UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20172018
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| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-11718
_________________________________________________________
EQUITY LIFESTYLE PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
_________________________________________________________
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| |
Maryland | 36-3857664 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| |
Two North Riverside Plaza, Suite 800, Chicago, Illinois | 60606 |
(Address of Principal Executive Offices) | (Zip Code) |
(312) 279-1400
(Registrant’s Telephone Number, Including Area Code)
_________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
|
| | | |
Large accelerated filer | x | Accelerated filer | o |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | o |
| | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
87,005,12889,098,574 shares of Common Stock as of July 24, 2017.20, 2018.
Equity LifeStyle Properties, Inc.
Table of Contents
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| | Page |
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Item 1. | Financial Statements (unaudited) | |
Index To Financial Statements | |
Consolidated Balance Sheets as of June 30, 2017 (unaudited)2018 and December 31, 20162017 | |
Consolidated Statements of Income and Comprehensive Income for the quarters and six months ended June 30, 20172018 and 2016 (unaudited)2017 | |
Consolidated Statement of Changes in Equity for the six months ended June 30, 2017 (unaudited)2018 | |
Consolidated Statements of Cash Flows for the six months ended June 30, 20172018 and 2016 (unaudited)2017 | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
Part I – Financial Information
Item 1. Financial Statements
Equity LifeStyle Properties, Inc.
Consolidated Balance Sheets
As of June 30, 2017 and December 31, 2016
(amounts in thousands, except share and per share data)
| | | | | | | As of | | As of |
| June 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
| (unaudited) | | (unaudited) | | |
Assets | | | | | | |
Investment in real estate: | | | | | | |
Land | $ | 1,167,510 |
| | $ | 1,163,987 |
| $ | 1,284,851 |
| | $ | 1,221,375 |
|
Land improvements | 2,922,201 |
| | 2,893,759 |
| 3,072,474 |
| | 3,045,221 |
|
Buildings and other depreciable property | 641,931 |
| | 627,590 |
| 692,495 |
| | 649,217 |
|
| 4,731,642 |
| | 4,685,336 |
| 5,049,820 |
| | 4,915,813 |
|
Accumulated depreciation | (1,459,931 | ) | | (1,399,531 | ) | (1,580,013 | ) | | (1,516,694 | ) |
Net investment in real estate | 3,271,711 |
| | 3,285,805 |
| 3,469,807 |
| | 3,399,119 |
|
Cash | 67,740 |
| | 56,340 |
| |
Cash and restricted cash | | 46,025 |
| | 31,085 |
|
Notes receivable, net | 48,253 |
| | 34,520 |
| 34,672 |
| | 49,477 |
|
Investment in unconsolidated joint ventures | 21,766 |
| | 19,369 |
| 57,699 |
| | 53,080 |
|
Deferred commission expense | 31,453 |
| | 31,375 |
| 39,843 |
| | 31,443 |
|
Escrow deposits, goodwill, and other assets, net | 44,435 |
| | 51,578 |
| 52,143 |
| | 45,828 |
|
Total Assets | $ | 3,485,358 |
| | $ | 3,478,987 |
| $ | 3,700,189 |
| | $ | 3,610,032 |
|
Liabilities and Equity | | | | | | |
Liabilities: | | | | | | |
Mortgage notes payable, net | $ | 1,855,028 |
| | $ | 1,891,900 |
| $ | 2,028,535 |
| | $ | 1,971,715 |
|
Term loan | 199,483 |
| | 199,379 |
| 198,464 |
| | 198,302 |
|
Unsecured lines of credit | — |
| | — |
| |
Unsecured line of credit | | — |
| | 30,000 |
|
Accrued expenses and accounts payable | 93,451 |
| | 89,864 |
| 90,929 |
| | 80,744 |
|
Deferred revenue – upfront payments from right-to-use contracts | 83,580 |
| | 81,484 |
| 112,288 |
| | 85,596 |
|
Deferred revenue – right-to-use annual payments | 12,559 |
| | 9,817 |
| 12,806 |
| | 9,932 |
|
Accrued interest payable | 8,044 |
| | 8,379 |
| 8,425 |
| | 8,387 |
|
Rents and other customer payments received in advance and security deposits | 88,543 |
| | 76,906 |
| 94,868 |
| | 79,267 |
|
Distributions payable | 45,259 |
| | 39,411 |
| 52,043 |
| | 46,047 |
|
Total Liabilities | 2,385,947 |
| | 2,397,140 |
| 2,598,358 |
| | 2,509,990 |
|
Equity: | | | | | | |
Stockholders’ Equity: | | | | | | |
Preferred stock, $0.01 par value, 9,945,539 shares authorized as of June 30, 2017 and December 31, 2016; none issued and outstanding. | — |
| | — |
| |
6.75% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value, 54,461 shares authorized and 54,458 issued and outstanding as of June 30, 2017 and December 31, 2016 at liquidation value | 136,144 |
| | 136,144 |
| |
Common stock, $0.01 par value, 200,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 87,004,507 and 85,529,386 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively | 868 |
| | 854 |
| |
Preferred stock, $0.01 par value, 10,000,000 shares authorized as of December 31, 2017 and June 30, 2018; none issued and outstanding. | | — |
| | — |
|
Common stock, $0.01 par value, 200,000,000 shares authorized as of June 30, 2018 and December 31, 2017; 88,802,758 and 88,585,160 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively | | 884 |
| | 883 |
|
Paid-in capital | 1,121,307 |
| | 1,103,048 |
| 1,248,047 |
| | 1,242,109 |
|
Distributions in excess of accumulated earnings | (219,641 | ) | | (231,276 | ) | (218,453 | ) | | (211,980 | ) |
Accumulated other comprehensive loss/(income) | 30 |
| | (227 | ) | |
Accumulated other comprehensive income | | 3,579 |
| | 942 |
|
Total Stockholders’ Equity | 1,038,708 |
| | 1,008,543 |
| 1,034,057 |
| | 1,031,954 |
|
Non-controlling interests – Common OP Units | 60,703 |
| | 73,304 |
| 67,774 |
| | 68,088 |
|
Total Equity | 1,099,411 |
| | 1,081,847 |
| 1,101,831 |
| | 1,100,042 |
|
Total Liabilities and Equity | $ | 3,485,358 |
| | $ | 3,478,987 |
| $ | 3,700,189 |
| | $ | 3,610,032 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income
For the Quarters Ended and Six Months Ended June 30, 2017 and 2016
(amounts in thousands, except per share data)
(unaudited)
| | | Quarters Ended | | Six Months Ended | Quarters Ended June 30, |
| Six Months Ended June 30,
|
| June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | 2018 |
| 2017 |
| 2018 |
| 2017 |
Revenues: | | | | | | | | | | | | | | |
Community base rental income | $ | 121,964 |
| | $ | 115,385 |
| | $ | 242,656 |
| | $ | 229,461 |
| $ | 128,579 |
| | $ | 121,964 |
| | $ | 255,318 |
| | $ | 242,656 |
|
Rental home income | 3,632 |
| | 3,543 |
| | 7,237 |
| | 7,088 |
| 3,561 |
| | 3,632 |
| | 7,076 |
| | 7,237 |
|
Resort base rental income | 50,055 |
| | 44,732 |
| | 111,123 |
| | 100,166 |
| 55,231 |
| | 50,055 |
| | 119,485 |
| | 111,123 |
|
Right-to-use annual payments | 11,350 |
| | 11,187 |
| | 22,602 |
| | 22,241 |
| 11,891 |
| | 11,350 |
| | 23,410 |
| | 22,602 |
|
Right-to-use contracts current period, gross | 3,798 |
| | 3,086 |
| | 7,004 |
| | 5,618 |
| 3,944 |
| | 3,798 |
| | 7,106 |
| | 7,004 |
|
Right-to-use contract upfront payments, deferred, net | (1,321 | ) | | (798 | ) | | (2,096 | ) | | (1,100 | ) | (2,021 | ) | | (1,321 | ) | | (3,306 | ) | | (2,096 | ) |
Utility and other income | 20,650 |
| | 19,523 |
| | 42,776 |
| | 40,316 |
| 24,320 |
| | 20,650 |
| | 49,841 |
| | 42,776 |
|
Gross revenues from home sales | 7,833 |
| | 9,130 |
| | 14,860 |
| | 17,344 |
| 9,105 |
| | 7,833 |
| | 17,414 |
| | 14,860 |
|
Brokered resale revenues and ancillary services revenues, net | 444 |
| | 398 |
| | 2,105 |
| | 1,816 |
| 617 |
| | 444 |
| | 2,018 |
| | 2,105 |
|
Interest income | 1,798 |
| | 1,625 |
| | 3,568 |
| | 3,285 |
| 1,862 |
| | 1,798 |
| | 3,812 |
| | 3,568 |
|
Income from other investments, net | 1,109 |
| | 2,270 |
| | 1,866 |
| | 3,993 |
| 3,413 |
| | 1,109 |
| | 4,353 |
| | 1,866 |
|
Total revenues | 221,312 |
| | 210,081 |
|
| 453,701 |
|
| 430,228 |
| 240,502 |
| | 221,312 |
|
| 486,527 |
|
| 453,701 |
|
Expenses: | | | | | | | | | | | | | | |
Property operating and maintenance | 72,901 |
| | 66,647 |
| | 140,955 |
| | 129,601 |
| 80,091 |
| | 72,901 |
| | 154,999 |
| | 140,955 |
|
Rental home operating and maintenance | 1,657 |
| | 1,581 |
| | 3,208 |
| | 3,106 |
| 1,629 |
| | 1,657 |
| | 3,053 |
| | 3,208 |
|
Real estate taxes | 13,943 |
| | 12,869 |
| | 27,980 |
| | 26,067 |
| 13,440 |
| | 13,943 |
| | 27,575 |
| | 27,980 |
|
Sales and marketing, gross | 2,894 |
| | 2,931 |
| | 5,584 |
| | 5,424 |
| 3,305 |
| | 2,894 |
| | 6,117 |
| | 5,584 |
|
Right-to-use contract commissions, deferred, net | (112 | ) | | (116 | ) | | (196 | ) | | (12 | ) | (262 | ) | | (112 | ) | | (286 | ) | | (196 | ) |
Property management | 13,023 |
| | 12,044 |
| | 25,583 |
| | 23,807 |
| 13,472 |
| | 13,023 |
| | 27,153 |
| | 25,583 |
|
Depreciation on real estate assets and rental homes | 30,247 |
| | 29,029 |
| | 60,357 |
| | 57,684 |
| 32,452 |
| | 30,247 |
| | 63,774 |
| | 60,357 |
|
Amortization of in-place leases | 958 |
| | 428 |
| | 1,990 |
| | 763 |
| 1,893 |
| | 958 |
| | 2,945 |
| | 1,990 |
|
Cost of home sales | 7,895 |
| | 9,481 |
| | 15,014 |
| | 17,762 |
| 9,632 |
| | 7,895 |
| | 18,206 |
| | 15,014 |
|
Home selling expenses | 929 |
| | 805 |
| | 1,854 |
| | 1,639 |
| 973 |
| | 929 |
| | 2,048 |
| | 1,854 |
|
General and administrative | 8,461 |
| | 8,255 |
| | 15,834 |
| | 15,663 |
| 9,669 |
| | 8,461 |
| | 17,707 |
| | 15,834 |
|
Property rights initiatives and other, net | 271 |
| | 527 |
| | 490 |
| | 1,181 |
| |
Other expenses | | 367 |
| | 271 |
| | 710 |
| | 490 |
|
Interest and related amortization | 24,822 |
| | 25,561 |
| | 49,701 |
| | 51,195 |
| 26,285 |
| | 24,822 |
| | 51,988 |
| | 49,701 |
|
Total expenses | 177,889 |
| | 170,042 |
|
| 348,354 |
|
| 333,880 |
| 192,946 |
| | 177,889 |
|
| 375,989 |
|
| 348,354 |
|
Income before equity in income of unconsolidated joint ventures | 43,423 |
| | 40,039 |
|
| 105,347 |
|
| 96,348 |
| 47,556 |
| | 43,423 |
|
| 110,538 |
|
| 105,347 |
|
Equity in income of unconsolidated joint ventures | 1,040 |
| | 765 |
| | 2,190 |
| | 1,646 |
| 1,613 |
| | 1,040 |
| | 2,808 |
| | 2,190 |
|
Consolidated net income | 44,463 |
| | 40,804 |
|
| 107,537 |
|
| 97,994 |
| 49,169 |
| | 44,463 |
|
| 113,346 |
|
| 107,537 |
|
| | | | | | | | | | | | | | |
Income allocated to non-controlling interests – Common OP Units | (2,649 | ) | | (2,998 | ) | | (6,539 | ) | | (7,308 | ) | (3,024 | ) | | (2,649 | ) | | (6,979 | ) | | (6,539 | ) |
Series C Redeemable Perpetual Preferred Stock Dividends | (2,316 | ) | | (2,316 | ) | | (4,613 | ) | | (4,613 | ) | |
Redeemable perpetual preferred stock dividends | | (8 | ) | | (2,316 | ) | | (8 | ) | | (4,613 | ) |
Net income available for Common Stockholders | $ | 39,498 |
| | $ | 35,490 |
|
| $ | 96,385 |
|
| $ | 86,073 |
| $ | 46,137 |
| | $ | 39,498 |
|
| $ | 106,359 |
|
| $ | 96,385 |
|
| | | | | | | | | | | | | | |
Consolidated net income | $ | 44,463 |
| | $ | 40,804 |
| | $ | 107,537 |
| | $ | 97,994 |
| $ | 49,169 |
| | $ | 44,463 |
| | $ | 113,346 |
| | $ | 107,537 |
|
Other comprehensive income (loss) (“OCI”): | | | | | | | | |
Other comprehensive income: | | | | | | | | |
Adjustment for fair market value of swap | 30 |
| | (36 | ) | | 257 |
| | (644 | ) | 764 |
| | 30 |
| | 2,637 |
| | 257 |
|
Consolidated comprehensive income | 44,493 |
| | 40,768 |
|
| 107,794 |
|
| 97,350 |
| 49,933 |
| | 44,493 |
|
| 115,983 |
|
| 107,794 |
|
Comprehensive income allocated to non-controlling interests – Common OP Units | (2,651 | ) | | (2,995 | ) | | (6,555 | ) | | (7,257 | ) | (3,071 | ) | | (2,651 | ) | | (7,141 | ) | | (6,555 | ) |
Series C Redeemable Perpetual Preferred Stock Dividends | (2,316 | ) | | (2,316 | ) | | (4,613 | ) | | (4,613 | ) | |
Redeemable perpetual preferred stock dividends | | (8 | ) | | (2,316 | ) | | (8 | ) | | (4,613 | ) |
Comprehensive income attributable to Common Stockholders | $ | 39,526 |
| | $ | 35,457 |
|
| $ | 96,626 |
|
| $ | 85,480 |
| $ | 46,854 |
| | $ | 39,526 |
|
| $ | 108,834 |
|
| $ | 96,626 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income (Continued)
For the Quarters EndedJune 30, 2017 and 2016
(amounts in thousands, except per share data)
(unaudited)
| | | Quarters Ended | | Six Months Ended | Quarters Ended June 30, | | Six Months Ended June 30,
|
| June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Earnings per Common Share – Basic: | | | | | | | | | | | | | | |
Net income available for Common Stockholders | $ | 0.46 |
| | $ | 0.42 |
| | $ | 1.12 |
| | $ | 1.02 |
| $ | 0.52 |
| | $ | 0.46 |
| | $ | 1.20 |
| | $ | 1.12 |
|
Earnings per Common Share – Fully Diluted: | | | | | | | | | | | | | | |
Net income available for Common Stockholders | $ | 0.45 |
| | $ | 0.42 |
| | $ | 1.11 |
| | $ | 1.01 |
| $ | 0.52 |
| | $ | 0.45 |
| | $ | 1.20 |
| | $ | 1.11 |
|
| | | | | | | | | | | | | | |
Distributions declared per Common Share outstanding | $ | 0.488 |
| | $ | 0.425 |
| | $ | 0.975 |
| | $ | 0.850 |
| $ | 0.550 |
| | $ | 0.488 |
| | $ | 1.100 |
| | $ | 0.975 |
|
Weighted average Common Shares outstanding – basic | 86,763 |
| | 84,516 |
| | 86,408 |
| | 84,419 |
| 88,549 |
| | 86,763 |
| | 88,537 |
| | 86,408 |
|
Weighted average Common Shares outstanding – fully diluted | 93,063 |
| | 92,264 |
| | 93,041 |
| | 92,163 |
| 94,623 |
| | 93,063 |
| | 94,600 |
| | 93,041 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Consolidated Statement of Changes in Equity
For the Six Months Ended June 30, 2017
(amounts in thousands)
(unaudited)
| | | Common Stock | | Paid-in Capital | | 6.75% Series C Cumulative Redeemable Perpetual Preferred Stock | | Distributions in Excess of Accumulated Earnings | | Non- controlling interests – Common OP Units | | Accumulated Other Comprehensive Loss/(Income) | | Total Equity | Common Stock | | Paid-in Capital | | Redeemable Perpetual Preferred Stock | | Distributions in Excess of Accumulated Earnings | | Accumulated Other Comprehensive Loss/(Income) | | Non- controlling interests – Common OP Units | | Total Equity |
Balance, December 31, 2016 | $ | 854 |
| | $ | 1,103,048 |
| | $ | 136,144 |
| | $ | (231,276 | ) | | $ | 73,304 |
| | $ | (227 | ) | | $ | 1,081,847 |
| |
Conversion of Common OP Units to Common Stock | 14 |
| | 16,423 |
| | — |
| | — |
| | (16,437 | ) | | — |
| | — |
| |
Balance, December 31, 2017 | | $ | 883 |
| | $ | 1,242,109 |
| | $ | — |
| | $ | (211,980 | ) | | $ | 942 |
| | $ | 68,088 |
| | $ | 1,100,042 |
|
Cumulative effect of change in accounting principle (as described in Note 2) | | — |
| | — |
| | — |
| | (15,186 | ) | | — |
| | — |
| | (15,186 | ) |
Balance, January 1, 2018 | | $ | 883 |
|
| $ | 1,242,109 |
| | $ | — |
|
| $ | (227,166 | ) |
| $ | 942 |
| | $ | 68,088 |
| | $ | 1,084,856 |
|
Exchange of Common OP Units for Common Stock | | 1 |
| | 161 |
| | — |
| | — |
| | — |
| | (162 | ) | | — |
|
Issuance of Common Stock through employee stock purchase plan | — |
| | 764 |
| | — |
| | — |
| | — |
| | — |
| | 764 |
| — |
| | 846 |
| | — |
| | — |
| | — |
| | — |
| | 846 |
|
Compensation expenses related to restricted stock | — |
| | 4,257 |
| | — |
| | — |
| | — |
| | — |
| | 4,257 |
| |
Compensation expenses related to restricted stock and stock options | | — |
| | 4,541 |
| | — |
| | — |
| | — |
| | — |
| | 4,541 |
|
Adjustment for Common OP Unitholders in the Operating Partnership | — |
| | (3,037 | ) | | — |
| | — |
| | 3,037 |
| | — |
| | — |
| — |
| | 725 |
| | — |
| | — |
| | — |
| | (725 | ) | | — |
|
Adjustment for fair market value of swap | — |
| | — |
| | — |
| | — |
| | — |
| | 257 |
| | 257 |
| — |
| | — |
| | — |
| | — |
| | 2,637 |
| | — |
| | 2,637 |
|
Net income | — |
| | — |
| | 4,613 |
| | 96,385 |
| | 6,539 |
| | — |
| | 107,537 |
| |
Consolidated net income | | — |
| | — |
| | 8 |
| | 106,359 |
| | — |
| | 6,979 |
| | 113,346 |
|
Distributions | — |
| | — |
| | (4,613 | ) | | (84,750 | ) | | (5,740 | ) | | — |
| | (95,103 | ) | — |
| | — |
| | (8 | ) | | (97,646 | ) | | — |
| | (6,406 | ) | | (104,060 | ) |
Other | — |
| | (148 | ) | | — |
| | — |
| | — |
| | — |
| | (148 | ) | — |
| | (335 | ) | | — |
| | — |
| | — |
| | — |
| | (335 | ) |
Balance, June 30, 2017 | $ | 868 |
| | $ | 1,121,307 |
| | $ | 136,144 |
| | $ | (219,641 | ) | | $ | 60,703 |
| | $ | 30 |
| | $ | 1,099,411 |
| |
Balance, June 30, 2018 | | $ | 884 |
| | $ | 1,248,047 |
| | $ | — |
| | $ | (218,453 | ) | | $ | 3,579 |
| | $ | 67,774 |
| | $ | 1,101,831 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2017 and 2016
(amounts in thousands)
(unaudited)
|
| | | | | | | |
| June 30, 2017 | | June 30, 2016 |
Cash Flows From Operating Activities: | | | |
Consolidated net income | $ | 107,537 |
| | $ | 97,994 |
|
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | | | |
Depreciation | 60,960 |
| | 58,242 |
|
Amortization of in-place leases | 1,990 |
| | 763 |
|
Amortization of loan costs | 1,788 |
| | 1,876 |
|
Debt premium amortization | (1,166 | ) | | (1,730 | ) |
Equity in income of unconsolidated joint ventures | (2,190 | ) | | (1,646 | ) |
Distributions of income from unconsolidated joint ventures | 1,800 |
| | 1,041 |
|
Stock-based compensation | 4,257 |
| | 4,393 |
|
Revenue recognized from right-to-use contract upfront payments | (4,908 | ) | | (4,518 | ) |
Commission expense recognized related to right-to-use contracts | 2,202 |
| | 2,019 |
|
Long term incentive plan compensation | 674 |
| | (3,852 | ) |
Recovery for uncollectible rents receivable | 214 |
| | (679 | ) |
Changes in assets and liabilities: | | | |
Notes receivable activity, net | (282 | ) | | 361 |
|
Deferred commission expense | (2,280 | ) | | (2,238 | ) |
Escrow deposits, goodwill and other assets | 21,814 |
| | 13,137 |
|
Accrued expenses and accounts payable | 316 |
| | 2,453 |
|
Deferred revenue – upfront payments from right-to-use contracts | 7,004 |
| | 5,618 |
|
Deferred revenue – right-to-use annual payments | 2,742 |
| | 3,139 |
|
Rents received in advance and security deposits | 11,630 |
| | 10,434 |
|
Net cash provided by operating activities | 214,102 |
| | 186,807 |
|
Cash Flows From Investing Activities: | | | |
Real estate acquisition | (2,053 | ) | | (76,203 | ) |
Investment in unconsolidated joint ventures | (2,267 | ) | | (5,000 | ) |
Repayments of notes receivable | 5,054 |
| | 5,176 |
|
Issuance of notes receivable | (18,696 | ) | | (4,356 | ) |
Capital improvements | (53,464 | ) | | (55,707 | ) |
Net cash used in investing activities | (71,426 | ) | | (136,090 | ) |
Cash Flows From Financing Activities: | | | |
Proceeds from stock options and employee stock purchase plan | 764 |
| | 5,331 |
|
Share based award tax withholding | — |
| | (98 | ) |
Gross proceeds from sale of Common Stock | — |
| | 50,000 |
|
Distributions: | | | |
Common Stockholders | (78,699 | ) | | (67,565 | ) |
Common OP Unitholders | (5,942 | ) | | (5,766 | ) |
Preferred Stockholders | (4,613 | ) | | (4,613 | ) |
Principal payments and mortgage debt payoff | (42,637 | ) | | (32,564 | ) |
Debt issuance and defeasance costs | — |
| | (5 | ) |
Other | (149 | ) | | (824 | ) |
Net cash used in financing activities | (131,276 | ) | | (56,104 | ) |
Net increase (decrease) in cash | 11,400 |
| | (5,387 | ) |
Cash, beginning of period | 56,340 |
| | 80,258 |
|
Cash, end of period | $ | 67,740 |
| | $ | 74,871 |
|
|
| | | | | | | |
| Six Months Ended June 30,
|
| 2018 | | 2017 |
Cash Flows From Operating Activities: | | | |
Consolidated net income | $ | 113,346 |
| | $ | 107,537 |
|
Adjustments to reconcile Consolidated net income to Net cash provided by operating activities: | | | |
Depreciation | 64,486 |
| | 60,960 |
|
Amortization of in-place leases | 2,945 |
| | 1,990 |
|
Amortization of loan costs | 1,772 |
| | 1,788 |
|
Debt premium amortization | (711 | ) | | (1,166 | ) |
Equity in income of unconsolidated joint ventures | (2,808 | ) | | (2,190 | ) |
Distributions of income from unconsolidated joint ventures | 1,732 |
| | 1,270 |
|
Proceeds from insurance claims, net | 1,809 |
| | 4,482 |
|
Compensation expenses related to restricted stock and stock options
| 4,541 |
| | 4,257 |
|
Revenue recognized from right-to-use contract upfront payments | (3,800 | ) | | (4,908 | ) |
Commission expense recognized related to right-to-use contracts | 1,810 |
| | 2,202 |
|
Long-term incentive plan compensation | 461 |
| | 674 |
|
Recovery for uncollectible rents receivable | 134 |
| | 214 |
|
Changes in assets and liabilities: | | | |
Notes receivable activity, net | 347 |
| | (282 | ) |
Deferred commission expense | (2,010 | ) | | (2,280 | ) |
Escrow deposits, goodwill and other assets | 11,111 |
| | 10,992 |
|
Accrued expenses and accounts payable | 5,280 |
| | 6,066 |
|
Deferred revenue – upfront payments from right-to-use contracts | 7,106 |
| | 7,004 |
|
Deferred revenue – right-to-use annual payments | 2,874 |
| | 2,742 |
|
Rents received in advance and security deposits | 15,601 |
| | 11,630 |
|
Net cash provided by operating activities | 226,026 |
| | 212,982 |
|
Cash Flows From Investing Activities: | | | |
Real estate acquisitions, net | (53,289 | ) | | (2,053 | ) |
Investment in unconsolidated joint ventures | (3,791 | ) | | (2,267 | ) |
Distributions of capital from unconsolidated joint ventures | 110 |
| | 530 |
|
Proceeds from insurance claims | 2,335 |
| | 590 |
|
Repayments of notes receivable | 19,037 |
| | 5,054 |
|
Issuance of notes receivable | (4,919 | ) | | (18,696 | ) |
Capital improvements | (81,377 | ) | | (53,464 | ) |
Net cash used in investing activities | (121,894 | ) | | (70,306 | ) |
Cash Flows From Financing Activities: | | | |
Proceeds from stock options and employee stock purchase plan | 846 |
| | 764 |
|
Distributions: | | | |
Common Stockholders | (92,008 | ) | | (78,699 | ) |
Common OP Unitholders | (6,049 | ) | | (5,942 | ) |
Perpetual Preferred Stockholders | (8 | ) | | (4,613 | ) |
Principal payments and mortgage debt payoff | (23,964 | ) | | (42,637 | ) |
New mortgage notes payable financing proceeds | 64,014 |
| | — |
|
Line of Credit payoff | (97,000 | ) | | — |
|
Line of Credit proceeds | 67,000 |
| | — |
|
Debt issuance and defeasance costs | (1,688 | ) | | — |
|
Other | (335 | ) | | (149 | ) |
Net cash used in financing activities | (89,192 | ) | | (131,276 | ) |
Net increase in Cash and restricted cash | 14,940 |
| | 11,400 |
|
Cash and restricted cash, beginning of period | 31,085 |
| | 56,340 |
|
Cash and restricted cash, end of period | $ | 46,025 |
| | $ | 67,740 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows (continued)
For the Six Months Ended June 30, 2017 and 2016
(amounts in thousands)
(unaudited)
| | | | | | | Six Months Ended June 30,
|
| June 30, 2017 | | June 30, 2016 | 2018 | | 2017 |
Supplemental Information: | | | | | | |
Cash paid during the period for interest | $ | 51,135 |
| | $ | 53,121 |
| $ | 52,658 |
| | $ | 51,135 |
|
Capital improvements – used homes acquired by repossessions | 192 |
| | 445 |
| |
Net repayments of notes receivable – used homes acquired by repossessions | (192 | ) | | (445 | ) | |
Building and other depreciable property – reclassification of rental homes | 15,322 |
| | 15,986 |
| 19,390 |
| | 15,322 |
|
Escrow deposits and other assets – reclassification of rental homes | (15,322 | ) | | (15,986 | ) | (19,390 | ) | | (15,322 | ) |
| | | | | | |
Real estate acquisitions: | | | | | | |
Investment in real estate, fair value | $ | (7,985 | ) | | $ | (100,148 | ) | $ | (71,756 | ) | | $ | (7,985 | ) |
Escrow deposits and other assets | — |
| | (20 | ) | (9 | ) | | — |
|
Debt assumed | 5,900 |
| | 22,010 |
| 9,200 |
| | 5,900 |
|
Debt financed | | 8,786 |
| | — |
|
Accrued expenses and accounts payable | 32 |
| | 1,955 |
| 490 |
| | 32 |
|
Real estate acquisitions, net | $ | (2,053 | ) | | $ | (76,203 | ) | $ | (53,289 | ) | | $ | (2,053 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 1 – Basis of Presentation
Equity LifeStyle Properties, Inc., a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and other consolidated subsidiaries (“Subsidiaries”), are referred to herein as “we,” “us,” and “our.” We are a fully integrated owner and operator of lifestyle-oriented properties ("Properties") consisting primarily of manufactured home ("MH") communities and recreational vehicle ("RV") resorts and campgrounds. We provide our customers the opportunity to place factory built homes, cottages, cabins or RVs on our properties either on a long-term or short-term basis. Our customers may lease individual developed areas ("Sites") or enter right-to-use contracts, which provide them access to specific Properties for limited stays.
Capitalized terms used but not defined herein are as defined in our Annual Report on Form 10-K (“2016 Form 10-K”) for the year ended December 31, 2016.2017 (“2017 Form 10-K”). These unaudited interim Consolidated Financial Statements have been prepared pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all of the information and note disclosures required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements and should be read in conjunction with the financial statements and notes thereto included in the 20162017 Form 10-K.
The following notes to the unaudited interim Consolidated Financial Statements highlight significant changes to the notes included in the 20162017 Form 10-K and present interim disclosures as required by the SEC. The accompanying Consolidated Financial Statements reflect, in the opinion of management, all adjustments and estimates necessary for a fair presentation of the interim financial statements, which are of a normal, recurring nature. Revenues and expenses are subject to seasonal fluctuations and accordingly, quarterly interim results may not be indicative of full year results.
Note 2 – Summary of Significant Accounting Policies
We consolidate our majority-owned Subsidiaries in which we have the ability to control the operations and all variable interest entities ("VIEs") with respect to which we are the primary beneficiary. We have determined the Operating Partnership, which is our sole significant asset, meets the definition of a VIE. Therefore, we consolidate the Operating Partnership. We also consolidate entities in which we have a direct or indirect controlling or voting interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Effective January 1, 2016, we adopted (“ASU 2015-02”) Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 required us to evaluate whether we should consolidate certain legal entities. The adoption of this standard did not result in any changes to our accounting of interests in less than wholly-owned joint ventures; however, the Operating Partnership now meets the criteria as a VIE. We concluded that the Operating Partnership is a VIE because we are the general partner and controlling owner of approximately 93.7% of the Operating Partnership and the limited partners do not have substantive kick-out or participating rights. Our sole significant asset is our investment in the Operating Partnership, and consequently, substantially all of our assets and liabilities represent those assets and liabilities of the Operating Partnership. The Company has the power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are significant to the VIE. Accordingly, we are the primary beneficiary and we will continue to consolidate the Operating Partnership under this new guidance.
We apply the equity method of accounting to entities in which we do not have a direct or indirect controlling interest or for variable interest entities where we are not considered the primary beneficiary, but can exercise influence over the entity with respect to its operations and major decisions. We apply the cost method of accounting when our investment is (i) minimal (typically less than 5.0%) and (ii) passive. Our exposure to losses associated with unconsolidated joint ventures is primarily limited to the carrying value of these investments. Accordingly, distributions from a joint venture in excess of our carrying value are recognized in earnings.
| |
(b) | Identified Intangibles and Goodwill |
As of both June 30, 20172018 and December 31, 2016,2017, the gross carrying amount of identified intangible assets and goodwill, a component of escrowEscrow deposits, goodwill and other assets, net on our consolidated balance sheets, was approximately $12.1 million. As of both June 30, 20172018 and December 31, 2016,2017, this amount was comprised of approximately $4.3 million of identified intangible assets and approximately $7.8 million of goodwill. Accumulated amortization of identified intangible assets was approximately $2.9$3.0 million and $2.8$2.9 million as of June 30, 20172018 and December 31, 2016,2017, respectively.
As of both June 30, 20172018 and December 31, 2016,2017, the gross carrying amount of in-place lease intangible assets, a component of buildingsBuildings and other depreciable property on our consolidated balance sheets, was approximately $84.4 million and $76.7 million.million, respectively. Accumulated amortization of in-place lease intangible assets was approximately $75.9$77.6 million and $74.0$76.5 million as of June 30, 20172018 and December 31, 2016,2017, respectively.
Cash asAs of both June 30, 20172018 and December 31, 20162017, Cash and restricted cash included approximately $5.3 million of restricted cash for the payment of capital improvements, insurance or real estate taxes.taxes pursuant to certain loan agreements.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 2 –- Summary of Significant Accounting Policies (continued)
| |
(d) | Fair Value of Financial Instruments |
Our financial instruments include notes receivable, accounts receivable, accounts payable, other accrued expenses, interest rate swaps and mortgage notes payable. We disclose the estimated fair value of our financial instruments according to a fair value hierarchy (Level 1, 2 and 3).
Our mortgage notes payable and term loan, excluding deferred financing costs of approximately $17.8$24.1 million and $18.9$23.7 million as of June 30, 2018 and December 31, 2017, respectively, had an aggregate carrying value of approximately $2,072.3$2,251.1 million and $2,110.2$2,193.7 million as of June 30, 20172018 and December 31, 2016,2017, respectively, and a fair value of approximately $2,106.4$2,230.7 million and $2,081.2$2,184.0 million as of June 30, 20172018 and December 31, 2016,2017, respectively. The fair value was measured using quoted prices and observable inputs from similar liabilities (Level 2). At June 30, 20172018 and December 31, 2016,2017, our cash flow hedge of interest rate risk included in accrued expensesEscrow deposits, goodwill and accounts payableother assets, net was measured using quoted prices and observable inputs from similar assets and liabilities (Level 2). We consider our own credit risk as well as the credit risk of our counterparties when evaluating the fair value of our derivative. The fair values of our notes receivable approximate their carrying or contract values. We also utilize Level 2 and Level 3 inputs as part of our determination of the purchase price allocation for our acquisitions.
| |
(e) | NewRevenue Recognition |
Our revenue streams are predominantly derived from customers renting our Sites and are accounted for in accordance with ("ASC 840"), Leases, which include the following classifications on our Consolidated Statements of Income and Comprehensive Income: Community base rental income; Rental home income; Resort base rental income; and Utility and other income. Customers lease the Site in which their home is located, and either own or lease their home. Lease revenues for Sites and homes are accounted for as operating leases and recognized over the term of the respective lease or the length of a customer’s stay. A typical lease for the rental of a Site between us and the owner or renter of a home is month-to-month or for a one-year term, renewable upon the consent of both parties, or in some instances, as provided by statute.
All other classifications on our Consolidated Statements of Income and Comprehensive Income are accounted for under other applicable accounting standards.
We enter into right-to-use contracts that give the customer the right to a set schedule of usage at a specified group of Properties. Payments are deferred and recognized ratably over the one year period in which access to Sites at certain Properties are provided. Right-to-use upgrade contracts grant certain additional access rights to the customer and require upfront non-refundable payments. The right-to-use upfront non-refundable payments are recognized on a straight-line basis over 20 years. On January 1, 2018, we adopted (“ASU 2014-09”), Revenue from Contracts with Customers. See Recently Adopted Accounting Pronouncements within Note 2 for further discussion.
Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred.
| |
(f) | Recently Adopted Accounting Pronouncements |
InOn January 2017,1, 2018, the FASB issuedCompany adopted on a prospective basis ("ASU 2017-01") Business Combinations (Topic 805): Clarifying the Definition of a Business (Topic 805). ASU 2017-01This guidance clarifies the definition of a business with the objectiveand provides a screen to determine when an integrated set of adding guidance to assist entities with evaluating whether transactions should beassets and activities is not considered a business and, thus, is accounted for as an asset acquisition rather than a business combination. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not considered a business. Under this new guidance, transaction costs associated with asset acquisitions (or disposals)are capitalized, while transaction costs associated with business combinations are expensed as incurred. All of assets or businesses. the acquisitions completed subsequent to January 1, 2018 met the screen and, therefore, were accounted for as asset acquisitions and, as such, the related transaction costs of $1.3 million were capitalized for the six months ended June 30, 2018.
On January 1, 2018, the Company adopted (“ASU 2017-01 will be effective for annual reporting beginning after December 15, 2017. We are currently in2016-18”) Statement of Cash Flows: Restricted Cash (Topic 230). ASU 2016-18 requires companies to include restricted cash with cash and cash equivalents when reconciling the processbeginning-of-period and end-of-period total amounts shown on the statement of evaluating the potential impact that thecash flows. The adoption of this standard mayguidance did not have any effect on our consolidated financial statements and related disclosures.the Company's Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies (continued)
In August 2016,On January 1, 2018, the FASB issuedCompany adopted (“ASU 2016-15”) Statement of Cash FlowsFlows: Classification of Certain Cash Receipts and Cash Payments (Topic 230). on a retrospective basis. ASU 2016-15 providesadds or clarifies guidance on howthe classification of certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. The adoption of ASU 2016-15 willimpacted our classification of proceeds from the settlement of insurance claims and distributions received from equity method investments. The retrospective adoption of this guidance resulted in the reclassification of $0.6 million of insurance proceeds from Operating Activities to Investing Activities and $0.5 million of distributions from equity method investments from Operating Activities to Investing Activities in our Statement of Cash Flows for the six months ended June 30, 2017.
On January 1, 2018, we adopted ASU 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be effectiverecognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for annualthose goods or services. We applied the modified retrospective method to our right-to-use upgrade contracts and related commissions that were not fully amortized as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. As a result of the cumulative impact of adopting this guidance, we recorded a net reduction to retained earnings of approximately $15.2 million as of January 1, 2018 in Distributions in excess of accumulated earnings in the Consolidated Statement of Changes in Equity. There have not been significant changes to our business processes, systems, or internal controls as a result of implementing the standard. In addition to the information included within Note 2 regarding the impact of ASU 2014-09, also see Note 10, Reportable Segments, for further disaggregation of our various revenue streams by major source.
The cumulative effect adjustments resulting from the adoption of ASU 2014-09 as of January 1, 2018 were as follows:
|
| | | | | | | | | | | | |
(amounts in thousands) | | Balance at December 31, 2017 | | Adjustment due to ASU 2014-09 Adoption | | Balance at January 1, 2018 |
Assets | | | | | | |
Deferred commission expense | | $ | 31,443 |
| | $ | 8,200 |
| | $ | 39,643 |
|
Liabilities | | | | | | |
Deferred revenue-upfront payment from right-to-use contracts | | $ | 85,596 |
| | $ | 23,386 |
| | $ | 108,982 |
|
Equity | | | | | | |
Distribution in excess of accumulated earnings | | $ | (211,980 | ) | | $ | (15,186 | ) | | $ | (227,166 | ) |
The impact of ASU 2014-09 on the Company’s Consolidated Statements of Income and Comprehensive Income for the quarter ended June 30, 2018 was as follows:
|
| | | | | | | | | | | | |
(amounts in thousands, except per share data) | | As Reported | | Balances Without Adoption of ASU 2014-09 (a) | | Effect of Change Higher/(Lower) |
Revenues | | | | | | |
Right-to-use contract upfront payments, deferred, net | | $ | (2,021 | ) | | $ | (1,286 | ) | | $ | 735 |
|
Total revenues | | $ | 240,502 |
| | $ | 241,237 |
| | $ | (735 | ) |
| | | | | |
|
|
Expenses | | | | | |
|
|
Right-to-use contract commissions, deferred, net | | $ | (262 | ) | | $ | (43 | ) | | $ | 219 |
|
Total expenses | | $ | 192,946 |
| | $ | 193,165 |
| | $ | (219 | ) |
| | | | | |
|
|
Consolidated net income | | $ | 49,169 |
| | $ | 49,685 |
| | $ | (516 | ) |
Net income available for Common Stockholders | | $ | 46,137 |
| | $ | 46,629 |
| | $ | (492 | ) |
Earnings per Common Share - Basic | | $ | 0.52 |
| | $ | 0.53 |
| | $ | (0.01 | ) |
Earnings per Common Share - Fully Diluted | | $ | 0.52 |
| | $ | 0.53 |
| | $ | (0.01 | ) |
_____________________
(a) Represents the amounts that would have been reported under GAAP that existed prior to the January 1, 2018 adoption of ASU 2014-09.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies (continued)
The impact of ASU 2014-09 on the Company’s Consolidated Statements of Income and Comprehensive Income for the six months ended June 30, 2018 was as follows:
|
| | | | | | | | | | | | |
(amounts in thousands, except per share data) | | As Reported | | Balances Without Adoption of ASU 2014-09 (a) | | Effect of Change Higher/(Lower) |
Revenues | | | | | | |
Right-to-use contract upfront payments, deferred, net | | $ | (3,306 | ) | | $ | (1,837 | ) | | $ | 1,469 |
|
Total revenues | | $ | 486,527 |
| | $ | 487,996 |
| | $ | (1,469 | ) |
| | | | | |
|
|
Expenses | | | | | |
|
|
Right-to-use contract commissions, deferred, net | | $ | (286 | ) | | $ | 164 |
| | $ | 450 |
|
Total expenses | | $ | 375,989 |
| | $ | 376,439 |
| | $ | (450 | ) |
| | | | | |
|
|
Consolidated net income | | $ | 113,346 |
| | $ | 114,365 |
| | $ | (1,019 | ) |
Net income available for Common Stockholders | | $ | 106,359 |
| | $ | 107,323 |
| | $ | (964 | ) |
Earnings per Common Share - Basic | | $ | 1.20 |
| | $ | 1.21 |
| | $ | (0.01 | ) |
Earnings per Common Share - Fully Diluted | | $ | 1.20 |
| | $ | 1.21 |
| | $ | (0.01 | ) |
_____________________
(a) Represents the amounts that would have been reported under GAAP that existed prior to the January 1, 2018 adoption of ASU 2014-09.
| |
(g) | New Accounting Pronouncements |
In August 2017, the FASB issued ("ASU 2017-12") Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815). ASU 2017-12 provides guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments including ineffectiveness will be recorded in Other comprehensive income ("OCI") and amounts deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported. The new guidance also amends the presentation and disclosure requirements. The intention is to align hedge accounting with companies' risk management strategies more closely, thereby simplifying the application of hedge accounting and increasing transparency as to the scope and results of hedging programs. ASU 2017-12 is effective in fiscal years beginning after December 15, 2017.2018, including interim periods within those years. Early adoption is permitted. We are currently in the process of evaluating the potential impact, if any, that the adoption of this standard may have on our consolidated financial statementsConsolidated Financial Statements and related disclosures.
In June 2016, the FASB issued (“ASU 2016-13”) Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We are currently in the process of evaluating the potential impact, if any, that adoption of this standard may have on our consolidated financial statementsConsolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ("ASU 2016-02") Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted.As the lessor, we generate rental income and other income when customers rent the Sites at our Properties. We are the lessee in other arrangements, primarily for office space, ground leases and certain equipment. We are currently in the process of evaluating the potential impact, as both a lessor and a lessee, this standard may have on our consolidated financial statementsConsolidated Financial Statements and related disclosures.
In May 2014, the FASB issued ("ASU 2014-09") Revenue from Contracts with Customers which along with related subsequent amendments will replace most existing revenue recognition guidance in GAAP. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The new standard will be effective for the Company beginning on January 1, 2018. The standard permits the use of either the full retrospective or modified retrospective transition method.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (continued)
We expect to adopt ASU 2014-09 on January 1, 2018, using the modified retrospective transition method. We are evaluating the complete impact of the adoption to our consolidated financial results. Our primary source of revenue is generated through leasing arrangements, which are excluded from ASU 2014-09. We continue to evaluate and are in the process of quantifying the impact, if any, the adoption of ASU 2014-09 will have on our non-lease revenue streams, including right-to-use annual payments, right-to-use contracts, and utility and other income.
Note 3 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per Common Sharecommon share for the quarters and six months ended June 30, 20172018 and 2016 (amounts in thousands, except per share data):2017:
| | | Quarters Ended | | Six Months Ended | Quarters Ended | | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | |
(amounts in thousands, except per share data) | | 2018 | | 2017 | | 2018 | | 2017 |
Numerator: | | | | | | | | | | | | | | |
Net Income Available for Common Stockholders: | | | | | | | | | | | | | | |
Net income available for Common Stockholders – basic | $ | 39,498 |
| | $ | 35,490 |
| | $ | 96,385 |
| | $ | 86,073 |
| $ | 46,137 |
| | $ | 39,498 |
| | $ | 106,359 |
| | $ | 96,385 |
|
Amounts allocated to dilutive securities | 2,649 |
| | 2,998 |
| | 6,539 |
| | 7,308 |
| 3,024 |
| | 2,649 |
| | 6,979 |
| | 6,539 |
|
Net income available for Common Stockholders – fully diluted | $ | 42,147 |
| | $ | 38,488 |
| | $ | 102,924 |
| | $ | 93,381 |
| $ | 49,161 |
| | $ | 42,147 |
| | $ | 113,338 |
| | $ | 102,924 |
|
Denominator: | | | | | | | | | | | | | | |
Weighted average Common Shares outstanding – basic | 86,763 |
| | 84,516 |
| | 86,408 |
| | 84,419 |
| 88,549 |
| | 86,763 |
| | 88,537 |
| | 86,408 |
|
Effect of dilutive securities: | | | | | | | | | | | | | | |
Conversion of Common OP Units to Common Shares | 5,886 |
| | 7,205 |
| | 6,235 |
| | 7,206 |
| |
Exchange of Common OP Units for Common Shares | | 5,826 |
| | 5,886 |
| | 5,827 |
| | 6,235 |
|
Stock options and restricted shares | 414 |
| | 543 |
| | 398 |
| | 538 |
| 248 |
| | 414 |
| | 236 |
| | 398 |
|
Weighted average Common Shares outstanding – fully diluted | 93,063 |
| | 92,264 |
| | 93,041 |
| | 92,163 |
| 94,623 |
| | 93,063 |
| | 94,600 |
| | 93,041 |
|
| | | | | | | | | | | | | | |
Earnings per Common Share – Basic: | | | | | | | | | | | | | | |
Net income available for Common Stockholders | $ | 0.46 |
| | $ | 0.42 |
| | $ | 1.12 |
| | $ | 1.02 |
| $ | 0.52 |
| | $ | 0.46 |
| | $ | 1.20 |
| | $ | 1.12 |
|
| | | | | | | | | | | | | | |
Earnings per Common Share – Fully Diluted: | | | | | | | | | | | | | | |
Net income available for Common Stockholders | $ | 0.45 |
| | $ | 0.42 |
| | $ | 1.11 |
| | $ | 1.01 |
| $ | 0.52 |
| | $ | 0.45 |
| | $ | 1.20 |
| | $ | 1.11 |
|
Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements
Note 4 – Common Stock and Other Equity Related Transactions
Dividends
The following quarterly distributions have been declared on our depositary shares (each representing 1/100 of a share of our Series C Preferred Stock) and paid to our preferred stockholders for the six months endedJune 30, 2017.
|
| | | | | | | | |
Distribution Amount Per Share | | For the Quarter Ended | | Stockholder Record Date | | Payment Date |
$ | 0.421875 |
| | March 31, 2017 | | March 10, 2017 | | March 31, 2017 |
$ | 0.421875 |
| | June 30, 2017 | | June 15, 2017 | | June 30, 2017 |
Common Stockholder Distribution ActivityThe following quarterly distributions have been declared and paid to common stockholders and non-controlling common operating partnership unit ("OP Unit non-controllingUnit") holders for the six months ended June 30, 2017.2018.
|
| | | | | | | | |
Distribution Amount Per Share | | For the Quarter Ended | | Stockholder Record Date | | Payment Date |
$ | 0.4875 |
| | March 31, 2017 | | March 31, 2017 | | April 14, 2017 |
$ | 0.4875 |
| | June 30, 2017 | | June 30, 2017 | | July 14, 2017 |
|
| | | | | | |
Distribution Amount Per Share | | For the Quarter Ended | | Stockholder Record Date | | Payment Date |
$0.5500 | | March 31, 2018 | | March 30, 2018 | | April 13, 2018 |
$0.5500 | | June 30, 2018 | | June 29, 2018 | | July 13, 2018 |
ConversionsAs of June 30, 2018, approximately $150.0 million of Common Stock remained available for issuance under the at-the-market (“ATM”) equity offering program.
Exchanges
Subject to certain limitations, holders of Common Operating Partnership units ("OP units")Units can convertrequest an exchange of any or all of their units toOP Units for shares of Common Stock at any time. Upon receipt of such a request, we may, in lieu of issuing shares of Common Stock, cause the Operating Partnership to pay cash. During the six months ended June 30, 2017, 1,334,7472018, 13,838 OP unitsUnits were converted toexchanged for an equal number of shares of Common Stock.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 5 – Real Estate Acquisitions
On May 10, 2017,April 20, 2018, we completed the acquisition of ParadiseHoliday Travel Park, Largo, a 108-site manufactured home community located613-site RV Resort in Largo,Holiday, Florida. The purchase price was $22.5 million, including $0.3 million of approximately $8.0 milliontransaction costs, and was funded with available cash and an assumed loan.proceeds from our line of credit.
On March 15, 2018, we completed the acquisition of Serendipity, a 425-site manufactured home community located in Clearwater, Florida. The $5.9purchase price was $30.7 million, including $0.6 million of transaction costs, and was funded with available cash, a loan has an interest rateassumption of 4.6% that matures$9.2 million and new loan proceeds of $8.8 million.
On March 8, 2018, we completed the acquisition of Kingswood, a 229-site manufactured home community located in 2040.Riverview, Florida. The purchase price was $17.5 million, including $0.4 million of transaction costs, and was funded with available cash.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 6 – Investment in Unconsolidated Joint Ventures
On June 15, 2017, we entered into a joint venture agreement to purchase Crosswinds Mobile Home Park, a 376-site manufactured home community located in St. Petersburg, Florida. The purchase price of the Property was $18.4 million. We contributed $2.2 million for a 49% equity interest in the joint venture. The joint venture is accounted for under the equity method of accounting. As part of the transaction, we issued a short term loan of $13.8 million to the joint venture. The loan bears interest at 5% per annum, can be repaid with no penalty prior to maturity and matures on December 12, 2017.
The following table summarizes our investmentInvestment in unconsolidated joint ventures (investment amounts in thousands with the number of Properties shown parenthetically as of June 30, 20172018 and December 31, 2016)2017):
| | | | | | | | | | | Investment as of | | Joint Venture Income/(Loss) for the Six Months Ended | | | | | | | | | Investment as of | | Joint Venture Income/(Loss) for the Six Months Ended |
Investment | | Location | | Number of Sites | | Economic Interest (a) | | | June 30, 2017 | | December 31, 2016 | | June 30, 2017 | | June 30, 2016 | | Location | | Number of Sites (a) | | Economic Interest (b) | | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | June 30, 2017 |
Meadows | | Various (2,2) | | 1,077 |
| | 50 | % | | $ | 240 |
| | $ | 510 |
| | $ | 1,130 |
| | $ | 577 |
| | Various (2,2) | | 1,077 |
| | 50 | % | | $ | 526 |
| | $ | 307 |
| | $ | 819 |
| | $ | 1,130 |
|
Lakeshore | | Florida (3,2) | | 720 |
| | (b) |
| | 2,321 |
| | 56 |
| | 147 |
| | 160 |
| | Florida (3,3) | | 720 |
| | (c) |
| | 2,435 |
| | 2,530 |
| | 123 |
| | 147 |
|
Voyager | | Arizona (1,1) | | 1,801 |
| | 50 | % | (c) | | 3,799 |
| | 3,376 |
| | 800 |
| | 917 |
| | Arizona (1,1) | | 1,801 |
| | 50 | % | (d) | | 3,614 |
| | 3,205 |
| | 883 |
| | 800 |
|
Loggerhead | | | Florida | | 2,343 |
| | 49 | % | | 35,205 |
| | 31,414 |
| | 689 |
| | — |
|
ECHO JV | | Various | | — |
| | 50 | % | | 15,406 |
| | 15,427 |
| | 113 |
| | (8 | ) | | Various | | — |
| | 50 | % | | 15,919 |
| | 15,624 |
| | 294 |
| | 113 |
|
| | 3,598 |
| | | | $ | 21,766 |
| | $ | 19,369 |
| | $ | 2,190 |
| | $ | 1,646 |
| | 5,941 |
| | | | $ | 57,699 |
| | $ | 53,080 |
| | $ | 2,808 |
| | $ | 2,190 |
|
_____________________ | |
(a) | Loggerhead sites represent marina slip count. |
| |
(b) | The percentages shown approximate our economic interest as of June 30, 2017.2018. Our legal ownership interest may differ. |
| |
(b)(c) | Includes two joint ventures in which we own a 65% interest and Crosswinds joint venture in which we own a 49% interest. |
| |
(c)(d) | Voyager joint venture primarily consists of a 50% interest in Voyager RV Resort and 33% interest in the utility plant servicing the Property. |
On March 29, 2018, the Crosswinds joint venture repaid a short-term loan to us in the amount of $13.8 million. We provided the loan to Crosswinds in conjunction with the formation of the joint venture in June 2017.
We received approximately $1.8 million and $1.0 million in distributions from these joint ventures for both the six months ended June 30, 20172018 and 2016, respectively.2017. Approximately $0.3 million and $0.5 million of the distributions made to us exceeded our basis in joint ventures for the quarter and six months ended June 30, 2017, and as such were recorded as income from unconsolidated joint ventures. None of the distributions made to us exceededexceed our basis in joint ventures for the quarter and six months ended June 30, 2016.2018.
Note 7 – Borrowing Arrangements
Mortgage Notes Payable
As ofDuring the six months ended June 30, 2017 and December 31, 2016,2018, we had outstanding mortgage indebtednessclosed on one loan, secured by two RV resorts, for gross proceeds of approximately $1,855.0 million$64.0 million. The loan carries an interest rate of 4.83% per annum and $1,891.9 million, respectively, net of deferred financing costs.matures in 2038.
In connection with the Paradise Park LargoSerendipity acquisition during the first quarter ended June 30, 2017,of 2018, we assumed a loan of approximately $5.9$9.2 million and obtained additional financing of $8.8 million for a total mortgage debt, secured by the manufactured home community, of $18.0 million with an interest rate of 4.6%4.75% that matures in 2040. During the quarter ended March2039.
As of June 30, 2018 and December 31, 2017, we paid off one maturinghad outstanding mortgage loanindebtedness of approximately $21.1$2,028.5 million with a weighted average interest rateand $1,971.7 million, respectively, net of 5.76% per annum, secured by one manufactured home Property.deferred financing costs.
The weighted average interest rate on our outstanding mortgage indebtedness, including the impact of premium/discount amortization and loan cost amortization on mortgage indebtedness, for the six months ended June 30, 20172018 was approximately 4.9%4.7% per annum. The debt bears interest at stated rates ranging from 3.5%3.1% to 8.9% per annum and matures on various dates ranging from 20172018 to 2041. The debt encumbered a total of 126124 and 120 of our Properties as of both June 30, 20172018 and December 31, 2016,2017, respectively, and the carrying value of such Properties was approximately $2,282.1$2,499.0 million and $2,296.6$2,323.1 million, as of June 30, 20172018 and December 31, 2016,2017, respectively.
Unsecured Line of Credit
During the six months ended June 30, 2018, we paid off our unsecured line of credit balance, including approximately $30.0 million outstanding as of December 31, 2017.
As of June 30, 2017,2018, we are in compliance in all material respects with the covenants in our borrowing arrangements.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 8 – Equity Incentive Awards
Stock-based compensationCompensation expense related to restricted stock and stock options, reported in generalGeneral and administrative on the Consolidated Statements of Income and Comprehensive Income, for both of the quarters ended June 30, 20172018 and 20162017 was approximately $2.7 million and $2.5 million and for the six months ended June 30, 20172018 and 20162017 was approximately $4.3$4.5 million and $4.4$4.3 million, respectively.
Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by our Board of Directors on March 11, 2014 and approved by our stockholders on May 13, 2014. Pursuant to the 2014 Plan, our officers, directors, employees and consultants may be awarded (i) shares of common stock (“Restricted Stock”), (ii) options to acquire shares of common stock (“Options”), including non-qualified stock options and incentive stock options within the meaning of Section 422 of the Internal Revenue Code, and (iii) other forms of equity awards, subject to conditions and restrictions determined by the Compensation, Nominating, and Corporate Governance Committee of our Board of Directors (the “Compensation Committee”). The Compensation Committee will determine the vesting schedule, if any, of each Restricted Stock Grant or Option and the term of each Option, which term shall not exceed ten years from the date of grant. Shares that do not vest are forfeited. Dividends paid on restricted stock are not returnable, even if the underlying stock does not entirely vest. A maximum of 3,750,000 shares of common stock were originally available for grant under the 2014 Plan. As of June 30, 2017, 3,126,885 shares remained available for grant.
Grants under the 2014 Plan are approved by the Compensation Committee, which determines the individuals eligible to receive awards, the types of awards, and the terms, conditions and restrictions applicable to any award, except grants to directors which are approved by the Board of Directors. The Compensation Committee determines the vesting schedule, if any, of each restricted stock grant or stock option grant and the term of each stock option, which term shall not exceed ten years from the date of grant. Shares that do not vest are forfeited. Dividends paid on restricted stock are not returnable, even if the underlying stock does not entirely vest. A maximum of 3,750,000 shares of Common Stock were originally available for grant under the 2014 Plan. As of June 30, 2018, 2,934,810 shares remained available for grant.
On May 2, 2017,1, 2018, we awarded to certain members of our Board of Directors, 55,23851,388 shares of Restricted Stock at a fair market value of approximately $4.5$4.6 million and Options to purchase 6,9306,270 shares of common stock with an exercise price of $81.15$89.65 per share. The shares of common stock covered by these awards are subject to multiple tranches that vest between November 2, 20171, 2018 and May 2, 2020.1, 2021.
On February 1, 2017,2018, we awarded 75,00070,250 shares of Restricted Stockrestricted stock (the “2018 Awards”) at a fair market value of approximately $5.4$5.9 million to certain members of our senior management for their service in 2017.2018. These restricted stock grants vest over a three-year vesting period, with one-third vesting on December 28, 2018 and the remaining two-thirds vesting on each of December 28, 2019 and December 28, 2020, respectively (the “Extended Vesting Portion”). One-half of the Extended Vesting Portion of the 2018 Awards provide solely for time-based vesting and will vest in equal installments on December 28, 2019 and December 28, 2020. The remaining one-half of the Extended Vesting Portion of the 2018 Awards provide for performance-based vesting and will vest, subject to the satisfaction of the performance conditions to be established by the Compensation Committee in the year of the vesting period, in equal installments on December 28, 2019 and December 28, 2020.
Additionally, on February 1, 2018, we awarded a one-time transition award of time-based restricted stock (the "Transition Awards") as a transition from our prior practice of granting annual restricted stock awards which vest in full on December 31 of the relevant grant year. On February 1, 2018, we awarded Transition Awards for 70,250 shares of common stock at a fair market value of approximately $5.9 million to certain members of our senior management. These Transition Awards are intended to mitigate the impact of a reduction in the realized pay for certain members of our senior management in 2018 and 2019 resulting from the three-year vesting period for the 2018 Awards. Two-thirds of each Transition Award will vest on December 31, 2017.28, 2018, and the remaining one-third will vest on December 28, 2019. The Transition Awards are not subject to performance goals. The Compensation Committee does not intend to replicate these Transition Awards in future years.
The fair market value of our restricted stock grants was determined by using the closing share price of our common stock on the date the shares were issued and isissued. Time-based restricted stock awards are recorded as stock-based compensation expense and paid in capital over the vesting period. Stock-based compensation for restricted stock awards with performance conditions will be recognized using the closing price of our common stock at the grant date when the key terms and conditions are known to all parties.
Note 9 – Commitments and Contingencies
California Rent Control Litigation
As part of our effort to realize the value of our Properties subject to rent control, we previously initiated lawsuits against certain localities in California with the goal of achieving a level of regulatory fairness in California's rent control jurisdictions, and in particular those jurisdictions that prohibit increasing rents to market upon turnover. Such regulations allow tenants to sell their homes for a price that includes a premium above the intrinsic value of the homes. The premium represents the value of the future discounted rent-controlled rents, which is fully capitalized into the prices of the homes sold. In our view, such regulations result in a transfer to the tenants of the value of our land, which would otherwise be reflected in market rents. We have discovered through the litigation process that certain municipalities considered condemning our Properties at values well below the value of the underlying land. In our view, a failure to articulate market rents for Sites governed by restrictive rent control would put us at risk for condemnation or eminent domain proceedings based on artificially reduced rents. Such a physical taking, should it occur, could represent substantial lost value to stockholders. We are cognizant of the need for affordable housing in the jurisdictions, but assert that restrictive rent regulation does not promote this purpose because tenants pay to their sellers as part of the purchase price of the home all the future rent savings that are expected to result from the rent control regulations, eliminating any supposed improvement in the affordability of housing. In a more well-balanced regulatory environment, we would receive market rents that would eliminate the price premium for homes, which would trade at or near their intrinsic value. Such efforts have included the following matters:
We sued the City of San Rafael on October 13, 2000 in the U.S. District Court for the Northern District of California, challenging its rent control ordinance on constitutional grounds. While the District Court found the rent control ordinance unconstitutional, the United States Court of Appeals for the Ninth Circuit reversed the District Court and ruled that the ordinance had not unconstitutionally taken our property. On September 3, 2013, we filed a petition for review by the U.S. Supreme Court, which was denied.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies (continued)
On January 31, 2012, we sued the City of Santee in the United States District for the Southern District of California challenging its rent control ordinance on constitutional grounds. On September 26, 2013, we entered a settlement agreement with the City pursuant to which we are able to increase Site rents at the Meadowbrook community through January 1, 2034 as follows: (a) a one-time 2.5% rent increase on all Sites in January 2014; plus (b) annual rent increases of 100% of the consumer price index (CPI) beginning in 2014; and (c) a 10% increase in the rent on a site upon turnover of that site. Absent the settlement, the rent control ordinance limited us to annual rent increases of at most 70% of CPI with no increases on turnover of a site.
Settlement of California Lawsuits
On January 18, 2017, we entered into agreements pursuant to which we agreed to settle three California lawsuits related to our California Hawaiian property in San Jose, our Monte del Lago property in Castroville and our Santiago Estates property in Sylmar. Each of the three plaintiff groups was represented by the same law firm and alleged that the Company failed to properly maintain the respective properties. The settlement agreements provided for $9.9 million to be paid to settle the California Hawaiian matter, $1.5 million to be paid to settle the Monte del Lago matter and $1.9 million to be paid to settle the Santiago Estates matter. As a result, a litigation settlement payable was recorded in Accrued expenses and accounts payable as of December 31, 2016. In addition, an insurance receivable was recorded in escrow deposits, goodwill and other assets, net as of December 31, 2016, resulting in a net settlement of approximately $2.4 million reflected as a component of property rights initiatives and other, net on the consolidated statement of income for the year ended December 31, 2016. During the quarter ended March 31, 2017, the settlements were finalized, the settlement payments were made and the insurance payments were received. These settlements resolved all pending matters brought by plaintiffs’ counsel against us or any of our affiliates. Pursuant to the settlement agreements, all plaintiffs provided full releases to each of the defendants and their affiliates including with respect to the claims alleged in the lawsuits, and each of the lawsuits and related appeals were dismissed with prejudice. The settlements do not constitute an admission of liability by us or any of our affiliates and were made to avoid the costs, risks and uncertainties inherent in litigation.
Civil Investigation by Certain California District Attorneys
In November 2014, we received a civil investigative subpoena from the office of the District Attorney for Monterey County, California ("MCDA"), seeking information relating to, among other items, statewide compliance with asbestos and hazardous waste regulations dating back to 2005 primarily in connection with demolition and renovation projects performed by third-party contractors at our California Properties. We responded by providing the information required by the subpoena.
On October 20, 2015, we attended a meeting with representatives of the MCDA and certain other District Attorneys' offices at which the MCDA reviewed the preliminary results of their investigation including, among other things, (i) alleged violations of asbestos and related regulations associated with approximately 200 historical demolition and renovation projects in California; (ii) potential exposure to civil penalties and unpaid fees; and (iii) next steps with respect to a negotiated resolution of the alleged
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies (continued)
violations. No legal proceedings have been instituted to date and we are involved in settlement discussions with the District Attorneys' offices. We continue to assess the allegations and the underlying facts, and at this time we are unable to predict the outcome of the investigation or reasonably estimate any possible loss.
Other
In addition to legal matters discussed above, we are involved in various other legal and regulatory proceedings ("Other Proceedings") arising in the ordinary course of business. The Other Proceedings include, but are not limited to, notices, consent decrees, information requests, and additional permit requirements and other similar enforcement actions by governmental agencies relating to our utility infrastructure, including water and wastewater treatment plants and other waste treatment facilities and electrical systems. Additionally, in the ordinary course of business, our operations are subject to audit by various taxing authorities. Management believes these Other Proceedings taken together do not represent a material liability. In addition, to the extent any such proceedings or audits relate to newly acquired Properties, we consider any potential indemnification obligations of sellers in our favor.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 – Reportable Segments
We have identified two reportable segments which are: (i) Property Operations and (ii) Home Sales and Rentals Operations. The Property Operations segment owns and operates land lease Properties and the Home Sales and Rentals Operations segment purchases, sells and leases homes at the Properties. The distribution of the Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 - Reportable Segments (Continued)
All revenues are from external customers and there is no customer who contributed 10% or more of our total revenues during the quarters and six months ended June 30, 20172018 or 2016.2017.
The following tables summarize our segment financial information for the quarters and six months ended June 30, 20172018 and 20162017 (amounts in thousands):
Quarter EndedJune 30, 20172018 | | | Property Operations | | Home Sales and Rentals Operations | | Consolidated | |
(amounts in thousands) | | Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 206,594 |
| | $ | 11,811 |
| | $ | 218,405 |
| $ | 222,167 |
| | $ | 13,060 |
| | $ | 235,227 |
|
Operations expenses | (102,649 | ) | | (10,481 | ) | | (113,130 | ) | (110,046 | ) | | (12,234 | ) | | (122,280 | ) |
Income from segment operations | 103,945 |
| | 1,330 |
| | 105,275 |
| 112,121 |
| | 826 |
| | 112,947 |
|
Interest income | 754 |
| | 1,041 |
| | 1,795 |
| 823 |
| | 1,033 |
| | 1,856 |
|
Depreciation on real estate assets and rental homes | (27,609 | ) | | (2,638 | ) | | (30,247 | ) | (30,061 | ) | | (2,391 | ) | | (32,452 | ) |
Amortization of in-place leases | (958 | ) | | — |
| | (958 | ) | (1,893 | ) | | — |
| | (1,893 | ) |
Income (loss) from operations | $ | 76,132 |
| | $ | (267 | ) | | $ | 75,865 |
| $ | 80,990 |
| | $ | (532 | ) | | $ | 80,458 |
|
Reconciliation to Consolidated net income: | | | | | | |
Reconciliation to consolidated net income: | | | | | | |
Corporate interest income | | | | | 3 |
| | | | | 6 |
|
Income from other investments, net | | | | | 1,109 |
| | | | | 3,413 |
|
General and administrative | | | | | (8,461 | ) | | | | | (9,669 | ) |
Property rights initiatives and other | | | | | (271 | ) | |
Other expenses | | | | | | (367 | ) |
Interest and related amortization | | | | | (24,822 | ) | | | | | (26,285 | ) |
Equity in income of unconsolidated joint ventures | | | | | 1,040 |
| | | | | 1,613 |
|
Consolidated net income | | | | | $ | 44,463 |
| | | | | $ | 49,169 |
|
| | | | | | | | | | |
Total assets | $ | 3,267,947 |
| | $ | 217,411 |
| | $ | 3,485,358 |
| $ | 3,477,455 |
| | $ | 222,734 |
| | $ | 3,700,189 |
|
Capital improvements | | $ | 26,602 |
| | $ | 23,459 |
| | $ | 50,061 |
|
Quarter Ended June 30, 2016 |
| | | | | | | | | | | |
| Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 193,184 |
| | $ | 13,002 |
| | $ | 206,186 |
|
Operations expenses | (94,375 | ) | | (11,867 | ) | | (106,242 | ) |
Income from segment operations | 98,809 |
| | 1,135 |
| | 99,944 |
|
Interest income | 736 |
| | 867 |
| | 1,603 |
|
Depreciation on real estate assets and rental homes | (26,317 | ) | | (2,712 | ) | | (29,029 | ) |
Amortization of in-place leases | (428 | ) | | — |
| | (428 | ) |
Income (loss) from operations | $ | 72,800 |
| | $ | (710 | ) | | $ | 72,090 |
|
Reconciliation to Consolidated net income: | | | | | |
Corporate interest income | | | | | 22 |
|
Income from other investments, net | | | | | 2,270 |
|
General and administrative | | | | | (8,255 | ) |
Property rights initiatives and other | | | | | (527 | ) |
Interest and related amortization | | | | | (25,561 | ) |
Equity in income of unconsolidated joint ventures | | | | | 765 |
|
Consolidated net income | | | | | $ | 40,804 |
|
| | | | | |
Total assets | $ | 3,249,375 |
| | $ | 236,200 |
| | $ | 3,485,575 |
|
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 -– Reportable Segments (Continued)(continued)
Quarter EndedJune 30, 2017 |
| | | | | | | | | | | |
(amounts in thousands) | Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 206,594 |
| | $ | 11,811 |
| | $ | 218,405 |
|
Operations expenses | (102,649 | ) | | (10,481 | ) | | (113,130 | ) |
Income from segment operations | 103,945 |
| | 1,330 |
| | 105,275 |
|
Interest income | 754 |
| | 1,041 |
| | 1,795 |
|
Depreciation on real estate assets and rental homes | (27,609 | ) | | (2,638 | ) | | (30,247 | ) |
Amortization of in-place leases | (958 | ) | | — |
| | (958 | ) |
Income (loss) from operations | $ | 76,132 |
| | $ | (267 | ) | | $ | 75,865 |
|
Reconciliation to Consolidated net income: | | | | | |
Corporate interest income | | | | | 3 |
|
Income from other investments, net | | | | | 1,109 |
|
General and administrative | | | | | (8,461 | ) |
Other expenses | | | | | (271 | ) |
Interest and related amortization | | | | | (24,822 | ) |
Equity in income of unconsolidated joint ventures | | | | | 1,040 |
|
Consolidated net income | | | | | $ | 44,463 |
|
| | | | | |
Total assets | $ | 3,267,947 |
| | $ | 217,411 |
| | $ | 3,485,358 |
|
Capital improvements | $ | 18,534 |
| | $ | 10,576 |
| | $ | 29,110 |
|
Six Months EndedJune 30, 2017
|
| | | | | | | | | | | |
| Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 425,582 |
| | $ | 22,685 |
| | $ | 448,267 |
|
Operations expenses | (199,906 | ) | | (20,076 | ) | | (219,982 | ) |
Income from segment operations | 225,676 |
| | 2,609 |
| | 228,285 |
|
Interest income | 1,484 |
| | 2,079 |
| | 3,563 |
|
Depreciation on real estate assets and rental homes | (55,062 | ) | | (5,295 | ) | | (60,357 | ) |
Amortization of in-place leases | (1,990 | ) | | — |
| | (1,990 | ) |
Income (loss) from operations | $ | 170,108 |
| | $ | (607 | ) | | $ | 169,501 |
|
Reconciliation to Consolidated net income: | | | | | |
Corporate interest income | | | | | 5 |
|
Income from other investments, net | | | | | 1,866 |
|
General and administrative | | | | | (15,834 | ) |
Property rights initiatives and other | | | | | (490 | ) |
Interest and related amortization | | | | | (49,701 | ) |
Equity in income of unconsolidated joint ventures | | | | | 2,190 |
|
Consolidated net income | | | | | $ | 107,537 |
|
| | | | | |
Total assets | $ | 3,267,947 |
| | $ | 217,411 |
| | $ | 3,485,358 |
|
Capital improvements | $ | 31,731 |
| | $ | 21,733 |
| | $ | 53,464 |
|
Six Months Ended June 30, 2016
| | | Property Operations | | Home Sales and Rentals Operations | | Consolidated | |
(amounts in thousands) | | Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 397,910 |
| | $ | 25,040 |
| | $ | 422,950 |
| $ | 453,183 |
| | $ | 25,179 |
| | $ | 478,362 |
|
Operations expenses | (184,887 | ) | | (22,507 | ) | | (207,394 | ) | (215,558 | ) | | (23,307 | ) | | (238,865 | ) |
Income from segment operations | 213,023 |
| | 2,533 |
| | 215,556 |
| 237,625 |
| | 1,872 |
| | 239,497 |
|
Interest income | 1,453 |
| | 1,785 |
| | 3,238 |
| 1,631 |
| | 1,940 |
| | 3,571 |
|
Depreciation on real estate assets and rental homes | (52,281 | ) | | (5,403 | ) | | (57,684 | ) | (53,084 | ) | | (10,690 | ) | | (63,774 | ) |
Amortization of in-place leases | (763 | ) | | — |
| | (763 | ) | (2,945 | ) | | — |
| | (2,945 | ) |
Income (loss) from operations | $ | 161,432 |
| | $ | (1,085 | ) | | $ | 160,347 |
| $ | 183,227 |
| | $ | (6,878 | ) | | $ | 176,349 |
|
Reconciliation to Consolidated net income: | | | | | | |
Reconciliation to consolidated net income: | | | | | | |
Corporate interest income | | | | | 47 |
| | | | | 241 |
|
Income from other investments, net | | | | | 3,993 |
| | | | | 4,353 |
|
General and administrative | | | | | (15,663 | ) | | | | | (17,707 | ) |
Property rights initiatives and other | | | | | (1,181 | ) | |
Other expenses | | | | | | (710 | ) |
Interest and related amortization | | | | | (51,195 | ) | | | | | (51,988 | ) |
Equity in income of unconsolidated joint ventures | | | | | 1,646 |
| | | | | 2,808 |
|
Consolidated net income | | | | | $ | 97,994 |
| | | | | $ | 113,346 |
|
| | | | | | | | | | |
Total assets | $ | 3,249,375 |
| | $ | 236,200 |
| | $ | 3,485,575 |
| $ | 3,477,455 |
| | $ | 222,734 |
| | $ | 3,700,189 |
|
Capital improvements | | $ | 47,870 |
| | $ | 33,507 |
| | $ | 81,377 |
|
16
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 -– Reportable Segments (Continued)(continued)
Six Months EndedJune 30, 2017 |
| | | | | | | | | | | |
(amounts in thousands) | Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 425,582 |
| | $ | 22,685 |
| | $ | 448,267 |
|
Operations expenses | (199,906 | ) | | (20,076 | ) | | (219,982 | ) |
Income from segment operations | 225,676 |
| | 2,609 |
| | 228,285 |
|
Interest income | 1,484 |
| | 2,079 |
| | 3,563 |
|
Depreciation on real estate assets and rental homes | (55,062 | ) | | (5,295 | ) | | (60,357 | ) |
Amortization of in-place leases | (1,990 | ) | | — |
| | (1,990 | ) |
Income (loss) from operations | $ | 170,108 |
| | $ | (607 | ) | | $ | 169,501 |
|
Reconciliation to Consolidated net income: | | | | | |
Corporate interest income | | | | | 5 |
|
Income from other investments, net | | | | | 1,866 |
|
General and administrative | | | | | (15,834 | ) |
Other expenses | | | | | (490 | ) |
Interest and related amortization | | | | | (49,701 | ) |
Equity in income of unconsolidated joint ventures | | | | | 2,190 |
|
Consolidated net income | | | | | $ | 107,537 |
|
| | | | | |
Total assets | $ | 3,267,947 |
| | $ | 217,411 |
| | $ | 3,485,358 |
|
Capital improvements | $ | 31,731 |
| | $ | 21,733 |
| | $ | 53,464 |
|
The following table summarizes our financial information for the Property Operations segment for the quarters and six months ended June 30, 20172018 and 20162017 (amounts in thousands):
| | | Quarters Ended | | Six Months Ended | Quarters Ended | | Six Months Ended |
| June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | |
(amounts in thousands) | | June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Revenues: | | | | | | | | | | | | | | |
Community base rental income | $ | 121,964 |
| | $ | 115,385 |
| | $ | 242,656 |
| | $ | 229,461 |
| $ | 128,579 |
| | $ | 121,964 |
| | $ | 255,318 |
| | $ | 242,656 |
|
Resort base rental income | 50,055 |
| | 44,732 |
| | 111,123 |
| | 100,166 |
| 55,231 |
| | 50,055 |
| | 119,485 |
| | 111,123 |
|
Right-to-use annual payments | 11,350 |
| | 11,187 |
| | 22,602 |
| | 22,241 |
| 11,891 |
| | 11,350 |
| | 23,410 |
| | 22,602 |
|
Right-to-use contracts current period, gross | 3,798 |
| | 3,086 |
| | 7,004 |
| | 5,618 |
| 3,944 |
| | 3,798 |
| | 7,106 |
| | 7,004 |
|
Right-to-use contract upfront payments, deferred, net | (1,321 | ) | | (798 | ) | | (2,096 | ) | | (1,100 | ) | (2,021 | ) | | (1,321 | ) | | (3,306 | ) | | (2,096 | ) |
Utility and other income | 20,650 |
| | 19,523 |
| | 42,776 |
| | 40,316 |
| 24,320 |
| | 20,650 |
| | 49,841 |
| | 42,776 |
|
Ancillary services revenues, net | 98 |
| | 69 |
| | 1,517 |
| | 1,208 |
| 223 |
| | 98 |
| | 1,329 |
| | 1,517 |
|
Total property operations revenues | 206,594 |
| | 193,184 |
| | 425,582 |
| | 397,910 |
| 222,167 |
| | 206,594 |
| | 453,183 |
| | 425,582 |
|
Expenses: | | | | | | | | | | | | | | |
Property operating and maintenance | 72,901 |
| | 66,647 |
| | 140,955 |
| | 129,601 |
| 80,091 |
| | 72,901 |
| | 154,999 |
| | 140,955 |
|
Real estate taxes | 13,943 |
| | 12,869 |
| | 27,980 |
| | 26,067 |
| 13,440 |
| | 13,943 |
| | 27,575 |
| | 27,980 |
|
Sales and marketing, gross | 2,894 |
| | 2,931 |
| | 5,584 |
| | 5,424 |
| 3,305 |
| | 2,894 |
| | 6,117 |
| | 5,584 |
|
Right-to-use contract commissions, deferred, net | (112 | ) | | (116 | ) | | (196 | ) | | (12 | ) | (262 | ) | | (112 | ) | | (286 | ) | | (196 | ) |
Property management | 13,023 |
| | 12,044 |
| | 25,583 |
| | 23,807 |
| 13,472 |
| | 13,023 |
| | 27,153 |
| | 25,583 |
|
Total property operations expenses | 102,649 |
| | 94,375 |
| | 199,906 |
| | 184,887 |
| 110,046 |
| | 102,649 |
| | 215,558 |
| | 199,906 |
|
Income from property operations segment | $ | 103,945 |
| | $ | 98,809 |
| | $ | 225,676 |
| | $ | 213,023 |
| $ | 112,121 |
| | $ | 103,945 |
| | $ | 237,625 |
| | $ | 225,676 |
|
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 – Reportable Segments (continued)
The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters and six months ended June 30, 20172018 and 2016 (amounts in thousands):2017:
| | | Quarters Ended | | Six Months Ended | Quarters Ended | | Six Months Ended |
| June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | |
(amounts in thousands) | | June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Revenues: | | | | | | | | | | | | | | |
Gross revenue from home sales | $ | 7,833 |
| | $ | 9,130 |
| | $ | 14,860 |
| | $ | 17,344 |
| $ | 9,105 |
| | $ | 7,833 |
| | $ | 17,414 |
| | $ | 14,860 |
|
Brokered resale revenues, net | 346 |
| | 329 |
| | 588 |
| | 608 |
| 369 |
| | 346 |
| | 651 |
| | 588 |
|
Rental home income (a) | 3,632 |
| | 3,543 |
| | 7,237 |
| | 7,088 |
| 3,561 |
| | 3,632 |
| | 7,076 |
| | 7,237 |
|
Ancillary services revenues, net | | 25 |
| | — |
| | 38 |
| | — |
|
Total revenues | 11,811 |
| | 13,002 |
| | 22,685 |
| | 25,040 |
| 13,060 |
| | 11,811 |
| | 25,179 |
| | 22,685 |
|
Expenses: | | | | | | | | | | | | | | |
Cost of home sales | 7,895 |
| | 9,481 |
| | 15,014 |
| | 17,762 |
| 9,632 |
| | 7,895 |
| | 18,206 |
| | 15,014 |
|
Home selling expenses | 929 |
| | 805 |
| | 1,854 |
| | 1,639 |
| 973 |
| | 929 |
| | 2,048 |
| | 1,854 |
|
Rental home operating and maintenance | 1,657 |
| | 1,581 |
| | 3,208 |
| | 3,106 |
| 1,629 |
| | 1,657 |
| | 3,053 |
| | 3,208 |
|
Total expenses | 10,481 |
| | 11,867 |
| | 20,076 |
| | 22,507 |
| 12,234 |
| | 10,481 |
| | 23,307 |
| | 20,076 |
|
Income from home sales and rentals operations segment | $ | 1,330 |
| | $ | 1,135 |
| | $ | 2,609 |
| | $ | 2,533 |
| $ | 826 |
| | $ | 1,330 |
| | $ | 1,872 |
| | $ | 2,609 |
|
______________________
| |
(a) | Segment information does not include Site rental income included in Community base rental income. |
Note 11 - Subsequent Events
On July 20, 2018, we completed the acquisition of Everglades Lakes, a 612-site MH community in Fort Lauderdale, Florida. The purchase price was $72.0 million and was funded with net proceeds from sales of common stock under our ATM equity offering program and proceeds from our line of credit.
During July 2018, we sold 252,864 shares of common stock as part of our ATM equity offering program at a weighted average price per share of $91.85, resulting in net cash proceeds of approximately $22.9 million. As of July 26, 2018, $126.8 million of common stock remains available for issuance under the ATM equity offering program.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Overview and Outlook
We are a self-administered, self-managed, real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. We are a fully integrated owner and operator of lifestyle-oriented properties (“Properties”) consisting primarily of manufactured home ("MH") communities and recreational vehicle ("RV") resorts and campgrounds. As of June 30, 2017,2018, we owned or had an ownership interest in a portfolio of 393409 Properties located throughout the United States and Canada containing 147,107152,937 Sites. These properties are located in 32 states and British Columbia, with more than 8090 Properties with lake, river or ocean frontage and more than 100 Properties within 10 miles of the coastal United States.
We invest in Properties in sought-after locations near retirement and vacation destinations and urban areas across the United States with a focus on increasing operating cash flows. We seek growth in earnings, funds from operations ("FFO") and cash flows by enhancing the profitability and operation of our Properties and investments. We seek to accomplish this by attracting high- quality customers to our Properties and retaining these customers who take pride in the Property and in their homes and efficiently managing our Properties to increase operating margins by increasing occupancy, maintaining competitive market rents and controlling expenses.
We believe that demand from baby boomers for manufactured housing and RV resorts will continue to outpace supply for several years. We believe these individuals will continue to drive the market for second home sales as vacation properties, investment opportunities, or retirement retreats. We believe it is likely that over the next decade we will continue to see high levels of second home sales and that resort homes and cottages in our Properties will continue to provide a viable second-home alternative to site-built homes.
We also believe that our Properties and our business model provide an opportunity for increased cash flows and appreciation in value. These may be achieved through increases in rental and occupancy rates, as well as expense controls, expansion of existing Properties and opportunistic acquisitions. We actively seek to acquire and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties, which may include contracts outstanding to acquire such properties that are subject to the satisfactory completion of our due diligence review.
We generate the majority of our revenues from customers renting our Sites, or entering into right-to-use contracts (also referred to as membership products) which provide our customers access to specific Properties for limited stays. Our MH community Sites and annual RV resort Sites are leased on an annual basis. Seasonal Sites are leased to customers generally for one to six months. Transient Sites are leased to customers on a short-term basis. The revenue from seasonal and transient Sites is generally higher during the first and third quarters. We consider the transient revenue stream to be our most volatile as it is subject to weather conditions and other factors affecting the marginal RV customer's vacation and travel preferences. Sites designated as right-to-use Sites are primarily utilized to service the approximately 106,500 customers who have entered into right-to-use contracts (otherwise referred to as "memberships" or "membership dues"). We also have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures in the Consolidated Statements of Income and Comprehensive Income.
The breakdown of our Sites by type areis as follows (amounts are approximate):
|
| | |
| Total Sites as of June 30, 20172018 |
Community Sites | 71,10071,800 |
|
Resort Sites: | |
Annual | 26,60028,400 |
|
Seasonal | 11,200 |
|
Transient | 10,50011,400 |
|
Right-to-use (1) | 24,10024,200 |
|
Joint Ventures (2) | 3,6005,900 |
|
| 147,100152,900 |
|
_________________________
| |
(1) | Primarily utilized to service the approximately 110,400 membership customers who have entered into a Thousand Trails Camping Pass. Includes approximately 5,7005,800 Sites rented on an annual basis. |
| |
(2) | Joint ventures have approximately 2,700 annual Sites, approximately 400 seasonal Sites, and approximately 500 transient Sites and includes Crosswinds Mobile Home Park joint venture that we entered into during the quarter ended June 30, 2017.approximately 2,300 marina slips. |
Management's Discussion (continued)
In our Home Sales and Rental Operations business our revenue streams include home sales, home rentals, brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing Site Set homes that are located in Properties owned and managed by us. We continue to focus on our rental operations, as we believe renting our vacant new homes may representrepresents an attractive source of occupancy and the opportunity to convert the renter to a new homebuyer in the future. We also sell and rent homes through our joint venture, ECHO Financing, LLC (the "ECHO JV"). We provide brokerage services to residents of our Properties who move from a Property but do not relocate their home. In addition, we operate ancillary activities at certain Properties, such as golf courses, pro shops, stores and restaurants.
In the manufactured housing industry, options for home financing, also known as chattel financing, options are limited. FinancingChattel financing options available today include community owner fundedowner-funded programs or third partythird-party lender programs that provide subsidized financing to customers and often require the community owner to guarantee customer defaults. Third partyThird-party lender programs have stringent underwriting criteria, sizable down payment requirements, short loan amortization and high interest rates. We have a limited program under which we purchase loans made by an unaffiliated lender to purchasers of homes at our Properties.
We invest in Properties in sought-after locations near retirement and vacation destinations and urban areas across the United States with a focus on increasing operating cash flows. We seek growth in earnings, funds from operations ("FFO") and cash flows by enhancing the profitability and operation of our Properties and investments. We seek to accomplish this by attracting high quality customers to our Properties and retaining these customers who take pride in the Property and in their homes and efficiently
Management's Discussion (continued)
managing our Properties to increase operating margins by increasing occupancy, maintaining competitive market rents and controlling expenses.
We actively seek to acquire and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties, which may include contracts outstanding to acquire such properties that are subject to the satisfactory completion of our due diligence review.
In addition to Net income computed in accordance with GAAP, we assess and measure our overall financial and operating performance using certain Non-GAAP supplemental measures, which include: (i) FFO, (ii) Normalized funds from operations ("NFFO"Normalized FFO"), (iii) Income from property operations, (iv) Income from property operations, excluding deferrals and property management, (v) Core Portfolio income from property operations, excluding deferrals and property management, (operating results for properties owned and operated in both periods under comparison) and (vi) Income from rental operations, net of depreciation. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Definitions and reconciliations of these measures to the most comparable GAAP measures are included below in this discussion.
Results Overview
Net income available for Common Stockholders increased $4.0$6.6 million or $0.07 per Common Share, to $39.5$46.1 million, or $0.52 per Common Share for the quarter ended June 30, 2017,2018, compared to $35.5$39.5 million, or $0.45 per Common Share for the quarter ended June 30, 2016.2017. Net income available for Common Stockholders increased $10.3$10.0 million, or $0.09 per Common Share, to $96.4$106.4 million, or $1.20 per Common Share for the six months ended June 30, 2017,2018, compared to $86.1$96.4 million, or $1.11 per Common Share for the six months ended June 30, 2016. Both FFO per diluted share and NFFO per diluted share for the quarter ended June 30, 2017 were $0.81 compared to $0.75 for the quarter ended June 30, 2016 driven by improved Core and Non-Core income from property operations. Both FFO per diluted share and NFFO per diluted share for the six months ended June 30, 2017 were $1.81 compared to $1.67 for the six months ended June 30, 2016.
2017.
For the quarter ended June 30, 20172018, FFO available for Common Stock and OP Unit holders increased $10.7 million, or $0.09 per Common Share, to $85.6 million or $0.90 per Common Share, compared to $74.9 million, or $0.81 per Common Share, for the same period in 2017. For the six months ended June 30, 2018, FFO available for Common Stock and OP Unit holders increased $15.8 million, or $0.13 per Common Share, to $183.8 million or $1.94 per Common Share, compared to $168.0 million, or $1.81 per Common Share, for the same period in 2017.
For the quarter ended June 30, 2018, Normalized FFO available for Common Stock and OP Unit holders increased $8.7 million, or $0.08 per Common Share, to $83.8 million, or $0.89 per Common Share, compared to $75.1 million, or $0.81 per Common Share, for the same period in 2017. For the six months ended June 30, 2018, Normalized FFO available for Common Stock and OP Unit holders increased $13.4 million, or $0.11 per Common Share, to $181.7 million, or $1.92 per Common Share, compared to $168.3 million, or $1.81 per Common Share, for the same period in 2017.
For the quarter ended June 30, 2018, property operating revenues in our Core Portfolio, excluding deferrals, were up 5.5%$11.6 million, or 5.6% and property operating expenses in our Core Portfolio, excluding deferrals and property management, were up 6.5%$5.4 million, or 6.0% from the quarter ended June 30, 2016,2017, resulting in an increase in our incomeIncome from property operations beforeexcluding deferrals and property management of 4.8%$6.2 million, or 5.2%, from the quarter ended June 30, 2016.2017. For the six months ended June 30, 20172018, property operating revenues in our Core Portfolio, excluding deferrals, were up 4.9%$23.9 million, or 5.6% and property operating expenses in our Core Portfolio, excluding deferrals and property management, were up 5.9%$11.9 million or 6.8% for the six months ended June 30, 2018, resulting in an increase in our Income from property operations excluding deferrals and property management of $12.0 million or 4.8% from the six months ended June 30, 2016, resulting in an increase in our income from property operations before deferrals and property management of 4.3%, from the six months ended June 30, 2016.2017.
We continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our Core Portfolio. Our Core Portfolio average occupancy consists of occupied home sitesSites in our MH communities (both homeowners and renters) and was 94.7% for the quarter ended June 30, 2018, compared to 94.6% for the quarter ended March 31, 2018 and 94.2% for the quarter ended June 30, 2017, compared to 94.0% for the quarter ended March 31, 2017 and 93.3% for the quarter ended June 30, 2016.2017. During the quarter ended June 30, 2017,2018, we increased occupancy of manufactured homes within our Core Portfolio by 63 Sites with an increase in homeowner occupancy of 150 Sites compared to occupancy as of March 31, 2018. By comparison, as of June 30, 2017, our Core Portfolio occupancy increased 114 sitesSites with an increase in homeowner occupancy of 204 sites compared to occupancy as of March 31, 2017. By comparison, as of June 30, 2016, our Core Portfolio occupancy increased 128 sites with an increase in homeowner occupancy of 229 sites compared to occupancy at March 31, 2016.Sites.
Management's Discussion (continued)
We continue to experiencehave experienced growth in revenues in our Core RV Portfolio as a result of our ability to increase rental rates and occupancy. RV revenues in our Core Portfolio for the quarter ended June 30, 20172018 were 8.1%7.7% higher than the quarter ended June 30, 2016.2017. Annual, seasonal and transient revenues for the quarter ended June 30, 20172018 increased 6.0%7.0%, 13.7%11.8% and 12.3%8.3%, respectively, from the quarter ended June 30, 2016.2017. RV revenues in our Core Portfolio for the six months ended June 30, 20172018 were 5.3%7.6% higher than the six months ended June 30, 2016.2017. Annual, seasonal and transient revenues for the six months ended June 30, 20172018 increased 5.3%6.9%, 3.8%9.6% and 6.7%7.7%, respectively, from the six months ended June 30, 2016.2017.
We continue to offer the Thousand Trails Camping Pass (“TTC”)build on our successful multi-channel marketing campaigns, incorporating social media and as a customer acquisition tool we have relationships with a network of RV dealers to provide them with a free one-year TTC membership to give to their customers in connection with the purchase of an RV.advanced marketing analytics. During the quarter ended June 30, 20172018, our RV revenue through digital channels increased 15% and our sales of online TTC salescamping passes increased 45% from42% compared to the quarter ended June 30, 2016. During2017. Our summer marketing campaigns are aimed at strengthening the quarter ended June 30, 2017 we sold approximately 4,700 TTCscommitment with our customer. We have increased the awareness of our product offerings and activated approximately 5,700 RV dealer TTCs. For the six months ended June 30, 2017 we sold approximately 7,300 TTCs and activated approximately 9,200 RV dealer TTCs.
Our social media presence continues to increase within our RV customer base and we continue to be successful at providing a venue for our customers to promote our Properties by encouraging them to share their memories of their experiences at our resorts. Year-over-yearyear over year we have seen an increase in social media fans of 30%20%. Through our summer marketing campaigns, we have
Management's Discussion (continued)
increased the awareness of our product offering and our customers are increasingly choosing the web as a vehicle to transact with us.
We continue to see high demand for our homes and communities. We closed 120146 new home sales in the quarter ended June 30, 20172018 compared to 180120 during the quarter ended June 30, 20162017 and 240276 new home sales in the six months ended June 30, 20172018 compared to 301240 during the six months ended June 30, 2016.2017. The new home sales during the quarter and six months ended June 30, 20172018 were primarily in our Arizona, Florida, Colorado and ColoradoCalifornia communities.
As of June 30, 2017,2018, we had 4,6744,282 occupied rental homes in our MH communities. For the quarters ended June 30, 2017 and 2016, homecommunities, including 264 homes rented through our ECHO joint venture. Home rental program net operating income was approximately $7.8 million, net of rental asset depreciation expense of approximately $2.4 million for the quarter ended June 30, 2018, and approximately $8.2 million, and $8.3 million, respectively, net of rental asset depreciation expense of approximately $2.6 million for the quarter ended June 30, 2017 and $2.7 million for the quarter ended June 30, 2016.2017. Approximately $8.8$8.2 million and $9.0$8.8 million of home rental operations revenue was included in communityCommunity base rental income for the quarters ended June 30, 20172018 and June 30, 2016,2017, respectively. For the six months ended June 30, 20172018 and 2016,2017, home rental program net operating income was approximately $16.4$15.6 million and $16.8$16.4 million, respectively, net of rental asset depreciation expense of approximately $5.3$4.9 million for both the six months ended June 30, 20172018 and $5.3 million for the six months ended June 30, 2016.2017. Approximately $17.7$16.5 million and $18.1$17.6 million of home rental operations revenue was included in communityCommunity base rental income for the six months ended June 30, 20172018 and six months ended June 30, 2016,2017, respectively.
On May 10, 2017, we completed the acquisition of Paradise Park Largo, a 108-site manufactured home community located in Largo, Florida for a purchase price of approximately $8.0 million. Our gross investment in real estate has increased approximately $46.3$134.0 million to $4,731.6$5,049.8 million as of June 30, 20172018 from $4,685.3$4,915.8 million as of December 31, 20162017, primarily due to the acquisitionacquisitions of ParadiseKingswood, Serendipity and Holiday Travel Park, Largo and increasedas well as capital expenditures.expenditures during the six months ended June 30, 2018.
The following chart lists both the Properties acquired or invested in from January 1, 20162017 through June 30, 2017,2018, which represents our Non-Core Portfolio;Properties; and Sites added through expansion opportunities at our existing Properties.
|
| | | | | | | | | |
Property | | Location | | Type of Property | | Transaction Date | | Sites(a) |
| | | | | | | | |
Total Sites as of January 1, 20162017 | | | | | | | | 143,938146,610 |
|
Acquisitions: | | | | | | | | |
Rose Bay | | Port Orange, Florida | | RV | | January 27, 2016 | | 303 |
|
Portland Fairview | | Fairview, Oregon | | RV | | May 26, 2016 | | 407 |
|
Forest Lake Estates | | Zephryhills, Florida | | RV, MH | | June 15, 2016 | | 1,168 |
|
Riverside RV | | Arcadia, Florida | | RV | | October 13, 2016 | | 499 |
|
Paradise Park - Largo | | Largo, Florida | | MH | | May 10, 2017 | | 108 |
|
Bethpage Camp Resort | | Urbanna, Virginia | | RV | | November 15, 2017 | | 1,034 |
|
Grey's Point Camp | | Topping, Virginia | | RV | | November 15, 2017 | | 728 |
|
Kingswood | | Riverview, Florida | | MH | | March 8, 2018 | | 229 |
|
Serendipity | | Clearwater, Florida | | MH | | March 15, 2018 | | 425 |
|
Holiday Travel Park | | Holiday, Florida | | RV | | April 20, 2018 | | 613 |
|
Joint Venture: | | | | | | | | |
Crosswinds | | St. Petersburg, Florida | | MH | | June 15, 2017 | | 376 |
|
Loggerhead | | Multiple, Florida | | Marina | | August 8, 2017 | | 2,343 |
|
Expansion Site Development and other: | | | | | | | | |
Net Sites added (reconfigured) in 2016 | | | | | | | | 295 |
|
Net Sites added (reconfigured) in 2017 | | | | | | | | 13124 |
|
TotalNet Sites as of June 30, 2017added (reconfigured) in 2018 | | | | | | | | 147,107347 |
|
Total Sites as of June 30, 2018 | | | | | | | | 152,937 |
|
| | | | | | | | |
| |
(a) | Loggerhead sites represent marina slip count. |
Non-GAAP Financial Measures
Management's discussion and analysis of financial condition and results of operations include certain Non-GAAP financial measures that in management's view of the business are meaningful as they allow the investor the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative
Management's Discussion (continued)
of recurring annual cash flow of the portfolio. These Non-GAAP financial measures as determined and presented by us may not be comparable to similarly titled measures reported by other companies, and include Income from Property Operations and Core Portfolio, FFO, Normalized FFO and Income from Rental Operation, net of depreciation.
We believe investors should review Income from Property Operations and Core Portfolio, FFO, Normalized FFO and Income from Rental Operations, net of depreciation, along with GAAP net income and cash flow from operating activities, investing activities and financing activities, when evaluating an equity REIT's operating performance. A discussion of Income from property operations and Core Portfolio, FFO, Normalized FFO and Income from rental operations, net of depreciation, and a reconciliation to net income, are included below.
Income from Property Operations and Core Portfolio
We use Income from property operations and Income from property operations, excluding deferrals and property management, and Core Portfolio income from property operations, excluding deferrals and property management, as alternative measures to evaluate the operating results of our manufactured home and RV communities. Income from property operations represents rental income, utility and other income and right-to-use income less property and rental home operating and maintenance expenses, real estate tax, sales and marketing expenses and property management expenses. Income from property operations, excluding deferrals and property management, represents income from property operations excluding property management expenses and the impact of the GAAP deferral of right-to-use contract upfront payments and related commissions, net. Our Core Portfolio consists of our Properties owned and operated since December 31, 2015.2016. Core Portfolio income from property operations, excluding deferrals and property management, is useful to investors for annual comparison as it removes the fluctuations associated with acquisitions, dispositions and significant transactions or unique situations. Our Non-Core Portfolio (or Acquisitions) includes all Properties that were not owned and operated during 2016all of 2017 and 2017.
Management's Discussion (continued)
2018. This includes, but is not limited to, three properties acquired during 2018, three properties acquired during 2017 and Fiesta Key and Sunshine Key RV Resorts.
Funds from Operations ("FFO") and Normalized Funds from Operations ("NFFO"Normalized FFO")
We define FFO as net income, computed in accordance with GAAP, excluding gains and actual or estimated losses from sales of properties, plus real estate related depreciation and amortization, impairments, if any, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with our interpretation of standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We receive up-frontupfront non-refundable payments from the entry of right-to-use contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO does not address the treatment of non-refundable right-to-use payments, we believe that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO.
We define NFFONormalized FFO as FFO excluding the following non-operating income and expense items: a) the financial impact of contingent consideration; b) gains and losses from early debt extinguishment, including prepayment penalties and defeasance costs; c) propertyb) acquisition and other transaction costs related to mergersbusiness combinations; and acquisitions; and d)c) other miscellaneous non-comparable items. NFFONormalized FFO presented herein is not necessarily comparable to NFFONormalized FFO presented by other real estate companies due to the fact that not all real estate companies use the same methodology for computing this amount.
We believe that FFO and Normalized FFO are helpful to investors as supplemental measures of the performance of an equity REIT. We believe that by excluding the effect of depreciation, amortization, impairments, if any, and actual or estimated gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. We further believe that Normalized FFO provides useful information to investors, analysts and our management because it allows them to compare our operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences not related to our operations. For example, we believe that excluding the early extinguishment of debt, property acquisition and other transaction costs related to mergers and acquisitionsbusiness combinations from NFFONormalized FFO allows investors, analysts and our management to assess the sustainability of operating performance in future periods because these costs do not affect the future operations of the properties. In some cases, we provide information about identified non-cash components of FFO and NFFONormalized FFO because it allows investors, analysts and our management to assess the impact of those items.
Income from Rental Operations, Net of Depreciation
We use Income from rental operations, net of depreciation as an alternative measure to evaluate the operating results of our home rental program. Income from rental operations, net of depreciation, represents income from rental operations less depreciation
Management's Discussion (continued)
expense on rental homes. We believe this measure is meaningful for investors as it provides a more complete picture of the home rental program operating results including the impact of depreciation which affects our home rental program investment decisions.
Our definitions and calculations of these non-GAAPNon-GAAP financial and operating measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. These non-GAAPNon-GAAP financial and operating measures do not represent cash generated from operating activities in accordance with GAAP, nor do they represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.
Management's Discussion (continued)
The following table reconciles Net income available for Common Stockholders to Income from property operations for the quarters and six months ended June 30, 20172018 and June 30, 2016 (amounts2017 (amounts in thousands):
| | | | Quarters ended June 30, | | Six Months Ended June 30, | | Quarters ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 |
Computation of Income from Property Operations: | | | | | | | | | | | | | | | | |
Net income available for Common Stockholders | | $ | 39,498 |
| | $ | 35,490 |
| | $ | 96,385 |
| | $ | 86,073 |
| | $ | 46,137 |
| | $ | 39,498 |
| | $ | 106,359 |
| | $ | 96,385 |
|
Series C Redeemable Perpetual Preferred Stock Dividends | | 2,316 |
| | 2,316 |
| | 4,613 |
| | 4,613 |
| |
Redeemable perpetual preferred stock dividends | | | 8 |
| | 2,316 |
| | 8 |
| | 4,613 |
|
Income allocated to non-controlling interests - Common OP Units | | 2,649 |
| | 2,998 |
| | 6,539 |
| | 7,308 |
| | 3,024 |
| | 2,649 |
| | 6,979 |
| | 6,539 |
|
Equity in income of unconsolidated joint ventures | | (1,040 | ) | | (765 | ) | | (2,190 | ) | | (1,646 | ) | | (1,613 | ) | | (1,040 | ) | | (2,808 | ) | | (2,190 | ) |
Income before equity in income of unconsolidated joint ventures | | 43,423 |
| | 40,039 |
| | 105,347 |
| | 96,348 |
| | 47,556 |
| | 43,423 |
| | 110,538 |
| | 105,347 |
|
Total other expenses, net | | 61,852 |
| | 59,905 |
| | 122,938 |
| | 119,208 |
| | 65,391 |
| | 61,852 |
| | 128,959 |
| | 122,938 |
|
Income from home sales operations and other | | 547 |
| | 758 |
| | (97 | ) | | 241 |
| | 883 |
| | 547 |
| | 822 |
| | (97 | ) |
Income from property operations | | $ | 105,822 |
| | $ | 100,702 |
| | $ | 228,188 |
| | $ | 215,797 |
| | $ | 113,830 |
| | $ | 105,822 |
| | $ | 240,319 |
| | $ | 228,188 |
|
Management's Discussion (continued)
The following table presents a calculation of FFO available for Common Stock and OP Unit holders and Normalized FFO available for Common Stock and OP Unit holders for the quarters and six months ended June 30, 20172018 and June 30, 2016 (amounts2017 (amounts in thousands):
| | | | Quarters ended June 30, | | Six Months Ended June 30, | | Quarters ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 |
Computation of FFO and Normalized FFO: | | | | | | | | | | | | | | | | |
Net income available for Common Stockholders | | $ | 39,498 |
| | $ | 35,490 |
| | $ | 96,385 |
| | $ | 86,073 |
| | $ | 46,137 |
| | $ | 39,498 |
| | $ | 106,359 |
| | $ | 96,385 |
|
Income allocated to common OP units | | 2,649 |
| | 2,998 |
| | 6,539 |
| | 7,308 |
| |
Income allocated to non-controlling interests - Common OP units | | | 3,024 |
| | 2,649 |
| | 6,979 |
| | 6,539 |
|
Right-to-use contract upfront payments, deferred, net(1) | | 1,321 |
| | 798 |
| | 2,096 |
| | 1,100 |
| | 2,021 |
| | 1,321 |
| | 3,306 |
| | 2,096 |
|
Right-to-use contract commissions, deferred, net | | (112 | ) | | (116 | ) | | (196 | ) | | (12 | ) | | (262 | ) | | (112 | ) | | (286 | ) | | (196 | ) |
Depreciation on real estate assets | | 27,608 |
| | 26,362 |
| | 55,061 |
| | 52,370 |
| | 30,062 |
| | 27,608 |
| | 58,883 |
| | 55,061 |
|
Depreciation on rental homes | | 2,639 |
| | 2,667 |
| | 5,296 |
| | 5,314 |
| | 2,390 |
| | 2,639 |
| | 4,891 |
| | 5,296 |
|
Amortization of in-place leases | | 958 |
| | 428 |
| | 1,990 |
| | 763 |
| | 1,893 |
| | 958 |
| | 2,945 |
| | 1,990 |
|
Depreciation on unconsolidated joint ventures | | 364 |
| | 305 |
| | 811 |
| | 595 |
| | 367 |
| | 364 |
| | 739 |
| | 811 |
|
FFO available for Common Stock and OP Unit holders | | 74,925 |
| | 68,932 |
| | 167,982 |
| | 153,511 |
| | 85,632 |
| | 74,925 |
| | 183,816 |
| | 167,982 |
|
Transaction costs(2) | | 220 |
| | 398 |
| | 324 |
| | 598 |
| | — |
| | 220 |
| | — |
| | 324 |
|
Insurance proceeds due to catastrophic weather event (3) | | | (1,806 | ) | | — |
| | (2,092 | ) | | — |
|
Normalized FFO available for Common Stock and OP Unit holders | | $ | 75,145 |
| | $ | 69,330 |
| | $ | 168,306 |
| | $ | 154,109 |
| | $ | 83,826 |
| | $ | 75,145 |
| | $ | 181,724 |
| | $ | 168,306 |
|
Weighted average Common Shares outstanding – fully diluted | | 93,063 |
| | 92,264 |
| | 93,041 |
| | 92,163 |
| | 94,623 |
| | 93,063 |
| | 94,600 |
| | 93,041 |
|
______________________
(1) The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and all related amendments, effective January 1, 2018. Upon adoption, right-to-use upfront nonrefundable payments will be recognized on a straight-line basis over 20 years to reflect our current estimated customer life for the majority of our upgrade contracts. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards.
(2) The Company adopted ASU 2017-01, Business Combinations, effective January 1, 2018. Upon adoption, transaction costs related to asset acquisitions are capitalized. All acquisitions completed subsequent to January 1, 2018 were determined by the Company to be asset acquisitions and, as such, the related transaction costs were capitalized. Transaction costs related to 2017 acquisitions, occurring prior to the adoption of this guidance, are included in General and administrative on the Consolidated Income Statement.
(3) Represents insurance recovery revenue from reimbursement for capital expenditures related to Hurricane Irma.
Management's Discussion (continued)
Results of Operations
Comparison of the Quarter Ended June 30, 20172018 to the Quarter Ended June 30, 20162017
Income from Property Operations
The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the quarters ended June 30, 20172018 and 20162017 (amounts(amounts in thousands). The Core Portfolio in this discussion includes all Properties acquired on or before December 31, 20152016 and which we have owned and operated continuously since January 1, 2016.2017. Core Portfolio growth percentages exclude the impact of GAAP deferrals of upfront payments from right-to-use contracts and related commissions.
| | | Core Portfolio | | Total Portfolio | Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | | Variance | | % Change | 2018 | | 2017 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Community base rental income | $ | 120,699 |
| | $ | 115,188 |
| | $ | 5,511 |
| | 4.8 | % | | $ | 121,964 |
| | $ | 115,385 |
| | $ | 6,579 |
| | 5.7 | % | $ | 127,409 |
| | $ | 121,848 |
| | $ | 5,561 |
| | 4.6 | % | | $ | 128,579 |
| | $ | 121,964 |
| | $ | 6,615 |
| | 5.4 | % |
Rental home income | 3,632 |
| | 3,543 |
| | 89 |
| | 2.5 | % | | 3,632 |
| | 3,543 |
| | 89 |
| | 2.5 | % | 3,561 |
| | 3,632 |
| | (71 | ) | | (2.0 | )% | | 3,561 |
| | 3,632 |
| | (71 | ) | | (2.0 | )% |
Resort base rental income | 47,753 |
| | 44,173 |
| | 3,580 |
| | 8.1 | % | | 50,055 |
| | 44,732 |
| | 5,323 |
| | 11.9 | % | 51,881 |
| | 48,161 |
| | 3,720 |
| | 7.7 | % | | 55,231 |
| | 50,055 |
| | 5,176 |
| | 10.3 | % |
Right-to-use annual payments | 11,350 |
| | 11,187 |
| | 163 |
| | 1.5 | % | | 11,350 |
| | 11,187 |
| | 163 |
| | 1.5 | % | 11,891 |
| | 11,350 |
| | 541 |
| | 4.8 | % | | 11,891 |
| | 11,350 |
| | 541 |
| | 4.8 | % |
Right-to-use contracts current period, gross | 3,798 |
| | 3,086 |
| | 712 |
| | 23.1 | % | | 3,798 |
| | 3,086 |
| | 712 |
| | 23.1 | % | 3,944 |
| | 3,798 |
| | 146 |
| | 3.8 | % | | 3,944 |
| | 3,798 |
| | 146 |
| | 3.8 | % |
Utility and other income | 20,319 |
| | 19,468 |
| | 851 |
| | 4.4 | % | | 20,650 |
| | 19,523 |
| | 1,127 |
| | 5.8 | % | 22,248 |
| | 20,507 |
| | 1,741 |
| | 8.5 | % | | 24,320 |
| | 20,650 |
| | 3,670 |
| | 17.8 | % |
Property operating revenues, excluding deferrals | 207,551 |
| | 196,645 |
| | 10,906 |
| | 5.5 | % | | 211,449 |
| | 197,456 |
| | 13,993 |
| | 7.1 | % | 220,934 |
| | 209,296 |
| | 11,638 |
| | 5.6 | % | | 227,526 |
| | 211,449 |
| | 16,077 |
| | 7.6 | % |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
|
|
Property operating and maintenance | 71,096 |
| | 66,363 |
| | 4,733 |
| | 7.1 | % | | 72,901 |
| | 66,647 |
| | 6,254 |
| | 9.4 | % | 77,483 |
| | 71,652 |
| | 5,831 |
| | 8.1 | % | | 80,091 |
| | 72,901 |
| | 7,190 |
| | 9.9 | % |
Rental home operating and maintenance | 1,657 |
| | 1,581 |
| | 76 |
| | 4.8 | % | | 1,657 |
| | 1,581 |
| | 76 |
| | 4.8 | % | 1,629 |
| | 1,657 |
| | (28 | ) | | (1.7 | )% | | 1,629 |
| | 1,657 |
| | (28 | ) | | (1.7 | )% |
Real estate taxes | 13,462 |
| | 12,781 |
| | 681 |
| | 5.3 | % | | 13,943 |
| | 12,869 |
| | 1,074 |
| | 8.3 | % | 13,073 |
| | 13,861 |
| | (788 | ) | | (5.7 | )% | | 13,440 |
| | 13,943 |
| | (503 | ) | | (3.6 | )% |
Sales and marketing, gross | 2,894 |
| | 2,931 |
| | (37 | ) | | (1.3 | )% | | 2,894 |
| | 2,931 |
| | (37 | ) | | (1.3 | )% | 3,305 |
| | 2,894 |
| | 411 |
| | 14.2 | % | | 3,305 |
| | 2,894 |
| | 411 |
| | 14.2 | % |
Property operating expenses, excluding deferrals and Property management | 89,109 |
| | 83,656 |
| | 5,453 |
| | 6.5 | % | | 91,395 |
| | 84,028 |
| | 7,367 |
| | 8.8 | % | 95,490 |
| | 90,064 |
| | 5,426 |
| | 6.0 | % | | 98,465 |
| | 91,395 |
| | 7,070 |
| | 7.7 | % |
Income from property operations, excluding deferrals and Property management (1) | 118,442 |
| | 112,989 |
| | 5,453 |
| | 4.8 | % | | 120,054 |
| | 113,428 |
| | 6,626 |
| | 5.8 | % | 125,444 |
| | 119,232 |
| | 6,212 |
| | 5.2 | % | | 129,061 |
| | 120,054 |
| | 9,007 |
| | 7.5 | % |
Property management | 13,023 |
| | 12,044 |
| | 979 |
| | 8.1 | % | | 13,023 |
| | 12,044 |
| | 979 |
| | 8.1 | % | 13,472 |
| | 13,023 |
| | 449 |
| | 3.4 | % | | 13,472 |
| | 13,023 |
| | 449 |
| | 3.4 | % |
Income from property operations, excluding deferrals (1) | 105,419 |
| | 100,945 |
| | 4,474 |
| | 4.4 | % | | 107,031 |
| | 101,384 |
| | 5,647 |
| | 5.6 | % | 111,972 |
| | 106,209 |
| | 5,763 |
| | 5.4 | % | | 115,589 |
| | 107,031 |
| | 8,558 |
| | 8.0 | % |
Right-to-use contracts, deferred and sales and marketing, deferred, net | 1,209 |
| | 682 |
| | 527 |
| | 77.3 | % | | 1,209 |
| | 682 |
| | 527 |
| | 77.3 | % | 1,759 |
| | 1,209 |
| | 550 |
| | 45.5 | % | | 1,759 |
| | 1,209 |
| | 550 |
| | 45.5 | % |
Income from property operations (1) | $ | 104,210 |
| | $ | 100,263 |
| | $ | 3,947 |
| | 3.9 | % | | $ | 105,822 |
| | $ | 100,702 |
|
| $ | 5,120 |
| | 5.1 | % | $ | 110,213 |
| | $ | 105,000 |
| | $ | 5,213 |
| | 5.0 | % | | $ | 113,830 |
| | $ | 105,822 |
|
| $ | 8,008 |
| | 7.6 | % |
__________________________
(1) Non-GAAP measure.measure, see the Results Overview section of the Management Discussion and Analysis for Non-GAAP Financial Measure Definitions and reconciliations of these Non-GAAP measures to Net Income available to Common Shareholders.
Total Portfolio income from property operations, which includes recently acquired properties,Core and Non-Core portfolios, for the quarter ended June 30, 20172018 increased $5.1$8.0 million, or 5.1%7.6%, from the quarter ended June 30, 2016,2017, driven by an increase of $3.9$5.2 million, or 3.9%5.0%, in our Core Portfolio income from property operations and a $1.2 million increase in ouroperations. Non-Core Portfolio income from property operations.operations for the quarter ended June 30, 2018 was $3.6 million, which increased $2.8 million from the quarter ended June 30, 2017, and includes $1.5 million of insurance proceeds which we have identified as business interruption recovery at our RV properties in the Florida Keys.
Property Operating Revenues
Community base rental income in our Core Portfolio for the quarter ended June 30, 20172018 increased $5.5$5.6 million, or 4.8%4.6% from the quarter ended June 30, 2016,2017, which reflects 3.9%4.0% growth from rate increases and approximately 0.9%0.6% growth from occupancy gains. The average monthly base rental income per Site increased to approximately $611$633 for the quarter ended June 30, 20172018 from approximately $588$608 for the quarter ended June 30, 2016.2017. The average occupancy for the Core Portfolio increased to 94.7% for the quarter ended June 30, 2018 from 94.2% for the quarter ended June 30, 2017 from 93.3% for the quarter ended June 30, 2016.
Management's Discussion (continued)
2017.
Resort base rental income in our Core Portfolio for the quarter ended June 30, 20172018 increased $3.6$3.7 million, or 8.1%7.7%, from the quarter ended June 30, 20162017 driven by increases in annual, seasonal and transient revenues. Annual revenues increased due to increased rates and occupancy gains across the portfolio. Seasonal revenues increased due to an increase in rate and an increase
Management's Discussion (continued)
in the number of night stays. Transient revenues increased primarily due to increased rates. an increase in rent, particularly at our properties in Texas, New York and California.
Resort base rental income is comprised of the following (amounts(amounts in thousands):
| | | Core Portfolio | | Total Portfolio | Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | | Variance | | % Change | 2018 | | 2017 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Annual | $ | 31,884 |
| | $ | 30,089 |
| | $ | 1,795 |
| | 6.0 | % | | $ | 32,869 |
| | $ | 30,360 |
| | $ | 2,509 |
| | 8.3 | % | $ | 34,793 |
| | $ | 32,523 |
| | $ | 2,270 |
| | 7.0 | % | | $ | 36,595 |
| | $ | 32,869 |
| | $ | 3,726 |
| | 11.3 | % |
Seasonal | 4,481 |
| | 3,942 |
| | 539 |
| | 13.7 | % | | 4,902 |
| | 4,114 |
| | 788 |
| | 19.2 | % | 4,938 |
| | 4,416 |
| | 522 |
| | 11.8 | % | | 5,206 |
| | 4,902 |
| | 304 |
| | 6.2 | % |
Transient | 11,388 |
| | 10,142 |
| | 1,246 |
| | 12.3 | % | | 12,284 |
| | 10,258 |
| | 2,026 |
| | 19.8 | % | 12,150 |
| | 11,222 |
| | 928 |
| | 8.3 | % | | 13,430 |
| | 12,284 |
| | 1,146 |
| | 9.3 | % |
Resort base rental income | $ | 47,753 |
| | $ | 44,173 |
| | $ | 3,580 |
| | 8.1 | % | | $ | 50,055 |
| | $ | 44,732 |
| | $ | 5,323 |
| | 11.9 | % | $ | 51,881 |
| | $ | 48,161 |
| | $ | 3,720 |
| | 7.7 | % | | $ | 55,231 |
| | $ | 50,055 |
| | $ | 5,176 |
| | 10.3 | % |
Right-to-use contracts current period, gross, net of salesUtility and marketing, gross,other income in our Core Portfolio increased by $0.7$1.7 million primarily as a result ofdriven by an increase in the average price per upgrade saleutility income due to usage and a higher number of upgrade sales during the quarter ended June 30, 2017 compared to the quarter ended June 30, 2016. During the quarter ended June 30, 2017 there were 635 upgrade sales with an average price per upgrade sale of $5,980. This compares to 626 upgrade sales with an average price per upgrade sale of $4,930 during the quarter ended June 30, 2016.
The increase in utilityrate increases and other income is primarily due to insurance recovery revenue related to a flood event in California, storm eventswhich were partially offset by utility expenses and increased electric, water, gas,repairs and sewer income recovery.maintenance costs related to debris removal and cleanup following a flood event in California (see Property Operating Expenses below).
Property Operating Expenses
Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the quarter ended June 30, 20172018 increased $5.5$5.4 million, or 6.5%6.0%, from the quarter ended June 30, 20162017, primarily driven by an increase in utilityproperty operating and maintenance expenses property payroll and repairs and maintenance. The increase in utility expense was driven by increases in electric, sewer, and gas expenses, which is partially offset by an increase in utility income recovery.of $5.8 million. The increase in property operating and maintenance expenses was primarily due to an increase in repairs and maintenance expenses, including costs related to debris removal and clean up following a flood event in California, and an increase in property payroll, expense primarily resulted from 2017as a result of 2018 salary increases. The increase in repairsproperty operating and maintenance expenses was also due to an increase in utility expense, was primarily due to clean-up costs as a result of California storm events.increases in gas usage in the West and South and an increase in administrative expenses primarily due to legal costs.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home Sales for the quarters ended June 30, 2018 and 2017 and 2016 (amounts(amounts in thousands, except home sales volumes).
| | | | 2017 | | 2016 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Gross revenues from new home sales (1) | | $ | 4,548 |
| | $ | 6,044 |
| | $ | (1,496 | ) | | (24.8 | )% | | $ | 6,859 |
| | $ | 4,548 |
| | $ | 2,311 |
| | 50.8 | % |
Cost of new home sales (1) | | (4,419 | ) | | (6,246 | ) | | 1,827 |
| | 29.3 | % | | (6,800 | ) | | (4,419 | ) | | (2,381 | ) | | (53.9 | )% |
Gross profit (loss) from new home sales | | 129 |
| | (202 | ) | | 331 |
| | 163.9 | % | |
Gross profit from new home sales | | | 59 |
| | 129 |
| | (70 | ) | | (54.3 | )% |
| | | | | | | | | | | | | | | | |
Gross revenues from used home sales | | 3,285 |
| | 3,086 |
| | 199 |
| | 6.4 | % | | 2,246 |
| | 3,285 |
| | (1,039 | ) | | (31.6 | )% |
Cost of used home sales | | (3,476 | ) | | (3,235 | ) | | (241 | ) | | (7.4 | )% | | (2,832 | ) | | (3,476 | ) | | 644 |
| | 18.5 | % |
Loss from used home sales | | (191 | ) | | (149 | ) | | (42 | ) | | (28.2 | )% | | (586 | ) | | (191 | ) | | (395 | ) | | (206.8 | )% |
| | | | | | | | | | | | | | | | |
Brokered resale revenues and ancillary services revenues, net | | 444 |
| | 398 |
| | 46 |
| | 11.6 | % | | 617 |
| | 444 |
| | 173 |
| | 39.0 | % |
Home selling expenses | | (929 | ) | | (805 | ) | | (124 | ) | | (15.4 | )% | | (973 | ) | | (929 | ) | | (44 | ) | | (4.7 | )% |
Loss from home sales and other | | $ | (547 | ) | | $ | (758 | ) | | $ | 211 |
| | 27.8 | % | | $ | (883 | ) | | $ | (547 | ) | | $ | (336 | ) | | (61.4 | )% |
| | | | | | | | | | | | | | | | |
Home sales volumes | | | | | | | | | | | | | | | | |
Total new home sales (2) | | 120 |
| | 180 |
| | (60 | ) | | (33.3 | )% | | 146 |
| | 120 |
| | 26 |
| | 21.7 | % |
New Home Sales Volume - ECHO JV | | 41 |
| | 63 |
| | (22 | ) | | (34.9 | )% | | 25 |
| | 41 |
| | (16 | ) | | (39.0 | )% |
Used home sales | | 338 |
| | 342 |
| | (4 | ) | | (1.2 | )% | | 297 |
| | 338 |
| | (41 | ) | | (12.1 | )% |
Brokered home resales | | 252 |
| | 217 |
| | 35 |
| | 16.1 | % | | 253 |
| | 252 |
| | 1 |
| | 0.4 | % |
_________________________(1) New home sales gross revenues and costs of new home sales does not include the revenues and costs associated with our ECHO JV.
(2) Total new home sales volume includes home sales from our ECHO JV.
Management's Discussion (continued)
Loss from home sales and other was $0.5 million and $0.8$0.9 million for the quartersquarter ended June 30, 2017 and 2016, respectively.2018 compared with $0.5 million for the quarter ended June 30, 2017. The decreaseincrease in lossLoss from home sales and other from the quarter ended June 30, 2016 was primarily due to an increase of $0.4 million in the gross profitloss from newused home sales, partially offset by an increase in home selling expenses.sales.
Management's Discussion (continued)
Rental Operations
The following table summarizes certain financial and statistical data for manufacturedmanufactured home Rental Operations for the quarters ended June 30, 2018 and 2017 and 2016 (amounts(amounts in thousands, except rental unit volumes).
| | | | 2017 | | 2016 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Manufactured homes: | | | | | | | | | | | | | | | | |
New Home | | $ | 6,985 |
| | $ | 6,332 |
| | $ | 653 |
| | 10.3 | % | | $ | 7,388 |
| | $ | 6,985 |
| | $ | 403 |
| | 5.8 | % |
Used Home | | 5,483 |
| | 6,250 |
| | (767 | ) | | (12.3 | )% | | 4,384 |
| | 5,483 |
| | (1,099 | ) | | (20.0 | )% |
Rental operations revenue (1) | | 12,468 |
| | 12,582 |
| | (114 | ) | | (0.9 | )% | | 11,772 |
| | 12,468 |
| | (696 | ) | | (5.6 | )% |
Rental home operating and maintenance | | (1,657 | ) | | (1,581 | ) | | (76 | ) | | (4.8 | )% | | (1,629 | ) | | (1,657 | ) | | 28 |
| | 1.7 | % |
Income from rental operations | | 10,811 |
| | 11,001 |
| | (190 | ) | | (1.7 | )% | | 10,143 |
| | 10,811 |
| | (668 | ) | | (6.2 | )% |
Depreciation on rental homes (2) | | (2,639 | ) | | (2,667 | ) | | 28 |
| | 1.0 | % | | (2,390 | ) | | (2,639 | ) | | 249 |
| | 9.4 | % |
Income from rental operations, net of depreciation | | $ | 8,172 |
| | $ | 8,334 |
| | $ | (162 | ) | | (1.9 | )% | | $ | 7,753 |
| | $ | 8,172 |
| | $ | (419 | ) | | (5.1 | )% |
| | | | | | | | | | | | | | | | |
Gross investment in new manufactured home rental units (3) | | $ | 129,868 |
| | $ | 120,708 |
| | $ | 9,160 |
| | 7.6 | % | | $ | 138,934 |
| | $ | 129,868 |
| | $ | 9,066 |
| | 7.0 | % |
Gross investment in used manufactured home rental units | | $ | 48,182 |
| | $ | 54,675 |
| | $ | (6,493 | ) | | (11.9 | )% | | $ | 39,189 |
| | $ | 48,182 |
| | $ | (8,993 | ) | | (18.7 | )% |
| | | | | | | | | | | | | | | | |
Net investment in new manufactured home rental units | | $ | 104,710 |
| | $ | 99,428 |
| | $ | 5,282 |
| | 5.3 | % | | $ | 110,739 |
| | $ | 104,710 |
| | $ | 6,029 |
| | 5.8 | % |
Net investment in used manufactured home rental units | | $ | 28,182 |
| | $ | 36,690 |
| | $ | (8,508 | ) | | (23.2 | )% | | $ | 19,962 |
| | $ | 28,182 |
| | $ | (8,220 | ) | | (29.2 | )% |
| | | | | | | | | | | | | | | | |
Number of occupied rentals – new, end of period (4) | | 2,517 |
| | 2,267 |
| | 250 |
| | 11.0 | % | | 2,614 |
| | 2,517 |
| | 97 |
| | 3.9 | % |
Number of occupied rentals – used, end of period | | 2,157 |
| | 2,595 |
| | (438 | ) | | (16.9 | )% | | 1,668 |
| | 2,157 |
| | (489 | ) | | (22.7 | )% |
______________________
| |
(1) | Rental operations revenue consists of Site rental income and home rental income. Approximately $8.8$8.2 million and $9.0$8.8 million for the quarters ended June 30, 20172018 and 2016,2017, respectively, of Site rental income are included in Community base rental income in the Income from Property Operations table. The remainder of home rental income is included in Rental home income in the Income from Property Operations table. |
| |
(2) | Included in depreciationDepreciation on real estate and other costsrental homes in the Consolidated Statements of Income and Comprehensive Income. |
| |
(3) | New home cost basis does not include the costs associated with our ECHO JV. Our investment in the ECHO JV was $15.9 million and $15.4 million at bothas of June 30, 2018 and 2017, and December 31, 2016.respectively. |
| |
(4) | Occupied rentals as of the end of the period in our Core Portfolio and includes 257264 and 143257 homes rented through our ECHO JV during the quarters ended June 30, 20172018 and 2016,2017, respectively. |
The decrease in income from rental operations net of depreciation, was primarily due to a decrease in the number of used occupied rental units,units. This was partially offset by the change in the mix of occupied rentals, driven by an increase in the number of new occupied new rental homesrentals at a higher rental rate.
Other Income and Expenses
The following table summarizes other income and expenses, net for the quarters ended June 30, 20172018 and 20162017 (amounts(amounts in thousands, expenses shown as negative).
| | | | 2017 | | 2016 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Depreciation on real estate and rental homes | | $ | (30,247 | ) | | $ | (29,029 | ) | | $ | (1,218 | ) | | (4.2 | )% | | $ | (32,452 | ) | | $ | (30,247 | ) | | $ | (2,205 | ) | | (7.3 | )% |
Amortization of in-place leases | | (958 | ) | | (428 | ) | | (530 | ) | | (123.8 | )% | | (1,893 | ) | | (958 | ) | | (935 | ) | | (97.6 | )% |
Interest income | | 1,798 |
| | 1,625 |
| | 173 |
| | 10.6 | % | | 1,862 |
| | 1,798 |
| | 64 |
| | 3.6 | % |
Income from other investments, net | | 1,109 |
| | 2,270 |
| | (1,161 | ) | | (51.1 | )% | | 3,413 |
| | 1,109 |
| | 2,304 |
| | 207.8 | % |
General and administrative (excluding transaction costs) | | (8,241 | ) | | (7,857 | ) | | (384 | ) | | (4.9 | )% | |
General and administrative | | | (9,669 | ) | | (8,241 | ) | | (1,428 | ) | | (17.3 | )% |
Transaction costs | | (220 | ) | | (398 | ) | | 178 |
| | 44.7 | % | | — |
| | (220 | ) | | 220 |
| | 100.0 | % |
Property rights initiatives and other | | (271 | ) | | (527 | ) | | 256 |
| | 48.6 | % | |
Other expenses | | | (367 | ) | | (271 | ) | | (96 | ) | | (35.4 | )% |
Interest and related amortization | | (24,822 | ) | | (25,561 | ) | | 739 |
| | 2.9 | % | | (26,285 | ) | | (24,822 | ) | | (1,463 | ) | | (5.9 | )% |
Total other income and expenses, net | | $ | (61,852 | ) | | $ | (59,905 | ) | | $ | (1,947 | ) | | (3.3 | )% | | $ | (65,391 | ) | | $ | (61,852 | ) | | $ | (3,539 | ) | | (5.7 | )% |
Other expenses, net increased $1.9$3.5 million for the quarter ended June 30, 2017,2018, compared to the quarter ended June 30, 2016.2017. The increase from the quarter ended June 30, 20162017 was primarily due to an increaseincreases in depreciation on real estate and rental homes, interest and related amortization and general and administrative costs. These increases were partially offset by $1.8 million insurancerecovery revenue from reimbursement for capital expenditures related to Hurricane Irma during the quarter ended June 30, 2018.
Management's Discussion (continued)
homes and amortization of in-place leases due to 2016 acquisition activity and a decrease in income from other investments, net, due to the termination of the Tropical Palms RV ground lease in 2016.
This was partially offset by a decrease in interest and related amortization as a result of the refinancing activities completed during 2016 (see Note 7 to the Consolidated Financial Statements for additional detail regarding borrowing arrangements).
Comparison of the Six Months Ended June 30, 20172018 to the Six Months Ended June 30, 20162017
Income from Property Operations
The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the six months ended June 30, 2018 and 2017 and 2016 (amounts(amounts in thousands). The Core Portfolio in this discussion includes all Properties acquired on or before December 31, 20152016 and which we have owned and operated continuously since January 1, 2016.2017. Core Portfolio growth percentages exclude the impact of GAAP deferrals of upfront payments from right-to-use contracts and related commissions.
| | | Core Portfolio | | Total Portfolio | Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | �� | Variance | | % Change | 2018 | | 2017 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Community base rental income | $ | 240,278 |
| | $ | 229,264 |
| | $ | 11,014 |
| | 4.8 | % | | $ | 242,656 |
| | $ | 229,461 |
| | $ | 13,195 |
| | 5.8 | % | $ | 253,732 |
| | $ | 242,540 |
| | $ | 11,192 |
| | 4.6 | % | | $ | 255,318 |
| | $ | 242,656 |
| | $ | 12,662 |
| | 5.2 | % |
Rental home income | 7,237 |
| | 7,089 |
| | 148 |
| | 2.1 | % | | 7,237 |
| | 7,088 |
| | 149 |
| | 2.1 | % | 7,076 |
| | 7,237 |
| | (161 | ) | | (2.2 | )% | | 7,076 |
| | 7,237 |
| | (161 | ) | | (2.2 | )% |
Resort base rental income | 104,603 |
| | 99,380 |
| | 5,223 |
| | 5.3 | % | | 111,123 |
| | 100,166 |
| | 10,957 |
| | 10.9 | % | 113,870 |
| | 105,847 |
| | 8,023 |
| | 7.6 | % | | 119,485 |
| | 111,123 |
| | 8,362 |
| | 7.5 | % |
Right-to-use annual payments | 22,602 |
| | 22,241 |
| | 361 |
| | 1.6 | % | | 22,602 |
| | 22,241 |
| | 361 |
| | 1.6 | % | 23,407 |
| 34,130 |
| 22,602 |
| | 805 |
| | 3.6 | % | | 23,410 |
| | 22,602 |
| | 808 |
| | 3.6 | % |
Right-to-use contracts current period, gross | 7,004 |
| | 5,618 |
| | 1,386 |
| | 24.7 | % | | 7,004 |
| | 5,618 |
| | 1,386 |
| | 24.7 | % | 7,106 |
| | 7,004 |
| | 102 |
| | 1.5 | % | | 7,106 |
| | 7,004 |
| | 102 |
| | 1.5 | % |
Utility and other income | 42,003 |
| | 40,249 |
| | 1,754 |
| | 4.4 | % | | 42,776 |
| | 40,316 |
| | 2,460 |
| | 6.1 | % | 46,384 |
| | 42,440 |
| | 3,944 |
| | 9.3 | % | | 49,841 |
| | 42,776 |
| | 7,065 |
| | 16.5 | % |
Property operating revenues, excluding deferrals | 423,727 |
| | 403,841 |
| | 19,886 |
| | 4.9 | % | | 433,398 |
| | 404,890 |
| | 28,508 |
| | 7.0 | % | 451,575 |
| | 427,670 |
| | 23,905 |
| | 5.6 | % | | 462,236 |
| | 433,398 |
| | 28,838 |
| | 6.7 | % |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Property operating and maintenance | 137,429 |
| | 129,186 |
| | 8,243 |
| | 6.4 | % | | 140,955 |
| | 129,601 |
| | 11,354 |
| | 8.8 | % | 150,615 |
| | 138,346 |
| | 12,269 |
| | 8.9 | % | | 154,999 |
| | 140,955 |
| | 14,044 |
| | 10.0 | % |
Rental home operating and maintenance | 3,208 |
| | 3,105 |
| | 103 |
| | 3.3 | % | | 3,208 |
| | 3,106 |
| | 102 |
| | 3.3 | % | 3,054 |
| | 3,208 |
| | (154 | ) | | (4.8 | )% | | 3,053 |
| | 3,208 |
| | (155 | ) | | (4.8 | )% |
Real estate taxes | 27,032 |
| | 25,957 |
| | 1,075 |
| | 4.1 | % | | 27,980 |
| | 26,067 |
| | 1,913 |
| | 7.3 | % | 27,066 |
| | 27,830 |
| | (764 | ) | | (2.7 | )% | | 27,575 |
| | 27,980 |
| | (405 | ) | | (1.4 | )% |
Sales and marketing, gross | 5,583 |
| | 5,426 |
| | 157 |
| | 2.9 | % | | 5,584 |
| | 5,424 |
| | 160 |
| | 2.9 | % | 6,117 |
| | 5,584 |
| | 533 |
| | 9.5 | % | | 6,117 |
| | 5,584 |
| | 533 |
| | 9.5 | % |
Property operating expenses, excluding deferrals and Property management | 173,252 |
| | 163,674 |
| | 9,578 |
| | 5.9 | % | | 177,727 |
| | 164,198 |
| | 13,529 |
| | 8.2 | % | 186,852 |
| | 174,968 |
| | 11,884 |
| | 6.8 | % | | 191,744 |
| | 177,727 |
| | 14,017 |
| | 7.9 | % |
Income from property operations, excluding deferrals and Property management (1) | 250,475 |
| | 240,167 |
| | 10,308 |
| | 4.3 | % | | 255,671 |
| | 240,692 |
| | 14,979 |
| | 6.2 | % | 264,723 |
| | 252,702 |
| | 12,021 |
| | 4.8 | % | | 270,492 |
| | 255,671 |
| | 14,821 |
| | 5.8 | % |
Property management | 25,583 |
| | 23,807 |
| | 1,776 |
| | 7.5 | % | | 25,583 |
| | 23,807 |
| | 1,776 |
| | 7.5 | % | 27,153 |
| | 25,583 |
| | 1,570 |
| | 6.1 | % | | 27,153 |
| | 25,583 |
| | 1,570 |
| | 6.1 | % |
Income from property operations, excluding deferrals (1) | 224,892 |
| | 216,360 |
| | 8,532 |
| | 3.9 | % | | 230,088 |
| | 216,885 |
| | 13,203 |
| | 6.1 | % | 237,570 |
| | 227,119 |
| | 10,451 |
| | 4.6 | % | | 243,339 |
| | 230,088 |
| | 13,251 |
| | 5.8 | % |
Right-to-use contracts, deferred and sales and marketing, deferred, net | 1,900 |
| | 1,088 |
| | 812 |
| | 74.6 | % | | 1,900 |
| | 1,088 |
| | 812 |
| | 74.6 | % | 3,020 |
| | 1,900 |
| | 1,120 |
| | 58.9 | % | | 3,020 |
| | 1,900 |
| | 1,120 |
| | 58.9 | % |
Income from property operations (1) | $ | 222,992 |
| | $ | 215,272 |
| | $ | 7,720 |
| | 3.6 | % | | $ | 228,188 |
| | $ | 215,797 |
| | $ | 12,391 |
| | 5.7 | % | $ | 234,550 |
| | $ | 225,219 |
| | $ | 9,331 |
| | 4.1 | % | | $ | 240,319 |
| | $ | 228,188 |
| | $ | 12,131 |
| | 5.3 | % |
__________________________
(1) Non-GAAP measure.measure, see the Results Overview section of the Management Discussion and Analysis for Non-GAAP Financial Measure Definitions and reconciliations of these Non-GAAP measures to Net Income available to Common Shareholders.
Total Portfolio income from property operations, which includes recently acquired properties,Core and Non-Core portfolios, for the six months ended June 30, 20172018 increased $12.4$12.1 million, or 5.7%5.3%, from the six months ended June 30, 2016,2017, driven by an increase of $7.7$9.3 million, or 3.6%4.1%, in our Core Portfolio income from property operations and a $4.7 million increase in ouroperations. Non-Core Portfolio income from property operations.operations increased $2.8 million from the six months ended June 30, 2017 primarily driven by $2.5 million of insurance proceeds which we have identified as business interruption recovery at our RV properties in the Florida Keys.
Property Operating Revenues
Community base rental income in our Core Portfolio for the six months ended June 30, 20172018 increased $11.0$11.2 million, or 4.8%4.6% from the six monthsquarter ended June 30, 2016,2017, which reflects 3.9%4.0% growth from rate increases and approximately 0.9%0.6% growth from occupancy gains. The average monthly base rental income per Site increased to approximately $608$630 for the six months ended June 30, 20172018 from approximately $586$606 for the six months ended June 30, 2016.2017. The average occupancy for the Core Portfolio increased to 94.6% for the six months ended June 30, 2018 from 94.1% for the six months ended June 30, 2017 from 93.2% for the six months ended June 30, 2016.
Management's Discussion (continued)
2017.
Resort base rental income in our Core Portfolio for the six months ended June 30, 20172018 increased $5.2$8.0 million, or 5.3%7.6%, from the quartersix months ended June 30, 2016 primarily2017 driven by increases in annual, seasonal and transient revenues. Annual revenues increased due to increased rates and occupancy gains across the portfolio. Seasonal revenues increased due to an increase in annualrate and an increase in the number of night stays. All regions had an increase in transient revenues as a result of increased rates. during the six months ended June 30, 2018 compared to the six months ended June 30, 2017.
Management's Discussion (continued)
Resort base rental income is comprised of the following (amounts(amounts in thousands):
| | | Core Portfolio | | Total Portfolio | Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | | Variance | | % Change | 2018 | | 2017 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Annual | $ | 63,123 |
| | $ | 59,953 |
| | $ | 3,170 |
| | 5.3 | % | | $ | 64,965 |
| | $ | 60,370 |
| | $ | 4,595 |
| | 7.6 | % | $ | 68,713 |
| | $ | 64,297 |
| | $ | 4,416 |
| | 6.9 | % | | $ | 71,751 |
| | $ | 64,965 |
| | $ | 6,786 |
| | 10.4 | % |
Seasonal | 20,864 |
| | 20,100 |
| | 764 |
| | 3.8 | % | | 23,401 |
| | 20,329 |
| | 3,072 |
| | 15.1 | % | 23,598 |
| | 21,540 |
| | 2,058 |
| | 9.6 | % | | 24,229 |
| | 23,401 |
| | 828 |
| | 3.5 | % |
Transient | 20,616 |
| | 19,327 |
| | 1,289 |
| | 6.7 | % | | 22,757 |
| | 19,467 |
| | 3,290 |
| | 16.9 | % | 21,559 |
| | 20,010 |
| | 1,549 |
| | 7.7 | % | | 23,505 |
| | 22,757 |
| | 748 |
| | 3.3 | % |
Resort base rental income | $ | 104,603 |
| | $ | 99,380 |
| | $ | 5,223 |
| | 5.3 | % | | $ | 111,123 |
| | $ | 100,166 |
| | $ | 10,957 |
| | 10.9 | % | $ | 113,870 |
| | $ | 105,847 |
| | $ | 8,023 |
| | 7.6 | % | | $ | 119,485 |
| | $ | 111,123 |
| | $ | 8,362 |
| | 7.5 | % |
Right-to-use contracts current period, gross, net of salesUtility and marketing, gross,other income in our Core Portfolio increased by $1.4$3.9 million primarily driven by insurance proceeds related to Hurricane Irma, which were offset by debris removal and cleanup costs (see Property Operating Expenses below). Additionally, utility income increased as a result of a higher average price per upgrade sale and higher upgrade sales during the six months ended June 30, 2017 compared to the six months ended June 30, 2016. During the six months ended June 30, 2017 there were 1,260 upgrade sales with an average price per upgrade sale of $5,557. This compares to 1,152 upgrade sales with an average price per upgrade sale of $4,877 for the six months ended June 30, 2016.
The increase in utility and other income is primarily due to insurance recovery revenue related to California storm events and increased electric water, gas, and sewer income recovery.
Property Operating Expenses
Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the six months ended June 30, 20172018 increased $9.6$11.9 million, or 5.9%6.8%, from the six months ended June 30, 2016.2017, primarily driven by an increase in property operating and maintenance expenses of $12.3 million. The increase in property operating and maintenance expenses was primarily due to an increase in utilityrepairs and maintenance expenses, primarily related to cleanup costs from Hurricane Irma, an increase in property payroll, primarily as a result of 2018 salary increases and repairs and maintenance. Thean increase in utility expense, was driven byprimarily due to increases in electric sewer, trash and gaswater expenses, which was partially offset by increasedan increase in utility income recovery. The increase in property payroll expense resulted from 2017 salary increases. The increase in repairs and maintenance expense was primarily due to clean-up costs as a result of California storm events and the hurricanes in Florida in 2016, and an increase in landscaping costs.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home Sales for the six months ended June 30, 2018 and 2017 and June 30, 2016 (amounts(amounts in thousands, except home sales volumes).
| | | | 2017 | | 2016 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Gross revenues from new home sales (1) | | $ | 9,491 |
| | $ | 11,443 |
| | $ | (1,952 | ) | | (17.1 | )% | | $ | 13,595 |
| | $ | 9,491 |
| | $ | 4,104 |
| | 43.2 | % |
Cost of new home sales (1) | | (9,191 | ) | | (11,698 | ) | | 2,507 |
| | 21.4 | % | | (13,310 | ) | | (9,191 | ) | | (4,119 | ) | | (44.8 | )% |
Gross profit (loss) from new home sales | | 300 |
| | (255 | ) | | 555 |
| | 217.6 | % | |
Gross profit from new home sales | | | 285 |
| | 300 |
| | (15 | ) | | (5.0 | )% |
| | | | | | | | | | | | | | | | |
Gross revenues from used home sales | | 5,369 |
| | 5,901 |
| | (532 | ) | | (9.0 | )% | | 3,819 |
| | 5,369 |
| | (1,550 | ) | | (28.9 | )% |
Cost of used home sales | | (5,823 | ) | | (6,064 | ) | | 241 |
| | 4.0 | % | | (4,896 | ) | | (5,823 | ) | | 927 |
| | 15.9 | % |
Loss from used home sales | | (454 | ) | | (163 | ) | | (291 | ) | | (178.5 | )% | | (1,077 | ) | | (454 | ) | | (623 | ) | | (137.2 | )% |
| | | | | | | | | | | | | | | | |
Brokered resale revenues and ancillary services revenues, net | | 2,105 |
| | 1,816 |
| | 289 |
| | 15.9 | % | | 2,018 |
| | 2,105 |
| | (87 | ) | | (4.1 | )% |
Home selling expenses | | (1,854 | ) | | (1,639 | ) | | (215 | ) | | (13.1 | )% | | (2,048 | ) | | (1,854 | ) | | (194 | ) | | (10.5 | )% |
Income (loss) from home sales and other | | $ | 97 |
| | $ | (241 | ) | | $ | 338 |
| | 140.2 | % | | $ | (822 | ) | | $ | 97 |
| | $ | (919 | ) | | (947.4 | )% |
| | | | | | | | | | | | | | | | |
Home sales volumes | | | | | | | | | | | | | | | | |
Total new home sales (2) | | 240 |
| | 301 |
| | (61 | ) | | (20.3 | )% | | 276 |
| | 240 |
| | 36 |
| | 15.0 | % |
New Home Sales Volume - ECHO JV | | 78 |
| | 97 |
| | (19 | ) | | (19.6 | )% | | 43 |
| | 78 |
| | (35 | ) | | (44.9 | )% |
Used home sales | | 623 |
| | 653 |
| | (30 | ) | | (4.6 | )% | | 538 |
| | 623 |
| | (85 | ) | | (13.6 | )% |
Brokered home resales | | 420 |
| | 403 |
| | 17 |
| | 4.2 | % | | 446 |
| | 420 |
| | 26 |
| | 6.2 | % |
_________________________(1) New home sales gross revenues and costs of new home sales does not include the revenues and costs associated with our ECHO JV.
(2) Total new home sales volume includes home sales from our ECHO JVJV.
Loss from home sales and other was $0.8 million for the six months ended June 30, 20172018 compared with Income from homes sales and other of $0.1 million for the six months ended June 30, 2016, respectively.
Management's Discussion (continued)
2017. The increase in incomeLoss from home sales and other was primarily due to an increase in the gross profit from new home sales, partially offset by an increase in the loss from used home sales.sales and an increase in home selling expenses.
Management's Discussion (continued)
Rental Operations
The following table summarizes certain financial and statistical data for manufacturedmanufactured home Rental Operations for the six months ended June 30, 2018 and 2017 and June 30, 2016 (amounts(amounts in thousands, except rental unit volumes).
| | | | 2017 | | 2016 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Manufactured homes: | | | | | | | | | | | | | | | | |
New Home | | $ | 13,618 |
| | $ | 12,473 |
| | $ | 1,145 |
| | 9.2 | % | | $ | 14,931 |
| | $ | 13,618 |
| | $ | 1,313 |
| | 9.6 | % |
Used Home | | 11,267 |
| | 12,715 |
| | (1,448 | ) | | (11.4 | )% | | 8,638 |
| | 11,267 |
| | (2,629 | ) | | (23.3 | )% |
Rental operations revenue (1) | | 24,885 |
| | 25,188 |
| | (303 | ) | | (1.2 | )% | | 23,569 |
| | 24,885 |
| | (1,316 | ) | | (5.3 | )% |
Rental home operating and maintenance | | (3,208 | ) | | (3,106 | ) | | (102 | ) | | (3.3 | )% | | (3,053 | ) | | (3,208 | ) | | 155 |
| | 4.8 | % |
Income from rental operations | | 21,677 |
| | 22,082 |
| | (405 | ) | | (1.8 | )% | | 20,516 |
| | 21,677 |
| | (1,161 | ) | | (5.4 | )% |
Depreciation on rental homes (2) | | (5,296 | ) | | (5,314 | ) | | 18 |
| | 0.3 | % | | (4,891 | ) |
| (5,296 | ) | | 405 |
| | 7.6 | % |
Income from rental operations, net of depreciation | | $ | 16,381 |
| | $ | 16,768 |
| | $ | (387 | ) | | (2.3 | )% | | $ | 15,625 |
| | $ | 16,381 |
| | $ | (756 | ) | | (4.6 | )% |
| | | | | | | | | | | | | | | | |
Gross investment in new manufactured home rental units (3) | | $ | 129,868 |
| | $ | 120,708 |
| | $ | 9,160 |
| | 7.6 | % | | $ | 138,934 |
| | $ | 129,868 |
| | $ | 9,066 |
| | 7.0 | % |
Gross investment in used manufactured home rental units | | $ | 48,182 |
| | $ | 54,675 |
| | $ | (6,493 | ) | | (11.9 | )% | | $ | 39,189 |
| | $ | 48,182 |
| | $ | (8,993 | ) | | (18.7 | )% |
| | | | | | | | | | | | | | | | |
Net investment in new manufactured home rental units | | $ | 104,710 |
| | $ | 99,428 |
| | $ | 5,282 |
| | 5.3 | % | | $ | 110,739 |
| | $ | 104,710 |
| | $ | 6,029 |
| | 5.8 | % |
Net investment in used manufactured home rental units | | $ | 28,182 |
| | $ | 36,690 |
| | $ | (8,508 | ) | | (23.2 | )% | | $ | 19,962 |
| | $ | 28,182 |
| | $ | (8,220 | ) | | (29.2 | )% |
| | | | | | | | | | | | | | | | |
Number of occupied rentals – new, end of period (4) | | 2,517 |
| | 2,267 |
| | 250 |
| | 11.0 | % | | 2,614 |
| | 2,517 |
| | 97 |
| | 3.9 | % |
Number of occupied rentals – used, end of period | | 2,157 |
| | 2,595 |
| | (438 | ) | | (16.9 | )% | | 1,668 |
| | 2,157 |
| | (489 | ) | | (22.7 | )% |
______________________
| |
(1) | Rental operations revenue consists of Site rental income and home rental income. Approximately 17.7$16.5 million and $18.1$17.6 million for the six months ended June 30, 20172018 and June 30, 2016,2017, respectively, of Site rental income are included in Community base rental income in the Income from Property Operations table. The remainder of home rental income is included in Rental home income in the Income from Property Operations table. |
| |
(2) | Included in depreciationDepreciation on real estate and other costsrental homes in the Consolidated Statements of Income and Comprehensive Income. |
| |
(3) | New home cost basis does not include the costs associated with our ECHO JV. Our investment in the ECHO JV was $15.9 million and $15.4 million at bothas of June 30, 2018 and 2017, and December 31, 2016.respectively. |
| |
(4) | Occupied rentals as of the end of the period in our Core Portfolio and includes 257264 and 143257 homes rented through our ECHO JV during the six months ended June 30, 20172018 and June 30, 2016,2017, respectively. |
The decrease in income from rental operations net of depreciation, was primarily due to a decrease in the number of used occupied rental units, whichunits. This was partially offset by the changean increase in the mix of occupied rentals, driven by an increased number of new occupied new homesrentals at a higher rental rate.
Other Income and Expenses
The following table summarizes other income and expenses, net for the six months ended June 30, 2018 and 2017 and June 30, 2016 (amounts(amounts in thousands, expenses shown as negative).
| | | | 2017 | | 2016 | | Variance | | % Change | | 2018 | | 2017 | | Variance | | % Change |
Depreciation on real estate and rental homes | | $ | (60,357 | ) | | $ | (57,684 | ) | | $ | (2,673 | ) | | (4.6 | )% | | $ | (63,774 | ) | | $ | (60,357 | ) | | $ | (3,417 | ) | | (5.7 | )% |
Amortization of in-place leases | | (1,990 | ) | | (763 | ) | | (1,227 | ) | | (160.8 | )% | | (2,945 | ) | | (1,990 | ) | | (955 | ) | | (48.0 | )% |
Interest income | | 3,568 |
| | 3,285 |
| | 283 |
| | 8.6 | % | | 3,812 |
| | 3,568 |
| | 244 |
| | 6.8 | % |
Income from other investments, net | | 1,866 |
| | 3,993 |
| | (2,127 | ) | | (53.3 | )% | | 4,353 |
| | 1,866 |
| | 2,487 |
| | 133.3 | % |
General and administrative (excluding transaction costs) | | (15,510 | ) | | (15,065 | ) | | (445 | ) | | (3.0 | )% | |
General and administrative | | | (17,707 | ) | | (15,510 | ) | | (2,197 | ) | | (14.2 | )% |
Transaction costs | | (324 | ) | | (598 | ) | | 274 |
| | 45.8 | % | | — |
| | (324 | ) | | 324 |
| | 100.0 | % |
Property rights initiatives and other | | (490 | ) | | (1,181 | ) | | 691 |
| | 58.5 | % | |
Other expenses | | | (710 | ) | | (490 | ) | | (220 | ) | | (44.9 | )% |
Interest and related amortization | | (49,701 | ) | | (51,195 | ) | | 1,494 |
| | 2.9 | % | | (51,988 | ) | | (49,701 | ) | | (2,287 | ) | | (4.6 | )% |
Total other income and expenses, net | | $ | (122,938 | ) | | $ | (119,208 | ) | | $ | (3,730 | ) | | (3.1 | )% | | $ | (128,959 | ) | | $ | (122,938 | ) | | $ | (6,021 | ) | | (4.9 | )% |
Other expenses, net increased $3.7$6.0 million for the six months ended June 30, 2017,2018, compared to the six months ended June 30, 2016.2017. The increase in other expenses, net from the six months ended June 30, 20162017 was primarily due to an increaseincreases in depreciation on real estate and rental homes, interest and related amortization of in-place leases dueand general and administrative expenses. These increase were partially offset by $2.1 million insurancerecovery revenue from reimbursement for capital expenditures related to 2016 acquisition activity and a a decrease in income from other investments, net, due toHurricane Irma during the termination of the Tropical Palms RV ground lease in 2016.six months ended June 30, 2018.
Management's Discussion (continued)
This was partially offset by a decrease in interest and related amortization as a result of the refinancing activities completed during 2016 (see Note 7 to the Consolidated Financial Statements for additional detail regarding borrowing arrangements).
Liquidity and Capital Resources
Liquidity
Our primary demands for liquidity include payment of operating expenses, debt service, including principal and interest, capital improvements on properties, purchasing both new and pre-owned homes, acquisitions of new Properties and distributions. We expect similar demand for liquidity will continue for the short-term and long-term. Our primary sources of cash include operating cash flows, proceeds from financings, borrowings under our unsecured Line of Credit ("LOC") and proceeds from issuance of equity and debt securities.
We have entered into an at-the-market (“ATM”) offering program, pursuant to which we may sell, from time-to-time, shares of our common stock,Common Stock, par value $0.01 per share, having an aggregate offering price of up to $125.0$200.0 million. As of June 30, 2017, $75.02018, $150.0 million of common stock remained available for issuance under the ATM equity offering program. During July 2018, we sold 252,864 shares of common stock as part of our ATM equity offering program at a weighted average price per share of $91.85, resulting in gross cash proceeds of approximately $23.2 million. As of July 26, 2018, $126.8 million of common stock remain available for issuance under the ATM equity offering program.
In addition, we have available liquidity in the form of authorized and unissued preferred stock of approximately 9.9 million shares and approximately 113.0111.2 million shares of authorized but unissued common stock and approximately 10.0 million shares of authorized unissued preferred stock registered for sale under the Securities Act of 1933, as amended, by a shelf registration statement which was automatically effective when filed with the SEC. Our charter allows us to issue up to 200.0 million shares of common stock,Common Stock, par value $0.01 per share, and up to 10.0 million shares of preferred stock, par value $0.01 per share.
One of our stated objectives is to maintain financial flexibility. Achieving this objective allows us to take advantage of strategic opportunities that may arise. We believe effective management of our balance sheet, including maintaining various access points to raise capital, managemanaging future debt maturities and borrowborrowing at competitive rates enables us to meet this objective. We believe that as of June 30, 2017,2018, we have sufficient liquidity, in the form of $62.5$40.8 million in available cash, net of restrictedunrestricted cash, and $400.0 million available on our LOC, to satisfy our near term obligations. Our LOC has a borrowing capacity of $400.0 million with the option to increase the borrowing capacity by $100.0$200.0 million, subject to certain conditions. The LOC bears interest at a rate of LIBOR plus 1.20%1.10% to 1.65%1.55%, requires an annual facility fee of 0.20%0.15% to 0.35% and matures on July 17, 2018, with an option to extend for one additional year, subject to certain conditions.October 27, 2021.
We expect to meet our short-term liquidity requirements, including distributions for the next twelve months, generally through available cash as well as net cash provided by operating activities and availability under our existing LOC. We consider these resources to be adequate to meet our operating requirements for capital improvements, amortizing debt and payment of dividends and distributions.
We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, property acquisitions and capital improvements by use of our current cash balance, long-term collateralized and uncollateralized borrowings including borrowings under the existing LOC and the issuance of debt securities or additional equity securities, in addition to net cash provided by operating activities. As of June 30, 2017,2018, we have approximately $6.9$3.0 million of scheduled debt maturities in 20172018 (excluding scheduled principal payments on debt maturing in 20172018 and beyond). We expect to satisfy our 20172018 maturities with existing cash and anticipated operating cash flow.
During the six months ended June 30, 20172018, we paid offclosed on one maturing mortgage loan, and assumed debt in the purchasesecured by two RV resorts, for gross proceeds of Paradise Park Largo.approximately $64.0 million. The mortgage loan we paid off was approximately $21.1 million, with a weighted averagecarries an interest rate of 5.76%4.83% per annum secured by one manufactured home Property.and matures in 2038. In connection with the Paradise Park LargoSerendipity acquisition, during the quarter ended June 30, 2017, we assumed a loan of approximately $5.9$9.2 million and obtained additional financing of $8.8 million for total mortgage debt, secured by the manufactured home community, of $18.0 million with an interest rate of 4.6%4.75% that matures in 2040.2039.
During the six months ended June 30, 2018, we paid off our unsecured LOC, including the balance at December 31, 2017 of approximately $30.0 million.
Management's Discussion (continued)
The table below summarizes cash flow activity for the six months ended June 30, 20172018 and 20162017 (amounts in thousands):
|
| | | | | | | |
| Six Months Ended June 30, |
| 2017 | | 2016 |
Net cash provided by operating activities | $ | 214,102 |
| | $ | 186,807 |
|
Net cash used in investing activities | (71,426 | ) | | (136,090 | ) |
Net cash used in financing activities | (131,276 | ) | | (56,104 | ) |
Net increase (decrease) in cash | $ | 11,400 |
| | $ | (5,387 | ) |
Management's Discussion (continued)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2018 | | 2017 |
Net cash provided by operating activities | $ | 226,026 |
| | $ | 212,982 |
|
Net cash used in investing activities | (121,894 | ) | | (70,306 | ) |
Net cash used in financing activities | (89,192 | ) | | (131,276 | ) |
Net increase in cash and restricted cash | $ | 14,940 |
| | $ | 11,400 |
|
Operating Activities
Net cash provided by operating activities increased $27.3$13.0 million to $214.1$226.0 million for the six months ended June 30, 2017,2018, from $186.8$213.0 million for the six months ended June 30, 2016.2017. The increase in net cash provided by operating activities was primarily due to higher income from property operations of $12.4$12.1 million receipt of insurance proceeds of $10.8 million related to the California failure to maintain lawsuits, long term incentive plan payments of $4.3 million during the first quarter of 2016,and an increase of $1.2 million in rents received in advance and an increase of $0.8 million in distributions from unconsolidated joint ventures. These increases weresecurity deposits, partially offset by the litigation settlement payment of $13.3 million related to the California failure to maintain lawsuits.a decrease in insurance proceeds.
Investing Activities
Net cash used in investing activities was $71.4$121.9 million for the six months ended June 30, 20172018 compared to $136.1$70.3 million for the six months ended June 30, 2016.2017. The decreaseincrease in net cash used in investing activities was primarily due to thean increase in real estate acquisitions and an increase in capital improvements. These increases were partially offset by receipt of Forest Lake Estates, Portland Fairview and Rose Bay$13.8 million during the six months ended June 30, 2016, partially offset by2018 as a result of the repayment of the short-term loan of $13.8 millionwe issued to the Crosswinds joint venture duringat the second quartertime of 2017.closing.
Capital Improvements
The table below summarizes capital improvement activity for the six months ended June 30, 2018 and 2017 and 2016 (amounts(amounts in thousands):
| | | Six Months Ended June 30, (1) | Six Months Ended June 30, |
| 2017 | | 2016 | 2018 | | 2017 |
Recurring Capital Expenditures (2) | $ | 18,808 |
| | $ | 18,317 |
| |
Recurring capital expenditures (1) | | $ | 21,175 |
| | $ | 18,808 |
|
Property upgrades and site development(2) | 11,870 |
| | 5,961 |
| 25,580 |
| | 11,870 |
|
New home investments (3)(4) | 19,542 |
| | 27,774 |
| 31,701 |
| | 19,542 |
|
Used home investments (4) | 2,191 |
| | 3,210 |
| 1,807 |
| | 2,191 |
|
Total Property | 52,411 |
| | 55,262 |
| |
Total property | | 80,263 |
| | 52,411 |
|
Corporate | 1,053 |
| | 445 |
| 1,114 |
| | 1,053 |
|
Total Capital improvements | $ | 53,464 |
| | $ | 55,707 |
| |
Total capital improvements | | $ | 81,377 |
| | $ | 53,464 |
|
______________________(1) Excludes non-cash activity of approximately $0.2 million and $0.4 million of used homes acquired through foreclosure of Chattel Loans for the six months ended June 30, 2017 and 2016, respectively.
(2) Recurring capital expenditures are primarily comprised of common area improvements, furniture, and mechanical improvements.
(2) Includes $9.5 million of restoration and improvement capital expenditures related to Hurricane Irma for the six months ended June 30, 2018.
(3) Excludes new home investment associated with our ECHO JV.
(4) Net proceeds from new and used home sale activities are reflected within Operating Activities.
Financing Activities
Net cash used in financing activities was $89.2 million for the six months ended June 30, 2018 compared to net cash used in financing activities of $131.3 million for the six months ended June 30, 2017 compared to net cash used in financing activities of $56.1 million for the six months ended June 30, 2016.2017. The increasedecrease in net cash used in financing activities was primarily due to an increase in new mortgage debt proceeds, net and a decrease in mortgage debt payoffs, compared to the $50.0six months ended June 30, 2017, partially offset by an increase in distributions and the line of credit payoff of $30.0 million of cash proceeds received during the six months ended June 30, 2016 as2018.
Contractual Obligations
Significant ongoing contractual obligations consist primarily of long term borrowings, interest expense, operating leases, LOC maintenance fees and ground leases. For a resultsummary and complete presentation and description of our ongoing commitments and contractual obligations, see the saleContractual Obligations section of stock underManagement's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the ATM equity offering program.year ended December 31, 2017 filed with the SEC on February 28, 2018.
Management's Discussion (continued)
Contractual Obligations
As of June 30, 2017, we were subject to certain contractual payment obligations as described in the table below (amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total (5) | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
Long Term Borrowings (1) | $ | 2,068,016 |
| | $ | 28,900 |
| | $ | 239,608 |
| | $ | 234,920 |
| | $ | 352,089 |
| | $ | 211,650 |
| | $ | 1,000,849 |
|
Interest Expense (2) | 605,441 |
| | 48,266 |
| | 87,925 |
| | 73,013 |
| | 57,639 |
| | 49,742 |
| | 288,856 |
|
Operating Lease | 9,444 |
| | 1,090 |
| | 2,221 |
| | 2,062 |
| | 2,011 |
| | 1,711 |
| | 349 |
|
LOC Maintenance Fee (3) | 849 |
| | 409 |
| | 440 |
| | — |
| | — |
| | — |
| | — |
|
Ground Lease (4) | 16,035 |
| | 993 |
| | 1,980 |
| | 1,983 |
| | 1,984 |
| | 1,987 |
| | 7,108 |
|
Total Contractual Obligations | $ | 2,699,785 |
| | $ | 79,658 |
| | $ | 332,174 |
| | $ | 311,978 |
| | $ | 413,723 |
| | $ | 265,090 |
| | $ | 1,297,162 |
|
Weighted average interest rates - Long Term Borrowings | 4.41 | % | | 4.69 | % | | 4.61 | % | | 4.40 | % | | 4.49 | % | | 4.39 | % | | 4.25 | % |
| |
(1)
| Balance excludes note premiums of $4.3 million and deferred financing costs of approximately $17.8 million. Balances include debt maturing, scheduled periodic principal payments, and Paradise Park Largo mortgage debt of $5.9 million. |
| |
(2)
| Amounts include interest expected to be incurred on our secured debt and Term Loan based on obligations outstanding as of June 30, 2017. |
| |
(3)
| As of June 30, 2017, assumes we will not exercise our one year extension option on July 17, 2018 and assumes we will maintain our current leverage ratios as defined by the LOC. |
| |
(4)
| We also lease land under non-cancelable operating leases at certain of the Properties expiring in various years from 2017 to 2054. The majority of the lease terms require twelve equal payments per year plus additional rents calculated as a percentage of gross revenues. |
| |
(5)
| We do not include insurance, property taxes and cancelable contracts in the contractual obligations table. |
We believe that we will be able to refinance our maturing debt obligations on a secured or unsecured basis; however, to the extent we are unable to refinance our debt as it matures, we believe that we will be able to repay such maturing debt through available cash as well as operating cash flow, asset sales and/or the proceeds from equity issuances. With respect to any refinancing of maturing debt, our future cash flow requirements could be impacted by significant changes in interest rates or other debt terms, including required amortization payments.
Inflation
Substantially all of the leases at the Properties allow for monthly or annual rent increases which provide us withincreases. In addition, we have the opportunity to achieve rate increases, where justified by the market, as each lease matures. Such types of leases generally minimize our risks of inflation. In addition, our RV resort Properties are not generally subject to leases and rents are established for these Sites on an annual basis. Our right-to-use contracts generally provide for an annual dues increase, but dues may be frozen under the terms of certain contracts if the customer is over 61 years of age.old.
Off BalanceOff-Balance Sheet Arrangements
As of June 30, 2017,2018, we have no off balanceoff-balance sheet arrangements.
Critical Accounting Policies and Estimates
Refer to the 2016Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of our critical accounting policies, which includesinclude impairment, of real estate assets and investments, revenue recognition and business combinations. There have been no significant changes to theseour critical accounting policies and estimates during the quarter ended June 30, 2017.2018 compared with those contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017, except that we updated our revenue recognition policy related to right-to-use contracts pursuant to the adoption of ASU 2014-09 (see "Recently Adopted Accounting Pronouncements" within Note 2).
Management's Discussion (continued)
Forward LookingForward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended June 30, 20172018 includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used, words such as “anticipate,” “expect,” “believe,” “project,” “intend,” “may be” and “will be” and similar words or phrases, or the negative thereof, unless the context requires otherwise, are intended to identify forward-looking statements and may include without limitation, information regarding our expectations, goals or intentions regarding the future, and the expected effect of our acquisitions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, but not limited to:
our ability to control costs and real estate market conditions, the actual rate of decline inour ability to retain customers, the actual use of Sites by customers and our success in acquiring new customers at our Properties (including those that we may acquire);
our ability to maintain historical or increase future rental rates and occupancy with respect to Propertiesproperties currently owned or that we may acquire;
our ability to retain and attract customers renewing, upgrading and entering right-to-use contracts;
our assumptions about rental and home sales markets;
our ability to manage counterparty risk;
our ability to renew our insurance policies at existing rates and on consistent terms;
in the age-qualified Properties, home sales results could be impacted by the ability of potential home buyers to sell their existing residences as well as by financial, credit and capital markets volatility;
results from home sales and occupancy will continue to be impacted by local economic conditions, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing;
impact of government intervention to stabilize site-built single-family housing and not manufactured housing;
effective integration of recent acquisitions and our estimates regarding the future performance of recent acquisitions;
the completion of future transactions in their entirety, if any, and timing and effective integration with respect thereto;
unanticipated costs or unforeseen liabilities associated with recent acquisitions;
ability to obtain financing or refinance existing debt on favorable terms or at all;
the effect of interest rates;
the dilutive effects of issuing additional securities;
the effect of changes in accounting for the entry of contracts with customers representing a right-to-use the PropertiesLeases set forth under the Codification Topic "Revenue Recognition"Leases";
the outcome of pending or future lawsuits or actions brought against us, including those disclosed in our filings with the Securities and Exchange Commission; and
other risks indicated from time to time in our filings with the Securities and Exchange Commission.
These forward-looking statements are based on management's present expectations and beliefs about future events. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.
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Item 3. | Quantitative and Qualitative Disclosure ofDisclosures About Market Risk |
We disclosed a quantitative and qualitative analysis regarding market risk in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk on Form 10-K for the year ended December 31, 2016.2017. There have been no material changes in the assumptions used or results obtained regarding market risk since December 31, 2016.2017.
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Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017.2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to us that would potentially be subject to disclosure under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder as of June 30, 2017.
Notwithstanding the foregoing, a control system,2018. Any controls and procedures, no matter how well designed and operated, can provide only reasonable not absolute, assurance that it will detect or uncover failures within us to disclose material information otherwise required to be set forth in our periodic reports.of achieving the desired control objectives.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2017,2018, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – Other Information
See Note 9 of the Consolidated Financial Statements contained herein.
There have been no material changes to the risk factors discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162017 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.2018.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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Item 3. | Defaults Upon Senior Securities |
None.
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Item 4. | Mine Safety DisclosureDisclosures |
None.
None.
None.
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Item 6. | Exhibit IndexExhibits |
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31.1 | |
31.2 | |
32.1 | |
32.2 | |
101 | The following materials from Equity LifeStyle Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 20172018 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flow and (v) Notes to Consolidated Financial Statements, filed herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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| EQUITY LIFESTYLE PROPERTIES, INC. |
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Date: July 26, 20172018 | By: | /s/ Marguerite Nader |
| | Marguerite Nader |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
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Date: July 26, 20172018 | By: | /s/ Paul Seavey |
| | Paul Seavey |
| | Executive Vice President, Chief Financial Officer and Treasurer |
| | (Principal Financial and Accounting Officer) |