Equity LifeStyle Properties, Inc. — Q1 2017 Form 10-Q
Reporting period: Quarter ended March 31, 2017. The company is a REIT owning and operating manufactured-home communities and RV resorts/campgrounds. At quarter-end, it owned or held interests in 391 properties with approximately 146,609 sites. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Key financial results
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $232.4 | $220.1 | +5.6% |
| Consolidated net income | $63.1 | $57.2 | +10.3% |
| Net income available to common stockholders | $56.9 | $50.6 | +12.5% |
| Basic / diluted EPS | $0.66 / $0.65 | $0.60 / $0.60 | Higher |
| FFO / normalized FFO per diluted share | $1.00 / $1.00 | $0.92 / $0.92 | Higher |
| Net cash from operating activities | $114.3 | $101.8 | +$12.5 |
| Capital improvements | $24.4 | $22.5 | +$1.9 |
- Property Operations segment revenue was $219.0 million, up from $204.7 million; segment income was $121.7 million versus $114.2 million. Home Sales and Rentals Operations revenue declined to $10.9 million from $12.0 million, and segment income was $1.3 million versus $1.4 million.
- Core Portfolio property operating revenue, excluding deferrals, rose 4.3%, while related expenses excluding deferrals and property management rose 5.2%; income on that basis increased 3.8%. Core manufactured-home community occupancy reached 94.0%, compared with 93.1% a year earlier.
- Common distributions declared were $0.488 per share, compared with $0.425. The company paid a $0.4875 common distribution on April 14, 2017.
Balance sheet, debt and liquidity
- At March 31, 2017, total assets were $3.471 billion and total equity was $1.100 billion. Cash was $73.2 million, including approximately $5.3 million of restricted cash.
- Mortgage notes payable, net, were $1.860 billion and the term loan was $199.4 million; unsecured lines of credit were undrawn. Mortgage and term-loan carrying value, excluding deferred financing costs, was approximately $2.078 billion. Debt weighted-average interest rate, including specified amortization effects, was approximately 4.9%.
- Management reported $68.0 million of available cash net of restricted cash and $400 million available under its revolving credit facility, and stated these resources and operating cash flow should meet near-term needs, including distributions for the next 12 months. Approximately $13.2 million of scheduled 2017 debt maturities remained, excluding scheduled principal payments.
- Operating cash flow included $10.8 million in insurance proceeds related to California litigation; it also reflected a $13.3 million litigation settlement payment. Financing cash use increased to $73.3 million, primarily due to distributions and debt principal payments.
Material changes, outlook and risks
- Revenue growth reflected higher community and resort rents, occupancy gains, right-to-use contract activity and contributions from properties acquired in 2016. Community base rental income in the Core Portfolio rose 4.8%, including 3.9% from rate increases and approximately 0.9% from occupancy gains. Core RV revenue increased 3.0%.
- Management cited higher utilities, payroll, repairs and maintenance as drivers of expense growth; repairs included costs associated with hurricanes, California flooding and demolition of a water park. Home sales volume was broadly steady: 120 new home sales versus 121, while used home sales declined to 285 from 311.
- No specific earnings or operating guidance was provided. Management said it expects to fund near-term requirements with cash, operating cash flow and credit availability, and expects to address longer-term maturities, acquisitions and improvements through cash flow, borrowings and potential debt or equity issuance.
- Seasonality affects results; seasonal and transient RV revenue is generally stronger in the first and third quarters, and transient demand is particularly exposed to weather and travel preferences. Other stated risks include cost control, occupancy and rent growth, home financing constraints, interest rates and refinancing, acquisition integration, potential share dilution, and litigation outcomes.
- Three California tenant matters were settled in January 2017 for payments totaling $13.3 million; insurance proceeds were received during Q1. A California district-attorney investigation concerning alleged asbestos and hazardous-waste compliance issues remained under settlement discussions, and the company said it could not estimate a possible loss. An OSHA matter was settled for a $0.1 million fine, subject to approval, with required safety measures.
- The company reported no material change in risk factors or market-risk assumptions. It stated disclosure controls were effective as of March 31, 2017 and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether rental-rate and occupancy gains continue to outpace the growth in property operating expenses.
- Cash available for distributions and capital spending after recurring improvements, home investments and scheduled debt service.
- Debt maturities and refinancing terms, including the revolving credit facility’s July 2018 maturity and extension option.
- Resolution and any financial exposure from the California district-attorney investigation and other legal or regulatory matters.
- The effects of seasonality, weather, insurance coverage and deductibles on resort revenues and property costs.
- Potential dilution from equity issuance: $75 million remained available under the ATM program at quarter-end.
FFO and normalized FFO are non-GAAP measures; the filing cautions that they are not substitutes for GAAP net income or operating cash flow and may not be comparable across REITs.