ELS - NYSE

Good day, everyone and thank you all for joining us to discuss Equity LifeStyle Properties Second Quarter 2023 Results. Our features, speakers today are Marguerite Nader, our President and CEO; Paul Seavey, our Executive Vice President and CFO and Patrick Waite, our Executive Vice President and COO. In advance of today's call, management released earnings. Today's call will consist of opening remarks and a question-and-answer session with management relating to the company's earnings release. For those who would like to participate in the question-and-answer session, management ask that you limit yourself to 2 questions. So everyone who would like to participate have an ample opportunity. As a reminder, this call is being recorded. Certain matters discussed during this conference call may contain forward-looking statements in the meaning of the federal securities laws. Our forward-looking statements are subject to certain economic risks and uncertainty. The company assumes no obligation to update or supplement any statements that become untrue and because of subsequent events. In addition, during today's call, we will discuss non-GAAP -- we 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 and thank you for joining us today. I am pleased to report the results for the second quarter of 2023. Our performance exceeded our expectations in the quarter driven by continued strength in our annual revenue and reduced expenses throughout our portfolio. The quality of our revenue streams and the strength of our balance sheet continues to allow us to report impressive results. Our core NOI exceeded our guidance in the quarter with 3.5% growth year-over-year. Our MH portfolio is approximately 95% occupied. Over the last 10 years, we have sold over 6,000 new homes in our community. These new homes contribute to the quality of housing stocks in the community. Our residents have enjoyed the ability to resell their homes in a timely manner and ELS benefits from bringing a new resident into the community at a market rate increase. Year-to-date, the mark-to-market for new homeowners has been over 13%. Currently, less than 4% 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. Our communities offer an incredible value proposition. The cost to purchase a manufactured home is significantly less than a single-family home. The average cost of a site-built home in the U.S. is approximately $500,000, while our homes sell for an average of $102,000. Manufactured housing is an efficient way to address the housing shortage in the U.S. The affordability of manufactured homes, coupled with the high-quality amenities in our communities create the continued demand for our properties. Prospective residents interest in our community remains solid. We sold 226 new homes during the second quarter, contributing to stable portfolio occupancy. While home sales are down compared to the historical highs of last year, our home sale business is strong by comparison to typical years. 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 8.3% for the full year 2023. The full year guidance and results for the quarter for our transient business are impacted by California storms and a reduced number of transient sites. Our team's focus on providing best-in-class customer experience helps drive guest retention and attract new prospects to our RV properties. TripAdvisor collects customer reviews and uses the information to spotlight the very best destinations with the Travelers Choice Award. In June, TripAdvisor announced that 49 ELS RV properties were named winners of the Travelers Choice Award. These awards acknowledge the efforts of our property teams to create lasting memories with friends and families across our portfolio. We continue to engage our guest members and prospects through our social media strategy. We have grown our fan and follower base to 1.8 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 camping between Memorial Day and Labor Day. In May, we announced the passing of our Chairman, Sam

Thank you, Marguerite and good morning, everyone. I will review our results for the second quarter and June year-to-date highlight our guidance assumptions for the third quarter and full year 2023 and close with a discussion of our balance sheet. For the second quarter, we reported $0.66 normalized FFO per share. Core and noncore property operating income outperformed our expectations. Core MH rent increased 6.7% in the second quarter and 6.6% year-to-date compared to the same period last year. Rent growth in the second quarter includes approximately 7% rate growth as a result of our rent increases to in-place residents and our 13% mark-to-market on turnover when a new resident moves in. Core RV and marina annual base rental income which represents approximately 2/3 of total RV and Marina based rental income increased 7.8% in the second quarter and 8.1% year-to-date compared to prior year. Annual RV and marina rate increases generated approximately 7.1% growth in the year-to-date period, with occupancy contributing close to 90 basis points of growth. Since June 2022, we've increased our core annual occupied sites by 240. Year-to-date, in the core portfolio, seasonal rent increased 9.2%, offsetting some of the transient decline we've experienced as a result of challenging weather patterns and site usage increasing for longer-term stays. We also experienced offsetting reductions in variable expenses that I'll discuss shortly. On a combined basis, core seasonal and transient rent decreased approximately 3.2% in the year-to-date period compared to prior year. Membership dues revenue increased 3.8% and 4.6% for the quarter and year-to-date, respectively, compared to the prior year. Year-to-date, we've sold approximately 11,300 Thousand Trails Camping Pass memberships. This represents a 10% increase over pre-pandemic membership sales in the first half of 2019. Also during the year-to-date period, members purchased approximately 1,900 upgrades at an average price of approximately $9,000. Core utility and other income was in line with our expectations for the quarter. The increase in the quarter compared to the same period last year was mainly the result of higher utility income. Our utility recovery rate for the year-to-date period was 45.6% compared to 44.7% in the same period last year. Also, during the quarter, we recorded approximately $1.3 million of revenue associated with sites leased to provide housing for displaced residents in the Fort Myers, Florida market. Core property operating expense growth was 7% in the second quarter and 7.2% year-to-date. The second quarter growth rate was 340 basis points lower than the midpoint of our guidance range. Our 3 main operating expense line items, utility, payroll and repairs and maintenance expenses all showed moderation in second quarter year-over-year growth rates when compared to the first quarter growth rates. In the second quarter, property operating and maintenance expenses were approximately $3.7 million favorable to our guidance. Utility expense and property payroll on a combined basis represented more than 85% of this favorable variance. As we review the expense savings at properties with lower than forecast transient revenues, we saw a strong correlation. Essentially, the transient RV revenue variance to our forecast was offset by expense savings in utility and payroll expense. In summary, second quarter core property operating revenues increased 5% and core NOI before property management increased 3.5%. For the year-to-date period, core property operating revenues increased 5.7% and core NOI before property management increased 4.6%. As mentioned in our earnings release, in the second quarter, 2 properties were moved to the noncore portfolio from the core portfolio. These California Thousand Trails properties which combined generated modest NOI in 2022 of a few hundred thousand dollars were impacted by storms and the flooding events earlier this year. Following the storms, we suspended operations, resulting in a determination to present them with our noncore portfolio. Income from property operations generated by our noncore portfolio was $9 million in the quarter and $14.9 million year-to-date. These results outperformed our expectations as a result of lower-than-expected utility and payroll expenses. Property management and corporate G&A expenses were $36 million for the second quarter of 2023, $67.1 million for the year-to-date period. The second quarter and year-to-date amounts include the expense associated with accelerated stock compensation vesting. Other income and expenses which includes home sale profits, brokered resales, ancillary retail and restaurant operations, interest income as well as JV and other corporate income generated a net contribution of $7.9 million for the quarter and $14.5 million year-to-date. Interest and related loan cost amortization expense was $33.1 million for the quarter and $65.7 million for the year-to-date period. The press release provides an overview of third quarter and full year 2023 earnings guidance. As I provide some context for the information we've provided, keep in mind my remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints in our guidance range and are qualified by the risk factors included in our press release and supplemental financial information. A significant factor in our guidance assumptions for the remainder of 2023 is the level of demand for shorter-term stays in our RV communities. We have developed guidance based on current customer reservation trends. We provide no assurance that our actual results will be consistent with our guidance and we assume no obligation to update guidance as conditions change. We have increased our full year 2023 normalized FFO guidance to $2.85 per share at the midpoint of our range of $2.80 to $2.90 per share. Full year normalized FFO per share at the midpoint represents an estimated 4.5% growth rate compared to 2022. We expect third quarter normalized FFO per share in the range of $0.68 to $0.74. Full year core NOI is projected to increase 5.4% at the midpoint of our guidance range of 4.9% to 5.9%. We project a core NOI growth rate range of 5.2% to 5.8% for the third quarter and expect NOI for the quarter to represent 25% of full year core NOI. Full year guidance assumes core rent growth in the ranges of 6.3% to 7.3% for MH and 7.8% to 8.8% for our annual RV rents. Our guidance assumptions for the third and fourth quarters include MH occupancy gained in the second quarter with no assumed occupancy increase in the second half of the year. Our assumptions for expense growth reflect current expectations based on year-to-date activity and our review of property level and consolidated expense projections for the remainder of the year. As a reminder, we make no assumptions for storm events that may occur. The midpoints of our guidance assumptions for combined seasonal and transient show a decline of 6.2% in the third quarter, a decline of 2.5% for the full year compared to the respective periods last year. Our guidance for the [indiscernible] during the year. We also assume the debt capital transactions announced in our earnings release will close during the third quarter and use of proceeds will be consistent with the comments I'll make in a moment. The full year guidance model makes no assumptions regarding other capital events or the use of free cash flow we expect to generate in the remainder of 2023. Now some comments on our balance sheet. In our earnings release, we announced secured debt transactions that are expected to generate proceeds of approximately $464 million at a weighted average interest rate of 5.05%. The primary use of proceeds from these transactions include repayment of our 2023 and 2024 secured debt maturities and the balance on our unsecured line of credit. The weighted average maturity of these loans is 8 years. We are extremely pleased with the execution of these loans which leveraged a long-standing life company relationship and demonstrated the value of a structured facility with 1 of the GSEs and that included terms allowing incremental borrowings as property values increase over time. After closing these loans and repaying secured debt maturities we will have addressed all debt scheduled to mature between now and April 2025. Our debt maturity schedule will show 22% of our outstanding debt matures over the next 5 years. This compares to an average of approximately 50% for REITs. In addition, 21% of our outstanding secured debt is fully amortizing and carries no refinancing risk. Current secured debt terms available for MH and RV assets range from 50% to 75% LTV with rates from 5% to 6% for 10-year maturities. High-quality age-qualified MH will command best financing terms. RV assets with a high percentage of annual occupancy have access to financing from certain life companies as well as CMBS lenders. Life companies continue to express interest in high-quality communities, though some have set limits on capacity and pricing. We continue to place high importance on balance sheet flexibility and we believe we have multiple sources of capital available to us. Our debt-to-EBITDA are is 5.2x and our interest coverage is 5.4x. The weighted average maturity of our outstanding secured debt is approximately 10.6 years. Now, we would like to open it up for questions.

[Operator Instructions] Our first question will come from the line of Josh Dennerlein from Bank of America.

So curious on the ability to flex expenses on the transient side. I kind of don't really recall that happening in the past. Has something changed? And can you kind of walk us through like, is that just a summer event or something you can do throughout the year?

Yes, Josh, I think there are a few things to highlight as we talk about expense growth experience in the second quarter and our expectations for the full year. So first, I'll talk about utility expenses. As I mentioned, we experienced continued moderation in growth in electric rates during the quarter. So the average increase in rate was approximately 8% for the quarter and the most recent billing period, it was closer to 6% year-over-year. This compares to the rate increases in the mid-teens that we experienced in the second half of last year that had moderated to around 9% in the first quarter. In addition, the reduced site usage in the transient footprint during the second quarter resulted in lower utility usage overall. Then with regard to payroll expense, we have a large population of hourly workers that support our guest experience in the RV communities. And I'll remind everyone that we discussed on the April call that we were experiencing some unfavorable weather patterns, including delayed openings at certain of our Northern resorts. These delays resulted in expense savings relative to our forecast. In addition, in the ordinary course of business, as we monitor upcoming reservations, we continually review property staffing levels. And if the transient reservation pace is not matching our plan, we do have the ability to adjust schedules for those hourly employees on property. So as I mentioned in my remarks, payroll and utility expenses generated savings compared to our forecast, essentially, they offset the unfavorable variance in the transient rent. And those savings were generated from the combination of variables that I just highlighted.

Okay. No, that's good additional color. Maybe on the 2 assets that were moved into the non-same-store pool, can you just provide a little bit more detail on how long you expect those to be? Are they down? Or they just moved out of the pool? And what happened there? And any impact on the same-store growth rates as a result?

Yes. I think on the last call, Patrick talked a little bit about the fact we had 3,000 Trails properties that were impacted by storms in California. At the time, 1 of them had partial disruption to operations and the other 2 had suspended operations. During the second quarter as we assessed the condition of those properties, we determined that the time to return those 2 properties that had suspended operations to normal operations was going to be longer than expected. And so that it will extend into 2024. So we moved them to our noncore portfolio in the second quarter. As I mentioned in my remarks, that NOI contribution in 2022 from those 2 properties was modest. It was a few hundred thousand dollars. So they are 1,000 Trails properties. So the dues revenue overall isn't impacted by the fact that the properties are off-line. It's any kind of ancillary or incremental revenue that is generated at those locations.

Our next question will come from the line of Brad Heffern from RBC.

On the expense guide, obviously, it moves lower and you talked about that being due to lower transient activity. I'm curious, is all of the reduction due to the lower transient volumes? Or have some things on the expense front also come in better than expected, excluding the transient piece of it?

Yes, Brad, as I was just walking through, I mean, we definitely have seen moderation in electric expense on the utility side. So that moderation in the quarter, the average rate increase quarter-over-quarter compared to last year dropped to 8%. It was down to 6% by June. That compared to 9% in the first quarter and then compared to the mid-teens last year. So they're definitely across the portfolio is a favorable impact associated with the utilities.

And that's, Brad, that's rate and then there's also a reduction in usage because there's less training these guests.

Right.

Yes. Okay, perfect. Got it. And then, on the hurricane impact from last year, I saw you got another $4 million of business interruption this quarter. Can you give an update on where those hurricane-affected properties stand right now? And are we currently in a situation or will we be in a situation at some point where you're sort of over-earning because you're getting business interruption proceeds on a lag and the parks are back up?

I can take the latter part of the question and then maybe Patrick will talk about the condition of the properties. There's definitely a timing issue with respect to the recovery. So as we've talked before, business interruption proceeds are recognized upon receipt. And so, we -- as of the end of 2022, we had not recorded or not received business interruption proceeds. The event did occur in at the end of the third quarter last year. So there was definitely an impact in 2022 and proceeds started to be received in '23. So we do have a timing lag. Those properties are now out of season because they're Florida properties. And so as we're working on our submission, we're definitely collecting proceeds in arrears.

Yes. And just with respect to the timing of those properties returning to operations. All but 1 are operating currently as we go through repairs and improvements to bring the properties fully back online. The 1 remaining property will come online in the third quarter at partial operations and we'll continue to build capacity over the next few quarters. I would expect roughly half of those properties to be online by the by the end of the year and the other half to come on in subsequent quarters depending on the scale of the build back that's required.

Our next question is comes from the line of John Kim from BMO.

On your transient are on your transient RV decline in revenue of 13.9%, how much would you attribute this to lower demand from the storms which you cited versus fewer transient sites? And I asked this because when you look at the number of transient sites you have on Page 12 of your supplement, it's kind of bounced around the last few quarters but it has averaged 14,900 which is what you had in the second quarter. So it seems like it's more of a demand issue than a site issue but just wanted to get your comments on that.

Yes, John, maybe Patrick can walk through the demand and just the difference on the transient and maybe Paul will touch a little bit on the site count.

So John, I think the way to think about it is longer-term stays, weather disruptions and that normalizing of demand that you just referenced, I think of it relatively evenly split across each 1 of those categories. The longer-term states we've talked about our view of the predictable stable revenue on the annual front is a consistent theme for us and we continue to grow that business. Paul really touched on the weather disruptions. One thing that I'd highlight there is we have a property at Yosemite adjacent to the National Park. That property was pretty significantly impacted by heavy snowfall then snow melts, coupled with rainfall that led to road closures around the park and around our property in April and June. So that had kind of an outsized impact. I think Paul also mentioned, Pennsylvania, we had a very cool start to the summer camping season and that was headwind. And last is that point that you're talking about is just a normalization of demand. And we see that coming through kind of broadly but also you think about kind of our key destination resorts, the Keys in Florida, a significant property, flagship property that we have in the Orlando area, a couple of our flagship properties on the East Coast as well as the Pacific Northwest. And that's where we've seen because of the destination nature and the significant pickup in demand immediately following COVID is that's normalizing. That's where that type of impact has been more concentrated.

And I think, John, as you see in our press release, we kind of compare just on a total nights basis compared to 2019 and we're up about 8% on a total night basis.

And John, just in terms of sites when you think about the transient, the presentation in the supplemental is total and the core -- the growth rate that we're talking about is core. So there's a difference there. And we do have the -- there's kind of a change that occurs on a quarterly basis, that is the result of the expansion sites that we add to the portfolio which I'll just give you the example of the past quarter. I think we were down about 100 sites, if you look at first quarter compared to second quarter. We actually had about 400 sites that moved to annual and we added 200-plus expansion sites to the portfolio. So that kind of nets to the $100 difference.

And can you remind us of how you define transient versus seasonal like what's the number of days that you just pay for it to be considered a seasonal side?

Longer than 30.

Okay. So, on Patrick's commentary that the length of stay isn't as long, that's purely on the transient side. Like people are coming but not staying as long as they had to.

That's correct, John.

And our next question will come from the line of Eric Wolfe from Citi.

It seems like most are predicting that the comp and living adjustment for social security will be around 3% this year. Can you just give us a sense for what that will mean for your rate growth negotiations on the MH side? And like would it be possible, for instance, to get over 5% rate growth is the talk of living adjusted is closer to 3%.

Yes. I think that Eric, it depends, it's obviously on a property-by-property basis. But within our MH portfolio, about 70% of our portfolio is age qualified. And so our residents are really are focused on that social security increase. The average full security right now check for an individual is around, I think, $1,700 and about $2,700 for a couple kind of living in our community. Over the last couple of years, they've seen some large increases in social security, in line with the CPI. And current estimates are per colo to increase about 3% which would be about a $51 to $80, I think, increase in monthly benefits for our customer base. And kind of just for reference, our average rent in our portfolio is $800 and the average rent increase over the last 10 years has been about $26. So I think those are important components that we talk to our residents about. I think it's -- you'll note that our adjustments have -- we've historically outpaced the colo adjustments. And I would imagine that we would continue to do that. But it really is a buildup on a property-by-property basis that starts now, frankly and kind of continues into the fall.

That's really helpful. I guess, historically, how much have you sort of outpaced the colo adjustment?

I don't have that number in front of me. I think it's by 150 basis, 200 basis points, something like that. We can get back to you, Eric, unless, Paul, you know that.

I was just going to say -- I think over the long history, that's true. Keep in mind, Eric, there was a period of time when the colo adjustment was 0 and we were achieving rent increases that were in the 4-ish percent range. But over long history, I think my rate's right about 150 basis points.

Paul, Nick [ph] here with Eric. Just a quick question on, I guess, the decision to take out the California properties from the same-store pool. More just kind of how you think about it from a policy perspective, obviously, weather events continue to happen. So kind of what is the test to remove the property versus keep it in that pool?

Yes. It really -- Nick, it's actually an interesting question to ask in this quarter because we had an example of a property that was partially disrupted and we had 2 properties that had suspended operations. And our practice that we established a number of years ago following Hurricane Irma is -- has been to move those properties when operations are completely suspended. And so as we consider the circumstances of these locations, the other element that we think about is the length of time that operations will be disrupted. And because they are going to extend into the subsequent calendar year, that fits our definition of when it's appropriate to move the property to noncore.

And then they would come back into the core in 2025 to create an apples-to-apples comparison within our numbers.

And our next question comes from the line of James Feldman from Wells Fargo.

So the annual RV and Marina growth rate of 8.3%, down from 8.4% in your last guidance. Can you break that out by RV versus Marina and how that's changed versus the last guidance?

Shoot. I don't have that in front of me, James. RV versus Marina, I'll say that the marina rate is essentially in line with our last guidance which is about a 4.5% increase. And so the slight variability came from the RV and the Marine about -- it's around 10% of that total rent.

Okay. And then we're focusing a lot on the transient RV business. Can you talk about the marina business? I know it's heavily weighted towards annual leases but are you seeing like weather impact there? Or is this pretty much an RV discussion we're having about some of the impacts you've seen in the quarter?

The impacts we've seen in the quarter really relate to the transient piece and we don't have a large piece of transient business inside of the marina space. But Patrick can certainly walk through where we're at in the marina space.

In the annual business, as Mary pointed out, I mean that's the significant majority. It's almost exclusively the revenue stream in our Marina business. So our occupancies have been consistently stable around 90%. Paul just referenced rate increases and, call it, that 4% to 5% range. So good stability there. And we've seen consistent demand from a launch perspective. Year-to-date, our launches are up pushing 4%. And just a little perspective for the 4th of July weekend, we were up double digits with respect to launches year-over-year. So our customers have been sticky, Occupancy is stable and usage has been high.

Okay, great. Very helpful. And then, just thinking about -- in the quarter, you really didn't have acquisitions or disposition activity. Is that more a function of just nothing you felt ready to get done either on the sales side or nothing out there to buy? Or is there something in price discovery right now where you're kind of questioning if it's a good time to put capital to work or to sell assets?

Yes, Jamie, I would say that kind of deal flow is down across the industry. As usual, we're viewing all deals but we really haven't seen many deals of interest right now. The owners of MH and RV are -- they're not distressed sellers; they have the flexibility to take more time with a potential sale or take an asset off the market entirely. And that's kind of what we're seeing over the last few months. I think it takes a few more months for that acquisition activity to return but we're still fully engaged with potential sellers and we'll announce deals as we close them.

Okay. But in terms of pricing, you kind of feel comfortable where underwriting is and given the move in rates and things like that, like you have decent visibility on where you'd want to put capital to work and what assets should be worth?

Yes, we definitely have good visibility. I mean we have our target list of properties that we want to buy and we're working with owners as to what the right pricing is.

And our next question will come from the line of Anthony Powell from Barclays.

On transient RV, you talked about the, I guess, demand normalization in certain of the destination-oriented, I guess, communities. And I know this year, it was the first year that we've had the full return of capacity of things of cruise lines and international travel. Do you think 2023 is a proper year where we'll see kind of normalized demand for transient RV? Or is there any more, I guess, normalization to happen in future years?

I think that's kind of, Anthony, why we're pointing to 2019. 2019, 2018, those were kind of what we would consider normal demand years and we're up from a night perspective from those. So I think that there is a little bit of the normalization and then -- but in addition, some of the items that Patrick's pointing out on the weather-related issue, then that conversion to annual is certainly a factor.

Okay. And I guess, in terms of maybe July 4 versus Memorial Day and if you can exclude weather impacts, was there strengthening or weakening in kind of transient RV trends between those 2 holidays?

I would say there was a moderate strengthening. We finished a Memorial Day down about 7.8% year-over-year. And for the July holiday, we improved that by about 100 basis points to down about 6.8%.

Our next question will come from the line of Samir Khanal from Evercore.

Good morning, everyone. Paul -- so when I look at your membership data, I guess, Page 13, your member count, if you go back to sort of pre-COVID, it was about 115,000, it's 116,000 something like that. And then you saw a big jump in COVID, right? That 125,000, 128,000. I guess -- I know there's been a lot of questions about normalization but where do you eventually go back, you think? Just curious, I mean, do you go back to that 115,000 kind of pre-COVID or where do you kind of normalize, you think?

Yes. I think, Samir, we've seen a decrease in the total member count since the start of the year; that decrease can really be attributed to less free RV dealer activations and less transient activity at the property which is how a large majority of those sales occur. RV their activations, they're down about 11% compared to last year and that's consistent with the reduction in RV sales of the dealerships. And the 2 of those items, the 2 of the items of the RV dealer and then the transient activity kind of accounts for that 1,500 reduction in members. But really, I think the strength in that -- in our DUS number, a revenue number comes from members coming in at an increased rate with more expensive products that have a higher dues base.

Okay. And then -- I'm sorry if this was asked before but occupancy in the quarter was down sequentially which is -- normally we don't see that. I mean, maybe you can comment on that.

Yes, sure. It's Patrick. We -- and I've addressed this on the last couple of earnings calls. As we've kind of worked our way through the aftermath of Ian, we have had some headwinds in Florida. Those are subsiding. I would expect, as we work our way through the next couple of quarters. Florida will make more of a contribution and we also have seen somewhat of normalization. You can see that coming through in some ways on our new home sales volumes. A couple of drivers on those new home sales trends has been, one, filling up a couple of expansions that we had. So they're no longer contributing to some of that growth. But also similar to the RV side of the business, just kind of a normalization of demand, selling 226 new homes in the quarter from a pre-COVID perspective, we would have considered call it, 150, 175 new home sales in the quarter to be a solid quarter on a new home sales perspective. So that number is normalizing somewhat from the year-over-year comparison that was almost 360 in the quarter.

Our next question is come from the line of Keegan Carl from Wolfe Research.

So to belabor transient RV but I guess I'm just trying to better understand the weather impact. So I know cancellations are a decent-sized portion of that business that can come up. But if we take a step back and just look at the advanced booking levels that might have been canceled as weather issues came up. How would that have trended on a revenue growth basis, if you kind of exclude the excess level of cancellations?

Yes, Keegan, I do think the booking window is an important thing to talk about, especially -- I mean, certainly in this time period, the second quarter and headed into the busy summer season. As we look at reservations that are made during the 30 days before arrival, the average time between booking and arrival is 8 to 9 days. This activity represented about 55% to 60% of our total reservations by the end of the third quarters in the past few years and it was similar in the second quarter. I'll set aside 2020. I go back to pre-pandemic 2019 and then look at '21 and '22. It was kind of 8 to 9 days in advance of arrival, represented 55% to 60% of the reservations. And when you look inside that population of reservations, those that were made within 30 days. When we look at those that were made 7 days before arrival, the average time between booking and arrival is 2 days. And that represented 1/3 of the total reservations that are made. So, there's a significant population of reservations, people coming to our properties who are making their decision just a couple of days before they arrive. And we've talked before about how close people live to our properties, they're just driving 60 to 90 miles. So it's easy enough for them to decide they want to visit our properties.

Okay. No, that's helpful. But I guess 1 like for example, like the semi part, you imagine people are booking more than 2 days out for that, right? And did you experience any cancellations in some of your bigger assets where there is probably demand further out?

Well, certainly, I mean, as Patrick talked about the road closures and so forth specific to certainly, cancellations were generated as a result of weather. People who had booked in advance because they were planning their trip but they couldn't make it to the property or people who are watching the weather and hoping they're going to be there. But I'll say that when it's a destination like that, they're more likely to bring rain gear and kind of tough it out, so to speak; it's more likely to be kind of a significant access or rather issue that would cause them to cancel.

And Keegan, we do have certainly advanced bookings that comp which is the inverse of what Paul is talking about. It's just that there's an awful lot that come through at the last minute or within those 7 days. So people do plan their trip for July 4th well in advance, a year in advance, maybe but things may happen that would cause them to not take that trip.

Okay. No, that's helpful. And then just shifting gears here. I know you're a decent way out on the renewals. But just what are your broader thoughts on the insurance market? What are you guys seeing as far as improvement, if there is any? And if not, is it time to maybe think about taking on more risk to sort of alleviate the expense pressure from that line item?

Yes. So our new insurance policy is in effect for the last 4 months. We really still see a hard insurance market due to the industry losses, inflation and rising interest rates. So we really haven't seen any change. I think the claim history for this year will be an important contributor to what happens for next year. So I think -- we'll let you know as we head in towards the end of the year how we think we would reconstitute our insurance.

Our next question comes from the line of Wesley Golladay from Baird.

Got one more seasonal transient RV question for you. It looks like you're forecasting another soft patch here in 3Q but then reflected in 4Q. Are you seeing anything in your bookings to give you the confidence in the 4Q guide and anything intra-quarter any acceleration going on?

I think West, the short answer to that is the limited visibility that we have in just given what I walked through a moment ago in the booking window. So we're kind of holding the fourth quarter steady, so to speak and don't really have visibility into what the transient reservation pace is for the fourth quarter yet.

Okay. And then if I go back to the MH rate question, I think you were talking about going 150 basis points over colo. Would that be mainly driven by -- I guess, the alpha of the 150 basis points, would that be driven by just a new leasing, I think you mentioned 13% new lease growth? Or is that 150 basis points over just strictly tied to renewal and having a 450 basis point renewal growth?

That's mainly tied to the renewal that increase that I mentioned in my comments, has been something that we've seen over the last few years. It's not really consistent with what we've seen across our portfolio over the last 30 years. So my commentary relative to the 150, 200 basis points is on the renewals.

Got it. And then can you remind us again what the turnover typically is it about 10%?

It's 10%, yes.

Our next question will come from the line of John Pawlowski from Green Street.

Patrick, are you also seeing kind of a step backward in leading demand indicators for the seasonal RV business that you're seeing in the transient side?

I guess I emphasize a little bit of what Paul just said with respect to the visibility that we have into the fourth quarter and the seasonal business really comes through during the winter season and the Sunbelt as we build up to those colder months. We saw consistent demand as the last winter season wound down. So I would anticipate that we had some favorable Canadian trends, favorable trends from our domestic customers. I haven't seen anything that would say that, that would subside.

Okay. And I just want to make sure I'm interpreting the comments on the transient RV business properly. When I hear normalization of demand towards 2018, 2019 levels, I interpret that as like a reasonable base case is modest declines in the absolute level of revenue for the next few years. Is that how you guys are thinking through the business that you guys underwrite transient RV acquisitions, it's kind of a slow bleed towards '18 and '19 levels?

I think as we underwrite acquisitions, it's certainly a view to what's happening in the local markets. As it relates to our portfolio, it's really a function of the annual conversions and then weather events that happen that you don't know they're going to happen, we're talking about them on a backward basis. So we've always said and I think John, we had this conversation about, there is volatility in that transient revenue line item. Paul has walked through the booking window, you kind of don't know it until you're right up against it, whether or not you're going to have a good quarter or not. -- which is why we have really focused our efforts on building that annual base and seasonal base which is just a far more predictable cash flow.

Okay. Last one for me. Patrick, just curious where you think you can operate the MH occupancy portfolio? Where you can get MH occupancy to -- and when -- just given the affordability gap that you referenced in your opening remarks, no new supply, demographics, everything on paper suggests occupancy should be closer to 100% than 95%. So where do you think peak occupancy is in this portfolio? When can you get there?

I would suggest that I agree with you, there's the opportunity to grow occupancy in the MH portfolio as we work our way through the -- there's this normalization piece we talked about a little bit earlier as well as some of the headwinds from the last hurricane. That will -- we'll get that behind us as we move through the back half of this year and into 2024. I think we consistently see a strong demand profile. We've talked about rate a couple of times on this call that 13% mark-to-market which Marguerite pointed out was outsized compared to our history. It still points to very strong demand as do our run rate increases in our core occupancy. So given that roughly half of our properties are 95% occupied or less, we have an opportunity to drive those occupancies higher. And I think Marguerite touched on this several earnings calls in the past, we have a significant number of properties that are 100% occupied. So I think there is opportunity to continue to grow occupancy. I'd also highlight that the percentage piece can be a little misleading just because we do develop MH and our pipeline from '23 into 2024 is going to add several hundred sites to our overall site count in a couple of core markets, including coastal Florida.

And I think, John, that once you do -- once we are getting that occupancy up to that 98% to 100%. It can stay there for a very long time and we have properties that have been 100% occupied for 25 years. it's really sustainable due to the investment the customer is making when picking out a community, they're making a long-term commitment for themselves and a long-term commitment for the home that they're putting in the community or buying. So I think that's helpful that once that occupancy gets up there, it can stay for a very long time.

Our next question will come from the line of Michael Goldsmith from UBS.

Your same-store revenue guidance kind of has bounced around a little bit, going from 6.2% to start the year or up to 6.5% at the midpoint now we're back at 6%. So just maybe kind of tie everything that we've talked about together, the business just more difficult to forecast or more volatile how can help you look to [indiscernible] it a little bit more consistent overall?

I think -- you were breaking up but I think we got it. Paul?

I think you're asking about consistency of revenues, Michael. And I think it really speaks to the transient that we've been talking about during the -- really during the call. I think there's been tremendous consistency on the MH and the annual revenue streams for the RV. It's really been a discussion around the transient and the impact in 2023 of some of the weather events that we've experienced as well as the shifting in that transient from shorter-term state to longer-term based on customer demand.

Got it. And then just as a follow-up, July 4, the Friday of July 4th shifted into the second quarter. of this year and there was a 4-day weekend. So can you talk a little bit about how maybe some of those moving pieces may have impacted results in the third quarter? And just if you can help us quantify how big the 4th of July weekend typically is as a percentage of the whole quarter, that would be helpful.

Yes. I think -- I mean, historically, we've talked about the large holiday weekend that is kind of being $2 million weekends for us. 4th of July is a little bit trickier than Memorial Day and Labor Day because the date fluctuates, so it can be midweek as compared to the weekend. But in any event, I would give those amounts as a general guide for the holiday weekend. And our guidance for the third quarter includes the experience that we had in the 4th of July as well as our anticipated reservation pace for the third quarter based on current reservation pacing.

And our next question will from the line of Eric Wolfe from Citi.

I know the call is going a little long here. And sorry to ask another question on seasonal transient. But just trying to understand the math in the back half of the year. So you're guiding to the full year around 2.5% down; you’re held up 3.2% through the first half of the year sort of implies around -- call it, 2%-ish in the back half. If I look at the second quarter, you're down 9.3% combined. So I'm just curious, like what is sort of improving in the third and fourth quarter off the second quarter run rate to get there. Is this transient going to be a bit better or seasonal is going to be a larger percentage. Just trying to understand how you get to that, call it, 2% in the back half of the year.

Sure. I mean you can see what we have forecast for the third quarter. I think that when you think about the transient for the fourth quarter, as I said a moment ago, in response to another question, we have not adjusted meaningfully the budget assumption that we had. The short visibility on the transient is one that causes us to just have a view that as we put our budget together and make an assumption, we don't have a basis for changing that. So we've left that in place for the fourth quarter.

Okay. Meaning that you've left to call down 13% in the fourth quarter?

No. I think if you take a look at what we have in the forecast for the third quarter, you would show stabilization in the fourth quarter for the transient.

And since we have no more questions on the line. At this time, I would like to turn it back over to Marguerite Nader for closing comments.

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