Equity LifeStyle Properties, Inc. (ELS) Earnings Call Transcript & Summary

Welcome to Bank of America's 2025 Global Real Estate Conference. I'm Jana Galan, and I cover the residential REITs at BofA. We're very pleased with us to have Equity LifeStyle's CEO, Marguerite Nader; EVP and CFO, Paul Seavey; and President and COO, Patrick Waite. I'll turn it over to Marguerite to share some opening remarks, and then happy to jump into Q&A and want this to be interactive.

Wonderful. Thank you very much, Jana. I appreciate the opportunity to present today. What I'd like to start with is a couple of pages from our investor presentation, and Paul will walk through -- give a little bit of an operational update, and Patrick will talk a little bit about ELS through the economic cycles. So on Page 2 of our investor presentation, we are just highlighting the fact that 91% of our revenue comes from annual sources, which is an important component to consider when thinking about the full year results for ELS. And then the other thing we're pointing out is that our return over the -- since IPO, 30 years ago, has been 14% per year. Turning to Page 3. We wanted to focus on our strong performance over that time period. We've had a 4.4% long-term NOI growth. And that has translated and we're really focused on translating NOI growth into FFO growth, and we've translated that into 8.4% FFO per share growth. The next thing to point out is just the REIT-leading balance sheet with a 5.6% interest coverage and something that's unique about ELS, 18% of our debt is fully amortizing. So no refinance risk inside of that 18%. And our term to maturity is 8 years. So certainly on the longer end with limited headwinds with respect to refinancing in the next few years. With that, I will turn it over to Paul to give a little bit of an operational update that we've been discussing during the conference.

Thanks, Marguerite. With respect to rent in the MH portfolio and the RV and Marina for the 2-month period ending August, our performance on the -- in the Core MH portfolio, showed growth of 5.5% over last year, the same period. And we provided a reference point in our update showing that for the quarter, our guidance was a range of 5% to 5.6%. Occupancy is holding steady at 94.3% as of the end of August in that core portfolio. The RV and Marina rent was down 10 basis points compared to the same period last year, and the range that we provided for guidance was down 10 basis points to up 50 basis points. And so as we think about rent broadly, we see an offset essentially the performance of the MH offsetting what we saw in the RV space.

Patrick?

Sure. And I'm going to touch on Page 14, it goes over the value proposition in our manufactured housing portfolio, largest part of our business. Today, a single-family home in the U.S. average cost for new home is about $500,000. Our typical customer purchases a manufactured home in our community for between $100,000 and $150,000. They typically pay cash, and their monthly costs are typically less than $1,000. That compares to the monthly cost of carrying a $500,000 or a single-family home, roughly $2,500. So that value proposition is very stark. One thing we offer above and beyond the value is the lifestyle that our residents are seeking. That MH business has contributed to durability on our top line revenue stream throughout our history. And that has contributed to outperformance in NOI. Over the last 25 years, our NOI growth has outpaced inflation by 200 basis points. That's all I had.

Great. Thank you. Maybe starting with MH and kind of the strength there that you're seeing year-to-date heading a little bit above where you guys have guided. And then, maybe talking to that a little bit, like where the upside surprises have come from. And then, as we think about the comments you made on in excess of inflation when we see kind of the COLA adjustments, kind of how do you think about where you're setting rents for next year?

Sure. And I think Patrick can cover that, Jana. I think, we appreciate you leading off with a question on MH, because that's not always the case. And we really appreciate it because it is the core of our business, so we love to talk about it. So Patrick can walk through it and also maybe focus in a little bit on our rate increases for this year.

Yes. So the results in the update are really just based on mix of occupancy over recent periods. So some more occupancy growth in communities that had higher rents that will fluctuate over time and nothing really fundamental in that outcome other than the consistent demand that we see across the portfolio. Something we've been talking about in the conference has been the rent increases for 2026. And we're in the early process of our budget for 2026. As part of that process, I get together with my operating team, Vice Presidents, and regional managers, our typical regional manager oversees 10 to 15 properties that's typically a mixed-use portfolio, including MH, and we go property-by-property through the submarkets compared against the direct comps from MH, but also reviewing trends in the single-family market and the multifamily market directionally, how that informs demand for the properties in their individual housing submarkets. So we're working through that process. I would say that it's going very much as it has in recent years. It tends to be very consistent. And again, we continue to see consistent demand. Some of that just came through in the results in our update.

And Jana, we've talked -- we talk often on our earnings calls about our mark-to-market within our MH portfolio, and we continue to see strong gains inside the mark-to-market on new residents.

And I think kind of the start to the year, maybe occupancy was a little bit lower than expected from some of the hurricane damage. Maybe if you could just kind of talk to that in terms of whether occupancy is coming back the way you anticipated or a little bit stronger? And any trends kind of also on the like home sales?

Sure.

Yes. So first, I'll touch on occupancy. And the impact from last season to hurricanes is basically 300 total sites that, where we lost home inventory, and we're going to be replenishing that home inventory. Just as a reminder, I try to put it in context that those 300 sites are across the portfolio of 70,000 sites, where across the portfolio, we're investing in new home inventory and maintaining and growing occupancy. In Florida, we continue to see consistent demand and then those properties that were impacted, we continue to see consistent demand. So we feel like we're in a good position with respect to the demand for our properties and occupancy growth. With respect to new home sales, the last few quarters have been around 120 new home sales in the quarter, annualized around 500. 500 to 600 new home sales for a full year would have considered -- would have been considered to be a reasonable or good year pre-COVID. So we went through a period of higher demand, which elevated home sales. I'd say that's normalized, and we continue to see consistent demand across the MH portfolio.

Do you have kind of like a rough number of, kind of, what kind of churn or like new homes you'd like to see just to keep kind of the average age of communities, kind of like, the curb appeal of them?

Yes, I don't know that I would frame it that way. I mean typically, we're investing somewhere between 400 and 600 new homes, over the course of the portfolio or across the portfolio over the course of the year, back in ebb and flow just based on the timing of the inventory coming into the properties when we impose a calendar over the run rate.

And what we tend to see, just like you see in single-family neighborhoods where there is a new home that's brought into the street inside of our manufactured home communities all of a sudden, you see that there's a person next door that says they will want a new home. So the street starts to change. And then, so you see a lot of that. And sometimes we'll start that mission kind of and then we'll see other people, other customers kind of finishing off the street that way.

And I guess kind of some of the regulatory, federal efforts to improve affordable housing. There's been some changes at HUD in terms of the requirements for manufactured homes. I don't know if you see this kind of really bringing down price or is that a potential benefit to the sector?

Yes. So the road to housing, there's been some conversations about manufactured housing that hadn't been there in the past, and Patrick can walk through some of the changes that really the manufacturers have done a really good job of working with the regulators and coming to some things that I think are going to be positive for the MH industry. And Patrick, maybe you could walk through the chassis requirements.

Yes. So a significant component of the bill for the MH space is the option to complete a HUD home to HUD standards without a chassis. And basically, what that means is in the manufacturing process today, the first step is having a steel chassis that flooring has laid down on. That's then moves to several further steps. It's like a Model T being manufactured. You have interior walls and fixtures, you work exterior and eventually roof trusses in the roof. But when that home leaves the factory, it is on the steel chassis and the steel chassis is embedded in the structure of the home itself. And that's the way the home has eventually delivered it and set whatever its final locations. The flexibility to remove the chassis is going to provide for particularly the manufacturers to access some other components of the housing market that have been a challenge. One, they'll be able to do multi-storey. So two storey is something that is very difficult, if not impossible to do when you have a chassis. That's going to be an advantage in higher density uses. Also, the -- a broader acceptance of a home without a chassis that has an elevation that's aesthetically much more like a single-family home, anticipating that will provide access to infill vacant sites in urban locations and denser suburban locations as well. So it will open up some additional avenues for the manufacturers. I think broadly, that's good for the industry, and it will provide some flexibility for land lease communities like us.

Great. And then maybe just on Florida specifically because we are hearing of kind of single-family home prices coming down a bit in various markets there. Just do you see that product kind of competing with yours?

I get that question a lot about competing against -- directly against manufactured housing. I appreciate from a value proposition. The value proposition that I referenced earlier is really substantial. So some moderation in the competing single-family market. I don't think significantly impacts demand for our properties. And we offer something much more broad than single-family neighborhood. Our properties have grassroots activities in groups that just, that occur in that active lifestyle environment. I explain to investors frequently, when I'm in our communities, particularly in the Sunbelt, the level of activity in common areas in the conference room, pickleball courts, tennis courts, it all of which happens in grassroots, I mean, we're not a core component of those people coming together. They're doing it on their own court. That's just embedded in the community. So there's a value proposition is a huge driver. But even if you were inclined to move up to a more moderately priced house, it still is substantially more expensive, you lack that community engagement.

[indiscernible]

Yes. I mean, this push just happened. So this is just -- this is very new. This is not -- and the issue that has long been in the industry with respect to new development on the MH side of the business is local city council members not wanting these manufactured home communities built in their backyard. So the nimbyism has been an issue. And what we're talking about here doesn't solve for that. So this is a federal regulation. We still need to have conversations at the local level -- and that's where the change needs to take place, and we haven't seen very much movement on that side. We have been successful over the years -- over the last few years in getting entitlement rights for development for our properties, so expansions of our properties. And we've built MH sites and RV sites. But ground-up development has been much more difficult.

So isn't there any better [indiscernible]

Right. At this point, there isn't.

Do you expect that will be?

It's really difficult to tell us just -- you're talking about so many different local municipalities and what their agenda is differs by county. And do they really -- is there a real desire to engage in the affordable housing discussion? Or is it just words on a page?

Any other MH questions before we flip to RV? All right. Just maybe if we could talk to a little bit the -- just how the summer played out on the transient side, Labor Day weekend. Any color around that? And just kind of where you are relative to pre-COVID and kind of this more active hybrid work, and now we're really seeing people call back into the office?

Sure. Sure.

So in terms of the -- a little bit more color around the performance update, our seasonal and transient rents essentially are in line with our expectations. Labor Day specifically was down a bit from last year, but a bit better than we expected. The annual line item, the Marina properties in the core portfolio. We have three properties, two of which Patrick talked about on the earnings call in July and another that had some slips that were damaged in prior storms, and the restoration of those slips and the recovery, there are some permitting issues and so forth that are taking longer. And as a result, occupancy was lower. So it's really those Marina locations that were impacting the results in the quarter-to-date period.

And in the transient business in general, we're just seeing kind of reverting back to pre-COVID dynamics just from a standpoint of the availability of time for what people have -- they are now coming out on the Friday night as opposed to a Thursday night during COVID and unable to stay on the Sunday night because they have to be at work in the office, as you point out, Jana, on Monday.

And maybe just going back to kind of the Marina component a bit. I guess, is there any kind of like outlook in terms of the timing of like the permits? And then on top of that, how long for the work to be done to make it functional again?

Yes. The Marina that really was the change from the Q2 earnings call. It's Gulf Coast of Florida. It's in a very good location. It's a very strong Marina. We'll be building back those docks to be completed, it looks like mid-2026. It's a high-demand location. I don't foresee much of a challenge in recapturing the occupancy headwind that we had during construction.

And I guess, like historically, is there a certain level of whether it be kind of hurricane damage or when you would actually like take something out of same-store or how do you think about kind of just the reporting around these events?

Yes. We look at that. We have internal criteria that we use to make that decision. And it is very much focused around a property. There's a significant disruption or a ceasing of operations as the property recovers. In the case of the properties that we're discussing at the moment, the disruption is less significant than that. And so we have not gone so far as to remove them from the core portfolio.

And then I guess, just in terms of kind of the seasonality, it sounds like trending kind of at the low end of the guide, quarter-to-date. It's kind of more due to this timing issue? Or is there also like I guess, how should we think about the seasonality of transient. I guess it picks up in 4Q?

Well, the largest quarter for transient is the third quarter. So we're coming out of that and heading into the fourth quarter and then the first quarter where the seasonal event is more significant contributor.

And then maybe just kind of how you're thinking about seasonal year-over-year?

Yes. The primary focus on the seasonal, we talked about it on, I think, the first and the second quarter earnings calls, and that relates to the impact of the Canadian customers. They do represent a component of that. And we had mentioned previously that the reservation pace on the early reservations that were made was down about 25% compared to prior year. We also noted that we didn't really expect that to change after the Canadian snowbirds left in March and April. I didn't expect that to change until later into the fall closer to winter when they would normally make reservations for the coming season. So that's kind of played out as expected, and we're beginning our marketing efforts now to remind them that it's going to be cold in the winter, and they should go ahead and book to be warm in Florida.

And I guess kind of on that like shorter booking windows that the industry is experiencing because of just volatility in weather and that's both for seasonal and transient or the seasonal because it is longer, it's more like a commitment they'll know in advance.

The booking window that we talk about is really on that transient side. The seasonal customer generally commits to us after they leave for the prior year. So when they're leaving in March and April, they're really focused on getting the particular site that they want. They want to be around the group of people that they tend to travel with, and that's an important piece for them. And so that's a longer booking window.

And so, I guess for this coming season, when they left March, April, that's where that 25%, I assume -- And then now you're starting kind of the campaign to remind everyone.

Right. And this is what we would normally do, although we just have a bigger gap where we've been focused right now. It's getting to be a little bit colder. I think the temperature needs to go down a little bit more before there's a realization that it's going to get really cold soon. And so we would pick up those efforts in -- we're starting them now but pick it up, pick up the pace in October and November. And encourage our Canadian friends to come down and visit Florida.

And I guess kind of in your various products and different pricing tiers with Thousand Trails and Encore and I guess, are there any changes that you guys are thinking of doing or adding or taking away different levels just to kind of like spur a little bit more demand?

No. I mean, as it relates to the Canadians, it's really the Canadian traffic and our Canadian customers. It's really about just making sure that Canadians feel comfortable, coming across the border and coming to Florida. And I think that's what we are focused on. On the Thousand Trails side, what we've seen is an increase in RV dealer leads. And that is, as I think you remember, Jana, those are leads that come to us. They -- through RV dealer, someone buys an RV, they get a Thousand Trails membership and they have the ability to camp for a year and then the following year, they pay. So it's camp for free for a year and then they have the ability to then become a full-time member. We're seeing an increase in that activity, which we view as a positive in RV sales are up and they are intended to be up for 2025 for the full year. And what we've seen on the -- we have our Thousand Trails camp passes and probably 12 years ago, we were in the selling about 4,000 of those. We now sell every year about 19,000, 20,000 passes. So there's been considerable movement on that front within the Thousand Trails platform. And also this year, we introduced a new upgrade product, which was dues-based product that I mentioned on the last earnings call, and we have had success in launching that product this year. And it's just a matter of our customers wanting to spend a longer time with us, a larger -- longer booking window and being able to go from property to property. So that has been a successful endeavor for us.

Great. And then, can you remind us on the annual RV, what's the average kind of like tenure of residents?

Sure. It's similar to what it is in our MH portfolio, about 10-plus years. So a very sticky customer base on both the MH and the RV annual.

[indiscernible]

Yes. I think the challenge that we face on the transient side of the business, we talk about it very often, is the weather challenges. And it's not the big weather events, it's a stormy Saturday or a stormy Friday weekend. And the customer knows that in advance, a 10-day advance window and is saying, I'm not going to camp this weekend, and so there's just -- you just see cancellations coming through as a result of weather. So that's not any different than what we've experienced in the past. So it's really that on the transient side. On the annual side, I think there -- on the annual RV side, there's really high demand for our product offering because it is a really affordable way to have a second home in a location that's relatively -- can be relatively close to your home. So 60, 90 miles away, and you develop a whole new friends set at this property. And so we see high demand for people signing up on our website to try to engage with us and book an annual stay.

Maybe turning over to the transaction market. And I know it's not very active, but this year, one of your peers announced a couple of assets that they put on the market, and also announced that they then had capital to buy a lot of assets. So curious if that just kind of increased a little bit of people shopping their portfolios.

Yes. I think some of those transactions, I don't know where the state of those, whether or not they're when they're closing or not. But certainly, we haven't seen much of a change from a transaction standpoint. I think there are a lot of owners who appreciated the cap rates of 2 or 3 years ago and appreciated the interest rates of 2 or 3 years ago and are waiting on the sidelines for those to come back. And as a reminder, just in terms of the space within the manufactured housing space, there are about what we would consider 3,000 investable assets, we own 200 of those. So there's a real opportunity to buy more inside of the MH space. And on the RV space, there is about 16,000 RV parks across the country, 8,000 of which are private, 8,000 are public. But the 8,000 that are private, we would consider about 1,200 of those to be investable, and we own roughly 200 of those. So there are a lot of opportunities out there for us to further expand our portfolio. And it's just a matter of continuing to work with interested sellers to complete a transaction.

And I guess maybe if you could just help us understand some of the criteria that like whittles that down on the MH side, you look for low number of rental units or...

Sure. It's actually interesting. The MH space has 50,000 that we whittle down to 3,000. Going from 50,000 to 3,000 is mainly driven by just the number of sites. So there are a lot of properties that are inside of the 47,000 that are 2,550 site properties. So first it's primarily a number of sites driven and then we further bifurcated between age qualified, all age, location and that type thing. But the biggest amount comes out when you deal with the number of sites and just the size of the property.

Any questions?

[indiscernible]

Right. So, when we became a public company in 1992, we had some all-age assets. We sat down. We tried to figure out what was -- what should ELS become at the time it was MHC, what should we be when we grow up. And as we looked at it, we looked at the opportunity to expand in the age-qualified space. And the all -- what we were seeing in all age was that volatility, kind of what we talk about on the transient side, that volatility that somebody who owns ELS is not looking for. So we saw on the all-age side where you could have an impact to the local community, whether or not a factory closes down or some other employment issue, and you see a large vacancy rate that happens inside of the community. So what we did is really focus on growing our age restricted portfolio. And what we found is that, that is -- has represented a very stable revenue source for us. There are a lot of things that when you buy all-age property that you need to consider between what's happening in the school districts, what's happening in the employment, what's happening with the neighborhood in general, as compared to what you look at on the age-restricted side, it's really about the -- what's happening inside your local community. You're much more in control. So we found that the age restricted provides a much more stable base for us.

I think, there maybe a couple of larger portfolios on the market now. And I think maybe those are a mix of all age. I don't know if you have any comments or views on those?

Sure. And maybe Patrick could weigh in a little bit on this, because some of the portfolios that are for sale, Patrick operated during a time when he left ELS for a brief moment. But those the properties -- the portfolios that are for sale are primarily all-age assets. They do have some age restricted assets, but there's a desire, I believe, to sell them all together as opposed to cherry pick. And maybe Patrick, you could talk a little bit about your experience.

Yes. So those properties, Marguerite touched on a little bit earlier, they are typical all-age properties, where generally you have people looking for an entry-level home, frequently young families, we want to be in a good school district. They want a property that's professionally managed. It's very helpful to have clubhouse facilities, so that kids have a place to participate in the study groups and other activities. That generally, that portfolio, which is spread around to various larger owners at this point was in Texas, some in Florida throughout the upper Midwest Iowa, Michigan. And as was touched on just a little bit earlier, the volatility that occurs, if you have an economic disruption, we happen to own and operate that portfolio going into the great recession, which was significantly disruptive. Just led to a transition when people need to kind of reorganize and typically are relocating relative to their next employment opportunity. As the economy started to recover, the portfolio recovered. And I think long term, performed relatively well. But it does introduce that greater volatility that compared to the experience of ELS through that period, just the stability of the occupancy and the revenue stream was much more noticeable.

I think we have time for one more question before a rapid fire round.

[indiscernible]

Yes. Yes, certainly. So over the years, -- we've -- our rental program has been lower, it's grown. And so I think probably 15 years ago, it was about 3%, at a high point, about 9%. Now it's sub 3% of our occupancy. And it is certainly -- it is a tool that we can use to increase occupancy. And it's much better to do that when you're at 3% versus when you're at 9%. So that flexibility, we're in that place right now where we have that flexibility to be able to do that, and it's certainly a good return on our investment.

Now these are three questions we're asking all REITs presenting at the conference. When the Fed starts to cut, do you expect REITs for long-term debt to decline, stay flat, or rise?

Decline.

Last year, the majority of companies stated the ramping up spending on AI initiatives. How would you characterize your plans over the next year? Spend more, flat, or less?

More.

And then, do you believe same-store NOI for your sector will be higher or lower or the same next year?

Stay the same.

Thank you.

Thank you very much.