Equity Lifestyle Properties, Inc. — Q1 2020 Form 10-Q
Reporting period: Quarter ended March 31, 2020. ELS owns and operates manufactured-home and recreational-vehicle communities, membership properties and related home-rental and sales operations. At quarter-end it owned or held interests in 413 properties with approximately 156,700 sites.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $280.5 million | $259.1 million |
| Net income | $70.7 million | $120.5 million |
| Net income available to common stockholders | $66.9 million; $0.37 per diluted share | $113.3 million; $0.63 per diluted share |
| FFO available to common stockholders and OP unitholders | $112.3 million; $0.58 per diluted share | $108.0 million; $0.56 per diluted share |
| Normalized FFO | $113.3 million; $0.59 per diluted share | $107.7 million; $0.56 per diluted share |
| Cash from operating activities | $130.9 million | $128.1 million |
| Capital improvements | $49.0 million | $52.4 million |
Revenue increased 8.3%. Core portfolio property operating revenue, excluding membership deferrals, rose 5.4%; core property operating expenses, excluding deferrals and property management, rose 5.8%, and related income rose 5.2%. MH base rent grew 4.9% in the core portfolio, while core RV and marina base rent grew 4.8%. GAAP net income fell 41% largely because Q1 2019 included a $52.5 million gain on the sale of five communities; Q1 2020 had no property-sale gain. Q1 2020 also included $1.1 million of early debt-retirement costs.
Debt, liquidity and distributions
At March 31, 2020, cash and restricted cash was $96.9 million. Mortgage notes payable, net, were $2.261 billion; the term loan, net, was $199.0 million, and the revolving line of credit had no balance. The company reported $400 million of remaining line capacity at quarter-end, with a conditional option to increase capacity by $200 million. It issued $275.4 million of 10-year secured Fannie Mae financing at approximately 2.7% and repaid $48.1 million of mortgage principal on three loans, incurring prepayment penalties. Weighted-average mortgage interest was approximately 4.3%.
On April 1, after quarter-end, ELS borrowed $100 million on its line of credit as a precaution; management reported $300 million of remaining availability afterward. Management believed available cash, operating cash flow and borrowing capacity were sufficient for the next 12 months, including expected dividends, while cautioning that COVID-19 effects remained uncertain. The quarterly distribution was $0.3425 per share, paid April 10, 2020.
Material changes and management commentary
- COVID-19 reduced Q1 core transient RV revenue to $11.1 million from $12.0 million, as reservations were cancelled or ended early. The company stopped accepting transient reservations through April 30 and delayed opening 46 Northern RV resorts.
- As of April 17, 2020, ELS had collected 96% of April MH rent and 96% of April RV annual rent, versus 97% and 98%, respectively, at the comparable time in 2019. Collections of installment payments at the 46 delayed Northern resorts were 61% of amounts due, versus 71% in 2019. These are interim collection indicators, not final results.
- ELS closed indoor amenities, used appointment-only property offices, implemented health and cleaning protocols, and introduced rent deferrals and fee waivers. Approximately 300 residents used the April rent-deferral program; approved deferrals were less than 0.4% of April rent billed. Management planned to continue specified relief measures into May, subject to change.
- MH core occupancy was 95.1%, versus 95.0% a year earlier. New-home sales increased to 155 from 91, while income from home sales and other operations declined to a $0.9 million loss from $0.3 million of income, reflecting weaker brokered/ancillary revenue and larger used-home losses.
- Management cited long-term demand for MH and RV communities and constrained new development, but gave no quantified full-year financial guidance. It emphasized that pandemic duration, operating restrictions, customer behavior and economic conditions make future effects difficult to predict.
- ELS adopted the expected-credit-loss accounting standard on January 1, reducing opening retained earnings by $3.9 million. Adoption of a cloud-computing accounting standard had no material impact.
Risks, contingencies and unusual items
The filing identifies COVID-19 risks to rent collection, transient and seasonal demand, membership sales, home sales, property values, development, staffing, financing access and covenant compliance. ELS reported compliance with borrowing covenants at March 31. A lawsuit and arbitration dispute concerns the Westwinds community in San Jose, whose ground leases expire August 31, 2022. The lessors contend ELS must deliver the property free of residents; ELS disputes that position and had made no accrual because it could not predict the outcome or reasonably estimate a loss. Management stated that ordinary-course legal and regulatory proceedings, considered together, were not expected to represent a material liability.
Important facts for investors to verify
- Subsequent rent and membership collections, transient bookings, and the timing of reopening delayed Northern RV resorts.
- Whether pandemic-related concessions, operating restrictions or lower discretionary spending materially affect revenue, cash flow and distributions.
- Liquidity and debt developments after the $100 million April line draw, including borrowing capacity, maturities and covenant compliance.
- Progress and potential financial consequences of the Westwinds litigation and arbitration.
- Performance of FFO and Normalized FFO alongside GAAP earnings and cash flow; these company-defined non-GAAP measures are not substitutes for GAAP results or liquidity.