Equity LifeStyle Properties Inc (ELS) 2002 Q1 法說會逐字稿

Please standby, we are now to begin. Thank you for standing by and welcome to the Manufactured Home Community first quarter 2002 conference call. At this time, I would like to turn the conference over to the Director of Investor Relations Mr. Marty McKenna. Mr. McKenna, please go ahead.

Thank you. Good morning, thank you for joining us to discuss MHC'S first quarter results. Our featured speakers today are Howard Walker, our CEO, Thomas Heneghan President and Chief Operating Officer and John Zoeller our CFO. Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the Federal Securities Law. These forward-looking statements are subject to certain economic risks and uncertainties. The company seeks no obligations to update or supplement these statements to become untrue of subsequent events. Now I will turn it over to Howard.

Thank you Marty and good morning everybody. MHC's strong performance continues to yield steady results and we expect our performance in 2002 to be in line with expectations. Our upgrade program continues to support our beliefs that improving assets and MCH's portfolio is the best course of action for a stable and steady growth company. John Zoeller will share our results in greater details in his report, but we know from the reception we received from perspective residents that we are being successful in our efforts to provide the life style that will continue to attract the ever-growing number of people reaching their mid 50's. It is a bad age that this group begins to focus on the future lifestyle choices. Our perspective residents are interested in upgrades and enquiring the most space that they can afford. This further supports our business plan to upgrade and position our communities for the new act of senior life style. In addition, our efforts to coordinate regional activities such as concerts, athletic events, and group trips have been well received and the feedback we have receive enhances our database of information regarding lifestyle choices attractive to active residents of age restricted communities.This restructuring is in line with good corporate governess and enhances the disclosure of our results. In particular, you will see the brokered sale activities of various sites set forth in current and comparative format. We are seeing softness in the same market as the multifamily sectors such as Denver and Phoenix. These markets concerns us with respect to our all age communities as deposed to our age restricted communities.These changes are due to the economy of the regions and possibly for the oversupply of the multifamily sector. And so this fires our ability to obtain financing in these regions and in our other markets. The difficulty is in the stricter credit and processing guidelines recently imposed by lenders. On the main, we continue to successfully obtain lending resources of our buyers. The remaining lenders and emerging resources continue to provide financing to manufacture homebuyers. However, the question remains whether there will be a serious shortfall of up to 25% of the capital required for home lending this year. Accordingly, such events continue to challenge the industry. As we have previously stated, the impact on our portfolio is minimum and mostly in the family markets. The first quarter [Conseco] terminated its relationship with between the thousands of 13,000 retail dealerships and suspended future floor plan lending operations completely as of April 1, 2002. The unavailability of home loans and floor plans inventory financing certainly impact these retailers and the results will vary depending on the quality of the retail operation. However, the loss of a major floor plan provider may have even a greater impact on the manufacturers. The ability to provide inventory financing is the life blood of the industry and the ability to replace the credit lines may determine the future viabilities of some manufactures. In terms of funds availability, it has reported that [Conseco] held about 25% of the total floor plan loans outstanding were approximately $800 million. Surely some of the gap created by [Conseco] withdrawal will be filled by the remaining lenders in the industry, but the full impact remains in question. While [Conseco] continues to offer home loan services it is underwriting policies have become much more restrictive and its processing somewhat unclear. Green point and CAT withdrew from the manufactured home loan business in January and February respectively further reducing the number of major national lenders. CIT'S origination platform has been recently acquired by Champion Effort Enterprises. We know that this acquisition is intended to create a resource for affiliates of Champion and the Champion would like to expand to provide launch Champion's customer as well. We continue to believe that there is a serious overhang of re-force caused by first time delinquencies as well as an inordinately high rate of defaults and loans and repossessed homes. Solo vendors to these homebuyers either deeply discount the selling price of these loans or finance only credit worthy new buyers. They will continue to be a lag in the true absorption of the report inventory to the market place. If this is not done, we expect repo levels to remain high for the next 18-24 months. The consequences the industry could experience is the result of this overhang include a continued impact on the occupancy level in selected markets and the continuation of reduced levels of new home shipment by the manufacturers. MHC has experienced little additional impact from these conditions due to our efforts to stabilize occupancy and maintain our family communities in the best possible way as we ride out this cycle. All in all, MHC's portfolio continues to perform well. We continue to look for new opportunities and close on the acquisitions of the [mount hood] of RV resort on March 12, 2002. This unique asset is located on a free parcel and a national park approximately 20 minutes from the Mount Hood ski slopes. Mount Hood offers nearly, year round skiing and snowboarding, in addition to seasonal camping and warm weather recreational activities. We view this asset as having a great potential as we implement our business plan and reposition this RV resort to attract a larger customer base. There are only limited numbers available in the Mount Hood area and we know that this asset can continue to grow. Now to John, for the financial report.

Thanks Howard. The first quarter results reflect a continued solid performance of our portfolio.In addition to the 450 site, there are an estimated 125 sites for expansion.In February, we completed the extension of our $100 million bank term loan. The loan matures in August 2003 with two additional one-year extension options. The loan carries a floating rate of LIBOR plus 138. With respect to our core portfolio, our base rental income is up 4.4%. Of this number, average base rental rates are up 5.1%, and average occupied sites are down 0.7%.With respect to occupancy, excluding our expansion communities, total occupied sites for the core portfolio are down approximately 1.2% over Q1 of 2001. With respect to expansion during the quarter approximately 44 expansion sites were filled, towards our goal of 200 to 250 sites for the year. During the quarter, we did not bring any new expansion sites online.We currently have availability under our credit line of 125 million. Okay, now we'll open it up for questions.

Today's question and answer session will be conducted electronically. If you like to ask a question you may do so by pressing the * key followed by the digit 1 on your touchtone telephone. Once again that is *1 for a moment to assemble the question roster.

Our first question will come from Rich Anderson of Salomon Smith Barney.

Thank you.

The low end would be about 400 and the high end would be closer to between 550 and 600.

Yeah...Used... Rich, it typically just runs at a same phase year over year. When you look at the profit levels in used home it doesn't have a tremendous effect on the RSI number.

Okay. Question goes to expansion. You know you have the goal of 250 to fill. What's your expectation in terms of bringing expansion with number of sites to be brought online during the year?

Well one of the issues that we have is our expansion at the moment is that... we had experienced some delay in bringing a number of expansions online and it really is just the process of getting all the approval. We have roughly 4 or 5 expansions in the works and between now and the end of the year for first quarter of 2003, I think we can bring between a 150 Q 100 expansion sites online.

Between now and the 12 months from now?

Okay. Can you tell me again, Howard or John, the percentage [Conseco] had in the floor plan loans in that business that they...

They represent about 25% of the markets Rich, about 800 million.

Now I just thinking of that issue they are still on the business of home loans but...could this actually benefit to the business some way were it would sort of slowdown the pace of the construction manufactured homes sort of relieve some of the tension of the over supply condition?

It is possible Anderson whether you have or not to have retailers surviving the inability to even operate without any inventory pipeline. So it is complicated... it will hold that the re-force would be discounted and sold to the third parties and absorbed into the market place the way we have shortly done in this business. That's been happening as everybody has been refinancing and extending and doing all the things to avoid facing the ultimate result of a deep discount and write-off. So that, what we are seeing and experiencing is a continuing high loan loss severity rate and recycling of the same inventory. So the answer is that we are going out of business will that accelerate is a) Are they going to be retailers that sell them and b) Are they going to discount the prices down to a level where they would be absorbed more quickly than that. GreenPoint you know, as you recall doubled their reserve for losses and I applauded that... I thought that was the recognition that you are out of the business take the pipe and call it a day.

The key with respect to the fourth plan financing is cool and to what extent people will come into the market to replace that 800 million. To the extent there is a wide gap in that amount of financing available.

So the retailers are going to lose some flexibility here.

Yeah... the retailers rely in the floor plan financing from the manufacturer.

Okay, I understand.

I will give you some absolute numbers under the helm of the manufacturer. The 2001 run rate was approximately 194,000 floors.There are others who say that the way it is going historically would indicate it could be a useful to 175,000 to 185,000. So you expect to see a huge range and you start to see under capacity spreading to impact the manufacturer ability to survive. So it is really like a double ramping the body blowing and another body blowing. Got it.

Next question is regarding the consolidation of RSI. What were the financial steps that were taken to execute that?

Okay. All right thank you.

Our next question comes from [Lisa Seffel], Lehman Brothers.

LISA SEFFEL]: Hi good morning. Question on the reapers. Do you know how many [re-poll] you currently have on your site?

We have approximately 235 in the portfolio, which is up from about 21/4 at the end of the year.

LISA SEFFEL]: Okay. What's the typical downtime on this repurchasing? You were saying that you have been selling these after discount, how long did you see on the properties?

Well you know it really depends on the vendor and it depends on community in the market. You know in some cases we can sell [re-poll] for a vendor very quickly and in other cases that [re-poll] could sit there for a month.It really varies.

LISA SEFFEL]: Okay and a question on the investment activity. Are you seeing any other acquisitions? I think you said you had few in 2002 that you are in kind of looking at. Do you have an update on that and also in the development activity?

Well with respect to acquisitions activity, we do have a ... there's acquisitions that we are looking at all the time. We are you know...they each have their own life whether they wind up being bottom or whether they ultimately die...So I would tell you that the acquisition market really hadn't changed too much from last year as of right now.

LISA SEFFEL]: Okay and just one last question, kind of, in terms of strategy just going to queue. I was just wondering because some of the multi-families, you know, kind of taking the strategy in terms of the whole occupancy, you know kind of cutting on the rents.Is there any shift or that kind of pick occupancy back up in those markets and get back a little on the ranch?

Our kind of a promise with respect to occupancy is this is a different asset class than apartments. On apartments, you can ramp up to the extent the market recovers and you can turn over your resident base fairly quickly for the purposes of getting the best quality residence in there given the market place. We have a different environment where turnover is much slower and in a good market place, often, we find ourselves struggling as to how we can create vacancies so that we can bring in the better quality, higher end customer who might be bringing a new home with him. So, we try to balance out the view from a long-term perspective; don't mind some amount of vacancies occurring at some of these properties, we do think its going to recover and when it does recover we want to be in apposition to have the ability to bring a good quality customers into our communities; we don't want to sacrifice that opportunity by discounting the heck out of our position and allowing the lesser quality customer to take what is the available occupancy away from us. Now, we do try and balance that. There can be a point where we you have taken that too far and we do watch it, but for the most part we are willing to take some amount of vacancy in these market places, such as Phoenix and Las Vegas, because we do believe they are going to come back. There is a disruption in the market place that creates a little bit of an opportunity for us to turn over a customer base and, hopefully end up long-term with a better asset class.

LISA SEFFEL]: Okay. Actually, it has been one kind of... one last final broad question. Some of the manufacturers have been talking and I am not sure how much truth there is to it about shift in the industry going towards more mortgage real estate norms which is then about people going to subdivisions. Are you seeing any of that in your RH portfolio or does that just some type of talking through that kind of explain some slump in the Q1 results?

Okay, I said on a panel on this topic at MHI so it's near and dear to my heart. In my opinion, the so-called trend to real estate financing versus general financing is just a way of avoiding the discipline of underwriting a good shelter loan. And as far as I am concerned, if you discipline your approach to your underwriting and accept only credit-worthy buyers and you demand true equities in their acquisition, you would have very little problem with general financing versus home financing. And, they are in the first year of this transition and I will wait to see how loan loss severity comes out after a period of time and these losses are unseasonal as the case may be. But to me it's strictly a question of industry discipline.

LISA SEFFEL]: Okay great. Thank you.

Our next question comes from Jay Lou, Robertson Stephens.

JAY LOU]: Hi, good morning guys. Greg Johnson for Jay Lou. Most of my questions actually have to do with guidance and outlook. Starting first with occupancy, what was your actual occupancy in Q1? You mentioned that it was down a 120 basis points. How low was it?

It was 93.8%.

JAY LOU]: Okay then. It was sequentially from Q4 is that flat.

That is flat from Q4.

JAY LOU]: Flat from Q4 okay. What would you say your outlook is for 2002?

With the end of the year?

JAY LOU]: Yeah...

JAY LOU]: Okay terrific.

Well in terms of range given if we can sell you know 550 at the high-end new home we would expect to surpass last year's numbers and be in the 2.5 million range and at the low end we can sell only 400 new homes and that is what really is driving... that drives our RSI numbers. That's what our profit are $1.3 million range. There is a broad range there.

JAY LOU]: 1.3 million would be if you sold 400 homes?

That's the volume.

JAY LOU]: Okay, do you have... what are going to comment on the 2002 same store and allied outlook? Kind of get to 3.5 and 4 numbers?

Well, 2002, same store and allied.seeing how expenses play out for the end of the year.

JAY LOU]: Okay, and then last question is kind of a bigger picture question. You guys commented quite a bit on the lending environment on the call and said that it is becoming, I guess... more difficult but at MHC to you guys have still able to locate lending partners. Can you comment more specifically on the process you guys are going through to ensure you have the lending partners available and how difficult that's been and kind of your outlook going forward, given what [Conseco] has been doing?

That's a wide spread to where you could get single home financing in today's market place and we think what's going on is the securitization market place is now kind of a lender of last resort with sub-prime market place where you are seeing that rate differential just because that is the money that is going to be attractive to those securitization. From what you are seeing in the regional market places they are much more, I would say reasonable rate structure.So there is a little bit of a divergence going on. The traditional renting sources are now are seeing more kind of sub-prime market place and the regional places are being filling in for the good credit quality.

Great. Thanks very much guys.

Our next question comes from Ralf Black, Merrill Lynch financial.

RALPH BLACK]: Good morning. I have a question about market condition in terms of the acquisitions environment.

We would certainly be interested in buying high quality senior properties anywhere 8% cap rate. What we are finding out is that it really isn't that much available in that cap rate range, there is not a lot of activity going on and what's is going is going at some pretty tight cap rate. With respect to the family market place again that really depends on location.So there is a little bit of a diversion going on and people are focusing on much more of the asset quality then the typically were...I think three years ago everybody was kind of generically buying manufactured home communities. Today's the market place is much different. People are much more focused on the location of the real estate and the type of real estate when they go through the acquisition analysis.

Well, not for high quality. Anything high quality is now seen as something that's attracting more and more investors and family and probably in tertiary market place is seeing a scarcity of interested investors and what you are seeing in some of these family assets in tertiary market place is, is a financial player who is coming into to see if he could buy it at a cap rate given the financing and attractive kind of spread investing on his equity and you know most of the institutional players, I think, are shying away of some of those market places.

RALPH BLACK]: Okay great. One last question. Have you noticed any kind of historical relationship between periods of significantly rising home prices and demand for space in your communities?

I don't know we have ever noticed or done an analysis of that. I think we could kind of you know react to it.

RALPH BLACK]: Okay that's helpful. Thank you.

As a remainder, *1 for question, and we will next go to Steve Morrison with [_____] Capital Management.

Good morning. I have two questions for you. If you could go back to the early 90's recession, how much of a decline did you see in occupancy back then?

In Denver, which is probably the portfolio that we have owned for the longest, I think we were down into the 90% type occupancy level.

Ended it far from roughly from the same 95% level, do you recall, or did it not achieve that high figure.

Now you are dating... you are little before my time. I remember what was it was like in the early 90's in Denver, and I remember people commenting on what the level was in the trough. My sense is that before the trough it was probably in the 95-97%.

We have to call our elders Steve, and find it out but that basically it was not as significant as the impact on the overall economy.

No I remember that.

We tend to lag behind it but never as severe and then we come back...

I got to make sure on careful with respect to their... there is some litigation going on so, let me just make a couple of comments. We did have at least in one community a tentative settlement with the municipality and that tentative settlement has resulted in further litigation. There was a ruling by federal courts that's enforcing the settlement agreement and it is now being...I think, appealed or at least attempted to appeal. The net affect of that settlement agreement was to allow us to have vacancy de-control, just for the benefit of everybody on the call, would allow MHC to increase the rent to market on the turnover of the residents. So we thought that was a reasonable settlement given some of the case law that was going on at the federal level. It remains to be seen how those things are going to turn out. It is right in the middle of some litigation so I am going to be careful with my comments on that, and I think the other areas, we are making some progress but given the litigation that has been going on I am going to keep my comments minimal.

What was the community involved in San Jose?

And do you see yourself undertaking further litigation this year without that community?

I can't really respond to that comment.

Okay, thank you very much.

At this time there are no further questions and I would like to turn the conference back to Marty McKenna for closing remarks.

Thanks very much for joining us.

Thank you for your participation.