Equity LifeStyle Properties, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. ELS is a REIT owning and operating manufactured-home, RV and marina communities, with home sales and rental operations. At quarter-end it owned or held interests in 436 properties with approximately 167,123 sites.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $332.9 million | $285.0 million | $946.4 million | $819.6 million |
| Net income available to common stockholders | $70.6 million | $50.6 million | $196.9 million | $163.6 million |
| Diluted EPS | $0.38 | $0.28 | $1.08 | $0.90 |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $453.6 million | $360.9 million |
| Cash used in investing activities | Not separately reported for quarter | Not separately reported for quarter | $678.0 million | $161.5 million |
- Quarterly revenue rose 16.8%; nine-month revenue rose 15.5%. Common-stockholder net income increased 39.7% for the quarter and 20.4% for the nine-month period.
- Quarterly FFO and Normalized FFO were each $124.5 million, or $0.65 per diluted share, versus $95.8 million and $105.5 million, respectively, in Q3 2020. Nine-month FFO was $362.6 million ($1.88 per diluted share) and Normalized FFO was $365.4 million ($1.90), up from $297.6 million and $309.8 million, respectively. These are non-GAAP measures.
- Core Portfolio property operating revenue, excluding deferrals, increased 8.5% in both the quarter and nine-month comparison. Core property operating income, excluding deferrals and property management, grew 10.7% in Q3 and 9.0% for nine months.
- At September 30, total assets were $5.0 billion and total liabilities were $3.7 billion. Debt carrying values were approximately $3.12 billion: $2.61 billion mortgage notes, $297 million term loan and $220 million line-of-credit borrowings. Cash and restricted cash totaled $40.3 million; the LOC had $280 million of remaining capacity.
- Nine-month distributions paid to common stockholders were $195.1 million. The declared quarterly distribution was $0.3625 per share, up from $0.3425 in 2020.
Changes and operating drivers
- Growth reflected stronger RV and marina demand, rent increases, membership sales and acquisitions. Q3 Core RV and marina rental income increased 14.1%; MH base rent rose 4.7%, largely from rate increases. MH community average occupancy was 95.1%, versus 95.3% a year earlier.
- Transient RV and marina income rose 47.4% for the first nine months, while seasonal income fell 12.4%, mainly due to COVID-related travel restrictions affecting seasonal customers, particularly Canadians, early in 2021.
- New home sales increased to 338 in Q3 from 183, and to 825 for nine months from 471. Home sales and other operations contributed $3.2 million of Q3 income, versus $0.6 million.
- Nine-month acquisitions included a marina portfolio for $262.0 million, Pine Haven for $62.8 million, Okeechobee KOA for $42.2 million and a portion of Pirateland for $110.8 million. Acquisitions and capital improvements drove gross real estate investment higher by $634.4 million from year-end 2020.
- Operating cash flow increased $92.7 million year over year, while investing outflow rose substantially with acquisitions and higher capital spending. Capital improvements were $204.0 million versus $155.1 million.
Outlook, risks and notable items
- Management described demand for RV communities, homes and outdoor recreation as strong and cited long-term demographic demand and restrictive development entitlements. The filing provides no specific numerical earnings or FFO guidance.
- ELS said it expected to meet short-term liquidity needs through cash, operating cash flow and its LOC, and longer-term needs through borrowings and potential debt or equity issuance. The $200 million ATM program remained entirely available at quarter-end.
- COVID-19 effects remain uncertain; management cited possible impacts from operating conditions, customer payment patterns and public-health measures. Transient RV revenue is particularly exposed to weather and travel preferences. Other stated risks include costs, occupancy and rent trends, financing and interest rates, acquisition integration, home-financing availability, litigation and potential equity dilution.
- Westwinds, a 720-site San Jose community operated under ground leases expiring August 31, 2022 without extension options, is subject to a dispute with the lessor over resident occupancy and obligations at lease expiry. Litigation is pending, arbitration is stayed, and no loss accrual was recorded because the outcome and potential loss could not be estimated.
- In October 2021, after quarter-end, ELS acquired its joint venture partner’s 50% interest in Voyager RV Resort. Consideration included assumption of $20.1 million of debt and a $35.2 million payment, primarily in OP units.
- Q3 2020 included $9.7 million of early debt-retirement costs; nine-month 2021 included $2.8 million. Higher 2021 depreciation and interest expense partly reflected acquisitions and higher debt levels. Management reported material compliance with debt covenants and no off-balance-sheet arrangements.
Key investor verification points
- Review FFO and Normalized FFO reconciliations and their non-GAAP limitations alongside GAAP results and cash flows.
- Assess acquisition contribution, integration, financing and the lease expiry associated with the Pirateland parcel in 2025.
- Monitor leverage, debt maturities, variable-rate exposure and the transition away from LIBOR.
- Track Westwinds litigation and its potential effects on the community, residents and operations.
- Test whether RV demand, occupancy, rent growth and home-sale activity remain durable as pandemic-related comparisons and travel conditions change.