Patrick Waite: I would say it’s probably largely timing. We’ll work our way through those headwinds. I would expect those headwinds to subside. For perspective we have over 1,000 sites — over 1,100 sites currently in construction. So the timing of completion and then getting a shovel in the ground on the pipeline those two things are going to play out over time. And I would expect we’re going to be in the neighborhood of 1,000 sites on a run rate basis. But as evidenced by the current year there may be some headwinds from time-to-time.
John Kim: And Patrick can you just remind us on the stabilized yields that you expect and how that’s trended over time?
Patrick Waite: Yeah. They’ve been in the 8% to 10%, 7% to 10% range recently when we started really building our pipeline, those yields were higher single digits and low double digits. We’ve been able to continue to grow the top line revenue as we’ve been developing out these sites but there have been some pressures on construction costs. But I guess part of the good news is in recent quarters, the pressure on some of the construction activity has started to subside somewhat.
John Kim: Got it. Thank you.
Patrick Waite: Sure.
Marguerite Nader: Thanks, John.
Operator: Our next question will come from the line of Wes Golladay with Baird.
Wes Golladay: Hey, guys. Good morning, everyone. What drove the decline in the seasonal sites? It looked like there was some 12,500 to 11,800. And do you think it stays at this level?
Paul Seavey: Yeah. I think the seasonal site count, essentially the adjustment reflects a change in occupancy across the seasonal footprint. It’s primarily driven by locations in California and the South and represents the transient workers. We have traveling nurses and construction workers that stay in our properties for longer periods of time and qualify as seasonal. So that’s the driver of that.
Wes Golladay: Okay. And then are you seeing any pushback on the price increases for your various Thousand Trails upgrade options? And do you notice any members moving up the tiers or more moving down?
Marguerite Nader: With respect to the membership upgrades, we haven’t seen any issues relative to the price of the product. I think the members are very excited to be able to upgrade and get the additional benefits. I think what you see is that during COVID, we had an outsized number of memberships upgraded. You’re seeing that kind of go back down to a pre-COVID level.
Wes Golladay: Okay. Thanks for the time.
Marguerite Nader: Thank you, Wes.
Operator: Our next question will come from the line of Anthony Hau with Truist Securities.
Anthony Hau: Hey, guys thanks for taking my question. Maybe it’s a bit too early to tell, but have you guys seen are you seeing any benefits from the recent changes to the increase of the loan limits of title one manufactured housing?
Paul Seavey: I think a couple of things on that. A, it is early to tell Anthony. But, B, I would also just remind you that the vast majority over 95% of our customers are paying cash for the homes in our communities. So there’s not tremendous reliance on financing in our portfolio.
Anthony Hau: I would think that will probably help your help you guys sell those homes right? Or just because I think some of those loans can go up to $195,000?
Paul Seavey: Right, right. And customers are coming and they’re buying homes $100,000 plus homes in our communities and paying cash for them.
Marguerite Nader: And that’s consistent with our long history of our customers paying cash, which adds to just the ability at the property level for people to really feel ownership at the community.
Anthony Hau: Got you. And also, do you guys expect the membership to start growing again since RV shipments, is up 15% this year?
Marguerite Nader: Certainly, having predictions for RV shipments to be up is a positive overall for our business, including the membership side.
Anthony Hau: Got you. Thanks guys.
Marguerite Nader: Thank you.
Operator: Our next question will come from the line of John Pawlowski with Green Street.
John Pawlowski: Thanks for the time. Paul, are the revenue declines for the seasonal and transient business over the balance of the year that’s implied in your guidance solely driven by the rainy April and tough seasonal RV comp in 2Q? Or are there additional signs of price sensitivity popping up from customers?
Paul Seavey: The adjustment is limited to Q2 and is driven by the April activity that Patrick talked about.
John Pawlowski: Okay. And then I would love to just hear you guys talk through shifts in the transaction market. I know the volumes quiet right now. But very quickly we’re looking at pretty deeply negative leverage here given the secured financing costs you alluded to. So, if you assume interest rates stay — staying in a similar range right now, where would you expect, call it MH cap rates to settle out for ELS quality product in the coming quarters once we do see more transaction volume come in?
Marguerite Nader: I think it’s a little bit difficult to say, kind of where the cap rates will end up being in the future. But over the past 18 to 24 months, there have been very few deals. So it’s difficult to say kind of pinpoint cap rates. I think you really need more robust market with many data points to be able to quote that. But what we have seen is continued demand and it’s really still very high for our asset class. People want to own these properties. People don’t want to get — sell the property. So, there is a lot of demand for even new people coming into the space one-off owners are interested in buying. So, I think that we’ll continue to see that — those levels of demand. Certainly, where we’re at in the debt markets are an important discussion.
