Good day, everyone, thank you all for joining us to discuss Equity LifeStyle Properties' Q3 2020 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 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. 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 like to turn the call over to Marguerite Nader, our President and CEO.
Good morning, thank you for joining us for our Q3 earnings call. Our Q3 results, released yesterday, show strong trends. Our MH communities are showing their resiliency through difficult times. We continue to increase occupancy and see high levels of engagement and pride of ownership from our residents. The daily routines at our properties have always been filled with activities, and during these times, our residents have found new opportunities to create safe outdoor activities to continue to enrich their experiences at our properties. Within our MH communities, we saw a high volume of home sales, an increase in MH applications, and a shift to virtual engagement to view homes and communities. Year-over-year, we increased new home sales by 42%. The sales were concentrated in Florida, Arizona, and Minnesota.
Our applications for residency were up 25% for the quarter, fueled by an improved online application experience. We have seen an increase in conversions from virtual tours, and we continue to upgrade the content of our website to allow prospective customers the chance to view our homes and communities. We saw increased demand for our RV parks during both the traditional weekend holidays as well as during the week. Our properties have benefited from our customers' flexible schedules. Our online transaction activity continues to escalate. In the quarter, our RV revenue through digital channels increased 121%, and our sales of online Camping Passes increased by 56%. Our transient bookings continue to shift to digital, with nearly 60% of all transient bookings completed online compared to 43% last year. Sales of RVs have increased significantly over this summer.
Our partnerships with RV dealers throughout the country continue to bear fruit as we engage with customers as they begin their travel adventure. In the quarter, we activated 6,400 trial memberships through the Thousand Trails Preferred RV Dealer program, an increase of 15% from last year. We are attracting new, younger customers to our RV resorts with our digital marketing. Analytics show strong demand among customers under 34 years old, with 18-24-year-olds showing increases of over 300% and 25-35-year-olds showing increases of over 140% in online revenue compared to last year. These trends represent an opportunity to grow in future years by providing an excellent customer experience and retaining these newer customers. Providing a best-in-class customer experience contributes to our strong customer loyalty.
Tripadvisor recognized our high customer ratings, with 76 of our RV resorts receiving the Tripadvisor Travelers' Choice Award and 15 parks receiving the Hall of Fame for five straight years of top customer reviews. Turning to 2021, each year, we finish our budget process in October and provide detailed projections for the following year. This year, because certain line items require additional time to determine the full year impact, we have decided to issue our detailed guidance on our January call. Within our MH portfolio, by the end of October, we will have noticed 48% of our residents for rent increases and anticipate a four percent rate growth in core MH revenue. We have had success filling our communities while continuing to increase rents in line with market conditions for in-place residents.
Based on rates we have set for over 90% of our RV annual customers for the 2021 season, our core RV annual rental rate is anticipated to grow four percent in 2021. These two line items have historically represented over 70% of our overall revenue. Our seasonal and transient revenue requires more visibility as we monitor the impact of travel restrictions. I would like to now comment about our 2021 annual dividend. Each year, to arrive at a recommendation, we review our projected growth in FFO and our outstanding obligations with the goal of ensuring our underlying financial flexibility. In addition, we stress test our future obligations to ensure we can continue to meet both our financial obligations and customers' expectations.
This year, management plans to make a recommendation to the board of directors upon completion of the 2021 budget process and intends to use the same methodology to shape that recommendation. The stress test reveals the strength of our balance sheet, which has been fortified over the years with longer-term maturities. Currently, our average term to maturity is 13 years, which is more than double the REIT sector average. We are focused on long-term value creation. Our team in the field and in the home and regional offices have done a great job servicing our residents, members, and guests. I thank all of them for their efforts and look forward to turning our attention to our winter season activities. I will now turn it to Paul to walk through the numbers in detail.
Thank you, Marguerite. Good morning, everyone. I will review our third quarter results, including a brief discussion of the operations update included with our earnings release. I will close with some comments on our balance sheet and the successful refinancing of our scheduled 2021 secured debt maturity. For the Q3 , we reported $0.55 normalized FFO per share. As part of our refinancing activity, we incurred approximately $9.7 million in early debt retirement costs. Consistent with our normalized FFO definition and past practice, we've added these costs back in our calculation of NFFO. Our core MH rent growth of 4.3% consists of approximately 3.8% rate growth and 50 basis points related to occupancy gain. We've increased occupancy 196 sites since December, with an increase in owners of 270 while renters decreased by 74.
Core RV resort-based rental income increased 5.2% for the third quarter and 90 basis points year to date compared to the same periods last year. Rents from annuals have shown consistent growth since the onset of the pandemic, with growth of 5.2% and 5.8% for the quarter and year to date periods respectively. The driver of rent growth from annuals in the quarter was increased rate of approximately 4.2% compared to the prior period. Year to date, core resort-based rent from seasonals increased 2.3% compared to 2019. Our core RV transient business delivered growth for the quarter of 7.3%. Membership dues revenue increased two percent compared to the prior year. During the quarter, we sold approximately 7,400 TrailS Camping Pass memberships. This represents a 24% increase for the year. The net contribution from membership upgrade sales in the quarter was flat compared to last year.
Sales volumes increased almost 20%, while the mix of products sold changed, resulting in a lower average sales price. In addition, the expenses include commissions on higher volume of Camping Pass membership sales. Core utility and other income was about 6.5% higher than Q3 2019. The main contributor to this increase is an accrual of insurance recovery revenue related to losses experienced from hurricanes Hanna and Isaias. Core property operating expenses include approximately $2.8 million, resulting from the hurricanes in July and August. Hanna made landfall in Texas and caused damage at 12 of our properties, while Isaias made landfall in North Carolina and affected 40 properties. Excluding these expenses, the main contributors to our property operating maintenance expense growth over the prior year period were utility expenses, including labor costs associated with sewer, water, and electric distribution systems, insurance, and real estate taxes.
In summary, year to date core property operating revenues have increased 3.7% and core property operating expenses have increased five percent, resulting in an increase in core NOI before property management of 2.7%. Income from property operations generated by our non-core portfolio, which includes our marina assets, was $4.1 million in the quarter. Property management and corporate G&A expenses were $24.2 million for the Q3 of 2020 and $75.5 million for the year to date period. Other income and expenses generated a net contribution of $4.3 million for the quarter. The decrease from prior year is attributed to income recognized in 2019 related to our Loggerhead portfolio acquisition. Interest and related loan cost amortization expense was $25.2 million for the quarter and $77.5 million for the year to date period. This includes the impact of the refinancing activity I'll discuss in more detail shortly.
Before closing with remarks about our balance sheet, I'll briefly discuss the operations update we included in our earnings release. Our properties continue to be open subject to state and local guidelines. While certain property amenities remain closed, we are welcoming transient guests at all RV communities. We expect to complete our annual budget process in the coming weeks. In the past, we've completed our budget in early October and provided detailed preliminary guidance with our third quarter earnings release. A significant factor in our process that has long given us confidence to provide initial guidance earlier than others in the REIT space is the early visibility we have into expected rent rate growth from our core MH and RV annual revenue streams. On a combined basis, these revenue streams have historically represented more than 70% of our total core revenues.
Our earnings release provides information about noticed MH rent increases and the rates we've established for our RV annuals for the 2021 season. This information supports our preliminary expectations of four percent rent rate growth from core MH and core RV annuals. Our suspension of guidance continues to be influenced by the lack of visibility we have into other areas of our business, including our seasonal and transient RV revenues. We anticipate providing performance updates and 2021 guidance in advance of our January earnings call. Before we open the call up for questions, I'll discuss our refinancing activity, debt markets, and our balance sheet. During the quarter, we closed on a $386.9 million secured credit facility with Fannie Mae. The facility has two tranches and carries a weighted average coupon of 2.55% with a weighted average maturity of 13.4 years.
We used proceeds to repay our $200 million unsecured term loan and our scheduled 2021 secured debt maturities. We incurred approximately $9.7 million in early debt retirement costs. As a result of the accretive refinancing we've closed in the Q1 and Q3 of 2020, the weighted average rate on our outstanding debt has decreased almost 35 basis points to 3.7%, and our weighted average debt maturity has extended one and a half years to 13 years. Current secured financing terms available for MH and RV assets range from 55%-75% LTV, with rates from 2.75%-3.5% for 10-year money. We continue to see lenders place high value on sponsor strength, and ELS continues to be highly regarded. High-quality, age-qualified MH assets will command preferred terms from participating lenders. Our cash balance after funding our October dividend was more than $50 million.
We have available capacity of $350 million from our unsecured line of credit, we have $200 million of capacity under our ATM program, and we have no scheduled debt maturities before February 2022. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Our interest coverage ratio is 4.9 x, and our debt to adjusted EBITDAre is 5 x. Now we would like to open it up for questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Joshua Dennerlein from Bank of America. Your line is now open.
Yeah. Morning, Marguerite, Paul.
Good morning.
Hope all is well. I guess I was just curious about the two RV development properties you bought for $16.3 million. Seems kind of like a new acquisition approach for you. Curious to hear your more detailed color on those acquisitions, and then if you're seeing any changes in the space that might make it easier to do ground up developments.
Sure, sure. Thanks, Josh. Yes, we closed on two ground-up developments in the quarter. The first one was actually previously a Boy Scout camp. It's zoned for 900 sites. It's located in Virginia, so it has water access and it's very close to two of our flagship RV parks, which we purchased a few years ago. It's in a high-demand market. We looked at it as a real opportunity to do some development there in a market that we really like. The second one was in Cape Coral, 500 sites development near many ELS properties and in a really high-traffic location. We also closed on five parcels of land adjacent to our existing properties. We generally close on those after we've had fully entitled the land, and then able to build sites adjacent to our existing property.
That's in line with what we've done in the past. I think new RV parks and MH communities, they really tend to make the front page of local or regional papers because there are so few of them. Over the years, we have looked at opportunities for development, and we've seen the most attractive opportunities in the RV space. These two opportunities that I talked about are examples of opportunities that we really find attractive. The ability to build an RV park in a well-located area with a focus on annuals, but then having the ability to really supplement with transient traffic as you build up the annual base, I think that's an excellent use of our capital. Overall, I think there's still limited development of MH and RV.
I think, maybe, you and I talked about just the context of the number of communities out there. There's about 50,000 manufactured home communities across the country, about 16,000 RV parks across the country, so any new development kind of has a very Just a handful of parks over the U.S. is really no impact to supply at the level of the industry as a whole.
Thank you. Our next question comes from the line of Nick Joseph from Citi. Your line is now open.
Thanks. Marguerite, maybe just following up on that. What is the expected stabilized development yield, and then what is the time to stabilization?
Sure. On the one in Florida, the stabilized yield is about a six cap in, say, two - three years. The one in Virginia is a little bit Florida's a little bit farther along. The one in Virginia is, like I said, it's a Boy Scout camp. It's no longer a Boy Scout camp. It has the zoning, but we have a lot of work to do in terms of the building, so I think that's a few more years out, and the yields would be similar to the Florida yields.
Thanks. What impact do you expect on the seasonal and transient RV business from the Canadian travel restrictions? How do you think about the ability to backfill any loss of demand?
Sure. I think, as you talk about our Canadian business, I think it's good to talk about the full year. I'll kind of break that down a little bit. For the full year 2019, we had about $27 million of RV revenue coming from our Canadian customers. Our Canadian customers, they generally stay with us in Florida, Arizona, and Texas.
50% of that revenue comes from annual customers. Those annual customers, 98% of those customers have their park model or RV on site in the South. That kind of differentiates the two between the annual and then the seasonal and transient. The seasonal and transient, the Q4 last year represented about $1.8 million. We see risk associated with that, but we're monitoring the border regulations and be able to know more when there's more input on the border regulations. As we consider the start of the year, in the Q1 of 2019, our seasonal and transient revenue from Canadian customers was approximately $5.4 million. This revenue is also subject to customers being able to cross the border.
I think maybe Paul can walk you through a little bit and provide some detail about the payment patterns that we're seeing right now that may help as well.
Yeah, I think broadly, Nick, since the onset of the pandemic, the customer behavior, I think we've talked about this a bit, particularly the seasonal transient customer. We've seen shorter booking windows. We've seen elevated levels of cancellations. Marguerite mentioned the uncertainty related to regulatory actions, including the border closure, but it also impacts just interstate travel, as people are watching the various orders and the case counts and so forth across the country. That's having an impact on customers' decisions as well.
Thank you.
Thanks, Nick.
Thank you. Our next question comes from the line of John Kim from BMO Capital Markets. Your line is now open.
Thanks. Good morning. Just to follow up on the transient and seasonal bookings, how have they trended in November, December versus the 17% increase that you saw during the Labor Day weekend?
I'm sorry, John, I missed what you asked.
How have the transient and seasonal RV bookings trended so far for November and December?
I think what we can talk about without stepping too far into the guidance lane is what we've seen so far in October. We've seen really for the seasonal, there's not much to speak of in October because the seasonal that Marguerite just mentioned that occurs in the Q4 really happens from Thanksgiving through the end of the year. On the transient, we're seeing continued strong demand as we saw in September so far in the month of October.
Again, it's Patrick. Just to, I guess, add a little further color on what we've seen in October. That nearing the end of the northern RV season, both the North and Northeast performed well. They're up more than 20% in October. That's driven by a number of factors. One is, and we talk about this a lot, the weather was relatively good throughout the North for the month of October. We've seen good consistent demand including in the midweek. As Paul touched on it, when you're talking about interstate travel, these customers typically come from the local market, so you avoid some of those concerns that can impact other parts of our business.
Okay, you mentioned that there's a 300% increase in bookings from basically Gen Zs. Can you break that down as far as the age cohort of your RV customers?
I don't have that in front of me, John. I can provide that offline. I can break that down. That increase was year-over-year, so we are seeing an increase in the younger customer base, and I can provide that to you offline.
Okay. The one-time cost that you had during the quarter, $9 million of hurricane damage, how much do you think will be recovered with insurance? How much of the infrastructure costs are one time in nature?
Yeah, I think as I mentioned, there's about $2.8 million of expense in the quarter. The $9 million is the total expected loss from property damage and cleanup and so forth. As we've seen in past hurricanes, these storms are shaping up to be similar in that there's an expense component and then there's a capital component. Typically, the expense component happens earlier in the recovery period. What comes later is the capital expenditure to restore and recover. I think that we've realized for the most part in the expense and the revenue accrual that we've booked, the amount of net expense that we otherwise would expect in these storms.
Can I ask what the bad debt expense was for the Q3 and what you expect for the remainder of the year?
In terms of bad debt overall, just broadly, our delinquency, as we've talked about, really hasn't changed as we've stepped through the pandemic. What we've seen historically is our age delinquencies are about 50 basis points. We end any given month with somewhere between two percent -three percent of our rents uncollected. Over the next 90-120 days, we continue to collect those rents and land in a place where the age delinquency is about 50 basis points. Because that has remained consistent, what we've seen, generally speaking, is that level of expense flowing through our income statement when you think about just on a % of revenue basis.
How does that compare to prior years? I just noted the footnote that you had this supplement versus prior years.
Yeah. The footnote actually is simply clarification of the GAAP presentation on our income statement of rental income. We're providing disclosure so that a reader of our core operating statements, our non-GAAP measures, can trace through to our rental income on our income statement.
Okay. Got it. Thank you.
Thanks, John.
Thank you. Our next question comes from the line of Samir Khanal from Evercore. Your line is now open.
Good morning, Marguerite. Sorry if I missed this, but can you provide color on pricing or cap rates on the RVs that you acquired in the quarter?
Sure, Samir. Both properties kind of have going in cap rate of four and a half to five cap, and with, I think, some opportunities on both sides to increase those yields under our management.
Okay. I guess, sticking to the transaction side, just kind of curious to know your views on the marina business, right? Considering the recent announcement of your peer, just trying to get an understanding of kind of what your appetite is to grow the platform that you have today in your business.
Sure. The marina industry is really highly fragmented. I think as more investors enter the space, you'll see that the owners of the individual assets will kind of have more bidders coming to their doors. We've developed great relationships in the industry, and we'll continue to work through with those owners towards transactions. From our perspective, really the key for ELS is to own high quality, well-located properties, and the quality of the cash flow and the continuation of the cash flow is important to us as we bring on a new line of revenue to sit alongside our really proven and very predictable cash flow streams of MH and RV.
Okay. Is there a way to, if you go back to the time you've acquired the marinas, what's been sort of the operating performance from an NOI perspective since the time you've held that till today? Is there a way to give us some sort of idea?
Sure. I think, as we entered the business in 2017, I think what we talked about was a going-in yield of about a six cap, and that's essentially how they've performed over the last two years. They've performed well for us. These are assets that are highly annualized assets, really long-term revenue, and it continues to be sticky.
Got it. Okay. Thanks so much.
Thanks, Samir.
Thank you. Our next question comes from the line of John Pawlowski from Green Street. Your line is now open.
Great. Thanks for the time. Wanted to go back to Nick's question on the Canadian border being closed. The worst case scenario where the border remains closed through the spring, what percentage of that seasonal and transient Canadian revenue do you think you can get back through domestic demand reasonably?
Yeah. I think it's a difficult question for us to answer right now. We've kind of framed what the risk is relative to the Canadian traffic, but I will say that we certainly see increase in people's interest in coming to Florida from the United States, inside of the United States. It's difficult to frame that. As we are able to and able to provide more information, we would do that, but we don't have that right now, John.
Okay. Understood. Just logistically lining up that demand, I'm not asking for a precise estimate, but are we talking about, like, you can reasonably get 20% of that demand back or 80%? Just logistically, how difficult is it to get that lined up and get the demand in the door?
I think it's difficult to answer the question because I think we have to figure out how things are trending from a health perspective. I wouldn't want to guess how things are going to go there, and as the winter progresses, are things going to get worse? Are they going to get better? There's a lot of uncertainty with respect to that, obviously, throughout the country. I think that what we've seen is shorter booking windows. People are saying, "Oh, now I have an opportunity. I have kind of a clean bill of health. I feel good. I feel like I can make this decision." People are making their decisions, and they're saying, "I want to come down today.
I want to come down tomorrow." Our customers are saying, "I'm not comfortable booking a month out because I don't know where we're going to be a month from now." We are seeing those shorter booking windows, which makes it difficult for us to project.
Okay. Understood. Patrick, could you give some color on how the process this year went with how you get to the four percent annual rate increase on the RV side? Is it an exercise of, hey, we're in a recession, we can't push as hard, or is there some sort of leniency for lost days in the parks this past year? How did basically the on-the-ground dynamics and the pandemic impact the four percent rate increase preliminarily planned for this coming year?
Well, going into it, obviously there was a
For us operationally, and then for all of our customers, this is both RV and MH. It was just an understanding of how the COVID process was starting to play out. On the MH side of the world, as we mentioned on previous earnings calls, we suspended late fees and evictions. On the RV side of the world, we did offer some credits for some of our customers in our northern properties on the annual front. By and large, across the balance of the portfolio, as we went through sizing up what rate increases were going to be year-over-year, it was a process that was very much similar to prior years. We've seen a consistent demand profile across MH and RV as we issued those rent increases. Certainly, there were some discussions around the potential impact of COVID, but those were small portions of our discussions.
Our process working through both MH and RV was pretty consistent in having dialogue with our customers and the rent increases were able to be implemented and were, for the most part, well received.
One of the things, John, that we benefited from was, I think we mentioned it earlier on the call, is a mild autumn so far. Our annual customers were able to enjoy, while they got cut off at the beginning of the season, they've been able to extend the season. That's certainly been helpful that they've been able to kind of camp through September and October.
Okay, makes sense. Then just one follow-up there on the annual RV side. Within the portfolio, I guess, what's kind of the weakest market? Are rates on the annual RV side declining in any markets? Could you give us a sense for the goalposts around that four percent average?
Yeah, I'd say the strongest markets are what you'd expect, at the core of our portfolio in Florida, California, and Arizona. We saw really pretty consistent strength throughout the north region as we made it through the summer season. I think with the impact of COVID, it was reassuring to see that consistent demand profile. I think core markets in the north, near major metropolitan areas, Marguerite just mentioned our acquisitions in the greater Virginia market. That's about an hour outside of Richmond, about an hour and a half to two hours outside of D.C. Very strong locations that have been strong across the board. You get into some secondary markets like South Texas, Southern Arizona, the Yuma market, those tend to have more moderate rate increases than our core markets.
Okay. Rates aren't falling anywhere?
No.
Okay. Thank you.
Well, not for the time being.
Thanks, John.
Thank you. Our next question comes from the line of Todd Stender from Wells Fargo. Your line is now open.
Hi, thanks. With the two development projects acquired in the quarter, couple that with the five land parcels, it just shows a little more risk appetite than we usually see from you guys. Are these the types of opportunities you see all the time, and this is just a timing issue, just because you closed all at once? Maybe just expand on maybe the growth trajectory that you're seeing.
Sure. With respect to the land parcels adjacent to our properties, we are always looking at land around our properties. We think that's just an excellent execution. It just so happened that our fantastic acquisitions team was able to close all of those in the quarter, but those are deals that we've been working on for a while. We continue to do that. There's no real change there. With respect to the two other deals, the Boy Scout deal was a deal really that just recently came up, and the ability to get into that space in an area that we are located in and really appreciate the area a lot, that was something that just recently came up, and we were happy to be able to close on that transaction.
The Florida deal is a deal that we've actually been looking at for a long time, and just wanted to appreciate the best entry point, and we thought it was a good time now. That was something that we've been working on for a while. The team did a great job in pulling that all together this quarter.
For something to convert from a Boy Scout camp to an RV, can't be zoned just yet, right? I mean, it's not quite residential. How do you look at the entitling process in that?
It actually was an RV park, then it became a Boy Scout camp. It has some great amenities and buildings and those types of things. It's zoned for 900 RV sites. That's what really attractive to us.
Okay, that's helpful. Thank you. Just back to the expansion sites, what are your return expectations there? I'd imagine if you're buying them adjacent to existing communities, they're probably highly occupied, and you can drive rents, and lease-up periods are quite short. Maybe just kind of give some return expectations.
Sure. Some of them are adjacent to our RV sites, but maybe Patrick can walk through some of the numbers associated with it.
Yeah. Of the five parcels, really three of them are adjacent to our RV properties. It's a lion's share of the sites that are coming from that subset of acquisitions. I would expect the yields on those to be in the high single digits. They're in really strong locations. One is outside of San Francisco, one is coastal North Carolina. You referenced quick lease-up periods. We just completed a 56-site expansion on the property in coastal North Carolina, and had a waiting list and advanced list of interest, and were able to lease up more than 50 sites very quickly and fill that section. We view the next phase as a very opportunistic opportunity for us.
That's great. Just one last one, if you don't mind. The Marina Dunes acquisition. If that's in Monterey County, any rent controls? You certainly see rent controls in the Santa Cruz area, just more MH, but what kind of constrictions, if any, would be on an RV park along the coast of California?
I would not like to say what would happen in the future necessarily, but right now, there isn't rent control on RV. It isn't a factor.
Got it. Thank you.
Thanks, Todd.
Thank you. Since we have no more questions, I would like to turn the call back over to Marguerite Nader for closing comments.
Thank you all for participating in the call today. We look forward to updating you on the next call. Stay well.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.