Equity LifeStyle Properties, Inc. — Q1 2015 Form 10-Q
Reporting period: Quarter ended March 31, 2015. Equity LifeStyle is a REIT that owns and operates manufactured-home and RV properties. At quarter-end, it owned or had an interest in 386 properties with approximately 143,541 residential sites.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior period |
|---|---|---|
| Total revenue | $208.4 million | $196.7 million; up 5.9% |
| Consolidated net income | $31.8 million | $43.9 million |
| Net income available to common shares | $27.2 million; diluted EPS $0.32 | $38.1 million; diluted EPS $0.46 |
| Funds from operations (FFO), available to common shares | $59.1 million | $71.4 million |
| Normalized FFO, available to common shares | $76.5 million | $71.8 million |
| Cash from operating activities | $109.2 million | $93.2 million |
| Cash and cash equivalents | $102.7 million at March 31 | $73.7 million at December 31, 2014 |
| Debt | $2.012 billion mortgage notes and $200 million term loan; no line-of-credit borrowings | |
| Common distribution declared per share | $0.375 | $0.325 |
Core Portfolio property operating revenue, excluding right-to-use deferrals, increased 4.1%. Core property operating expenses, excluding deferrals and property management, increased 1.3%, and corresponding income from property operations grew 6.0%. Core community-site occupancy was 92.3%, compared with 92.1%, and average monthly base rent per site rose to about $564 from $550.
Capital improvements were $16.3 million, versus $10.0 million. Total assets were $3.469 billion and total liabilities were $2.490 billion at quarter-end. The filing presents FFO and Normalized FFO as non-GAAP supplemental measures, not substitutes for GAAP earnings or cash flows.
Changes and notable items
- Net income declined year over year, principally reflecting $17.0 million of early debt-retirement expense; no comparable charge was reported in Q1 2014. The company reported Normalized FFO growth after excluding this expense.
- Revenue growth reflected higher community and resort rental income, including contributions from acquisitions. Total-portfolio resort base rental income rose 14.9%; community base rental income rose 3.0%.
- In February, the company acquired two North Carolina properties for approximately $12.3 million, funded with available cash.
- The company completed $395.3 million of mortgage financings at a weighted-average 3.93% rate and 21-year weighted-average maturity. Proceeds supported retirement or defeasance of approximately $370.2 million of debt bearing a 5.58% weighted-average rate, plus repayment of a $13.3 million mortgage. It paid off another $35.4 million mortgage on April 8.
- Cash from operations increased, while investing and financing activities used $31.6 million and $48.6 million, respectively. The quarter-end cash balance increased by $29.0 million from year-end.
Outlook, risks and contingencies
- Management said available cash and the undrawn $400 million revolving credit line were sufficient for near-term obligations. It expected to meet 2015 scheduled debt maturities using cash, operating cash flow and refinancing proceeds; approximately $35.4 million of 2015 maturities remained as of March 31, with the related mortgage paid off on April 8.
- No specific earnings or FFO guidance was provided. Management expects capital improvements to be generally consistent with the prior year and said it expects to continue investing in rental homes, subject to market conditions.
- Management cautioned that quarterly results may be seasonal. Transient RV-site revenue is particularly exposed to weather and travel preferences; rent-control rules limit rent increases at 27 properties.
- At California Hawaiian, a jury’s 2014 damages awards of $15.3 million compensatory and $95.8 million punitive were overturned when the trial court ordered a new trial on damages while upholding liability. Both sides appealed. The company said a material loss was neither probable nor estimable at March 31.
- A tenant complaint was filed concerning the Monte del Lago property in February 2015; the company said it intended to defend the case. Other ordinary-course legal and regulatory matters were not considered by management to represent a material liability.
- The company reported compliance in all material respects with borrowing covenants, effective disclosure controls, and no material changes to internal control over financial reporting. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether rental growth, occupancy and Core Portfolio operating gains continue, particularly given seasonal and transient-RV exposure.
- The recurring operating trend beneath GAAP earnings, including the treatment of early debt-retirement costs and the company’s non-GAAP FFO measures.
- Debt refinancing costs, scheduled maturities, interest-rate exposure and continued access to the revolving credit line.
- Developments and potential financial exposure in California Hawaiian and other tenant litigation.
- Performance of rental-home operations, which reported $8.6 million of income net of depreciation, down 5.3% year over year.