Equity LifeStyle Properties (ELS) CEO Marguerite Nader Discusses Q2 2014 Results - Earnings Call Transcript

Jul.22.14 | About: Equity Lifestyle (ELS)

Equity LifeStyle Properties, Inc. (NYSE:ELS)

Q2 2014 Results Earnings Conference Call

July 22, 2014; 11:00 a.m. ET

Executives

Marguerite Nader - President & Chief Executive Officer

Paul Seavey - Executive Vice President & Chief Financial Officer

Patrick Waite - Executive Vice President of Operations

Analysts

Nick Joseph - Citigroup Nick

Jana Galan - Bank of America

David Toti - Cantor Fitzgerald

Paul Adornato - BMO Capital Markets

Dave Bragg - Green Street Advisors

Todd Stender - Wells Fargo

Operator

Good day everyone and thank you all for joining us to discuss Equity LifeStyle Properties, Second Quarter 2014 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 of Operations.

In advance of today's call, management released earnings. Today's call will consist of opening remarks and a 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 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 statements that become untrue because of subsequent events.

At this time I would like to turn the call over to Marguerite Nader, our President and CEO. Please proceed.

Marguerite Nader

Good morning and thank you for joining us today. As Paul will cover in more detail, our normalized FFO for the second quarter was $0.63 per share, an increase of $0.02 from guidance. Our guidance for the full year 2014 assumes a 7% growth in normalized FFO.

Over the years we have often discussed the quality of our locations and stability of our cash flow. Those hallmarks continue to standout as we see greater anticipated population growth in our key markets, increased asset to new distribution channels for our products and a renewed willingness by our customers to commit to us for a longer period of time.

Our MH properties offer value to both empty-nesters and families who desire a quality lifestyle. Demand is strong for our communities and lifestyle offerings.

We had our 19th successive quarter of occupancy growth. In the first half of the year we increased homeowner occupied sites by 113, while increasing home renter occupied sites by only two. This compares favorably to last year at this time, when we had lost 189 homeowner occupied sites and gained 360 home renters, emphasizing that quality of occupancy growth is important and it will continue to be a focus.

For the quarter we sold 66 new homes in our MH communities, at a price point of $68,000, which compares positively to last year, when we sold 18 new homes, as well as to the last quarter when we sold 30 new homes. Our new home sales were primarily in California, Florida and Colorado. We have increased our marketing campaigns and have seen an increase in traffic, both online and at the property level.

As has been true throughout our history, the key is for potential customers to experience the property. Increasing the number of people who visit the properties will translate into favorable trends for us. This positive trend and a key part of our business remains our focus.

We have seen a decrease in homes coming back to us, which generally means that the residents have the opportunity to resell their homes and place. Our customers see the value of owning a home in our locations.

Additionally, in the quarter we sold 20 homes within our RV footprint. Half of these homes were MH products sold at our 2,000 site RV resort in Mesa, Arizona, which has both RV and MH within the property. This is the prime example of how our customers move through the lifecycle of staying with us for a shorter duration and then convert to a longer stay and a larger commitment by purchasing their home.

Approximately half of the new homes we sold in our MH communities this quarter was through the joint venture with Cavco. We like the trend we are seeing with this joint venture and have increased our homeowners.

In the quarter we have seen an increase in on-site ownership conversion as compared to last year. This is achieved from a renter living in our community and deciding to buy either an ELS inventory home or a resale home. We are focused on increasing conversions to our existing rental customers.

From a marketing perspective, we are driving new customers to our RV resort. We have increased our presence at rallies, tradeshows and travel websites. We are focused on having a presence wherever an RV'er is looking for their next vacation adventure.

While the transient component of our RV business only represents 4% of our overall revenue, it is an important feeder for the rest of our RV business. Our transient business is concentrated in the summer months, with over 50% of the full-year revenue coming in from Memorial Day to Labor Day. We now have two of the important summer holidays completed and we are pleased with the results.

For Memorial Day we saw a year-over-year increase of 7% and July 4 performed 13% better than last year. This additional revenue was driven from a combination of new customers visiting our resorts, existing customers returning and maximizing the rate increases where demand is high.

For the quarter our RV annual and seasonal growth rate was 5.4%. This segment represents 80% of our RV income and we have started the process of market surveys for next year's increase. We like this revenue stream, because it mimics the MH cash flow, a long-term customer base who has an established home or RV on our property.

We appreciate the importance of repeat and referral business and are focused on understating what the customer is looking for from their vacation experience with us. Our customer feedback tool within our RV footprint is another tool we use to help determine what is driving consumer behavior and we use it to allocate capital if necessary to drive business.

I will now turn it over to Paul to walk through the numbers in detail.

Paul Seavey

Thank you Marguerite and good morning everyone. I will discuss our second quarter results and update guidance for the remainder of 2014.

For the second quarter we reported $0.63 of normalized FFO per share, approximately $1.8 million ahead of guidance and $0.02 ahead of the midpoint of our per share guidance range. Overall, income from property operations from both our core and non-core assets performed in-line with expectations. In the quarter we recognize $1 million of corporate income and our sales operations performed better than expected to drive the outperformance to guidance.

Core MH rent growth was 3%, in-line with expectations. The base rental income increase consists of approximately 2.6% rate growth and 40 basis points related to occupancy gains. Core occupancy increased 40 sites in the quarter, driven by a strong increase in homeowners. We gained 70 homeowners in the quarter, while reducing home rentals by 30 sites.

The results of our focus on occupancy quality are evident when looking at trailing 12 month rental occupancy growth. At this time last year our trailing 12 month rental occupancy gain was 970 sites. Today the trailing 12 month increase in rentals is 49 sites. Our occupancy gains have been the result of the 207 homeowners we have added since June 2013.

Our core RV resort base rental income growth was 6.5%. All three categories of RV rent, annual, seasonal and transient perform better than expected delivering 5.6%, 3.4% and 11% year-over-year growth respectively.

The annual revenue growth was driven by increased rates across the portfolio. Florida and the West had higher than average rate increases. The effect of annual gained in our northern properties during the 2013 summer season helped drive growth from occupancy. Strong transient performance in California, Florida and the West is the result of growth from both occupancy and rate.

Membership dues were $11.2 million for the quarter. During the quarter we sold and activated approximately 5,600 memberships, including 2,500 from our RV dealer network. Year-to-date we have generated approximately 8,400 new memberships through our various distribution channels. For the quarter the net contribution from right-to-use contracts or membership upgrades was $400,000, resulting from approximately $3.1 million in revenues and $2.7 million in expenses. We sold 661 upgrades at an average price of approximately $4,900.

Core property operating expenses were slightly lower than expected in the quarter. Growth in utility expense moderated in the quarter relative to our experience in the first quarter. However, year-to-date utility expense growth is 5.3%, compared to 3.1% for controllable expenses.

In summary, second-quarter core property operating revenues were up 2.9% and core property operating expenses were up 1.6%, resulting in an increase in core NOI before property management of 4.1%.

Property management and corporate G&A came in at $17.2 million. Other income and expenses of $4.7 million include the income associated with repayment of a fully reserved note receivable. Year-to-date core property operating revenues increased 3.4% and core NOI increased 4.1%, driven by our core community base rent increase of 3.1% and our resort base rental income increase of 6.6%.

The press release and supplemental package provides third quarter and full-year guidance in detail. Please note the following remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints in our guidance range.

For the remainder of 2014 we assume no change in our core MH occupancy from the end of the second quarter and expect community based rent revenues of $210 million, a growth rate of 2.9% for the remainder of the year.

As I mentioned on prior calls, our base rent growth rate is expected to moderate slightly throughout the year, as we unbundle utility expenses from rent at certain former hometown properties. The impact of the unbundling is an approximate 60 basis points reduction in rent on average for the year. The revenue will be recognized as utility income going forward.

In our RV business we anticipate core RV revenues of $76 million for the rest of the year, a growth rate of 4.5%. We expect annual growth to continue showing strong performance with 4.8% growth projected. Our transient business is expected to grow 5.8% for the remainder of the year. We expect about 45% of the full-year transient income will come in the third quarter.

As Marguerite mentioned, our July 4 weekend generated approximately 13% growth and we are projecting 7.6% growth for the quarter.

Our seasonal business is expected to be flat for the remainder of the year. Our 2013 performance was strong, in-part because of temporary workers staying in one of our properties last year. They represented approximately $180,000 of revenue during the second half of 2013.

Total core revenue from dues and membership sales for the second half of the year are expected to be $29.9 million. The associated sales and marketing expenses are anticipated to be approximately $5.7 million for a net contribution of $24.2 million, flat to 2013. Core operating expense growth is projected to be 1% for the remainder of the year and 1.7% for the full year. Full-year growth is up from prior guidance of 1.3%.

Our current guidance includes an increase in utility expense of almost $1 million of our prior guidance. This increase is driven by increases in electric and gas rates, primarily in our RV properties in the West, South and California. For the rest of the year core property operating revenues are anticipated to be up 2.9% with core expenses growing at 1%, resulting in a net increase in core property NOI of 4.3%.

We expect the acquisition properties will contribute about $4.6 million in income from property operations for the remainder of the year, for a total of $9.3 million for the full year. Property management and corporate G&A is expected to be $35.6 million for the remainder of the year and $68.7 million for the full year.

Other income and expense items are expected to be approximately $6.4 million for the rest of the year and approximately $18.2 million for the full year. Financing costs and other are expected to be $60.1 million, representing savings of approximately $1.2 million from prior guidance.

Approximately $900,000 relates to savings associated with the extension of our unsecured revolver and term loan, which I will discuss in a moment. The remainder of the savings results from our use of available cash rather than refinanced proceeds, to repay maturing debt at the beginning of July. Our current full-year 2014 normalized FFO per share guidance range is $2.68 to $2.78.

Now some comments on our balance sheet. During the quarter we expanded and extended our unsecured revolving line of credit to $400 million and extended our $200 million term loan. This transaction, led by our long-standing bank group partners, Wells Fargo and Bank of America, increased our overall unsecured capacity $20 million and added an accordion feature to our revolver, allowing an additional $100 million of capacity.

We also reduced borrowing costs approximately 25 basis points on our revolver and 50 basis points on our term loan. The revolver maturity was extended four years with a one year extension option, and the term loan maturity was extended 5.5 years.

Concurrent with the closing of the term loan, we executed a swap to fixed LIBOR for a three year period. The fixed rate is 1.04%, resulting in an all-in borrowing cost at our current leverage of 2.39% for three years.

As we have stated in the past, we intend to execute on opportunities to capitalize on the strength of our balance sheet, while maintaining flexibility to position ELS for growth opportunities as they may develop.

Our interest coverage ratio was 3.3 times. Current, secured financing terms available for MH and RV assets range from 60% to 75% LTV, with rates between 3.75% and 4.25% for 10-year money. Long-term 20 to 25 year debt is in the mid-4% range. High-quality, age qualified MH assets will command preferred terms from like companies Fannie Mae and Freddie Mac, as well as the CMBS market. Generally CMBS and certain like companies are offering financing for RV assets.

Our cash balance at the end of the quarter was $85 million. After adjusting for restricted cash, the July 1 debt repayment and our July dividend available cash today is approximately $37 million. We have no outstanding balance on our $400 million line of credit.

Now, we would like to open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first line of questions comes from the line of Nick Joseph of Citigroup Nick. Please proceed.

Nick Joseph - Citigroup

Great, thanks. In terms of the new home sales, you mentioned that you're increasing your marketing campaign. Can you walk through the different marketing channels you go through to reach the potential customers?

Marguerite Nader

Sure. We have MHVillage, which is one of our largest marketing sources that we do to try to highlight our new home sales and used home sales. We've also done a few new things this quarter with respect to marketing. You can look at our website for mobile devices and also increased our advertising presence throughout the country and targeted local campaigns.

Really looking at people that are looking for particular homes in say Sarasota, Florida. So we are searching and understanding what they are searching for and able to have our sites or in some cases our micro-sites appear as one of the first, the top entries when they go to search on the website.

We've also recently finished a three-part series on a show on the Lifetime channel called Designing Spaces, so we just recently shot that. I think only one has aired so far. But this show has a national audience and allows us to expose both our MH and our RV product to a larger audience. So using those are kind of the channels that we've used and of course, one of the largest channels that we've always had is our referral business. So we concentrate a lot on getting our word-of-mouth out though our customers, who then get it out to their friends to bring their friends down.

Nick Joseph - Citigroup

Thanks. And then you talked about increasing the quality of the occupancy with more homeownership. What's the longer term plan for the rental program and what percentage of total occupancy would you like to see it become eventually?

Marguerite Nader

I think in terms of a percentage, it's difficult to quantify what the percentage would be, but we like the trend that we're seeing so far. We also know that that flexibility exists within our organization; that if things change we would be able to kind of adjust occupancy by using the rental program.

I think that the rental program has been very good to us. It's brought a lot of new people into our organization, into our communities. We've seen and I think we talked about it last time, just the conversions that we've seen on the rental side and for the year-to-date, we've seen conversions of 8% as compared to 4% last year.

So we are bringing some quality people in, that are able to then convert and buy a home, which is positive. But it is something that we continue to focus on to say, how can we bring in new homeowners.

Nick Joseph – Citigroup

Thanks. I mean just can you talk about the transaction market today, what you're seeing on the market and cap rates?

Marguerite Nader

Sure. As always we are working with interested sellers and I think it's difficult for timing of what transactions would happen in terms of ELS. We do continue to see an interest in using our operating partnership units as currency in a transaction, to help alleviate kind of the immediate tax impact to the seller.

As for the general acquisition marketplace, I think there have been a few transactions that have traded over the last six months and they’ve primarily been in the all-age sector and then the transient RV properties.

Green Courte, which owns a portfolio of properties and a few different funds has recently started a process. Their portfolio is comprised mainly of Midwest assets and another fund, essentially the bulk of the assets. I think you remember from the American Land Lease portfolio that traded in 2008 or 2009.

We have not signed a confidentiality agreement with respect to the transaction, but understand that they are going through a process that could range from selling some of the assets or all of the assets in the portfolio, including the management company. So we’ll keep you updated on that.

Nick Joseph - Citigroup

Great, thanks.

Operator

Thank you for your question. The next line of question comes from the line of Jana Galan of Bank of America. Please go ahead.

Jana Galan – Bank of America

Thank you. Good morning.

Marguerite Nader

Hey Jana.

Paul Seavey

Good morning Jana.

Jana Galan – Bank of America

Marguerite, I was hoping you could talk about trends you're seeing in used home sales and should we expect to see that kind of go down as there is more of a focus on the ECHO joint venture?

Patrick Waite

Well, first I'll address used and then we'll circle back on Cavco. So for the quarter we sold 317 used homes, a decrease of 13% from 2013. As I mentioned on the last call, we expected the consecutive trend in year-over-year increases in used home sales to moderate. For the second quarter we actually saw the decrease that you mentioned.

As Marguerite touched on in her earlier comments, the reason is more current residents are having success finding buyers for their homes in the resale market, to new residents who want to move into our properties. So year-to-date those types of sales are up about 300 and as a result, we have fewer homes coming back to us, so there's fewer used homes for us to sell.

With respect to Cavco, we do continue to place new homes where we believe we can sell, particularly in key markets in Florida like Tampa and Palm Beach and in the Denver market. Florida and Colorado comprised approximately 60% of new home sales for the quarter and we're also increasing our new home purchases to replenish inventory, including with Cavco.

At the end of 2013 we had ordered 81 new homes from the Cavco JV and through the second quarter and year-to-date we've ordered an additional 152 new homes and in addition to that, another 35 from other manufacturers. So we're continuing to replenish that new inventory to position us for occupancy for the remainder of ‘14.

Marguerite Nader

And I think Jana, what you're seeing in terms of the used home, as Patrick has mentioned, that you're having less homes coming back to you and we're also focusing on selling the new homes, which you're seeing the results in that as we increase the new home sales.

Jana Galan – Bank of America

Thank you.

Operator

Thank you for your question. The next line of question comes from the line of David Toti of Cantor Fitzgerald. Please proceed.

David Toti - Cantor Fitzgerald

I love the Tuti pronunciation. I just have a couple of high-level questions on the industry. We haven't touched on this in a couple of years, but we looked at some data recently on MH sales over the last five years and the sales total number has increased, but the prices really haven't moved much and the square footage is shrinking. Is that a trend that you think is going to continue? Is it still pretty – a still challenged business in your view?

Marguerite Nader

What we are seeing inside of our communities, we are actually seeing the price of the homes increase. I think last year it was somewhere around $55,000 and this year it's obviously we have a higher volume and it's more along the $65,000 number and we're seeing the square footage.

I mean previously, we had talked about homes where we thought people were looking for a smaller footprint, and now we're seeing it's smaller, but it's smaller than the home that they have up North, which is not necessarily a small manufactured home. So I think we are seeing that people want to come down to Florida, Arizona and have a space for both them and their family as well. So in our communities, that's kind of what we're experiencing.

I think the numbers that you see have a blend of family and age qualified or senior properties and it also includes the land home packages, which drive – I think it’s about 70% of those numbers is going to land home.

David Toti - Cantor Fitzgerald

Right. And then there's also been a lot of growth in the modular home business in the last couple of years. Have you guys considered moving into that market or is it too far outside of the core business to have something slightly more permanent on the site?

Marguerite Nader

I think that the way we have it now in terms of working with the manufacturers and the ease of us being able to assemble the home; they have our floor plans; they are able to understand what we want built and able to do it in a quick and efficient manner, I think we're going to be sticking with the manufactured home.

David Toti - Cantor Fitzgerald

Okay. And then I just have a question on the RV side. And again, just from 30,000 feet there's been pretty good growth, but the numbers are still sort of small in terms of expanding that sort of installed base of RV'ers. Are you seeing that sort of pick up in the last year or two in terms of sales and activity in that segment or does it remain relatively stubborn in your mind?

Marguerite Nader

What we're seeing on the RV side is that from an industry perspective the sales volume has flattened a little bit from last year. I think last year it was up 15%, just sales globally, and this year it's more like 6% or 7%. But you're still seeing that switch, the same that you had last year, which is an increase in the higher price point product.

So the guy who wants a Class A and Class C motor coach, that's increasing like – I think still 10% to 15%. So it's a higher price point product, but the volume is not as great as it was last year. And I think that the key for us is working with the dealer program that we've talked about over the last year and a half. I think we have 11,000 memberships now that have come as a function of that new home or that new RV buyer, which is a key component for us, because not only do they come in and explore our RV property or our Thousand Trails property, but they also go to the outboard footprint.

So it doesn't take a lot for us, because it's a big number. You know we deal with the installed base of the 8 million to 9 million RV'ers. So the added extra new guys coming in, it's great to have them, but we have to kind of market to both the installed base and then the new people buying.

David Toti - Cantor Fitzgerald

Okay. Thank you for the details there.

Marguerite Nader

Thank you.

Operator

Thank you. The next line of question comes from the line of Paul Adornato of BMO Capital Markets. Please proceed.

Paul Adornato - BMO Capital Markets

Thanks very much. Just got a couple follow-up questions. First, on the rent to own discussion, I was wondering if you could let us know when the new prospects come in, do they have kind of a set idea of whether they will be a renter or an owner and how does that discussion proceed?

Paul Seavey

Yes, so when we have a new prospect actually come into one of our communities, I would say typically they do have a preference as to whether or not they want to buy a home or rent a home. Those prospects to the extent that they go down the rental path, we want to remain engaged with them and give them the opportunity to buy the home that they are renting, particularly if they pay timely and prove to be good residents.

We’ll also at the point of sale or point of rental, give them the opportunity to buy a house and let them know what homes we have available, what those price points are and also what financing they might have available to them at the portfolio level.

Paul Adornato - BMO Capital Markets

So, are they more receptive to that sale pitch at that point or are the sales kind of organically coming in any way?

Paul Seavey

I guess, I’d say it's customer by customer. Again, when they come into the property initially, usually someone is looking for a rental that has come in through a sales or a rental channel and that's why they at the property as opposed to as Marguerite mentioned earlier, a number of the marketing steps we're taking to drive homeowner traffic or homebuyer traffic, those prospects are more likely to head down the path of buying a home.

Paul Adornato - BMO Capital Markets

Okay, and finally just on rent growth, what kind of rent increases should we expect going forward? Will they be kind of inflation plus or what's the strategy on rent increases?

Paul Seavey

I think what you can expect from us going forward is similar to what we've experienced in the past, which is kind of a CPI plus. Over time it's been plus 100 to 150 basis points.

Paul Adornato - BMO Capital Markets

Okay, great. Thank you.

Marguerite Nader

Thanks Paul.

Operator

Thank you. The next line of question comes from the line of Dave Bragg of Green Street Advisors. Please proceed.

Dave Bragg - Green Street Advisors

Hi, good morning. Thank you for all the insight on how 2014 is shaping up but one thing that would be helpful to elaborate on is the change in your expectations for the right-to-use income.

Marguerite Nader

With respect to 2014?

Dave Bragg - Green Street Advisors

Yes can you talk about the reduction in your expectations for that business?

Marguerite Nader

I think there's two things inside the right-to-use. There is the dues based and I think the dues based we’ve been able to grow the membership base, which we've been pleased about over the last couple of quarters, growing that base and then there's also a translation from the dues base or from those customers into other forms of the income within the Thousand Trails portfolio and so you see that in our supplemental, which breaks it down.

And then on the upgrades, I think the upgrades we originally had at somewhere in the $3.1 million and we took it down $100,000, really as a result of the upgrades in the quarter, in the second quarter, but we anticipate the third and fourth quarter being where we thought originally from a guidance perspective.

Dave Bragg - Green Street Advisors

Overall for 2014 your right-to-use annual payments and the contracts, you took down those growth factors for the full year?

Marguerite Nader

Right, we took them down as a result of the second quarter. I think it was down $100,000 in the right-to-use payments and then another $100,000 in the membership contracts.

Dave Bragg - Green Street Advisors

Okay, that's helpful, thank you. And Paul, thanks for the insight on the debt markets. To what degree have spreads changed year-to-date and would you attribute it to the entrants of spreads into the market?

Paul Seavey

Yes, spreads overall have compressed really in the last, I’ll call it 60, maybe 90 days, roughly 50 basis points and I do believe that it is attributed to two things. One is the entrance of Freddie Mac into the space and the other is continued aggressive pricing by life companies. They are looking for yield and they are pricing aggressively at their loan to value ratio. So its lower leverage debt, but it's attractively priced.

Dave Bragg - Green Street Advisors

Last question is just more anecdotal. As we're talking about the increase in new home sales and improved occupancy trends, to what degree do you think that you’re seeing pent up demand that was built up during the course of the housing downturn unleashed?

Marguerite Nader

I think we're definitely seeing some of that and where people were coming down and they stayed with us in Florida, Arizona, California, maybe they were a renter or kind of just in and around our neighborhood over the last couple of years and unable to sell their home up north and now while they may not actually sell their home, they just feel like they could. They feel like they have just a better environment for them up north, which allows them to make that commitment to us.

Because the buyers that we’re seeing are the same buyers that we saw in 2008 from the perspective of strong FICO scores, all-cash buyers. They just needed that assurance that if something goes haywire and then they are able to sell their home up north.

And we’re also seeing, we have talked about it before, but just this whole winter effect and the fact that it was so cold here last winter, the whole North polar vortex and I think we continue to see people saying we don't want to go through that again and are preparing for that in advance for the winter coming.

Dave Bragg - Green Street Advisors

Right, thanks a lot.

Operator

Thank you. (Operator Instructions). The next line of question comes from the line of Todd Stender of Wells Fargo. Please go ahead.

Todd Stender - Wells Fargo

Hi, good morning.

Marguerite Nader

Good morning Todd

Paul Seavey

Good morning Todd.

Todd Stender - Wells Fargo

Can you just talk about your new home inventory, what markets you’re placing more of your bets on, maybe markets you're pulling back on and just maybe talk about any surprises that you’re experiencing at this point in the selling season.

Paul Seavey

Yes, let me first address where we’re really focused on placing home inventory. Its coastal markets in Florida and also the Denver market in Colorado. Colorado and Florida as I mentioned earlier translated about 60% in the new home sales that we had for the quarter, so we're seeing success there.

I think Denver in particular as far as an upside surprise has performed well, and we expect that to continue at least through the selling season here and then it will depend on what kind of a winter we have in Colorado.

In Florida we're optimistic that the early traction that we’re getting, we’ve improve quarter-over-quarter and is going to continue as we get into the third and quarters as Marguerite just touch on. We start going into season and we have home buyers coming down from up north.

Todd Stender - Wells Fargo

That's helpful. And Marguerite, you mentioned just how important driving traffic and ultimately home sales is with your marketing spend. But it looks like you're going to dial that back further in Q3. Just want to get a sense of how do you balance the marketing spend with driving home sales and how quickly you can dial back marketing spend as you kind of assess where you are in the year.

Marguerite Nader

I think in 2008 and 2007 and before that we used to do a lot of print advertising, so it was difficult to kind of dial that up and down. Now, primarily we're web focused and we have a great marketing department that we’ll go through and determine where we need additional kind of eyeballs on certain assets and they can dial that up and decide whether or not their marketing campaign is working and in a pretty quick manner, so we do that. We certainly think that that's the most efficient way to get in front of the customer.

From a marketing perspective we are also really marketing to our existing residents and that really has worked to just a – instead of just a referral program that just kind of sits on a desk there at the manager's office, it's more of an outbound campaign of getting people who want their friends and family to come and see us and visit with us.

So I think that’s it, so we're able to kind of adjust and toggle back and forth with some of the marketing channels that we're working with. That's on the MH side and on the RV side frankly we're able to do that, really as a result of some of the online campaign.

Todd Stender - Wells Fargo

Okay, thanks. And then finally Paul, you increased your line of credit. It includes an accordion feature and it gets you up to $500 million, and Marguerite highlighted a large portfolio that's out there. Does it get to a certain point and size where ELS is the only game in town for somebody or are there other large institutional buyers or pension funds that can still compete with you guys?

Marguerite Nader

I think what we've seen just in terms of in the industry, certainly there's been an increase of people, of institutional buyers. The pension funds interest is in our space. I think they appreciate the stability of our cash flow, the hallmark of everything and everything that ELS and the manufactured housing business is about, so we are seeing an increase in people interested in this space.

Todd Stender - Wells Fargo

Great, thank you.

Operator

Thank you for all your questions. Ladies and gentlemen, that now concludes your conference call.

Marguerite Nader

Thank you very much.

Operator

Sorry. I would now like to turn the conference over to Marguerite Nader for closing remarks. Thank you

Marguerite Nader

Thanks very much. Paul will be around for any follow-up questions. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a good day. Thank you.

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