Equity LifeStyle Properties, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. ELS is a REIT owning and operating manufactured-home and recreational-vehicle communities, plus home sales and rental operations. At quarter-end it owned or held interests in 413 properties with approximately 157,278 sites.
Financial and operating results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenues | $285.0 million | $271.2 million | $819.6 million | $778.6 million |
| Consolidated net income | $53.5 million | $68.2 million | $173.0 million | $237.8 million |
| Net income available to common stockholders | $50.6 million; $0.28/share | $64.5 million; $0.35/share | $163.6 million; $0.90/share | $224.2 million; $1.24/share |
| FFO available to common and OP unit holders | $95.8 million; $0.50/share | $108.6 million; $0.56/share | $297.6 million; $1.55/share | $306.4 million; $1.60/share |
| Normalized FFO, a non-GAAP measure | $105.5 million; $0.55/share | $102.7 million; $0.53/share | $309.8 million; $1.61/share | $302.3 million; $1.58/share |
| Cash from operating activities | — | $360.9 million | $349.3 million |
Q3 total revenue increased 5.1%, while common-stockholder net income declined 21.6%. Nine-month revenue rose 5.3%, but common-stockholder net income fell 27.0%. The 2019 nine-month comparison included a $52.5 million gain on sale of five communities. Q3 2020 also included $9.7 million of early debt-retirement costs; the nine-month charge was $10.8 million.
Core Portfolio property operating revenue, excluding deferrals, grew 4.9% in Q3 and 3.7% for the nine months. Comparable property expenses, excluding deferrals and property management, grew 9.1% and 5.0%, respectively; corresponding property-operations income grew 1.8% and 2.7%. Core manufactured-home occupancy was 95.3% in Q3, versus 95.1% a year earlier. Q3 manufactured-home rental income grew 4.3%; Core RV rental income grew 5.2%, including a 7.3% increase in transient income. For the nine months, Core transient RV income declined 12.2% amid second-quarter restrictions and cancellations.
Cash used in investing was $161.5 million and cash used in financing was $114.0 million for the nine months. Cash and restricted cash totaled $114.2 million at September 30, 2020, compared with $28.9 million at December 31, 2019. Capital improvements were $155.1 million for the nine months. The quarterly distribution declared was $0.3425 per share.
Debt, liquidity, and capital
At September 30, 2020, mortgage notes payable, net, were $2.451 billion; the unsecured line of credit balance was $50 million, and the term loan had been repaid. Mortgage debt had a weighted-average rate of approximately 4.2%, with stated rates of 2.5%–8.9% and maturities from 2022 to 2041. The line had $350 million of remaining capacity, with a possible additional $200 million subject to conditions. A new $386.9 million Fannie Mae secured facility, bearing a weighted-average 2.55% rate and maturing in 12–15 years, funded repayment of the $200 million term loan and $166.8 million of secured loans. ELS reported compliance with debt covenants and stated that available cash should cover needs, including expected dividends, for the next 12 months. A $200 million ATM equity program remained unused at quarter-end.
Developments, outlook, and risks
- COVID-19: Management reported improved demand after transient RV reservations resumed in June. Rent collections and customer payment patterns had not materially changed, according to the company. Temporary rent deferrals, fee waivers, and suspended eviction proceedings ended in Q3 as restrictions eased. Some amenities remained closed or limited. Management emphasized that future effects on operations, cash flows, and financial condition remained uncertain.
- Management outlook: No numerical earnings or FFO guidance is provided in the supplied filing text. Management described long-term demand for MH and RV communities as favorable, citing demographic trends and constrained new development, and said it continued to pursue acquisitions. These are expectations, not guarantees.
- Expenses and unusual items: Q3 property expenses included approximately $2.8 million of hurricane-related cleanup costs; insurance recovery revenue included $2.3 million related to Hurricanes Hanna and Isaias. Nine-month property expenses also included $1.0 million of incremental COVID-related costs, excluded from Normalized FFO.
- Westwinds dispute: Ground leases for a 720-site San Jose community expire August 31, 2022, with no extension options. The lessor claims ELS must deliver the property free of residents; ELS disputes that claim. A court denied the lessor’s motion to compel arbitration, and the lessor appealed. The company recorded no accrual because it could not predict the outcome or reasonably estimate a loss.
- Other activity: ELS acquired adjacent parcels in North Carolina and Florida during 2020. Subsequent to quarter-end, it acquired two operating RV communities, two planned development properties, and adjacent parcels for a combined reported purchase price of $53.9 million.
Important facts for investors to verify
- Whether transient RV demand and membership sales remain strong, and whether the nine-month transient revenue shortfall persists.
- Whether property expense growth moderates after utility repairs, insurance costs, hurricane cleanup, and higher real estate taxes.
- Debt maturities, secured-property coverage, borrowing costs, and available liquidity; review the full debt schedules and covenants.
- Developments and potential financial exposure in the Westwinds ground-lease dispute before the 2022 lease expiration.
- How reported GAAP results compare with FFO and Normalized FFO, which are non-GAAP measures and are not substitutes for cash flow or net income.
- Future rent collections, occupancy, dividend capacity, and the effects of changing COVID-19 restrictions and economic conditions.