Equity LifeStyle Properties, Inc. — Q1 2018 Form 10-Q
Business and period. Unaudited results for the quarter ended March 31, 2018. The REIT owns and operates manufactured-home communities and RV resorts and campgrounds; at quarter-end it owned or had interests in 408 properties with 152,045 sites.
Financial results
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Total revenue | $246.0 million | $232.4 million; up 5.9% |
| Consolidated net income | $64.2 million | $63.1 million |
| Net income available to common stockholders | $60.2 million | $56.9 million; up 5.9% |
| Diluted EPS | $0.68 | $0.65 |
| FFO / normalized FFO per common share and OP unit | $1.04 / $1.04 | $1.00 / $1.00 |
| Cash from operating activities | $118.5 million | $113.8 million |
| Cash used in investing / financing | $50.6 million / $25.0 million | $23.6 million / $73.3 million |
| Cash and restricted cash | $73.9 million | $31.1 million at Dec. 31, 2017 |
| Mortgage notes, net; term loan | $2,040.5 million; $198.4 million | $1,971.7 million; $198.3 million at Dec. 31, 2017 |
| Common distribution declared per share | $0.550 | $0.488 |
Revenue growth was led by community base rent (+5.0% total portfolio) and resort base rent (+5.2%). Core manufactured-home site occupancy was 94.6%, versus 94.0% a year earlier. Core property operating revenue, excluding right-to-use deferrals, grew 5.6%; related expenses, excluding deferrals and property management, grew 7.6%, so corresponding property operations income increased 4.4%. The filing does not present a single comparable GAAP operating-margin measure.
Capital improvements were $31.3 million, including $4.8 million of Hurricane Irma restoration and improvement spending. The company acquired two Florida manufactured-home communities for stated purchase prices of $17.5 million and $30.7 million. It acquired a 613-site Florida RV resort for $22.3 million on April 20, after quarter-end.
Changes, outlook and risks
- Adopting the new revenue-recognition standard on January 1 reduced opening retained earnings by $15.2 million. The company reported a $0.7 million increase in Q1 revenue and a $0.5 million increase in consolidated net income versus what it says would have been reported under prior accounting; management said the period’s overall revenue impact was not material.
- Management cited rental-rate and occupancy growth, continued demand for manufactured housing and RV resorts, and active acquisition discussions. It provided no numerical earnings or revenue guidance. It expects near-term liquidity needs, including distributions, to be met through cash, operating cash flow and its credit line.
- At March 31, unrestricted cash was $68.6 million and the $400 million unsecured line of credit was undrawn. Mortgage debt’s weighted-average interest rate was approximately 4.7%; the company reported compliance in all material respects with borrowing covenants and approximately $3.0 million of scheduled 2018 maturities, excluding scheduled principal payments.
- Hurricane Irma cleanup costs contributed to higher operating expenses; related insurance proceeds also supported other income. The company warned that transient RV revenue is weather-sensitive and quarterly results are seasonal.
- A California district-attorney investigation concerns alleged asbestos and hazardous-waste regulatory violations tied to historical third-party demolition and renovation work. Settlement discussions continued; the company said it could not predict the outcome or reasonably estimate a possible loss. Other ordinary-course legal and regulatory matters were not considered a material liability by management.
- Renewed property insurance retains a $100 million all-risk limit, including named windstorms, with sublimits and deductibles; California earthquake coverage has a $25 million aggregate limit. Management identified interest rates, refinancing, insurance availability, customer retention, acquisition integration and limited manufactured-home financing among business risks.
Facts investors should verify
- Whether rental-rate and occupancy gains continue to exceed property-cost growth, particularly after Irma-related expenses.
- Debt maturities, borrowing costs, credit-line availability and capacity to fund acquisitions, improvements and distributions.
- The outcome and potential financial exposure of the California investigation, and the scope of insurance coverage for major losses.
- The sustainability of FFO growth and the effects of right-to-use revenue accounting and seasonal RV demand.