ELS Expands on Q2 and Looks Ahead

July 16, 2008 by   - () Comments Off on ELS Expands on Q2 and Looks Ahead

The management of Equity LifeStyle Properties Inc. (ELS) expanded upon the changing nature of its RV resort business during its investor conference call on Tuesday (July 15).
The Chicago-based real estate investment trust (REIT) reported increases in funds from operations (FFO) for the second quarter and six months ending June 30. These funds come from the sale and rental of homes in manufactured home communities as well as income from RV resorts. ELS owns or has an interest in 309 properties in 28 states and British Columbia consisting of 112,002 sites.
The company expects core property operating revenue for 2008 to grow at approx 3.5% to 4.0% over 2007, assuming stable occupancy, and income from core property operations to grow from approximately 2.5% to 3.0% over 2007.
Amid flat revenue growth (1.7%) on the RV resort side in the second quarter, ELS conducted market research and discovered that its transient customers consider a 60- to 100-mile trip to one of its RV resorts “affordable,” according to Joe McAdams, ELS president.
To help customers combat rising fuel prices, ELS is offering to store members’ RVs at discounted rates (or free for frequent customers), give away gasoline rebate incentives for members who stay extended periods of time and offer exclusive opportunities for customers to upgrade their camping options, McAdams said.
“We are finding this a great opportunity to show the value to our customers in becoming a heavy (frequent) user,” he said. “We also believe our resorts our positioned nicely to exploit the family camping movement without an RV” through the renting of park models, cottages and tenting sites. “You can enjoy our real estate without an RV,” he added, and the company is developing promotions to educate new and existing customers on these opportunities.
Thousand Trails, the membership camping club affiliated with ELS, has struggled in the current environment, he added, as its front-line membership sales have declined 25% this year in direct correlation to declining consumer confidence.
ELS Negotiates for PA Purchase
CEO Tom Heneghan elaborated on the company’s disclosure Monday that ELS has commenced negotiations for the acquisition of the assets and operations of Privileged Access (PA) and its subsidiaries from McAdams.
“We believe integration of PA operations with our existing operations should result in significant synergies,” said Heneghan. For example, PA spends upward of $30 million a year on sales and marketing.
He added that a purchase would eliminate a conflict of interest with respect to the relationship between McAdams and Privileged Access and ELS.
ELS owns the Privileged Access real estate (some 24,000 camping sites) but McAdams owns the membership club contracts. The purchase became more practical after the company received a favorable tax opinion regarding the qualification of membership income for REIT gross income test purposes.
Since ELS began acquiring the Thousand Trails portfolio in 2004, it has considered it a “solid business” and its goal has been “to get this business more under our hood,” Heneghan said. The “impediment” was how does membership income get treated for income test purposes, he added.
Any purchase agreement is subject to ELS board approval. The transaction could be in stock, a note or cash. An unnamed third party has an option to purchase PA for $2 million, it was stated.
In other developments:

  • ELS has borrowings totaling $60 million on four RV communities coming due in November and is using that “as a test to find out what kinds of capital are available for RV properties,” said Michael Berman, CFO. Some lenders have said they would do the transaction, he said, but “the number of lenders on the RV side is dramatically less than it was 12 months ago. The RV business financings are difficult today.”
    Privileged Access Financials
    Separate from the ELS quarterly statement, the following results were provided by Privileged Access for the second quarter and six months ended June 26, 2008, and June 28, 2007, at the request of ELS:

  • Cash revenues totaled $39.99 million for the quarter, down from $42.0 million a year ago, and $70.99 million for the six months, down from $73.1 million a year earlier.
  • Privileged Access reported a net loss for the quarter of $1.19 million, compared to a loss of $1.6 million a year earlier, and a loss of $2.16 million for the first six months, compared with a net gain of $1 million a year earlier
  • Privileged Access had 127,910 members at June 26, a decline of 4,078 members over the past year.
  • The firm recorded 539,908 camper nights for the second quarter and 945,686 for the sixth months, a decline of 4.9% and 4.8%, respectively, from a year earlier.
  • Average camper nights per member in the second quarter totaled 4.2, down from 4.3 nights a year ago, and 7.3 nights for the first six months, down from 7.4 nights a year ago.
  • Average revenue per diem was $63.05 for the second quarter, up from $58.81 a year ago. Per diem revenue for the first six months was $67.47, up from $65.68 a year ago.
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