Q4 2023 Equity LifeStyle Properties Inc Earnings Call
Okay.
Speaker Change: Good day, everyone and thank you all for joining us to discuss equity lifestyle properties fourth quarter and full year 2023 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 C.
Speaker Change: Oh Oh.
Speaker Change: Today's call management released earnings today's call will consist of opening remarks, and the question and answer session with management relating to the company's earnings release.
Speaker Change: Who would like to participate in the question and answer session management asked that you limit yourselves to two questions. So everyone, who would like to participate has ample opportunity. As a reminder, this call is being recorded certain matters discussed during this conference call may contain forward looking statements in the meaning of the federal.
Speaker Change: 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 differ.
Speaker Change: By FCC regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release, our supplemental information and our historical SEC filings.
Speaker Change: At this time I would like to turn the call over to Marguerite Nader, our president and CEO.
Marguerite M. Nader: Good morning, and thank you for joining us today.
Marguerite M. Nader: I am pleased to report the final results for 2023.
<unk> can be seen in all facets of our business.
Marguerite M. Nader: <unk> can be seen in all facets of our business.
Marguerite M. Nader: We continued our record of strong core operations and SSO growth with full year growth in NOI of 5% and a four 7% increase in normalized <unk> per share.
Alright mate portfolio is 95% occupied.
Marguerite M. Nader: Importantly, more than 96% of our MH sites are occupied by homeowners.
Marguerite M. Nader: The underlying customer demand remains solid and core operating revenue increased by five 8% for the full year 2023 compared to 2022.
Marguerite M. Nader: During the fourth quarter 2023 occupancy increased by 65 sites and we ended the year with stable occupancy levels comparable to year end 2022.
We continue to experience robust demand for the lifestyle our communities provide with 905, new home sales during 2023, our strategy of converting existing residents to home buyers continues to be successful with almost a quarter of our home sales coming from individuals who already reside in our communities.
Marguerite M. Nader: Home buying leads during the fourth quarter were up 7% compared to last year, driven by the availability of popular new home models, and leveraging new technology to expand awareness of our homes for sale online.
Marguerite M. Nader: Due to the strength of our operating markets, we continue to see demand for new homes in our communities, where we are selling homes on average for approximately $100000.
Marguerite M. Nader: Our strongest performing communities for home sales were in Florida, which accounted for over 50% of total new home sales with an average sale price up more than $105000. While home prices are 100000 hours on average they remain significantly lower than other housing options in the immediate vicinity of our communities.
Marguerite M. Nader: In 2023, the mark to market rent increase for new homeowners has been approximately 13%.
Marguerite M. Nader: In 2023, our RV revenue from annual or seasonal customers increased seven 2% as compared to 2022.
Marguerite M. Nader: We saw continued strength in Florida and Arizona.
Marguerite M. Nader: Our transient business continued to be a large driver of our new customer base for both annual and seasonal revenue.
Marguerite M. Nader: We had over a thousand transient customers convert to an annual or seasonal customer.
Marguerite M. Nader: Continuing to expose new customers to our properties through the transients day is an important building block for our revenue streams.
Marguerite M. Nader: Turning to 2024, we have issued guidance of $2.88 at the midpoint for next year.
Marguerite M. Nader: The demand for our MH communities continues to increase.
Marguerite M. Nader: Over the last five years, we have sold over 35, new homes 3500, new homes in our communities. These new homes further enhance the look at the community as new and existing homeowners throughout the portfolio showcase their pride of ownership.
Marguerite M. Nader: Our guidance for 2024 reflects the strength in our business. Our guidance is built based on the operating environment at each property.
Marguerite M. Nader: And can do it in continuous communication with our residents.
Marguerite M. Nader: Next I would like to update you on our 2024 dividend policy. The board has approved setting the annual dividend rate of $1 91 per share a six 7% increase.
Marguerite M. Nader: The stability and growth of our cash flow, our solid balance sheet and the strong underlying trends in our business are the primary drivers of the decision to increase the dividend.
Marguerite M. Nader: Historically, we've been able to take advantage of opportunities due to the free cash flow generated from our operations that.
Marguerite M. Nader: That will continue in 2024 at this dividend increase of 23 and a half million dollars is roughly equivalent to our anticipated increase in S. F O for 2024.
Marguerite M. Nader: In 2024, we expect to have approximately $100 million of discretionary capital after meeting our obligations for dividend payments recurring capital expenditures and principal payments.
Marguerite M. Nader: Over the past 10 years, we have increased our dividend by an average of 11% per year and this year's dividend marks the 20th consecutive year of annual dividend growth.
Marguerite M. Nader: I want to take a moment to express my gratitude to our dedicated team members, who have worked tirelessly to drive our success I am proud of their hard work and commitment that contributed to the results for 2023, I will now turn it over to Patrick to provide more details about property operations.
Patrick Waite: Margaret and.
Patrick Waite: In 2023 long term residents and guests at our core MH RV and marine our properties continue to demonstrate consistent demand, which supported occupancy and strong rate growth as.
Patrick Waite: As we approach the February peak of our winter Sun belt season, I want to provide some additional color on the drivers of the nearly 70% of our revenue.
Patrick Waite: Comes from residence in gas at our Sunbelt properties in Florida, California, and Texas.
Since our IPO in February 1993, we've been talking about the aging of the baby boomers and migration trends to the sunbelt.
Patrick Waite: In 2023 baby boomers celebrated birthdays ranging from majors at 15, 9% to 77.
And we're in the midst of 69 million baby Boomers supporting a pace of 10000 people turning 65 every day in the U S.
Patrick Waite: That trend spans the 19 year period from 2010 to 2029.
Patrick Waite: Given our core residents and guests stay with US 10 years or more we have another 15 to 20 years of engagement with the baby Boomers is a key driver of demand at our properties.
Patrick Waite: I also point out that subsequent generation cohorts Gen X millennials and Gen Z follow similar ageing trends as the baby boomers.
Patrick Waite: Note that millennials will start to retire 20 years and they represent a population of $74 million or $5 million more than the baby boom generation.
Patrick Waite: Overall, the U S population 55, plus is projected to increase six 4% over the next five years or assemble properties in Florida, California, Arizona, and Texas are projected to increase eight 5% outpacing the national growth rate by 200 basis points.
Patrick Waite: Leader in our Sunbelt States as Florida, our largest state was strong 55, plus population growth of nine 4% over the next five years outpacing the national average by approximately 300 basis points.
Patrick Waite: Our second largest states, California with a 55 population projected to grow in line with the nation at six 4% over the next five years two important points of California about California, first MH and RV properties offer a great value to customers given high quality locations in high demand and.
The Submarkets, where our properties are concentrated are projected to outpace the 55, plus population in California by 70 basis points, emphasizing the strength of our locations within the state.
Patrick Waite: For these key sunbelt markets that represent nearly 75% of <unk> total property revenue MH RV Marina annual customers comprise more than 90% of that revenue, while seasonal and transient guests represent 10% that makes us consistent with the balance of our portfolio.
Patrick Waite: These revenues in our sunbelt markets benefit from baby Boomer demand and associated population growth trends.
Over the last five years across the Sunbelt, our MH portfolio has produced 6% revenue growth and RV portfolio six 3% revenue growth.
Those stable aren't driven revenue streams has consistently been our priority and have consistently provided year over year NOI growth.
Patrick Waite: For perspective, our portfolio footprint and current operating characteristics are the result of an investment focus starting in 1993, we focus our acquisition strategy on key Submarkets in Florida, California, Arizona, and Texas and those markets have represented two thirds of our growth through acquisitions over the last 30.
Patrick Waite: Years.
Patrick Waite: A couple of final key points to highlight the contribution of our long term sunbelt investments.
Patrick Waite: Over the last five years, 70% of our new home sales and two thirds of our completed development expansion.
Patrick Waite: And then from our Sunbelt portfolio those are among the many contributors to the stable operating results referenced above.
Patrick Waite: I'll now turn it over to Paul.
Paul Seavey: Thanks, Patrick and good morning, everyone I will review, our fourth quarter and full year 2023 results and provide an overview of our first quarter and full year 2020 for guidance.
Paul Seavey: We reported normalized <unk> 71 per share for the fourth quarter and $2 75 per share for the full year full year growth in normalized <unk> was four 7% strong core portfolio performance generated 5% NOI growth for the full year.
Core community based rental income increased six 8% for the full year compared to 2022.
Paul Seavey: Our rate growth was the result of increases to in place residents as well as marking rents to market on turnover at an average increase of 13% during 2023.
Paul Seavey: Also during 2023, we increased homeowner occupancy by 554 sites.
Paul Seavey: Full year core resort in marine and base rental income growth from annuals was eight 1% with seven 6% from rate increases and 50 basis points from occupancy gains.
Paul Seavey: RV and marine of base rental income from seasonal increased two 6% for the full year compared to 2022.
Paul Seavey: Base rent from transient was lower than prior year, mainly as a result of unfavorable weather patterns, we have discussed throughout the year.
Paul Seavey: For the full year net contribution from our membership business, which consists of annual subscription in upgrade sales revenues offset by sales and marketing expenses was $57 2 million, an increase of six 7% compared to the prior year.
Paul Seavey: The net deferral impact for the full year was $17 $7 million.
Paul Seavey: Subscriptions revenue subscription revenues increased three 7%.
Paul Seavey: During 2023, we sold almost 3900 upgrades with an average sale price of approximately $9250.
Paul Seavey: Full year growth in core utility and other income is mainly the result of increases in utility income a recovery percentage of 44, 9% increased approximately 90 basis points compared to 2022.
Paul Seavey: Other income includes $3 $1 million of revenue associated with sites leased to provide housing for displaced residents in Fort Myers, Florida.
Paul Seavey: Fourth quarter core operating expenses increased eight 7% compared to the same period in 2022 and were higher than our guidance as a result of real estate tax increases.
Paul Seavey: Several counties in Florida increased assessed values and millage rates, we have filed appeals and noticed residents of pass throughs of increased real estate taxes were lease terms allow it.
Paul Seavey: The pass throughs will be recognized as revenue in 2024.
Paul Seavey: Our noncore properties contributed $5 2 million in the quarter and $27 $6 million for the full year.
Paul Seavey: Property management, and corporate G&A were $117 million for the full year and other income and expenses net which includes our sales operations joint venture income as well as interest and other corporate income was $29 $8 million for the year.
Paul Seavey: Our interest and amortization expenses were $132 $3 million for the full year and our full year weighted average debt balance was $3 $5 billion. The weighted average rate was three 8%.
Paul Seavey: The press release and supplemental package provide an overview of 2020 for first quarter and full year earnings guidance. The following remarks are intended to provide context for our current estimate of future results all growth rate ranges and revenue and expense projections are qualified by the risk factors included in our press release and supplemental package.
Paul Seavey: Our guidance for 2020 for full year normalized <unk> is $2 88 per share at the midpoint of our guidance range of $2 83 to $2 93.
Paul Seavey: We project core property operating income growth of five 6% at the midpoint of our range of five 1% to six 1%.
Paul Seavey: We project the noncore properties will generate between 14 and $18 million of NOI during 2024.
Paul Seavey: Our property management and G&A expense guidance range is slightly lower than our 2023 actual expense primarily as a result of our assumptions for reduced administrative and payroll expenses.
Paul Seavey: We have also provided guidance ranges for our weighted average debt balance and interest expense in the supplemental package.
Paul Seavey: The full year guidance model makes no assumptions regarding acquisitions other capital events are the use of free cash flow, we expect to generate in 2024.
Paul Seavey: In the core portfolio, we project the following full year growth rate ranges for 8% to five 8% for core revenues four 5% five 5% for core expenses and five 1% to six 1% for core Rep NOI.
Paul Seavey: Full year guidance assumes core MH rent growth range of five 5% to six 5%, we assume occupancy in our stabilized MH portfolio will be flat during 2024.
Paul Seavey: Full year guidance for combined RV and marine our rent growth is four 9% to five 9%.
Paul Seavey: Annual RV and Marina rent represents just over two thirds of the full year RV and marine of rent and we expect 7% growth in rental income from annuals at the mid point of our guidance range.
Our full year core expense growth assumptions include our current projections for future utility rate increases.
Paul Seavey: As well as a real estate tax increase assumption that is consistent with our long term historical experience.
Paul Seavey: Our first quarter guidance assumes normalized <unk> per share in the range of 75 to 81.
Paul Seavey: Which represents approximately 27% of full year normalized <unk> per share.
Paul Seavey: Core property operating income growth is projected to be in the range of $6 seven to seven 3% for the first quarter.
Paul Seavey: First quarter growth in MH, and combined RV and marine our rents are generally in line with our full year assumptions.
Paul Seavey: We project first quarter annual RV, and Marina rent to be approximately $72 $9 million at the midpoint of our guidance range.
Paul Seavey: 2024 is a leap year. So as we do every four years, we will have a slightly higher allocation of annual RV rent to the month of February as a result of the extra day.
Paul Seavey: The incremental rent represents approximately 100 basis points in the first quarter 2020 for growth.
Paul Seavey: Our guidance assumes first quarter seasonal and transient RV revenues performed in line with our current reservation pacing.
Speaker Change: I'll now provide some comments on the financing market and our balance sheet.
Speaker Change: We have no scheduled debt maturities in 2024 or $300 million term loan has an in place swap that fixes the all in cost of debt at one 8% until late March.
Speaker Change: Current all in cost of floating at swap expiration at six 7%.
Speaker Change: Current secured debt terms are 10 years at coupons between five five and 6.25%, 60% to 75% loan to value and one four to one six times debt service coverage. We continue to see strong interest from Gse's life companies and <unk> lenders to lend for 10 year terms hi.
Speaker Change: High quality age qualified MH assets continue to command best financing terms.
Our $500 million line of credit currently has approximately $435 million available, we have $500 million of capacity under our ATM. Our weighted average secured debt maturity is approximately 10 years our.
Our debt to adjusted EBITDA is five three times and our interest coverage is five two times.
Speaker Change: We continue to place high importance on balance sheet flexibility and we believe we have multiple sources of capital available to US now we would like to open it up for questions.
Speaker Change: Certainly and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone if you'd like to remove yourself from the queue simply press star one again.
Speaker Change: First question comes from the line of Josh.
Bank of America. Your question please.
Josh: Yeah, Hey, guys couple all as well.
Josh: Just wanted to go into the guidance range for MH same store NOI for 2024, a little bit more could you walk us through like what gets us to the low end and high end and then just kind of curious if there was any changes versus three <unk> I know you put out that five 4% rate increase.
Josh: Our <unk> results and I see the range is 555% to $6 five so just trying to reconcile that.
Yes, Josh.
Speaker Change: First of all with respect to the range.
We noticed in October the rate increase that we anticipate and the five 5% to $6 five as the overall increase the difference that you see there is the occupancy.
Speaker Change: That will be increased in 2023, it's the impact of that included in our current guidance and then.
Speaker Change: Just overall with respect to the MH business I mean, we don't report separately the MH from the RV, but I can tell you.
Speaker Change: That as we think about the business.
Speaker Change:
<unk> line.
Speaker Change: Is.
Speaker Change: I'll call. It stable solid we do notice decelerating rate throughout the course of 2024, primarily as a result of increases that we noticed later in 'twenty three and then an assumption for just following CPI, which is not going to increase as it did last year.
Speaker Change: Then on the expense side I think that.
Speaker Change: The things that that might have exposure for us.
Speaker Change: As we always talk about we have some assumption for.
Operator: Good morning, everyone, and thank you all for joining us to discuss Equity Lifestyles Properties' fourth quarter and full year 2023 results. Our featured speakers today are Marguerite Nader, our President and CEO; Paul Seavey, our Executive Vice President and CFO; and Patrick Waite, our Executive Vice President and COO. In advance of today's call, management released earnings. Today's call will consist of opening remarks and a question and answer session with management relating to the company's earnings release. For those who would like to participate in the question and answer session, management asks that you limit yourselves to two questions.
Speaker Change: Storm events at our properties, but we have incurred.
Speaker Change: Outsized expenses in the past related to weather events.
Speaker Change: And the other thing that we're watching very closely that we've talked about quite a bit over the last couple of years is the volatility in utility expense that does seem to be settling but.
Speaker Change: It's unclear whether there is some sort of structural shift just overall in energy costs or whether we experienced a period of significant volatility and that seems to be easing.
Speaker Change: One follow up Paul you mentioned the occupancy uplift in your.
Paul Seavey: Base rental income growth rate, that's just what you've incurred in 2023 I think your policy has been to include anything on a go forward basis.
Operator: So everyone who would like to participate has ample opportunity. As a reminder, this call is being recorded. Certain matters discussed during this conference call may contain forward-looking statements within the meaning of the federal securities laws. Our forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events.
Paul Seavey: That's correct in the stabilized portfolio, it's assumed to be flat yes.
Okay, Okay, alright, so nothing that okay got it.
Paul Seavey: And then I.
I think real estate taxes, it looks like there was a big increase in <unk> driving up expenses.
Paul Seavey: How should we think about your ability to kind of pass those increases on to customers, whether it's through rate or just.
Operator: In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release, our supplemental information, and our historical SEC filing. 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.
Assessments or anything.
Possible.
Paul Seavey: Yes, so the the lease provisions in primarily the MH properties, which.
Paul Seavey: Which had a disproportionately large exposure to the increases that we experienced.
Allow us to pass through more than 95% of the increase that we experienced at.
Paul Seavey: All of it of course is subject to the appeals that we have in process.
And.
Paul Seavey: We have.
Marguerite M. Nader: I am pleased to report the final results for 2020. The strength of ELS can be seen in all aspects of our business. We continued our record of strong core operations and FFO growth with full year growth in NOI of 5% and a 4.7% increase in normalized FFO per share. Our MH portfolio is 95% occupied. Importantly, more than 96% of our MH sites are occupied by homeowners. The underlying customer demand remains solid, and core operating revenue increased by 5.8% for the full year 2023 compared to 2022. During the fourth quarter of 2023, occupancy increased by 65 sites, and we ended the year with stable occupancy levels comparable to year-end 2022. We continue to experience robust demand for the lifestyle our communities provide, with 905 new home sales during 2023.
Paul Seavey: Close to 30 properties that are under appeal.
Paul Seavey: And it'll be a bit of time during 2024 before we will have visibility into the results of those appeals, but to the extent that there is success of course the the.
Paul Seavey: The pass through to the residents with be adjusted.
Paul Seavey: And Josh says that residents have been notified of that increase already.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks, guys I appreciate it.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question.
And.
Speaker Change: Our next question comes from the line of Brad Heffern from RBC. Your question. Please.
Brad Heffern: Yeah, Hey, good morning, everyone can you talk through the seasonal and transient reservation outlook as we sit here today.
Brad Heffern: Yes.
Brad Heffern: As I mentioned in my remarks, Brad we use current reservation pacing to prepare our guidance for the first quarter seasonal and transient.
Marguerite M. Nader: Our strategy of converting existing residents to homebuyers continues to be successful, with almost a quarter of our home sales coming from individuals who already reside in our community. Home buying leads during the fourth quarter were up 7% compared to last year, driven by the availability of popular new home models and leveraging new technology to expand awareness of our homes for sale online. Due to the strength of our operating markets, we continue to see demand for new homes in our communities, where we are selling homes on average for approximately $100,000. Our strongest performing communities for home sales were in Florida, which accounted for over 50% of total new home sales, with an average sale price of more than $105,000. While home prices are $100,000 on average, they remain significantly lower than other housing options in the immediate vicinity of our community.
Brad Heffern: And those tracking in line and we're reserved for more than 95% of the first quarter rent.
We see more variability in transient rent, but the reservation pacing is generally in line with our budget expectations I will say that we're not anticipating the recurrence of the impact of severe weather that impacted the first quarter 2023, particularly in California in the first quarter of.
Brad Heffern: 23.
The first of many atmospheric rivers that impacted California and had pretty pretty meaningful.
Brad Heffern: The effect from a few of those storms.
Speaker Change: Okay got it thank you.
Speaker Change: Just to clarify on the guidance is the term loan swap exploration included in the guidance and then is there any plan to either fix that rate again or takeout that term loan.
Speaker Change: Yes and no.
Speaker Change: So yes, it's included in guidance and no.
Marguerite M. Nader: In 2023, the mark to market rent increase for new homeowners was approximately 13%. In 2023, our RV revenue from annual or seasonal customers increased 7.2% as compared to 2022. We saw continued strength in Florida and Arizona. Our transient business continued to be a large driver of our new customer base for both annual and seasonal revenue. We had over a thousand transient customers convert to become annual or seasonal customers.
Speaker Change: <unk>.
Speaker Change: The assumption is that we flow.
Okay. Thank you.
Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of Jamie Feldman from Wells Fargo. Your question. Please.
Great. Thank you for taking the question I just want to go back to the Florida interest, Florida Real estate tax increase can you give more color on what municipalities counties. Do you think this could flow through to other counties that have an increased yet.
Marguerite M. Nader: Continuing to expose new customers to our properties through the transient stay is an important building block for our revenue stream. Turning to 2024, we have issued guidance of $2.88 at the midpoint for next year. The demand for our MH communities continues to increase. In the last five years, we have sold over 3,500 new homes in our community. These new homes further enhance the look of the community as new and existing homeowners throughout their portfolio showcase their pride of ownership. Our guidance for 2024 reflects the strength in our business. Our guidance is built based on the operating environment at each property and continuous communication with our residents.
Jamie Feldman: Is this specific property types that seem to be getting hit I think theres a real read through here for the rest of residential I just want to make sure we put some guardrails on.
Jamie Feldman: And what what happened and what this could look like going forward.
Jamie Feldman: Yes.
Jamie Feldman: We experienced outsized increases in.
Jamie Feldman: Lea County, Charlotte County.
Jamie Feldman: And a couple of other counties, but those were significant counties.
Jamie Feldman: There was.
Some.
Jamie Feldman: I guess, a higher or more significant impact too.
Jamie Feldman: Two our MH portfolio than our RV portfolio.
Marguerite M. Nader: Next, I would like to update you on our 2024 dividend policy. The board has approved setting an annual dividend rate of $1.91 per share, a 6.7% increase. The stability and growth of our cash flow, our solid balance sheet, and the strong underlying trends in our business are the primary drivers of the decision to increase the dividend. Historically, we've been able to take advantage of opportunities due to the free cash flow generated from our operations. That will continue in 2024 as this dividend increase of $23.5 million is roughly equivalent to our anticipated increase in FFO for 2024. In 2024, we expect to have approximately $100 million of discretionary capital after meeting our obligations for dividend payments, recurring capital expenditures, and principal payments.
And.
Jamie Feldman: I think that as I mentioned in my remarks that leads to the ability to pass through because those lease provisions tend to have pass through provisions in them and Jamie some of that is a function of acquisitions that have traded in the recent past over the last three years to five years that are driving up that.
Jamie Feldman: Increase.
Okay. Thank.
Speaker Change: Thank you.
Speaker Change: And then I guess switching gears, if we could just talk a little bit more about the RV business. I mean, you came in slightly below your full year guidance for for growth.
Speaker Change: And as we estimated what annual could look like it looks like it's kind of less than a 2% growth rate. So I'm. Just wondering can you give more color on how youre getting to those numbers I think in the past you haven't really baked in any down days for weather clearly weather has been a bigger issue. The last few years is that part of the story here you are making.
Marguerite M. Nader: Over the past 10 years, we have increased our dividend by an average of 11% per year, and this year's dividend marks the 20th consecutive year of annual dividend growth. I want to take a moment to express my gratitude to our dedicated team members who have worked tirelessly to drive our success. I am proud of their hard work and commitment that contributed to the results for 2023. I will now turn it over to Patrick to provide more details about property operations. Thanks, Marguerite. In 2023, long-term residents and guests at our core MHRV and marina properties continued to demonstrate consistent demand, which supported occupancy and strong rate growth. As we approach the February peak of our winter sunbelt season, I want to provide some additional color on the drivers of the nearly 70% of our revenue that comes from residents and guests at our sunbelt properties in Florida, California, and Texas. Since our IPO,
Speaker Change: No assumption for that or any other color you can provide on why the outlook for next year might look weaker than this past year.
Speaker Change: I guess.
Speaker Change: I guess, what I will say regarding that is first quarter I kind of just a moment ago walks through the assumptions for the first quarter and then for the second and second third and fourth quarters.
Our assumption is closer to flat on a combined basis for the seasonal and transient.
Speaker Change: That is somewhat different than our past experience.
Speaker Change: I think that we've we've talked a lot about the lack of visibility that we have into the transient business as a result of the significant.
Speaker Change: A significant amount of revenue that is earned.
Speaker Change: And booked in a very short booking window and with respect to the seasonal.
The first quarter is the lion's share of this seasonal rent so.
Speaker Change: The remainder of the year again, the second third and fourth quarters are closer to flat than we've had historically.
Speaker Change: Okay and it sounds like that's more of just lack of visibility and no reason to reach.
Speaker Change: You'd rather kind of bump.
Speaker Change: Bump as the year progresses, rather than cut is that the right way to think about that.
Speaker Change:
Speaker Change: I don't know that its I don't know that its so much.
Speaker Change: Trying to manage expectations as it is acknowledging kind of what we've seen in terms of the volatility in the business over the last couple of years.
Speaker Change: Yeah.
Speaker Change: Okay alright, thank you.
Speaker Change: Thanks, Jamie.
Thank you one moment for our next question.
Speaker Change: And our next question comes from the line.
Speaker Change: Of Eric Wolfe from Citi. Your question. Please.
Hey, good morning, guys.
I think you mentioned in your prepared remarks that you expect around $100 million of free cash flow. This year I was just curious if you could tell us how much you expect to spend in non revenue non revenue producing capex to get to that number and then as far as the revenue producing capex here. If you could give us a sense for that expected spend and the incremental return.
Speaker Change: I'll do the I'll do the first part Eric so to come to the $100 million, we have an assumption of $85 million of spending in recurring capex.
Speaker Change: And maybe Patrick you could touch on the rest.
Let me just walk through our total capex spend by apologize touched on a recurring piece.
And recurring for US really is about a third of our total spend.
Speaker Change: Falls into two buckets asset preservation and improvements and renovations.
Patrick Waite: The next bucket for us is property upgrades and development.
Patrick Waite: That's a little bit more than half the spend and I just point out that.
Patrick Waite: That includes hurricane Capex in the footnote that in our disclosures.
It's important to keep in mind, and then the balance would be revenue producing.
Patrick Waite: Expansion and development.
Upgrades in repositioning and the last bucket is site development and that is about 10% of our total spend.
And that's going to be.
Patrick Waite: With respect to improvements to site new.
Patrick Waite: New homes in our MH communities.
Patrick Waite: The developments I'll touch on that from a.
Our view of the current year and what we think we see coming up in I guess, the last year due to the current year 2024.
Patrick Waite: We delivered just shy of a 1000 sites.
Patrick Waite: For the full year that was in line with expectations. Just a reminder, our yields on those projects from a stabilized basis tend to be in the high single digits to low double digit yields.
Patrick Waite: That mix.
Patrick Waite: About one third MH and two third RV.
Patrick Waite: As we look forward to 2024.
Patrick Waite: We believe we're in a position to deliver.
In the neighborhood of 1000 sites again.
Patrick Waite: That will be more evenly balanced between MH and RV at least that's the visibility we have at this point.
Got it that's very helpful. Thanks for the detail.
So I guess, maybe my follow up there.
If you think about just an average year.
Is there any way to sort of quantify.
How much of that spend is sort of contributing to same store versus maybe the spend that's not contributing being capitalized just trying to understand how it impacts earnings.
Patrick Waite: A typical year.
Yes, I think.
Patrick Waite: Eric in terms of the growth if you want to think about it that way inside the core portfolio.
Speaker Change: There is an incremental contribution that we've seen in the call. It 30 to 40 basis points year to year and then overall in terms of core NOI.
Speaker Change: It's a.
Speaker Change: A few percentage points in terms of the portion of NOI that is generated by those expansions I appreciate though that I'm talking about expansions that arent fully stabilized I mean, Patrick was giving stabilized yields.
Speaker Change: And it takes.
Speaker Change: Several years for those projects to.
Speaker Change: Reach a stabilized level.
Speaker Change: Got it thank you.
Speaker Change: Thanks, Ed.
Speaker Change: Thank you one moment for our next question.
Okay.
Speaker Change: And our next question comes from the line of Michael Goldsmith from UBS. Your question. Please.
Michael Jason Bilerman: Good morning, Thanks for taking my question.
Michael Jason Bilerman: Morning, milder the factor.
Michael Jason Bilerman: Morning Margaret.
Michael Jason Bilerman: The factors that keep the property management and G&A expense essentially flat in 2024 when accounting for the.
The accelerated vesting of stock based compensation in 2023.
Michael Jason Bilerman: Yes.
Michael Jason Bilerman: Primarily as I mentioned in my remarks, primarily administrative and payroll expenses as Michael just managing those quickly.
Michael Jason Bilerman: Yes.
Speaker Change: Yeah got it so it seems like.
Speaker Change: Bye.
Speaker Change: Wage growth in line with CPI or Youre still able to.
Speaker Change: Offsetting that through other angles or is it just reduced payroll within within property management and G&A.
I think that I think that we've been efficient with respect to our staffing and.
Speaker Change: I think that.
Speaker Change: Just reflected in the projection for next year and driven by those administrative fees.
Speaker Change: That Paul mentioned.
Speaker Change: Got it and then there may be more anecdotes of municipalities, becoming more accepting of MH communities as a component of the affordable housing have you seen any change in the total from municipalities around image and then this is also an election year.
Change in administration has any impact on the potential supply demand the supply is a business where demand for your properties.
Speaker Change: Yeah I'll take the second question first with respect to the election cycle, we have looked over over the years that whether or not we see any change in the environment as a result of either.
Speaker Change: A change at the federal level or at each individual state and we really haven't seen much.
Speaker Change: I don't anticipate seeing much in this coming year.
As it relates to municipalities.
Speaker Change: We continue to work with municipalities.
Speaker Change: On conversions of vacant land to MH and RV, we haven't seen an uptick in activity, where we're where we've seen resistance, our continuing to see resistance than where we were able to be successful.
Speaker Change: Continue to develop the land so.
Speaker Change: We're not seeing what we would see as a wide spread acceptance of them.
All of the other development permits, but that may that may change in the coming years.
Speaker Change: Yeah.
Speaker Change: Thank you very much good luck in 2024.
Thanks, Michael.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of Samir Khanal from Evercore ISI. Your question. Please.
Samir Khanal: Hi, good morning.
Samir Khanal: Paul you talked about seasonal business they've been looking at is there a way to sort of break that down in the <unk>.
Samir Khanal: The transient business here.
Samir Khanal: On the RV side, and how should we think about that over the course of the year I guess what are you assuming.
For trends you were down about 11% think in 'twenty three.
So is this a business that sort of turns positive at this point in 24 help us think through this process.
Samir Khanal: Well.
Samir Khanal: I guess generally speaking given the building blocks for Q1. So you can see what the combined seasonal and transient is.
Samir Khanal: And then.
Samir Khanal: And again the.
Samir Khanal: First quarter is the largest quarter in terms of that seasonal business. So it's far more modest in the remainder of the year.
Samir Khanal: The transient and seasonal combined as I said earlier, we essentially have a.
Samir Khanal: Close to flat assumption for quarters, two three and four.
Speaker Change: Right, but it sort of youre, saying seasonal slash transit I'm, just trying to dig more into the transit business right.
Speaker Change: Just wanted to get to that yes.
Speaker Change: Go ahead.
Speaker Change: Yes, sorry, sorry, Sameer I guess.
Speaker Change: In our view given the.
Speaker Change: Given the volatility that we've seen there has been consistency in how we've talked about seasonal and transient together and so that's how we've presented the information.
Speaker Change: Okay.
Speaker Change: Okay, and then I guess my second question is on I don't think we've touched on this but insurance renewals.
Speaker Change: I know, it's an April one date that you have but maybe talk around sort of conversations you've had.
Speaker Change: Providers, and what's sort of embedded into guidance.
Sure So you're right that our property level insurance policies that renew on April one of this year.
Speaker Change: Claims experience has been good so far this policy year, which is a positive we have built in an assumption into our guidance, but continue to work with our carriers on the renewal.
Speaker Change: At this point, we're not disclosing within guidance.
Speaker Change: We're still negotiating that and we have no indications that coverage will be an issue.
Speaker Change: We will continue.
Speaker Change: And with our past practice of updating on the on our next call.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of Robin Lu from Green Street. Your question. Please.
Robin Lu: Good morning, Thanks for taking my question just.
Robin Lu: On property taxes, I think you mentioned earlier that promote as Florida counties, Ohio Valley. Some trades in last few years, just I'll give you a trend of you pretty soon other market can you probably.
Robin Lu: <unk>.
Robin Lu: It will give us an update on whether there are other markets, where you are concerned about the tax headwind as well.
Sure.
Speaker Change: Well I mentioned.
Mentioned the counties two of the counties. We also had some impact in Sarasota County, So Charlotte Lee in Sarasota County counties, where three counties in Florida that were significant.
Speaker Change: In terms of other areas of the country. If that's the direction of your question, we haven't we've seen less.
Speaker Change: Less exposure or less activity.
In the.
Speaker Change: The way of increased assessed values in other parts of the country, It's primarily Florida, that's that's driving the change that we see.
Speaker Change: Okay. Thank you.
On the transaction market.
Speaker Change: Provide an update on what Youre seeing now in terms of cap rates across the three segments.
Speaker Change: Sure sure Robyn.
So in 2023, they were really very few deals on the market.
Robyn: As I think you saw we only closed on one transaction.
Robyn: We're activate the marking market talking to owners and we have not seen a lot of stress in the market sellers, who generally have very conservative balance sheets.
Robyn: And they have their ability to take time on a transaction.
And.
I'd say, if you kind of broaden the time period out to the last 18 to 24 months the cap rates are.
Ranging from 4% to 6% based on the quality of the.
Of the property.
Robyn: And with very high quality age qualified MH trading much more aggressively.
Robyn: So not a lot of not a lot of data points out there, but I anticipate.
Robyn: That may change in 2024.
Robyn: And our size.
Robyn: Sizeable portfolio MH portfolio traded at the end of last year did you by any chance participate in that.
Speaker Change: Well we are.
Speaker Change: It's a very small industry, so and so we are.
Speaker Change: Knowledgeable about all the transactions and our look at all the deals that are that come.
Speaker Change: Come on.
Speaker Change: In and around.
Speaker Change: The industry.
Speaker Change: But.
Speaker Change: When we when we close on something we announced the closing and don't really talk about what we're what we're looking at as we are as we roll through the process.
Speaker Change: Alright. Thank you. Thank you for your time.
Speaker Change: Thanks Robert.
Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of John Kim from BMO capital markets. Your question. Please.
Good morning.
John P. Kim: Wanted to ask about <unk>.
John P. Kim: Transient revenue I know, you're saying, it's flat maybe some lower visibility.
John P. Kim: The number of transient sites went up.
John P. Kim: Sequentially by about 5% and year over year about 2% I know that number could jump around quite a bit but is this.
John P. Kim: Is there a reason why the transit revenue Shouldnt throw back this amount just given the number of sites available or have increased.
Yes.
So part of the transient site change is from.
John P. Kim: And expansion that we have in Florida.
John P. Kim: <unk>.
John P. Kim: And is that a newer property that we acquired so that's flowing through the noncore rather than the core.
John P. Kim: That's I think roughly half of the transient side to increase that we that we saw.
John P. Kim: And then the other.
A component of the transient site increase is shifting.
Sites that had been occupied as annuals in the quarter and we anticipate that those annual as well very new.
John P. Kim: As we head back into the spring season, so theyre not theyre not expect it to remain transient sites for a long period of time, it's typical for us at the end of the year.
John P. Kim: To have a decline in transient sites.
John P. Kim: And then refill those sites.
John P. Kim: These are northern properties that I'm, referring to refill those sites next year as the spring season starts.
Okay that makes sense.
Speaker Change: Second question on your <unk>.
Speaker Change: Adjustments the first part of that was.
Speaker Change: Non revenue enhancing Capex I think Paul you mentioned $85 million of recurring Capex would you expect this year is that the same number.
On an apples to apples basis versus the $99 8 million VAT adjustment and the second part is the announcement you made last week on the.
Speaker Change: The change in membership upgrade sales from.
Speaker Change: From a cash basis that you had previously on non-GAAP measures.
Is this something that we should be.
Contemplating adding back to <unk> and is that something that should be added back to your F&B and if not why not.
Speaker Change: Yeah, why don't I take the membership and then Paul you can address the first part, but just from an operational standpoint, and a cash flow standpoint, we're really in the exact same position with respect to the membership upgrades.
Paul Seavey: So our view is it doesn't impact valuation and it doesn't impact the operations of the company. So we're in the same position and we provide I don't know the page I think it's page 15 page.
<unk> <unk>.
Paul Seavey: <unk> provides the detail on.
Paul Seavey: The membership upgrades just like we have in the past and then Paul maybe and then on the.
Paul Seavey: The recurring Capex, yes, the 85 million is comparable to the $100 million total that we reported for 2023.
Okay on the membership upgrade sales is there any risk to that.
Paul Seavey: Income stream once you get it you ever return that capital back to them.
Two numbers for any reason.
Speaker Change: No. It is it is nonrefundable.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, John.
Speaker Change: Thank you Arne one moment for our next question.
And our next question comes from the line of David Toti from <unk> Securities. Your question. Please.
David Toti: Thank you.
David Toti: I just had a quick question it seemed that the.
David Toti: Average price of the homes that were sold in the peer group lower on average and there's a bit of inventory buildup.
David Toti: Would you say that these are ongoing signs of pressure in that segment or are these operational quarter.
Yes, it's Patrick.
Wouldn't say, it's ongoing signs of pressure.
Speaker Change: And maybe I'll just touch on.
Speaker Change: <unk> has been consistent.
Speaker Change: And that.
Speaker Change: The fundamentals of our core customer had been have been remarkably stable in the.
Speaker Change: The average age of the new home buyer for US is 60.
Speaker Change: FICO scores are consistently over 700.
Speaker Change: One thing I'll point out and there's a little bit of it.
Speaker Change: That occurred through Covid is that we're getting more direct purchases from people who have relocated from out of state that's running at about 30%.
Speaker Change: Our new home sales pre COVID-19 was around 20% so does that.
It sounds like.
Speaker Change: Gargantuan shifts, but nevertheless.
Speaker Change: It has been a shift in behavior.
Speaker Change: And overall the core customers that can consistently stable.
Speaker Change: I feel like the demand has been.
Speaker Change: Very consistent.
Speaker Change: Great and then just had one follow up question, which is done.
In terms of.
Speaker Change: Home sales in renters do you know the conversion ratio or is it renters are you capture with home sales.
Speaker Change: Yes.
Speaker Change: Between 20, and 25% of our home sales are two current resin. So that typically is a retro but can also include.
Speaker Change: Existing homeowners, who are either looking to.
Speaker Change: Scale up too.
More highly a monetized house or.
Speaker Change: Maybe they're looking for a more manageable space and moving down to a smaller home and Thats, a very important lead flow for us, but I think the team's done a great job of capitalizing on over the last.
Speaker Change: Four or five years in focusing on the existing residents and customers that are in our properties on a shorter term basis and getting them to convert so we've been successful in doing that over the last few years.
Speaker Change: Excellent.
Very helpful. Thank you.
Thanks, David.
Speaker Change: Thank you one moment for our next question.
Okay.
Speaker Change: And our next question is a follow up from the line of Jamie Feldman from Wells Fargo. Your question. Please.
Jamie Feldman: Great. Thanks, I was just looking for some more detail on the Marina rent growth assumptions I know it fits within the marine and RV line, but can you talk more about.
Jamie Feldman: How the growth for Marina specifically compares to your full year outlook for the two combined and just any color you can provide on maybe what you think changes next year versus this year.
Speaker Change: Yeah, Charles I mean, I'll touch on what we're seeing in the business and.
Speaker Change: Maybe I'll follow up on anything that said more relevant the guidance.
But the.
Speaker Change: Performance of the Marina portfolio for Us has been very consistent.
Speaker Change: It's overwhelmingly annual for our slip revenue, it's almost 100%.
Speaker Change: And those are long term customers that are typically with us.
Speaker Change: Very similar trends to what we see on annual RV.
Speaker Change: Our bolt launches for the full year have been consistent so that's evidence inconsistent demand from our core customer that they continue to get out on the water with their family and friends.
Speaker Change: And then our rate growth has been reflective of the market inconsistent don't really see any.
Speaker Change: The headwinds that would be a challenge to that business or at least don't currently see any.
Speaker Change: Okay. Thank you and then was there.
Speaker Change: Paul were you able to comment on the guidance piece.
Oh.
Essentially right in line with our expectations for the annual RV theres not much differential between the rate increase in the RV or the marine space from what we see.
Speaker Change: Okay.
Speaker Change: And then I appreciate your color on the transaction market can.
Speaker Change: Can you talk about <unk>.
Speaker Change: You bought one RV I know, it's a small deal but can you talk about yields on that and maybe there is more opportunities in RV and then also pricing on marinas, where would you say cap rates are generally than.
Speaker Change: You think theres more opportunity in those two property types versus MH in 'twenty four.
Speaker Change: Yes.
Speaker Change: The RV that we bought in the year is that it's roughly a five cap.
Speaker Change: Small property.
Speaker Change: I would say that.
As you look to the Marina space, there's a wide disparity in cap rates based on the location. So it's hard to pin went down there also haven't been a lot of transactions. So it's difficult.
Speaker Change: Difficult to find the data data point that that's relevant. So I think you would look to in terms of where we are interested in buying assets.
Speaker Change: Assets around assets, we already own because those are the locations we want to be in.
Speaker Change: And I think you'll see us continuing to.
Speaker Change: Work on acquisitions in those areas.
Thank God.
Speaker Change: The 2024 time will tell what the how the cap rates come out and whether or not sellers there.
Speaker Change: Willing to sell at this point.
Speaker Change: Okay, if I could just sneak in one quick one.
Speaker Change: <unk> financing rates.
Speaker Change: Or would you peg them today on MH.
Speaker Change: On a secured basis.
Speaker Change: They are probably at the lower end of the range that I quoted for us as our borrowers. So I quoted five 5% to six in a quarter for tenure.
Speaker Change: Generally a sponsor like Elas doesn't does command preferred pricing.
Speaker Change: So I would peg it probably 555 and three quarters.
Okay alright, thank you.
Thanks Danny.
Speaker Change: Thank you one moment for our next question.
Okay.
Speaker Change: And our next question.
Speaker Change: A follow up from the line of Eric Wolfe from Citi. Your question. Please.
Eric Wolfe: Actually yes, Nick here with Eric Murphy I'm, just curious how you're thinking about the Florida exposure in capital allocation there going forward, obviously you've had.
Eric Wolfe: Higher insurance and real estate taxes, but how are you thinking about or is this more transitory headwinds or is it something more permanent debt that goes into the underwriting and maybe changing some of your priorities there.
Sure Nick Thanks.
Eric Wolfe: I think Florida is really high in demand as you as you think about it.
Eric Wolfe: Across the across the United States. There are people, who are just flooding to Florida is about 22 million people that live there.
Third most populous state.
Nick: I think it was the fastest growing state last year and really large portion of the population is our age demographic of 55 plus.
Nick: And and then it also offers a fab are favorable.
Nick: Tax climate, and then of course, the chance to get out of the northern winters.
So our view on Florida is very positive.
It's where people want to be.
And we will continue to invest there and as you look at and it's actually the Ena.
Nick: Chart that that city compiles each year. It shows our average NOI of the company for the last 20 years.
Nick: And how we compare favorably to the REIT industry and then when you consider in only Florida in that analysis, we've really shown that where we're doing better than.
Better than our overall NOI just in Florida. So so we're long in Florida.
Yes that makes sense I guess, what's the go forward if insurance costs, our real estate taxes Keith.
Keep outpacing elsewhere does that impact NOI growth in Florida going forward, recognizing that demand youre seeing there.
Keith: I think as Paul mentioned about the real estate tax and the ability to pass through that's always been a really positive thing for us in the in the state.
Keith: Primarily because the residents are able to go with us to the tax assessor did talk about the impact that that's a very powerful message so that helps to keep.
Tax rates in check.
With respect to insurance.
Keith: Have seen times, where there's been an increase in insurance premiums and then Theres a moderation.
Keith: As as storm events kind of moderate so.
Keith: So we'll be looking looking to see if we are able to take advantage of that.
But the main thing as it relates to storms in Florida. After the storm clears everyone's out and wants to get out there and be active in the in the Florida Sunshine. So I think that will that will continue.
Speaker Change: Sounds good that's very helpful. Thank you.
Speaker Change: Thank you Nick.
Speaker Change: Thank you.
Speaker Change: Since there are no further questions on the line at this time. This does conclude the question and answer session and I'd like to hand, the program back to Marguerite Nader for any further remarks.
Marguerite M. Nader: Thank you all very much for joining today, we look forward to updating you on our next quarter's call take care.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Marguerite M. Nader: Okay.
Marguerite M. Nader: Okay.
Marguerite M. Nader: [music].
Okay.