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Edited Transcript of ELS earnings conference call or presentation 18-Apr-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Equity LifeStyle Properties Inc Earnings Call

NEW YORK Apr 20, 2017 (Thomson StreetEvents) -- Edited Transcript of Equity LifeStyle Properties Inc earnings conference call or presentation Tuesday, April 18, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Marguerite M. Nader

Equity LifeStyle Properties, Inc. - CEO, President and Director

* Patrick Waite

Equity LifeStyle Properties, Inc. - COO and EVP

* Paul Seavey

Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer

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Conference Call Participants

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* Andrew T. Babin

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Gaurav Mehta

Cantor Fitzgerald & Co., Research Division - VP and Analyst

* Joshua Dennerlein

BofA Merrill Lynch, Research Division - Research Analyst

* Nicholas Gregory Joseph

Citigroup Inc, Research Division - VP and Senior Analyst

* Paul Edward Adornato

BMO Capital Markets Equity Research - MD and Senior Analyst

* Todd Stender

Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst

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Presentation

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Operator [1]

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Good day, everyone, and thank you all for joining us to discuss the Equity LifeStyle Properties First Quarter 2017 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 meanings of 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.

In addition, during today's call, we will discuss non-GAAP financial measures as defined by the 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 like to turn the call over to Marguerite Nader, our President and CEO.

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [2]

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Thank you. Good morning, and thank you for joining us today. I am pleased to report the results for the first quarter of 2017 with an FFO per share growth rate of 9% as compared to last year. We see strong demand for our product and property. In the quarter, we increased occupancy by 141 sites with a gain of 128 homeowners. We sold 97 new homes at our MH communities with an average purchase price of $60,000. The Florida home sale market was strong and accounted for over 45% of sales. The home sales were primarily all-cash transactions.

In Florida, 60% of the buyers came from within 50 miles of our location and 40% drew from the Northeast or Midwest. The conversion of renter to owners in the quarter was strong with 15% of the new and used sales coming from residents who already live in our communities. Our same-store NOI growth was 3.8%. We saw continued strength in the MH business with a 4.8% increase in revenue. With respect to the RV portfolio, our teams are focused on delivering a great customer experience. Each year in the spring, guests at our Florida, Arizona and South Texas properties are given an opportunity to book for next winter before the general public. The strength of the bookings from existing customers willing to commit in advance provides the foundation for the next season. This year, we saw an increase in the pace of commitments in each market. Customers are enjoying their experience with us and want to ensure they will be able to have a repeat experience next year. The operating teams are now focused on opening their summer RV resorts. Our marketing campaigns, which focus on the 100 days of summer, are underway. Our customers are interested in exploring the outdoors and unique accommodations, including yurts, cabins and tiny homes. Our customers are increasingly using technology to enhance their interactions with us. We have redesigned our website and have seen an increase in traffic and revenue. In the quarter, 37% of visitors to our RV websites were using a mobile phone to connect to our site. We incorporate customer behavior patterns into the design of our marketing campaign. We are off to a strong start for 2017 and look forward to continuing the momentum.

I will now turn it over to Paul to walk through the numbers in detail.

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [3]

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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 2017. I will also provide an overview of our balance sheet. For the first quarter, we reported $1 of normalized FFO per share, $0.02 ahead of guidance. Revenue outperformance was the primary contributor to better-than-expected core income from property operations. Other income and expenses included better-than-expected income from our ancillary activity and we recognized income from a joint venture distribution during the quarter. Core MH rent growth of 4.8% includes 3.9% rate growth and approximately 90 basis points related to occupancy gains. Rent growth was higher than guidance as a result of better-than-expected rate as well as occupancy gains during the quarter. Overall, resort-based rental income was ahead of guidance for the quarter. Revenue from annuals increased 4.6% primarily as a result of increased rate.

Note the comparison to prior year is impacted by the additional day included in 2016 as a result of leap year. The 1-day impact on revenues is approximately 60 basis points on our annual revenues in the quarter. Demand for seasonal stays in Arizona and Florida properties were the drivers of the 1.4% revenue growth. Our transient revenues grew 50 basis points for the quarter. Heavy rainfall in California was a factor impacting our transient revenue. First quarter membership dues revenue was higher than guidance. During the quarter, we sold approximately 2,500 Thousand Trails camping passes, an increase of 14.8% over the first quarter of 2016.

We upgraded 625 members during the quarter, an increase of 19% over last year. Revenues were approximately $500,000 higher than guidance, and the resulting net contribution from these sales was approximately $200,000 higher than guidance.

Utility and other income were higher than guidance in the quarter as a result of insurance recovery and utility income. We recognized approximately $800,000 in insurance recovery related to weather events in the current and prior periods. Utility income, which consists of recovery of utility expenses at our properties, was approximately $300,000 higher than guidance and partially offset by higher-than-expected utility expense we realized.

Core property operating maintenance and real estate tax expense growth was approximately 1.1% higher than expected in the quarter. Utility expenses are the cause of the variance to guidance. Increased utility usage, including gaps in electric in California where the weather pattern was generally cold and wet, was the main contributor to the higher-than-expected utility expense.

In summary, first quarter core property operating revenues were up 4.3%, and core property operating expenses were up 5.2%, resulting in an increase in core NOI before property management of 3.8%.

Performance in the acquisition portfolio, which includes Tropical Palms RV, was in line with our expectations. Property management and corporate G&A were $19.8 million, in line with guidance. Other income and expenses generated a net contribution of $4.6 million. The favorable variance from our guidance was the result of higher-than-expected income from ancillary business at our winter season resorts and a distribution from one of our joint ventures.

Moving on to guidance, the press release and supplemental package provide 2017 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 midpoints in our guidance range.

We've increased our full year 2017 normalized FFO per share guidance $0.03. Our range for the year is now $3.51 to $3.61. The midpoint represents 7.4% growth over 2016 normalized FFO per share. We expect second quarter normalized FFO at the midpoint of our range of approximately $74.5 million with a range of $0.77 to $0.83 per share.

We expect the second quarter to contribute approximately 22% to our normal full year normalized FFO. We assume no MH occupancy increase subsequent to the end of the first quarter. Projected second quarter core community-based rent revenue of $120.5 million reflects a growth rate of 4.6%. Our core rental home income is expected to be flat compared to last year and reflects our current rental program occupancy. We anticipate $46.7 million of core resort-based rental income in the second quarter. This represents 23% of our full year core RV revenue and we are projecting growth of 5.7% over last year.

We expect solid performance as we transition from our winter season to our summer season, and we have projected growth rates of 5.4% for annuals, 3% for seasonal and 7.5% for transient. Our second quarter reservation pace shows we are currently 88% reserved for our expected seasonal revenues and 57% reserved for our expected transient revenues, ahead of this time last year.

Membership dues revenue is expected to be $11.3 million. On a combined basis, membership dues revenue and membership upgrade sales net are expected to generate approximately $11.7 million of income, an increase of approximately $400,000 from the second quarter of 2016.

Our guidance update for second quarter core property operating maintenance and real estate taxes reflects a 5.7% growth rate on a weighted average basis for utilities, real estate taxes and insurance expense.

Relevant drivers of our higher-than-expected first quarter utility expense growth were built into our assumptions for second quarter utility expenses. We have recently completed our property and casualty insurance renewal and have updated guidance to reflect the increase we experienced. As I mentioned on our January call, our property operating expense growth assumptions include the impact of minimum wage changes in states such as Arizona and Washington.

Our other expense categories, including payroll and R&M are assumed to increase at CPI. Keep in mind, we do not include expenses related to onetime insured losses such as storm events in our guidance assumptions.

For the second quarter, core property operating revenues are expected to be up 4.2% and core property operating expenses up 4%, resulting in an increase in core NOI of 4.4%. We expect the acquisition properties to contribute $1.5 million of NOI in the second quarter.

Interest and amortization expense reflects the impact of the loan payoff we mentioned in our earnings release. I'll now comment on guidance for the remainder of 2017.

For quarters 2 through 4, we assume no change in our MH occupancy subsequent to the end of the first quarter and expect core community-based rent revenues of $363.5 million, which is a growth rate of 4.4% for the remainder of the year.

We anticipate core RV revenue growth of 5.2% to generate $148.9 million for the rest of the year. We expect annuals to continue showing strong performance with 5.4% growth projected. As we look ahead to the full summer season, we project combined second and third quarter transient revenue of $30.7 million, a growth rate of 6.5% over 2016.

We expect approximately 43% 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 2 through 4 are expected to be $34.6 million, an increase of $700,000 compared to 2016.

Core property operating expense growth is projected to be 2.2% for the full year. As I mentioned when discussing second quarter guidance, we have increased our expected utility and insurance expense growth rates from our prior guidance. As a reminder, our guidance model includes no assumptions related to onetime events such as storms that may have an impact on expenses. We experienced some rather significant weather-related events in the latter part of 2016. To the extent we have similar experiences during the remainder of 2017, our expense growth rate may increase.

To illustrate the impact of prior year storm events, our estimated growth over 2016 expenses, excluding those storm events, is approximately 3%. For the rest of the year, property operating revenues are anticipated to be up 3.4% with expenses growing at 1.3%, resulting in an increase in core property NOI of 4.9%.

We expect the acquisition properties will contribute about $4.8 million in income from property operations for the remainder of the year for a total of $8.4 million for the full year. Property management and corporate G&A is expected to be $60.8 million for the remainder of the year.

Our full year guidance is $80.7 million. Other income and expense items are expected to be approximately $8.9 million for the rest of the year and approximately $13.5 million for the full year.

Interest and amortization expense for the full year 2017 is expected to be approximately $99 million and includes the impact of the loan payoff I previously mentioned. We expect our average debt balance will be approximately $2 billion. Our annual preferred distribution is $9.3 million.

We make no assumptions regarding future capital events in our guidance model. Our 2017 normalized FFO per share estimate at the midpoint is $3.56 and our share count is expected to average 93.1 million shares in 2017.

We've made no assumptions related to the use of future free cash flow in our earnings model. Before opening the call up for questions, I'll 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 3.75% to 4.5% for 10-year money. Overall, pricing has come in about 10 to 20 basis points during the quarter.

High-quality, age-qualified MH will continue to 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.

Life companies are still quoting deals with 15- to 25-year maturities. Our current unrestricted cash balance is approximately $25 million after funding our first quarter dividend earlier this month. We have approximately $13 million of secured debt maturing before the end of the year.

In the quarter, we used available cash to repay a $21 million maturing mortgage with a weighted average rate of 5.8%. Our $400 million unsecured line of credit has no outstanding balance. The facility matures in the third quarter 2018 and we plan to begin renewal discussions with our bank group. We continue to place high importance on balance sheet flexibility and we believe we have multiple sources of capital available to us. Our debt-to-EBITDA is 5x and our interest coverage is around 4.2x.

The weighted average maturity of our outstanding secured debt is 11 years. Now we would like to open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Joshua Dennerlein from Bank of America.

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Joshua Dennerlein, BofA Merrill Lynch, Research Division - Research Analyst [2]

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I was looking at your leverage metrics and it seems like it's kind of been on a steady downward decline over the past couple of years. Would you guys -- is there like a minimum that you would -- like a floor you would target before you might want to think about putting more leverage on the balance sheet? And also, have you ever thought about -- got to a certain point you might want to do a recap like we saw in '03, '04?

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [3]

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Yes, I mean, we've talked quite a bit about the leverage metric and whether that's something we use. We historically focus on the financial flexibility that we have and so we're not necessarily targeting to a metric. I think that you saw us in the quarter use available cash to pay off a loan. That loan had a rate of 5.8% and what's available to us today is well inside of that. At the time, that's the best use of that cash that we had. But I'd say on a go-forward basis, as we're looking at investment opportunities, wouldn't necessarily signal that we're in a leverage neutral or a deleveraging situation. We'll kind of assess the opportunity at that time and determine how much leverage we might put on a future investment. As it relates to the recap idea, we've taken a look at that in the past and I think that there are some structural changes that have made that execution a bit difficult in the current environment. So I don't see something quite like that necessarily.

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Operator [4]

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And our next question comes from Nick Joseph from Citigroup.

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Nicholas Gregory Joseph, Citigroup Inc, Research Division - VP and Senior Analyst [5]

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Maybe just staying with the balance sheet. What are the plans for the Series C Preferreds callable in September? And then more broadly, how do you think about preferreds as part of the overall capital stack?

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [6]

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Yes, I think, Nick, we're in the process of discussing the Series C with our board over the next couple board meetings, so we'll have an update certainly then. And I think historically we've had preferred -- I think the preferreds been in place for...

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [7]

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Since 2000.

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [8]

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Since 2000. It's an interesting thing for us right now as we look at preferreds, which are obviously perpetual versus what we see with [ life ] company debt and being able to get 25-, 30-year debt is very interesting to us as well.

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Nicholas Gregory Joseph, Citigroup Inc, Research Division - VP and Senior Analyst [9]

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And then just in terms of maybe the transaction market, any comments there as well as your acquisition pipeline today?

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [10]

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Sure. Well, as you saw from the press release, we didn't close any acquisitions in the quarter but we do have deals in various states from LOI to the contract stage. Last year, we didn't know that we were are going to end up closing $120 million of assets. So I think it's -- we're in the kind of the same state of just determining when the timing for closing would happen. And that's kind of I think the pipeline is similar to what it was last year.

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Nicholas Gregory Joseph, Citigroup Inc, Research Division - VP and Senior Analyst [11]

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Then how do you think about portfolio deals, and a mix of properties that you'd want own longer-term and some that you wouldn't? And would you be comfortable executing on a larger deal and then selling off some of the properties that don't fit longer term?

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [12]

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Yes, absolutely. And in fact, you saw us do that with Hometown, where we took down the Hometown portfolio, a $1.5 billion deal. And we looked at it, and as we looked at it, we saw some assets that we weren't interested -- we didn't know if we would be interested in them in a long-term basis. We held them for a little bit of time and then sold them and had a good execution on the sale. So we're certainly -- that's certainly kind of in our toolkit for executing on portfolio transactions.

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Operator [13]

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And our next question comes from Paul Adornato from BMO Capital Markets.

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Paul Edward Adornato, BMO Capital Markets Equity Research - MD and Senior Analyst [14]

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Part of the quarterly outperformance was attributed to better rates. I was wondering if you could drill down on that a little bit? What part of the portfolio had better rates compared to when you issued guidance? And I guess, part of that is are we at a point where occupancy is allowing more aggressive rate increases?

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [15]

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Yes, I'll just say that with respect to our guidance assumptions -- our earlier guidance assumptions, we saw some of this in 2016 as well. We have a process in Florida for noticing our residents and then we enter into negotiations with those residents. We make assumptions about where we may land during those negotiations in terms of what the rate increase will be. And what we have seen is a bit more acceptance on the part of those customers for the rate that was noticed rather than a rate maybe somewhat inside of that. And it is a function of the turnover rates that we're able to achieve in those properties during the course of the year. So we use that as part of our support in developing those notices. And because the -- those conversations are continuing at the point in time we put our January guidance out, we don't have quite the certainty that we do with respect to some of our other noticed locations.

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Paul Edward Adornato, BMO Capital Markets Equity Research - MD and Senior Analyst [16]

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Great. And also, you mentioned that a portion or a pretty significant portion of the sales come from either locals or folks within your communities. Are they -- would you consider these people like trading up, if you will? What is the motivation for their purchases?

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [17]

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Yes, I think you're referring to the conversion metric that Marguerite mentioned in her opening comments. And just to break that down, 10% of that 15% is what we would refer to as a call it a true renter conversion. And those are existing renters in our portfolio producing an ELS new or used home that they were renting or it may be another home that they weren't renting, but it is a home that we're selling. The remaining 5%, to get you to 15%, is that existing residents in the community that's buying a new or used home from us. And they're either upgrading to a larger home or making a decision to downsize or choose a different lot in the community. So that's really the process that generates that 15% overall conversion to our existing customers.

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Paul Edward Adornato, BMO Capital Markets Equity Research - MD and Senior Analyst [18]

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Great. And I guess 1 final point, what percentage of home sales would realize a gain on sale? Is that -- are folks selling for a gain? Is that typical or not?

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [19]

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They really -- it really varies by location as you can imagine just like you see in residential real estate. So there may be areas not only just in the location of the community but then the location that the home is in the community. Is it close to the amenity package? Does it have a certain view? So it really ranges. I don't think there is an average or a percentage that we could quote.

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Operator [20]

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And our next question comes from Drew Babin from Robert W. Baird.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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I was hoping you could talk about the initial second quarter transient expectation when you first laid out guidance for this year, kind of what was implied in the full year versus the 7.5% current, whether that number has changed as the year is going on?

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [22]

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I'd say that consistent with past practice, the visibility that we have as we get closer to the second and third quarters becomes a factor in our guidance. So as we entered the first quarter, our guidance was essentially flat. We outperformed that slightly in the first quarter. And then we have updated our guidance for the full year based on what we're seeing. As I mentioned we are ahead of our reservation pace for both the seasonal and transient at this point in time, this year relative to last year.

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [23]

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And one of the things, Drew, that we're seeing is -- we focus our marketing efforts, I mentioned it on the opening remarks about unique accommodation, tiny homes, yurts, et cetera. And that is helping to drive transient traffic to our locations, and those are people that didn't really know about us before and we're able to drive that traffic.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [24]

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On the tiny home concept, as you mentioned it, has there been an expansion of that within your portfolio? I know there had been kind of just isolated trials before that were very well received. Is that proving to be kind of a broader trend?

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [25]

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Well, it's a broader trend in that we're doing it -- we're having tiny home villages that -- have -- a few more locations. I think we've talked in the past about the location that we have in Portland and we had a -- for the full year we saw 35% increase in revenue at the property in total. Certainly, the 5 tiny homes that we had were filled, that, that's best kind of an easy thing to do, but it really generated a lot of halo effect kind of revenue across the property. So we saw demand for the village itself and then demand for the property. And we are also pleased that we partnered with Ford to bring the tiny homes to the New York auto show this week, and there's been a great deal of interest at the show and people visiting the show and asked about that tiny homes. And really the hook there is to just discuss our properties and the unique accommodations that we have.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [26]

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Great. That's helpful. And then 1 question for Paul. On the last call, we talked about 2018 debt maturities and obviously there's no refinancing over those included in this year's guidance. But are there any updated thoughts about potentially addressing those a little bit earlier as you discuss it internally?

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [27]

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Nothing concrete. I'll say that we regularly take a look at the defeasance costs. There's not been a significant change in rates. So the change in defeasance cost over time is really the passage of time and how that impacts the calculation. But nothing to signal at this point in time.

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Operator [28]

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And our next question comes from Gaurav Mehta from Cantor Fitzgerald.

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Gaurav Mehta, Cantor Fitzgerald & Co., Research Division - VP and Analyst [29]

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I was wondering if you would comment on how you're thinking about expansion opportunity within your portfolio in 2017?

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [30]

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Sure. We have a couple of expansions that are underway, 50 sites at the time. As we've talked about in the past, that's kind of the way we like to roll out the expansions. So we have Mesa, Arizona adjacent to our ViewPoint property. We have 1 in Houston right outside of Houston at Lake Conroe. And there's a couple that we're looking -- working on in Florida. We're seeing good demand for -- and good demand and kind of excitement at the property level for the new sites. A lot of the business that we're seeing from the new site is from some existing customers really looking to upgrade their site, upgrade their home. That's where we're seeing some of the demand coming from.

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Gaurav Mehta, Cantor Fitzgerald & Co., Research Division - VP and Analyst [31]

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Okay. And as a follow-up on the rental home guidance, it seemed like you're -- you changed it from a decline in the prior guidance to somewhat flat in this guidance, I was wondering how you're thinking about your rental home business into '17?

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Paul Seavey, Equity LifeStyle Properties, Inc. - CFO, Principal Accounting Officer, EVP and Treasurer [32]

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Yes, that change is primarily driven off of the occupancy. Just before Patrick jumps in maybe with some color, just wanted to let you know that our -- just restate, I guess, that our guidance assumption is flat occupancy and so we had anticipated a decline in our first quarter guidance and so we're -- during the first quarter and we didn't see that. So...

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Patrick Waite, Equity LifeStyle Properties, Inc. - COO and EVP [33]

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Sure. And so for some additional color on the rental program. We decreased rentals overall by almost 200, so 199 year-over-year in the quarter. That's a mix of increasing new by 220 and decreasing used by 419. I think you also mentioned that we added renters in the quarter. We're up by 13. And you compare that to the same period last year, I think we were down by 5 or 6, and overall occupancy growth in the 140 range. So it's a pretty similar year-over-year increase in occupancy but we did see the trend of a slight add and we're still making progress in reducing our used rental inventory and that obviously blends to an overweight in the homeowner growth as opposed to renters.

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Operator [34]

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(Operator Instructions) And our next question comes from Todd Stender from Wells Fargo.

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Todd Stender, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [35]

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Thank you for the additional color on the rental conversions, the 10% number. What's the average length of stay for those residents before they buy? Just kind of looking at where that window is for someone to convert them before they stay maybe more of a longer-term renter?

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Patrick Waite, Equity LifeStyle Properties, Inc. - COO and EVP [36]

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They tend to be a little bit to the longer side of the conversions. They are typically in the 18- to 24-month range.

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Todd Stender, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [37]

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Okay. Is that -- any change in that over historical experience or your average?

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Patrick Waite, Equity LifeStyle Properties, Inc. - COO and EVP [38]

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It's been relatively typical as home sales starting -- started picking up and renter conversions started picking up coming out of the recession. That's been a relatively consistent number. The renter, renter conversion has been in the, call it, 8% to 12% range. Currently, it's about 10%. And then you add in roughly 500 basis points for existing owners or renters in the community that are trading to a different home.

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Todd Stender, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [39]

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Okay, that's helpful. And then when you look at ground rent, the ground rent is now over $600 per site. It seems to be pretty formidable milestone for the company. I don't know if you look at it that way. But pretty good, real good. How does that -- how does the cost-to-own compare to the cost-to-rent? I know you're deemphasizing the rent, but what point do you maybe start to see renters pick up again as site rents climb over $600?

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Patrick Waite, Equity LifeStyle Properties, Inc. - COO and EVP [40]

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I appreciate that it's a round number, but I -- we haven't really seen a change in the behavior with respect to home buyers and home renters. We're seeing very consistent demand for both new and used homes that's resulted in the decrease of our used rental inventory and that year-over-year pickup in new home sales. From a portfolio perspective, our average rent for home and the site is about $900. So that's roughly, as you pointed out, $600 to the site and $300 to the home. I think that's a relatively reasonable allocation between the 2. And Paul referenced earlier our ability to raise rents in Florida. We're increasing occupancy and we're selling were homes. So I don't really read through any sort of resistance to our existing lot rents.

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [41]

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And I think we're also -- Patrick's whole group is very focused on market surveys. So we're always out and looking at what's happening in the market. So those rates, that $600 rate, that is our kind of high point. But as we look at it and what's happening in the market across our properties, we feel it's justified.

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Todd Stender, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [42]

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Okay, and just finally, when you look at the home sales, at the decline versus Q1 last year. How -- we've seen some movement in interest rates whether it's the 10-year probably impacting rates and also the Fed's moves, where do you guys or what do you point to for maybe the drop in home sales and how much do interest rates play into that?

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [43]

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The drop in the home sale actually, as you've seen in the supplemental, is there's a mix of MH homes and RV communities -- MH and RV communities, so we really saw a decrease in our RV community selling at one particular property. So I would consider that more of an execution issue on a singular asset rather than something that was market-driven. We're seeing the same strong demand like I mentioned in Florida, we had a significant increase in sales in Florida. And so I think that what we're seeing is high demand. We had some execution issues that I would say impacted us in the quarter.

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Operator [44]

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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.

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Marguerite M. Nader, Equity LifeStyle Properties, Inc. - CEO, President and Director [45]

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Thank you all very much. We look forward to updating you next quarter.

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Operator [46]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.