Good day, everyone, and thank you all for joining us to discuss Equity Lifestyle Properties' Q1 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 will 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 the 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.
Good morning, and thank you for joining us today. I am pleased to report the results for the Q1 of 2019. Our key operating We have increased occupancy for the last 38 quarters. Occupancy in our MH portfolio increased 78 sites with an increase of homeowners of 64. Our overall occupancy level is 95% with over 50% of our communities 98% occupied or more.
Our residents are generally buying their homes for cash and making a long term commitment to ELS. The continued strength in the resale market is evident in the homeowners' transfers throughout our portfolio. New home sales for the quarter were 91. The decline from last year is attributed to filling communities. Our conversion rate for new and used homes continues to increase with a 35% conversion rate for the quarter.
Our RV revenue performed in line with our expectations for our annual and seasonal revenue streams. Our transient revenue was flat to last year, mainly attributed to weather related park Closures. We see continued growth in our membership base within our Thousand Trails portfolio. Our customers have the flexibility to choose their length of commitment to us. We now turn to our summer season where we will start our 100 days of camping campaign and expect to host over 1,000,000 guests and members at our property during this busy season.
Across the organization, we are focused on improving the customer experience. We place a high priority in customer feedback and survey responses, including using online rating tools such as TripAdvisor, Google, Facebook and customer feedback shared directly on property. As we encourage customer feedback and people have new channels to communicate with us, we have seen the feedback volume increased by 86% over the past 3 years. We received over 140,000 completed surveys and reviews over the past year, allowing us to have regular discussions with our leadership teams across the portfolio What is working well and where we can invest in ways that further improve our customer experience. Our customers are increasingly choosing self-service options to complete their transactions with us.
In the quarter, our RV revenue through digital channels increased 32% and our online sales of camping passes increased by 33%. We have significantly increased our video library over the last year. Many customers are making the buying decision after taking an online tour of the community and the homes. Our customers continue to migrate towards booking on their mobile devices. For the year, mobile revenue increased 68% and now accounts for 29% of our total transient revenue.
Turning to acquisitions. Since our last call, we purchased 3 RV parks for a total purchase price of $35,000,000 The properties contain 1100 sites and will complement our existing assets in nearby locations. I will now turn it over to Paul to walk through the numbers in detail.
Thank you, Marguerite, and good morning, everyone. I will provide an overview of our Q1 results and walk through our detailed guidance for the Q2 and the full year 2019. Before I complete my remarks and turn the call over to the operator To start Q and A, I will discuss our balance sheet. As you review our press release and supplemental package released yesterday afternoon, You will note some changes to our GAAP income statement as a result of adopting the lease accounting guidance changes. You will also see that our non GAAP financial measures continue to be presented in Our historical format.
For ease of understanding comparative periods, our non GAAP financial measures also reflect our historical classification of revenues and expenses, including bad debt expense. For the Q1, normalized FFO was approximately $1,200,000 higher than our guidance as a result of core and non core property operating income outperforming our expectations. Core MH rent growth of 5% Performed in line with expectations for the quarter. Our transient revenues were less than guidance as a result of weather events at a limited number of properties, including our Yosemite Lakes property in California. 1st quarter membership dues revenue as well as the net contribution from upgrade sales were Higher than guidance.
Dues revenues increased 6.9% as a result of rate increases and an increase in our paid member count of 3%. During the quarter, we sold approximately 3,600,000 trails camping passes, an increase of 16% over the Q1 of 2018. We upgraded 6 34 members during the quarter, 9% more than the Q1 last year. Core utility and other income was higher than guidance as a result of utility income, specifically recovery of water expense during the quarter. 1st quarter core property operating maintenance and real estate taxes were unfavorable to forecast as a result of higher than expected R and M to recover from storms in California and flooding in Wisconsin.
As a reminder, we do not make assumptions for weather related events in our guidance. In summary, Q1 core property operating revenues were up 4% and core property operating expenses were up 2.6 percent, resulting in an increase in core NOI before property management of 4.9%. Property operating income from the non core portfolio, which includes our RV parks in the Florida Keys as well as assets acquired and sold during 2018 2019, was higher than guidance. The main driver is better than expected performance from our properties in the Keys. The acquisition properties are performing in line with expectations.
Property management and corporate G and A were $400,000 higher than guidance in the quarter because of the timing of certain payroll and employer related Other income and expenses generated a net contribution of $4,300,000 and financing costs and other were in line with guidance for the quarter. The press release and supplemental package provide 2019 full year and second quarter guidance in detail. As I discuss guidance, keep in mind my remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints Our guidance for 2019 normalized FFO is $396,900,000 approximately $3,000,000 higher than our prior guidance. We expect normalized FFO of $4.15 per share at the midpoint of our range.
Full year core NOI before property management is projected to increase 4.6% and normalized FFO per share is projected to Before I discuss detailed guidance, I'll provide an update on our recent property and casualty insurance renewal. Industry reports state that 2018 was the 4th most expensive year for insured losses with estimated global losses of $79,000,000,000 As a result, we encountered a challenging market for negotiation of our April 1 renewal. Carriers sought premium increases to cover their own reinsurance premium increases as well as to recover losses from 2018. Our negotiations resulted in a premium increase of approximately $2,400,000 for the 9 month period of coverage in 2019. We expect 2nd quarter normalized FFO at the midpoint of our range of approximately $88,200,000 with a range of $0.89 to 0 point 95 Approximately 22% of our full year normalized FFO.
We assume no MH occupancy increase subsequent to the end of the first quarter. Projected 2nd quarter core community based rent revenue of $132,000,000 reflects a growth rate of 4.9 Our core rental home income net of rental expenses is expected to be $2,200,000 and reflects our current rental program occupancy. We anticipate $56,700,000 of core resort based rental income in the 2nd quarter. This represents 23 of our full year core RV revenue, and we are projecting growth of 5.1% over last year. We expect our annual rate to increase almost 4.8% with occupancy gained in prior periods driving the rest of our 5.8% growth in revenue from annuals.
We project growth rates of 3% for seasonals and four Our 2nd quarter reservation page shows we are currently 84% reserved for our expected seasonal revenues and 57% reserve for our expected transient revenues, in line with this time last year. Membership dues revenue is expected generate approximately $12,800,000 of income. Our guidance update shows 5.2% growth in the 2nd quarter core property operating and maintenance and real The increase includes the impact of our insurance renewal as well as increased repairs and maintenance expenses related to some nonrecurring expenses associated with our sewer and water system operations at certain properties. For the Q2, core property operating revenues are expected to be up 4.6%. Core property operating expenses are expected to be up 5.2%, which resulted in an increase in core NOI of 4.1%.
We are projecting $4,100,000 of NOI from our non core properties, including the acquisitions we announced in our press release in the Q2. I'll now comment on guidance for the full year Our core MH based rent assumptions do not include a change in our MH occupancy subsequent to the end of the Q1. We expect a 4.8% growth in core community based rent revenues for the full year. We anticipate full year core RV revenue growth of 4.8%. We expect annuals to continue showing strong performance with 5.5% growth projected, 4.7% of that growth is from rate.
As we look ahead to the full summer season, we project combined second and third quarter transient revenue of $36,100,000 a growth rate of 4.9% over 2018. We expect approximately 42% of the full year transient income to come in the 3rd quarter. Total core revenue from dues and net contribution from membership sales for 2019 are expected to be $52,400,000 a 4% increase over 2018. Page 15 of our supplemental package shows aggregate revenue generated by our 1,000 Trails We have increased our projection of 2019 revenue from dues revenue, annual seasonal and transient stays, upgrade sales and other income to $109,000,000 Core property operating expense growth is projected to be 2.5 percent for the full year. As I mentioned earlier, we have increased our expected insurance and repairs and maintenance expense growth rates from our prior guidance.
Our guidance model includes no assumptions related to unplanned events such as storms that may have an impact on To the extent our properties are affected by these types of events during the remainder of 2019, our expense growth rates may increase. For the full year, core property operating revenues are anticipated to be up 3.7% with expenses growing at 2 point percent, resulting in an increase in core property NOI of 4.6%. We expect the non core properties will contribute almost $21,000,000 in income from property operations for the full year. As a reminder, our 2 RV assets in the Florida Keys will be included in non core properties Full year guidance for property management and corporate G and A is $90,300,000 As I mentioned, our Q1 results were impacted by timing of certain expenses. And as a result, we've reduced our expenses during the remainder of 2019.
We expect other income and expenses to be $16,800,000 for the full year. The increase from prior guidance is mainly caused by an expected JV related to an upcoming refinancing. Interest and amortization expense for the full year 2019 is expected to be approximately 100 $6,100,000 Our 2019 normalized FFO per share estimate at the midpoint is $4.15 and our share count is expected to average 95,700,000 shares in 2019. Before opening the call up for questions, I'll discuss secured debt market conditions and provide some comments on our balance sheet. Current secured financing terms available for MH and RV assets range from 60% to 75% LTV with rates from 3.75% to 4.5% for 10 year money.
High quality age qualified MH from CMBS lenders and certain life companies. Life companies are still quoting deals with 15 to 25 year maturities. Our unrestricted cash balance at Quarter end was approximately $58,000,000 after adjusting for our April dividend. We have no debt maturing in 2019. At quarter end, our $400,000,000 unsecured line of credit had no outstanding balance and our ATM had $200,000,000 of capacity.
We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Our debt to EBITDAre is 4.9x and our interest coverage is around 4.6x. The weighted average maturity of our outstanding
Our first question comes from the line of Nick Joseph from TD. Your question please.
Go back to the transient RV revenues in the quarter, what's the cancellation policy if there is inclement weather? And then is there any residual impact The properties going forward from those weather issues.
Sure, Nick. It's Patrick. Our cancellation policy typically reflects an opportunity for that reservation to be booked forward to another period in order to provide some flexibility for the customer and to maintain good relations with our customers that if they're unfortunate enough to be Impacted by unfavorable weather, we want to give them an opportunity to come back. At this point, I would say we don't expect to see an impact Go forward with respect to any inclement weather, Wisconsin as an example, once we get past those flooding events, We typically see the business to return to normalized.
Thanks. And then for the Army acquisitions In March April, what's the mix of annual seasonal and transient within the RV currently? And then what's the cap rate on the acquisitions?
Sure. The mix is about 60% 60% to 70% annual, and the cap rate was 5 point Half cap, I think, is about $33,000 a site. This is an acquisition that we closed on with a seller that we've been talking about For a while, that we've known for 20 years and done a lot of deals with this seller. Thanks. Thanks, Nick.
Thank you. Our next question comes from the line of John Kim from BMO Capital Markets. Your question, please.
Just a follow-up on the cap rate question. Just given the strength of your organic growth that you've had historically as well as lower CapEx, Are you surprised the cap rates have been compressed below 5%?
Well, in this particular property and this A seller like I said, we've had some long term relationship with them. So I think that that was a function of the relationship that we were able to get that kind of cap rate And the location. So I think it really depends on the location. And you've seen in prior periods where we've purchased something closer to a 5 cap.
On the Thousand Trails, looking at your guidance for the year, The growth in your members exceeds the change in origination. I know that's not quite apples to apples, but I was wondering, are you expecting a higher retention rate On members going forward?
I think overall, what we're seeing is an increase. We are seeing an increase in the originations and we're seeing an increase In the retention of the customers across the Thousand Trails footprint.
And we've really seen that we've transformed the way our customer is using that footprint. We're selling our membership or really our subscription model online to much success. Our customers have become accustomed to the subscription process in general and other Walks of life for themselves and they've increasingly adopted an online purchase. So we see that channel as an efficient way to distribute our product and We're going to invest more time and resources to improve that channel.
And what do you attribute the higher retention rate and the higher Number of upgrade sales too.
I think some of the upgrade activity that we've seen is additional sales channel, including phone sales and web pitches. So that's part of what we're seeing there. And I think the retention is really a function of The experience that the customer, the member has at the property and we're seeing that they have a very positive experience and want to continue to renew with us.
Okay. And then finally on your RV guidance, you lowered it slightly on the same store revenue side by 20 basis points 4.8%, yet you said it's basically performing in line with expectations. Can you just comment on that dynamic?
Sure. I think when you and Touching on Thousand Trails as you have here. When you're reviewing our RV results, I think it's important to look at the whole picture. So our membership or subscription model saw increases in the quarter. So where previously someone may have stayed with us on a transient basis, they may have decided to purchase a membership And that revenue is picked up in the right to use annual number.
And just the on the absolute line items on transit, I think we're Flat to last year.
Okay. For just a different bucket. Right. Thank you.
Thank you. Our next question comes from the line of Drew Babin from Baird. Your question please.
Hey, good morning.
Good morning.
Digging in a little further on the Transient RV, obviously, you mentioned the weather impact in the Q1 As well as potentially more membership type customers rather than transient. I guess I'll ask this question. Are you seeing any Slackening or just kind of pull back in the consumer appetite for RV. The RV shipments industry wide were down a little bit in the second half of last year. I'm not sure if that's just dealers kind of maybe with a little more inventory left over from prior years than they wanted.
I guess, are you seeing any impact whatsoever other than weather in that business that may be causing a slowing relative to past years?
Yes. I mean, we certainly look at sales and we look at shipments, but that is not as impactful to us as weather and certainly where properties are closed. I mean, you had California issues where the properties are closed and now you have some flooding issues in Wisconsin, Which is why when you break down our portfolio, it's really comprised primarily of longer term customers and that's what we By design, that's the way we intend for our properties to run. And our RV annual Customers are generally staying with us an average of 10 years. And so for us, we haven't seen a change other than in those areas where there's been weather impact.
In fact, if you look at our Keyes properties, which are not in core anymore, as you know, Because of the hurricanes from last year from 2017, we've seen an increase if you consider 2017 over 2019 a significant increase, which was the last Here that we had a full quarter of operations for those properties. So and they're primarily transient, and we saw a significant increase in activity and revenue, Which is reflected in our non core measurements.
Okay. That's helpful. And I guess just one last thing. If you look at the reduction in same property NOI growth guidance for the year, just between the RV impact and between the expense items that you mentioned, would it be fair To say that really the only thing that changed was just the weather in the Q1, with from both the top line and expense perspective?
Well, those are drivers in the Q1. I think the important thing to Keep in mind, as we think about the full year, is the impact of the insurance renewal, as I mentioned in my opening remarks.
Okay. Which is also somewhat indirectly correlated to weather.
It's all about weather.
It's all about weather. It's the only real risk. Great. Well, that's all for me. I appreciate the color.
Thank you.
Thanks, Drew.
Thank you. Our next Question comes from the line of Todd Stender from Wells Fargo. Your question please.
Hi, thanks. For the acquisitions being the quarter, you said that that's the Same seller. How about the one already made in Q2?
Those are the same the 3 from the same seller.
All from the same store. Okay.
And we've probably over the last 20 years with this seller, we've purchased or somehow been in he's
And no tax advantageous OP units, nothing like that tucked in there?
No, it was not. It was a cash transaction.
Okay. Thanks. Any comments on the rent and the in place rents versus market? And maybe just comments there. And then how do you kind of The cap rate you quoted, is that a forward cap rate or maybe an assumption, a growth assumption?
Yes. That's an in place What we're expecting for the next the 4 to 12 months. And in terms of market rents or in place rents, They're effectively at market rents. I think there's some opportunity for synergies in expenses, But the market rates are pretty much set for those properties.
Okay. How about adjacent land available in these communities? What kind of upside do you see around just the surrounding communities?
On the ones we purchased, there isn't Adjacent, there is a small piece of expansion within the properties that we bought, but it's a very small piece, But there isn't anything in these particular locations. We certainly are working on transactions throughout our portfolio with land adjacent To our existing properties and working through some of the entitlement issues with that.
All right, thanks. And just finally, you gave a conversion rate. This goes back to the renters converting to homeowners. I believe you said it was about 35% conversion rate. Do you have any metrics around that, maybe average length of stay as they rented before they bought?
And do you have a 3rd general range that you see maybe counted in months?
Sure. Yes.
What we typically see is renters converting after a stay of 2 to 3 years That can blend a little longer or a little shorter, but typically within that range. And just with respect to the 35% overall, 25% of the overall 35% conversion, those are new and used home sales 2 existing ELS renters and if we include all conversions across the portfolio, those are renters that Either purchased on other than the one that they were renting or homeowners that decided to upsize or downsize, That's what brings that overall number up to 35%. So it reflects the behavior, the sticky nature of our customers, not only with our renters overall, but also with existing homeowners.
Okay. Thank you.
Thanks, Tass.
Thank you. Our next question comes from the line of John Pawlowski from Green Street Advisors. Your question please.
Thanks. Sticking with the RV acquisitions, I was just hoping to get a sense for the long term NOI growth you'd underwrite on these type of, I guess, Secondary markets versus the best RV markets in your portfolio, how wide is that range?
I think it certainly varies by location. These particular locations, I would say, you'd have moderate growth As compared to where if you're talking about Florida or the Keys, Arizona, California, something along those lines. I think as I mentioned earlier, I think that the rate increase that you see really comes from operating them in With properties that are close to these existing locations, which is one of the attractive features of these properties. So there's a little bit of there's certainly a difference in growth rates as you move away from the coast.
Sure. Is moderate growth in your mind? Is it 1%? Is it inflation? Is it inflation plus?
I'd say it's a little bit more than inflation.
Okay.
And then I know Private equity isn't new in the space, but it is growing in the space. So are the big private equity firms making your lives a bit more difficult on the acquisition side as As 'nineteen rolls along?
I think that there's certainly over the year and this has been over the last 4 or 5 years, so there really isn't, As you say anything new, but there's certainly more people showing up at the auction tent or calling potential sellers. But I think in some instances that's created some of it certainly created some of the cap rate Compression that we've seen over the years.
Great. And then last one for me. Paul, I apologize if I missed it, but Our property taxes and the expected the end of this year, the balance of this year, are they trending in line with what you expected at the beginning of the year?
Yes. They're trending in line with our expectations.
Okay. Could you remind me what that expectation is in terms of the 2019 growth rate?
Yes, it's a kind of mid single digit growth rate in 2019.
Okay. Thank you.
Sure.
Thank you. Since we have no more questions on the line at this time, I would like to turn it Back over to Marguerite Ader for closing comments.
Thank you. We look forward to updating you on next quarter's call.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.