Equity LifeStyle Properties, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. ELS owns and operates manufactured-home and RV communities, marinas, and related home-sales and rental businesses. It reported 450 properties and approximately 171,706 sites at quarter-end.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $370.0 million | $365.3 million | $740.0 million | $725.5 million |
| Consolidated net income | $66.0 million | $64.6 million | $152.5 million | $151.6 million |
| Net income available to common stockholders | $62.9 million | $61.5 million | $145.3 million | $144.4 million |
| Diluted EPS | $0.34 | $0.33 | $0.78 | $0.78 |
| FFO per diluted share | $0.63 | $0.62 | $1.37 | $1.34 |
| Normalized FFO per diluted share | $0.66 | $0.64 | $1.40 | $1.37 |
Q2 revenue rose 1.3% year over year. Rental income and property operations grew, while gross home-sale, brokered-resale and ancillary-services revenue declined. Q2 property-operations income was $160.4 million, up 6.8%; Core Portfolio income before property-management costs and membership deferrals increased 3.5%. The filing does not provide a consolidated operating-margin measure.
Core manufactured-home base rent increased 6.7% in Q2, mainly from a 7.0% rate increase; average occupancy was 94.8%, versus 95.1% a year earlier. Annual RV and marina rent increased 7.8%, but transient rent fell 13.9%, reflecting fewer available transient sites and weather impacts. New-home sales volume fell 38.1% in Q2 to 226 units.
Cash flow, debt and liquidity
- For the six months, operating cash flow was $266.8 million, down from $303.8 million. Investing cash outflow was $153.6 million, including $149.0 million of capital improvements; financing cash outflow was $107.5 million. Cash and restricted cash ended at $28.1 million.
- At June 30, debt on the balance sheet totaled approximately $3.45 billion: $2.75 billion of mortgage notes, $497.2 million of term loans and $205.0 million drawn on the line of credit. The $500 million credit line had $295 million of remaining capacity. The filing reports covenant compliance in all material respects.
- Weighted-average mortgage borrowing cost was approximately 3.6%. Interest and related amortization expense rose 18.1% in Q2 to $33.1 million; management attributed the increase primarily to higher interest rates.
- ELS declared quarterly distributions of $0.4475 per share for Q1 and Q2 2023, compared with $0.41 per share in each comparable 2022 quarter.
Changes, outlook and notable items
- Core property revenue growth was partly offset by faster expense growth: Q2 Core property expenses, excluding deferrals and property management, rose 7.0% against 5.0% revenue growth. Higher insurance, repairs and maintenance, and utilities contributed to expense increases.
- Six-month results included a $2.6 million impairment charge related to California flooding. Hurricane Ian cleanup expenses and an equal expected insurance recovery were recorded; ELS also received insurance proceeds during the half-year, including business-interruption recovery.
- Q2 general and administrative expense included $6.3 million of accelerated stock-compensation expense following the death of a board member. Normalized FFO excludes this item; it is a non-GAAP measure and may not be comparable with similarly named measures at other companies.
- ELS completed a $9.5 million RV-community acquisition in New Jersey in March. After quarter-end, it repaid debt due in 2023 and 2024 using June financing proceeds and its credit line; it also closed an $80 million tranche of a planned $375 million secured financing and expected to close the remaining $295 million in Q3.
- Management expects to meet near-term liquidity needs from cash, operating cash flow and the credit line, and identifies long-term borrowings and debt issuance as sources for future maturities, acquisitions and capital improvements. No quantitative earnings or FFO guidance is provided in the filing. Management cites long-term demand for MH and RV communities, while noting seasonality and volatility in transient RV revenue.
- Risks include weather and storm damage, insurance availability and coverage limits, interest rates and refinancing, inflation and operating costs, occupancy and home-sale trends, and legal or regulatory matters. The filing identifies various ordinary-course proceedings and audits but says management does not believe they represent a material liability. Some losses may be uninsured; MH/RV property coverage includes a $125 million per-occurrence limit and specified sublimits and deductibles.
Important facts for investors to verify
- Whether higher property operating costs and interest expense continue to outpace rental growth, and how occupancy and transient RV demand develop.
- Completion and final terms of the remaining planned secured financing, and the effects of debt refinancing on interest expense and liquidity.
- Insurance recoveries, deductibles and uninsured exposure related to Hurricane Ian and other storm or flooding events.
- Drivers of declining home sales, rental-home occupancy and operating cash flow; cash flow comparisons were revised for an immaterial prior-period classification correction involving manufactured-home purchases.
- How reported GAAP earnings compare with FFO and Normalized FFO, including the company’s non-GAAP adjustments and definitions.