Tesla Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 18, 2023

There are 15 speakers on the call.

Operator

Good day, everyone, and thank you all for joining us to discuss Equity Lifestyle Properties' 1st Quarter 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 yourself to 2 questions.

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 in 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.

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 filings. At this time, I would now like to turn call over to Marguerite Nader, our President and COO.

Speaker 1

Good morning and thank you for joining us today. I am pleased to report the results for the Q1 of 2023. The quality of our cash flow and the strength of our balance It continues to allow us to report impressive results. Our core NOI exceeded our expectations in the quarter with 5.7% growth year over year. Our MH portfolio is 95% occupied.

Speaker 1

The MH business is unique in that once a high level of occupancy is achieved at The occupancy is generally sustainable for a long time. The key to that stickiness is having an elevated level of homeowners in the portfolio. Our portfolio is 96% occupied by homeowners. Our new home sales over the last 5 years have contributed to building up this important benchmark. Our homeowners are focused on improving their home sites and we have seen a great effort by those impacted by storms to repair their homes and remain in the community.

Speaker 1

Over the last 30 years, we have built our organization focused on high quality team members, properties, cash flow and capital allocation. The result of this shared focus is the same value for our residents, customers and shareholders. Our properties are well located in areas where the demographic trends create tailwinds for ELS. Our properties have shown strong demand even when considering weather related disruptions. ELS will be the beneficiary of Florida's outsized population growth and heavy demand for seasonal accommodations.

Speaker 1

We sold 176 new homes in the quarter at an average price of $104,000 While this is a decline from sales volume last year, Volume remains at elevated numbers relative to our historical sales volume. We saw an increase in used home sales and are currently experiencing in historically low levels of used home inventory. With respect to our RV business, our annual and seasonal segment, which represents the largest portion of our RV stream performed ahead of expectations in the quarter and we anticipate growth rates of 8.4% and 8.2% for the full year 2023. The full year guidance for our transient business is impacted by California storms and a reduced number of Transient sites. Our customer surveys indicate that demand for RV camping remains strong with 9 out of 10 respondents from our database saying that they plan to camp the same or more than last year driven by their desire to spend more time outdoors and because they recently invested in an RV and want to use it.

Speaker 1

20% of our first time transient guests from last year have booked a reservation in 2023, 3 have increased their engagement as an annual seasonal or member. This rate is consistent with the engagement we saw last year. In the quarter, our 1,000 Trails membership properties performed very well. We sold approximately 4,500 camping and initiated 5,700 RV dealer activation. These passes and activations are the seeds for future growth in the Thousand Trails portfolio.

Speaker 1

When we last reported our results, we had not yet negotiated our insurance premium for the period beginning April 20 23 and ending March 2024. We anticipated a tough renewal market. In the end, our overall insurance premiums increased 58%, which was higher than we anticipated by approximately $0.01 per share. The relationships that we have developed over the last 30 years with the carriers were helpful in allowing us to obtain the coverage for our MH RV and Marina properties. Overall, the increase in expenses contributed to the 40 basis point adjustment to our anticipated core NOI growth, while still maintaining our initial normalized FFO per share guidance of $2.84 We had a great snowbird season in the South and our teams will now begin to focus on welcoming our residents, members and guests to our northern locations as we kick off the summer season.

Speaker 1

I'd like to thank all of our team members for their hard work in making this winter season so successful. I will now turn it over to Paul to walk through the numbers in detail.

Speaker 2

Thanks, Marguerite, and good morning, everyone. I will review our Q1 2023 results and provide an overview of our Q2 and full year 2023 guidance. 1st quarter normalized FFO was approximately $800,000 higher than the midpoint of our guidance range or $0.74 per share. Core portfolio revenues and expenses were favorable to our guidance, mainly as a result of higher than anticipated membership upgrade sales revenues And lower than expected real estate tax expenses. These line items contributed to core portfolio NOI growth of 5.7% for the Q1.

Speaker 2

Core community based rental income increased 6.5% for the quarter compared to 2022, Primarily as a result of noticed increases to in place residents and market rent increases on resident turnover. We increased homeowners by 30 sites in the quarter. Our rental homes currently represent 3.9% of our MH occupancy. Our resort and marina base rental income is primarily generated by long term revenue stream. On a full year basis, more than 80% of our resort base rent is from annual and seasonal stays and 99% of our marina rents are from annual customers.

Speaker 2

1st quarter core resort and marina based rental income increased 5.5% compared to 2022. Rent growth from annuals in the Q1 was 8.4%, 8% from rate increases and 40 basis points from occupancy gains. 1st quarter rent from core RV seasonal increased 11.9% compared to Q1 2022. We continue to see strong demand for longer term stays in our Sunbelt destination. More rent from transient customers decreased 14.9% for the quarter, mainly from lower occupancy.

Speaker 2

Across the portfolio, we have fewer sites available for transient stays. We experienced operating disruptions in our California portfolio as a result of the strong rains and heavy snowfall drifts. For the Q1, the net contribution from our membership business was $18,300,000 Subscription revenues increased 4.7%, which includes a rate increase of 5.2%. The increase in upgrade sales revenue was generated by sales Higher priced products compared to last year. Our average upgrade sale price increased almost 15%, the percentage of sales attributed to our adventure products Presenting almost 30% of our Q1 of 2020 sales.

Speaker 2

Core utility and other income increased 9.4% mainly as a 1st quarter core operating expenses increased 7.4% compared to the same period in 2022. The comparison to prior year is affected by approximately $2,000,000 of repairs and maintenance this year following storm events, including rain, Resulting flooding and heavy snowfall in California. Adjusted for this activity, overall expense growth was in line with CPI for the quarter. 1st quarter expenses were favorable to our guidance on lower real estate taxes and utility expense. The real estate tax expense favorability is the result of lower tax bills in certain states where we pay taxes in arrears.

Speaker 2

The actual bills received during the Q1 were lower than the amount we had accrued at the end of 2022. Core property operating revenues increased 6.4% compared to the midpoint of our guidance of 6%. Our core property operating expenses increased 7 point Compared to the midpoint of our guidance of 7.8%, resulting in growth in core NOI before property management 5.7% compared to the midpoint of our guidance of 4.7 percent, a $1,800,000 favorable variance. Our non core properties contributed $6,000,000 in the quarter, in line with our expectations. Property Management and Corporate G and A were $31,100,000 for the Q1.

Speaker 2

Other income and expenses net, which includes our sales operations, joint venture income as well as interest and other corporate income $6,000,000 for the quarter and interest and amortization expenses were $32,600,000 The press release and supplemental package provide an overview of 20 3 second quarter and full year earnings guidance. As I provide some context for the information we've provided, keep in mind my remarks are intended to provide our All growth rates and revenue and expense projections represent midpoints in our guidance range and are qualified by the risk factors referenced in our press release and supplemental package. Our guidance for 2023 full year normalized FFO $2.84 per share at the midpoint of our guidance range of $2.79 to $2.89 This is consistent with our previously provided guidance despite headwinds associated with our annual insurance renewal. The total impact of our April 1 renewal on 2023 is an increase to our budgeted expenses of approximately $2,600,000 I'll note that our budget included assumptions related to the split of insurance premiums between our core and non core portfolio. The actual renewal resulted in a higher portion allocated to the core portfolio relative to our budget assumption.

Speaker 2

We project full year core property operating income growth of 5.1 percent at the midpoint of our range of 4.6% to 5.6%. Full year guidance assumes core base rent growth in the ranges of 6.3% to 7.3% for MH, 5.4% to 6.4% for RV We assume occupancy in our stabilized MH portfolio will be flat to 1st quarter. Core property operating expenses are projected to increase 7.9% to 8.9%. The primary drivers of the increase in core growth compared to our prior guidance for the insurance renewal I mentioned and utility expense. Our guidance model includes the impact of the acquisition we announced and the impact of the fixed rate swap we disclosed in our earnings release and supplemental package.

Speaker 2

The full year guidance model makes no assumptions regarding other capital events or the use of free cash flow we expect to generate in 2023. Our 2nd quarter guidance assumes normalized FFO per share in the range of $0.62 to $0.68 Core property operating income growth is projected to be 2.2% at the midpoint of our guidance range for the 2nd quarter, which represents approximately 23% of our expected near core NOI. In our core portfolio, Property operating revenues are projected to increase 5.8% and expenses are projected to increase 10.3%, both at the midpoint of the guidance range. I'll now provide some comments on the financing market and our balance sheet. As noted in the earnings release and supplemental package, we executed a fixed rate swap on our $200,000,000 unsecured term loan maturing in 20 27.

Speaker 2

The swap fixes the all in borrowing cost at 4.88% through maturity. Fixing this rate reduces our floating rate exposure to approximately 7.5% of our outstanding debt and further derisks our very strong balance sheet. Our debt maturity schedule shows that we have only 6% of our outstanding debt maturing over the next 3 years. This compares to an average of approximately 27%. I'll also remind you that approximately 20% of our outstanding secured debt is fully amortizing, carries no refinancing risk.

Speaker 2

Current secured debt terms vary depending on many factors, including lender, borrower sponsor, asset type and quality. Current 10 year loans are quoted between 4.75 percent and 5.25 percent, 60% to 75% loan to value 1.4 to 1.6 times debt service coverage. We continue to see solid interest from life companies and GSEs to lend for terms 10 years and longer. High quality age qualified MH assets continue to command a financing term. In terms of our liquidity position, we have $235,000,000 Available on our line of credit and our ATM program has $500,000,000 of capacity.

Speaker 2

Our weighted average secured debt maturity is approximately 11 years. Our debt to adjusted EBITDA is around 5.2 times and our interest coverage is 5.5 times. We continue to place high importance on balance sheet flexibility. We believe we have multiple sources of capital available to us. Now we would like to open it up for questions.

Operator

Thank you. Our first question comes from the line of Brad Heffer from RBC Capital Markets.

Speaker 3

Hey, good morning, everyone. Couple of questions on the guidance. On the MH and RV growth rates, can you just talk about what is creating the upside for MH and the downside for RV?

Speaker 2

In terms of the MH, Brad, when you The upside, I guess, as I think about our original budget, the guidance really hasn't changed. So we had an assumption that we'd have some incremental growth in rate during the course of the year, and that's presenting itself as you see the guidance disclosure for the Q2. On the RV, the adjustment primarily relates to our seasonal and transient assumptions for the Q2. As we look at it, our current expectation for 2nd quarter seasonal and transient is based on the current demand trends, Which include a shorter booking window than we've seen in the past couple of years. We also attribute some of the reservation pacing that we're seeing, The unfavorable weather patterns in locations that support our transient business in the shoulder season as we shift from winter to summer business.

Speaker 3

Okay, got it. And then the non core NOI guide went up by a decent amount. I think some of that is business interruption, but if you could confirm that, that would be great. I think you also mentioned more insurance being allocated to core, but I guess can you just walk through what the moving pieces are in that particular line item?

Speaker 2

Yes. So the insurance change is a pretty significant piece of that. It represents, I'd say, close to a third of that change. And then I guess I speak less to business interruption. I'd really focus more on the demand that we saw in the local market in Florida, some of those non core portfolios, just in terms of workers in the area as well as displaced residents, That's driving some incremental revenue in that portfolio.

Speaker 2

And then add to that the acquisition that we executed in Those are the main drivers of that increase.

Speaker 3

Okay. And just to be clear on the business interruption, I think there was a footnote Talking about $4,000,000 being in the non core realized this last quarter, I guess was that originally in the budget, and so that's not affecting it?

Speaker 2

$4,000,000 is the total that we collected across the portfolio core and non core And it was in line. We had disclosed in our investor presentation mid quarter, we had disclosed an Expectation of about $4,500,000 of business interruption proceeds in the quarter and we received 4,000,000

Speaker 4

Okay. Thank you. Thanks, Chris.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of Joshua Dennerlein from Bank of America Securities.

Speaker 4

Yes. Good morning, everyone. I just wanted to explore I saw occupancy dipped, I think, 10 basis points year over year. Just What's driving that? Is that just new sites delivered that just haven't been occupied yet or just something else?

Speaker 6

Hey Josh, it's Patrick. The Q1 occupancy decreased by 79 sites, it's an increase of 30 owners And a decrease of 109 renters. And just from a comp perspective, year over year, Q1 2022 was up 38 sites, Increase of 191 owners and increase of 153 renters. There's a couple of factors Driving that occupancy result for the quarter, one is a continued impact from Hurricane Ian. We took Back 31 homes in the quarter.

Speaker 6

And just as a reminder, we touched on this last earnings call. We had 107 homes come back to us In the previous quarter as a result of hurricanes even. So that's, call it, 140 to date. We expect there There may be in the neighborhood of 100, give or take, additional homes that may come back to us in coming quarters, but that was a driver of occupancy for the quarter. And the second, Marguerite mentioned new home sales that were down 33% year over year.

Speaker 6

So in addition to comping to a robust quarter Q1 2022, there's a couple of kind of inventory things to take into consideration. One is the inventory levels at a few key selling locations for us were reduced. Part of that is selling out expansions at Expansion sections that we have in Arizona, as well as experiencing some delays in getting moving freight and some more expansion opportunity in Arizona. The second is several sales locations just had a decrease in volume. Those were a few key Higher sales locations and then broadly across the portfolio, we usually experience 1, 2 or 3 new home sales Had a significant number of properties and just based on cycling through inventory, there was a little bit less inventory at some of those smaller locations.

Speaker 4

Thanks, Patrick. Appreciate that. And then maybe moving to the transient RV side, It was down year over year. I know you're lapping tough comps, but just curious if it was also just What else is kind of driving the Transit RV revenues at this point, brand a lot?

Speaker 2

I think, Josh, as I mentioned, we had disruption in operations. So the Weather in California, in particular, was a significant impact to our transient business in the Q1 And so the key driver of what we saw year over year. Add to that the change that we have in the site mix available for transient as we build

Speaker 1

And I think, Josh, we've talked about this before, but we've operated RV parks over the last 60 quarters. And when you're looking at the annual seasonal and transient results over that time, the transient piece has the most volatility by far. I think we reported negative or flat growth over a third of those quarters. So we've seen periods of negative Flat outsized growth, and that's why we're kind of always focusing our business on that annual rental stream.

Speaker 4

Okay. Great color. Thanks guys.

Speaker 1

Thanks Josh.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of James Feldman from Wells Fargo.

Speaker 7

Great. Thank you and good morning. Thanks for taking my question. I was hoping you could just provide more color on the insurance negotiations. I guess just big picture, can you talk through, did you think about maybe changing the policy at all?

Speaker 7

Any color you can provide on how your Florida exposure impacted pricing versus some of your other markets? I mean, clearly a hot topic. So just wondering as much color as you can provide on both for your portfolio and kind of commercial real estate in general Would be really helpful.

Speaker 1

Sure. So every year, we consider the appropriate balance between retaining and ensuring risk and taking into account costs and available coverage. That involves an analysis of the retention, the possibility to take on primary risk and utilizing a captive. We also have certain limitations and requirements in our lending agreements that factor into that analysis. And so that kind of all goes into how we consider where we're going to end up.

Speaker 1

This year, we spent a lot of Time with our carriers, we do as what we do every year. We go over to London to discuss our portfolio. And you saw the results we disclosed last night with respect to what the premiums are for this year.

Speaker 7

Okay. Can you maybe talk to Some of the pricing differentials either by state or by property type across the portfolio and then I know you also included insurance line item includes workers' comp, general liability, just how are all those trending?

Speaker 1

Sure. So, we look at when the carriers look at us, they look at us in total. So they don't we don't break it out by region or by state. At the time we focus and we're negotiating our renewal, we're focused on all lines of insurance. In some years, we face a hard market in some more than others.

Speaker 1

This year, we saw the biggest increase in our property coverage, but we don't really disclose the lines, the results for each line item.

Speaker 8

Okay.

Speaker 2

All right. That's very helpful.

Speaker 7

I know it's probably a tough question to answer, but like You look at the expense growth you're modeling for this year or you're expecting for this year. As you think about 2024, Yes, I mean like is there a way to do you think it could moderate like you think the growth rates could moderate just based on what you're seeing in the market Across the different line items of your expense outlook? Or do you think we're just in kind of elevated growth rate for a long time here?

Speaker 1

I guess I would just as it relates to insurance, I think I'd just like to say that we've certainly seen a softening of our insurance markets over our long history. I think it's important to kind of appreciate the recent claims, not just in our business, but what's happening globally is what's kind of driving those numbers. And maybe, Paul, you could touch on some of the other line items.

Speaker 2

Yes. I guess what I would say with respect to the other line items is when you think about Our greatest exposure, we talked quite a bit about utility expense. We are seeing some indication of Moderation in utility expenses. We note the natural gas pricing has come down somewhat. We did Recently hear of one utility provider that is considering a future reduction in their electric rate.

Speaker 2

That's the first that I've heard that in the past year. So there are some signals that Maybe moderation is coming. I'll say that we've been tracking to the electric component inside of CPI, which I I think October, November peaked around 19% and the most recent CPI print was down to about 10%, but not too far off of our total utility expense. That's probably the key line item I would look to when you think about exposure for 2024.

Speaker 7

Okay. That's very helpful. And then finally for me, I saw that you fixed the $200,000,000 of debt. I'm just curious your view on how to play the interest rate markets here. I mean, when we talk to Lenders and even borrowers, a lot of people are kind of banking on rates going lower.

Speaker 7

You clearly took the other side of that trade. Part of that's probably just conservatism, but as you think about debt maturities coming due and just how you're going to raise capital going forward, what are your views on How to react to where we are in the interest rate cycle and where rates might be heading?

Speaker 2

Yes. I mean, I think our view when we think about what we accomplished Locking that interest rate at 4.88 percent, it's 130 basis points inside of our floating rate pricing. The loan amount represents only 6% of our outstanding debt. And as we looked at the options, we saw it as an attractive way to Derisk, as I mentioned. I'm not a guy who's in the business of speculating on interest rates, and I certainly understand what the curve looks like.

Speaker 2

But at the same time, if rates do indeed follow the curve, which I think there's plenty that think that Lower interest rates are not likely to happen given everything that's happening in the economy. The breakeven point on our swap comes late 2024, early 2025, So roughly halfway through the light. So we viewed it as an attractive opportunity at this point in time.

Speaker 7

Okay, great. Thank you very much.

Speaker 1

Thank you, Jamie.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Samir Khanal from Evercore ISI.

Speaker 9

Good morning, everyone. I guess, Paul, on this non core income of about $6,100,000 I think the bulk of that came from Utility and other income, just and I think as part of that utility and other income, other income where BI is part of that, How much of that is sustainable going forward? Just want to make sure we get this right from a run rate perspective.

Speaker 1

I think the piece on the business interruption insurance is sustainable and then it's replacing cash flow that we had anticipated to have and we anticipate to have next year. So it's just replacing cash flow that we missed from last year. Does that That answers your question.

Speaker 9

Yes. So that's part of the $5,900,000 I guess. Okay. Okay. So that's the other income.

Speaker 9

And then in terms of Maybe on the marinas, I know it's a small portion of your business, but I guess how are you thinking about that Segment in a downturn. And maybe how is that tracking versus expectations at this point?

Speaker 6

Yes, it's Patrick. I mean demand has been good for the marinas. Launches are up 4% year over year, that shows a high level of customer engagement. Our occupancy has been stable. I think the top line of the business has been performing as we've learned has been pretty stable and that's the results of Almost all of our customers being long term annual customers.

Speaker 6

It's a very durable revenue stream. They're with us for a long period.

Speaker 9

Okay. And then finally on anything on the transaction side, I know you did that one transaction, one campground, What's the pricing on that? That's a small amount. And maybe just talk around kind of what you're seeing on the RV side, the MH, any of the marinas from a movement perspective?

Speaker 1

Sure. So in the quarter, we did close on the one RV park that you mentioned, in New Jersey. It was about $9,000,000 about a 5 cap. And the property is almost 100% occupied with long standing annual customers who spend the summer in the area. We have a lot of properties in and around that area.

Speaker 1

So it's a really nice property to be able to own, and get some synergies, from the properties that we own in that general area. I would say just in general, as in previous quarters, we've looked at all the deals, but The volume is based down. Owners of MH and RV have generally been conservative with their financing, so we don't see any distressed selling. I think it takes a little bit more time for the acquisition market to return to the activity level that we previously have seen.

Speaker 9

Okay. Thanks for that. Thank you.

Operator

Thanks, Sameer. Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of Anthony Powell from Barclays.

Speaker 10

Hi, good morning. It's a question on MH rent growth on turnover. I guess, how did that perform relative to your expectations for, I guess, new owners who are in your communities?

Speaker 6

Well, it's been trending favorably. I mean, previous quarters were only around 10% or 11%. Our most recent experience is around 14%. And I think that shows consistent demand for the property type. And it also shows that we have the opportunity to close that gap upon turnover.

Speaker 1

And I think, Anthony, the way that That 14% kind of comes to be is looking at what's happening in and around our markets, and Coming up with what the appropriate market rent is for a new customer coming in, and able to Kind of set the table with what they would pay for the home and then what they would pay for rent. And that's where we get that number.

Speaker 10

Thanks. And maybe related question. I think in the past couple of calls, you've talked about various inventory issues about in terms of getting new homes available to sell. When do you think those will be, I guess, fixed or I guess rectified to maybe accelerate some home sales here?

Speaker 6

It's, I mean, just for perspective, when you're ordering homes, you're really dealing with individual plants and the general managers at those plants. So the place where we've seen pressures has been predominantly out west, as I mentioned, by previous question, Getting some new homes into some MH expansions that we have and some flagship assets in Arizona has been one point. There's a few others. Those are really the higher volume properties for us. And then some of those pressures have subsided in a number of markets Like throughout the Southeast as an example.

Speaker 10

So I guess out west, is that something that could maybe subside in later this year or is that kind of an ongoing issue?

Speaker 6

Tough to say. I guess, hopefully, it subsides. I don't think it will materially change our numbers. I mean, I think what you saw in Quarter is purely a timing component. Those homes, for the most part have been delivered.

Speaker 6

It was just the timing of taking advantage In the quarter versus in future periods. So I don't think it's going to have a material impact from a long term perspective. It just happened They come through in the quarter.

Speaker 1

And Anthony, the vast majority of our vacant sites are in Florida. So as Patrick was saying, there's been some Increase in the availability of those homes. So we should be seeing that run through the system.

Speaker 4

Great. Thank you.

Speaker 1

Thanks, Anthony.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Michael Goldsmith from UBS.

Speaker 11

Good morning. Thanks a lot for taking my question. The, professionals on the guidance, the implied same store expense growth is now 7.9% to 8.9%, which means that Expected expense moved higher by $6,300,000 on my math. So what are the moving pieces there? I'd assume insurance is $2,600,000 as we talked about.

Speaker 11

R and M maybe another piece in the $2,000,000 range from the first Quarter, so what are the other pieces there that kind of bridge that gap?

Speaker 2

Yes. No. The biggest piece is the insurance. But Michael, as I mentioned in my Mark, the budget assumption in terms of the split between core and noncore, essentially that was overweight to the noncore. So now that we've actually completed the renewal and we've allocated the premiums between those two portfolios, It's closer to twothree of that change coming from the insurance.

Speaker 2

And then there's increase in utility expense That we built into our budget for the remainder of the year. Those are really the two main drivers of that total change.

Speaker 11

Got it. And then within your RV guidance, it seems like the implied seasonal transient Guidance was taken down from 2% to 4% to 0% to 2%. So you talked a little bit about what you're seeing in the transient RV, but Can you maybe talk about how much of a headwind the storms are? And is that a result of Closures or is that a reflection of maybe slowing demand because of the impact of the storms?

Speaker 6

I guess, let me start with, we do have 2 properties offline in California. We have a third that's partially offline and we anticipate those properties will be coming online in future quarters. All of those properties are membership properties. So there's stability in that revenue stream for our pockets of Transient and rental is in June that have an impact on those specific properties. But I'd also just say more broadly, and I think Paul touched on it in his comments, The storms, Coastal California, particularly Central and North, which also impacted Pacific Northwest, That does have a dulling effect on transient demand as we move our way through The upcoming quarter and as Paul touched on, a shift from the Sunbelt season to the summer camping season in our Northern Camptown.

Speaker 11

Got it. And just one final one for me. The same store NOI growth for the 2nd quarter seems pretty low at 19% to 2.5%. I think there's a little bit slower revenue growth and then also the expense growth is higher. So What's the what sort of seasonality factors are driving kind of this slower growth in the second quarter?

Speaker 2

I think it's essentially what Patrick just talked about in terms of the development, the transient revenue expectation as we're shifting from the winter to the summer season. And then as you know, we do have higher expense comp in the second quarter, Largely driven by that insurance increase.

Speaker 11

Got it. Thank you very much guys.

Speaker 1

Thanks, Michael.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from the

Operator

line of Eric Wolf from Citi.

Speaker 8

Hey, thank you. Just wanted to follow-up on Michael's question there on The transient season in the Q2, I think you also said that the booking window was a little bit shorter than historical. Is that just from the weather or do you think there's other things going on there that's causing that? And then just I guess as a follow-up to that, how do you know if that can sort of impact your 3rd Q4 results as well?

Speaker 2

I guess I would point to a couple of things, Eric. First, The weather, as I mentioned, impacts people's decisions. I'm not sure how things were in New York. It snowed yesterday in Chicago, so there aren't a lot of people who have yet been thinking about pulling out shorts when they're still grabbing their winter coat to go to work in the morning. So I think that that is a function of people's decisions when they're thinking about being vacation, particularly for Memorial Day weekend, Just the prime weekend during the Q2.

Speaker 2

And then I also think the disruption that happened in California That had some impact. I think just the weather in general in the western part of the country has given people a little

Speaker 12

bit of pause In terms

Speaker 2

of making plans for vacations because of the uncertainty.

Speaker 1

And Eric, we're seeing this shorter booking window kind of Across the industry as we talk to others in the industry and talk to some of our the larger players in the industry To just show that that's similar kind of impact to the shorter booking window. And then as it relates So we have a sense certainly for the Q2, but as you head into the 3rd Q4, you just have less visibility.

Speaker 8

Right. And I guess in the industry, what are people's views about what's causing the shorter window, just change nature of how people are traveling and working?

Speaker 1

Yes. Similar to what Paul just said, and I think that there's options. People are looking at other options and it's just a booking window, which is closer to what we saw kind of pre pandemic. So it's not different than our long history. It's just different than what it's been in the last couple of years.

Speaker 8

Got it. And then just last question on expenses. Is there anything in the second quarter beyond obviously the insurance renewal, which is just took care of I could sort

Speaker 2

of really move the needle.

Speaker 8

Any utility rate increases that you're waiting on, big property tax assessment. I'm just trying to understand, And as we sit here 3 months from now, if there's anything that you're just going to point to that would have really changed your expectations for full year guidance on expenses?

Speaker 2

Change the expectation for full year or for the Q2, sorry.

Speaker 8

So obviously, whatever happens in the Q2 will inform what happens for the rest of the year. So I guess what I'm saying is, are there any The large property tax assessments that you're waiting on utility rate increases maybe from Florida, what's going to happen over the next 3 months that could really drive upside or downside To your full year forecast for expenses.

Speaker 2

I think there's not anything that we're anticipating that's significant in terms of real estate taxes in the coming 3 months. The next large information that we'll have will be in July and then And with respect to utility expenses, as I said, we recently have heard of A utility provider that's talking about a future decrease in its electric rate, but Most of the rates were implemented at the beginning of the year, and so we're not anticipating meaningful change quite yet.

Speaker 8

Okay. Thank you.

Speaker 1

Thank you.

Operator

One moment for our next question. Our next question comes from the line of John Pawlowski from Green Street.

Speaker 13

Thanks for the time. I just have a few questions on operating costs and CapEx. And so just the last few years when you've seen outsized both OpEx increases CapEx increases across the portfolio. I would just be curious when you're underwriting new acquisitions on MH Relative to RVs, and those two business lines, do you underwrite a structurally different cost profile now moving forward in 1 or the other?

Speaker 1

No. On the MH and the RV, I think it's consistent with what we've always had and consistent with are long history with those capital events.

Speaker 13

And how about further just in terms of the Call it 3 to 5 year trajectory of operating costs that you have to punch into pro form a for 1 versus the other?

Speaker 1

Yes. We have certainly, we looked at and we just got our insurance number. So we'll dial that in and we have Increased our overall OpEx into our pro form a just as what we're seeing that's happening in our business.

Speaker 13

Okay. And then just so I understand the moving pieces in CapEx because it has been for you and your peers been elevated last few years. So the 135,000,000 You spent in property upgrades and development last year. Can you give us a sense of what proportion is related to property upgrades? And is that a reasonable run rate moving forward?

Speaker 2

That amount, I'll just speak to last year. The upgrades were about $50,000,000 A little bit hard to talk about a run rate. Those upgrades represent enhancements to amenities at the properties and other investments that we typically tend to Tied to incremental revenues. So they can relate to upgrading the electric service to RV sites So that we could draw customers that are paying a higher rate for that higher service. It could be Enhancements with Clubhouse in the context of discussions with the resident base and And identification of opportunity in a market to adjust rents as a result of enhancing the clubhouse.

Speaker 2

So There are different amounts that we spend. We kind of analyze the opportunity to allocate capital each year and decide What amount we're going to spend on upgrade, little bit hard to kind of signal a run rate, but last year it was about 50,000,000

Speaker 13

Okay. Thanks. Last one for me. For the Marina business, on average, could you give us a sense how Total CapEx as a percent of NOI for the Marina portfolio has trended over the last few years and if you expect a meaningful increase or decrease moving forward?

Speaker 6

Yes, John, Patrick, maybe I'll just touch on the typical merino footprints for us. We have 7,000 slips in 23 locations, 70% of that is dry slips. So Typical property for us is building that houses boat wraps, has a concrete floor. We have a boat launch area with a concrete road base And a seawall, it's pretty straightforward. And it's been running in line with our expectations At about 15% of NOI.

Speaker 13

Okay. And that's total CapEx?

Speaker 4

Okay. Thank you.

Speaker 1

Thanks, John.

Operator

Thank you. One moment for our next question. Our next question comes from the line of John Kim from BMO Capital Markets.

Speaker 6

Thank you. On the insurance renewals, it seems like right now

Speaker 14

in this environment, You're going to be a price taker with Lloyd's just given they're the only major provider. But I was

Speaker 6

wondering if there's anything that

Speaker 14

you could do on year end to moderate that increase going forward, whether it's a different mix of assets or geographies? Or are there any like local competitors you could use that would Help, moderate that cost?

Speaker 1

I think the moderation of the cost will come in with the claims that And this year, I think that's what I would look to that. So I think that's certainly an important component. I think we do a very good job of Seeking out competitive bids and this was a very difficult season and hope to be able to improve it in 2024.

Speaker 14

So right now looking at local providers that would not end up being Cost effective for you?

Speaker 2

I think there's some structural challenges with something like that, John, just in terms of overall claims management and resolution of the claims and so forth, The blanket policy that we have with the larger provider of Lloyd's has meaningful efficiencies that have significant value. Okay. And then I just wanted to

Speaker 14

clarify your commentary on guidance being maintained. It seems like the business interruption proceeds were already in your original guidance and I thought that was really just to offset the lost income from the Hurricane impacted assets. Yes, it seems to be one of the major reasons why you maintain guidance despite the higher insurance premiums. So can you just clarify what was exactly in guidance previously and if the $4,000,000 or $4,500,000 that you're expecting surprises the upside?

Speaker 2

You're talking about maintenance of guidance for the full year, right?

Speaker 8

Correct.

Speaker 2

So we had an incremental $2,500,000 in insurance proceeds beyond what we expected. And then as I mentioned, we've seen local demand on the ground From displaced residents and workers that is driving the increase in the non core in addition to the assets that we acquired. So those pieces essentially are offsetting each other to wishing us to maintain guidance.

Speaker 14

Okay. So the PI didn't really Wasn't a surprise relative to your expectations.

Speaker 2

Yes. It's not so much about the BI, it's not what we're seeing on the ground In Florida.

Speaker 14

Got it. Thank you.

Speaker 1

Thanks, John.

Operator

Thank you. Question.

Speaker 5

Our next question comes from the

Operator

line of Kegan Carroll from Wolfe Research.

Speaker 12

Yes. Thanks for the time, guys. So first, your total nice cans drove about 1% year over year in Q1. Just curious how it's trending so far in April?

Speaker 2

We're essentially down Somewhere around 5% so far in April.

Speaker 12

And that's what you're using for your guidance. You're assuming for all of Q2, you're down 5% year over year?

Speaker 2

Our overall our guidance assumption, if you kind of walk through the footnotes for seasonal and transient in the second quarter, On a combined basis, those are down a little over 5%.

Speaker 12

Okay. And then just on home sales, I know it's pretty topical. I'm just kind of curious, How have they trended so far year to date versus your own internal expectations? What's the reasonable baseline for the rest of the year? Do you think We need the housing market to sort of normalize to kind of get more demand or is it more on the supply side of things that's limiting your potential home sales?

Speaker 12

Yes.

Speaker 1

I mean, I think we've long talked about not focusing on home sales profit as a large Piece of our overall business. And I think as we look to the rest of the year, there might be some moderation in Home sales, I don't think I think there will be moderation in expenses as well. So the offset will be there. So as we look to Opportunities where in some instances we filled as Patrick walked through, we filled development. So we're not able to have home sales in developments that we filled And others where maybe there we're seeing those 1 or 2 home sales not happening at a particular property.

Speaker 1

I think we will be able to kind of make it up from a standpoint of expenses.

Speaker 12

Okay. But it's a mixture of both supply and demand issues that would probably mitigate it.

Speaker 1

It's really department. It kind of it varies by area, as to which is the impact.

Speaker 12

Okay, great. That's it for me. Thanks, guys.

Speaker 1

Thank you very much.

Operator

Thank you. Since we have no more questions on the line at this time, I would like to Turn it back over to Marguerite Nader for closing comments.

Speaker 1

We appreciate you taking the time with us this morning, and we look forward to updating you on our 2nd quarter call.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Tesla Q1 2023
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