Equity LifeStyle Properties, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. 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 413 properties with 156,513 sites across 33 U.S. states and British Columbia.
Financial and operating performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $1,037.3 million | $986.7 million | +5.1% |
| Consolidated net income | $295.9 million | $226.4 million | +30.7% |
| Net income available to common stockholders | $279.1 million; $1.54 per diluted share | $212.6 million; $1.19 per diluted share | +31.3% |
| FFO per diluted share | $2.11 | $1.96 | +7.7% |
| Normalized FFO per diluted share | $2.09 | $1.94 | +7.7% |
| Net cash from operating activities | $443.5 million | $414.1 million | +$29.4 million |
| Cash and restricted cash at year-end | $28.9 million | $69.0 million | −$40.1 million |
| Total assets | $4,151.3 million | $3,925.8 million | +$225.5 million |
| Total debt, balance-sheet carrying value | $2,408.5 million | $2,348.4 million | +$60.1 million |
| Quarterly dividend; annual declared rate | $0.3063; $1.225 per share | $0.275; $1.100 per share | Annual rate +11.4% |
Amounts are rounded. The filing separately cites approximately $2,432.4 million of debt principal outstanding; this differs from the balance-sheet carrying value. ELS reported a 4.24% weighted-average debt rate, 15.2% debt-to-market-capitalization ratio, and $240 million of remaining capacity on its $400 million unsecured credit line at year-end. The line could be increased by $200 million subject to conditions. No material covenant noncompliance was reported.
Core Portfolio income from property operations, excluding deferrals and property management, rose 5.0%. Core manufactured-home rental income increased 5.3%, supported by rate growth and occupancy gains; average manufactured-home occupancy was 95.4%, versus 95.0% in 2018. Core RV rental income rose 4.5%. Operating cash flow increased, while investing activities used $352.1 million and financing activities used $131.5 million. Capital improvements totaled $258.0 million, including $138.7 million of new-home investments.
Material changes and unusual items
- Reported net income included a $52.5 million gain from selling five all-age manufactured-home communities in Indiana and Michigan for $89.7 million. The sales generated $77.7 million of net disposition proceeds.
- ELS acquired four RV communities for $58.3 million and acquired the remaining interest in its Florida marina joint venture. The marina transaction involved approximately $49 million of purchase consideration and repayment of approximately $72 million of non-transferable joint-venture debt.
- Membership upgrade revenue is deferred and recognized over an estimated 20-year customer life. ELS reported $19.1 million of current-period gross upgrade sales and $10.5 million of net deferred upgrade payments.
- Annual membership subscriptions increased 6.8%; the Thousand Trails member count rose 4.1% to approximately 115,700, including free-trial members.
- Revenue was $258.6 million in the fourth quarter of 2019, compared with $243.5 million in fourth-quarter 2018. Fourth-quarter net income available to common stockholders was $55.0 million, or $0.30 per diluted share, versus $50.2 million, or $0.28 per diluted share.
- ELS completed a two-for-one stock split in October 2019; per-share figures in the filing reflect the split.
Outlook, risks, and contingencies
Management expressed confidence in long-term demand for manufactured-home and RV communities, citing demographic trends and limited new supply, and expected continued opportunities to acquire and expand properties. The filing does not provide numeric earnings or FFO guidance. Management expects to meet near-term liquidity needs through cash, operating cash flow, and the credit line, and longer-term needs through borrowings, debt or equity issuance, and other capital sources. These are expectations, not guarantees.
- Concentration and operating exposure: Florida generated 43.5% of property operating revenue and California 13.3%. Weather and natural disasters, climate-related effects, seasonal RV demand, local economic conditions, and insurance availability or limits could affect results. MH and RV property insurance included a $100 million per-occurrence loss limit, with sublimits and substantial deductibles.
- Debt and capital access: Refinancing needs, interest-rate changes, leverage, and access to credit or equity markets could affect cash available for investment and distributions. The credit line and term loan are LIBOR-linked; ELS disclosed monitoring the planned transition from LIBOR.
- Westwinds ground leases and dispute: Two San Jose ground leases covering Westwinds and Nicholson Plaza expire August 31, 2022, with no extension options. Westwinds and Nicholson Plaza generated approximately $5.8 million of 2019 net operating income. The lessor disputed ELS’s obligations concerning resident tenancies at lease expiry; litigation and an arbitration demand were pending. ELS had not accrued a loss because the outcome and amount could not be reasonably estimated.
- Regulation and REIT status: Rent control affects certain communities; changes in rent, membership, consumer-finance, environmental, utility, and tax laws may affect operations. ELS also disclosed uncertainty concerning REIT tax treatment of certain membership and short-term RV income.
- Other contingencies and estimates: ELS reported ordinary-course legal and regulatory proceedings that management did not consider material in aggregate. The auditor identified real-estate impairment valuation as a critical audit matter because it relies on significant cash-flow and capitalization-rate assumptions; no impairment loss was recorded for the periods presented.
Important facts for investors to verify
- How much of 2019 earnings growth came from recurring operations versus the $52.5 million property-sale gain; compare GAAP earnings with FFO and Normalized FFO.
- The reconciliation between approximately $2.432 billion of stated debt principal and $2.408 billion of balance-sheet debt carrying value, along with upcoming maturities and refinancing terms.
- Progress and potential financial or resident-related consequences of the Westwinds dispute before the 2022 ground-lease expiry.
- Whether occupancy, rental-rate growth, membership revenue, and home-rental returns continue to offset cost increases and weaker RV-industry shipments and sales.
- Dividend coverage and funding needs given the $258.0 million of capital improvements, acquisitions, and reliance on external debt or equity capital.