Equity LifeStyle Properties, Inc. — Q1 2022 Form 10-Q
Reporting period: Quarter ended March 31, 2022. ELS is a REIT that owns and operates manufactured-home and RV communities, marinas, and related home-sales and rental businesses. At quarter-end, it owned or held interests in 446 properties with approximately 169,984 sites.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $360.2 million | $303.6 million | Up 18.6% |
| Consolidated net income | $87.1 million | $69.0 million | Up 26.2% |
| Net income available to common stockholders | $82.9 million; $0.45 per diluted share | $65.2 million; $0.36 per diluted share | Up $17.7 million |
| FFO available to common stock and OP unitholders | $140.9 million; $0.72 per diluted share | $120.6 million; $0.63 per diluted share | Up 16.8% |
| Normalized FFO | $141.4 million; $0.72 per diluted share | $122.6 million; $0.64 per diluted share | Up 15.3% |
| Cash from operating activities | $177.3 million | $173.3 million | Up $4.0 million |
Core Portfolio property revenue, excluding deferrals, rose 9.5%; associated expenses, excluding deferrals and property management, rose 10.3%. Core Portfolio income from property operations, excluding those items, increased 9.0%. Core MH occupancy averaged 95.1%, versus 95.2% a year earlier. Core RV and marina rental income increased 21.4%, reflecting a rebound in seasonal demand, returning Canadian guests and rate and occupancy gains. New-home sales were 261, up 35.9%.
Quarter-end assets were $5.265 billion. Cash and restricted cash totaled $38.1 million. Debt carrying values comprised $2.599 billion of mortgages, $496.1 million of term loans and $69.0 million drawn on the revolving credit line. The line had $431.0 million of remaining capacity at quarter-end; ELS reported compliance with material debt covenants. Operating cash flow was offset by $105.2 million of investing outflows and $157.4 million of financing outflows, reducing cash and restricted cash by $85.3 million. Capital improvements were $83.6 million.
Changes from the prior-year quarter
- Revenue growth was led by RV and marina rents, MH base rents, and higher home-sale and brokerage activity. Total property-operations income rose 14.9% to $171.2 million.
- Home-sale and brokered-resale revenue increased, but home-sales and ancillary costs also rose. Income from home sales and other operations was $2.5 million, up from $1.4 million.
- Rental operations income after rental-home depreciation declined to $7.4 million from $8.5 million, primarily because fewer new rental homes were occupied.
- Investing cash outflow fell substantially from the prior year, mainly because acquisitions were much lower; capital-improvement spending increased to $83.6 million from $56.8 million.
- Financing cash flows shifted from $245.8 million provided in Q1 2021 to $157.4 million used in Q1 2022, reflecting lower net debt proceeds and distributions, partly offset by approximately $28.0 million of ATM equity proceeds.
Outlook, risks and unusual items
- No specific earnings or FFO guidance is provided in the filing. Management describes long-term demand for MH and RV communities as favorable, citing limited new development, demographic demand and strong occupancy. It continues to pursue acquisitions and focus on occupancy, rents, customer retention and cost control.
- Management expects to meet near-term liquidity needs through available cash, operating cash flow and the revolving line. On April 18, 2022, ELS completed a $200 million secured refinancing at a fixed 3.36%, maturing in 2034; proceeds were used to repay debt scheduled to mature in 2022 and the outstanding line balance. The line had no outstanding balance as of April 26, 2022.
- ELS entered into a $200 million senior unsecured term loan during the quarter, maturing in 2027 at SOFR plus approximately 1.30%–1.80%, depending on leverage. Its $300 million interest-rate swap had a 0.39% fixed rate and matured in March 2024; the filing estimates $4.2 million will be reclassified as a reduction to interest expense over the next 12 months.
- The ATM program was increased to capacity of $500 million. The full capacity remained available at March 31; during the quarter ELS sold 328,123 shares under the prior program for $28.4 million gross proceeds.
- A significant contingency involves Westwinds, a 720-site San Jose community operated under ground leases expiring August 31, 2022, with no extension option. The lessors assert ELS must deliver the property free of residents; ELS disputes that position. The California Court of Appeal affirmed denial of the lessors’ motion to compel arbitration, and the lessors petitioned the California Supreme Court for review. ELS recorded no accrual because the outcome and any loss could not be reasonably estimated. Westwinds and an adjacent shopping center generated approximately $6.0 million of NOI in 2021.
- Management says COVID-19 effects remain uncertain. Other disclosed risks include inflation and interest rates, customer demand and travel patterns, financing availability, home affordability, acquisitions, litigation, and operational costs. Quarterly results may be seasonal and are not necessarily indicative of full-year results.
Important facts for investors to verify
- Progress and potential financial or operating impact of the Westwinds lease-expiration dispute, including any developments before August 31, 2022.
- Whether strong RV and marina demand, MH rent growth and occupancy gains continue, and how operating-cost inflation affects margins.
- Debt maturities, floating-rate exposure and refinancing costs; confirm subsequent use of refinancing proceeds and revolving-line repayment.
- Use of the expanded ATM program and related share dilution, alongside distributions and capital-improvement requirements.
- Underlying cash generation and the comparability of FFO and Normalized FFO, which are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.