Shale Magazine said that “George S. Patton” was “The colorful commander [who] is said to have remarked, “I don’t like paying for the same real estate twice.” For Patton, of course, he was talking about not wanting to spend on troops and resources to recapture an area he already overtook.” Left-leaning Google’s AI powered Gemini put it like this: “General George S. Patton is often credited with saying, “I don’t like paying for the same real estate twice”. Patton was a military figure during World War II who led the 7th Army and was known for his motivational speeches. In this case, he was referring to not wanting to spend resources to recapture an area he had already taken over.” General Patton was said to be one of the best military minds the U.S produced in the last century, and many believe that business and politics have some similarities and lessons to learn from the likes of commanders or strategists such as Sun Tzu. Patton’s quip about not paying for the same real estate twice is something that the late Sam Zell might have appreciated, as he once remarked per Medium: “If everyone is going left, look right.” Zell seem to believe that in order to be successful, sometimes professionals must be willing to be contrarian. However, it seems that some in MHVille have ignored those lessons from Patton and Zell, because they appear to be happy to pay for the same proverbial real estate over, and over, and over again.  Whatever their motivations, once someone grasps the true realities of contemporary MHVille there are apparent reasons to believe that ELS has navigated into problematic waters on legal, public relations, and return on investment (ROI) fronts alike.

Leadership Now said:

Zell advocates an owner/entrepreneurial mindset in business and life. “An owner is consumed with making the most out of what he already has. He’s all in. An entrepreneur is always looking for a new opportunity. He’s always reaching.” As he tells his grandkids, “Your responsibility is to maximize the skills you were given. But whatever you decide to do, invest everything you have in it—excel. What I’ve done is not the example I wanted to set; it’s the way I’ve done it that I hope you emulate, through focus, effort, and commitment.”

Have common sense, Do the Right Thing, Keep Your Eyes (and Mind) Wide Open, and more been diminished or lost by the leadership at ELS? Is ELS’ strategy costing investors’ money or are the making investors’ money? Is ELS misleading potential residents and harming a sizable portion of their current resident base to the point that class action style risks could increase? Those sorts of issues will be explored in Part II. But first, it may be useful to dive into the previous report by MHProNews on ELS linked here. What follows in Part I is from the Seeking Alpha transcript of ELS’ most recent earnings call, which will arguably make more sense in the light of the linked insights.

 

Equity LifeStyle Properties Second Quarter Results–Claims of ‘Strong Performance’ Examined via Lens of Potentially Mounting Legal-Reg Concerns as ELS Double Down on IR Statement; plus MHMarkets

Before diving into the earnings call remarks that follow, note that yellow highlighting is added by MHProNews, it is not in the original.

The first highlighted remark is by Marguerite Nader, President and CEO of ELS.  She made the statement that they exceed expectations. With that in mind, consider the following Q&A with left-leaning Google‘s AI powered Gemini.

Gemini, it has been said that some corporations that are publicly traded deliberately understate what they expect in their guidance, and then, when quarterly reporting occurs, they can say that they exceeded their expectations. Provide some color on that please.

Understating Expectations: A Corporate Strategy

The practice of deliberately understating expectations in corporate guidance is a common strategy employed by publicly traded companies. The goal is often to manage investor expectations and, subsequently, to exceed them.

Here’s a breakdown of how it works:

• Low Expectations: By setting conservative targets for revenue, earnings, or other key performance indicators, companies can lower the bar for themselves. This helps to mitigate the risk of falling short of analyst estimates and disappointing investors.
• Exceeding Expectations: When a company surpasses its own low guidance, even if the actual performance is merely average or slightly above, it creates a perception of outperformance. This can boost stock prices as investors react positively to the “beat.”
• Investor Confidence: Consistently exceeding expectations can build investor confidence and trust in the company’s management team. This can lead to higher stock valuations and easier access to capital.

It’s important to note that this practice is not inherently unethical, but it does raise concerns about transparency and fairness. Investors should be aware of this potential bias and critically evaluate a company’s performance relative to industry benchmarks and long-term trends.

Additionally, there are risks associated with this strategy:

• Loss of Credibility: If a company consistently underpromises and overdelivers, investors may become skeptical of future guidance and may discount the company’s claims.
• Regulatory Scrutiny: Excessive use of this tactic could attract the attention of regulators, leading to potential investigations and penalties.

Ultimately, the effectiveness of understating expectations depends on various factors, including the company’s industry, competitive landscape, and investor sentiment.

Would you like to explore specific examples of companies that have been accused of this practice?”

With that in mind, let’s dive into the most recent ELS quarterly earnings call.

Part I – Per Seeking Alpha Transcripts at This Link is the Q2 2024 Earnings Call Transcript for Equity Lifestyle Properties (ELS).

Equity LifeStyle Properties, Inc. (ELS) Q2 2024 Earnings Call Transcript

Jul. 23, 2024 7:00 PM ET Equity LifeStyle Properties, Inc. (ELS) Stock

SA Transcripts

Equity LifeStyle Properties, Inc. (NYSE:ELS) Q2 2024 Earnings Conference Call July 23, 2024 11:00 AM ET

Company Participants

Marguerite Nader – President and CEO
Patrick Waite – EVP and COO
Paul Seavey – EVP and CFO

Conference Call Participants

Josh Dennerlein – BofA
Eric Wolfe – Citi
Brad Heffern – RBC
Keegan Carl – Wolfe Research
Samir Khanal – Evercore
James Feldman – Wells Fargo
Wes Golladay – Baird
Michael Goldsmith – UBS
John Kim – BMO Capital Markets
David Segall – Green Street Advisors

Operator

Good day, everyone, and thank you for joining us to discuss Equity LifeStyle Properties Second Quarter 2024 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. [Operator Instructions] 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 our supplement and 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’d like to turn the call over to Marguerite Nader, our President and CEO.

Marguerite Nader

Good morning, and thank you for joining us today.

I am pleased to report the results for the second quarter of 2024. Our performance exceeded our expectations. For the first six months of 2024, we have seen an increase in NOI of 6.4% as compared to last year. We focus on translating NOI growth to normalized FFO growth. Our normalized FFO growth year-to-date is 5.9%, driven by continued strength in our annual revenue and reduced expenses throughout our portfolio. The strength of our portfolio results and our balance sheet allow us to increase full-year guidance for the second time this year. We have raised full-year guidance for normalized FFO to $2.91 at the midpoint.

The demographics of the U.S. population support the demand for our MH and RV portfolio, with 70% of our MH portfolio catering to seniors and the strong interest in RV travel among older adults. Approximately, 70 million baby boomers are currently enjoying their retirement years, followed by nearly 140 million Gen X-ers and millennials.

We see long-term generational demand for all of our property offerings. Our MH portfolio, which comprises 60% of our overall revenue, is approximately 95% occupied. Over the last 10 years, we have sold over 5,500 new homes in our communities. These new homes contribute to the quality of housing stock in the community. Currently, less than 3% of our occupancy is comprised of rental homes. The high level of occupancy in our portfolio is sustainable. And based on demand, we believe we can continue to increase occupancy throughout our portfolio.

With respect to our RV business, our annual segment, which represents the largest portion of our RV revenue stream, performed well in the quarter, and we anticipate growth rates of 7% for the full year 2024. Since 2018, our total core RV revenue has had an annual growth rate of 5.6%. We have seen significant shifts in customer behavior as we increased the number of annuals in our core portfolio by approximately 3,000 sites.

This increased stable customer base will be an important part of our future performance. We are proud to share that 50 of our RV resorts and campgrounds have received the recently announced 2024 Tripadvisor Travelers’ Choice Award. Each year, this award is given to approximately 10% of the businesses listed on Tripadvisor. Our property teams provide guests with positive experiences when they stay with us, and referrals from our guests are a top source of new customers.

We continue to engage our guests, members and prospects through our social media strategy. We have grown our fan and follower base to over 2 million, across Instagram, YouTube, TikTok, Facebook and other social platforms. We are currently in the middle of our 100 Days of Camping Campaign that focuses on the days of summer between Memorial Day and Labor Day.

I want to express my gratitude for our employees for their exceptional contributions this quarter. Their hard work in serving our customers is the key reason behind our ongoing success.

I will now turn the call over to Patrick to provide further details on our financial performance.

Patrick Waite

Thanks, Marguerite.

The consistency of our results over time comes from our strong property locations and the value that each of our residents and guests finds at their own property. Value is top of mind for consumers across the country, including homebuyers and vacationers. Our offerings are attractive in any economy, and we are particularly well-positioned to serve customers who are looking for value in a challenging economic environment.

Our MH portfolio maintains high occupancy and provides consistent revenue growth. We sold 255 new homes during the second quarter, an increase of 13% year-over-year. Since 2018, the CAGR for total MH revenue is 5.6%. These results are driven by consistent rate growth through economic cycles, coupled with an opportunity for occupancy growth.

This long-term demand is supported by the value residents find in our communities, high-quality homes that compare favorably to alternatives in our submarkets and an active lifestyle that is not available elsewhere at the price point offered at ELS communities.

Today’s homebuyers are increasingly focused on value and affordability, given increases in housing costs and higher interest rates. Manufactured housing offers a value advantage compared to site-built homes. The average cost of purchasing an ELS new home is approximately $100,000, compared to $500,000 average cost of purchasing a new site-built home. That value holds true for renters in our portfolio as well. Those who rent a new ELS home pay $1,400, or approximately 35% less than the average three-bedroom apartment in the same submarkets.

Manufactured home communities offer value in any economy, but in today’s housing market, marked by constrained supply and facing price pressures and increased interest rates, ELS-manufactured home communities present exceptional value. The monthly payments for homebuyers in ELS communities are approximately 70% less than the buyers of single-family homes in the same submarkets.

Homeowners in ELS communities enjoy comparable fixtures and finishes as site-built homeowners, as well as a resort lifestyle in a community setting, and often lower maintenance costs as well, which is another appealing factor for buyers facing higher living expenses. The combination of home affordability, inventory availability, and the result — resort lifestyle found in our communities makes our offerings very attractive to homebuyers in today’s housing markets.

For the RV portfolio, we are in the middle of the 2024 summer season with two of the big three holiday weekends behind us. Transient RV revenue is less than 5.5% of our total revenue and is prone to volatility, largely driven by weather events. Similar to our other RV offerings, transient stays offer real value to our guests.

Our average rolling stock nightly rate is $70. Our average rental cabin rate is $140 as compared to average hotel nightly rates of $160. Vacationers are looking for value and affordability when considering their travel options. And our RV resorts offer budget-friendly vacations in premier destinations that align with consumers focus on value this summer, including our longer-term stays.

Our average annual site rent is approximately $6,000, while a seasonal site that’s typically a four-month stay for a customer who brings their RV is about $1,100 a month. The combination of exceptional property locations and a variety of offerings for customers to choose from translates to consistent year-over-year revenue growth.

I’ll do a quick around the horn to highlight our RV performance. As Marguerite mentioned, since 2018, total RV revenue produced a CAGR of 5.6%. That growth is supported by our strong property locations concentrated in the Sunbelt and along the coast. Florida is our largest market, and given leading in-migration trends and a strong economy, it also leads our portfolio with a 2018 RV revenue CAGR of 6.6%. The West region, which includes our next two largest markets, California and Arizona, produced a 2018 RV revenue CAGR of 5.1%, while our North region, ranging from the Great Lakes to the Eastern coastline, produced a 2018 CAGR of 5.3%.

The revenue growth CAGRs for both our MH and RV portfolios are approaching 6%. Those results come from consistently meeting resident and customer demand. In today’s environment, consumers are seeking value, and we continue to provide high-quality lifestyle offerings at an attractive price.

I’ll now turn it over to Paul.

Paul Seavey

Thanks, Patrick, and good morning, everyone.

I will highlight some takeaways from our second quarter and June year-to-date results, review our guidance assumptions for the third quarter and full year 2024, and close with a discussion of our balance sheet.

Second-quarter normalized FFO was $0.66 per share, $0.02 higher than the midpoint of our guidance range. Strong portfolio performance generated 5.5% NOI growth in the quarter, almost 100 basis points higher than guidance. FFO was $0.69 per share and includes $6.2 million of insurance recovery revenue that has been deducted from normalized FFO.

Core community-based rental income increased 6.2% for the quarter compared to 2023, primarily as a result of noticed increases to renewing residents and market rent paid by new residents after resident turnover. We increased homeowners by 171 sites in the quarter.

Core RV and Marina annual base rental income, which represents approximately two-thirds of total RV and Marina base rental income, increased 6.6% in the quarter and 7.3% year-to-date compared to prior year. Year-to-date in the core portfolio, seasonal rent decreased 2.4% and transient decreased 2.7%. We continue to see offsetting reductions in variable expenses.

For the June year-to-date period, the net contribution from our membership business was $29.2 million, an increase of 1.7% compared to the prior year. Membership dues revenue increased 1.3% and 2% for the second quarter and June year-to-date, respectively, compared to the prior year. Year-to-date, we’ve sold approximately [10,500] trails Camping Pass memberships. Also, during the year-to-date period, members purchased approximately 1,800 upgrades at an average price of approximately $9,200.

Core utility and other income increased 6.1% for the June year-to-date period compared to prior year, which includes pass-through recovery of real estate tax increases from 2023. Our utility income recovery percentage was 46.4% year-to-date in 2024, about 100 basis points higher than the same period in 2023.

Second quarter core operating expenses increased 3.4% compared to the same period in 2023. Expense growth was 200 basis points lower than guidance, mainly resulting from savings in payroll and repairs and maintenance expenses. June year-to-date expense growth was 3.7% and includes the impact of real estate tax increases effective in late-2023, as well as our April 1, 2024 property and casualty insurance renewal.

For the second quarter, core property operating revenues increased 4.6%, while core property operating expenses increased 3.4%, resulting in growth in core NOI before property management of 5.5%. For the year-to-date period, core NOI before property management increased 6.4%. Income from property operations generated by our non-core portfolio was $3.3 million in the quarter and $8.5 million year-to-date. The press release and supplemental package provide an overview of 2024 third quarter and full-year earnings guidance.

The following remarks are intended to provide context for our current estimate of future results. All growth rate ranges and revenue and expense projections are qualified by the risk factors included in our press release and supplemental package.

We’ve increased our full-year 2024 normalized FFO guidance $0.02 per share to $2.91 per share, at the midpoint of our range of $2.86 to $2.96 per share. Full-year normalized FFO per share at the midpoint represents an estimated 5.7% growth rate compared to 2023. We expect third quarter normalized FFO per share in the range of $0.69 to $0.75. We project full-year core property operating income growth of 5.9% at the midpoint of our range of 5.4% to 6.4%.

Full year guidance assumes core base rent growth in the ranges of 5.6% to 6.6% for MH and 3.3% to 4.3% for RV and Marina. The midpoints of our guidance assumptions for combined seasonal and transient show a decline of 4.5% in the third quarter and decline of 2.5% for the full year compared to the respective periods last year.

Core property operating expenses are projected to increase 3.3% to 4.3%. Our full-year expense growth assumption includes the benefit of savings in repairs and maintenance and payroll expense during the first six months of 2024, as well as the impact of our April 1 insurance renewal for 2024.

As a reminder, we make no assumption for the impact of a material storm event that may occur. The full-year guidance model makes no assumptions regarding the use of free cash flow we expect to generate in 2024.

Our third quarter guidance assumes core property operating income growth is projected to be 4.5%, at the midpoint of our guidance range. In our core portfolio, property operating revenues are projected to increase 4.4% and expenses are projected to increase 4.4%, both at the midpoint of the guidance range.

I’ll now provide some comments on our balance sheet and the financing market. As noted in the earnings release and supplemental package, we closed on a modification of our $500 million unsecured line of credit that extends the maturity to July 2028 and provides a one-year extension option related to our $300 million unsecured term loan.

We’re pleased with this execution as the modification closed with no material modification of terms and the bank group remains substantially the same. Current secured debt terms vary depending on many factors including lender, borrower, sponsor, and asset type and quality. Current 10-year loans are quoted between 5.5% and 6%, 60% to 75% loan-to-value, and 1.4 to 1.6 times debt service coverage. We continue to see solid interest from life companies and GSEs to lend for 10-year terms. High-quality age-qualified MH assets continue to command best financing terms.

In terms of our liquidity position, we have approximately $450 million available on our line of credit, and our ATM program has $500 million of capacity. Our weighted average secured debt maturity is almost 10 years. Our debt-to-adjusted EBITDA is 5.1 times and interest coverage is 5.1 times. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us.

Now we would like to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Josh Dennerlein from BofA. Your question, please.

Josh Dennerlein

Yes, hi, guys. Saw seasonal revenue was weak during the quarter. Could you remind us how you define the seasonal customer, and then just any additional detail you could provide?

Paul Seavey

Yes, Josh, a seasonal customer is a customer who stays with us longer than a month and shorter than six months.

Josh Dennerlein

Okay. Is there just…

Paul Seavey

And then — go ahead, sorry.

Josh Dennerlein

I was going to ask, is that RV and Marina or just apply to RV, just…

Paul Seavey

Well, it would apply to both, but the practical answer is that the Marina customers we have are annual customers, predominantly, with some very limited shorter-term day use.

Josh Dennerlein

Okay. Sorry, I cut you off.

Paul Seavey

No, no.

Josh Dennerlein

Okay. And then on the RV and Marina revenue outlook, I saw you lowered the annual, looks like, 10 bps at the midpoint. Any particular color on that? Like what drove kind of the revision there? And then any kind of differences between the RV and then the Marina side?

Paul Seavey

I think, I mean, I’ll go back to a comment I made on the April call. 2024 is a little bit tricky just because of leap year and the impact of that. So we have this one day issue that impacted the first quarter and then it impacts the second, third, and fourth quarters in the opposite direction.

So I think that’s the slight 10-basis point movement is really mostly attributed to refining that as we’re moving through the year. And then with respect to the RV and Marina and any differential there, not a meaningful difference. I think that the RV rate and the Marina rates are relatively close, with RV maybe being 50 basis points higher than the Marina rate increases.

Josh Dennerlein

Okay. Appreciate that. Thank you.

Paul Seavey

Thanks, Josh.

Marguerite Nader

Thanks, Josh.

Operator

Thank you. And our next question comes from the line of Eric Wolfe from Citi. Your question, please.

Eric Wolfe

Hi, thanks. Maybe to follow up on that annual RV, you’re guiding to 7% revenue growth. I think I remember last year, you mentioned that you’re going to be increasing rates 7% for the annual RV. Is there like an offset to the conversion impact, because I would think that with conversions from transient to annual, you’d see above 7% revenue growth there, but didn’t know if there was some kind of offset?

Paul Seavey

Some kind of offset?

Eric Wolfe

In other words, if you’re increasing rate by 7%, right, that alone would get you to 7% revenue growth. And then if you’re also converting customers from transient to annual, that would increase it above 7%. So I guess, I’m just trying to understand how you sort of get to 7% revenue growth with the 7% rate increase plus the incremental impact from converting customers from transit to annual.

Marguerite Nader

And there was also — Eric, there’s also some offset to that for some of the workers that were with us on an annual basis that are no longer with us from hurricane cleanup, et cetera. So you saw some of that reduction in annual count that offsets that rate increase.

Eric Wolfe

Okay. Got it. Makes sense. And then as far as the transient performance, you’ve talked in the past about how weather is the main determinant. If you strip out the locations that had bad weather, either this quarter or this year or however you want to define it, just curious how much you see the transient business growing. I’m trying to think through how things would look different if you had maybe two consecutive years of consistent weather, or if there’s some way to estimate the impact that weather is having on your transient business.

Marguerite Nader

I think what we see is that probably 10 to 15 of our properties are impacted by the weather and then the resulting issues that you see as a drag to the transient base. In the areas where you don’t have that weather impact, we’ve seen an increase in transient revenue.

Eric Wolfe

I guess, is there a way to quantify what that is? Like the — is it just pricing that like — it’s up 3%, 5%? Just trying to understand how much weather might be taking that growth rate-down, if possible.

Marguerite Nader

Yes. I would say it’s about 3% overall on those that are not impacted by the weather. And then if you’re impacted by the weather, it’s not a rate issue, it’s a night issue. People just aren’t staying with us on those nights.

Eric Wolfe

Okay. Thank you.

Marguerite Nader

Thanks, Eric.

Operator

Thank you. And our next question comes from the line of Brad Heffern from RBC. Your question, please.

Brad Heffern

Yes, hi, everybody. Can you give more color around the lower operating expense guidance? I think you said in the prepared comments, payroll and R&M savings. But how much of that overall is just an adjustment to lower RV expectations and then how much of it is true savings?

Paul Seavey

Yes. I think when I think about the full year, Brad, if you just look at the expense growth assumption, so we’re 3.8%, at the midpoint of our range. Utility, payroll and R&M overall, that’s roughly two-thirds of our expenses, and those are increasing almost 2%. Now that’s about 100 basis points lower than the July CPI print.

And I’ll say that, that mainly results from a favorable year-over-year comp that we have in R&M. So in 2023, we had some smaller-scale, I’ll call them, storm events, throughout the first six months of the year. And so we have that favorable impact. And then the remaining one-third of our expenses include real estate taxes and insurance. And those are going up over 7%. So that’s kind of how we think of it. Inside that mix is the impact of the transient business as well, to your point.

Brad Heffern

Okay. Got it. Thanks. And then it looks like the expectation right now for the cost of living adjustment in ’25 is in the mid-2% range. Is there any reason to think that MH rent growth, the differential of that to the COLA adjustment would be higher or lower than normal? There’s obviously a lag when it was moving higher. So I’m curious if there’s also a lag when it moves down as well.

Marguerite Nader

I think if you looked at our latest investor presentation that we put out a couple of months ago, I think it’s on Page 23, it highlights the outperformance of that annual rate increases compared to COLA adjustments over the long term. So if you go back to 2000, you see an average spread of about 140 basis points. Our focus is really on negotiating those annual rent increases with our residents, which include an open dialogue and feedback from the residents. And we’ll be able to give you an update on that later on in the year.

Patrick Waite

And I would also remind you, Brad, that we have had the benefit in recent years of the increases to new residents who are coming in to market. And year-to-date, in 2024, that increase has been about 14%.

Brad Heffern

Okay. Thank you.

Marguerite Nader

Thanks, Brad.

Operator

Thank you. And our next question comes from the line of Keegan Carl from Wolfe Research. Your question, please.

Keegan Carl

Yes, thanks for the time, guys. Maybe first, a two-part question here. I guess one, what’s your view on home sales for the balance of the year? And then how do you envision that impacting your rental homes portion of your business as it’s ticked down on a year-over-year basis?

Marguerite Nader

For you, Patrick.

Patrick Waite

Yes. Well, the trend that we’ve seen with respect to — first, I’ll touch on the rental homes, and Marguerite referenced it in her opening comments, we’re down below 3% of our total occupied sites. That number may continue to go slightly — go down slightly, and we’ll continue to manage that overall load.

But just as a reminder, that’s down from a high of around 9% following the GFC, and we’ve managed that number down to make sure that we’re in a position to be able to respond to any shocks to the broader housing market if rental becomes more of a priority than home sales.

With respect to our home sales, 225 sales in the quarter, as I mentioned in my comments, up 13% year-over-year. So we continue to see consistent demand. While we have seen some moderation at the higher price points, we still see consistent demand for manufactured homes in our communities. And just as a reference point, pre-COVID, a year where we’re selling, call it, 500 to 600 new homes over the course of a full year, that would be considered a favorable outcome. So if we’re in the 200 new home sales a quarter range, we consider that to be favorable.

Keegan Carl

Got it. Then, shifting gears, maybe just a more general question, but just curious to see what you guys are seeing in the transaction market, and if there’s any movement at all on cap rates?

Marguerite Nader

Sure. The transaction market, as you know, has slowed down significantly over the last few years. There are still a lot of buyers that are interested in the assets. Buyers’ cap rate expectations have increased, but sellers really have been slow to adjust. Transaction volume is very low for institutional quality assets. These assets continue to command really strong cap rates, but there’s a lack of product for sale. We’re seeing smaller deals that really don’t fit into our acquisition set trading, often with seller financing.

Keegan Carl

Super-helpful. Thanks for the time, guys.

Marguerite Nader

Thank you.

Operator

Thank you. And our next question comes from the line of Samir Khanal from Evercore. Your question, please.

Samir Khanal

Hi, good morning.

Marguerite Nader

Hello.

Samir Khanal

Hi, Marguerite, I just wanted to ask a follow-up here. I think you said weather hurt transient growth by 3%. So I just want to make sure when you’re down roughly 5% in the quarter, that would mean you were down 2% ex-weather. Is that kind of the right way to think about it?

Marguerite Nader

No, what I was saying that ex-weather, for the ones that had a good weather event, you’d be up about 3%.

Samir Khanal

Okay. Got it. Sorry about that. And then just in terms of the acquisition, as a follow-up, I know you said there isn’t much out there in terms of acquisitions, but how should we think about your opportunity set? I mean, you haven’t been active during the first half of the year. Trying to understand kind of what the opportunity set you’re seeing right now…

Marguerite Nader

Yes, sure.

Samir Khanal

…I think, on the acquisition side.

Marguerite Nader

Sure. So, we’ve really positioned ourselves over time to find internal growth from operations and expansion when we’ve grown from 41 properties 30 years ago to 450 properties. The acquisition market has not always been conducive for us to transact, which is really why we’re focused on keeping our balance sheet in great shape to be able to transact when an interesting acquisition comes to market.

So we’re continuing to talk with sellers who aren’t quite determined whether or not they’re timing on their sale. And our acquisition group continues to meet with owners on a very regular basis. We know the properties we want to own. And when a transaction — we’re able to report on a transaction, we’ll talk about it.

Samir Khanal

Okay. Thank you.

Marguerite Nader

Thank you, Samir.

Operator

Thank you. And our next question comes from the line of Jamie Feldman from Wells Fargo. Your question, please.

James Feldman

Great. Thanks for taking my question. So, on the…

Marguerite Nader

Good morning.

James Feldman

Seasonal and trans — good morning. On the seasonal and transient segment, it seems current guide implies better growth versus 3Q. I know much of that is due to the mix of seasonal versus transient. But could you talk about the transient and seasonal fundamentals in the Northeast and Pacific Northwest for those in — versus those in Florida and Arizona in a bit more detail?

Patrick Waite

Sure. I mean, I can touch on that. I mean, as you referenced, the seasonal component is largely driven by our Florida portfolio. And that’s more of a Q1 — Q4 and a Q1 driver. When we look to the Northern markets, we’re in the middle of that season today, that said, it’s a much smaller number, and the results are driven predominantly, I guess, consistent with the balance of our portfolio by the annual business.

And if you’re looking at seasonal and transient, it’s going to be largely driven by the transient business in those submarkets. And what we’ve seen across those markets this year is some normalization in demand. Spoken of that in the last few — on the calls as well. But as Marguerite highlighted, as we move through this summer season, while we face some challenges on weather, we continue to see customer demands to come to our properties.

James Feldman

Okay. Thanks for that. And then, I guess, just to go back to the transient action market one more time. I mean, kind of an interesting point in the cycle, expectations for lower rates. We’ll see what happens with the election, if they stay low or not. I mean, can you just talk about the typical seller that is even out there? Is there — what’s the catalyst to get them to actually transact? Or, is there just really nothing out there and you just don’t see anything trading, regardless of where rates are, just because it’s such a tough — all three are just such tough assets to get a hold of and generational people just want to hold on to them? Do you think if rates are really pulling back, this would be the moment if people have been waiting on the sidelines?

Marguerite Nader

Right. Certainly, I think that could be an indication that some sellers are interested in transacting. What we’ve long talked about is the majority of the transactions that we’ve seen over time are a result of a life event of an owner. There is either a retirement or a desire for the family, maybe, to sell in light of the patriarch or matriarch passing away. And so we’ve seen that happen. So the key for us is to just keep engaged with these owners that were interested in the assets that we’re interested in owning.

So no real change to that. I mean, the thing you mentioned rates. Many of these assets that we are interested in do not have any financing on them. They’re free of debt. So that isn’t a driver for the owner to have to refinance or anything like that. here is really no distress in these assets at all.

James Feldman

Okay. If I could just ask, like how many assets are you really tracking in each property type?

Marguerite Nader

Well, when you say tracking, I mean, we have a target list that’s been roughly the same target list for the last 30 years because there has been really no new supply in the marketplace. So we have a target list that we focus on assets that we’d like to own, and then, of course, we have a smaller subset of opportunities that we’re looking at right now and that our teams engage with.

James Feldman

Okay. But in terms of, like, account or dollar amount?

Marguerite Nader

Well, we don’t talk — we have never — we don’t talk about the subset. The broader set is that — is that 1,000-plus opportunities that we’re interested in.

James Feldman

Okay. All right. Thank you.

Marguerite Nader

Thank you, Jamie.

Operator

Thank you. And our next question comes from the line of Wes Golladay from Baird. Your question, please.

Wes Golladay

Hi, everyone. Can you comment on annual RV retention if you strip out the change in the hurricane cleanup people?

Paul Seavey

Yes. I mean, our long-term turnover is very similar to the MH portfolio. So customers are staying with us 10 years. So it’s roughly a 10% turnover number.

Wes Golladay

Okay. And then on the seasonal and transient, you mentioned the night issue. Is that just fewer guests showing up or they’re just staying fewer days? And have you seen any impact to supply on the RV side?

Paul Seavey

I think in — well, I’ll take the latter part of the question first. In certain markets, there have been new communities developed and there’s been some impact. But that’s less than a handful of locations across the portfolio. So the supply question isn’t one that broadly impacts the portfolio. It may impact a specific location.

And then with respect to the — excuse me, with respect to the nights, we have seen some pullback in terms of the length of those transient stays as we’ve progressed further from the end of kind of the pandemic period and people’s ultimate flexibility.

Wes Golladay

And if you had to guess, would you — or estimate, would you think that we’ve kind of burned off all that work-from-home pandemic benefit at this point?

Paul Seavey

It seems like we’re burning through the — if we haven’t already, we’re burning through the last of it, this summer season.

Wes Golladay

Okay. Thanks for the time, everyone.

Paul Seavey

Thank you.

Marguerite Nader

Thank you.

Operator

Thank you. And our next question comes from the line of Michael Goldsmith from UBS. Your question, please.

Michael Goldsmith

Good morning. Thanks a lot for taking my questions. We’ve talked a little bit about the weather, but I was wondering if you’ve seen any incremental price sensitivity from your customer on the annual RV membership or transient RV business. I think you called out the average rental cabin rate is $140 compared to the average hotel nightly rate of $160. Is that gap consistent of where it’s been over time? I’m just trying to get a sense of the price sensitivity of the customer right now.

Patrick Waite

Yes, Michael, it’s Patrick. I guess, first, I’ll say that the — we have seen opportunity in rates with both our transient, our seasonal customers, and the annual has, like our MH business has, consistent to be very predictable.

So I would say rate stability and strength across all three business lines. And just to, I guess, touch on a couple of the components that roll up into the total RV revenue, I mentioned the CAGRs earlier, which if you take the longer-term view, have been very consistent when you combine the business lines.

But as a reminder in Q2 for seasonal and transient, on the transient front, April, which now seems like quite some time ago, but is the beginning of our summer season, started with cool, wet weather in some very major markets for us, including throughout the North and Northeast as well as California.

On the seasonal front, where we would usually expect some benefit from a cold winter up North, we had a relatively mild winter and where we would usually pick up some seasonal into the beginning of Q2 through extensions of people that wanted to stay in the Sunbelt.

We didn’t have that same level of pickup. And as Marguerite mentioned, also we’ve had a transition with respect to hurricane workers, whether or not that be construction, traveling nurses, et cetera, as we’re getting further and further away from the inlet that we’ll receive, but we still have that in the comp period.

Michael Goldsmith

Got it. And as a follow-up, how much of the same-store expense guidance adjustment lower was due to savings associated to lower transient RV usage? I’m just trying to get a sense of the ability. I think you’ve done a nice job of offsetting some of the pressure on transient RV with lower expenses. I’m just trying to get a sense of how much of the expense reduction was your ability to kind of adjust lower due to some of the lower demand in transient RV?

Paul Seavey

Yes. I think, I think, Michael, what I mentioned earlier about the repairs and maintenance and the favorable comp that we have year-over-year from those smaller-scale storm events, that’s a relatively significant contributor this year as compared to what we’ve seen in variability on the expenses associated with the transient activity in other periods. So it’s a larger piece than we’ve seen in the past coming from the change in transient.

Michael Goldsmith

And if I can squeeze one more in, can you talk a little bit about the trends that you saw over July 4 weekend and maybe how that compared to Memorial Day?

Patrick Waite

Yes. For the July 4, we finished up 10% year-over-year on transient. A couple of drivers and we’ve spoken about the weather, and broadly, we had favorable weather for the holiday weekend. The holiday also fell on a Thursday this year as opposed to Tuesday last year. And just from a comp perspective, the Wednesday to Sunday holiday weekend this year better fits customers’ time off and vacation plans than a Friday to Tuesday from last year.

Overall, rolling stock performed very well. Rentals even outperformed the rolling stock. And we saw pretty consistent performance across the portfolio, with the Northeast, obviously, summer-focused performing very well, as well as the West, including California.

Michael Goldsmith

Thank you very much.

Patrick Waite

Sure.

Operator

Thank you. And our next question comes from the line of John Kim from BMO Capital Markets. Your question, please.

John Kim

Thank you. So RV demand got a huge boost during COVID. It looks like now, a lot of those gains have been given back. When you look at seasonal transient RV revenue and Thousand Trails membership, they’re both below 2021 levels, but they’re still above 2019 levels. So I’m wondering if that’s the next leg where it goes. Do we retrench all the way back to 2019, both on the revenue and membership side?

Patrick Waite

Well, yes, it’s Patrick. I’ll speak to the revenue. I don’t see retrenching in back to 2019 as a trend coming through in our business. The fact that we’re in a period of normalization off of that COVID peak, which is a fair characterization, and I appreciate the question. But if we look to the trend from 2019, 2018, we see growth across our business lines.

And that comes through in both occupancy and rates. So I would say the fundamentals of the business bear a comparison back to pre-COVID periods. And we’re going through a normalization as opposed to, I guess, I’ll use your term, a retrenchment back to a 2019 level.

Marguerite Nader

And I think the thing to also think about, John, is just as it relates to the Thousand Trails portfolio, I think the team has done a great job of focus on growing that annual base at the properties. I think when we bought the Thousand Trails portfolio, the annual base represented about 7% of the total revenue, and today, it’s about 21%. So we would envision that continuing to grow and support strong fundamentals in the RV business.

John Kim

At the same time, looking at your sites, the annual RV sites went down sequentially this quarter. Transient sites went up sequentially. It’s now at an all-time high. Are those going to be drivers for — or leading indicators of where revenue goes on both, or is the expectation that the transient sites get converted at some point?

Paul Seavey

Well, I think that we’ll continue to see conversion of — excuse me, transient customers to longer-term customers, seasonal and annuals. So I think that there has been a shift, yes, but I don’t think that suggests any change in the long-term business and the ability to attract annual customers to the properties.

John Kim

Final question for me. Can you talk about your ability or history of converting RV sites to MH? I realize some communities have both and some are integrated. But I’m wondering if that’s a potential for the company going forward.

Patrick Waite

Yes. I would say broadly across the portfolio, it’s a relatively low percentage. But with respect to your question, with respect to those properties that have multiple uses, you have MH and RV on the same property. In fact, we toured viewpoint together a few years ago. When we went through a 400-site expansion which is now full, so it’s 400 sites of MH at that property in Phoenix, Arizona, I believe the number, at least on the front end in particular, was into the double-digits with respect to the purchasers of those units. Those MH units were coming from the existing RV customers.

So there’s a relationship there. The more you have proximity in the MH use is proximate to the RV property, there’s more of an opportunity, particularly where we have that shared use opportunity where you’re already embedded in the community, your friends are there, your family’s there, you like the location, you’re familiar with the location, there’s a better opportunity for us to convert that RV customer to MH.

Marguerite Nader

And John, the entitlements are different for RV or MH. So sometimes, that is — can be a barrier to being able to put MH on an RV. But I would envision in the future that some of those barriers may loosen up.

John Kim

Thank you.

Marguerite Nader

Thanks, John.

Operator

Thank you. And our next question comes from the line of David Segall from Green Street Advisors. Your question, please.

David Segall

Hi, thank you. I was wondering if you could talk about where you see MH rent increases going as we’ve seen them decelerate slightly and perhaps in the context of where CPI and cost of living adjustments are trending. Thank you.

Patrick Waite

Yes, sure. I’ll just go through the kind of the recent history of rent increases. Historically, our rent increases have been roughly 140 basis points higher than the COLA increase. And that’s a slide in the investor presentation. As we went through COVID and we experienced a period of high demand and high inflation, our increases reached into the higher-single-digits, which is now normalizing to your point.

And I would expect that long term, the expectation of us being in the range of 140 basis points to 150 basis points of inflation or the COLA adjustment is a reasonable expectation. On that slide, you can see that in periods of higher inflation, our rent increases were more moderate. So that the peaks don’t really come through in a long-term trend for us. As we’ve spoken to many a times, we tend to have a more moderate long-term view of how we manage rent increases over time.

David Segall

Great. Thank you. And my second question was, curious, what do you think is the typical churn level in the memberships as we’ve seen those decline, but still had very good origination volumes? Thank you.

Paul Seavey

Sure. So when we think about attrition in that member base, we have — excuse me, I’m sorry, we have our legacy members who’ve been with us 20 years or more. That attrition, it’s about 7%. And then our Camping Pass customers, that attrition that we see is about 33%. So about one-third of those customers’ churn over. But the other customers have a much higher retention rate.

Operator

Does that answer your questions?

David Segall

Yes, thank you.

Operator

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Marguerite Nader for any closing comments.

Marguerite Nader

Thank you very much for joining us today. We look forward to updating you on our third quarter call.

Operator

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day. ##

 

Part II Additional Information with More MHProNews Analysis and Commentary

1) Nader said: “The demographics of the U.S. population support the demand for our MH and RV portfolio, with 70% of our MH portfolio catering to seniors and the strong interest in RV travel among older adults. Approximately, 70 million baby boomers are currently enjoying their retirement years, followed by nearly 140 million Gen X-ers and millennials. We see long-term generational demand for all of our property offerings. Our MH portfolio, which comprises 60% of our overall revenue, is approximately 95% occupied.” As MHProNews previously noted, that statement by Nader/ELS, which is true enough and thus seems impressive on the surface, ought to call into question their actual performance as a company. Why is their manufactured home (MH) portfolio only 95 percent occupied, with such strong demographic dynamics in place? Why aren’t there properties 99 percent (or higher) occupied? When millions want affordable housing, why aren’t ELS’ MHCs full with a waiting list, feverishly developing more properties?

2) Similar to the above, Nader then brags that they sold 5,500 new homes into their communities over the course of the last ten years. ELS’ recent investor relations (IR) pitch deck says the company has some 202 MHC properties with about 74,700 homesites. It should be kept in mind that they have acquired and developed hundreds of sites over the last decade. That said, using their current stats for simplicities sake that5500/202 = 27.223 new homes spread out over 10 years, or a paltry 2.7223 new homes per year. They are selling less than one new home per quarter per community. Apparently by shamelessly using flourish and razzmatazz, instead of offering an apology, they try to imply that everyone should be dazzled instead of yawning and disappointed.  ELS’ own so-called ‘compelling dynamics’ are reasons that they should be fully occupied, and busily developing, but they aren’t.  To illustrate the point, consider a site builder.

Gemini said of Lennar, a conventional site builder, the following.

“Lennar has built over a million new homes since its inception in 1954”

“Lennar is consistently ranked as one of the largest homebuilders in the United States.”

Using a million homes and diving it by 60, yields this datapoint for comparison. 16666.66. Meaning Lennar has averaged for 60 years producing 16,667 new homes annually. Lennar delivers more homes average per year than ELS sold into their own properties in a decade.
Again, the point is that ELS’ results ought to be embarrassing, based on their own statements.

3) Nader said: “We continue to engage our guests, members and prospects through our social media strategy. We have grown our fan and follower base to over 2 million, across Instagram, YouTube, TikTok, Facebook and other social platforms.” MHProNews has examined a similar ELS remark previously. Once more, the argument can be made that by attempting to dazzle their audience, they are revealing just how poor their ‘engagement’ strategies is in terms of deliverables.

4) Patrick Waite’s remarks are similar on tone and methodology to those noted above delivered by Nader.

The consistency of our results over time comes from our strong property locations and the value that each of our residents and guests finds at their own property. Value is top of mind for consumers across the country, including homebuyers and vacationers. Our offerings are attractive in any economy, and we are particularly well-positioned to serve customers who are looking for value in a challenging economic environment.

Waite has a point, but the results based on that point are apparently dismal. See analysis points in Part II numbers 1-3, above.

 

5) Waite said:

Today’s homebuyers are increasingly focused on value and affordability, given increases in housing costs and higher interest rates. Manufactured housing offers a value advantage compared to site-built homes. The average cost of purchasing an ELS new home is approximately $100,000, compared to $500,000 average cost of purchasing a new site-built home. That value holds true for renters in our portfolio as well. Those who rent a new ELS home pay $1,400, or approximately 35% less than the average three-bedroom apartment in the same submarkets.

Those numbers, on the surface, of manufactured home value vs. conventional housing are indeed compelling.  But they ought to be used to make the case that UMH Properties (UMH) Sam and Eugene Landy previously made. Namely, that new communities with new homes provide a greater ROI than existing properties that are purchased and then filled.

 

 

Recall that Gary Shiffman with Sun Communities (SUI) made a similar remark to the one made by the Landys during a prior SUI earnings call.

 

 

But despite that compelling return on investment in greenfield developing, Shiffman led Sun abruptly said his company would pause developments.  If it seems as if there are numerous contradictions and disconnects in the various facts claims made by Sun and ELS, that could be a fair assessment.

 

 

6) Waite said:

Manufactured home communities offer value in any economy, but in today’s housing market, marked by constrained supply and facing price pressures and increased interest rates, ELS-manufactured home communities present exceptional value. The monthly payments for homebuyers in ELS communities are approximately 70% less than the buyers of single-family homes in the same submarkets.

Taking that at face value, once more, why aren’t ELS properties at 99 percent plus occupancy? Why isn’t the firm feverishly developing new properties, using the enhanced preemption provision of the Manufactured Housing Improvement Act of 2000 (MHIA) to push through zoning barriers? Neither Waite nor Nader have apparently bothered to address that issue, and apparently the analysts on the call are either uninformed on that topic, or are aiding in an apparent coverup of their firm’s true potential vs. their stated business plan.

 

7) Waite said:

Homeowners in ELS communities enjoy comparable fixtures and finishes as site-built homeowners, as well as a resort lifestyle in a community setting, and often lower maintenance costs as well, which is another appealing factor for buyers facing higher living expenses. The combination of home affordability, inventory availability, and the result — resort lifestyle found in our communities makes our offerings very attractive to homebuyers in today’s housing markets.

Again, that would be a perfect bookend to the argument made by the Landys at UMH. It is why companies like ELS, Sun, Flagship, Carlyle, Hometown America, “Frank and Dave” led Impact Communities, Legacy Communities and others should be developing 100,000 new MHC properties in the coming years, as the Landys have advocated.

A comparison is in order. Per Eye on Housing from the National Association of Home Builders (NAHB) is the following dated July 8, 2024.

Reaching the highest level of multifamily completions since 1987, 450,000 multifamily units were completed in 2023, with 216,000 units completed in buildings with fewer than 50 units according to NAHB Analysis of the Census Bureau’s Characteristics of Units in New Multifamily Buildings Completed.

That second data point means that roughly 4,320 complexes were built that had 50 units.  With the Landys’ data in mind, blend in the insight from the bipartisan Minnesota Manufactured Housing Working Group. Manufactured housing can be developed for about 100,000 lower cost per site/unit than multifamily housing.  Because a manufactured housing developer is focused on infrastructure, while the plants that are contracted are focused on production of the new units, again, using the “enhanced preemption” provision of the Manufactured Housing Improvement Act of 2000 (a.k.a.: MHIA, MHIA 2000, 2000 Reform Act, 2000 Reform Law, etc.), there are several reasons to believe that the time to develop could be less when HUD Code manufactured homes are used, and as Waite said, the units can be comparable. Plus, there is more privacy with manufactured homes than multi-family apartments or condos.

 

8) CAGR means “compound annual growth rate.” Waite says their CAGR is approaching 6 percent. If someone believes official inflation data is accurate, then the U.S. Inflation Calculator stated: “The annual inflation rate for the United States was 3% for the 12 months ending June, compared to the previous rate increase of 3.3%, according to U.S. Labor Department data published on July 11, 2024.”
9) Paul Seavey said: “We increased homeowners by 171 sites in the quarter.” Note that per their recent IR relations pitch deck stated that they have 202 manufactured home communities. So, in three months, they averaged less than 1 new homeowner per community on average? What site builder in a desirable market – which ELS routinely stresses they have – wouldn’t be embarrassed by such a low fill rate?

10) Waite said in response to an inquiry from Keegan Carl said: “first, I’ll touch on the rental homes, and Marguerite referenced it in her opening comments, we’re down below 3% of our total occupied sites. That number may continue to go slightly — go down slightly, and we’ll continue to manage that overall load.

But just as a reminder, that’s down from a high of around 9% following the GFC, and we’ve managed that number down to make sure that we’re in a position to be able to respond to any shocks to the broader housing market if rental becomes more of a priority than home sales.” GFC in this context means the “global financial crisis.” Longtime and detail minded readers of MHProNews may recall that the late Sam Zell said at an MHI event in Chicago that rentals, in his view, had to be carefully managed.

But what followed from Waite added additional color to their sales performance:

With respect to our home sales, 225 sales in the quarter, as I mentioned in my comments, up 13% year-over-year. So we continue to see consistent demand. While we have seen some moderation at the higher price points, we still see consistent demand for manufactured homes in our communities. And just as a reference point, pre-COVID, a year where we’re selling, call it, 500 to 600 new homes over the course of a full year, that would be considered a favorable outcome. So if we’re in the 200 new home sales a quarter range, we consider that to be favorable.

There are several takeaways here, but let’s focus on some obvious ones for the discerning. 225 sales per quarter, based on the reported total of some 202 MHCs in their portfolio, is just over one home per quarter. That is sizable an improvement over pre-COVID, said Waite. While improvements should be embraced, the prior point nevertheless holds true. What site builder in a choice market would proudly embrace total sales at a development of about 1 home per quarter? That would be an embarrassment for a production or volume focused site builder.  To illustrate, Copilot said the following, citing U.S. Census data.

• In June 2024, sales of new single-family houses in the United States were at a seasonally adjusted annual rate of 617,000¹.
• The median sales price of new houses sold in June 2024 was $417,300, and the average sales price was $487,200².
• The seasonally-adjusted estimate of new houses for sale at the end of June 2024 was 476,000, representing a supply of 9.3 months at the current sales rate².

Manufactured housing is performing at a fraction of the rate for the sales of conventional single-family housing sales. Yet, as ELS aptly notes, manufactured homes are a fraction of the price of single-family housing. Note too that ELS is demonstrating that manufactured home buyers appear to be price-sensitive, as the more costly homes are selling slower than the more moderately priced ones. And this is in an operation that brags about having premier communities, amenities, and locations.

When MHI member Clayton Homes, most notably is still pushing CrossMods, and to a lesser extent Skyline Champion, or Cavco Industries, it is certainly their right to do so, but it should be called into question with respect to the wisdom of that strategy and its ripple effects throughout the manufactured housing marketplace. See our CrossMods reports for details, and while not specifically CrossMod focused, Frank Rolfe’s stinging published blast on that product. Because Rolfe also thinks that the CrossMod product is costing the industry more sales.

 

 

Now, it should not be presumed that ELS’ better appointed and more costly homes are CrossMods, that’s not the point. But what is the point is that Skyline Champion (SKY) and Cavco Industries (CVCO) have consistently said in more recent months, as ELS did in this earnings call, that it is lower priced homes that are selling. Average selling prices have decreased, say the number two and three builders of HUD Code manufactured homes. So, the blather about going after higher end customers with CrossMods, however wise it may appear to be to the underinformed, is thus far not panning out in the real-world results being reported.

 

 

11) Kagan, asked about the: “transaction market, and if there’s any movement at all on cap rates?” To which ELS CEO Nader replied:

Sure. The transaction market, as you know, has slowed down significantly over the last few years. There are still a lot of buyers that are interested in the assets. Buyers’ cap rate expectations have increased, but sellers really have been slow to adjust. Transaction volume is very low for institutional quality assets. These assets continue to command really strong cap rates, but there’s a lack of product for sale. We’re seeing smaller deals that really don’t fit into our acquisition set trading, often with seller financing.

Those are fascinating remarks.  It could be interpreted several ways.

But on its face, there is an argument to be made that UMH Properties’ leadership of Eugene and Sam Landy saying that the industry should be pushing for essentially a tripling of new communities in the coming years is prudent, not ‘asinine’ as fellow MHI member Frank Rolfe disparagingly, and arguably wrongly, said.

 

While Rolfe seems to be correct in observing (see the report linked above) that there is no serious desire to solve the affordable housing crisis, he is arguably just as wrong when he slammed the Landys’ pro-greenfield developments observations.   For too long, UMH has been the butt of ribbing by numbers of the larger fellow MHI member community operators. While MHProNews has pointed out that they too need to work on increasing their sales volume, nevertheless, their business model and bold call for more developing, not less or none, highlights the tension within MHI and the industry. Some are quite obviously in favor of very limited growth, while others – and the Landys seem to be in this camp – want more robust growth which would necessitate more sales.

12) Samir Khanal’s follow up on acquisitions, based on the evidence and in our view, elicited a follow up statement from Nader that only served to underscore the prudence of the Landys stated desire to see more developing occur. While Nader said they are poised to do a deal if it fits their standards, it should be obvious that developing could be occurring that certainly fits their standards.

Their own internal logic is being contradicted by the prudence of developing more and using the Manufactured Housing Improvement Act of 2000 and its enhanced preemption provision to make that happen. While the self-serving aspect of allowing the thwarting of new developments and using NIMBYism to their own advantage may seem reasonable to some, the articles and related points made above demonstrate that ELS’s leaders are demonstrably mistaken.

 

To see this image below in a larger size, depending on your device,
click the image and follow the prompts.

 

 

13) The follow up is also illuminating. Nader told James Feldman:

I mean, we have a target list that’s been roughly the same target list for the last 30 years because there has been really no new supply in the marketplace.

That ought to be stunning, but that is the reality of the manufactured home community marketplace.  Again, see the graphic from the ELS pitch deck in #12 posted above. Developing plummeted in the 21st century. One would think that as the population grew, and as the demand for affordable housing grew, so would manufactured home sales, production, and developing. But broadly, that has not been the case.

 

14) As if to emphasize how backwards this ELS business model thesis warped thought process is, Nader said there is 1000 properties on their list of hoped for acquisitions.

The broader set is that — is that 1,000-plus opportunities that we’re interested in.

MHProNews won’t detail at this moment, beyond what has been observed and linked above, how curiously closed minded that appears to be based on the look the other direction mantra that Zell preached. One of the top two by site-count community operators in the nation, with 202 ‘premier’ properties, and out of some 50,000 properties in the country, they are only interest in 1000? Many of those are no doubt held by their rivals in the better properties category, firms like Sun, Hometown, Carlyle, etc.  And for the sake of those 1000 properties, the entire manufactured housing industry is being more or less held hostage, due to the influence of the consolidators of manufactured housing at MHI?

Its madness. While it may make managing ELS’s portfolio easier in some ways, because they don’t have to go beyond their comfort zones, it is arguably harming the potential ROI for investors, it is arguably harming the interests of the residents of land-lease communities because of the upward pressure a lack of robust development has on site fees. Easier to manage? Sure. Better use for their capital, industry interests, the nation or affordable housing seekers? There is a case to be made, see the bullets and linked items above and herein, that the answer ought to be NO.

 

15) In fairness, the remarks around converting some RV customers into manufactured home customers is interesting. But a similar remark has been made by a community operator to MHProNews when an operator owns apartments too. It is easier to get an apartment resident into a manufactured home land-lease community, stated that operator, when they have been renting an apartment nearby.

Also, in fairness, obviously ELS ‘performs’ based on their business model.

But the question should be pressed, could they be performing better? For those into the “ESG” mindset, isn’t it obvious that the greater societal benefit comes from producing more new opportunities for affordable housing, rather than waiting for the right deal on a limited pool of 1000 properties across the country? Where is the visionary thinking at ELS? Why not develop, for instance, a land-lease community in Hawaii and have homes shipped there (and/or produced on the island) to create more options for quality affordable living on an already costly part of the U.S.?

 

16) This article headlined and opened with the observation that General Patton said he doesn’t like paying for real estate twice. While the analogy is not perfect, the resources that ELS has could be deployed into develop new properties with new housing would arguably provide fewer negative issues in the marketplace.

By failing to press new developing, by thwarting that process in concert with other MHI insiders, there is an evidence-based case to be made that they are fostering NIMBYism toward manufactured housing. Because there is only so much they can squeeze out of an existing property, to some extent, ELS’s mindset are thwarting the deployment of their own resources. They are, in effect, paying for the same real estate twice because of their narrow-minded focus.

 

17) From the IR page 20 shown in #12 above it said this:

Reasons for the Supply Constraint

• NIMBY (Not in my backyard)
• Restricted zoning & regulations
• Federal planning vs local planning

That same page also said:

Growing demand coupled with almost no new supply is a strategic advantage for ELS

And:

There has been limited MH development in the U.S. in the past 20 years

The source for that data is ELS owned Datacomp, per the footnote on that page, even though there is no mention there that Datacomp is owned by ELS.

It is hardly a matter of speculation that NIMBYism is considered an advantage by ELS’ management. NIMBYism, with respect to manufactured housing is fostered in part by the poor behavior often claimed by residents of their management.

 

 

No doubt ELS has happy residents, but they have unhappy ones too, like the individual who posted this video above. A remark on that video from an apparent ELS resident said this:

I think what was done causing ruin to those lot renters to lose all the beauty of their property is shameful. ELS refusing the compensate these lot renters for damages done is typical of ELS and should be illegal with penalties for their actions. If it was the sea wall company, than ELS can sue them. Those of us living here only owe ELS, and boy…would I ever like to give them what they deserve. …”

 

18) In the light of such items, consider this MHProNews Q&A with Bing’s AI powered Copilot.

Is a deliberate market constraint by one or more companies a potential antitrust violation?

Yes, deliberate market constraints imposed by companies can potentially violate antitrust laws. Let me explain further:

1. Antitrust Laws:
   • Antitrust laws aim to promote fair competition and prevent monopolistic practices that harm consumers and other businesses.
   • The Sherman Antitrust Act (enacted in 1890) is a key piece of legislation in the United States. It prohibits monopolies and other practices that restrain trade.
   • Some restraints are considered “per se” violations, such as price fixing (where companies collude to set prices) and market allocation (where companies divide markets among themselves).
   • Other restraints are analyzed under the “rule of reason” to determine if they unreasonably restrict trade¹.
2. Market Power:
   • To constitute an antitrust violation, a company’s actions must affect market power.
   • Market power refers to a company’s ability to influence prices, output, or competition in a specific market.
   • Conduct that increases market power without being based on legitimate competition (i.e., not “competition on the merits”) may violate antitrust laws².
3. Examples:
   • Price Fixing: When companies conspire to set prices artificially high or low, it harms competition and consumers.
   • Market Allocation: Companies dividing markets or customers among themselves can limit competition and harm consumers.
   • Monopolization: Attempts to monopolize a market or maintain a monopoly position can violate antitrust laws.
4. Legal Consequences:
   • Violations of antitrust laws can lead to fines, injunctions, and private lawsuits.
   • The Clayton Antitrust Act (also from 1914) prohibits certain practices not explicitly covered by the Sherman Act, including mergers that harm competition or create a monopoly.
   • Individuals and businesses affected by antitrust violations can seek triple damages and court orders against unlawful practices¹.

Remember that antitrust laws vary by country, and enforcement depends on specific circumstances. If you suspect anticompetitive behavior, consulting legal experts or regulatory authorities is advisable. …”

It must be recalled that about a dozen years ago, Sam Zell said during an earnings call that they liked the oligopoly nature of the manufactured home community business.

 

 

19) The decision rendered in the Google antitrust case should be pondered by ELS leaders and investors, if Matt Stoller and others are correct in saying that antitrust is back. But more specifically with respect to the pending class action/antitrust matters pending. Should those litigants get into the discovery phrase, articles like this might prove useful to those suing ELS, Sun,  ELS owned Datacomp, and several other MHI members. While legal matters like the Rosen probe are often settled out of court, if it gets into discovery, they too might probe such concerns as are outlined herein. Because there is a fiduciary duty on the part of ELS leaders to work towards the maximum shareholder benefit, not the easiest course of action for a method that management may tout as being ‘consistent in performance’ but is nevertheless arguably not as good as the firm’s potential is based on their extensive resources.

 

 

 

20) How much of ELS behavior is driven by institutional investors ought to be another line of inquiry.

 

 

21) ELS’ Nader previously, and arguably aptly, called MHI ‘their’ association. ELS has two board members on their main board, one of whom – Patrick Waite – is on the MHI executive committee.  A policy objective of MHI is getting lawmakers to better understand the community sector. Perhaps implied in that is there is significant smoke arising nationally about so-called predatory behavior by several firms, who are often either MHI members and/or are members of an MHI linked state association. ELS reportedly has had memberships at the state and national levels.

 

22) Manufactured housing is both a complex and a simple profession. On the simplicity side is the argument that ELS themselves have stated or alluded to numerous times. Namely, that manufactured homes are affordable housing that is much needed during an obvious affordable housing crisis.

 

But instead of pressing the advantages that the MHIA and “enhanced preemption” could be providing to the industry, several prominent MHI member brands – which apparently includes ELS – are pushing the opposite. Where is there a member of “enhanced preemption” by ELS during an earnings call or by ELS owned MHInsider on their website? MHI itself, and other firms that are ‘MHI award winners’ like ManufacturedHomes.com magically fail to mention federal enhanced preemption on their websites. The significance is that preemption could make developing much easier, as has been demonstrated by statewide preemption obtained in California by so-called Accessory Dwelling Units (ADUs).

 

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23) In the 2nd video posted above, Zell said the 1 percent work harder. Do they? If they are working harder, is it to cagily limit organic growth so as to make their assets seem more valuable as a result of supply constraints? It is really not a matter of speculation, when ELS has plainly said as much in their own investor pitch. Limited development also means limited industry growth.  Some years ago, former MHI vice president turned Manufactured Housing Association for Regulatory Reform (MHARR) founding president and CEO Danny Ghorbani was honored by the RV MH Hall of Fame. Part of that honor was because Ghorbani helped in the development of some 200,000 new home sites that mobile homes and manufactured homes later occupied.  Meaning, development was part of the DNA of MHI back in the industry’s heyday.  Fast forward to the 21st century. MHI holds seminars on developing, because they can charge people to attend and get consultants who charge people to convince zoning boards to approve an often difficult to obtain approval for a new development. What MHI, and companies like ELS, could be doing is flexing their legal muscle by suing as needed until the MHIA’s enhanced preemption provision is routinely honored by local zoning officials.  It is potentially a huge advantage that manufactured housing could have over site developers of both single family and multifamily housing.

But so long as the upside-down world of less is better for their business model thinkers dominate MHI – obviously including firms like ELS, but not limited to them – then conventional housing developers will have the upper hand. And it is firms like ELS and their “oligopoly” minded cohort that are limiting the industry. No wonder manufactured housing went down in production and has stayed down in the 21st century.

Are there other factors that explain the industry’s underperformance?  Yes. But in several cases those factors likewise can be traced back to curious, contradictory, and duplicitous behavior by MHI insiders. The finger can be pointed at public officials, but if MHI and firms like ELS aren’t using the courts to get federal preemption and the Duty to Serve manufactured housing consistently enforced, then why would public officials relent? Media can be blamed for not understanding manufactured housing, but if companies like ELS and their oligopoly insiders dominated MHI not care about the negative media that is stirred up that fuels NIMBYism against manufactured homes, who is more to blame?

ELS thus is stuck in a rut of their own management’s choosing. They have paid for the MHC real estate, but they apparently keep paying for it by limiting the industry’s own development potential and thus their own. But this isn’t just an arguable drawback to ELS’ investors. It is also harmful to the residents, taxpayers, and to society at large.

These are examples of why it can pay to stay tuned to your most reliable source for manufactured housing “Industry News, Tips, and Views that Pros Can Use” ^© where “We Provide, You Decide.” ^©

 

 

Programming notice: watch for more earnings call related insights on MHProNews. Don’t be surprised if they continue to support the kind of analysis found here, and note that Waite and MHI have not yet responded to the last set of inquiries. If they do, count on MHProNews/MHLivingNews to let you know. Because there are reasons why we dominate in MHVille trade media. It includes the fact that we present the facts, evidence, and analysis that is found nowhere else among our wannabe rivals. Some people may not like what reality reveals, but grasping reality is necessary and useful for authentic progress to occur. ###

$100M-Equity LifeStyle Properties (ELS) Marguerite Nader-President-CEO, Patrick Waite-EVP-COO, Paul Seavey-EVP-CFO in Q4 2023 Earnings Call Transcript (2024) Eye-Opening Fact Checks and Analysis

Pucker Up Buttercup–Matthews Real Estate Investment Services ‘Manufactured Housing Update’ ‘Secret Behind Popularity Surge’ Claims Revealed-Unpacked; plus Sunday Weekly MHVille Headlines Review

 

 

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Report – 61% of Renters Can’t Afford Median Apartment Rate in U.S. per Redfin and Center Square’s Bethany Blakely – Obvious and Subtle MHVille Implications-Facts-Analysis; plus MHMarkets

MHAction Demand Letter to Impact Communities’ Dave Reynolds, Frank Rolfe’s Partner, Calls on Manufactured Housing Institute to Cancel Impact Communities MHI Membership – “Hypocrisy Anyone?”

The One Thing that Might Work at Improving U.S. Housing Crisis Faster than More Manufactured Housing Production – Which Others in MHVille Have Downplayed-Ignored; plus MHVille Markets

Again, our thanks to free email subscribers and all readers like you, as well as our tipsters/sources, sponsors and God for making and keeping us the runaway number one source for authentic “News through the lens of manufactured homes and factory-built housing” © where “We Provide, You Decide.” © ## (Affordable housing, manufactured homes, reports, fact-checks, analysis, and commentary. Third-party images or content are provided under fair use guidelines for media.) See Related Reports, further below. Text/image boxes often are hot-linked to other reports that can be access by clicking on them.)

By L.A. “Tony” Kovach – for MHProNews.com.

Tony earned a journalism scholarship and earned numerous awards in history and in manufactured housing.

For example, he earned the prestigious Lottinville Award in history from the University of Oklahoma, where he studied history and business management. He’s a managing member and co-founder of LifeStyle Factory Homes, LLC, the parent company to MHProNews, and MHLivingNews.com.

This article reflects the LLC’s and/or the writer’s position and may or may not reflect the views of sponsors or supporters.

http://latonykovach.com

Connect on LinkedIn: http://www.linkedin.com/in/latonykovach

 

 

Related References:

The text/image boxes below are linked to other reports, which can be accessed by clicking on them.’

‘Homeownership Slipped Out of Reach for Millions in U.S.’ ‘Investors Snatching Up 1 in 5 Homes for Sale Scooping Up Affordable Housing’ Redfin and Other Data Reveal MHVille Obstacles and Opportunities

Niskanen Center Armlovich-Jimenez-Justus Tout Manufactured Homes-House Financial Services Committee Housing Affordability-Governmental Barriers-Market Based Solutions; Sunday MHVille Headlines Recap

June is National Home Ownership Month-Affordable Housing-Manufactured Housing Institute Controversies plus Industry Facts-Figures-Trends-Challenges in May 2024 – The Top 40 – plus MHVille Markets Update

‘Hit the Ball and Drag Jack’ What Classic Golfer Jest Teaches Career and Growth-Minded Manufactured Home Professionals About Manufactured Housing Institute; plus Sunday Weekly Headlines Recap

Evidence of Truly Affordable Housing Hiding in Plain Sight – ‘Average Sales Price of New Manufactured Homes by Region and Size of Home’ per U.S. Census Bureau Data; plus MHVille Markets Update

Investopedia Asks Common Sense Question – What Would it Take for Houses to Be Affordable in the U.S. Again? NAR’s Lawrence Yun Weighs In – MHVille Takeaways; plus MHVille Markets

‘See To It That No One Deceives You’ – Better Understanding the State of the U.S.A., World, and Manufactured Housing Today; plus MHVille’s Top 30 Report and the MHMarkets Update