Good day, everyone, and thank you for joining us to discuss Equity LifeStyle Properties' Third Quarter 2019 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 the question-and-answer session with management relating to the company's earnings release. As a reminder, this call is being recorded. Certain matters discussed during this conference may contain forward-looking statements in the meanings of the Federal Securities Laws.Our forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events. 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.

Good morning, and thank you for joining us for our third quarter earnings call. Today, we will be focused on a detailed review of our third quarter results, our initial 2020 guidance and our rationale for the recommended 2020 dividend increase. Our third quarter results released yesterday showed strong quarter and year-to-date trends. Year-to-date, we increased occupancy by 262 sites, and this quarter marks our 40th consecutive quarter of occupancy growth.The home sales market was strong as evidenced by our rental conversions and resale activity. Our online transaction activity continued to escalate. In the quarter, our RV revenue booked through our website increased 19% and our sales of online camping passes increased by 25%. Our summer marketing campaigns resulted in an increase in fans and followers to a current base of over 625,000. These followers are converting to loyal customers.Our RV revenue, including Thousand Trails, has grown 5.6% year-to-date. This growth has been fueled by growth in our annual income and our Thousand Trails revenue. The annual growth of 6.1% is comprised of 5.2% rate and 90 basis points of occupancy. Our Thousand Trails portfolio revenue increased from both the dues revenue and upgrades. Year-to-date, we've seen an increase in sales of 12% and an increase of upgrades of 13%.Turning to 2020, each year we finish our budget process in October and provide detailed projections for the following year. We have issued guidance of $2.22 at the midpoint for next year, which is 6.1% growth rate in FFO per share.Seasonal and Transient activity require additional visibility to be able to forecast with more accuracy. As is our practice, we will update guidance each quarter as we have more knowledge about reservations at the property level.Our MH and RV properties continue to experience heightened demand as seen in occupancy and rate…

Thanks, Marguerite. Good morning, everyone. I will review our third quarter results, discuss our guidance assumptions for the remainder of 2019 as well as our preliminary guidance for 2020 and provide some comments about our balance sheet. Please note that all per share remarks reflect our recent two-for-one stock split. We've reported better-than-expected third quarter normalized FFO of $102.7 million or $0.53 per share.As a result of the completion of the Loggerhead Marina acquisition, other income was higher than expected because of preferred distributions from our joint venture investment. During the quarter, we also settled the remainder of our Hurricane Irma insurance claim. We've recognized approximately $5.9 million of revenue that we've deducted from our calculation of normalized FFO.Core base rental income was up 5.4% compared to last year with 4.7% coming from rate and 70 basis points coming from occupancy. We gained 58 occupied sites in the quarter as a result of increasing our homeowner count by 85 and reducing rental occupancy by 27. Our core RV revenues were in-line with guidance in the quarter.Annual and seasonal revenues showed strong growth of 6.2% and 3.9% respectively. Rate increases for our annual customers contributed 5.5% with the remainder of our revenue growth generated from occupancy gains across the portfolio. Our transient demand remains strong as evidenced by the combined growth of our transient resort revenues and our membership subscriptions.In addition, transient site usage by members was up more than 10% in the quarter compared to last year. A limited number of locations within our RV footprint did not perform as expected, resulting in lower transient revenue than guidance during the quarter.Membership subscriptions and upgrade sales revenues were higher than guidance in the quarter. During the quarter, we sold 5,900 Thousand Trails camping pass memberships. Year-to-date, our camping pass sales volume…

[Operator Instructions] Our first question comes from Nicholas Joseph with Citi. Your line is open.

Thanks. What drove the decision to acquire your JV partner's interest in that Marina portfolio? And then, how has NOI performed relative to your expectations and versus MH and RV NOI growth?

Sure. So, we've been in the JV that included the Loggerhead portfolio over the last two years. And we've really had a chance to see how these top tier properties have performed and we were happy to be able to take over a 100% ownership. That JV includes 11 coastal marinas in Florida, these properties, they have a high degree of annual cash flow with over 80% of the revenue from annual site rent. We plan to operate these assets kind of side-by-side with our Florida location, and they really – they provide long-term stable cash flow.What we've seen from 2017, an increase of about 5% growth in NOI each year, and so it's been some healthy growth in NOI. And overall, we're pleased we are taking over the operations of the assets and I'm pleased to be able to do that.

Thanks. So is there an opportunity to acquire additional marinas, how large of exposure. Could you see your marina exposure growing to?

No, there are about 4,500 marinas in the United States, that 500 we would consider institutional quality. So – and there's about three large owners that account for less than 5% of the overall revenue in the marina space. So it's highly fragmented. I think, much like what you've seen us do in the RV space where there's marinas that have long-term cash flow that makes sense for us that are in locations that we like, and you see us continue to buy.

Thanks.

Thanks, Nick.

Our next question comes from John Kim of BMO Capital Markets. Your line is open.

Thank you. Just sticking with Loggerhead, what was the interest rate of the joint venture debt and do you plan to refinance it or keep it on a comfort?

The debt had to be paid off at closing. And so, what we did as you saw was use our line of credit. And what we plan to do with respect to the marinas, really we have the objective of developing secured lending relationships to finance the marinas that have quality and characteristics similar to this portfolio. The plan really is to execute in a manner similar to the experience that we had in 2004 when we entered the RV business. At that time, there was a select group of lenders and brokers that were familiar with underwriting RV resorts and I've put together a plan at that time to partner with those lenders and brokers at the same time educating others so that we could expand the network of available lenders.A key factor that helped us with that backed I think institutional debt capital for the RV space that's showing the sticky relationships with customers and longer term revenue streams that are really analogous to MH revenues, and we think that similar characteristics exist in the marina space and plan to build on past experience to expand the lending network for these assets.

So what interest rate could you finance marina asset today versus MH or RV?

I think, it's a little early to say that. I think that as I mentioned, we're 3.5% to kind of 4.25% in the space right now. And I'd say that there's probably a bit of a spread to that pricing, but it's a little bit early to talk specifics on what pricing would be.

Okay. And then, a question on MH occupancy. I guess, you had 40 straight quarters of occupancy growth, which I assume at year-over-year, it has been flat sequentially, and you're not assuming any growth in occupancy in your 2020 guidance, which is consistent from last year but how much room do you think is left on the occupancy front getting any potential increases from 95.4% today?

Yes, Patrick. If 54% of our properties are currently 98% to 100% occupied. So we see opportunity to continue to grow occupancy across the portfolio. Half of our vacancy is in Florida, which has got a really good demand profile in migration and has performed well for us. And we're seeing strength even in the secondary markets like Las Vegas as an example, Minneapolis. So with a good demand profile and that occupancy profile, we're looking at 46% of our properties with an opportunity to grow up to 98% and perhaps more.

And as it relates to that 98%, the ones that are 98% occupied have been in that range for 10-plus years. So, once you get to that level, it can certainly stay at that level.

Can you comment on how many sites you expect to add through expansions this year and in 2020?

Sure. In 2019, about 1,000 sites and a similar number of 1,000 to 1,200 in 2020.

Great. Thank you.

Thanks, John.

Our next question comes from Drew Babin of Baird. Your line is open.

Hey, good morning.

Good morning, Drew.

Question on your MH rate growth. It looks like it's been trending toward the upper 4%s versus maybe closer to 4% kind of in the past. Just curious whether there has been a contribution there from ROI CapEx or is that just a product of your properties being more occupied and having more kind of traction to drive rate? Could you just maybe decompose that a little bit?

Yes, I think what we're seeing there and we've talked about a little bit in the past is that we meet with the homeowners association, we sit down and talk to them about what they would like to have happen at the property between events, amenity upgrades, just things that they're interested in. And when we sit with them, we are – at the same time we talk about what their rate increase is, what the proposed rate increase, and we share with them what our market survey is, so how did we get there.And I think, as a result of that and kind of adding that additional kind of CapEx or amenity feature to it has been helpful in getting to the numbers that you've seen us post, but effectively we're taking the CapEx dollars that we had allocated and then just discussing with our residents where the best use of that capital is.

Okay. And I guess one follow-up to that. It looks like 2020 guidance assumes rate growth kind of reverts to that 4%. Is there anything behind that other than just kind of caution given that it's early, can we assume the same sort of assumptions when it comes to the CapEx projects you mentioned in kind of the overall environment?

I think your observation is a reasonable one. I think that some of the contributors to the uptick in growth are the result of the discussions that Marguerite just mentioned. There's also potentially an increase in rate on turnover and so forth that – because we don't dial-in increased occupancy that has contributed in the past. So, there's a possibility that those would contribute going forward.

Okay. Appreciate the color. And one more from me, it sounds like the marina business that you're looking into secured debt, there's possibly some larger plans within it. I was just hoping you could talk about, as this business grows, if it grows, are there any accounting nuances or anything where that business maybe works a little differently than MH or RV that need to be dealt with and/or non-REIT income potentially coming from fuel sales things like that. Maybe just expand on that a little bit and maybe some of the unique challenges that come with potentially expanding in that business?

Yes. I'd say, similar to what we see in the RV business, there's ancillary activity at the marinas fuel sales as an example that are not requalifying revenue streams. The structure that we have is for ownership at the marinas and operations of those businesses is quite similar to the structure that we have in the RV business, and we pay very close attention to that of course.But I think that for purposes of debt underwriting, part of what we are working to educate lenders on and really develop a program around, is the long-term revenue streams that Marguerite mentioned. That's really – that was really the hallmark of our success in developing the RV program, and we anticipate that to continue on the marina program.

And I think, Drew, what you could see inside of the marina side just unlike the RV side that you could have a highly transient marina that has a lot of ancillary revenue, and you would see us not interested in that, just like what you see on the RV side.

Great. Appreciate the detail. Thank you.

Thanks, Drew.

Our next question comes from Todd Stender of Wells Fargo. Your line is open.

Thanks. And Paul, just to stay on that theme, I'm guessing marinas aren't able to tap agency debt. That's fair to say, right?

Yes, it is fair to say, yes.

Yes. So, you'll stay in the secured side, I mean, does this eventually open up the possibility if you can expand this property type of looking at more unsecured side?

I'd say, it's something that's evolving. I would caution everybody to remember, this is quite a small part of our business. I mean, just in terms of total value, we're talking about less than $200 million that has been invested. And so, we're going to be working on developing these relationships, exploring what the opportunities are and anticipate that we'll have success with that. But I think we can provide you updates in future quarters as we make progress.

All right. Thanks. And then just to highlight that piece of what you've invested so far, so as your cost base is the original $30 million, the $49 million you just spent plus the $72 million in debt?

Look, the original was $35 million. There was the initial funding and then there was an earn out, so there was $35 million plus the pieces that you mentioned.

Got it. Okay. And then, have a yield – have you – I guess, maybe if looking at if you do on an IRR basis for the last two years and what do you – how do you look at your going in yield, I guess, on marinas?

Yes, what we had on these marinas we had and our preferred piece that it was a 7% preferred which we discussed at the time we entered into it, and this is a 6% cap rate on the transaction that we get.

Got it. And I know it's small, but if you do grow it, will you be breaking out revenues expenses NOI for the marinas?

I think that we would look to reports, revenue streams similar to the marina business – similar to the RV business, I should say, the annual seasonal transient.

Okay, got it. Thank you.

Yes.

Thanks, Todd.

Our next question comes from Joshua Dennerlein of Bank of America Merrill Lynch. Your line is open.

Hey, guys.

Hello, Josh.

Just one follow-up on the marinas. You mentioned 5% NOI growth. How much of that was driven by rate versus occupancy gains?

It was roughly half and half.

Okay.

And yes, so it's roughly half-half.

So is it like a 2.5% rate increase per year that’s kind of…

That's all.

Okay. And then on the R&M expenses I think you mentioned those were higher than kind of what you were forecasting. Was that all storm-related or was there something else going on there as well?

No. As I – well, as I mentioned, we had expenses coming from some water system repairs in the quarter and related utility expenses, and then the electric expenses elevated – that just elevated demand really, and about $0.5 million was related to storm activity.

Okay. And you expect that to kind of normalize I guess going forward?

We've dialed into our Q4 guidance kind of an adjustment to our assumptions based on what we experienced in the utility expenses in Q3, but that's already dialed into Q4.

Okay. And is there any ability for you guys to kind of continue pushing the utility costs down to the tenant that have kind of having it paid at the community level?

I think that we've been definitely active in unbundling, as we call it, charging residents separately for their utility usage, one area that we are focused on is in the RV communities to the extent that we're not billing that customers focusing on how we can – how we might be able to do something like that.

And then just we also have a focus on just conservation of resources so that we'll see that and just trying to kind of get that word down to our residents and customers.

Awesome. Thank you, guys.

Thanks.

Our next question comes from Samir Khanal of Evercore ISI. Your line is open.

Good morning. Paul, can you talk about property taxes, as we think about sort of expense growth next year? I know last year there was some pressure from Florida, which might have hit this year as well, but as we think about sort of the next 12 months, are there any states which are going to sort of real estate tax assessment considering where property valuations are that could surprise us to the upside.

So I think that, I'll talk first about Florida. We've received the annual TRIM notices related to the Florida real estate taxes. The notices, when they come in, they present potential tax amounts. There's a range from low-to-high on those notices. Most of them reflect rates of increase that are generally consistent with our expectations. But there was one county in particular that proposed a significant increase at the high-end of the range. We've initiated appeals in this county and we have not adjusted our real estate tax expense in Q3 or our guidance pending outcome of those appeals.Overall for the year, we expect a mid single-digit increase in core real estate taxes this year, and we'll come back in January with an update on our progress as we go through the process of receiving the final bill to understand exactly where each county falls out on the low-and-high-end of the range and how we're making progress on the appeals that I just mentioned.Broadly across the country, I'd say, we see pockets at points in time where there are increases, but we're not consistently seeing elevated levels of real estate taxes kind of beyond that mid single-digit increase that I just mentioned.

Okay. So, right now, I guess for 2020 or you're at sort of with the real estate tax which is kind of lumped into one line, it's about sort of, 3% – I'm sorry, it's a 3% right now. So there is – there could be some risk to the upside, depending on what you get back from Florida. Is that kind of what you're saying?

Well, the real estate tax number embedded in that 3-ish% growth is higher, it's closer to 5%. We have some expectations of savings in some of our other line items related to activity in 2019. So...

Okay. Got it. All right. Thank you.

Sure.

Thank you.

Our next question comes from John Pawlowski of Green Street. Your line is open.

Thanks. Paul, maybe just a follow-up to that last question, the closer to 5% growth number for 2020, 2019 was a similar growth rate for real estate taxes, is that fair?

Yes. The one thing I should've mentioned in my comments a moment ago as I spoke to Florida, to the extent that we do see increases in those real estate taxes, there is an opportunity for pass-throughs in certain properties. So there – potentially, it’s recovery in 2020 of some of that tax increase in the event that the appeals aren't completely successful.

Okay. Marguerite, on the acquisition front, I'm curious if the Jensen's portfolio met your quality and geographic criteria?

Just like we've talked in the past, we will – we underwrite and look at it's a small industry so there's a lot of – a lot of people looking around at those assets. And we did look at it, and did not obviously buy it.

Okay. Do you expect another large portfolio in the several hundred million dollar range to trade in the next 12 months?

Difficult to say, I would say that at any point in time in the history if you go back over 10 years, a year out, you really can't predict what will happen and when it's going to happen. So, I don't know the answer, there are certainly some of those types of portfolios out there as whether or not they're going to trade I don't know.

Okay. Are there any leading indicators that folks fragmented mom-and-pop markets are suddenly being approached and just staggering record prices where they're like, okay, this is as good as it gets. Is there any leading indicator that there's more willing sellers coming into the fold?

It's difficult to tell. I mean it's really on a case-by-case basis and it's a very personal decision. I mean, they're making a decision, in many instances they thought they were going to pass it along to their – to their kids, then that didn't work out or there's a lot of times health comes into it. And so, I think it's a very personal decision we often thought that maybe tax change may impact it or there may be other reasons impacting and it kind of comes down to a very personal decision.

Got it. Last one for me, the sales insights of expansions this year to 1,200 in 2020, does that pace still keep building beyond that or is that 1,000 or 1,200 site range are reasonable betting line over the next three years to five years?

I think when we look out we certainly have nearly 5,000 big acres. So if you look out, it's probably in that range, maybe it goes up 1,200 to 1,500 or something like that over the next few years, but that's effectively where we are, and that's what we look at, we look at three to five-year range.

Okay, thank you.

Thanks, John.

[Operator Instructions] Our next question is from Nicholas Joseph of Citi. Your line is open.

Hey, it's Michael Bilerman here with Nick. I was wondering if you can Marguerite talk a little bit about the marina business in the sense of climate change, rising water levels and how you sort of underwrite that risk as you're obviously buying for the long-term, a business that certainly could be impacted by that.

Certainly. So, we look at it and we'll look at what's happened in the past, and we also look to where are the marinas that we purchased, what their view is on the climate change and the water impact in those areas, and we'll also look to whether or not, there are marinas certainly is for coastal marinas, but there's marinas that are in lakes that we'll look to there. What's happened with the lake levels, and make a determination from there, and look at the annual versus the transient basis that is generating the revenue.

And how far, in terms of the real estate, that's adjacent to the marina, are you looking to purchase, if any? I'm just wondering if – yeah, I mean, if it's not – to be able to control the site, improve the site, to be able to draw more boats to the site of being...

Yes, certainly, Michael.

Owning more of the real estate around it.

Yes. So, certainly so – where there is opportunities for uplands purchases, we would be interested in that, and we'll also look at marinas that are close – in and around our communities that helps from a customer standpoint and that also helps from a human resource standpoint from our – for our regional managers and our management teams.

And then, if we think about the RV business, shipments are expected to be down pretty significantly, while still elevated or expect to be down this year, down to next year. I guess, at what point do you feel, and I recognize there is a large installed base of RVers, but at some point one would imagine that as the pace of sales comes down and declines, that could impact certainly the transient side but could start impacting seasonal and annual. So how do you – maybe how much time are you spending on that and is there a risk that we need to be conscious of?

Yes, we certainly look at it. I think last year the industry saw an increase in RV sales up 4%. Year-to-date, there's been a decline in sales of 7%. Shipments are predicted to be down 17%, I think, for the year to 400,000. But really to put those numbers into perspective from 2009 to 2017, RV shipments have increased each year. The previous high watermark was in 2006, I believe, when there was about 400,000 shipments. So there really – there have been in excess of 400,000 shipments. So while the numbers are showing decline, they're really at historically high numbers.But for ELS, it's really – our portfolio is comprised primarily of longer-term customers. Our RV annual customers, they stay with us on an average 10 years. They've made the decision to kind of stay off the road and develop roots at our communities. And then, the seasonal customers also committing for a longer-term and they'll move into an annual in kind of the normal course of their life cycle.So, our focus on the new RVers coming into the business, it's important, it's part of our transient business. It represents just roughly 5% of our overall revenue but for that business we're really focused on as you say the 9 million installed base, and we view the new RVers as they're really good marketing tool. But that funnel of existing RVers on the road is already a really healthy number. I think the ratio of available site to RV is very favorable for our business.

Got it. Last question for me. Obviously rent control is a big topic from a multi-family perspective across the U.S., I know you've dealt with it before, but there's just a lot more movement in a lot more states. I guess how are you thinking about that impacting your business where you've obviously been able to push rents, pretty significantly over the years for your product? And look I recognize the MH business is a more affordable product for people, but your land rents have moved up pretty dramatically over the last decade. So, can you talk a little bit about how you are sort of evaluating the landscape today and where you stand?

Sure. Sure. So as you said, we've been operating in a rent-controlled environment for a long time. We have 23 properties that are subjected to mandated rent-control, that's primarily in California. And so, we've been very vocal in our opposition of rent control. Over the last 20 years, we've won some cases and in others we are operating in the rent-controlled environment and you see our results as – as a result of that rent-controlled environment we're able to still generate some very healthy growth rate even operating in an environment.But then, beyond the actual strict rent control, there are states that have regulations around rent increases, like Florida for instance, we operate under the terms of a prospectus and that prospectus runs with the land and governs the annual rent increases. This actually continues to be an important selling point for our residents considering to buy our properties. We established a relationship with the homeowners association and we spent time focused on meeting the needs of them – of the residents, and we're trying to achieve fair rent increases.And so, in general, in our communities where we have mandated rent control, we see a transfer of the economics from the landlord to the tenant. So, where monthly rental rates are suppressed, but there is no governor of the sale price of the home, and we've seen firsthand that, that does not – that rate control in our environment doesn't make the overall housing more affordable. They really shift the payment from the monthly site rent to a payment for the home.So, we closely monitor all the activity for the states that we operate in, and we're also working with our national association to make sure that our industry is represented. But it's kind of – for us, it's more of the same, I know – others are dealing with it kind of for the first time, but we've been dealing with it for a while now.

Great, thanks.

Thanks, Michael.

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

Thank you all very much. I look forward to updating you on the next quarter's call.

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