

But.

The pressures in the areas where our.

Our properties are located in that we've highlighted for the northeast and the south in particular.

Yes.

Pricing for natural gas that drive electric energy prices.

Continued to be elevated.

I think that.

We are watching closely the monthly CPI reports, the energy component, particularly electric and natural gas.

And I think that that will be a key factor as we develop our budget for 2023.

<unk>, given how quickly and significantly these rates have changed.

We are subject to that volatility on a go forward basis.

Got it and then I guess one follow up for me when I look at your <unk> Guide you did come down 6% at the midpoint and then you.

You talked you talked about sort of the primary reasons.

Hurricane.

So the impact from the hurricane but but.

This is about I think $12 million hit right.

Think about it maybe maybe provide some guidance around hurricane Irma were you able to get how much of that the impact of Hurricane Irma did you fully recovered I mean was it 90% was 80% with.

How much do you expect to recover that.

$12 million over time.

Yes.

Excuse me if you walked through.

Our public filings I think that Youll see.

I think that Youll see total when you think about the overall claim youll see a total estimate in the range of about 35% to $36 million.

The recovery that we noted is around $31 million.

Now.

In terms of the P&L impact I'm talking I'm talking cash.

<unk> and <unk>.

<unk>.

In terms of the P&L impact.

The lion's share of the.

The lion's share I mean 95 ish percent.

The extent that we recognized.

<unk> recover.

Got it that's very helpful. Thank you.

Thanks Tommy.

For our next question.

Okay.

Our next question comes from Brad Heffern with RBC. Your line is open.

Hey, good morning, everyone. Thanks.

You talked about the timing mismatch from the hurricane So just to clarify once the business interruption insurance kicks in would you expect any meaningful ongoing financial impact.

Well.

I guess the way I would answer that Brad.

The business interruption will likely be recovered on a lag.

And so.

It won't be it won't necessarily be a perfect match in the time period that we receive it but over time the expectation is would be to to recover proceeds equivalent to the law.

But the focus is on getting the properties back up and running so that we don't rely on the business interruption insurance.

The plan.

Okay, Okay got it.

And then I guess broadly are you seeing any signs of stress in the portfolio.

You can kind of take that where you wanted to take it but I'm sort of thinking about things like bad debt.

Maybe unusual levels of cancellations on the RV side anything like that.

Now, we're seeing I mean, as we showed for the rate increases I mean, thats a very recent finding in terms of the rent increases that we just sent out in the annual on the annual RV side and on the MH side, So real strength there.

Demand from a home sale perspective.

So I think that's been very positive and as we're heading into our season now continued demand for for people to come down and David lives on a seasonal basis.

First quarter is the big is our biggest part of our seasonal business happens in the first quarter and we're seeing we're seeing strength there.

We do watch we do watch what's your what Youre talking about there and look for look for signs of weakness, but overall, we feel very comfortable.

We continue to have a waiting list for homes for people wanting to buy our homes. They are just difficult to get the homes as quickly as people want to buy them.

So overall feeling very positive about the demand characteristics for our portfolio.

Okay. Thank you.

Well remember for next question.

Our next question comes from Josh <unk> with Bank of America. Your line is open.

Hey, Margaret a Paul.

Patrick Hope you guys are doing well.

I guess I was just curious on the expense side.

Is there anything you can do to kind of control the expenses in the near term.

I guess in particular, maybe on the labor front.

Some of the peers have kind of implement that kind of changes during the COVID-19 and post COVID-19.

I hope on that front anything that you could do platform.

Yes, I think I think.

Josh we have talked about some technology initiatives.

We'll say that.

The decentralized nature of some of our operations Hasnt resulted in some of the efficiencies compared to maybe the resi peers that have shared service centers and are able to automate function.

Reduced.

Reduce.

Labor cost as a result, because ours.

Or is it spread across all of our properties in terms of their responsibility for things like administration oversight of expenses.

So on.

But I do think that debt.

We've implemented with a focus on improving the breadth.

<unk> and guest experience.

And over time, as we are able to leverage that I think that.

You should see should see some savings in our overall cost structure and then we're also focused on that utility recovery piece of the business.

<unk> b net and making certain.

That we're doing whatever we can from a submarine urine samples and from a billing standpoint to that to collect that revenue, which will offset the expense on the utility side.

Is there a way anyway on the utility side to like put a surcharge on when do you see.

Alright, Volatilities spiking.

Like just trying to get at like more near term.

There is regulations around that around what you can and cannot charge and what it is what it is called.

But we do have where we can we have a sub meter and we read the sub meter and then recharge the b.

The appropriate rate.

Where possible.

There's always the ability here within the within the transient revenue.

Can get increased rates too.

Kind of.

Handle some of that that increased expense that you have on utility side.

What about.

Have you thought about hedging utilities at all just to kind of smooth it out with all these big spikes with twins or.

Do you expect.

I guess.

Our focus has been more on deregulated markets, where we can enter into contracts to fix those costs.

That's certainly relevant in Texas it is relevant in the northeast, although it has been somewhat challenging to find.

Opportunities that.

Yes.

And it worked.

In terms of the economics.

Okay I'll leave it there thanks guys.

Okay. Thanks, just one moment for our next question.

<unk>.

Our next question comes from Robert Lee with Green Street. Your line is open.

Hi, good morning.

I just wanted to ask about the MH rent increases again based on current trends do you bet.

The next call or the next batch of MH residents to see rate increases.

Follow up bill by 6% average.

As disclosed in the swap.

Yes, Patrick I would expect it's going to continue to trend in.

A similar fashion.

Just one point I'll make with respect to the next.

Okay.

Just a little earlier is that a new residence coming in to the extent that there is a gap to market pays Ed.

The incoming market rate.

And that has been.

Trending in.

10% plus.

And year over year.

So just.

To give some context around that sorry, it's 11% what would that have been.

A few months ago.

Okay.

It's pretty it's pretty much been 11% throughout the year, what we've seen on the mark to market.

So robin we've seen we have about 10% turnover. So we've seen an uptick of about 100 basis point pick up related to those market increases.

Yes.

Got it.

Yes.

Wanted to shift towards the transaction market has.

Are you seeing any widening cap rate.

Seasonal and transient RV properties relative to annual Rvs in recent months.

There haven't been I'd say Robin there haven't been a lot of transactions that have happened. So it's difficult to kind of pull together those data points.

In general.

I would say that.

I've always said that transient RV parks should trade at a higher cap rate just because of the volatility inside of that income stream, but I really don't have anything to point to for for transactions that have happened over the past call. It six months or even year to date relative to that.

Great. Thank you.

Thank you Randy.

One moment for our next question.

Our next question comes from Anthony Powell with Barclays. Your line is open.

Hi, Good morning, a question on the home sales I think you mentioned that it was good morning, It was hard to get homes to sell to prospective new customers could you maybe talk about the availability of homes to sell and maybe just trends in that market given what you're seeing elsewhere in the foreseeable residential market across the country.

Sure it's Patrick.

What we've seen and this is Ben.

Pretty consistent.

The post Covid new normal.

Is.

We have.

And he will do it too.

Acquire.

For manufacturers to maintain occupancy growth in that call it 30% to 60, a quarter range on a net basis.

And we could be growing our occupancy more than that if we could if we could get more homes.

There have been challenges on the manufacturer's side with respect to.

Labor and supply chain.

As we've seen in many other industries.

I would expect at the pace that we're moving out at this point is going to continue until.

There are some structural ways or some structural shifts.

Pick up the <unk>.

Volume of manufacturing.

Got it thanks, and maybe one more just maybe on the guidance numbers for machinery maxed out.

Guidance for full year 'twenty three in January we will be including perspective insurance receipts in that guidance or is that something that you would kind of what happened in report as as it comes in.

I guess, it's a little early to determine what we would be including we will certainly be receiving proceeds.

In 2023, but we probably will probably have a better update certainly at NAREIT and then certainly as we head into the first quarter.

<unk> com.

Great. Thank you.

Thank you Anthony one moment for our next question.

Our next question comes from Jason <unk> with RW Baird. Your line is open.

Okay.

Hey, good morning, everyone. Thanks for taking my question have you seen any change to seasonal bookings for next year. Following hurricane Ian I guess do you expect us to be more unsure of how the surrounding area will be doing with all the rebuilding.

Yes, we've seen.

An increase in seasonal reservation.

And in general but.

What we generally see as the storm passes.

Hurricane season, we get out of Hurricane season, which is November we get through hurricane season, the phones start ringing.

It gets really cold in Chicago gets really cold in New York and people people tend to forget about the hurricane and they come on down.

Obviously, if there is impacted areas, where they are no longer able to stay because the hurricane with impacted that have impacted that particular area specifically they tend to go to another area.

Just focused on getting out of the winter cold the cold winter months, and Zane staying with us in Florida, Arizona, where the Sun is that it's going to be there for January February and March.

That's all for me thank you.

One moment for our next question.

Our next question comes from John Kim with BMO. Your line is open.

Thanks for taking the follow up.

<unk>.

You have a footnote about not taking an impairment charge this quarter.

But you've reduced the carrying value.

By $3 $7 million I know thats, not a huge amount, but I thought those two items there is not a man so I.

I was wondering if you could clarify that.

Yes, I think maybe maybe I might fall into the category of learning too much or knowing too much John but let me just walk you through so our accounting policy for impairment identifies natural disasters as a potential indicator of impairment and as a result, we took a look at the impacted properties and there is an exercise we have to test the rig.

Cover ability of net book value through estimated future cash flows all of those tests showed the net book values are recoverable, but from that perspective. There was no. There was no impairment of long lived assets based on Recoverability.

Then there's a second part to the impairment analysis, which we conducted over the past 20 days an extensive review of the condition of the properties that were impacted by the hurricane.

Our internal ops and asset management teams third parties were visiting the properties during that review the team did identify assets suffered significant damage from the storm based on their informed opinions of the extent of the damage and any other relevant information that we currently have you reduced the carrying value.

Of those damaged assets to match the current condition and that's that.

That is the expense the impairment effectively that you see from the damage to the asset on that line item in our income statement.

And are those damages on homes that you had planned to sell or pumps that you rent or is it.

Why isn't that.

Yes, there is a portion of a portion of the assets that were damaged our holdings that we held for sale.

Brent in the in our property.

We're in the process, we're in the process of preparing those homes.

And getting them ready for sale and for rental rental as appropriate.

Okay.

Yes.

My second question is there's been some estimates out there on homeowners insurance in Florida, increasing by as much as 50% next year.

And I'm wondering how that impacts do you.

Got to have a similar increase.

And your insurance in Florida or are you considering more NPV level.

And if you could remind us how your tenants are insured.

We have homeowner insurance.

Sure. So why don't I take the last half of that first just in terms of the homeowners I think I mentioned in my opening remarks that 96% of our residents.

Our homeowners they own a home versus renting.

For the vast majority of that group they paid for their homes with cash and therefore, they have equity in pride of ownership in those homes.

We don't track or require insurance for our homeowners.

Have seen in prior storms, a lot of insurance adjusters come out activity at the properties as they as they work through.

Worked through their claim but there that right now as you drive through Petrobras drug driving through the properties over the last couple of weeks and seeing an awful lot of people out there are repairing their homes and going through the normal things that they go through ads.

As the storm passes.

Yes.

With respect to our insurance our current programs expire in April of next year.

Lloyd's of London has led our MH RV property insurance program since 2009.

We think we haven't really mutually beneficial relationship.

Markets will assess the impact of the hurricane and other loss events.

And the.

Although I think the 2023 market, which is a long way off april's along with a lot of things can happen. It will depend on the 2022 hurricane season, but our real experience is that the underwriters. They assess the risks risks by the portfolio and each insurance portfolio composition, and then the loss experience and Thats.

Determined their pricing for 2023.

Following hurricane Irma.

Market adjusted and we renewed our program and.

It wasn't an issue so more to come on that as we as we start the new year.

Do you recall what the.

But the increase of loss after Irma.

Yes.

We've seen 20% increases.

In our insurance expense when you look back over the past five years since Irma, it's been about a 20% increase per year.

Okay got it great.

Great.

Eric.

Thank you Dan.

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 for joining us today, we look forward to updating you for joining us.

Today's call take care.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.