MHE/LLC Assets Prove Immune to the Virus, whilst Tourist Parks Recover Swiftly

‘Pandemic’, ‘unprecedented’, ‘uncertainty’ – all ‘COVID-19’ buzz words that may just be more contagious than the virus itself. Whilst although relevant for the broader economy, it seems for the Manufactured Home Estate (MHE) & Land Lease Community (LLC) sector, the initial hysteria has dissipated.

We have witnessed key performance indicators, such as transactional activity, investment demand, development pipelines and yield compression, continue to perform above expectations throughout this sector, despite the virus and the various Government-imposed restrictions.

So, how have MHE/LLC assets proven virtually immune to the virus in the midst of an economic whirlwind?

The answer – risk-averse/defensive assets with recurring cash flows and ‘built-in’ annual rental indexations/increases, underpinned by Federal Government Subsidies and superannuation savings.

Whilst home sale rates subdued in the midst of the ‘peak period’ of COVID-19 (which we consider to be broadly April to May), as of current, recovery has been swift, with sales rates re-stabilising to long term averages

Whilst yields continue to sharpen, sales rates recover, development pipelines progress and overall demand for MHE/LLC assets with strong rent rolls continues – how does the tourism sector stack up in comparison?

For tourist assets, such as Mixed-Use Caravan Parks (MUCP’s) and Holiday Parks (HP’s), the numerous ‘social distancing’ measures and travel-related restrictions imposed to stem the spread of the virus has had a more significant impact.

Performance for MUCP assets directly corresponds with the parks’ composition - assets heavily weighted towards tourism experienced a dramatic decline in both occupancy and revenue performance during the ‘peak period’ of COVID-19 (opposed to assets with revenue supported predominantly by permanent residents). We have recorded assets with up to 83% declines in tourist revenue for the ‘peak period’ of COVID-19, in comparison to the corresponding period for the year prior (April-May 19 v 20).

Notwithstanding the above, as of recent, the tourism industry has shown strong signs of recovery, with restrictions easing and the level of ‘coronavirus’ cases (recorded daily) declining rapidly (as of current). Accordingly, tourism trade has begun to recover, with key benchmark indicators re-stabilsing towards maintainable levels and strong forward bookings apparent for the upcoming spring/summer seasons.

We have compared the most recent ‘post-lockdown’ period (June-August 2020) performance for an array of MUCP/HP assets year-on-year (y-o-y) with 2019. Across the board, occupation levels have increased, and, in some instances, tourism revenue has increased up to 50% (y-o-y).

So, as the dust begins to settle, what does the future hold for these two asset classes?

Put simply, we anticipate tourist parks are set to receive an influx of visitors over the coming holiday period, particularly from local families eagerly awaiting to leave the house (pursuant to the sustained easing of social distancing/travel restrictions). Whilst owners of MUCP/HP assets tremor at the thought of another ‘outbreak’, the MHE/LLC sector is forecast to remain resilient and continually evolve (pandemic or not).