Equity Lifestyle Earnings: Strong NOI Growth as Operating Expense Growth Lower Than Anticipated

Fourth-quarter results for no-moat Equity Lifestyle were slightly better than we anticipated, giving us confidence in our $76 fair value estimate. Manufactured housing same-store occupancy remained flat at 94.9%, in line with our assumption. Same-store rent for the segment grew 5.6% year over year, slightly better than our 4.7% assumption, that led to same-store revenue growth of 5.8%. Recreational vehicle revenue from annual memberships was up 5.4% but revenue from seasonal sources fell 6.5%, resulting in same-store revenue growth of 2.8% for the segment. Combined, the company reported same-store revenue growth of 4.6% that was in line with our estimate. However, operating expenses only rose 0.2%, as real estate taxes fell 7.8% and marketing costs were down 15.5%, leading to same-store net operating income growth of 7.6% that beat our estimate of 4.7% growth. The higher NOI growth led to Equity Lifestyle reporting normalized funds from operations of $0.76 per share, $0.5 better than our $0.71 estimate.