Equity Lifestyle Properties (ELS) has long been a favorite in the REIT world, known for its remarkably resilient business model built around manufactured housing communities and RV resorts. With an aging population driving demand and limited new supply keeping occupancy rates high, ELS has consistently delivered strong revenue growth and impressive dividend increases.

But a closer look at the company's recent Q1 2024 earnings transcript reveals a subtle shift in strategy that might be going unnoticed by most analysts. While ELS executives maintain a positive outlook overall, a careful reading of their comments on the RV business, particularly the transient segment, suggests a cautious stance that could signal a strategic change for the company.

Historically, ELS has provided a combined guidance range for seasonal and transient RV revenue, acknowledging the inherent unpredictability of both segments. However, in previous years, guidance for the combined segments generally anticipated moderate growth in Q2, Q3, and Q4, even when recognizing the lack of clarity for transient bookings. This time, ELS has adopted a much more conservative position, projecting essentially flat combined revenue for those three quarters.

This shift shouldn't be dismissed as simple conservatism or an attempt to underpromise and overdeliver. There are two main reasons why this flat projection is significant. First, the change in approach is especially noticeable for the transient RV segment, which has faced instability in recent years due to factors like weather and changing travel habits. While some analysts link the flat Q2, Q3, and Q4 projections to April's rainy weather affecting early summer bookings, this reasoning doesn't explain the extent of the change from guidance patterns in prior years.

Second, this flat projection comes when RV shipments are forecasted to rise by 15% in 2024. Common sense would suggest that a surge in RV ownership should lead to higher demand for transient RV spots. Yet, ELS doesn't seem to be factoring this expected demand into their forecasts.

Collectively, these observations indicate that ELS might be deliberately downplaying the possibility of sustained growth in the transient RV segment. While they remain dedicated to their annual RV customers, who offer a more consistent and predictable revenue source, the company's perspective on transient business implies a potential refocusing of efforts.

This is where the theory gets intriguing. ELS might be quietly preparing for a cooling off of the RV surge that occurred during the pandemic. Influences like growing interest rates, economic instability, and a possible return to pre-pandemic travel behaviors could contribute to a decrease in transient RV demand. By subtly modifying their guidance and projections, ELS might be setting the stage for a strategic move away from dependence on this more unpredictable segment, concentrating instead on the stability of their manufactured housing business and annual RV clients.

This idea is further reinforced by the company's continued investments in manufactured housing, a sector that has consistently exceeded expectations for ELS. The company is projecting manufactured housing rent growth of 5.5% to 6.5% in 2024, displaying their assurance in the ongoing demand for this type of housing. Moreover, ELS has highlighted their achievements in transitioning renters to homeowners within their manufactured housing communities, showcasing the sector's staying power and their capability to stimulate growth through home sales.

The figures are convincing. In 2023, ELS sold 905 new homes, with over half of those sales happening in Florida, where the typical sale price surpassed $105,000. This strong showing in home sales, combined with the continued high occupancy rates in their manufactured housing communities (95% overall, with 96% homeowner occupancy), strengthens the notion that ELS views manufactured housing as a primary driver of upcoming growth.

Projected Revenue Growth: MH vs. RV/Marina

The chart below visualizes ELS's projected revenue growth for their manufactured housing (MH) and RV/Marina segments. While both segments are expected to grow, MH shows a stronger projection, hinting at ELS's possible strategic shift.

While it's still too soon to definitively announce the end of the RV boom, ELS's subtle guidance and strategic moves suggest that they are getting ready for a potential change in the market. This quiet shift, if proven true, could signify a wise decision by the company, further strengthening their position as a dependable and resilient contender in the REIT scene.

"Fun Fact: ELS owns and manages the biggest network of RV resorts and campgrounds in North America, featuring over 100,000 sites throughout the continent. They even have a resort in the Florida Keys!"