Apr 19, 2016
Operator
Good day, everyone and thank you all for joining us to discuss Equity Lifestyle Properties' First Quarter 2016 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.
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 securities laws.
Our 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.
At this time, I would like to turn the call over to Marguerite Nader, our President and CEO. Please proceed.
Marguerite Nader
Good morning and thank you for joining us today. Our operations performed very well in the quarter.
The key highlights for the quarter include, we continued our positive occupancy trend of both increasing occupancy and gaining homeowners. For the quarter, we have increased occupancy by 141 sites and increased homeowners by 146.
Our MH revenue grew by 4.4%. On the new home sales front, we sold 121 homes, a 40% increase from 2015.
Our RV properties performed well, with a 5.3% growth rate and our same-store NOI growth was 6%. And finally, our FFO increased 10%.
As always, our focus is on creating shareholder value. Our MH occupancy which is comprised of annual sites leased at MH properties, is 93%.
This occupancy has increased each of the last 26 quarters. The stability in growth in our occupancy is a testament to our quality real estate locations and amenity offerings.
We have been focused on converting existing renters to owners and are pleased with the trend we're seeing. For the year, 11% of our new and used home sales were existing renters buying the home they were living in and an additional 5% of our sales were from customers who were already living in the community and chose to purchase a different home in the community.
This further supports our belief that driving the customer to the property to experience the lifestyle is the key for continued occupancy and home sales growth. The winter RV season performed well and we're now focused on the summer season.
We have developed our 100 Days of Camping marketing campaign, designed to maximize the summer season for our customers. 50% of our transient RV business comes from Memorial Day to Labor Day and we're prepared to meet the needs of our customers.
I would like to thank our employees, who just finished a great Snowbird season and are already gearing up for our summer season activity. ELS's continued exceptional performance is due to their much-appreciated efforts.
I will now turn it over to Paul to walk through the numbers in detail.
Paul Seavey
Thank you, Marguerite and good morning everyone. I will provide some detail on our first quarter results and walk through our detailed guidance for the second quarter and updated guidance for the remainder of 2016.
I will also provide an overview of our balance sheet. For the first quarter, we reported $0.92 of normalized FFO per share, $0.02 ahead of guidance.
Income from property operations performed better than expected as a result of increased MH rental revenues, recovery of insurance proceeds and expenses that were lower than anticipated. Core MH rent growth of 4.4% includes 3.6% rate growth and approximately 80 basis points related to occupancy gain.
New home sales included 34 through our ECHO joint venture. Resort base rental income from annuals increased 6.3%, primarily as a result of rate increases in Florida and occupancy increases from sites filled during 2015.
Growth in seasonal revenues of 5.7% was mainly the result of rate and occupancy growth in Florida. Our transient revenues grew 1.4% for the quarter.
The mild northern winter and relatively cold temperatures in the South, combined with the impact of the weakened Canadian dollar, resulted in lower transient revenue growth than expected. First quarter membership dues revenue was in line with our guidance.
During the quarter, we sold and activated approximately 5,300 memberships. We have created 530 members during the quarter and the financial impact of those sales was in line with our expectations.
Utility and other income were higher than guidance in the quarter because we received approximately $800,000 in insurance policies related to two prior events that impacted certain properties in California and Florida. Core property operating maintenance and real estate tax expense growth was approximately 40 basis points lower than expected in the quarter.
Savings and payroll related to reduction of marginal staffing at some of our southern resorts and some incentive compensation, as well as decreased electric rate and usage at some of our in-season RV properties, were the main contributors to the savings compared to our forecast. In summary, first quarter core property operating revenues were up 4.5% and core property operating expenses were up 2.3%, resulting in an increasing core NOI before property management of 6%.
The acquisition portfolio performance was in line with our expectations. Property management and corporate G&A were $19 million, slightly lower than guidance.
Other income and expenses generated a net contribution of $4.4 million. The variance from our guidance resulted from lower-than-expected income from golf and pro shop business at our winter season resorts.
Moving on to guidance, the press release and supplemental package provide 2016 full-year and second quarter guidance in detail. As I discuss guidance, keep in mind, my remarks are intended to provide our current estimate of future results.
All growth rates and revenue and expense projections represent mid-points in our guidance range. We have increased our full-year 2016 normalized FFO per share guidance $0.04.
Our range for the year is now $3.19 to $3.29. We expect second quarter normalized FFO at the mid-point of our range of approximately $66.3 million, with a range of $0.69 to $0.75 per share.
We expect the second quarter to contribute approximately 22% of our full-year normalized FFO. We assume no MH occupancy increase from the end of the first quarter.
Projected second quarter core community base rent revenue of $114.6 million reflects a growth rate of 4.3%. Our core rental home income is expected to increase slightly compared to last year and reflects our current rental program occupancy.
We anticipate $43.3 million of resort base rental income in the second quarter. This represents 22% of our full-year RV revenue and we're projecting growth of 5% over last year.
We expect solid performance as we transition from our winter season to our summer season and we projected growth rate of 5.4% for annuals, 2% for seasonals and 5% for transient. Our second quarter reservation pace shows we're currently 84% reserved for our expected seasonal revenues and 55% reserved for our expected transient revenues ahead of this time last year.
Membership dues revenue is expected to be $11.1 million. Our guidance for property operating maintenance and real estate taxes includes 3.1% growth for utilities, real estate taxes and insurance.
Property operating expense growth reflects our planned expenses related to preparing and staffing our properties for the upcoming summer season. For the second quarter, core property operating revenues are expected to be up 3.5% and core property operating expenses up 3.5%, resulting in an increase in core NOI of 3.6%.
The decelerating growth rate compared to our first quarter results is attributed to the first quarter insurance recovery I mentioned, as well as our expectations for higher expense growth in the second quarter. I'll now comment on guidance for the remainder of 2016.
For quarters two through four, we assume no change in MH occupancy from the end of the first quarter and expect core community-based revenues of $345.9 million which is a growth rate of 4%, for the remainder of the year. We anticipate core RV revenue growth of 4.7% to generate $138.1 million for the rest of the year.
We expect annuals to continue showing strong performance, with 5.6% growth projected. As we look ahead to the full summer season, we project combined second- and third quarter transient revenue of $26.7 million compared to $25.8 million in 2015, a growth rate of 3.4%.
We expect just over 40% of the full-year transient income to come in the third quarter. Total core revenue from dues and net contribution from membership sales in quarters two through four are expected to be $33.7 million.
Property operating expense growth is projected to be 2% for the remainder of the year. We have increased our expected expense growth rate from our prior guidance, mainly as a result of our expectations for higher R&M spend across the portfolio.
As a reminder, our guidance model includes no assumptions related to one-time events, such as storms, that may have an impact on expenses. For the rest of the year, property operating revenues are anticipated to be up 3.4%, with the expenses growth of 2%, resulting in an increase in core property NOI of 4.5%.
We expect the acquisition properties will contribute about $1.2 million in income from property operations for the remainder of the year, for a total of $2 million for the full year. Property management and corporate G&A is expected to be $58.2 million for the remainder of the year.
Our full-year guidance has not changed and remains at $77.2 million. Other income and expense items are expected to be approximately $9.9 million for the rest of the year and approximately $14.3 million for the full year.
Interest in amortization expense for the full-year 2016 is expected to be approximately $102.3 million. We expect our average debt balance will be $2.1 billion.
Our preferred distribution is $93 million. Our 2016 normalized FFO per share estimate at the mid-point is $3.24 and our share count is expected to average 92.1 million shares in 2016.
We have made no assumption related to the use of future free cash flow in our earnings model. Before opening the call up for questions, I will discuss secured debt market conditions and provide some comments on our balance sheet, current secured financing terms available for MH and RV assets range from 60% to 75% LTV, with rates from 3.5% to 5% for 10-year money.
This is the widest range of pricing we have seen in recent years and reflects the varied appetite for RV assets. High-quality, age-qualified MH will command preferred terms from all lending sources.
RV assets with a high percentage of annual occupancy have access to financing from CMBS lenders and certain life companies. Fannie and Freddie will consider financing park model assets, with close attention paid to the annual rent component and the quality of the sponsor.
Our current unrestricted cash balance is approximately $50 million, after funding our first quarter dividend earlier this month. We have approximately $70 million of secured debt maturing before the end of the year and are reviewing refinancing options.
To date in 2016, we have used available cash to repay a $9.8 million maturing mortgage with a weighted average rate of 5.5%. We have a $400 million unsecured line of credit with no outstandings and over two years remaining, along with a one-year extension option.
The size of our unencumbered pool of assets provide significant capacity to potentially increase our unsecured facility. Our interest coverage is around 4.5 times and our debt to EBITDA is 5.3 times.
Now we would like to open it up for questions.
Operator
[Operator Instructions]. Your first question comes from the line of Gaurav Mehta.
Please proceed.
Gaurav Mehta
A couple of questions on the rental program, I was hoping if you could comment on the rental home income guidance for 2016. It seems like you're expecting an increase which was previous expectation of a decline.
Patrick Waite
This is Patrick, Gaurav. Let me just first touch on the trends that we have seen in the rental program.
Over the last two quarters, we increased owners by 265 and we increased renters by 9. So that's a flattening of the trend that we saw in 2014 and 2015, where we were still growing owners but we were seeing a decrease of renters of about 60 to 70 every quarter.
We have a -- clearly view homeowners as the core of our MH business. But we see the rental program as an opportunity for us to expose more customers to the lifestyle at our properties and also help to drive some occupancy.
I would also point out that the mix that we have seen in our rental portfolio has changed since this time last year. We're down about 200 rental homes overall.
That reflects an increase of 200 new renters and a decrease of 400 used rental homes. And that's really a focus of ours, on renting new homes in places where we believe we have the opportunity to grow occupancy and continue with convergence and also just overall home sales driving homeowners and that lends itself to a continued decrease of the mix of used rentals in the portfolio.
So going forward, I would say I expect that trend of a flattening of that rental occupancy, potentially a small increase to occur over the next few quarters, but we're going to continue to emphasize homeowners and overall occupancy growth.
Marguerite Nader
And Gaurav, in my comment, I mentioned the conversions. So we've seen an increasing conversion of the homeowner renting and buying the home that they are in and then as well as buying a home that they live in the community and buying another home inside the community.
Gaurav Mehta
And second question I have is on the transactions. I was hoping if you could provide more color on the cap rate that you are seeing for manufactured housing product, as well as RVs, in your market?
Marguerite Nader
Sure. I think as we highlighted in the press release, we closed on one property in the quarter.
And right now, we have properties under contract and in various stages of LOIs. The property that we closed -- just speaking of the one property that we did close, was like 300 site property outside of the Daytona area.
The price per site was $24,000 and it was about a six cap.
Operator
Your next question comes from the line of Nick Joseph of Citigroup. Please proceed.
Nick Joseph
Maybe just following up on that last question, can you talk about the size of the pipeline right now? And you mentioned the LOIs currently?
Marguerite Nader
Sure. The size is consistent with what we've seen in the past.
Like I think we've talked, Nick, it's difficult to know when something is going to come to closing. I think in the past, I've talked about them in terms of letters of intent.
We do have some properties under contract, so that's a further stage down from the letter of intent. But it's consistent with what we've seen in the past.
Nick Joseph
What's the volume under contract right now?
Marguerite Nader
We don't disclose that.
Nick Joseph
Okay. And then I guess just bigger picture.
Since the hometown acquisition in 2011, it's been mostly a handful of smaller acquisitions, but no larger portfolio deals. So I'm wondering if it's the price that's kept you on the sidelines for these recent deals or if it's been more of a strategic decision or property quality concerns?
Marguerite Nader
You know, I think what we have seen in the deals, as we look to the underwriting, we will run through -- I mean, we know the assets very well. And as you know, there is not a lot of -- in fact, there has been very few new manufactured home communities or RV parks built over the last 20 years.
So these are assets that we know well. So we approach it from a standpoint of, underwrite it with looking at what's happening with real estate taxes, what's happening with the markets, the rents, whether or not there's the ability to increase rents, whether or not there's under-market conditions.
And then we run it through what does that mean on a long term basis and what are the growth parameters and that's really how we decide whether or not this is something we want to participate in. With respect to some of the transactions that have happened recently, specifically the Carefree transaction, we reviewed the due diligence material and we expressed an interest in buying the portfolio in what we thought was a full price.
We looked at the standard review of the financials, assess the volatility of the transient side of the business and as well as the upside opportunities. And we underwrote the portfolio with a long term view of value creation, but we obviously went the highest offer
Nick Joseph
And just finally, what are your thoughts on greenfield development, just given that there has been so little and prices and cap rates have certainly come down?
Marguerite Nader
I think it's difficult to do greenfield development. I think certainly on the MH side, you are in a situation where you have to put in all the amenities, put in the sites and then have the homes there and sell the homes.
So you've got to get the first 50 people who want to be in a property that's largely a greenfield, as you say. On the RV side, there is some more flexibility, because you have the ability to fill it in a little bit quicker.
But it's still is a long time to fill. The multi-family guys talk about things in terms of months, we talk about things in terms of years or decades to fill.
So it's a significantly different threshold that we're looking at.
Operator
Your next question comes from the line of Jana Galan of Bank of America Merrill Lynch. Please proceed.
Jana Galan
On that RV guidance for the first quarter, I think you came in about 30 basis points weaker than you guided, but kept the full year unchanged. And is that from the reservation pace being ahead of last year or have you seen some of the Canadian demand come back?
Paul Seavey
I don't think it's as much about Canadian demand coming back. I think it's more about our view of the business overall and our practice as it relates to projecting future quarters and the visibility that we have into the reservation pace.
So as we head into the second quarter, we're heading into a quarter that has a lower level of seasonal and transient activity and our guidance reflects where we think we're today. The third quarter has, I think roughly 40% of our transient income and we're still a bit out from that to be able to measure the reservation pace.
So our expectation for the full year, as you saw, is unchanged. But what happened in the first quarter with respect to the weather and the impact of the Canadian customer that is behind us and we expect to be where we were for the full year, as a result.
Marguerite Nader
And I think what you're seeing is just the strength in our annuals, in our guidance which is just a primary part of our business model. So you see we increased guidance on that annual side.
Jana Galan
And then just on the expense guidance, I think you took down your growth production in the fourth quarter and now ticked it up a little bit in the first quarter. Just what's driving the change there?
Paul Seavey
I think as I talked about, in our expenses we have some preparatory work that we're doing in the second quarter to get our summer properties ready for the season. And then as it relates to the latter part of the year, we took a look at our expenses and we do anticipate an uptick in the R&M expenses overall.
Operator
[Operator Instructions]. Your next question comes from the line of Drew Babin of Robert W.
Baird & Company. Please proceed.
Drew Babin
With the value of MH communities clearly having gone up quite a bit recently and with the Carefree deal, any of these getting mark-to-market based on that, when do you think that property assessors will kind of catch-up and that there may be some marginal increase in tax rates? Is there any clarity on that or anywhere where you are seeing that already?
Marguerite Nader
Well, that's a difficult question to answer, Drew, on a call. I hope there are no assessors listening.
I don't know when that will happen. Certainly we have seen some increases in Colorado.
But it really it's a function of when a purchase price works its way through a system and each one of the counties are different, in every county across the United States. So you might be in Florida, you might have one county right next to another and you've got some significant reassessments and the other county hasn't even quite looked at their paperwork yet.
So it really depends.
Drew Babin
So, somewhat of a lagged process there?
Marguerite Nader
Yes, it is, absolutely.
Drew Babin
Okay. And out of curiosity, typically year over year, the number of total core sites will tend to drift up a little bit, presumably due to expansions, things like that.
I noticed the number actually went down slightly year over year and I'm just curious what was behind that? I think it was like 17 sites.
But just curious, what can drive that?
Paul Seavey
Yes, inside the properties there can just be reconfiguration of sites over time. On some level, some of that is driven by customer demand.
And to the extent that larger homes into the community, there might be an adjustment to the site count and an adjustment to the rent, to reflect that.
Drew Babin
Okay. And lastly, I was hoping you could just walk through specifically the $800,000 insurance proceeds and just exactly what that is related to?
Some people might not be up to speed.
Paul Seavey
Sure. We had a couple of events, one event that impacted us in Florida and another event that impacted a property in California.
One was a fire and one was a storm event and I believe one of the events was a 2014 event and the other was a 2015 event and so the timing of the recovery of the insurance proceeds typically lags the event. And in this instance, the accounting guidance is, you deal with the expense and/or the capitalization at the time of the event and then the recovery of the insurance proceed is recognized.
I guess someone could take the position that they establish a receivable for those insurance proceeds. Our historical practice, because of our experience in certain situations with insurance recovery, is that we don't establish a receivable at the time and we go ahead and record the proceeds as revenue when we receive it.
Drew Babin
Okay. So is there any lag of that amount into 2Q or has that been fully recognized?
Paul Seavey
No, we recognize it as we receive it and there's no expectation in future quarters for recovery.
Operator
Your next question comes from the line of Philip DeFelice of Wells Fargo Securities. Please proceed.
Philip DeFelice
I just have a quick question regarding your social media efforts as the weather is warming up here. Just any change in traction you are gaining, anything you can point to year over year as far as trends and just engagement on your social media platform?
Marguerite Nader
Yes, we're seeing an increase. I think last quarter I talked about 250,000 fans and followers.
I think we're seeing a slight uptick between that, between Facebook, Instagram and Twitter. We're starting our summer campaign, our 100 Days of Camping.
Last year was the first year that we started that campaign. It was very successful, with, I think, close to 2 million views on social media.
We're looking to expand that campaign this year and we have started it a little bit earlier. We started with 100 days before the 100 Days of Camping, so we hope to be able to increase our social media awareness of our properties.
Philip DeFelice
Okay. As far as maybe percentage that are booking online, do you have any stats around that, as opposed to booking with a phone call?
Marguerite Nader
Yes, on the transient side, about 50% of our business is booked online or just through the call center. It's roughly half and half.
And on the 25% better booking online, it's roughly 50% are booking through a desktop and 50% are booking on their phone which we find -- tracking that.
Philip DeFelice
How did that compare to last year? Just wondering.
Marguerite Nader
It increased last year relative to the phone usage. So people are using their phone more than they were last year to book reservations.
Operator
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.
Marguerite Nader
Thank you all very much. Paul Seavey is around today for any additional questions.
Thanks very much.
Operator
Ladies and gentlemen, that concludes today's presentation. You may now disconnect and everyone have a great day.