Q2 2019 Earnings Call

July 23, 2019

[music] Good day, everyone and thank you all for joining us to discuss equity lifestyle properties second quarter 2019 results.

Operator: Good day, everyone. Thank you all for joining us to discuss Equity LifeStyle Properties Q2 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 risk and uncertainty. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events.

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.

All forward looking statements are subject to certain economic risk and uncertainty the company assumes no obligation to update or supplement any statements that become untrue because of subsequent events.

Operator: In addition, during today's call, we will discuss non-GAAP financial measures as is 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.

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 or supplemental information on our historical <unk> SEC filings.

Paul Seavey: At this time, I would like to turn the call over to Marguerite Nader, our President and CEO.

At this time I'd like to turn the call over to Marguerite Nader, our president and CEO .

Marguerite Nader: Good morning, and thank you for joining us today. Our Q2 results, released yesterday, show 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 an 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.

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 site and this quarter marks our 39 consecutive quarter of occupancy growth.

Customer demand to live in our communities continues to be hot.

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 homes and 25% our movie from an apartment.

Marguerite Nader: 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, RMH revenue, which accounts for 70% of our total revenue had a growth rate of 5.1% comprised of 4.5% rate is 60 basis points of occupancy.

Our RV revenue, including thousand trail has grown 4.7% year to date.

This growth has been fueled by growth in our annual income in 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.

Marguerite Nader: 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 seek 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.

Year to date, we have seen an increase in sales at 13% and an increase in upgrades of 25%.

Our self service volume of transaction 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 trip advisor certificates of excellence for 2019.

This distinction is earned by consistently achieving high ratings on trip advisor from guests.

I'd like to thank our employees for their efforts in delivering another strong quarter Npls I will now turn it over to Paul to walk through the numbers in detail.

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

Paul Seavey: Thank you, Marguerite. Good morning, everyone. I will discuss our Q2 results and update guidance for the remainder of 2019. For Q2, 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 Q3. 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 Q2 core RV resort-based rental income growth was 4.1%.

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 96 cents normalized FFO per share and 94 cents per share.

Normalized FFO per share was four cents 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 two cents 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 base rental income growth was 4.1% growth in annual and seasonal revenues was in line with expectations and increased 6% and 4% respectively.

Paul Seavey: 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%. 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 guidance miss was occurred in June, as a few locations in the Midwest and Northeast experienced heavy rains and colder than normal temperatures. As I mentioned, membership dues revenue continued its strong growth pace during Q2, showing a 5.8% increase over prior year.

Great growth in our annual says, 5.2%, 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 transients 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 guidance minutes with occurred in June as a few locations in the Midwest and northeast experienced heavy rains and colder than normal temperatures.

As I mentioned membership dues revenue continued its strong growth pace during the second quarter, showing a 5.8% increase over prior year.

Paul Seavey: During Q2, we sold approximately 6,600 Thousand Trails camping pass memberships. Year to date, we have sold approximately 10,200 camping passes, a 14% increase over the first 6 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 Q2. We continue to see an increase in sales volume of our higher-priced upgrade products. During Q2, we sold almost 750 upgrades at an average price of approximately $6,700.

During the quarter, we sold approximately 6000 600000 trails camping pass memberships.

Year to date, we have sold approximately 10200 camping passes a 14% increase over the first six months of 2018.

In response to customer demand, we have offered to 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 price upgrade products.

During the quarter, we sold almost 750 upgrades at an average price of approximately $6700.

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.

Paul Seavey: 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 in 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.

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 in payroll and utility expenses.

Sales and marketing expenses represent costs associated with our membership sales activity, including commissions on upgrade sales.

Well the outperformance in our sales activity drove increased expense as I previously mentioned the net impact was favorable to our guidance during the quarter.

Paul Seavey: In summary, Q2 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 2 acquisitions we closed during Q2. 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 includes the income effect of the joint venture income I previously mentioned. This is a timing variance, as we have previously included the income in our guidance for Q3 2019.

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 noncore 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 DNA 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 includes the income effect of the joint venture income I previously mentioned.

This is a timing variance as we have previously included the income in our guidance for the third quarter of 2019.

Paul Seavey: 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 provide Q3 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 $0.02. Our range for the year is now $4.12 to $4.22.

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 with the sale of stock from our ATM program during the quarter.

Turning to our guidance update the press release and supplemental package provide 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 two cents our range for the year is now $4.12 to $4.22.

Paul Seavey: The midpoint of our Q3 Normalized FFO guidance is approximately $102.2 million, with a range of $1.03 to $1.09 per share. We expect the Q3 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 Q2 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 seasonals, and 4.1% from transient customers.

The midpoint of our third quarter normalized FFO guidance is approximately $102.2 million with a range of one dollar three cents to $1.89 cents per share.

We expect the third 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 base 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.

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 Seasonals and 4.1% from transient customers.

Paul Seavey: We expect more than 40% of the full year transient income will come in Q3. 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 Q3. Our assumptions for transient income in Q3 and Q4 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 from 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.

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 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 from 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.

Paul Seavey: 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 operation 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 Q2 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.

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 noncore 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 noncore assets.

Property management and corporate DNA 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.

Paul Seavey: 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 Q2. 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 that carried a high coupon. We continue to see strong interest from various lending sources to finance our MH and RV assets.

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 use 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 that carried a high coupon.

We continue to see strong interest from various lending sources to finance, our MH and RV assets.

Paul Seavey: 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. We would like to open it up for questions.

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 was 4.7 times and our debt to adjusted EBITDA. Ari 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.

Ladies and gentlemen, if youd like to ask our speakers a question. Please hit Star then the number one key when your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. You May press the pound key we ask that you. Please mute your line once you've asked a question to prevent any background noise from coming through during the recording again that is star then one if you'd like to queue up to ask a question.

Operator: Ladies and gentlemen, if you'd like to ask our speakers a question, please hit star, then the number 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. We ask that you please mute your line once you've asked your question to prevent any background noise from coming through during the recording. Again, that is star, then 1 if you'd like to queue up to ask a question. Our first question comes from Nicholas Joseph from Citi. Your line is now open.

Our first question comes from Nicholas Joseph from Citi. Your line is now open.

Nicholas Joseph: Thanks. Maybe just starting with RV. You lowered RV revenue growth guidance for the third time since initially providing it last Q3. 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?

Thanks, maybe just starting with RP ward off your revenue growth guidance for the third time since initially providing that last third quarter. What are you seeing on the ground that's driving the reduction how comfortable are you with the new guidance for 4.4% for full year 2019.

Hey, Nick its Patrick.

Patrick Waite: Hey, Nick, it's Patrick. What we're seeing on the ground is, you know, consistent demand across all four buckets, annual, seasonal, and transient. As Paul just addressed on the annual front, which for the quarter was just about 70% of our total revenue. Our rate growth of 5.2%, occupancy growth of 80 basis points. That's the, you know, key driver of our business, and that's where our focus is historically. The miss for the quarter is, as you're aware, on the transient side, that was impacted by weather. You know, for the quarter, we saw historically high rainfall across the Northern United States. That really affected four properties of ours pretty significantly.

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 Thats, where our focus is historically.

The Miss for the quarter is is your whereas on the transient side that was impacted by weather.

For the quarter, we saw historically high rainfall across northern United States.

Really affected four properties of ours pretty significantly to were closed for a period of time to others had a significant number of sites offline for a period of time.

Patrick Waite: 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. I'm comfortable with respect to our demand profile, and our view going into the quarter is that we're well positioned to, you know, continue to take advantage.

Those weather events are past us so I am comfortable with respect to our demand profile and in our view going into the quarter is that work, we're well positioned to continue to take advantage and I think also Nick when you look at our RV results.

Marguerite Nader: I think also, Nick, when you look at our RV results, you know, looking at the whole picture, looking at our subscription or our membership revenue, we saw increases in that in the quarter. That's really that transient customer converting to a member, and that's being picked up in that revenue line item.

Looking at the whole picture looking at our subscription or a membership revenue we saw increases in that in the quarter I mean, thats really that transient customer converting to a member and thats been picked up in that revenue line item.

Thanks, when you think about the five too that you initially thought for RFP versus the four for now is that 80 basis points, mostly weather driven.

Nicholas Joseph: Thanks. When you think about the 5.2 that you initially thought for RV growth versus the 4.4 now, is that 80 basis points mostly weather driven?

Marguerite Nader: It is a combination.

It's a there is a combination of the border but would.

Nicholas Joseph: Over the quarter.

Marguerite Nader: Sorry, 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.

So it's a combination it's weather and then at that offset that what you see in the in the U.S line item or the subscription revenue.

Nicholas Joseph: Okay.

You can see the same pickup in there.

Marguerite Nader: You can see the same pickup in there.

Nicholas Joseph: Okay. Maybe just on the balance sheet, you continued to lower leverage. You mentioned prepaying the 2020 debt with the ATM equity. How do you think about the current capital stack and optimizing leverage levels going forward?

Okay, and then maybe just on the balance sheet continued to lower leverage you mentioned prepaying, the 2020 that ATM equity.

How do you think that the current capital stack and optimizing leverage levels going forward.

Patrick Waite: Yeah, I think, you know, 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. I think that, as we said in the past, our focus is on flexibility and being able to access various sources of capital at, you know, at the appropriate time when an opportunity presents itself.

Yes, I think.

In the quarter, we had they said it was a relatively small amount of debt. There was a nice opportunity for us to tap the ATM it didnt have meaningful impact on our leverage metric.

And I think that as we said in the past our focus is on flexibility and being able to access various sources of capital at the appropriate time and an opportunity present itself.

Thanks.

Nicholas Joseph: Thanks.

Marguerite Nader: Thanks, Nick.

Patrick Waite: Thanks, Nick.

Thanks, Nick Thanks, Nick.

Operator: Thank you. Our next question comes from John Kim with BMO Capital Markets. Your line is now open.

Thank you and our next question comes from John Kim.

With BMO capital markets. Your line is now open.

On the RV growth it seems like the thousand trails membership is cannibalizing some of the transient growth more so than in prior years.

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

And I'm wondering why that's the case.

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

I think what you're seeing there is an increase in our online sales.

And if 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 may and they chose that.

So I think it's just that that increase in activity on the membership side and in our customer having the option to choose that.

And do you see the same conversions.

John Kim: Do you see the same conversions of members going to annual and seasonal as you do from transients? Also, can you talk about the profitability of the Thousand Trails revenue versus the, you know, the, you know, the typical RV business, just given the acquisition, customer acquisition cost?

Members going to annual seasonal and transient.

And also can you talk about the profitability of the calcitriol revenue versus.

The.

The typical RV business, given the acquisition customer acquisition costs.

Marguerite Nader: I mean, you can see on the conversion from 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. We see people coming in on a membership side, and then they decide to become an annual. Then we'll also see the transient pickup 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.

You can see on the.

Conversion from a membership and the annual and seasonal you can see on on our in our supplemental we show how many annuals, we have inside of the thousand trails.

Membership base, which is about 5000 or so.

And yet we see people coming in on on a membership side on and then they decide to become an annual.

And then and then we'll also see the trends again pickup into the seasonal and then subsequently into the annual and we've seen that change over time over the last couple of years.

The uptick in that activity to where we're seeing more conversions and it's really just a matter of people staying at the properties.

Marguerite Nader: That's really just a matter of people staying at the properties, for, you know, for a longer period of time and then deciding that 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. You see that there, and the profitability is similar to what you see on the overall RV base.

For for a longer period of time, and then deciding that they wanted to that they want to spend more time with us.

As to the profitability on the thousand trails side and on the supplemental page.

It shows that the revenue.

That we that we have.

On both the membership on the do side the annuals Antony upgrades.

And so you see that bearing and the profitability is similar to what you see on the on the overall RV base.

Okay.

John Kim: Okay. Then finally, we're hearing from some of the retailers that the low-income consumer is really being pressured by rising rents, and that includes by manufactured housing owners. I guess not so much from your end, but maybe from some of the PE buyers in the market. How much of a concern of this is this for you and, you know, potentially some of your customers?

And then finally, we're hearing from some of the retailers that the low income consumer it's really being pressured by rising rent.

And that includes by manufactured housing owner.

I guess not so much.

From yearend by maybe from some of the key buyers in the market, but how much of a concern of that.

Good for you.

Actually some of your customers.

Marguerite Nader: I mean, I think, you know, what we have is, we do a market survey, which is surveying everything that's going on in and around our properties. What's happening in manufactured home communities, what's happening in single family, multifamily, et cetera. That is how we're deciding how to increase rates. We're keeping in lockstep 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, kind of beginning of October, which is how we're able to put out our guidance so early in the year. At this point, we don't see any change to what you've seen over the last couple of years.

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 et cetera.

And so that is how we are deciding.

How to increase rates. So we're keeping in lockstep 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 kind of beginning of October which is how we are able to put out our guidance. So early in the year, but at this point, we don't see any any change to what you've seen over the last couple of years.

There is no discussions and negotiations with some of your markets.

Drew Babin: There's no discussions of rent regulations in some of your markets or increased concern of this?

John Kim: There's no discussions of rent regulations in some of your markets or increased concern of this?

Increased concern.

Marguerite Nader: Well, there's certainly, we've seen, you know, 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. You know, we've been actively opposing that rent control, those rent control ordinances for over 20 years. And we've had success in some jurisdictions and others, we just have had to operate in a rent control environment. 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. That's the prospectus that runs with the land, and it governs their annual rent increases.

Well, there's certainly Theres certainly call we've seen properties theres been a lot of press lately about rent control initiatives across the United States that 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 ordinances for over 20 years, but we've and we've had success in some jurisdictions and others. We just have had to operate in a rent control environment.

But when you kind of consider areas of concentration for LSW in the state of Florida. We've always operated under the terms of a prospectus that prospectus. It runs with the land and 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.

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

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

Great. Thank you.

Drew Babin: All right. Thank you.

John Kim: All right. Thank you.

Marguerite Nader: Thanks, John.

Thanks, Jeff.

Operator: Thank you. Our next question comes from Samir Khanal with Evercore ISI. Your line is now open.

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

Hi, Margaret.

Samir Khanal: Hi, Marguerite. I guess, just getting back to the question on RV, when you look at RV shipments on a year-over-year basis, they continue to be down. Yet, you know, your business still... I mean, there's been a bit of a slowdown here, but you're still kind of in that 4.5% range. You have, really haven't seen the impact as you would, maybe I would have thought. When you go back, maybe sort of the last downturn, I mean, I'm sure you tracked the numbers pretty closely in regards to your RV shipment.

I guess just getting back to the question on RV.

When you when you look at RV shipments.

Our year over year basis, they continue to be down and yet.

Your business, so theres been a bit of slowdown here, but you're still kind of in the 4.5%.

Great.

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 your RV shipments.

Marguerite Nader: Mm-hmm.

Samir Khanal: Was there some sort of a time lag before you started seeing the changes in sort of consumer appetite there?

Was there some sort of a time lag before you started seeing the changes in the consumer appetite.

Marguerite Nader: Yeah, I mean, certainly, you look at the shipments. Shipments, I think they're down, sales are down 8% for RV sales for the year. You know, some of that decline, I think, is weather and some excess inventories. Really, how it impacts ELS, it really, you know, you think about our portfolio, and it's comprised primarily of longer-term customers, staying with us on average 10 years. They've made that decision to stay at the property and develop roots. Our focus is not really the new RVers as much it is the 9 million installed base of RVers. We're marketing to those RVers, and we don't - we didn't see impact in the market the last time the RV industry had a blip in that.

Yes, I mean, its certainly you look at the shipments shipments I think they're 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 less it really you think about our portfolio and its.

Comprised primarily of longer term customers.

Staying with us on average 10 years. So they made that decision to stay at the property and develop routes.

So our focus is not really the new RV years as much. It is is the $9 million installed base of our viewers and so we're marketing to those are over years, and we don't we didn't see impact.

In the in the market last time, the RV industry had a blip in that we don't anticipate seeing one now.

Marguerite Nader: You know, we don't anticipate seeing one now, because we're focused on the installed base.

Because we're focused on the installed base.

Okay. Thanks for that and I guess my second one is I mean, you did a small acquisition. This acquisition in the quarter can you talk about sort of pricing around that and Kathleen.

Samir Khanal: Okay, thanks for that. 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, maybe, Kathleen?

Marguerite Nader: Sure. We closed on 1 property in April that we actually already previously announced, so in the quarter, we actually closed on 2 properties. The new one that we announced today was a property near one of our premier North Carolina properties. Property is 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 1 of our assets, 1 of the assets that I just referenced near the asset that we bought. He built this property. He built the property and the book of business. He was ready for an exit.

Sure. So we closed on one property in April that we actually already previously announced the weeks and this quarter, we actually closed on two properties, but the new one that we announced today was property near one of our Premier North Carolina properties property is 455 sites.

And 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 I just referenced nearly at 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.

Marguerite Nader: 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.

Got it okay. Thanks, so much.

Samir Khanal: Got it. Okay, thanks so much.

Marguerite Nader: Thank you.

Thank you.

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

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

Drew Babin: Hey, good morning.

Hey, good morning.

Patrick Waite: Hey, Drew.

Marguerite Nader: Good morning, Drew.

Thank you good morning, Joe.

Drew Babin: I would assume, based on the transient guidance for Q3, that the Fourth of July holiday went well. I was hoping you could maybe kind of validate that or talk about that, and then give a little color on, and 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, or, what type of revenue is sort of earned in at this point relative to last year?

I would assume based on the trends guided through the third quarter. The fourth 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.

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 sort of earned at this point relative to last year.

Patrick Waite: Hey, Drew, it's Patrick. With respect to the 4th of July, I would say that, you know, things trended well, and it's and it's reflected in our guidance for Q4. As I mentioned earlier, you know, look, we're seeing consistent demand across the RV platform that includes all the buckets, annual, seasonal, and transient. You know, I think about some of the key drivers for, you know, that summer season, which are the northern campgrounds and resorts across our portfolio. New York has, you know, a good demand profile, one of our largest transient properties in Lake George. We have a property just outside of Chicago here that was one of the properties that was impacted by weather, but is pacing favorably today.

Andrew its Patrick.

With respect to the fourth of July I would say that.

Yes, things trended well and it's and it's reflected in our guidance for the quarter.

As I mentioned earlier.

But we're seeing consistent demand across R&D platform that includes all the buckets annual seasonal and transient.

I think about some of the key drivers for.

That summer season, when should the northern campgrounds and resorts across our portfolio.

New York has.

Good demand profile, one of our largest transient properties in Lake George.

We have a property just outside of Chicago here.

That was one of the property was impacted by weather, but as pacing favorably today.

Patrick Waite: In Wisconsin, where another property we had was offline and another was impacted by the weather events early, overall, that market is pacing well, in addition, too. You know, I would say that I would expect, you know, barring weather events, for us to have a solid quarter.

And in Wisconsin, where another property, we had was offline another was impacted by the weather events early.

Overall that market is pacing well.

In addition to so.

I would say that that I would expect.

Barring weather events for for us to have a solid quarter.

Drew Babin: Any of the, I guess, cleanup costs or alternatively, just kind of missed revenue, in Q2, is any of that reimbursable or covered by insurance?

Interim head immediately.

Drew Babin: Any of the, I guess, cleanup costs or alternatively, just kind of missed revenue, in Q2, is any of that reimbursable or covered by insurance?

I guess, a cleanup costs or alternatively, just kind of missed revenue.

In the second quarter is any of that reimbursable or covered by insurance.

Patrick Waite: 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.

Not really I mean, what we had were.

Kind of property specific events that didnt necessarily cause a significant amount of damage to the property. It was really the adverse condition people not wanting to visit the property because it was expected to be colder than than typical and as Patrick said just the level of precipitation was significant and then on the lost revenue. We just have a campaign to work on it.

Marguerite Nader: On the lost revenue, we just have a campaign to work on, you know, encouraging that customer to rebook with us.

Encouraging that customer to rebook with us.

Drew Babin: Sure. Okay, that makes sense. Secondly, to the extent, and I know this sometimes gets tricky with the 55 plus communities in Florida where there is a prospectus, are you finding that tenants are as willing to pay rent increases, to pay for upgrades, new amenities, things like that, going into the properties? I know 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, or are you seeing a little more pushback these days?

Sure, Okay that makes sense.

And then secondly could you comment and I know the supermarkets correctly with the 55 plus communities in Florida, where there is a perspective.

Are you finding that tenants are as willing to pay rent increases.

Okay for upgrades, new amenities things like that going into the properties and 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 payout when when capital can be put into a property are you seeing a little more pushback. These days.

Marguerite Nader: 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're working with them. We talk about what the rate increase would be, we talk about the needs of 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. You know, we may think it's a good idea to put in some new fitness equipment, and they may want a pickleball court. There's just something that, you know, that we try to figure out the best, you know, kind of the best avenue to go down. We haven't seen a pushback, and it's really dealing with the homeowners associations at each individual property.

I mean, I think we're still seeing the same on the customer feedback or the resident feedback meeting with the homeowners Association is such that.

We're working with them, we talk about what the rate increase would be we talk about the need that the property, we make certain that what we think is important is.

Equally important to the to the resident base, especially when it comes to an amenity.

We may think it's a good idea to to put in some new fitness equipment and they may want to pickle ball courts. So.

So there is just something that that we try to figure out the best.

Kind of the best Avenue to go down.

We haven't seen pushback and its really dealing with the homeowners associations at each individual property.

Drew Babin: Everybody loves pickleball. That's all for me.

Everybody looks clickable, that's right that's right.

Marguerite Nader: That's right.

Drew Babin: Thanks.

Marguerite Nader: That's right. Thanks. Take care.

Thanks take care.

Drew Babin: You too.

Okay.

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

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

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

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

Marguerite Nader: You know, I think we're still in the same place that we've been in, that, you know, we have properties in, you know, all stages of under contract, LOI, et cetera. Certainly, we look to it. You've seen, we've been using our ATM, and we're engaged with sellers. It's a matter of timing for them in some cases, and in some cases, it's a matter of pricing and what does it mean in terms of for ELS. Certainly share price factors into the equation.

Yes, I think we're we're still in the same place that we've been in that you know we have properties in all stages of the Ondeck under contract LOI et cetera, certainly we look to it we've been you've seen we've been using our ATM.

And were engaged with with sellers and it's a matter of a matter of timing for them in some cases and in some cases, it's a matter of.

Pricing and what is it what does it mean in terms of the four for LLS, but but certainly share price goes into the factors into the equation.

So are you bidding on more deals are you bidding a bit but harder now.

John Pawlowski: Are you bidding on more deals? Are you bidding a bit harder now?

Marguerite Nader: we're bidding on, I would say, the same amount of deals. You know, it changes by quarter whether or not it's RV or MH.

We're bidding on that I would say the same amount of deals.

It changes the changes by quarter, whether or not its RV RMH.

John Pawlowski: Okay.

Marguerite Nader: I think it's along the same... I don't think we continue to have the same disciplined approach to our underwriting. That hasn't changed, but certainly factoring in, you know, using our equity.

So I think it's it's along the same I don't think they continue to have the same disciplined approach to our underwriting that hasn't changed.

But certainly factoring in.

Using our our equity.

John Pawlowski: Okay. I'm no expert on how Florida prospectus 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?

Okay, and I'm no expert on how Florida per prospectuses work I understand everything is negotiate the property level.

I'm 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 over arching perspective system strengthening in favour of.

Renters.

We haven't I haven't really heard anything I think it's that it's pretty strong I mean, a prospectus is pretty strong and it's good for its good for us and it's good for prospective residents is good for current residents.

Marguerite Nader: We haven't really heard anything. I think it's pretty strong. I mean, the prospectus is pretty strong, and it's good for us, and it's good for prospective residents, it's good for current residents. 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.

So.

So we there is a lot of focus on that when we meet with the individual homeowners Association, but we havent heard anything any kind of rumblings about a grand scale change in that.

John Pawlowski: Okay. Thank you.

Okay. Thank you.

Marguerite Nader: Thanks, John.

Thanks, Jim.

Operator: Thank you. As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star, then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing the pound key. Our next question comes from Todd Stender with Wells Fargo. Your line is now open.

Thank you and as a reminder, ladies and gentlemen, if youd like to ask a question. Please that's star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. You may do so at first and the pound key.

Our next question comes from Todd Stender with Wells Fargo. Your line is now open.

Todd Stender: 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 could just speak to the rental differences between the two and how you're looking at the rental segment.

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.

So maybe you guys could just speak to the rental differences between the two and how you're looking at the rental segment.

The economics that I'm I'm not clear cut in your question I guess when you look at the the numerator for both.

Marguerite Nader: The economics, I'm not clear, Todd, on your question.

Todd Stender: I guess, when you look at the numerator for both, are they comparable? I would imagine the denominator would be lower for used, so your economics would be better for used. That just seemed like it went down in the quarter, but new, but occupied rentals went up for new. Just wonder if you could kind of speak to the differences between the two.

Are they comparable because I would imagine the denominator to 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: Yeah, Todd, so I think you're referring to the mix, of the, occupied new rentals versus occupied used rentals?

Yes, so I think you're referring to the mix.

Of the.

New route occupied new rentals versus occupied used rentals that's right.

Todd Stender: That's right.

Patrick Waite: You know, if you compare it to the same period last year, the rental pool is flat. It's right around 4,000. 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, just because over time, becomes a little less efficient to operate those used homes from a maintenance and an operations perspective. 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 if you compare to the same period last year, the rental tools flat, it's right around 4000.

And to your point the mix reflects an increase of about 460 now.

And a decrease of about 460 used.

That that's driven by a couple of factors one is our focus on reducing.

The used inventory across the portfolio just because overtime.

It becomes a little less efficient to operate those used homes from a maintenance and operations perspective.

And the focused on new is more new inventory coming into our portfolio and looking at a mix of sales and rentals in order to manage overall occupancy.

Patrick Waite: As Marguerite mentioned in her opening comments, also a focus on renter conversions to manage that overall rental load. The total conversions for the Q are right around 30%. Just for perspective, full year 2018 was right around 28%, so it's trending slightly favorably. That's, you know, that's our overall goal, you know, manage that overall rental load that's currently 6% of our overall occupancy, and focus on conversions with a bias towards selling used inventory. Does that answer your question?

And as Marguerite mentioned in her opening comments.

Also focused on renter conversions to manage that overall rental load.

The total conversions for the quarter right around 30% just for perspective full year 2018 was right around 28%. So it's trending steadily favorably.

But thats.

That's our overall goal you'll manage that overall rental load thats currently 6% of our overall occupancy.

And focused on conversions with a bias towards.

Selling used inventory.

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

To answer your question. It sure does thank you any length of stay differences between the two or compared to last year.

Patrick Waite: No, we haven't seen a change. It's the stay is usually, you know, 2 to 3 years. Some of our conversions are, you know, ranging from 18 months to 36 months. It just depends on the community and that customer behavior.

Now we haven't seen a change it's.

The state is usually.

Two to three years some of our conversions.

Our ranging from 18 months to 36 months. It just depends on the on the community of that customer behavior.

Todd Stender: Okay, 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?

Okay very helpful. Thank you just transitioning to Paul you spoke about the upgrade sales I think it averaged 6700, if I heard that right.

Paul Seavey: Yes.

Todd Stender: 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.

Yes 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: Sure. I think that, you know, 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 their reservation, with a greater length of time, so they have more certainty with respect to the site that they can book, and so forth. We package those options together, and it drives the upgrades. We've seen a pretty consistent increase in the pricing as the customers have opted for, you know, more amenities and more added features to their membership over the last couple of years.

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 have they can enjoy the properties for longer periods of time, how they could access or make their reservation.

With a with a greater length at times, they have more certainty with respect to the site that they can book and so forth.

So we package 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 to their membership over the last couple of years.

Paul Seavey: 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 seventeen and a half-ish million dollars on upgrade sales.

As it relates to the.

Overall net contribution I think 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.

Thats on a total of.

17, and a half ish million dollars on upgrade sales.

Okay got it all right. Thank you very much sure.

Todd Stender: Okay, got it. All right. Thank you very much.

Paul Seavey: Sure.

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

Thank you and we have a follow up from John Kalowski with Green Street Advisors. Your line is now open.

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

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 do you think with operating initiatives are left to left to squeeze.

Paul Seavey: I think, I think what we've seen on the MH side of the business is pretty consistent over our long history. Call it a 65, 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. When you have a highly transient property in the RV business, those margins could be significantly different. Call it, you know, a 35% operating margin if you're reliant on that transient customer and, you know, have the risk of a property really being occupied, for example, in the summer, occupied for the weekends, but, you know, not occupied during the week.

I think.

I think what we've seen on the MH side of the business is pretty consistent over our long history call. It 65.

Could be up to 70% operating margin just depending on the location of the property and the 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 could be significantly different call. It 35% operating margin, if you're reliant on that transient customer and.

Have to have the risk of a property really being occupied for example in the in the summer occupied for the weekends, but.

Not occupied during the week.

Okay, and where do we go from here in terms of operating initiatives I think that what we what we tried to do on on the latter with respect to those transient customers. How do we extend this day, how do we increase their time with us can we get them to stay Sunday into Monday, So that we can drive that we also have.

John Pawlowski: Okay, where do we go from here in terms of operating initiatives?

Paul Seavey: I think that 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, you know, 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, you know, drive the long-term revenue that way.

Some of our highly transient properties initiatives in place to introduce.

Cabin tight or park model housing stock, so that we could convert customers to annuals and.

Drive the long term revenue that way.

Paul Seavey: We see on a, you know, 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.

We see on a.

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 annual.

John Pawlowski: Okay. Thank you.

Okay. Thank you sure.

Paul Seavey: 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 Nader for closing comments.

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.

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

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

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

Yeah.

Operator: Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.

Ladies and gentlemen, thank you for your participation on today's conference. This does concludes the program and you may all disconnect everyone have a great. Thanks.

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