Equity LifeStyle Properties, Inc. — Q1 2021 Form 10-Q
Business and period. ELS is a REIT that owns and operates manufactured-home, RV and marina communities and conducts home sales and rental operations. This unaudited report covers the quarter ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. At quarter-end, ELS owned or had an interest in 434 properties with approximately 165,507 sites.
Financial and operating results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $296.0 million | $280.5 million |
| Consolidated net income | $69.0 million | $70.7 million |
| Net income available to common stockholders | $65.2 million; $0.36 diluted EPS | $66.9 million; $0.37 diluted EPS |
| FFO available to common and OP unit holders | $120.6 million; $0.63 per diluted share | $112.3 million; $0.58 per diluted share |
| Normalized FFO available to common and OP unit holders | $122.6 million; $0.64 per diluted share | $113.3 million; $0.59 per diluted share |
| Net cash from operating activities | $173.3 million | $130.9 million |
Revenue increased 5.6%, while consolidated net income declined 2.5%. Rental income rose to $249.0 million from $239.3 million. Property-operations income, excluding deferrals and property management, increased 1.9% in the Core Portfolio. Core manufactured-home rental income increased 4.7%, reflecting rate growth and occupancy gains; average MH occupancy was 95.3%, versus 95.1% a year earlier. FFO and Normalized FFO increased, supported in part by acquired properties and operating performance. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Q1 operating expenses totaled $227.9 million, up from $210.0 million. Depreciation and amortization rose to $45.4 million from $39.0 million, primarily due to recently acquired properties. Early debt-retirement costs were $2.0 million, versus $1.1 million. ELS reported no operating margin measure in the filing; the figures above do not represent a company-reported margin.
Balance sheet, cash flow and financing
At March 31, 2021, total assets were $4.786 billion and total liabilities were $3.481 billion. Mortgage notes payable were $2.635 billion, the term loan was $299.1 million, and the unsecured line of credit had $50.0 million outstanding. Cash and restricted cash totaled $91.5 million. The LOC had $350 million of remaining capacity at quarter-end. Mortgage debt’s weighted-average interest rate was approximately 3.8%.
Operating cash flow was $173.3 million; investing activities used $351.7 million, including $295.6 million of net real-estate acquisitions and $56.8 million of capital improvements. Financing activities provided $245.8 million. ELS paid a quarterly distribution of $0.3625 per share, increased from $0.3425 in the comparable 2020 quarter.
Acquisitions included a 740-site Florida RV resort for $42.2 million and a portfolio of 11 marinas for $262.0 million. The marina purchase was funded with a $300 million senior unsecured loan that was due in October 2021. In April 2021, ELS amended its credit agreement, extended the LOC maturity to April 2025 and the term-loan maturity to April 2026, and used term-loan proceeds to repay that loan. The $300 million term loan’s rate was fixed at approximately 1.8% through an interest-rate swap.
Changes, outlook and risks
- Core RV and marina rental income fell 5.1%: seasonal income declined 33.8%, primarily as Canadian customers were affected by COVID-19 travel restrictions. Annual and transient income increased 3.9% and 15.1%, respectively.
- Membership upgrade sales increased 106.8% to $10.0 million, reflecting greater volume, higher average selling prices and launch of the Adventure product. Management cautioned that new-product sales increases typically moderate after the first 60 to 90 days.
- Home-sales and rentals operations improved: new home sales volume was 192 versus 155, and income from rental operations, net of depreciation, was $8.5 million versus $7.6 million.
- As of April 15, 2021, collection rates for Q1 MH and RV annual customers were 98% and 99%, respectively. Management cited continued demand and demographic support for MH and RV communities, but provided no quantitative earnings or FFO guidance in the supplied filing text.
- COVID-19 effects remain uncertain, including effects on operations, collections and travel. Management expects to meet near-term liquidity needs using cash, operating cash flow and credit availability; long-term needs may be funded through debt or equity issuance.
- ELS disclosed litigation concerning Westwinds, a 720-site California community operated under ground leases expiring August 31, 2022, with no extension options. The lessor disputes residents’ continued occupancy rights and seeks to require delivery free of subtenancies. ELS disputes that claim, has not accrued a loss, and says it cannot predict the outcome or reasonably estimate a possible loss.
- Insurance coverage has deductibles, sublimits and exclusions; the MH/RV all-risk property loss limit increased to $125 million per occurrence, with, among other limits, a $25 million aggregate California earthquake limit. Uninsured or excess losses could affect property value and revenue while debt obligations remain.
Important facts for investors to verify
- How seasonal RV demand and Canadian travel restrictions affect subsequent-quarter revenue and occupancy.
- Whether acquisition contributions, operating costs and financing terms support sustained FFO growth and balance-sheet flexibility.
- The status and potential financial impact of the Westwinds lease and resident-occupancy dispute before the 2022 lease expiration.
- Actual interest costs and available borrowing capacity under the April 2021 amended credit facilities, including LIBOR transition implications.
- The effects of insurance deductibles, sublimits and exclusions on potential losses, particularly for catastrophic events.