Equity LifeStyle Properties, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. ELS is a REIT that owns and operates manufactured-home and RV communities and marinas, with related home sales and rental operations. At year-end, it owned or had an interest in 444 properties with approximately 169,300 sites across 35 U.S. states and British Columbia.
Financial and operating performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $1,271.7 million | $1,091.4 million | Up 16.5% |
| Net income available to common stockholders | $262.5 million | $228.3 million | Up 15.0% |
| Diluted earnings per share | $1.43 | $1.25 | Up 14.4% |
| FFO per diluted share | $2.52 | $2.11 | Up 19.4% |
| Normalized FFO per diluted share | $2.53 | $2.17 | Up 16.6% |
| Net cash from operating activities | $595.1 million | $466.5 million | Up $128.5 million |
| Net cash used in investing activities | $914.5 million | $450.4 million | Greater outflow, largely acquisitions and capital spending |
| Net cash from/(used in) financing activities | $418.7 million | $(21.0) million | Improved, including debt and equity proceeds |
Property operating revenue, excluding membership deferrals, increased 12.8% for the total portfolio; related income excluding deferrals and property management rose 12.4%. In the Core Portfolio, revenue on that basis increased 8.3% and income increased 8.8%. Core MH occupancy averaged 95.2%, unchanged from 2020. RV and marina rental income grew 26.1% company-wide, including a 50.7% increase in transient revenue; Core Portfolio RV and marina rental income rose 12.9%.
At December 31, 2021, total debt principal was approximately $3.303 billion; debt-to-market capitalization was 16.2%. The weighted-average interest rate on mortgage debt was approximately 3.8%; the contractual-obligations table reports a 3.52% weighted-average rate on long-term borrowings. Cash and restricted cash totaled $123.4 million. The $500 million revolving credit facility had $349 million outstanding and $151 million of remaining capacity, with a potential $200 million increase subject to conditions. The company reported compliance with material debt covenants.
Material changes and notable activity
- ELS acquired properties and land during 2021, including eleven marinas, RV communities, adjacent land parcels and the remaining interest in the Voyager joint venture; it also acquired MHVillage/Datacomp. The filing reports aggregate purchase price of $715.6 million for its listed 2021 acquisitions and related transactions.
- Gross investment in real estate rose to $6.989 billion from $6.160 billion, reflecting acquisitions and capital improvements. Capital improvements totaled $290.3 million, up from $217.1 million.
- Home sales strengthened: new home sales reached 1,163, up 80.6% from 644. Gross profit from new home sales increased to $5.8 million from $1.2 million.
- Depreciation and amortization increased 21.5% to $188.4 million, and interest and related amortization increased 5.8% to $108.7 million, primarily reflecting acquired properties and higher debt. Early debt retirement costs declined to $2.8 million from $10.8 million.
- ELS issued approximately 1.66 million shares through its ATM program for $140.3 million gross proceeds. The company paid a 2021 annual dividend rate of $1.45 per share.
Outlook, risks and unusual items
Management described strong 2021 demand, particularly for RV stays, and expects long-term demand for MH and RV communities to remain supported by demographic and lifestyle trends and constrained new supply. The filing provides no specific earnings or operating guidance for 2022. The Board set the 2022 annual dividend rate at $1.64 per share, a 13.1% increase, subject to quarterly Board decisions.
Key risks include COVID-19 and possible changes in customer travel or payment behavior; inflation in utilities, labor, insurance and construction costs; supply-chain and development delays; interest rates, refinancing and access to capital; property concentration in Florida, California and Arizona; rent-control restrictions; weather, climate and insurance exposure; and REIT qualification requirements. Florida generated 44.0% of 2021 property operating revenue, California 12.7% and Arizona 9.4%.
A significant disclosed contingency concerns Westwinds and Nicholson Plaza in San Jose, California. Their ground leases expire August 31, 2022, with no extension options; the properties generated approximately $6.0 million of 2021 net operating income. ELS disputes the lessor’s demand to deliver the site free of resident subtenancies. The company had not accrued a loss because it could not predict the outcome or reasonably estimate a possible loss. In February 2022, the California Court of Appeal affirmed denial of the lessor’s motion to compel arbitration.
Other notable items: management reported no impairment losses for the periods presented; the independent auditor gave an unqualified opinion on the financial statements and internal controls. Subsequent to year-end, ELS entered a $200 million unsecured term loan, completed a two-community acquisition for $15.2 million, and authorized a new ATM program of up to $500 million.
Important facts for investors to verify
- Reconcile the reported growth in FFO and Normalized FFO with GAAP earnings and cash flow; these are supplemental, non-GAAP measures and are not cash available for distributions.
- Assess whether transient RV and marina revenue growth and elevated home sales are sustainable, given seasonality and the comparison with COVID-affected 2020 activity.
- Review debt maturities, floating-rate exposure, available credit capacity and the implications of the new 2022 term loan and ATM authorization.
- Monitor the Westwinds lease expiration, litigation and resident-related obligations, including any effect on property income or potential losses.
- Evaluate acquisition returns and integration, capital spending needs, rent-control exposure and the company’s concentration in Florida and other major markets.