Q&A from April 17 Equity LifeStyles Conference Call
Editor’s Note: On Tuesday (April 17), Equity Lifestyle Properties Inc. (ELS), corporate parent of Thousand Trails and Encore Resorts, reported its first quarter earnings and discussed the following topics in its earnings conference call. A transcript of the Q&A, courtesy of Wall Street Cheat Sheet, follows.
Membership Upgrade Product
Gaurav Mehta – Cantor Fitzgerald: Moving back to your initial comments on right-to-use contract I was wondering if you could provide more details on what the new membership upgrade product is?
Marguerite Nader – EVP and CFO: When we’re talking about our membership upgrade product or a right-to-use product I think it’s important to first discuss the profile of the member who upgrade. They’ve generally – these are members that have been with us for a while, they like the lifestyle there, economically they are well-off and they’re looking to enhance their experience within ELS and within the Thousand Trails footprint. The upgrade offers opportunity to enhance that experience such as increased flexibility of the number of parks they can visit, longer terms on their reservation, alternative vacation option that type of things.
Gaurav Mehta – Cantor Fitzgerald: Then the sales force training, was that to educate the sales force for their membership upgrade?
Thomas Heneghan – Director, President and CEO: Yeah, as Marguerite said in her comments we’ve been dealing with a third-party operator to do a portion of our upgrade for the last 10 years. This is a fairly experienced operator and historically as we transition from one product to another, it’s a rollout. It’s done with time – say, six to nine-month lead time. This time around it was not done that way. In fact, they took the sales team off the field for sales training. It turned out that that was not a very good decision in retrospect as I commented. We expect, again as I commented, to get that sales team back up to full sales force level and continue to provide the upgrade to the Thousand Trails members. So, we don’t think this is an issue with respect to the membership per se. We don’t think this is an issue with respect to even the third party. We really think this is an issue that we shot ourselves in the foot on, we realized it, and the shame of it is it takes a little while now to actually get that sales force back up into full capacity because there is no sales teams that have to be hired; there is hiring process, and once they are hired there is the training process. So, although we’d like to go back to the full team immediately it does take some time, and in our guidance, we provided for that to be through the second quarter primarily of this year.
Jana Galan – Bank of America Merrill Lynch: I think I caught in Marguerite’s comments that there’d be about $35 million invested in rental inventory. I was just curious if that was across the portfolio or are you really looking to focus on the Hometown property?
Marguerite Nader – EVP and CFO: That number represents the whole portfolio.
Thomas Heneghan – Director, President and CEO: It includes both new and used.
Jana Galan – Bank of America Merrill Lynch: And as you look to kind of grow the rental business, where do you kind of see that going and I guess, kind of, be impacted on the results of the properties going forward?
Thomas Heneghan – Director, President and CEO: We have been very successful with the rental program in our core markets in Florida and Arizona. We’ve recently been adding product to Colorado, but literally across the United States, California to the East Coast where we have initiated the rental product we’ve seen demand and we’ve been able to occupy. We’ve experimented a little bit up in Michigan thus far, I think we’ve purchased order of magnitude 60, 70 homes, and we are seeing the same results up there in Michigan, but there is strong demand for this form of housing in most of our markets.
Jana Galan – Bank of America Merrill Lynch: And since clearly the demand is there, does this kind of change that way you are thinking about those all-age potential acquisitions?
Thomas Heneghan – Director, President and CEO: That’s a great question. We look at the all-age much differently than we did 10 years ago. 10 years ago we just thought it wasn’t competitive against the single-family housing alternatives that were in existence and the ease with which you could get into single-family homes. We think that has changed. As I said in my comments, we think that all-age manufactured home community business has returned to its niche of providing single-family, affordable single-family housing. The big issue – two big issues we see in getting in that business in a big way, one is that the dynamic that is at play with respect to being successful in that business is much more local in its focus. You have to be in the right markets, you have to know where job growth is, so just doing a macro bet that is going to return as single-family housing – affordable single family housing play, you could be right on the macro and wrong on the markets. There are some markets where there are still some challenges with respect to the all-age business. And the second thing is at margin all occupancy in the business is achieved through community owners investing their capital, and that is an issue that we think we need to be mindful of and the question we’re trying to figure out is, is that investment of capital to create that occupancy going to return itself in terms of improve value in the communities and I’d say at this point we’re still looking at it. We’re still trying to figure it out but at this stage I think our preliminary conclusion is that may be true, but even if that is true does it belong in the portfolio that we have that is primarily age restricted, and we struggle with that today I would say.