Good day, everyone, and thank you all for joining us today to discuss Equity LifeStyle Properties' Third Quarter 2017 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 and COO. 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 meaning of the Federal Securities Laws. Our forward-looking statements are subject to certain economic risk and uncertainty. The Company assumes no obligation to update or supplement any statements that become untrue because of subsequent events. In addition, during today's call we will discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliation 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 President and CEO.

Good morning and thank you for joining us today. Today, we'll be focused on a detailed review of the third quarter, our initial 2018 guidance and our rationale for the recommended 2018 dividend increase. The results from the quarter reflect the continued strong demand for our products and properties. For as long as I've been at the ELS, we've been looking forward to the baby boomer generation coming-of-age. That time is now as 10,000 people per day are turning 65 and entering our target demographic. This trend will continue each day for the next 13 years. Our customers appreciate our lifestyle offerings and the social aspects of community living. We continue to build on our successful multi-channel marketing campaigns, incorporating social media and advanced marketing analytics. As we approach this time of year when the seasons change and it begins to get cold in the North, our customers are making their plans to escape to the South. The demand for our product offering is high as seen by web traffic, call center traffic, reservations and sales. About half of our revenues booked through our call center and digital channel. Both channels have a significant increase in revenue booked versus last year. In the third quarter, we continue the positive trend in occupancy gains, and we are currently 94% occupied at our MH properties. The occupancy growth in the quarter was 95 sites. In the quarter, we sold 173 new homes. Our average new home sales price for the quarter was $58,000 and 50% of our new home sales were in Florida and Colorado. This quarter, we had our strongest quarter for rental conversions with the conversion rate of 23%. Our sales platform incorporates the use of open houses, referral programs and targeted Internet marketing. We have now completed our summer…

Thanks, Marguerite, and good morning, everyone. I will review our third quarter results, walk through our detailed guidance assumptions for the remainder of 2017 and discuss our preliminary guidance for 2018. We reported $0.91 normalized FFO per share for the third quarter, $0.02 ahead of our guidance. Core property operations generated higher-than-expected revenues, mainly resulting from insurance proceeds related to prior periods storm events as well as our recognition of income to offset expense related to Hurricane Irma, which I'll discuss in detail in a moment. Other income and expenses were higher than guidance as a result of the contribution from our ancillary property operations, interest income and some nonrecurring corporate income. Before I discuss third quarter results in detail, I'll walk through the impact of hurricane Irma on our results for the quarter. In the weeks since the storm passed through Florida, we've assessed the impact on our properties, made initial estimates of costs related to identify damage, and made good progress on our efforts to clean up and restore normal operations. As we completed this work, we looked for indications that our post-Irma experience might differ significantly from our past storm events in terms of the type of impact on our properties, time and effort required to resume operations, access to resources to provide cost estimates and perform work as well as other factors. While the storm impacted a larger number of properties than we had experienced in the past, aside from the time to restore operations at our two properties in the Keys, there aren't meaningful differences between Irma and our prior storm experience. Our process to review cost estimates and improve restoration work for the Mainland Florida properties that have been open for the past month as well as the two Keys properties that are not…

[Operator Instructions] Our first question comes from Drew Babin with Robert W. Baird.

Hi good morning.

Good morning Drew.

Quick question on the Marina deal. I was hoping you could talk about the yield economics on that and a little more about how those leases are set up.

Sure, as far as the economics it operates very similar to our other JVs where we're getting our pro rata share of the FFO. And the cap rate on that deal is kind of between a six and a seven cap. With respect to the leases, really, it's very similar to the RV business where you have annual, seasonal and transient kind of revenue. So that's based on – the length of stay determines the lease.

Okay, and just one quick question on the balance sheet. It looks like the guidance for the fourth quarter, there's a decent uptick in shares. And so I was just wondering if you could recap any quarter-to-date ATM activity that may have transpired, or anything that you may expect to transpire behind the share count guidance?

As we noted in the press release, we raised $41.5 million in third quarter. There was some incremental ATM activity that carried over into October, but it wasn't a significant amount. So most of it is representative of what was raised in the third quarter.

Okay, that is all from me. Thank you.

Thanks Drew.

Thanks Drew.

Our next question comes from Joshua Dennerlein with Bank of America.

Hey guys just wanted to kind of stick with the Marina. Can you maybe discuss how the JV acquisition came about, and then maybe what your future plans are for Marina industry?

Sure, sure, so we’ve been talking with the operator, Suntex, who's a well-known operator, seasoned operator who operates 44 marinas across the country. And we really – we see the Marina businesses having a similar characteristics, cash flow characteristics as the RV business. I talked earlier with Drew just about the seasonal annual transient nature of it. But it also has kind of the high barriers to entry, fragmented market, stable cash flow and the primary revenue coming from the lease payments and then a significant focus on lifestyle activities. And we actually already own approximately 12 marinas. They're located in and around our RV parks or MH properties. And so from an acquisition standpoint, we've been looking at these types of assets for a number of years, and we thought it was a good entry point with an experienced operator. So that's kind of the rationale behind it.

Just one follow-up. Do you think maybe you could eventually buy out the JV partner for the other half?

So we're currently JV partners with Suntex in the Loggerhead portfolio, which is the portfolio we addressed, I think, in our last presentation, which had 11 locations in Florida. And then with respect to the greater Suntex portfolio which is that – the 44 marinas, ELS has rights to convert into the parent and increase its invest across a wider marina footprint based on certain criteria. It's a little too early to tell terms of when that would happen.

Okay, great. I yield the floor.

Thanks Joshua.

Our next question comes from Gwen Clark with Evercore ISI.

Hi, good morning.

Good morning, Gwen.

Can you talk us through the process you went through to get to the 3.7 and what takes of cost you might be able to expect in upcoming quarters?

Sure. I mean, over all, I'd say that as we work on the restoration efforts at the Mainland Florida resort that have been opened for the past months as well as those in the Keys that aren't yet reopened, the team's working with internal and external resources to execute on the recovery efforts. As I mentioned, we didn't see meaningful differences between the impact of Irma and past storm events, but we do think that process is going to take time. It's not uncommon for our efforts to be slow because of difficulty finding third-party contractors to quote on and performance necessary repairs. And we're also working with the carriers and their adjuster to get the feedback about the expected recovery from the carriers. So all of that kind of rolled together prevents us at this point for being able to estimate the total cost relating to the storm. And so that what we had available to us at the end of the quarter is what we used to book our revenue and expense amounts. And again, as I mentioned in my remarks, we're talking about a 20-day period from the time of the storm to the end of the quarter.

Okay.

And I think, Gwen, what you're going to see is in terms of the majority of the costs are going to be coming out of those – the Keys properties, the two RV properties.

Okay. So for the projects that you were able to evaluate so far well in 3Q, does that mean that your out-of-pocket was only $200,000 ultimately?

Well, I mean, we have a whole timing issue there. In terms of the out-of-pocket spend, it was a nominal amount in the quarter. Yes, just because, again, the timing of the storm and then the timing at the end of the quarter.

Okay. And then one last one, did you capitalize any cost related to these projects that you were able to evaluate?

We had a nominal amount that was capitalized in the quarter. It was nothing significant. Again, it speaks to the timing of the event and the cutoff for the quarter.

Okay. Thank you very much.

Thanks.

Thanks, Gwen.

Our next question comes from Nick Joseph with Citigroup.

Great, thanks. This is actually John here with Nick. In Florida and Texas, do you guys expect to see an increase in acquisition opportunities following the hurricanes?

No, we obviously have experience with hurricane events in specifically 2004, 2005. We did see some acquisition opportunities where sellers were just – they were kind of on defense on whether or not they wanted to sell and this is something that pushed them over. It's something that takes place within weeks or a month after the storm. It takes a little bit of time, so I think there may be some opportunities there.

Okay. And then how about hurricanes impact occupancy if at all? How are you guys thinking about that?

Well, we are actually – as we look to the MH side of our business, which is where the primary occupancy driver is in terms of our overall occupancy rate, for October, as we look at who has kind of paid us through October and we look like – we look very good from an occupancy perspective relative to the hurricane, there really weren't a lot of homes that we saw that were damaged that caused people to not pay rent for October.

Okay, thank you.

Thanks.

Our next question comes from John Kim with BMO Capital Markets.

Thanks, good morning. You talked about the increase in occupancy and the high rental conversion rate you had on the MH side. But I'm just wondering if there was any ability to increase expansion sites as a result of this?

I'm sorry, you broke up at the end, or to expand?

Expansion sites, any abilities to increase that activity?

Sure. So we anticipate that in the year, we would build out about 600 to 700 sites this year, and the same next year is where we are at. And certainly, the driver of that and the determination of kind of where we go next is the demand that we see. We see a lot of demand in Florida and Arizona for being able to build-out sites. The process does take some time from a standpoint of starting it, getting the permits and construction engineering. So a lot of it, even if there were to start something today, we wouldn't kind of have it off the ground until sometime in the next year. So those numbers that I've given you are probably – are good numbers for the next couple of years, or through 2018, anyway.

And your 5,300 acres of development land, can you just update us on how much of that land is entitled?

Roughly, the majority of it is entitled relative to whatever the use is adjacent to it. So if it's an RV Park, it's entitled to be able to build RVs. And MH, it would be entitled to build MH.

Okay. You discussed in length about the impact of Hurricane Irma to expenses, but I'm wondering if there was any impact on the – or if it added any uncertainty to rate increases for 2018?

I mean, what we saw that kind of the week leading up to the storm in Florida and the week after it was kind of difficult to focus on anything but the storm. But the storm passed, and really, the phones started ringing and the reservation pace resumes, so that's on the RV side. On the MH side, we had already – really, we were in the process of about to send out our rent increase letters. We sent them out in the middle of September. And we continued that process and we're able to send out notices as planned. So we really didn't see any big – any impact at all.

So based on your history with hurricanes, do you think there's going to be any additional pushback or any wider range of outcomes on your rates requests?

No. I think what we see is just a high demand overall, and that's really what generates the ability to push the rates. I think we said in the past and Patrick has mentioned in the past that our resident base – we meet with our resident base and our homeowners associations on a regular basis and they may have some desire for some capital needs or they may decide that they would like an addition to the clubhouse or something like that, some additional amenity and that may be something that we may be discussing. But I don't think that the rate is an issue.

Okay. And then just a follow-up on the Marina. So on your total sites listed in your supplemental on Page 12, do all of your marina flips fall into the joint venture category, or are they elsewhere as well?

They fall into the joint venture category.

Okay. So how big can this be, the 5,900 marina flips that relative to RVs? How big do you think that business could be for your company?

Well, 5,900 represents the sites that we have at JV properties and includes the Marina flips, which we previously disclosed were around 2,300, just to clarify.

Okay. And so how big can this be relative to RVs over time?

So if you think about just the marina industry at large, there are 4,500 marinas in the United States, 500 of which are considered kind of institutional quality. And less than 5% of – I think there's four or five owners that make up probably less than 5% or 10% of the total market share, so there's a lot of – highly fragmented, so there's a lot of opportunities for acquisitions.

And you described this as a high barrier to entry market. Can you just elaborate on why that's the case?

Sure. In areas where we would want to be located like the Loggerhead portfolio, for instance, it's difficult to build new marinas to get the entitlement to be able to build them. That might not be the case in any kind of a more Midwestern lake-type of thing, but in the areas where we've made the investment, it's difficult.

Okay. Thank you.

Thank you.

Our next question comes from Todd Stender with Wells Fargo.

Thanks. Just to stay on that theme of the marinas, what was your going-in cap rate, I guess, for your pace of the investment?

So the going-in is between the six and seven cap.

Okay. And you funded it all with equity. Do you plan on netting debt over time? How can you maybe get a little higher return on that?

I think one thing that we see in the marina space similar to what we saw in the RV space when we entered it back in 2004 and 2005 was an ability to kind of institutionalize, so to speak, the asset class. Right now, I think that the financing market for marina tends to be similar to project financing in terms of bank balance sheet financing. And as our experience with Suntex grows, our expectation is that we would introduce lending relationships that would be interested in longer-term kind of conventional 10-year real estate financing on the Marina space. So that's part of the overall plan, but we're not there yet.

So secured financing, certainly not subject or available for Fannie and Freddie, but some type of 10-year paper?

Correct. Correct.

Okay, thanks. And then just go back on your rate growth continues to be impressive. Can you point to specific markets you did really well and maybe some of the growth rates that got you that 4% plus growth rate in the quarter?

Sure. And you're looking at the MH side of the business?

Exactly.

Florida has been strong for us, particularly the coastal markets. That's also reflected in our occupancy, if you look at the coastal markets in Florida where basically 96%, 97% occupied. The balance of Florida is more in the mid-90% range. The Western United States is similar for us. We have a relatively small portfolio in the Pacific Northwest where we've seen consistent high occupancy and strong rate growth there. California has done well for us, particularly where we have the opportunity to mark-to-market on turn over. In Arizona, which is highly concentrated in the Phoenix, a little over 97% occupancy, and our rate growth there has been consistently strong.

I know historically we never see new supply in the MH space, but are you guys seeing anything? Does the 96%, 97% occupancy in certain markets suggest that we could see new supply?

I think that the – there's certainly some one-off developments across the country, but nothing of any – nothing that's going to change the lexicon of limited to no new supply in the MH business and the RV business. But I think that what you'll see is an opportunity where we have land adjacent to, that fully entitled ability for us to kind of pick up that activity. I just don't see a lot of greenfield development to the extent that it impacts the overall pieces of no new supply.

Sure. Thanks, Marguerite. And then back to you, Paul. If you don't mind one last question on the balance sheet. Did I hear that right, did you pay off your 2018 debt maturities already?

Yes. So we closed the loan yesterday with Fannie Mae, $204 million at 3.97%. We used the proceeds to repay the 2018 maturities, and we've dialed in to our guidance for the fourth quarter, the early debt retirement cost associated with that activity.

Okay. What was that cost?

$2.7 million.

Okay. Thank you.

Thanks Todd.

Thanks Todd.

[Operator Instructions] Our next question comes from Ryan Burke with Green Street Advisors.

Thank you. Just wanted to continue, first of all, with the balance sheet. Paul, you continue to utilize pretty low cost secured debt and term loans. How do you weigh that out? At what point it makes sense for ELS to become a true long-term unsecured borrower?

We've looked at that quite a bit, Ryan over the last few years as we've pursued the strategy of the long term secured debt. I think that the challenge for us is the uncertainty with respect to the treatment that we get from rating agencies. We've had conversations with them about ELS, about our cash flow. And I think that subjecting our business model and our balance sheet to review by a third party that doesn't necessarily have the resources to fully understand our niche asset class, that's a risk that we've not been able to get ourselves comfortable with.

Okay.

I'd say the other element of it is just the level of activity that you have to have to be an efficient borrower in the unsecured market is beyond kind of our historical typical annual maturities challenging to kind of hit that $250 million, $300 million plus level in our business with our balance sheet.

Okay, makes sense. Switching back over to insurance, I guess particularly in terms of hurricanes given the recent events. Insurance for the homeowners themselves on their own homes, do you have a feel for what percentage of your residents have insurance in what the typical plan covers?

We don't track the insurance that our customers carry. We don't require them to have insurance. And it's one of those kind of personal decisions that our customers make that when we attempt to inquire of them, we don't necessarily get any answers as to whether or not they have it. So I'd say that generally, there are policies available to them, but whether they choose to purchase them, we don't have that information.

Do you know if there's penalties in place in the event that they walk away from the home if it's destroyed by weather?

If there are penalties…

The majority of these homes are owned outright all cash, so they would be walking away from their own asset.

Yes. Okay. And then on property level insurance, you do have business interruption insurance. Can you just explain what that covers and for how long?

Sure. So the business interruption coverage, it provides coverage for essentially what you would expect, which is the loss of income as a property. The period of time that it covers, there's a restoration period. So the period from the time of the event until the property is restored to its condition, equivalent condition prior to the event, plus there's a 12-month period beyond that.

Okay. Okay. Interesting. And then last question is just on new home sales, which were down during the quarter year-over-year. Do you have an estimate of what that trend might have been had the hurricanes not happen? Or are there any broader trends that you're seeing from a new home demand front?

Yes, it's Patrick. Let me just talk about the trend for the quarter first, and then I'll address overall trends. We did see a temporary slowdown in Florida as a result of the hurricane, but we also found it to be somewhat encouraging because the week following the storm, we were going through some new news home closings. So we saw demand that was a little bit of the disruption to the trend. We were off roughly 13 or 14 home sales in Florida year-over-year. Mostly, we would attribute that to the impact of the storm. With respect to the broader market, Colorado, particularly the Denver market, has done very well for us over the last three or four years. We're achieving high occupancy rates there. So the marginal increase in occupancy is a little bit more difficult to come by in that submarket and that probably contributed a bit to the slowdown as well for the quarter. But overall, we see solid demand. Our needs on the space were up 20% year-over-year. So we're encouraged with respect to the trend in upcoming quarters.

Any notable increase in demand for other states? It feels like Colorado's been strong for some time. But any positive trends otherwise?

In particular, Florida. And then California and Colorado and Arizona are all highly occupied, so very, very consist demand. And the pockets of strength in both the Midwest and Northeast and a few of our larger properties.

And I think in Arizona, we saw an increased demand come in the form of rental conversions. So where people were previously renting from us, and now they're buying the home that they're in. So that's where we can get additional sales out of basically 100% occupied property.

Great, appreciate the color. Thank you.

Thanks, Ryan.

Thanks.

Since we have no more questions on the line, at this time, I'd like to turn the call back over to Marguerite Nader for her closing comments.

Okay. Thank you all very much for joining us today. We are around for any questions, any follow-up questions.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect, and have a wonderful day.