Volatility In The Transient RV Segment
With this week’s (July 26, 2022) earnings release from Sun Communities (SUI), we have now had the two primary manufactured housing REITs report earnings for the second quarter of 2022. Equity Lifestyle Properties (ELS) led things off last week with a solid, but mixed report which caused the common stock to trade down 3.2% on the day of the earnings call. The company reported earnings that were in line with guidance and while they maintained full year 2022 funds from operations (FFO) guidance, they did reduce their same property net operating income (NOI) forecast by roughly 70bps to 5.6-6.6% from 6.3-7.3%. The reduced forecast was driven by moderated growth expectations from the transient RV (recreational vehicle) segment of the business, which represents approximately 7% of total revenue. They are also now projecting modestly higher operating expense growth for the balance of the year driven by utility expenses and labor costs. It is noted that the transient RV segment, essentially short-term vacation bookings that occur anywhere from 60 days in advance of stay to one week in advance of stay is a more volatile part of an otherwise stable business. In recent years, ELS has been converting more transient sites in their RV resorts to seasonal and annual leases.