Equity LifeStyle Properties Inc (ELS) 2025 Q4 法說會逐字稿

Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties Fourth Quarter 2025 Results. Our feature speakers today are Marguerite Nader, our CEO; Patrick Waite, our President and COO; and Paul Seavey, our Executive Vice President and CFO. In advance of today's call, management released earnings. (Operator Instructions)

As a reminder, this call is being recorded. Certain matters discussed during this conference call may contain forward-looking statements in the meanings 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 statement that becomes 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 would like to turn the call over to Marguerite Nader, our CEO.

Good morning, and thank you for joining us today. I am pleased to report the final results for 2025. We continued our record of strong core operations and FFO growth with full year growth in NOI of 4.8% and a 5% increase in normalized FFO per share. Our year-end report is a good time to reflect on our business and our industry. Our business model is consistent and durable during all economic cycles.

I'd like to focus on our annual rental streams, which comprise over 90% of our revenue. We offer prospective customers the opportunities to join a community where they can build their social connections in an active environment. The strength of our activity offering continues to be a leading factor in resident retention at our communities.

The average age of a new resident is 60 years old, and many are motivated by a desire to escape colder climates and avoid the isolation and inactivity found during Northern Winters. Resident engagement is the strength of our platform. Across our portfolio, hundreds of resident clubs promote social interactions, contributing to high occupancy levels and extended average lengths of stay.

Affordability in our sector remain a competitive advantage. Our communities provide a well-maintained living environment at a lower cost than surrounding housing alternatives. The value proposition is further enhanced by the structural advantages of manufactured housing.

The homes have changed meaningfully over the last 20 years with today's homes generally featuring three bedroom, two back layouts, modern open floor plans, energy-efficient systems and contemporary kitchens and bathrooms.

These home enhancements have wide demographic appeal and have strengthened the quality of our communities. Our MH portfolio has produced impressive growth rates over the last 30 years. These growth reflect an operating model in which residents choose to make our communities their long-term home and ELS has reinforced that decision by consistent investment in the community to support growth.

Our RV portfolio finished the year strong with an increase in annual occupancy of over 500 sites over the last six months. Our annual RV customers generally stay with us approximately 10 years and appreciate the ability to use our properties as a second home or weekend getaway.

Last night, we issued initial guidance for 2026. Our guidance is built based on the operating environment at each one of our 450 communities, including a robust market survey process. Our teams communicate with our residents to understand their views around capital projects and property operations.

The results show strength in both top line revenue and NOI. For the full year 2026, we anticipate normalized FFO growth of 3.7%. Next, I would like to update you on our 2026 dividend policy. The Board has approved setting the annual dividend rate at $2.17 per share, a 5.3% increase.

Our decision to increase the dividend is driven by stable cash flow, a solid balance sheet and strong underlying business trends. In 2026, we expect to have approximately $100 million of discretionary capital after meeting our obligations for dividend payments, recurring capital expenditures and principal payments.

Over the past 10 years, we have increased our dividend by an average of 10% per year, and this year's dividend marks the 22nd consecutive year of annual dividend growth. I want to thank our team members for all their efforts in 2025, and I'm looking forward to continued operating success in 2026. I will now turn it over to Patrick to provide more details about property operations.

Thanks, Margarite. I'll start with some color on our MH business and then address our long-term RV business. In 2025, these revenue streams totaled more than $1 billion. Over the last five years, their combined revenue CAGR was 5.9%, continuing to support our history of consistent property NOI growth since our IPO in 1993. Approximately half of our MH revenue is Florida.

Another 20% is California and Arizona, and the rest is mostly the North Central and Northeast U.S. Over the last five years, we've sold 3,800 new homes, which improved our quality of occupancy. Florida has been a driver of growth with migration patterns supporting economic growth and demand.

The rest of the Sunbelt Coastal and northern markets have contributed to consistent growth as well, given the desirable locations of our properties and the great value that our MH communities offer in their submarkets, focusing on Florida first, our largest submarkets, Tampa St. Pete and Fort Lauderdale, West Palm Beach are supported by tourism, financing technology, favorable tax structures, business relocations and in migration.

Demand for MH communities has been consistently strong. And over the last five years, we sold nearly 2,000 homes and reduced our Florida rental load to 2.5% of our occupied sites. Looking next to Arizona, our largest market is Phoenix, Mesa, which experienced strong population growth and GDP growth and has supported demand for our MH properties.

We sold more than 400 homes over the last 5 years. The last of the big three is California. Our MH communities offer great value in high-cost markets. Given the high demand, our California properties have an average occupancy of 96%.

Before I move on to our RV business, I would note that our portfolio and locations are well positioned to benefit from the demographic trends in the U.S. Our recent investor presentation highlights these demand drivers. There are 70 million baby boomers in the U.S., and every day, 10,000 baby boomers turn 65. Right behind the baby boomers, our 65 million Gen X, all aging towards our core demographic.

After Gen X is the millennial cohort of 75 million. They will start retiring in about 20 years. As these generations age, they behave similarly, although the timing may differ. As an example, Gen X and Millennials entered household formation stages and buying homes later than baby boomers. But the direction is consistent through mid-life years and into retirement.

They seek what we offer, great value, active lifestyles and social engagement. On the RV annual business, long-term stays and low turnover provided stable revenue stream similar to our MH business. Most of our annuals on a park model or RV with fixed site improvements, and when they choose to leave, they resell their unit in place to the next long-term guest resulting in an uninterrupted revenue stream, very similar to our MH business.

Over the last five years, the average RV annual rate growth of more than 6% contributes to our durable long-term revenue. Over the last two quarters, we added more than 500 annuals, and we continue to see consistent demand throughout the Sunbelt and Northern markets.

Attrition that we experienced early in 2025 appears to have subsided and both current and new RV annual customers are enthusiastic about staying with us. Our RV properties are in desirable locations, and a customer can buy one of our resort homes for a fraction of what a lake house or similar accommodation will cost in those markets.

The value we offer across our long-term revenue business lines supports consistent demand. As we head into 2026, we see demand for our MH and RV annual offerings, which supports consistent growth in these long-term revenue streams.

I'll now turn the call over to Paul.

Thanks, Patrick, and good morning, everyone. I will discuss our fourth quarter and full year results, review our guidance assumptions for 2026, including some key considerations for the first quarter and close with a discussion of our balance sheet.

Fourth quarter normalized FFO was $0.79 per share, and full year normalized FFO was $3.06 per share, representing 4.2% and 5% growth in the fourth quarter and year-to-date periods, respectively, compared to prior year. Strong core portfolio performance generated 4.1% NOI growth in the quarter and 4.8% year-to-date.

Our results are in line with our guidance provided at the beginning of 2025 and reflect our consistent track record of earnings growth in line with guidance. Core community-based rental income increased 5.5% for the full year 2025 compared to 2024 primarily because of noticed increases to renewing residents and market rent paid by new residents after resident turnover.

Full year core RV and marina annual base rental income which represents approximately 73% of total RV and marina based rental income increased 4.1% compared to the prior year. Full year core seasonal and transient rent combined decreased 9.1%. The net contribution from our total membership business consists of annual dues and upgrade subscription revenues, offset by sales and marketing expenses.

For the full year, the membership business contributed $65.6 million net. During the year, we enrolled approximately 5,900 upgraded membership subscriptions. Core utility and other income increased 3.4% for the full year compared to prior year. In 2025, our utility recovery rate was 48.7%, a 220 basis point increase from 2024.

Full year 2025 core property operating expenses increased 1% compared to the same period in 2024, our ability to deliver expense growth below CPI resulted from our management of payroll expense at our RV properties, our 2025 insurance renewal and a reduction in membership sales and marketing expenses.

Income from property operations generated by our noncore portfolio was $1.9 million in the quarter and $10.2 million for the full year 2025. Property management and corporate expenses increased 1% for the full year 2025 compared to prior year. The press release and supplemental package provide an overview of 2026 first quarter and full year earnings guidance.

The following remarks are intended to provide context for our current estimate of future results. All growth rate ranges in revenue and expense projections are qualified by the risk factors included in our press release and supplemental package. Our guidance for 2026 full year normalized FFO is $3.17 per share at the midpoint of our guidance range of $3.12 to $3.22.

We project core property operating income growth of 5.6% at the midpoint of our range, and we project the non-core properties will generate between $4.6 million and $8.6 million of NOI during 2026. Our property management and G&A expense guidance range is $121.3 million to $127.3 million.

In the core portfolio, we project the following full year growth rate ranges: 4.1% to 5.1% for core revenues, 2.7% to 3.7% for core expenses and 5.1% to 6.1% for core NOI. Full year guidance assumes core MH rent growth in the range of 5.1% to 6.1%, full year guidance for combined RV and marina rent growth is 2.4% to 3.4%.

We expect 5.2% growth in rental income from RV and marina annuals at the midpoint of our guidance range. For the full year, our guidance assumes interest expense in the range of $133.3 million to $139.3 million. Our first quarter guidance assumes normalized FFO per share in the range of $0.81 to $0.87. That represents approximately 26% of full year normalized FFO per share.

Core property operating income growth is projected to be in the range of 4.5% to 5.1% for the first quarter. First quarter growth in MH rent is 5.8% at the midpoint of our guidance range. We project first quarter annual RV and marina rent growth to be approximately 4.5% at the midpoint of our guidance range. Our guidance assumes first quarter seasonal and transient RV revenues perform in line with our current reservation pacing.

I'll now provide some comments on our balance sheet and the financing market. Our balance sheet is well positioned to execute on capital allocation opportunities. We have no secured debt maturing before 2028, and the weighted average maturity for all debt is seven and a half years. Our debt-to-EBITDA re is 4.5 times and interest coverage is 5.7 times. We have access to $1.2 billion of capital from our combined line of credit and ATM programs.

We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Current secured debt terms vary depending on many factors, including lender, borrower sponsor and asset type and quality, current 10-year loans are quoted between 5% and 5.5%, 50% to 75% loan-to-value and 1.4 times to 1.6 times debt service coverage.

We continue to see solid interest from the GSEs and life companies to lend for 10 year terms. High-quality age-qualified MH assets continue to command best financing terms. Now we would like to open it up for questions.

(Operator Instructions)

Michael Goldsmith, UBS

Good morning. Thanks a lot for taking my question. First question on the seasonal and transient business. Your -- it sounds like the first quarter expectations are consistent with the reservation piecing that you're seeing. But then what's implied for the balance of the year is that it improved pretty materially to like a positive 2%, 1.8% you're giving specific.

So just trying to get a sense of what are you seeing -- or what gives you confidence that seasonal transient can accelerate through the balance of the year as you sit here today?

Sure. Good morning, Michael. Sure. Maybe Paul could take us through the pieces of the guidance and Patrick can give a little bit of color about the operating performances.

Sure. I'll start -- I'll frame first the composition of the revenue and some of the timing considerations. So the first quarter, we earned approximately 50% of our anticipated full year seasonal rent and almost 20% of our full year transient rent. And by the end of the second quarter, we've earned almost two third of that full year seasonal and nearly 45% of our full year transient rent.

The last thing I'll mention is during the third quarter, 40% of the transient rent is earned. So when we think about that activity, particularly transient, the short booking window means our revenue is heavily influenced by weather forecasts.

We did put together the 2026 budget for these two revenue streams based on current reservation pacing for rent we anticipate earning in the first quarter that implied rate is down about 13%. And for the remainder of the year, as you said, Michael, we anticipate approximately 2% growth in those revenue streams combined.

Yeah. So I guess a little color on the seasonal and transient, but first, I'd start with our annual RV that represents 70% of our total RV revenue. And as we mentioned in our opening remarks, we added 500 annuals in the back half of the year. So we see consistent demand. And that demand through the year substantially offset the attrition that we saw earlier in the year.

On the seasonal and transient Paul just walked through, we've basically given you the first - our first quarter expectations. And as you look at Q2 to Q4 for seasonal and transient, that growth represents about $1.3 million. On the transient front, really the points that we focused on were the four major holidays.

Juneteenth is on a Friday, and the fourth of July is on a Saturday. So the two variable key holidays are on weekends. Also, we're coming into Americas 250th birthday. So the fourth of July is expected to be particularly good for the hospitality business.

And then last, although it's early, our booking pace for the Q2 to Q4 period on transient is favorable to what we experienced last year. On seasonal for Q2 to Q4, the majority of the pickup is in Q4 as we'd be entering the '26, '27 Sunbelt season. And again, early booking pace is ahead of last year.

So really, at this point in the year, we're surveying and having events with our seasonal customers that are on site. The ones who are on site, the two things that they rank most highly is the warm weather and the time they spend with their friends and anybody in the Northern United States over the last few weeks have experienced sub-zero temperatures.

So it's particularly relevant today. We also survey the guests who did not book with us this season but have stayed with us in the past. They highlight really the same two things. They miss their friends, and they want to spend time in the warmer weather.

So both of those groups are contributing to our positive early booking pace. Those are really the factors we considered as we are working our way through our long budget process, particularly with the seasonal and transient. But also for the RV, the total RV revenue demand and occupancy trend that we're seeing for the 70% of our RV annual has been positive in the last few quarters.

You're very helpful And maybe just as a follow-up, and maybe this also relates to the expense line is you just did -- you just had expense growth of 2.2%. You're guiding to 3.2% expense growth at the midpoint. So how much of that reflects like just a step-up in the transient revenue and so that there's a coordinating like payroll increases related to -- on the expense side?

And then also, what are you expecting for your -- is like what are you expecting on the insurance renewal? And is that playing a role in the step-up in expense expectations for 2026? Thanks.

Sure, Michael. I guess the way that I would kind of address those rolling all together in some respects. We have guided to expense growth that generally tracks to -- it's about a 50 basis point premium to current CPI. We do have assumptions for payroll at higher staffing levels than we had in 2025 to match the revenue.

The same is true for the utility expense as a result of the expectations. With regard to insurance, we're quite pleased that we didn't have any adverse claims experience in 2025. In addition, there are indications that the market is softening.

Our guidance does have an assumption with respect to our insurance renewal were consistent with our past practice. We're not disclosing that. We've started the renewal process. So we won't make our guidance expectation public. We do look forward to updating you in April after we've completed our renewal.

Thank you very much. Good luck in 2026.

Thanks, Michael.

Jeffrey Spector, Bank of America Securities.

This is Jana on for Jeff. Thank you for taking the question. Just curious on a smaller portion of the RV and marina. On the marina side, there were some marinas that were taken offline. I was wondering if you can kind of help us kind of on the progress of those repairs and when those may come back into the portfolio?

Yeah. Jana, it's Patrick. It's -- you're right, it's a small part of the business and it was a headwind for the quarter. as we're working through that's three marinas, it's working through repairs of prior storm damage, and I think I mentioned this when we met and in previous calls that we had some delays with respect to permitting and construction.

We're working our way through that. I think we have a pretty good eye on timing at this point, and it looks like it's the latter half of 2026 is when we're going to start coming online that should be completed into 2027.

Great. Thank you. And then maybe a little bigger picture, just kind of curious some of the new -- whether it's the Roads Act or some of these other MH affordable housing programs that the administration is looking at. I was curious if there were potentially any pilot programs that ELS was looking to be a part of?

Yeah. we haven't seen anything new from HUD. I think when you consider how manufactured housing fits into the discussions in D.C. It's important to consider manufactured housing in a kind of a broader degree. There's about 7 million manufactured homes in the country that house about 18 million people.

And on a square foot basis, MH costs about half as much as single-family construction. So it's definitely a product that could help to address the housing issues across the U.S., but we really don't see widespread acceptance, especially in areas where we would see being interested in developing new communities. And so we haven't seen a lot of change from D.C.

Thanks Marguerite.

Thanks Jenna.

Jamie Feldman, Wells Fargo.

Great. Thanks for taking the question and good morning. Great. Can you talk more about the Canadian customer, I mean it sounds like you're seeing a -- you sound more optimistic about things getting better. But can you talk specifically about Canadian customers and what you're seeing? And what's in the guidance, what's your assumption for the decline in '26 in that group specifically?

Yeah. I can -- with respect to the first quarter for seasonal and transient, as I mentioned before, it implies a 13% decline compared to prior the same quarter last year. The reservation pace for the seasonal customers is consistent with the pace we discussed during our call in October. So there hasn't been any meaningful change in that across the customer base.

And then just thinking about the Canadians, we've previously talked about the fact that 10% of the total RV revenue is what the Canadians represent, 50% of that is from our annual customers. We have not seen any meaningful increase in home sales from those Canadian annual customers. So that demand profile remains strong. And then the remaining 50% is what we've talked about being split between the seasonal and transient.

And Jamie, Patrick walked through some of the Canadian sentiment based on some of the survey work that we had done, and that points to a positive view on our properties and traveling back to Florida.

Okay. Thank you for that. And then I guess just shifting gears to the investment market. Anything that we should pay attention to that might feel different in '26. I know it's been very challenging to find opportunities and maybe that the honest question, anything on the legislative side or policy side that might be helpful for you with affordability or just in general, maybe a state of affairs that we could provide it on the investment market.

Sure, sure. So transaction activity continues to be constrained, I would say, as you know, ownership is highly fragmented and we engage with home owners as they move forward towards potential sale decisions. The strong performance of these properties over time has really reduced the desire to sell for the owners.

And so knowing that, I think that attractive acquisition activities may be limited. We focused on internal growth -- operations and expansions and continuing to keep our balance sheet in a position such that if there is an opportunity, we are able to take advantage of it.

With respect to anything happening at the federal level, that would impact us. I think what we've seen more is it's really what happens at a city or local level, convincing City Council members to have an MH or RV community in their backyard. It really -- it's oftentimes difficult even for highly amenitized communities, but we continue to work through that at the local level.

Okay. If I could just sneak in, what's your appetite for like one-off MH properties rather than parts? Or do you think going forward, I mean assuming legislation gets passed, would you be interested in that at all? Or no, you're kind of sticking with the park business?

I'm sorry, interested in buying one-off manufactured housing communities?

Well, no, like manufacturing, managing them off like random properties around different municipalities if that becomes something that can --

Buying single-site homes. Is that what you're asking?

Correct.

I think that what we found is that, that community aspect of certainly, we operate 450 communities across the country. I think where -- our acquisition strategy is really focused on buying communities versus buying individual single off assets.

Okay. All right. Thank you.

Brad Heffern, RBC Capital Markets Inc.

Hello, Brad.

Brad, you may be on mute.

Victor, maybe if you could move to the next caller and then we get back to Brad.

Eric Wolfe, Citi.

Hey. Thanks. I need to follow up on Michael's question at the beginning. I'm just trying to understand why the annual RV rental income goes from 4.5% in the first quarter to, I think, around 5.4% for the rest of the year. Just trying to understand sort of why it steps up in the first quarter and stays at that higher level.

Sure, Eric. The main driver of that moderate growth in the first quarter, RV and marina annual rent growth is the comparison to our first quarter 2025, which had a higher level of occupancy. You may remember, we experienced attrition in the Northern resorts as they came back in season in the second quarter of '25, and that has some carryover impact to the first quarter of '26.

Got you. And so this year, tell me if I'm wrong, you're expecting normal attrition, normal turnover. Can you maybe just sort of tell us how much visibility you have into that at this point in the year, you have very good visibility because I don't know, 80% of your annual customers have already signed a lease or something like that?

I'm just trying to understand how much visibility you have into that normal attrition at this point and what we should be watching, say, over the next couple of months to determine whether that's actually going to happen or not.

Yeah. It's Patrick. It's reasonable to view the attrition as normal. That's the -- we had that period of elevated attrition early last year. Just as a reminder, we send out rent increase notices in the latter part of the year that there's a timing component, but that covers the Sunbelt and our Northern properties.

And we're going through a renewal process as we make our way through the back half of the year. So we have pretty good visibility at this point. I will note that in the north, there are some -- the effective dates of those rate increases are typically April as we're entering the summer season.

So there's renewals that occur at that point. But the visibility we have right now, we feel pretty confident that the elevated attrition that we experienced in the prior year is behind us.

Manna Sebek, Evercore ISI.

Wesley Golladay - Robert W. Baird & Co Inc

Hey. Good morning, everyone. I have a question on the domestic RV transient and seasonal customer. Do you think we're finally back to normalized numbers on that? Are we back to the trend line post COVID?

We've had that question over the last several quarters as we work our way through the normalization of that business. I think given what we're seeing with respect to early pace, I feel that we -- if we're not at it, we have some -- we certainly see some green shoots with respect to positive trends on booking base going into 2026.

Okay. And then on your expansions, are you targeting the higher growth Sunbelt markets for those expansions?

We have, for the most part of it. That's where the largest concentration of our portfolio is. So the significant majority of our expansions have occurred throughout the Sunbelt properties.

And we do have a small expansion in the North in Minnesota. But other than that, they're basically in the Sunbelt.

Okay. And then just one quick follow-up on that. On the lease-up. I know you delivered some on the MH side in the fourth quarter. What's the typical time to lease that up and get the occupancy up?

I mean it depends on the number of sites. So just at any particular community, if you're filling in the range of, call it, 20 to 30 a year, you're having a -- that's a good pace for selling manufactured homes to new homeowners and an expansion.

Okay. Thank you very much.

John Kim, BMO.

Thank you. This quarter, you provided a new disclosure on MH occupied sites at the beginning at the end of the quarter. So new disclosure is always good. The actual number went down though during the quarter. So I was wondering what contributed to the occupancy sites going down just given occupancy growth has been a focus for your company?

And just generally, I think occupancy in MH has been at its lowest levels in about 10 years. And I'm wondering what has been driving that just given the demographic tailwinds that you talked about earlier?

Yeah John, it's Patrick. First, I'll take the quarter. the outcome for the quarter was really driven by our number of sites where we have depleted our home inventory. We're in the process of replenishing, which we -- it's just ordinary course of business for us and just the mix of move-ins and move-outs for the quarter. It's down about 70s, 10 basis points.

I think to your point on the demand profile, we consistently see good demand, and we feel very positive going into 2026. So I think that has more to do with just the timing of the quarter as opposed to any takeaway on the fundamentals.

And just long term with respect to the view of occupancy, I mean we continue to increase the number of occupied sites over the years. The percentage, I appreciate, as we've talked about in the past, can fluctuate as we're bringing on expansion sites into the denominator.

And John, that was the kind of the reason for that new disclosure, just to be clear about those expansion sites.

Yeah. That makes sense. Okay. Okay. So I'm asking on RV today, minus seven degrees Celsius in Toronto, it's 22 degrees Fahrenheit in New York. And I know in the past, you talked about the colder weather, potentially being a driver for transient and seasonal RV demand. It doesn't sound like you feel that bullish on that today. But just wanted to get your updated thoughts on the cold weather impact on RV.

Sure. Sure. So we obviously look at it on a daily basis, sometimes throughout the day. But what we've seen in the month of January, I think we've had three or four -- only three or four days where we were not exceeding last year's pace. So really positive pacing and it really is corresponding what we're seeing as the temperature is dropping.

Our marketing team does a really good job of monitoring the weather in the north and leveraging predictions for difficult weather, which is not difficult to do now because all the weather has been difficult across the country and encouraging the customers to escape the cold and visit our Sunbelt locations.

So we look at those marketing tools, our weather-related digital ads and organic posts that's generating some positive return for us as people try to escape this difficult weather.

Thank you.

Thanks Jim.

Jason Wayne, CFA, Barclays Services Corp

Hi. Good morning. Just looking at the rental home business, had a nice year in '25, some growth there. So I'm just wondering what's the strategy there? And is that business one that you'd like to continue growing moving forward?

Yeah. I mean that's really going to be based on what we see from a demand perspective. As we're replenishing new home inventory across the portfolio and filling expansions, our first priority is to sell the home and as demand is coming at us, we may very well accept rentals.

Rentals is a positive business and that it exposes more and more prospects to be future homebuyers and been sometime since we spoke about the staff at roughly 15% to 20% of our sales on property are to current residents. Those are either renters looking to purchase a home and become a home buyer or current homebuyers that are looking to either downsize or get into an upgrade on their own.

And then you also began disclosing the rental home operating expenses. So just the increase was tied to those expansions then it sounds like but just wondering how that's expected to trend this year, why it was kind of down the rest of the year based on disclosure?

Yeah. The rental home expenses is essentially embedded in our operating expense growth assumption. And what we see in that business, yes, to the extent that we have incremental rental homes, we will see a higher level of expense relative to prior periods, there is also impact just on the mix of homes that are in the rental program, whether they're new homes that happen to be rented or homes that have previously been occupied and the expense associated with the latter can be higher.

So as that mix changes, we see a slightly lighter load on expenses.

Got it. Thank you.

David Segall, Green Street Advisors.

Thank you. Guidance for the MH portfolio seems to imply that the vast majority of growth is coming from rent growth and only a small bump from probably occupancy or other income and considering the higher level of expansion sites likely to be added this year versus last year, would it be fair to say that this implies occupancy will actually dip further this year?

I guess I wouldn't think about it that way. We have a practice that we've used for quite some time not to make a specific assumption about occupancy gains in our guidance, and we've used that in building our model for 2026.

Thank you. And then just on RV performance in 4Q. It ultimately landed below the low end of the range for the quarter, although as of November, it looks like it was tracking at the higher end of the range. And considering you mentioned the Canadian booking pace was in line with what was discussed in October. I just wanted to try and understand what happened in December to cause performance to lag so much?

Yeah. I mean what we saw in December was really a weather effect going the other way. It was moderate temperatures kind of throughout the North, and we didn't see those bookings pick up like we had in previous years. So it's kind of the opposite of what we're seeing in January is what we saw in December.

Great. Thank you.

Omotayo Okusanya, Deutsche Bank AG.

Yes. Good morning, everyone. I wonder if you could talk a little bit about the [indiscernible] CAP ground membership results. Again, we kind of had another quarter where the membership count declined. I know in the past you've kind of talked about making it up with kind of better pricing and upgrades and things of that sort.

But I think even upgrade activity this quarter was a little bit light. So just curious what's kind of happening there? What does that tell us to about overall demand, whether it's on the transient side or seasonal side? Just kind of trying to get some read through from those results and how you're thinking about it going forward.

Sure. Thanks, Tayo. So I think the thousand trail system, as you know, has got about 80 properties with about 24,000 sites, and I think, 108,000 members right now. And it's -- I think it's helpful you've mentioned the upgrade, but I think it's helpful to just highlight all the pieces of the thousand trails business. We have our annual membership subscriptions where we sell those online and in the field.

And that activity, I think about half of that activity comes from online activity, initial subscriptions are sold online. That's that $700 product that we've talked about, the entry-level product that has a set of benefits to stay at the locations.

This line item now also includes our new upgrade (inaudible) product. And in the year, we saw a healthy growth of over 5% in that line item. And then when you think about the Thousand Trails portfolio, you also, I think, need to consider the annual piece of it, and that's where we see our members wanting to stay and have a more permanent stay in our communities.

And that annual income has increased significantly over time, I think, 7% or 8% over the last five years. And then, as it relates to the promotional membership originations, which we highlight in the supplemental, we're seeing traction on that. And those trial memberships that's included in the sale of an RV.

And these are really just really great prospects for the annual camping passes at our properties, and we've seen an increase in conversion of those. And the conversion is the important piece because that's the piece where the customer starts to pay dues in the year following their initial membership.

Got you. So what's the piece that kind of still, if I'm going to use the word weak amongst all these moving pieces that's kind of dragging down the counts and things like that.

Sure. So what we've seen is there's some attrition of the legacy members that are paying -- we're paying a lower dues amount, and we're bringing in new members that are paying a higher dues amount. And so that's what you're seeing in the --

Thank you.

Eric Wolf, Citi.

And thanks for taking the follow-ups. For the non-core income, it looks like it's dropping $3.6 million year-over-year. I think it's the same pool of properties in 2026 to 2025. So I was just curious what's causing that?

Sure. We have $6.6 million in our guidance for '26. That does compare to the $10.2 million that we recognized in 2025. The difference is really attributed to timing of insurance proceeds and the recovery of the storm-affected properties. There's just a timing difference there.

Okay. So you expect to get it. It's just -- because I mean, normally, when I think about business interruption proceeds, it's the pay for the business interruption that you're seeing. So you're saying that you expect to get that at some point, it's just a timing difference or you already received more in 2025 than you thought you would.

Exactly. The recognition occurs when it's received, and that doesn't necessarily line up with when we would otherwise earn it.

Okay. And then I think your historical practice has been to not include any use of free cash flow in your core FFO estimate, just confirming that that's true this year. And then I guess sort of practically speaking, is that $100 million of cash after dividends and recurring CapEx earmarked for anything this year? I assume perhaps you just go to more sort of inventory growth but maybe help us understand where that could go.

Yeah. I mean, I guess I'll focus on the interest expense and our assumption for 2026. I mean, certainly, we look at our debt in place at the end scheduled principal amortization during '26 and then how our line of credit will increase or decrease throughout the year.

We don't make any -- any assumption for a change in the short-term borrowing rate. But the funding of working capital investments, such as you described, that comes from borrowings on the line of credit that exceed the free cash flow. So that includes purchasing homes for sale and rental in our communities, the discretionary CapEx that we have that includes expansion as well.

Okay. Thank you.

Thank you. 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 all for joining today. We appreciate you taking the time and look forward to updating you on our next quarter call.

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