Equity Lifestyle Properties Inc (ELS) Q2 2019 Earnings Call Transcript

ELS earnings call for the period ending June 30, 2019.

Motley Fool Transcribers
Motley Fool Transcribers
Jul 23, 2019 at 4:23PM
Other
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Equity Lifestyle Properties Inc (NYSE:ELS)
Q2 2019 Earnings Call
Jul 23, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties' Second Quarter 2019 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 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 meanings of the federal securities laws. Our forward-looking statements are subject to certain economic risks 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. Reconciliations 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'd like to turn the call over to Marguerite Nader, our President and CEO.

Marguerite Nader -- President and Chief Executive Officer

Good morning, and thank you for joining us today. Our second quarter results released yesterday showed strong quarter and year-to-date trends. Year-to-date, we increased occupancy by 204 sites and this quarter marks our 39th consecutive quarter of occupancy growth. Customer demand to live in our communities continues to be high. The ownership transfer activity within our communities shows the strength of the market.

The satisfaction of our residents is important to us. Our residents recognize the benefits of community living and choose to live in our communities in average of 10 years. Approximately 50% of our new and used home sales come from residents living in the Community and resident referrals to family and friends. This percentage has increased each of the last three years.

New residents are interested in our lifestyle offerings. They have expressed a strong desire to be part of an active community. Over 40% of our new residents are moving from a site-built home and 25% are moving from an apartment. Year-to-date, our MH revenue, which accounts for 70% of our total revenue had a growth rate of 5.1% comprised of 4.5% rate and 60 basis points of occupancy. Our RV revenue including Thousand Trails has grown 4.7% year-to-date. This growth has been fueled by growth in our annual income and our Thousand Trails revenue. The annual growth of 6.1% is comprised of 5.1% rate and 1% occupancy. Our Thousand Trails portfolio revenue increased from both dues and upgrades.

Year-to-date, we have seen an increase in sales of 13% and an increase of upgrades of 25%. Our self-service volume of transactions increased in the quarter. Our RV revenue through digital channels increased 21% and our online sales of camping passes increased by 28%. The satisfaction of our RV Park guests can be seen in both the length of tenure with us and the third party feedback we receive. We consistently see customer feedback as a tool to improve the experience for our guests.

We are pleased to report that we have 79 properties that have received TripAdvisor certificates of excellence for 2019. This distinction is earned by consistently achieving high ratings on TripAdvisor from guests. I'd like to thank our employees for their efforts in delivering another strong quarter at ELS.

I will now turn it over to Paul to walk through the numbers in detail.

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Thank you, Marguerite. And good morning, everyone. I will discuss our second quarter results and update guidance for the remainder of 2019.

For the second quarter, we reported $0.96 normalized FFO per share and $0.94 FFO per share. Normalized FFO per share was $0.04 higher than the midpoint of our guidance on higher than expected core property operating income and the timing of joint venture income we had anticipated would be received in the third quarter. FFO includes expense of approximately $0.02 per share related to early debt retirement.

Our core MH rent growth of 5.2% consists of approximately 4.5% rate growth and 70 basis points related to occupancy gains. Our second quarter core RV resort-based rental income growth was 4.1%. Growth in annual and seasonal revenues was in line with expectations and increased 6% and 4% respectively. Rate growth in our annuals was 5.2% and we realized approximately 80 basis points of growth from occupancy. Seasonal growth in the quarter came from our properties in California and Florida.

We continue to experience strong demand for transient stays across the portfolio, as evidenced by the occupancy and rate growth at locations not impacted by weather, as well as the strong growth in our membership dues, which I'll discuss in a minute. The majority of the transient [Indecipherable] occurred in June as a few locations in the Midwest and Northeast experienced heavy rain and colder than normal temperatures.

As I mentioned, membership dues revenue continued its strong growth phase during the second quarter, showing a 5.8% increase over prior year. During the quarter, we sold approximately 6000 -- 600 Thousand Trails Camping Pass memberships. Year-to-date, we have sold approximately 10,200 Camping passes, a 14% increase over the first six months of 2018.

In response to customer demand, we have offered a supplement to our membership product that provides access to a broader network of properties. This product continues to drive better than expected growth in sales. The net contribution from membership upgrade sales was also higher than expected during the second quarter. We continue to see an increase in sales volume of our higher priced upgrade products. During the quarter, we sold almost 750 upgrades at an average price of approximately $6,700.

Core utility and other income was lower than guidance, partially as a result of lower utility recovery, offset by lower than expected expense, which I'll discuss next, along with core expenses. Core property operating expenses were lower than guidance in the quarter. Property operating and maintenance expenses, including real estate taxes and rental home expenses were approximately $1.1 million lower than expected, mainly as a result of savings and payroll and utility expenses.

Sales and marketing expenses represent costs associated with our membership sales activity, including commissions on upgrade sales. While the outperformance in our sales activity drove increased expense. As I previously mentioned, the net impact was favorable to our guidance during the quarter.

In summary, second quarter core property operating revenues increased 4.9% and core property operating expenses increased 4.5%, resulting in an increase in core NOI before property management of 5.2%. Income from property operations generated by our non-core properties performed in line with guidance during the quarter. The results include the two acquisitions we closed during the second quarter.

Property management and corporate G&A expenses were higher than guidance, mainly because of legal and insurance related costs. Certain corporate legal matters, as well as increases to insurance reserves drove the higher than expected expense. Other income and expenses include the income effect of the joint venture income I previously mentioned, the timing variance as we have previously included the income in our guidance for the third quarter of 2019. Aside from the joint venture activity, our other income and expense categories performed in line with expectations.

Interest expense and related amortization was lower than guidance as a result of the early retirement of approximately $67 million of secured debt with a weighted average rate of 6.9%. The primary funding source for the debt prepayment was the sale of stock from our ATM program during the quarter.

Turning to our guidance update. The press release and supplemental package provides third quarter and full-year guidance in detail. Please note, the following remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints in our guidance range. We have increased our full-year 2019 normalized FFO per share guidance to $0.02. Our range for the year is now $4.12 to $4.22. The midpoint of our third quarter normalized FFO guidance is approximately $102.2 million, with a range of $1.3 to $1.9 per share. We expect the 3rd quarter to contribute approximately 25% of our full year normalized FFO.

For the remainder of 2019 we assume no change in our core MH occupancy from the end of the second quarter and expect community-based rent revenues of $267.4 million, a growth rate of 5% for the remainder of the year. In our RV business, we anticipate core RV revenues of $121.4 million for the rest of the year, a 4.6% increase over the second half of 2018. This projection is based on expected revenue growth of 4.9% from our annual customers, 3.5% from seasonal and 4.1% from transient customers. We expect more than 40% of the full year transient income will come in the third quarter.

Based on our review of current reservation pace and overall expectations for activity in August and September, we are projecting 4.2% growth in transient revenue for the third quarter. Our assumptions for transient income in the third quarters and fourth quarters do not anticipate meaningful impact on demand, resulting from adverse weather conditions.

Membership dues revenues are expected to increase $1.1 million or 4.7% compared to 2018. Our contribution for membership upgrade sales net of related sales and marketing expenses is projected to be almost $2.1 million for the rest of the year, an increase of almost 25% compared to 2018.

Core property operating and rental home expense growth is projected to be 2.6% for the full year, in line with our prior guidance. Our expense guidance for the second half of 2019 does not include any assumptions regarding unplanned storm events. For the rest of the year, core property operating revenues are anticipated to be up 3.7% with an increase in core property NOI of 5%. We expect the non-core properties will contribute about $9 million in income from property operations for the remainder of the year. For the full year, we project $20.9 million of income from property operations from these non-core assets.

Property management and corporate G&A is expected to be $45.1 million for the remainder of the year, and $92.3 million for the full year. The increase from prior guidance includes the second-quarter variance I previously mentioned, as well as an update to the second half of the year to reflect expected legal expenses and technology related expenses.

Other income and expense items are expected to be approximately $6.6 million for the rest of the year and approximately $16.7 million for the full year. Financing costs and other in the second half of the year are expected to be $50.5 million and reflect the impact of the debt we retired during the second quarter.

Now, some comments on our balance sheet. As I previously mentioned, during the quarter we raised equity from our ATM and used proceeds for early retirement of debt. The amount of debt was not significant relative to our overall debt balance and had little impact on our balance sheet metrics. We acted on an opportunity to raise equity at an attractive price and to retire debt to carry the high coupon.

We continue to see strong interest from various lending sources to finance our MH and RV assets. Current secured debt terms available for MH and RV assets range from 50% to 75% LTV, with rates from 3.25% to 4% for 10 year money. High quality age-qualified MH will command preferred terms from all lending sources. Fannie and Freddie, CMBS lenders and certain life companies are currently offering debt to finance RV assets.

The current lender underwriting model for MH and RV assets places high value on strong sponsorship. Our interest coverage ratio is 4.7 times and our debt to adjusted EBITDAre is 4.7 times. We have available capacity of $400 million from our unsecured line of credit. And we have approximately $141 million of capacity under our ATM program.

Now, we would like to open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Nicholas Joseph from Citi. Your line is now open.

Nicholas Joseph -- Citigroup Inc. -- Analyst

Thanks. Maybe just starting with RV. [Indecipherable] RV revenue growth guidance for the third time since initially providing it last third quarter. What are you seeing on the ground that's driving the reduction? And how comfortable are you with the new guidance of 4.4% for full year 2019.

Patrick Waite -- Executive Vice President and Chief Operating Officer

Hey, Nick. It's Patrick. What we're seeing on the ground is consistent demand across all four buckets, annual seasonal and transient. And as Paul just addressed on the annual front, which for the quarter was just about 70% of our total revenue. So rate growth of 5.2%, occupancy growth of 80 basis points. So that's the key driver of our business and that's where our focus is historically.

The niche for the quarter is, as you're aware, is on the transient side, that was impacted by weather. For the quarter, we saw a historically high rainfall across the Northern United States that really affected four properties of ours pretty significantly. Two were closed for a period of time, two others had a significant number of sites offline for a period of time.

Those weather events are past us. So I'm comfortable with respect to our demand profile. And our view going into the quarter is that, we're well positioned to continue to take advantage.

Marguerite Nader -- President and Chief Executive Officer

And I think also, Nick, when you look at our RV results, looking at the whole picture, looking at our subscription on our membership revenue, we saw increases in that in the quarter. I mean, that's really the transient customer converting to a member and that's been picked up in that revenue line item.

Nicholas Joseph -- Citigroup Inc. -- Analyst

Thanks. So when you think about the 52 that you initially thought for RV growth versus the 44 now. Is that 80 basis points mostly weather driven?

Marguerite Nader -- President and Chief Executive Officer

It's a combination...

Nicholas Joseph -- Citigroup Inc. -- Analyst

[Speech Overlap]

Marguerite Nader -- President and Chief Executive Officer

So, it's a combination, it's weather and then it's that offset that what you see in the dues line item or the subscription revenue. You can see that same pick up in there.

Nicholas Joseph -- Citigroup Inc. -- Analyst

Okay. And then maybe just on the balance sheet. You continue to lower leverage, you mentioned prepaying 2020 debt with the ATM equity. How do you think about the current capital stack and optimizing leverage levels going forward?

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. I think, in the quarter we -- As I said, it was a relatively small amount of debt. There was a nice opportunity for us to tap the ATM. It didn't have meaningful impact on our leverage metric. And I think that, as we've said in the past, our focus is on flexibility and being able to access various sources of capital at the appropriate time when an opportunity present itself.

Nicholas Joseph -- Citigroup Inc. -- Analyst

Thanks.

Marguerite Nader -- President and Chief Executive Officer

Thanks, Nick.

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, Nick.

Operator

Thank you. And our next question comes from John Kim with BMO Capital Markets. Your line is now open.

John Kim -- BMO Capital Markets -- Analyst

On the RV growth, it seems like the Thousand Trails membership is cannibalizing some of the transient growth more so than in prior years? And I'm wondering why that's the case?

Marguerite Nader -- President and Chief Executive Officer

I think what you're seeing there is an increase in our online sales. And it's the conversion from the person who came in and intended to be a transient and was -- saw the opportunity to become a member or have a subscription revenue model and they chose that. So I think it's just that increase in activity on the membership side and our customer having the option to choose that.

John Kim -- BMO Capital Markets -- Analyst

And do you see the same conversions of members going to annual and season [Indecipherable] from transient? And also can you talk about the profitability of the Thousand Trails revenue versus the typical RV business, just given the acquisition -- customer acquisition costs?

Marguerite Nader -- President and Chief Executive Officer

I mean, you can see on the conversion from a membership and annual and seasonal. You can see on our -- in our supplemental, we show how many annuals we have inside of the Thousand Trails membership base, which is about 5,000 or so. And we see people coming in on a membership side and then they decide to become an annual. And then, we will also see the transient pick up into the seasonal and then subsequently into the annual. We've seen that change over time over the last couple of years. An uptick in that activity to where we're seeing more conversions.

And it's really just a matter of people staying at the properties for a longer period of time and then deciding that they want to -- they want to spend more time with us. As to the profitability on the Thousand Trails side, on the supplemental page it shows the revenue that we have on both the membership -- on the due side, the annuals and the upgrades. And so you see that there and the profitability is similar to what you see on the overall RV base.

John Kim -- BMO Capital Markets -- Analyst

Okay. And then finally, we're hearing from some of the retailers that the low income consumer is really being pressured by rising rent. And that includes by manufactured housing owners. I guess, not so much from year-end, by maybe from some of the [Indecipherable] buyers in the market. But how much of a concern of this is for you and potentially some of your customers?

Marguerite Nader -- President and Chief Executive Officer

I mean, I think what we have is, we do a market survey, which is surveying everything is going on in and around our properties. So what's happening in manufactured home communities, what's happening in single-family, multifamily, etc. And so, that is how we're deciding how to increase rates. So we're keeping in lock step with what's happening in the local market. And we don't see that changing anytime soon. We generally send out a significant portion of our rent increases at the end of September or kind of beginning of October, which is how we're able to put out our guidance so early in the year. But at this point, we don't see any change to what you've seen over the last couple of years.

John Kim -- BMO Capital Markets -- Analyst

There is no discussions of rent regulations in some of your markets or an increased concern of it?

Marguerite Nader -- President and Chief Executive Officer

Well, there is certainly -- there is certainly -- we've seen properties -- there's been a lot of press lately about rent control initiatives across the United States. We have 23 properties right now subject to mandated rent control, primarily in California. But we've been actively opposing that rent control, those rent control ordinance is for over 20 years, but we've -- and we've had success in some jurisdictions and others, we just have had operated in a rent control environment. But when you kind of consider areas of concentration for ELS. In the State of Florida we've always operated under the terms of a prospectus. The prospectus that runs with the land and it governs their annual rent increases. So we've developed relationships with the Homeowners Associations and we spend a lot of time meeting with them and talking about the needs of the residents to achieve fair rent increases.

So I think that, we certainly see that, but there is also a lot of discussion with our residents about what rent increases should be and what makes sense for them and for the community.

John Kim -- BMO Capital Markets -- Analyst

All right. Thank you.

Marguerite Nader -- President and Chief Executive Officer

Thanks, John.

Operator

Thank you. And our next question comes from Samir Khanal with Evercore ISI. Your line is now open.

Samir Khanal -- Evercore ISI -- Analyst

Hi, Marguerite. I guess, just getting back to the question on RV. I mean, when you look at RV shipments on a year-over-year basis, they continue to be down and your business is still -- I mean, there's been a bit of slowdown here, but you're still kind of in that 4.5% range. So you really haven't seen the impact, as you would -- maybe I would have thought. So when you go back maybe sort of the last downturn. I'm sure you track the numbers pretty closely in regards to RV shipment. Was there some sort of a time lag before you started seeing the changes in sort of the consumer appetite there?

Marguerite Nader -- President and Chief Executive Officer

Yeah. I mean, certainly you look at the shipments -- shipments, I think they are down -- sales are down 8% for RV sales for the year. And some of that decline I think is, weather and some excess inventories. But really how it impacts the ELS, it really -- if you think about our portfolio and it comprise primarily of longer term customers staying with us on average 10 years. So they've made that decision to stay at the property and develop routes.

So our focus is not really the new RVers as much it is the 9 million installed base of RVers. And so we're marketing to those RVers and we don't -- we didn't see an impact in the market. Last time the RV industry had a blip in that, we don't anticipate seeing one now, because we're focused on the installed base.

Samir Khanal -- Evercore ISI -- Analyst

Okay. Thanks for that. And I guess my second one is, I mean, you did a small acquisition in the quarter. Can you talk about sort of pricing around that and the cap rate?

Marguerite Nader -- President and Chief Executive Officer

Sure. So, we closed on one property in April that we actually already previously announced that we -- in the quarter we actually closed on two properties, but the new one that we announced today was the property near one of our premier North Carolina properties, property with 455 sites. That deal was not unlike some of the deals that we've done in our history. This is a seller who previously sold us one of our assets, one of the assets that I just referenced, near the asset that we bought. He built this property and the book -- he built the property and the book of business, and then he was ready for an exit. The property has internal expansion sites and the seller is also developing additional sites adjacent to the property that we will purchase once those sites are complete.

Samir Khanal -- Evercore ISI -- Analyst

Got it. Okay. Thanks so much.

Marguerite Nader -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Drew Babin with Baird. Your line is now open.

Andrew Babin -- Baird -- Analyst

Hey, good morning.

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Hey, Drew.

Marguerite Nader -- President and Chief Executive Officer

Good Morning, Drew.

Andrew Babin -- Baird -- Analyst

I would assume based on the transient guidance for the third quarter that the 4th of July holiday went well. And I was hoping you could maybe kind of validate that or talk about that? And then give a little color on just -- I apologies if I missed this, but just kind of booking pace for the rest of the summer season relative to kind of where things were last year. What type of revenue is sort of earned in at this point relative to last year?

Patrick Waite -- Executive Vice President and Chief Operating Officer

Hi, Drew. It's Patrick with respect to 4th of July. I would say that, things trended well and it's reflected in our guidance for the quarter. As I mentioned earlier, what we're seeing consistent demand across RV platform that includes all the buckets, annual, seasonal and transient. I think about some of the key drivers for that summer season which are the Northern campgrounds and resorts across our portfolio. New York has good demand profile, one of our largest transient Properties in Lake George. We've a property just outside of Chicago here, that was one of the properties that was impacted by weather, but it's pacing favorably today. In Wisconsin where another property we had was offline and other was impacted by the weather event really. Overall, that market is pacing well in addition to. So, I would say that, that I would expect barring weather events for us to have a solid quarter.

Andrew Babin -- Baird -- Analyst

[Indecipherable] any of the, I guess, cleanup costs or alternatively just kind of missed revenue in the second quarter. Is any of that reimbursable are covered by insurance?

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Not really. I mean, what we had were kind of property specific events that didn't necessarily cause a significant amount of damage to the property. It was really the adverse conditions people not wanting to visit the property, because it was cold -- expected to be colder than typical. And as Patrick said, just the level of precipitation was significant.

Marguerite Nader -- President and Chief Executive Officer

And then on the lost revenue, we just don't have a campaign to work on encouraging that customer to rebook with us.

Andrew Babin -- Baird -- Analyst

Sure. Okay. That makes sense. And then secondly, to the extent -- I know this sometimes gets tricky with the 55 plus communities in Florida where there is a prospectus. Are you finding that tenants are -- is willing to pay rent increases to pay for upgrades on new amenities, things like that going into the properties. And though some of the higher amenity RV properties have a little more flexibility to do that. Are you still seeing a customer that's willing to kind of pay up when capital can be put into a property. Are you seeing a little more pushback back these days?

Marguerite Nader -- President and Chief Executive Officer

I mean. I think we're still seeing the same. The customer feedback or the resident feedback meeting with the Homeowners Association is such that, we are working with them, we talk about what the rate increase would be, we talk about the need at the property, we make certain that what we think is important is equally important to the resident base, especially when it comes to an amenity. We may think it's a good idea to put in some new fitness equipment and they may want to pickleball court. So there is just something that we try to figure out the best kind of -- the best avenue to go down. And we haven't seen a push back and it's really dealing with the Homeowners Association at each individual property.

Andrew Babin -- Baird -- Analyst

Everybody wants pickleball. That's all from me. Thanks.

Marguerite Nader -- President and Chief Executive Officer

That's right. Thanks. Take care.

Andrew Babin -- Baird -- Analyst

You too.

Operator

Thank you. Our next question comes from John Pawlowski with Green Street Advisors. Your line is now open.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Marguerite, has the recent share price run changed your acquisition appetite at all for the balance of this year?

Marguerite Nader -- President and Chief Executive Officer

I think we're still in the same place that we've been in that -- we have properties in all stages of under contract, LOI, etc. Certainly we look to it, we've been -- you've seen, we've been using our ATM and we are engaged with sellers and it's a matter of timing for them in some cases and in some cases it's a matter of pricing and what is it -- what is it mean in terms of -- for ELS, but certainly share price goes into the -- factors into the equation.

John Pawlowski -- Green Street Advisors -- Analyst

So are you bidding on more deals? Or are you bidding a bit harder now?

Marguerite Nader -- President and Chief Executive Officer

We're bidding on -- I would say the same amount of deals, it changes by quarter [Indecipherable] RV or MH. So I think it's along the same. I don't think that we'll continue to have the same disciplined approach to our underwriting. That hasn't changed, but certainly factoring in using our equity.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. And I'm no expert on how Florida prospectuses work. I understand everything is negotiated at the property level. From your monitoring of Florida state politics, is there anything in the hopper today or is there any chatter down the line of just the overarching prospectus system strengthening in favor of renters?

Marguerite Nader -- President and Chief Executive Officer

We haven't really heard anything. I think it's pretty strong. I mean, the prospectus is pretty strong. And it's good for -- it's good for us and it's good for prospective residents, it's good for current residents. So there's a lot of focus on that when we meet with the individual homeowners association. But we haven't heard anything, any kind of rumblings about a grand scale change in that.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Thank you.

Marguerite Nader -- President and Chief Executive Officer

Thanks, John.

Operator

Thank you. [Operator Instructions] Our next question comes from Todd Stender with Wells Fargo. Your line is now open.

Todd Stender -- Wells Fargo Securities -- Analyst

Thanks. Just looking at the number of occupied rentals. When you look at new homes versus used homes. I would think that the economics would be better for used. But maybe you guys can just speak to the rental differences between the two? And how you're looking at the rental segment?

Marguerite Nader -- President and Chief Executive Officer

The economics. I'm not clear, Todd, on you question.

Todd Stender -- Wells Fargo Securities -- Analyst

I guess, when you look at the numerator for both, are they comparable? Because I would imagine the denominator will be lower for used. So your economics would be better for used, but that just seem like it went down in the quarter, but new -- but occupied rentals went up for new. I just wonder if you could kind of speak to the differences between the two?

Patrick Waite -- Executive Vice President and Chief Operating Officer

[Indecipherable]. I think you're referring to the mix of the new -- occupied new rentals versus occupied used rentals.

Todd Stender -- Wells Fargo Securities -- Analyst

That's right.

Patrick Waite -- Executive Vice President and Chief Operating Officer

And if you compare it to the same period last year, the rental pool is flat, it's right around 4,000. And to your point, the mix reflects an increase of about 460 new and a decrease of about 460 used, that's driven by a couple of factors. One is, our focus on reducing the used inventory across the portfolio, because over time it becomes a little less efficient to operate those used homes from a maintenance and an operations perspective. And the focus on new is more new inventory coming to our portfolio and looking at a mix of sales and rentals in order to manage overall occupancy.

And as Margaret mentioned in her opening comments, also focused on renter conversions to manage that overall rental load. The total conversions for the quarter was right around 30%, just for perspective, full year 2018 was right around 28%, so it trends very favorably. But that's our overall goal. You manage that overall rental load that's currently 6% of our overall occupancy and focus on conversions with a bias toward selling used inventory. Does that answers your question.

Todd Stender -- Wells Fargo Securities -- Analyst

It sure does. Thank you. Any length of stay differences between the two or compared to last year?

Patrick Waite -- Executive Vice President and Chief Operating Officer

No, we haven't seen a change. It's -- the stay is usually two to three years. Some of our conversions are ranging from 18 months to 36 months. It just depends on the community and that customer behavior.

Okay. It's very helpful. Thank you. Just transitioning to Paul. You spoke about the upgrade sales. I think it averaged 6,700, if I heard that right?

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes.

Todd Stender -- Wells Fargo Securities -- Analyst

Can you talk about some of the underlying factors that fueled that move. And then maybe speak to the cost of achieving that growth? Just to get a sense of the net impact. Thanks.

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure. I think that as we look at the product that we offer to our customer in terms of the upgrade, a lot of it revolves around how they can expand their usage of the properties. How they can enjoy the properties for longer periods of time. How they could access or make the reservation with a greater length of time, so they have more certainty with respect to the site that they can book and so forth.

So we packaged those options together and it drives the upgrades. We've seen a pretty consistent increase in the pricing, as the customers have opted for more amenities and more added features to their membership over the last couple of years. As it relates to the overall net contribution. I think, I mentioned that for the full year we anticipate about $2 million net contribution from the membership sales offset by sales and expense -- sales and marketing expenses. That's on a total of $17.5-ish million on upgrade sales.

Todd Stender -- Wells Fargo Securities -- Analyst

Okay. Got it. All right. Thank you very much.

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure.

Operator

Thank you. When we have a follow-up from John Pawlowski with Green Street Advisors. Your line is now open.

John Pawlowski -- Green Street Advisors -- Analyst

Yes. One modeling follow-up. Paul, could you remind us just average operating margins for both MH and RV portfolios right now? And how much upside over the next few years you think with operating initiatives are left to squeeze?

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

I think what we've seen on the MH side of the business is pretty consistent over our long history, call it, a 65 to -- it could be up to 70% operating margin, just depending on the location of the property and the rent level.

On the RV side, it really can be quite similar when you're talking about a highly annual property. But when you have a highly transient property in the RV business, those margins could be significantly different, call it, 35% operating margin if you're reliant on that transient customer and have the risk of a property really being occupied. For example, in the summer occupied for the weekends, but not occupied during the week.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. And where do we go from here in terms of operating initiatives?

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

I think that what we -- what we try to do on the latter with respect to those transient customers, how do we extend the stay? How do we increase their time with us? Can we get them to stay Sunday into Monday, so that we could drive that. We also have some of our highly Transient Properties initiatives in place to introduce cabin type or park model housing stock, so that we could convert customers to annuals and drive the long-term revenue that way.

We see on a -- on kind of an average daily rate basis a reduction in the rent, but over the course of the year, more stability and a reduction in the variable expenses, because we don't have to staff the property quite the same way if it's more fully occupied with annuals.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Thank you.

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure.

Operator

Thank you. Since we have no more questions on the line at this time, I would like to turn it back over to Marguerite Nader for closing comments.

Marguerite Nader -- President and Chief Executive Officer

Thank you for joining us today. We look forward to updating you on our next quarter's call.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Marguerite Nader -- President and Chief Executive Officer

Paul Seavey -- Executive Vice President, Chief Financial Officer, and Treasurer

Patrick Waite -- Executive Vice President and Chief Operating Officer

Nicholas Joseph -- Citigroup Inc. -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Samir Khanal -- Evercore ISI -- Analyst

Andrew Babin -- Baird -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

Todd Stender -- Wells Fargo Securities -- Analyst

More ELS analysis

All earnings call transcripts

AlphaStreet Logo