Equity LifeStyle Properties, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Amounts below are in U.S. dollars; financial statement figures are generally shown in millions.
Business context
ELS is a REIT that owns and operates manufactured-home and recreational-vehicle communities, membership campgrounds, and marinas. At year-end, it owned or held interests in 422 properties with 160,489 sites across 33 U.S. states and British Columbia. Florida represented 44.3% of property operating revenue, making geographic concentration significant.
Financial and operating performance
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total GAAP revenues | $1,091.4 million | $1,037.3 million | Up 5.2% |
| Net income available to common stockholders | $228.3 million; $1.25 diluted EPS | $279.1 million; $1.54 diluted EPS | Down $50.8 million; 2019 included a $52.5 million property-sale gain |
| FFO available to common stock and OP Unit holders | $406.4 million; $2.11 per diluted share | $406.0 million; $2.11 | Nearly flat |
| Normalized FFO | $418.7 million; $2.17 per diluted share | $401.8 million; $2.09 | Up 4.2%; non-GAAP measure |
| Net cash from operating activities | $466.5 million | $443.5 million | Up $23.0 million |
| Net cash used in investing activities | $450.4 million | $352.1 million | Higher acquisition spending and no comparable property-sale proceeds |
| Net cash used in financing activities | $21.0 million | $131.5 million | Net financing activity improved year over year |
| Cash and restricted cash at year-end | $24.1 million | $28.9 million | Restricted cash primarily includes deposits and escrows |
| Debt | Approximately $2,694.9 million principal | — | Debt-to-market-capitalization ratio was 18.1%; 28.1% of debt was fully amortizing |
Core Portfolio property operating revenue, excluding deferrals, increased 3.9%; operating expenses excluding deferrals and property management rose 5.3%; and corresponding property-operation income increased 2.9%. Core manufactured-home occupancy averaged 95.2%, versus 95.1% in 2019. MH rental income grew 4.6%; core RV rental income grew 1.1%, with annual RV revenue up 5.6% offset by seasonal revenue down 3.7% and transient revenue down 8.0%.
ELS raised its annual dividend to $1.370 per share in 2020, up 11.8% from $1.225 in 2019. Property and development spending included $217.1 million of capital improvements; the company acquired nine operating properties for $209.2 million.
Material changes and unusual items
- GAAP net income fell largely because 2019 included the $52.5 million gain on the sale of five communities; there was no comparable sale gain in 2020.
- ELS incurred $10.8 million in early debt-retirement expense in 2020, including costs associated with repaid debt and termination of an interest-rate swap.
- Core transient RV income declined during pandemic-related restrictions and cancellations, then strengthened from August through December as restrictions eased. Seasonal RV income was also affected by the Canadian border closure.
- Bad-debt expense increased by $3.1 million in the Core Portfolio, partly reflecting delayed eviction proceedings. Year-end collection rates reported for the fourth quarter were 98% for MH annual residents and 99% for RV annual customers.
- In January and February 2021, ELS acquired an RV community for $42.2 million and 11 marinas for $266.4 million. A $300 million unsecured term loan used for the marina acquisition matures October 27, 2021, with a possible three-month extension subject to conditions.
Outlook, risks, and contingencies
Management said it believed available cash reserves, operating cash flows, and borrowing capacity were sufficient for the next 12 months, including expected dividends. It expects to fund longer-term needs through secured or unsecured borrowing, debt or equity issuance, and operating cash flows. The filing provides no quantified earnings or FFO guidance. Management expressed confidence in long-term demand for MH and RV communities, while noting that future pandemic effects remain uncertain.
- COVID-19 could affect rent collection, transient and seasonal demand, home sales, expenses, property values, access to capital, and distributions. Some amenities remained closed, and eviction restrictions continued into 2021.
- Geographic concentration, especially in Florida, California, and Arizona, exposes results to local economic conditions and natural disasters. Insurance has per-occurrence limits, sub-limits, and substantial deductibles.
- ELS reported $222.0 million outstanding on its unsecured line of credit at year-end, with $178.0 million of remaining capacity under the stated $400.0 million facility. The facility matures October 27, 2021. Refinancing and covenant risks remain relevant.
- The Westwinds and Nicholson Plaza ground leases in San Jose expire August 31, 2022 without extension options. ELS reported litigation over resident occupancy and end-of-lease obligations; it had not accrued a loss because the outcome and potential loss could not be reasonably estimated.
- Rent regulation, development and acquisition execution, chattel financing availability, climate risks, and REIT qualification are additional disclosed risks.
- The independent auditor gave an unqualified opinion on the financial statements and internal controls. No impairment losses were recorded for the periods presented; valuation of real estate investments was identified as a critical audit matter.
Important facts for investors to verify
- Review the bridge from reported net income to FFO and Normalized FFO, including the treatment of 2019’s property-sale gain and 2020’s early debt-retirement and COVID-19 costs.
- Track the 2021 line-of-credit maturity and the $300 million term loan maturity, extension conditions, refinancing, and resulting interest costs.
- Assess whether RV transient and seasonal revenue, rent collections, and occupancy sustain their recovery, and whether pandemic restrictions or eviction moratoria raise credit losses.
- Monitor Westwinds litigation and the 2022 ground-lease expirations, along with insurance renewals, coverage limits, and catastrophe exposure.
- Evaluate dividend coverage using GAAP cash flows and debt obligations; FFO and Normalized FFO are non-GAAP measures and are not cash available for distributions.