Equity LifeStyle Properties, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. ELS is a REIT focused on manufactured-home and RV communities, marinas, membership subscriptions, and home sales and rentals. At quarter-end it owned or held interests in 435 properties with approximately 166,188 sites.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $317.4m | $254.1m | $613.5m | $534.6m |
| Consolidated net income | $64.1m | $48.9m | $133.1m | $119.6m |
| Net income available to common stockholders | $61.1m | $46.2m | $126.3m | $113.1m |
| Diluted EPS | $0.33 | $0.25 | $0.69 | $0.62 |
| FFO per fully diluted share (non-GAAP) | $0.61 | $0.47 | $1.24 | $1.05 |
| Normalized FFO per fully diluted share (non-GAAP) | $0.61 | $0.47 | $1.25 | $1.06 |
Q2 revenue grew 24.9%; rental income was $255.7m versus $218.0m. Consolidated net margin, calculated as net income divided by revenue, was approximately 20.2% versus 19.2%. Core Portfolio property operating income excluding deferrals and property management rose 15.6% to $161.3m in Q2; for the first half it increased 8.2% to $328.3m. These are company-defined non-GAAP measures.
Q2 growth reflected stronger RV and marina activity, MH rent increases, membership upgrades, and acquired properties. New home sales were 295 versus 133 in Q2 2020; gross new-home sales revenue increased, though home sales and rental operations remained a relatively small contributor to segment income. Management cited $2.4m of Hurricane Hanna insurance recovery revenue in Q2.
Cash flow, debt, and liquidity
- First-half operating cash flow was $328.9m, up from $238.7m. Investing cash outflow was $475.2m, including $356.6m of net real estate acquisitions and $119.7m of capital improvements. Financing provided $167.0m; cash and restricted cash ended at $44.8m.
- At June 30, net mortgage notes payable were $2.621bn, the term loan was $297.3m, and the unsecured credit line balance was $62.0m. The company reported $438.0m of remaining line capacity and compliance in all material respects with debt covenants.
- ELS completed a $270m fixed-rate mortgage financing at 2.4%, refinanced a $300m short-term acquisition loan with a new $300m term loan, and amended its credit facility. A $300m LIBOR swap fixed the reference rate at 0.39%; management reported an estimated all-in rate of 1.79% at quarter-end.
- Quarterly common-stockholder distributions were $0.3625 per share. The $200m ATM equity program remained unused at June 30.
Changes, outlook, and risks
- ELS acquired an 11-marina portfolio for $262.0m, Okeechobee KOA Resort for $42.2m, and Pine Haven RV community for $62.8m during the first half. Gross real estate investment increased $447.0m from year-end, primarily from acquisitions and capital improvements.
- Management described demand for RV travel, homes, and communities as strong. Q2 Core Portfolio transient RV rental income rose 180.3% year over year, partly reflecting closures and cancellations in Q2 2020. MH Core occupancy was 95.2%, unchanged year over year; MH base rent growth reflected 4.1% rate increases and 0.6% occupancy gains.
- First-half Core RV and marina rental income increased 10.7%, but seasonal income declined 21.7%, primarily due to travel restrictions affecting seasonal customers, especially Canadians, in the first quarter. Membership upgrade sales and new-home sales also increased substantially.
- No specific earnings or FFO guidance was provided. Management expects to fund near-term liquidity needs with cash, operating cash flow, and the credit line, and longer-term needs with borrowings and possible debt or equity issuance. Results are seasonal; transient RV revenue is particularly sensitive to weather and travel behavior.
- COVID-19 effects remain uncertain. Other stated risks include acquisition integration and costs, occupancy and rent trends, financing and interest rates, limited manufactured-home financing, insurance renewal, and litigation outcomes.
- The Westwinds and Nicholson Plaza ground leases in San Jose expire August 31, 2022, with no extension options. ELS disputes the lessor’s demand that the community be delivered free of residents; litigation is ongoing, an appeal was filed, and no loss accrual was recorded because the outcome and potential loss could not be estimated.
Important facts for investors to verify
- Whether elevated transient RV and membership sales persist after unusually weak 2020 comparisons, and how seasonal revenue performs as travel restrictions change.
- Acquisition integration, operating contribution, and funding costs for the 2021 marina and RV purchases.
- Debt maturities, variable-rate exposure, LIBOR transition arrangements, and available liquidity relative to planned acquisitions, improvements, and distributions.
- Developments in the Westwinds dispute and the potential operational or financial consequences of the 2022 ground-lease expiration.
- Reconciliations and limitations of FFO and Normalized FFO, which are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.