Equity LifeStyle Properties, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The company is a REIT that owns and operates manufactured-home communities and RV resorts and campgrounds. Figures below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $240.5 | $221.3 | $486.5 | $453.7 |
| Consolidated net income | $49.2 | $44.5 | $113.3 | $107.5 |
| Net income available to common stockholders | $46.1 | $39.5 | $106.4 | $96.4 |
| Diluted earnings per share | $0.52 | $0.45 | $1.20 | $1.11 |
| Operating cash flow | — | — | $226.0 | $213.0 |
- Quarterly revenue rose 8.7%; six-month revenue increased 7.2%. Common-stockholder net income increased 16.8% for the quarter and 10.3% for the half-year.
- Core Portfolio property operating revenue, excluding right-to-use contract deferrals, grew 5.6% in both periods. Core property operating income, excluding deferrals and property management, increased 5.2% in Q2 and 4.8% for six months; associated expenses rose 6.0% and 6.8%, respectively.
- Management-reported FFO available to common stock and OP unit holders was $85.6 million for Q2 and $183.8 million for six months, versus $74.9 million and $168.0 million a year earlier. Normalized FFO was $83.8 million and $181.7 million, respectively. These are non-GAAP measures.
- At June 30, total assets were $3,700.2 million and total liabilities were $2,598.4 million. Mortgage notes payable, net, were $2,028.5 million; the term loan was $198.5 million; and the unsecured line of credit had no outstanding balance. Cash and restricted cash were $46.0 million, including $5.3 million restricted.
- Six-month investing cash use was $121.9 million, including $53.3 million of net real estate acquisitions and $81.4 million of capital improvements. Financing cash use was $89.2 million. Cash and restricted cash increased $14.9 million.
- Common distributions declared were $0.55 per share for Q2, versus $0.488 a year earlier. The six-month declared amount was $1.10 per share, versus $0.975.
Material changes and notable items
- Acquired Kingswood and Serendipity, manufactured-home communities in Florida, and Holiday Travel Park, an RV resort, for a combined stated purchase price of $70.7 million, including transaction costs. Gross real estate investment increased $134.0 million from year-end 2017.
- Property results benefited from rent-rate and occupancy growth. Core manufactured-home occupancy was 94.7% in Q2, up from 94.2% a year earlier; average monthly base rent per site was approximately $633, versus $608. Core RV revenue increased 7.7% for the quarter.
- Property operating and maintenance costs increased, reflecting repairs, payroll and utilities, including cleanup and restoration costs related to storms and flooding. Hurricane Irma insurance recoveries partly offset costs; the company included $1.8 million of recovery revenue in Q2 and $2.1 million for the half-year in its FFO reconciliation.
- Home-sales and rental operations remained a weaker area: the segment reported an operating loss of $0.5 million for Q2 and $6.9 million for six months. The six-month loss from home sales and other was $0.8 million, compared with income of $0.1 million a year earlier; used-home sales losses increased.
- Adoption of the new revenue standard on January 1, 2018 reduced opening equity by $15.2 million. It reduced reported Q2 and six-month common-stockholder earnings by about $0.5 million and $1.0 million, respectively, or $0.01 per diluted share in each period, compared with amounts under the prior standard.
- After quarter-end, the company acquired Everglades Lakes, a 612-site Florida manufactured-home community, for $72.0 million. In July it sold 252,864 shares through its ATM program at a weighted average $91.85 per share, generating approximately $22.9 million net proceeds.
Liquidity, outlook, risks and contingencies
- Management stated it believed liquidity was sufficient for near-term needs: approximately $40.8 million of unrestricted cash and $400 million available under its line of credit at June 30. The facility matures October 2021 and may be increased by $200 million subject to conditions. Management expected operating cash flow, cash and the credit facility to cover near-term needs, including distributions; it did not provide quantified earnings or revenue guidance.
- Management cited demand for manufactured housing and RV resorts, rent and occupancy gains, and potential growth from operating improvements, expansions and acquisitions. These are expectations, not guarantees; results are seasonal, and transient RV demand is particularly weather- and travel-sensitive.
- Key stated risks include operating-cost control, occupancy and rent levels, customer retention and right-to-use renewals, financing availability and interest rates, acquisition integration, home-financing constraints, insurance renewals, and potential dilution from equity issuance. Management said there had been no material changes to previously disclosed risk factors.
- A California District Attorneys’ investigation concerns alleged asbestos and hazardous-waste compliance issues relating primarily to third-party renovation and demolition work. No proceedings had been instituted; settlement discussions continued, and the company said it could not predict the outcome or reasonably estimate a possible loss.
- The company reported compliance in all material respects with borrowing covenants, no off-balance-sheet arrangements, and no material changes in market-risk assumptions. Disclosure controls were concluded effective as of June 30, 2018.
Important facts for investors to verify
- Reconcile reported GAAP revenue and earnings with non-GAAP FFO and Normalized FFO, including the effects of the new revenue standard and insurance recoveries.
- Track whether rent and occupancy growth continues to exceed operating-cost growth, particularly repairs, payroll and utilities.
- Assess acquisition returns and funding, subsequent ATM share issuance, debt maturities, interest costs and remaining credit capacity.
- Monitor home-sale and rental-operation performance, including losses on used-home sales and occupancy of used rental homes.
- Follow the California investigation and any developments in potential penalties or remediation obligations; the filing provides no clear estimate of exposure.