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 September 30, 2017March 31, 2020
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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 Jurisdictionother jurisdiction of Incorporation or Organization) incorporation) | (I.R.S. Employer
Identification No.)
|
| | (IRS Employer Identification Number) |
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)312) 279-1400
Registrant's telephone number, including area code
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| | |
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 Par Value | ELS | New York Stock Exchange |
_________________________________________________________
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. Yesx☒ 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). Yesx☒ 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):
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| | | |
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:
87,836,746 182,146,987 shares of Common Stock as of October 27, 2017.April 23, 2020.
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 | |
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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 September 30, 2017 and December 31, 2016
(amounts in thousands, except share and per share data)
| | | | | | | As of | | As of |
| September 30, 2017 | | December 31, 2016 | March 31, 2020 | | December 31, 2019 |
| (unaudited) | | (unaudited) | | |
Assets | | | | | | |
Investment in real estate: | | | | | | |
Land | $ | 1,167,620 |
| | $ | 1,163,987 |
| $ | 1,526,225 |
| | $ | 1,525,407 |
|
Land improvements | 2,940,500 |
| | 2,893,759 |
| 3,362,287 |
| | 3,336,070 |
|
Buildings and other depreciable property | 647,513 |
| | 627,590 |
| 892,816 |
| | 881,572 |
|
| 4,755,633 |
| | 4,685,336 |
| 5,781,328 |
| | 5,743,049 |
|
Accumulated depreciation | (1,488,722 | ) | | (1,399,531 | ) | (1,812,822 | ) | | (1,776,224 | ) |
Net investment in real estate | 3,266,911 |
| | 3,285,805 |
| 3,968,506 |
| | 3,966,825 |
|
Cash | 77,395 |
| | 56,340 |
| |
Cash and restricted cash | | 96,921 |
| | 28,860 |
|
Notes receivable, net | 49,284 |
| | 34,520 |
| 35,227 |
| | 37,558 |
|
Investment in unconsolidated joint ventures | 52,966 |
| | 19,369 |
| 20,130 |
| | 20,074 |
|
Deferred commission expense | 31,608 |
| | 31,375 |
| 41,230 |
| | 41,149 |
|
Escrow deposits, goodwill, and other assets, net | 47,683 |
| | 51,578 |
| |
Other assets, net | | 50,450 |
| | 56,809 |
|
Total Assets | $ | 3,525,847 |
| | $ | 3,478,987 |
| $ | 4,212,464 |
| | $ | 4,151,275 |
|
| | | | |
Liabilities and Equity | | | | | | |
Liabilities: | | | | | | |
Mortgage notes payable, net | $ | 1,981,604 |
| | $ | 1,891,900 |
| $ | 2,260,819 |
| | $ | 2,049,509 |
|
Term loan | 199,534 |
| | 199,379 |
| |
Accrued expenses and accounts payable | 106,688 |
| | 89,864 |
| |
Deferred revenue – upfront payments from right-to-use contracts | 85,254 |
| | 81,484 |
| |
Deferred revenue – right-to-use annual payments | 10,513 |
| | 9,817 |
| |
Term loan, net | | 199,030 |
| | 198,949 |
|
Unsecured line of credit | | — |
| | 160,000 |
|
Accounts payable and other liabilities | | 124,396 |
| | 124,665 |
|
Deferred revenue – upfront payments from membership upgrade sales | | 129,356 |
| | 126,814 |
|
Deferred revenue – annual membership subscriptions | | 12,319 |
| | 10,599 |
|
Accrued interest payable | 7,969 |
| | 8,379 |
| 8,627 |
| | 8,639 |
|
Rents and other customer payments received in advance and security deposits | 73,609 |
| | 76,906 |
| 91,152 |
| | 91,234 |
|
Distributions payable | 45,501 |
| | 39,411 |
| 65,858 |
| | 58,978 |
|
Total Liabilities | 2,510,672 |
| | 2,397,140 |
| 2,891,557 |
| | 2,829,387 |
|
Equity: | | | | | | |
Stockholders’ Equity: | | | | |
Preferred stock, $0.01 par value, 10,000,000 shares authorized as of September 30, 2017 and 9,945,539 shares authorized as of December 31, 2016; none issued and outstanding. | — |
| | — |
| |
6.75% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value, no shares authorized as of September 30, 2017 and 54,461 shares authorized as of December 31, 2016; none issued and outstanding as of September 30, 2017 and 54,458 shares issued and outstanding as of December 31, 2016. | — |
| | 136,144 |
| |
Common stock, $0.01 par value, 200,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 87,499,669 and 85,529,386 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 872 |
| | 854 |
| |
Stockholders' Equity: | | | | |
Preferred stock, $0.01 par value, 10,000,000 shares authorized as of March 31, 2020 and December 31, 2019; none issued and outstanding. | | — |
| | — |
|
Common stock, $0.01 par value, 400,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 182,144,559 and 182,089,595 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively. | | 1,812 |
| | 1,812 |
|
Paid-in capital | 1,164,658 |
| | 1,103,048 |
| 1,402,514 |
| | 1,402,696 |
|
Distributions in excess of accumulated earnings | (213,771 | ) | | (231,276 | ) | (153,703 | ) | | (154,318 | ) |
Accumulated other comprehensive (loss) | — |
| | (227 | ) | |
Accumulated other comprehensive income (loss) | | (1,713 | ) | | (380 | ) |
Total Stockholders’ Equity | 951,759 |
| | 1,008,543 |
| 1,248,910 |
| | 1,249,810 |
|
Non-controlling interests – Common OP Units | 63,416 |
| | 73,304 |
| 71,997 |
| | 72,078 |
|
Total Equity | 1,015,175 |
| | 1,081,847 |
| 1,320,907 |
| | 1,321,888 |
|
Total Liabilities and Equity | $ | 3,525,847 |
| | $ | 3,478,987 |
| $ | 4,212,464 |
| | $ | 4,151,275 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.the consolidated financial statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income
For the Quarters Ended and Nine Months Ended September 30, 2017 and 2016
(amounts in thousands, except per share data)data (adjusted for stock split))
(unaudited)
| | | Quarters Ended | | Nine Months Ended | Quarters Ended March 31, |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 | 2020 |
| 2019 |
Revenues: | | | | | | | | | | |
Community base rental income | $ | 123,177 |
| | $ | 117,164 |
| | $ | 365,833 |
| | $ | 346,625 |
| |
Rental home income | 3,592 |
| | 3,484 |
| | 10,829 |
| | 10,572 |
| |
Resort base rental income | 58,471 |
| | 54,486 |
| | 169,594 |
| | 154,652 |
| |
Right-to-use annual payments | 11,531 |
| | 11,349 |
| | 34,133 |
| | 33,590 |
| |
Right-to-use contracts current period, gross | 4,208 |
| | 3,672 |
| | 11,212 |
| | 9,290 |
| |
Right-to-use contract upfront payments, deferred, net | (1,670 | ) | | (1,327 | ) | | (3,766 | ) | | (2,427 | ) | |
Utility and other income | 26,295 |
| | 21,174 |
| | 69,071 |
| | 61,490 |
| |
Rental income | | $ | 239,346 |
| | $ | 223,566 |
|
Annual membership subscriptions | | 13,073 |
| | 12,316 |
|
Membership upgrade sales current period, gross | | 4,843 |
| | 3,838 |
|
Membership upgrade sales upfront payments, deferred, net | | (2,542 | ) | | (1,771 | ) |
Other income | | 11,059 |
| | 10,370 |
|
Gross revenues from home sales | 10,012 |
| | 10,895 |
| | 24,872 |
| | 28,239 |
| 11,309 |
| | 6,475 |
|
Brokered resale revenues and ancillary services revenues, net | 1,983 |
| | 920 |
| | 4,088 |
| | 2,736 |
| |
Brokered resale and ancillary services revenues, net | | 938 |
| | 1,559 |
|
Interest income | 1,974 |
| | 1,767 |
| | 5,542 |
| | 5,052 |
| 1,807 |
| | 1,751 |
|
Income from other investments, net | 2,052 |
| | 2,581 |
| | 3,918 |
| | 6,574 |
| 643 |
| | 986 |
|
Total revenues | 241,625 |
| | 226,165 |
|
| 695,326 |
|
| 656,393 |
| 280,476 |
| | 259,090 |
|
Expenses: | | | | | | | | | | |
Property operating and maintenance | 80,164 |
| | 73,410 |
| | 221,119 |
| | 203,011 |
| 83,634 |
| | 77,948 |
|
Rental home operating and maintenance | 1,704 |
| | 1,768 |
| | 4,912 |
| | 4,874 |
| |
Real estate taxes | 14,006 |
| | 13,467 |
| | 41,986 |
| | 39,534 |
| 16,841 |
| | 15,323 |
|
Sales and marketing, gross | 3,277 |
| | 3,100 |
| | 8,861 |
| | 8,524 |
| 3,978 |
| | 3,409 |
|
Right-to-use contract commissions, deferred, net | (176 | ) | | (200 | ) | | (372 | ) | | (212 | ) | |
Membership sales commissions, deferred, net | | (216 | ) | | (191 | ) |
Property management | 13,160 |
| | 11,863 |
| | 38,743 |
| | 35,670 |
| 15,004 |
| | 13,685 |
|
Depreciation on real estate assets and rental homes | 30,493 |
| | 29,518 |
| | 90,849 |
| | 87,203 |
| |
Amortization of in-place leases | 138 |
| | 1,376 |
| | 2,128 |
| | 2,139 |
| |
Depreciation and amortization | | 39,024 |
| | 37,977 |
|
Cost of home sales | 10,377 |
| | 10,745 |
| | 25,391 |
| | 28,507 |
| 11,911 |
| | 6,632 |
|
Home selling expenses | 1,447 |
| | 909 |
| | 3,301 |
| | 2,548 |
| 1,213 |
| | 1,083 |
|
General and administrative | 7,505 |
| | 7,653 |
| | 23,339 |
| | 23,315 |
| 10,855 |
| | 9,909 |
|
Property rights initiatives and other, net | 324 |
| | 855 |
| | 814 |
| | 2,036 |
| |
Other expenses | | 588 |
| | 427 |
|
Early debt retirement | | 1,054 |
| | — |
|
Interest and related amortization | 25,027 |
| | 25,440 |
| | 74,728 |
| | 76,635 |
| 26,073 |
| | 26,393 |
|
Total expenses | 187,446 |
| | 179,904 |
|
| 535,799 |
|
| 513,784 |
| 209,959 |
| | 192,595 |
|
Gain on sale of real estate, net | | — |
| | 52,507 |
|
Income before equity in income of unconsolidated joint ventures | 54,179 |
| | 46,261 |
|
| 159,527 |
|
| 142,609 |
| 70,517 |
| | 119,002 |
|
Equity in income of unconsolidated joint ventures | 686 |
| | 496 |
| | 2,876 |
| | 2,142 |
| 207 |
| | 1,533 |
|
Consolidated net income | 54,865 |
| | 46,757 |
|
| 162,403 |
|
| 144,751 |
| 70,724 |
| | 120,535 |
|
| | | | | | | | | | |
Income allocated to non-controlling interests – Common OP Units | (3,286 | ) | | (3,462 | ) | | (9,825 | ) | | (10,770 | ) | (3,849 | ) | | (7,226 | ) |
Series C Redeemable Perpetual preferred stock dividends and original issuance costs | (3,054 | ) | | (2,297 | ) | | (7,667 | ) | | (6,910 | ) | |
Net income available for Common Stockholders | $ | 48,525 |
| | $ | 40,998 |
|
| $ | 144,911 |
|
| $ | 127,071 |
| $ | 66,875 |
| | $ | 113,309 |
|
| | | | | | | | | | |
Consolidated net income | $ | 54,865 |
| | $ | 46,757 |
| | $ | 162,403 |
| | $ | 144,751 |
| $ | 70,724 |
| | $ | 120,535 |
|
Other comprehensive income/(loss): | | | | | | | | |
Other comprehensive income (loss): | | | | |
Adjustment for fair market value of swap | (30 | ) | | 551 |
| | 227 |
| | (93 | ) | (1,333 | ) | | (931 | ) |
Consolidated comprehensive income | 54,835 |
| | 47,308 |
|
| 162,630 |
|
| 144,658 |
| 69,391 |
| | 119,604 |
|
Comprehensive income allocated to non-controlling interests – Common OP Units | (3,237 | ) | | (3,505 | ) | | (9,792 | ) | | (10,762 | ) | (3,776 | ) | | (7,170 | ) |
Series C Redeemable Perpetual preferred stock dividends and original issuance costs | (3,054 | ) | | (2,297 | ) | | (7,667 | ) | | (6,910 | ) | |
Comprehensive income attributable to Common Stockholders | $ | 48,544 |
| | $ | 41,506 |
|
| $ | 145,171 |
|
| $ | 126,986 |
| $ | 65,615 |
| | $ | 112,434 |
|
| | | | |
Earnings per Common Share – Basic | | $ | 0.37 |
| | $ | 0.63 |
|
| | | | |
Earnings per Common Share – Fully Diluted | | $ | 0.37 |
| | $ | 0.63 |
|
| | | | |
Weighted average Common Shares outstanding – Basic | | 181,729 |
| | 179,560 |
|
Weighted average Common Shares outstanding – Fully Diluted | | 192,564 |
| | 191,248 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.the consolidated financial statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income (Continued)
For the Quarters Endedand Nine Months EndedSeptember 30, 2017 and 2016Changes in Equity
(amounts in thousands, except per share data)thousands; adjusted for stock split)
(unaudited)
|
| | | | | | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Earnings per Common Share – Basic: | | | | | | | |
Net income available for Common Stockholders | $ | 0.56 |
| | $ | 0.48 |
| | $ | 1.67 |
| | $ | 1.50 |
|
Earnings per Common Share – Fully Diluted: | | | | | | | |
Net income available for Common Stockholders | $ | 0.56 |
| | $ | 0.48 |
| | $ | 1.66 |
| | $ | 1.49 |
|
| | | | | | | |
Distributions declared per Common Share outstanding | $ | 0.488 |
| | $ | 0.425 |
| | $ | 1.463 |
| | $ | 1.275 |
|
Weighted average Common Shares outstanding – basic | 87,037 |
| | 85,105 |
| | 86,620 |
| | 84,649 |
|
Weighted average Common Shares outstanding – fully diluted | 93,324 |
| | 92,910 |
| | 93,135 |
| | 92,405 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-in Capital | | Distributions in Excess of Accumulated Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interests – Common OP Units | | Total Equity |
Balance as of December 31, 2019 | $ | 1,812 |
| | $ | 1,402,696 |
| | $ | (154,318 | ) | | $ | (380 | ) | | $ | 72,078 |
| | $ | 1,321,888 |
|
Cumulative effect of change in accounting principle (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326)) | — |
| | — |
| | (3,875 | ) | | — |
| | — |
| | (3,875 | ) |
Balance as of January 1, 2020 | 1,812 |
| | 1,402,696 |
| | (158,193 | ) | | (380 | ) | | 72,078 |
| | 1,318,013 |
|
Exchange of Common OP Units for Common Stock | — |
| | 63 |
| | — |
| | — |
| | (63 | ) | | — |
|
Issuance of Common Stock through employee stock purchase plan | — |
| | 619 |
| | — |
| | — |
| | — |
| | 619 |
|
Compensation expenses related to restricted stock and stock options | — |
| | 2,964 |
| | — |
| | — |
| | — |
| | 2,964 |
|
Repurchase of Common Stock or Common OP Units | — |
| | (3,962 | ) | | — |
| | — |
| | — |
| | (3,962 | ) |
Adjustment for Common OP Unitholders in the Operating Partnership | — |
| | 277 |
| | — |
| | — |
| | (277 | ) | | — |
|
Adjustment for fair market value of swap | — |
| | — |
| | — |
| | (1,333 | ) | | — |
| | (1,333 | ) |
Consolidated net income | — |
| | — |
| | 66,875 |
| | — |
| | 3,849 |
| | 70,724 |
|
Distributions | — |
| | — |
| | (62,385 | ) | | — |
| | (3,590 | ) | | (65,975 | ) |
Other | — |
| | (143 | ) | | — |
| | — |
| | — |
| | (143 | ) |
Balance as of March 31, 2020 | $ | 1,812 |
| | $ | 1,402,514 |
| | $ | (153,703 | ) | | $ | (1,713 | ) | | $ | 71,997 |
| | $ | 1,320,907 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-in Capital | | Distributions in Excess of Accumulated Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling interests – Common OP Units | | Total Equity |
Balance as of December 31, 2018 | $ | 1,792 |
| | $ | 1,328,495 |
| | $ | (211,034 | ) | | $ | 2,299 |
| | $ | 71,792 |
| | $ | 1,193,344 |
|
Exchange of Common OP Units for Common Stock | — |
| | 66 |
| | — |
| | — |
| | (66 | ) | | — |
|
Issuance of Common Stock through exercise of options | — |
| | 53 |
| | — |
| | — |
| | — |
| | 53 |
|
Issuance of Common Stock through employee stock purchase plan | — |
| | 652 |
| | — |
| | — |
| | — |
| | 652 |
|
Compensation expenses related to restricted stock and stock options | — |
| | 2,420 |
| | — |
| | — |
| | — |
| | 2,420 |
|
Repurchase of Common Stock or Common OP Units | — |
| | (53 | ) | | — |
| | — |
| | — |
| | (53 | ) |
Adjustment for Common OP Unitholders in the Operating Partnership | — |
| | (56 | ) | | — |
| | — |
| | 56 |
| | — |
|
Adjustment for fair market value of swap | — |
| | — |
| | — |
| | (931 | ) | | — |
| | (931 | ) |
Consolidated net income | — |
| | — |
| | 113,309 |
| | — |
| | 7,226 |
| | 120,535 |
|
Distributions | — |
| | — |
| | (55,123 | ) | | — |
| | (3,516 | ) | | (58,639 | ) |
Other | — |
| | (63 | ) | | — |
| | — |
| | — |
| | (63 | ) |
Balance as of March 31, 2019 | $ | 1,792 |
| | $ | 1,331,514 |
| | $ | (152,848 | ) | | $ | 1,368 |
| | $ | 75,492 |
| | $ | 1,257,318 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.the consolidated financial statements.
Equity LifeStyle Properties, Inc.
Consolidated Statement of Changes in Equity
For the Nine Months Ended September 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 |
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 | 13 |
| | 16,429 |
| | — |
| | — |
| | (16,442 | ) | | — |
| | — |
|
Issuance of Common Stock through employee stock purchase plan | — |
| | 1,615 |
| | — |
| | — |
| | — |
| | — |
| | 1,615 |
|
Issuance of Common Stock | 5 |
| | 42,032 |
| | — |
| | — |
| | — |
| | — |
| | 42,037 |
|
Compensation expenses related to restricted stock | — |
| | 6,813 |
| | — |
| | — |
| | — |
| | — |
| | 6,813 |
|
Adjustment for Common OP Unitholders in the Operating Partnership | — |
| | (5,313 | ) | | — |
| | — |
| | 5,313 |
| | — |
| | — |
|
Adjustment for fair market value of swap | — |
| | — |
| | — |
| | — |
| | — |
| | 227 |
| | 227 |
|
Net income | — |
| | — |
| | 7,667 |
| | 144,911 |
| | 9,825 |
| | — |
| | 162,403 |
|
Distributions | — |
| | — |
| | (6,910 | ) | | (127,406 | ) | | (8,584 | ) | | — |
| | (142,900 | ) |
Series C Preferred stock redemption | — |
| | — |
| | (136,144 | ) | | — |
| | — |
| | — |
| | (136,144 | ) |
Series C Preferred stock original issuance costs | — |
| | 757 |
| | (757 | ) | | — |
| | — |
| | — |
| | — |
|
Other | — |
| | (723 | ) | | — |
| | — |
| | — |
| | — |
| | (723 | ) |
Balance, September 30, 2017 | $ | 872 |
| | $ | 1,164,658 |
| | $ | — |
| | $ | (213,771 | ) | | $ | 63,416 |
| | $ | — |
| | $ | 1,015,175 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2017 and 2016
(amounts in thousands)
(unaudited)
|
| | | | | | | |
| |
| September 30, 2017 | | September 30, 2016 |
Cash Flows From Operating Activities: | | | |
Consolidated net income | $ | 162,403 |
| | $ | 144,751 |
|
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | | | |
Depreciation | 91,781 |
| | 88,043 |
|
Amortization of in-place leases | 2,128 |
| | 2,139 |
|
Amortization of loan costs | 2,676 |
| | 2,930 |
|
Debt premium amortization | (1,664 | ) | | (2,633 | ) |
Equity in income of unconsolidated joint ventures | (2,876 | ) | | (2,142 | ) |
Distributions of income from unconsolidated joint ventures | 2,711 |
| | 1,417 |
|
Stock-based compensation | 6,813 |
| | 6,796 |
|
Revenue recognized from right-to-use contract upfront payments | (7,440 | ) | | (6,863 | ) |
Commission expense recognized related to right-to-use contracts | 3,327 |
| | 3,071 |
|
Long term incentive plan compensation | 1,011 |
| | (3,390 | ) |
Recovery for uncollectible rents receivable | (52 | ) | | (548 | ) |
Changes in assets and liabilities: | | | |
Notes receivable activity, net | (337 | ) | | 349 |
|
Deferred commission expense | (3,560 | ) | | (3,641 | ) |
Escrow deposits, goodwill and other assets | 28,985 |
| | 22,516 |
|
Accrued expenses and accounts payable | 11,002 |
| | 15,392 |
|
Deferred revenue – upfront payments from right-to-use contracts | 11,210 |
| | 9,290 |
|
Deferred revenue – right-to-use annual payments | 696 |
| | 700 |
|
Rents received in advance and security deposits | (3,305 | ) | | (3,595 | ) |
Net cash provided by operating activities | 305,509 |
| | 274,582 |
|
Cash Flows From Investing Activities: | | | |
Real estate acquisition | (2,163 | ) | | (78,203 | ) |
Investment in unconsolidated joint ventures | (33,479 | ) | | (5,000 | ) |
Distributions of capital from unconsolidated joint ventures | — |
| | 4,094 |
|
Repayments of notes receivable | 7,643 |
| | 7,788 |
|
Issuance of notes receivable | (22,297 | ) | | (7,436 | ) |
Capital improvements | (87,877 | ) | | (87,316 | ) |
Net cash used in investing activities | (138,173 | ) | | (166,073 | ) |
Cash Flows From Financing Activities: | | | |
Proceeds from stock options and employee stock purchase plan | 1,615 |
| | 5,931 |
|
Share based award tax withholding | — |
| | (98 | ) |
Gross proceeds from sale of Common Stock | 42,037 |
| | 50,000 |
|
Distributions: | | | |
Common Stockholders | (121,114 | ) | | (103,803 | ) |
Common OP Unitholders | (8,786 | ) | | (8,828 | ) |
Preferred Stockholders | (6,910 | ) | | (6,910 | ) |
Principal payments and mortgage debt payoff | (60,392 | ) | | (109,256 | ) |
New mortgage notes payable financing proceeds | 146,000 |
| | 54,450 |
|
Redemption of preferred stock | (136,144 | ) | | — |
|
Debt issuance and defeasance costs | (1,864 | ) | | (617 | ) |
Other | (723 | ) | | (824 | ) |
Net cash used in financing activities | (146,281 | ) | | (119,955 | ) |
Net increase (decrease) in cash | 21,055 |
| | (11,446 | ) |
Cash, beginning of period | 56,340 |
| | 80,258 |
|
Cash, end of period | $ | 77,395 |
| | $ | 68,812 |
|
|
| | | | | | | |
| Quarters Ended March 31, |
| 2020 | | 2019 |
Cash Flows From Operating Activities: | | | |
Consolidated net income | $ | 70,724 |
| | $ | 120,535 |
|
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | | | |
Gain on sale of real estate, net | — |
| | (52,507 | ) |
Early debt retirement | 1,054 |
| | — |
|
Depreciation and amortization | 39,628 |
| | 38,404 |
|
Amortization of loan costs | 872 |
| | 887 |
|
Debt premium amortization | (114 | ) | | (101 | ) |
Equity in income of unconsolidated joint ventures | (207 | ) | | (1,533 | ) |
Distributions of income from unconsolidated joint ventures | — |
| | 677 |
|
Proceeds from insurance claims, net | 756 |
| | 4,150 |
|
Compensation expense related to restricted stock and stock options | 2,964 |
| | 2,420 |
|
Revenue recognized from membership upgrade sales upfront payments | (2,301 | ) | | (2,067 | ) |
Commission expense recognized related to membership sales | 940 |
| | 938 |
|
Long-term incentive plan compensation | 383 |
| | (3,987 | ) |
Changes in assets and liabilities: | | | |
Notes receivable, net | (317 | ) | | 122 |
|
Deferred commission expense | (1,020 | ) | | (1,035 | ) |
Other assets, net | 13,324 |
| | (9,238 | ) |
Accounts payable and other liabilities | (2,096 | ) | | 20,402 |
|
Deferred revenue – upfront payments from membership upgrade sales | 4,843 |
| | 3,838 |
|
Deferred revenue – annual membership subscriptions | 1,720 |
| | 2,991 |
|
Rents and other customer payments received in advance and security deposits | (261 | ) | | 3,202 |
|
Net cash provided by operating activities | 130,892 |
| | 128,098 |
|
Cash Flows From Investing Activities: | | | |
Real estate acquisitions, net | (1,352 | ) | | (13,012 | ) |
Proceeds from disposition of properties, net | — |
| | 77,746 |
|
Distributions of capital from unconsolidated joint ventures | 150 |
| | 58 |
|
Proceeds from insurance claims | — |
| | 761 |
|
Capital improvements | (48,959 | ) | | (52,441 | ) |
Net cash provided by (used in) investing activities | (50,161 | ) | | 13,112 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.the consolidated financial statements.
Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows (continued)
For the Nine Months Ended September 30, 2017 and 2016
(amounts in thousands)
(unaudited)
|
| | | | | | | |
| September 30, 2017 | | September 30, 2016 |
Supplemental Information: | | | |
Cash paid during the period for interest | $ | 76,713 |
| | $ | 79,762 |
|
Capital improvements – used homes acquired by repossessions | 227 |
| | 485 |
|
Net repayments of notes receivable – used homes acquired by repossessions | (227 | ) | | (485 | ) |
Building and other depreciable property – reclassification of rental homes | 25,852 |
| | 26,070 |
|
Escrow deposits and other assets – reclassification of rental homes | (25,852 | ) | | (26,070 | ) |
| | | |
Real estate acquisitions: | | | |
Investment in real estate, fair value | $ | (7,985 | ) | | $ | (100,148 | ) |
Investment in real estate, cost | (110 | ) | | (2,000 | ) |
Escrow deposits and other assets | — |
| | (20 | ) |
Debt assumed | 5,900 |
| | 22,010 |
|
Accrued expenses and accounts payable | 32 |
| | 1,955 |
|
Real estate acquisitions, net | $ | (2,163 | ) | | $ | (78,203 | ) |
|
| | | | | | | |
| Quarters Ended March 31, |
| 2020 | | 2019 |
Cash Flows From Financing Activities: | | | |
Proceeds from stock options and employee stock purchase plan | 619 |
| | 652 |
|
Distributions: | | | |
Common Stockholders | (55,765 | ) | | (49,457 | ) |
Common OP Unitholders | (3,213 | ) | | (3,161 | ) |
Share based award tax withholding payments | (3,962 | ) | | — |
|
Principal payments and mortgage debt repayment | (61,791 | ) | | (13,683 | ) |
Mortgage notes payable financing proceeds | 275,385 |
| | — |
|
Line of Credit repayment | (222,500 | ) | | — |
|
Line of Credit proceeds | 62,500 |
| | — |
|
Debt issuance and defeasance costs | (3,800 | ) | | (250 | ) |
Other | (143 | ) | | (63 | ) |
Net cash used in financing activities | (12,670 | ) | | (65,962 | ) |
Net increase (decrease) in cash and restricted cash | 68,061 |
| | 75,248 |
|
Cash and restricted cash, beginning of period | 28,860 |
| | 68,974 |
|
Cash and restricted cash, end of period | $ | 96,921 |
| | $ | 144,222 |
|
|
| | | | | | | |
| Quarters Ended March 31, |
| 2020 | | 2019 |
Supplemental Information: | | | |
Cash paid for interest | $ | 25,518 |
| | $ | 25,729 |
|
Net investment in real estate – reclassification of rental homes | $ | 9,319 |
| | $ | 5,520 |
|
Other assets, net – reclassification of rental homes | $ | (9,319 | ) | | $ | (5,520 | ) |
| | | |
Real estate acquisitions: | | | |
Investment in real estate | $ | (1,531 | ) | | $ | (25,797 | ) |
Debt assumed | — |
| | 11,208 |
|
Other liabilities | 179 |
| | 1,577 |
|
Real estate acquisitions, net | $ | (1,352 | ) | | $ | (13,012 | ) |
| | | |
Real estate dispositions: | | | |
Investment in real estate | $ | — |
| | $ | 35,572 |
|
Notes receivable, net | — |
| | 295 |
|
Other assets, net | — |
| | 97 |
|
Mortgage notes payable, net | — |
| | (11,175 | ) |
Other liabilities | — |
| | 450 |
|
Gain on sale of real estate, net | — |
| | 52,507 |
|
Real estate dispositions, net | $ | — |
| | $ | 77,746 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.the consolidated financial statements.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 1 – Organization and Basis of Presentation
Equity LifeStyle Properties, Inc. ("ELS"), a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”"Operating Partnership") and its other consolidated subsidiaries (“Subsidiaries”(the "Subsidiaries"), are referred to herein as “we,” “us,”"we," "us," and “our.” Capitalized terms used"our." We are a fully integrated owner and operator of lifestyle-oriented properties ("Properties") consisting primarily of manufactured home ("MH") and recreational vehicle ("RV") communities. We provide our customers the opportunity to place manufactured homes, cottages or RVs on our Properties either on a long-term or short-term basis. Our customers may lease individual developed areas ("Sites") or enter into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays.
Our Properties are owned primarily by the Operating Partnership and managed internally by affiliates of the Operating Partnership. ELS is the sole general partner of the Operating Partnership, has exclusive responsibility and discretion in management and control of the Operating Partnership and held a 94.6% interest as of March 31, 2020. As the general partner with control, ELS is the primary beneficiary of, and therefore consolidates, the Operating Partnership.
Equity method of accounting is applied to entities in which ELS does not have a controlling interest or for variable interest entities in which ELS is not considered the primary beneficiary, but not defined hereinwith respect to which it can exercise significant influence over operations and major decisions. 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 as definedrecognized in our Annual Report on Form 10-K (“2016 Form 10-K”) for the year ended December 31, 2016. Theseearnings.
The accompanying unaudited Consolidated Financial Statementsinterim consolidated financial statements have been prepared pursuant to Securities and Exchange Commission (“SEC”) rules and regulations.regulations for Quarterly Reports on Form 10-Q. 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 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the 2016 Form 10-K.year ended December 31, 2019.
The following notesIntercompany balances and transactions have been eliminated. All adjustments to the Consolidated Financial Statements highlight significant changes to the notes included in the 2016 Form 10-Kinterim consolidated financial statements are of a normal, recurring nature and, present interim disclosures as required by the SEC. The accompanying Consolidated Financial Statements reflect, in the opinion of management, all adjustments and estimatesare necessary for a fair presentation of theresults for these interim financial statements, which are of a normal, recurring nature.periods. Revenues and expenses are subject to seasonal fluctuations and accordingly, quarterly interim results may not be indicative of full year results.
On October 15, 2019, we effected a 2-for-one stock split of our common stock. Pursuant to the anti-dilution provision in the Operating Partnership's Agreement of Limited Partnership, the stock split also effected a two-for one split of the outstanding Operating Partnership units ("OP units"). All shares of common stock and OP units and per share data in the consolidated financial statements and accompanying notes, for all periods presented, have been adjusted to reflect the stock split.
Note 2 – Summary of Significant Accounting Policies
| |
(a) | ConsolidationRecently Adopted Accounting Pronouncements |
We consolidate our majority-owned Subsidiaries in which we have the ability to control the operations and all variable interest entities ("VIE") with respect to which we are the primary beneficiary. 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.
EffectiveOn January 1, 2016,2020, we prospectively adopted (“FASB ("ASU 2015-02”2018-15") Consolidation (Topic 810): Amendments to the Consolidation AnalysisIntangibles - Goodwill and Other - Internal-Use Software (ASC 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2015-02 required us2018-15 provides guidance on accounting for fees paid when the arrangement includes a software license and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs to evaluate whether we should consolidate certain legal entities.develop or obtain internal-use software. The adoption of this standardguidance 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.
| |
(b) | Identified Intangibles and Goodwill |
As of both September 30, 2017 and December 31, 2016, the gross carrying amount of identified intangible assets and goodwill, a component of escrow deposits, goodwill and other assets, net on our consolidated balance sheets, was approximately $12.1 million. As of both September 30, 2017 and December 31, 2016, 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 million and $2.8 million as of September 30, 2017 and December 31, 2016, respectively.
As of September 30, 2017 and December 31, 2016, the gross carrying amount of in-place lease intangible assets, a component of buildings and other depreciable property on our consolidated balance sheets, was approximately $76.7 million and $76.3 million, respectively. Accumulated amortization of in-place lease intangible assets was approximately $76.4 million and $74.3 million as of September 30, 2017 and December 31, 2016, respectively.
Cash as of both September 30, 2017 and December 31, 2016 included approximately $5.3 million of restricted cash for the payment of capital improvements, insurance or real estate taxes.
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 $18.9 million as of both September 30, 2017 and December 31, 2016, had an aggregate carrying value of approximately $2,200.1 million and $2,110.2 million as of September 30, 2017 and December 31, 2016, respectively, and a fair value of approximately $2,225.4 million and $2,081.2 million as of September 30, 2017 and December 31, 2016, respectively. The fair value was measured using quoted prices and observable inputs from similar liabilities (Level 2). At December 31, 2016, our cash flow hedge of interest rate risk included in accrued expenses and accounts payable 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 cash flow hedge of interest rate risk expired during the quarter ended September 30, 2017. 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) | New Accounting Pronouncements |
In January 2017, the FASB issued ("ASU 2017-01") Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for annual reporting beginning after December 15, 2017. Early adoption is permitted. We are currently in the process of evaluating the potentialmaterial impact if any, that the adoption of this standard may have on our consolidated financial statements and related disclosures.statements.
In August 2016, theOn January 1, 2020 we adopted FASB issued (“ASU 2016-15”) Statement of Cash Flows (Topic 230). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 will be effective for annual reporting periods beginning after December 15, 2017. 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 statements and related disclosures.
In June 2016, the FASB issued (“ASU 2016-13”) Financial Instruments - Credit Losses (Topic 326).using the modified retrospective approach. 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 nowshould use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures
We are exposed to help financial statement users better understand significantcredit losses primarily through sales of annual membership subscriptions and membership upgrades and home sales. We have developed an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of our receivables considering current market conditions and estimates for forecasts when appropriate. The estimate
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (continued)
is a result of our ongoing assessments and judgments usedevaluations of collectability, historical loss experience and future expectations in estimating credit losses in each of our receivable portfolios. We recognized a cumulative-effect adjustment of $3.9 million, which decreased opening retained earnings as well asof January 1, 2020.
The cumulative-effect adjustment resulting from the credit quality and underwriting standardsadoption of an entity’s portfolio. ASU 2016-13 will be effectiveas of January 1, 2020 was as follows:
|
| | | | | | | | | | | | | | | | | |
Balance net of allowance | Balance Sheet Location | | Balance at December 31, 2019 | | Adjustment due to ASU 2016-13 Adoption | | Balance at January 1, 2020 | | Balance at March 31, 2020 |
(amounts in thousands) | | | | | | | | | |
Annual membership subscriptions | Other assets, net | | $ | 2,394 |
| | $ | (1,361 | ) | | $ | 1,033 |
| | $ | 1,232 |
|
Membership upgrades | Notes receivable, net | | $ | 25,236 |
| | $ | (2,514 | ) | | $ | 22,722 |
| | $ | 23,149 |
|
Rental income is accounted for annual reporting periods beginning after December 15, 2019. Early adoptionin accordance with the ASC 842, Leases, and is permitted. Werecognized over the term of the respective lease or the length of a customer's stay. Utility recoveries are currentlypresented within Rental income on the Consolidated Statements of Income and Comprehensive Income. Expected credit losses related to the collectability of lease receivables are presented as a reduction to Rental Income. Lease receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of expected credit losses. See Note 3. Leases for additional information.
Annual membership subscriptions and membership upgrade sales are accounted for in the process of evaluating the potential impact, if any, that adoption of this standard may have on our consolidated 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,accordance 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. We are currently in the process of evaluating the potential impact, if any, this standard may have on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ("ASU 2014-09") ASC 606, Revenue from Contracts with CustomersCustomers. Membership subscriptions provide our customers access to specific Properties for limited stays at a specified group of Properties. Payments are deferred and recognized on a straight-line basis over the one-year period during which along with related subsequent amendments will replace most existing revenue recognition guidance in GAAP. The core principleaccess to Sites at certain Properties is provided. Membership subscription receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of ASU 2014-09 is that an entity should recognize revenueallowance for the transfer of goods or services equalcredit losses. Membership upgrades grant certain additional access rights to the amount that it expectscustomer and require non-refundable upfront payments. The non-refundable upfront payments are recognized on a straight-line basis over 20 years. Financed upgrade sales (also known as contract receivables) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses.
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. Financed home sales (also known as chattel loans) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses.
As of March 31, 2020 and December 31, 2019, restricted cash consists of $27.6 million and $25.1 million, respectively, primarily related to be entitled to receivecash reserved for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timingcustomer deposits and uncertainty of revenueamounts escrowed for insurance 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.real estate taxes.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 23 – SummaryLeases
Lessor
Rental income derived from customers renting our Sites is accounted for in accordance with ASC 842, Leases, and is recognized over the term of Significant Accounting Policies (continued)
the respective operating lease or the length of a customer's stay. MH Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. Annual RV and marina Sites are leased on an annual basis to customers who generally have an RV, factory-built cottage, boat or other unit placed on the site, including those Northern properties that are open for the summer season. Seasonal RV and marina Sites are leased to customers generally for one to six months. Transient RV and marina Sites are leased to customers on a short-term basis. In addition, customers may lease homes that are located in our communities.
The leases entered into between the customer and us for a rental of a Site are renewable upon the consent of both parties or, in some instances, as provided by statute. Long-term leases that are non-cancelable by the tenants are in effect at certain Properties. Rental rate increases at these Properties are primarily a function of increases in the Consumer Price Index, taking into consideration certain conditions. Additionally, periodic market rate adjustments are made as deemed appropriate. In addition, certain state statutes allow entry into long-term agreements that effectively modify lease terms related to rent amounts and increases over the term of the agreements. The following table presents future minimum rents expected to be received under long-term non-cancelable tenant leases, as well as those leases that are subject to long-term agreements governing rent payments and increases:
|
| | | | |
(amounts in thousands) | | As of March 31, 2020 |
2020 | | $ | 63,393 |
|
2021 | | 85,220 |
|
2022 | | 53,423 |
|
2023 | | 20,119 |
|
2024 | | 20,144 |
|
Thereafter | | 79,241 |
|
Total | | $ | 321,540 |
|
Lessee
We expectlease land under non-cancelable operating leases at 13 Properties expiring at various dates through 2054. The majority of the leases have terms requiring fixed payments plus additional rents based on a percentage of gross revenues at those Properties. We also have other operating leases, primarily office space, expiring at various dates through 2026. For the quarters ended March 31, 2020 and 2019, total operating lease payments were $2.4 million and $2.3 million, respectively.
The following table summarizes our minimum future rental payments, excluding variable costs, which are discounted by our incremental borrowing rate to adopt ASU 2014-09 on January 1, 2018 usingcalculate the modified retrospective transition method. We have determined thatlease liability for our primary sourceoperating leases as of revenue, generated through leasing arrangements, is excludedMarch 31, 2020:
|
| | | | | | | | | | | | | |
| | As of March 31, 2020 | |
(amounts in thousands) | | Ground Leases | | Office and Other Leases | | Total | |
2020 | | $ | 1,462 |
| | $ | 2,444 |
| | $ | 3,906 |
| |
2021 | | 1,949 |
| | 2,602 |
| | 4,551 |
| |
2022 | | 1,479 |
| | 916 |
| | 2,395 |
| |
2023 | | 534 |
| | 687 |
| | 1,221 |
| |
2024 | | 534 |
| | 505 |
| | 1,039 |
| |
Thereafter | | 4,984 |
| | 484 |
| | 5,468 |
| |
Total undiscounted rental payments | | 10,942 |
| | 7,638 |
| | 18,580 |
| |
Less imputed interest | | (2,300 | ) | | (558 | ) | | (2,858 | ) | |
Total lease liabilities | | $ | 8,642 |
| | $ | 7,080 |
| | $ | 15,722 |
| |
Right-of-use ("ROU") assets and lease liabilities from ASU 2014-09. We are in the process of finalizing our evaluationoperating leases, included within Other assets, net and 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 utilityAccounts payable and other income. While we have not finalized our assessment of the impact of ASU 2014-09, basedliabilities on the analysis completedConsolidated Balance Sheets, were $14.7 million and $15.7 million, respectively, as of March
Equity LifeStyle Properties, Inc.
Notes to date, we do not currently anticipate that ASU 2014-09 will have a material impactConsolidated Financial Statements
Note 3 – Leases (continued)
31, 2020. The weighted average remaining lease term for our operating leases was seven years and the weighted average incremental borrowing rate was 4.3% at March 31, 2020.
ROU assets and lease liabilities from our operating leases, included within Other assets, net and Accounts payable and other liabilities on the Consolidated Balance Sheets, were $15.1 million and $16.2 million, respectively, as of December 31, 2019. The weighted average remaining lease term for our consolidated financial statements.operating leases was seven years and the weighted average incremental borrowing rate was 4.4% at December 31, 2019.
Note 34 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per Common Shareshare of common stock, as adjusted for the stock split, for the quarters ended March 31, 2020 and nine months ended September 30, 2017 and 2016 (amounts in thousands, except per share data):2019:
|
| | | | | | | | |
| | Quarters Ended March 31, |
(amounts in thousands, except per share data) | | 2020 | | 2019 |
Numerators: | | | | |
Net income available for Common Stockholders – Basic | | $ | 66,875 |
| | $ | 113,309 |
|
Amounts allocated to dilutive securities | | 3,849 |
| | 7,226 |
|
Net income available for Common Stockholders – Fully Diluted | | $ | 70,724 |
| | $ | 120,535 |
|
Denominators: | | | | |
Weighted average Common Shares outstanding – Basic | | 181,729 |
| | 179,560 |
|
Effect of dilutive securities: | | | | |
Exchange of Common OP Units for Common Shares | | 10,491 |
| | 11,482 |
|
Stock options and restricted stock | | 344 |
| | 206 |
|
Weighted average Common Shares outstanding – Fully Diluted | | 192,564 |
| | 191,248 |
|
| | | | |
Earnings per Common Share – Basic | | $ | 0.37 |
| | $ | 0.63 |
|
| | | | |
Earnings per Common Share – Fully Diluted | | $ | 0.37 |
| | $ | 0.63 |
|
| | | | |
|
| | | | | | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net Income Available for Common Stockholders: | | | | | | | |
Net income available for Common Stockholders – basic | $ | 48,525 |
| | $ | 40,998 |
| | $ | 144,911 |
| | $ | 127,071 |
|
Amounts allocated to dilutive securities | 3,286 |
| | 3,462 |
| | 9,825 |
| | 10,770 |
|
Net income available for Common Stockholders – fully diluted | $ | 51,811 |
| | $ | 44,460 |
| | $ | 154,736 |
| | $ | 137,841 |
|
Denominator: | | | | | | | |
Weighted average Common Shares outstanding – basic | 87,037 |
| | 85,105 |
| | 86,620 |
| | 84,649 |
|
Effect of dilutive securities: | | | | | | | |
Conversion of Common OP Units to Common Shares | 5,836 |
| | 7,203 |
| | 6,100 |
| | 7,205 |
|
Stock options and restricted shares | 451 |
| | 602 |
| | 415 |
| | 551 |
|
Weighted average Common Shares outstanding – fully diluted | 93,324 |
| | 92,910 |
| | 93,135 |
| | 92,405 |
|
| | | | | | | |
Earnings per Common Share – Basic: | | | | | | | |
Net income available for Common Stockholders | $ | 0.56 |
| | $ | 0.48 |
| | $ | 1.67 |
| | $ | 1.50 |
|
| | | | | | | |
Earnings per Common Share – Fully Diluted: | | | | | | | |
Net income available for Common Stockholders | $ | 0.56 |
| | $ | 0.48 |
| | $ | 1.66 |
| | $ | 1.49 |
|
Note 45 – Common Stock and Other Equity Related Transactions
Series C PreferredTwo-for-One Common Stock Redemption and Distribution ActivityOP Units Split
The following quarterly distributions have been declared onOn October 15, 2019, a 2-for-one stock split of our depositary shares (each representing 1/100common stock, effected by and in the form of a sharestock dividend, was paid to stockholders of record as of October 1, 2019. In connection with our stock split, the OP Units of our Series C Preferred Stock) and paid to our preferred stockholders for the nine months ended September 30, 2017. On September 25, 2017, we redeemed our 6.75% Series C Preferred Stock for $138.4 million, including accrued dividends. The shares of Series C Preferred Stock thatOperating Partnership were redeemed now have the status of authorized but unissued preferred stock, without designation as to class or series.
|
| | | | | | | | |
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 |
$ | 0.421875 |
| | September 30, 2017 | | September 15, 2017 | | September 25, 2017 |
also split on a 2-for-one basis.Common Stockholder Distribution Activity
The following quarterly distributions, as adjusted for the stock split, have been declared and paid to common stockholdersCommon Stockholders and commonthe OP Unit non-controlling holders for the nine months ended September 30, 2017.since January 1, 2019.
|
| | | | | | |
Distribution Amount Per Share | | For the Quarter Ended | | Stockholder Record Date | | Payment Date |
$0.3063 | | March 31, 2019 | | March 29, 2019 | | April 12, 2019 |
$0.3063 | | June 30, 2019 | | June 28, 2019 | | July 12, 2019 |
$0.3063 | | September 30, 2019 | | September 27, 2019 | | October 11, 2019 |
$0.3063 | | December 31, 2019 | | December 27, 2019 | | January 10, 2020 |
$0.3425 | | March 31, 2020 | | March 27, 2020 | | April 10, 2020 |
|
| | | | | | | | |
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 |
$ | 0.4875 |
| | September 30, 2017 | | September 29, 2017 | | October 13, 2017 |
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 45 – Common Stock and Other Equity Related Transactions (continued)
Equity Offering Program
Notes to Consolidated Financial Statements
Note 5 – Investment in Joint Ventures (continued)
On May 4, 2015, we extended ourOur at-the-market (“ATM”) equity offering program by entering into new separate equity distribution agreements with certain sales agents, pursuantallows us 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. The following table presents the shares that were issuedAs of March 31, 2020, we have $140.7 million of common stock available under the ATM equity offering program during the nine months ended September 30, 2017 and nine months ended September 30, 2016 (amounts in thousands, except stock data):for issuance. |
| | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 |
Shares of Common Stock sold | | 484,913 |
| | 683,548 |
|
Weighted average price | | $ | 86.69 |
| | $ | 73.15 |
|
Total gross proceeds | | $ | 42,037 |
| | $ | 50,000 |
|
Commissions paid to sales agents | | $ | 526 |
| | $ | 657 |
|
As of September 30, 2017, approximately $33.0 million of Common Stock remained available for issuance under the ATM equity offering program.
ConversionsExchanges
Subject to certain limitations, holders of Common Operating Partnership units ("OP units")Unit holders can request an exchange of any or all of their OP unitsUnits 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 nine monthsquarters ended September 30, 2017, 1,335,247March 31, 2020 and 2019, 9,228 and 10,650 OP unitsUnits, respectively, were exchanged for an equal number of shares of Common Stock.Stock
Note 56 – Investment in Real Estate
Acquisitions
On May 10, 2017,March 25, 2019, we completed the acquisitionacquisitions of Paradise Park Largo,Drummer Boy Camping Resort, a 108-site manufactured home465-site RV community located in Largo, Florida. TheGettysburg, Pennsylvania, and Lake of the Woods Campground, a 303-site RV community located in Wautoma, Wisconsin, for a total purchase price of approximately $8.0 million was$25.4 million. These acquisitions were funded with available cash and an assumed loan. The $5.9a loan assumption of approximately $10.8 million, loan has an interest rateexcluding mortgage premium of 4.6% that matures$0.4 million.
Dispositions
On January 23, 2019, we closed on the sale of 5 all-age MH communities located in 2040.Indiana and Michigan, collectively containing 1,463 sites, for $89.7 million and recognized a gain of $52.5 million, net of transaction costs, during the first quarter of 2019.
Note 67 – Investment in Unconsolidated Joint Ventures
On August 8, 2017, we contributed approximately $30.0 million to acquire a 49% interest in Florida Atlantic Holding, LLC ("Loggerhead"). Loggerhead owns a portfolio of 11 marinas located in Florida. The contribution was funded by net proceeds from sales of common stock under our ATM equity offering program. Our ownership interest in Loggerhead is accounted for under the equity method of accounting.
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.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 6 – Investment in Unconsolidated Joint Ventures (continued)
The following table summarizes our investment in unconsolidated joint ventures (investment amounts in thousands with the number of Properties shown parenthetically as of September 30, 2017March 31, 2020 and December 31, 2016)2019, respectively):
| | | | | | | | | | | Investment as of | | Joint Venture Income/(Loss) for the Nine Months Ended | | | | | | | | Investment as of | | Income/(Loss) for Quarters Ended |
Investment | | Location | | Number of Sites (d) | | Economic Interest (a) | | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | September 30, 2016 | | Location | | Number of Sites | | Economic Interest (a) | | March 31, 2020 | | December 31, 2019 | | March 31, 2020 | | March 31, 2019 |
Meadows | | Various (2,2) | | 1,077 |
| | 50 | % | | $ | 170 |
| | $ | 510 |
| | $ | 1,610 |
| | $ | 1,026 |
| | Various (2,2) | | 1,077 |
| | 50 | % | | $ | 146 |
| | $ | 146 |
| | $ | — |
| | $ | 397 |
|
Lakeshore | | Florida (3,2) | | 720 |
| | (b) |
| | 2,170 |
| | 56 |
| | 10 |
| | 250 |
| | Florida (3,3) | | 721 |
| | (b) |
| | 2,408 |
| | 2,467 |
| | 90 |
| | 69 |
|
Voyager | | Arizona (1,1) | | 1,801 |
| | 50 | % | (c) | | 3,455 |
| | 3,376 |
| | 795 |
| | 902 |
| | Arizona (1,1) | | 1,801 |
| | 50 | % | (c) | 588 |
| | 599 |
| | (10 | ) | | 604 |
|
Loggerhead | | Florida | | 2,343 |
| | 49 | % | | 31,646 |
| | — |
| | 230 |
| | — |
| | Florida | | 2,343 |
| | — | % | (d) | — |
| | — |
| | — |
| | 321 |
|
ECHO JV | | Various | | — |
| | 50 | % | | 15,525 |
| | 15,427 |
| | 231 |
| | (36 | ) | | Various | | — |
| | 50 | % | | 16,988 |
| | 16,862 |
| | 127 |
| | 142 |
|
| | 5,941 |
| | | | $ | 52,966 |
| | $ | 19,369 |
| | $ | 2,876 |
| | $ | 2,142 |
| | 5,942 |
| | | | $ | 20,130 |
| | $ | 20,074 |
| | $ | 207 |
| | $ | 1,533 |
|
_____________________ | |
(a) | The percentages shown approximate our economic interest as of September 30, 2017.March 31, 2020. Our legal ownership interest may differ. |
| |
(b) | Includes two2 joint ventures in which we own a 65% interest and the Crosswinds joint venture in which we own a 49% interest. |
| |
(c) | Voyager joint venture primarilyPrimarily consists of a 50% interest in Voyager RV Resort and a 33% interest in the utility plant servicing thethis Property. |
| |
(d) | On September 10, 2019, we completed the acquisition of the remaining interest in the Loggerhead joint venture. Loggerhead sites represent marina slip count. |
We received approximately $2.7$0.2 million and $5.5$0.7 million in distributions from theseour unconsolidated joint ventures for the nine monthsquarters ended September 30, 2017March 31, 2020 and 2016,2019, respectively. Approximately $0.1 million and $0.6 million of the distributions made to us exceeded our basis in our unconsolidated joint ventures for the quarter and nine months ended September 30, 2017,March 31, 2020, and as such, were recorded as income from unconsolidated joint ventures. None of the distributions made to us exceeded our basis in joint ventures for the quarter and nine months ended September 30, 2016.March 31, 2019.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 78 – Borrowing Arrangements
Mortgage Notes Payable
AsOur mortgage notes payable is classified as Level 2 in the fair value hierarchy. The following table presents the fair value of September 30, 2017 and December 31, 2016, we had outstandingour mortgage indebtedness of approximately $1,981.6 million and $1,891.9 million, respectively, net of deferred financing costs.notes payable:
|
| | | | | | | | | | | | | | | | |
| | As of March 31, 2020 | | As of December 31, 2019 |
(amounts in thousands) | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Mortgage notes payable, excluding deferred financing costs | | $ | 2,414,922 |
| | $ | 2,285,847 |
| | $ | 2,227,185 |
| | $ | 2,072,416 |
|
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 nine months ended September 30, 2017as of March 31, 2020, was approximately 4.8%4.3% per annum. The debt bears interest at stated rates ranging from 3.5%2.7% to 8.9% per annum and matures on various dates ranging from 20182021 to 2041. The debt encumbered a total of 128125 and 126116 of our Properties as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively, and the gross carrying value of such Properties was approximately $2,396.2$2,634.2 million and $2,296.6$2,524.7 million, as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
During the quarter ended September 30, 2017, we entered into three new loans, each secured by a manufactured home community, totaling $146.0 million. The loans have a stated interest rate of 4.07% and mature in 2037.
During the quarter ended September 30, 2017, we also paid off one maturing mortgage loan of $6.9 million, with a weighted average interest rate of 6.47% per annum, secured by one manufactured home community.
In connection with the Paradise Park Largo acquisition during the quarter ended June 30, 2017, we assumed approximately $5.9 million of mortgage debt secured by the manufactured home community with an interest rate of 4.6% that matures in 2040.2020 Activity
During the quarter ended March 31, 2017,2020, we paid off oneentered into a $275.4 million secured credit facility with Fannie Mae, maturing in 10 years and bearing a 2.7% interest rate. The facility is secured by eight MH and four RV communities. We also repaid $48.1 million of principal on 3 mortgage loanloans that were due to mature in 2020, incurring $1.0 million of approximately $21.1 million, withprepayment penalties. These mortgage loans had a weighted average interest rate of 5.76%5.2% per annum and were secured by one manufactured home community.three MH communities.
2019 Activity
During the quarter ended March 31, 2019, we defeased mortgage debt of $11.2 million in conjunction with the disposition of 5 all-age MH communities as disclosed in Note 6. Investment in Real Estate. These loans had a weighted average interest rate of 5.0% per annum. We also assumed mortgage debt of $10.8 million, excluding mortgage note premium of $0.4 million, as a result of the acquisitions that were closed during the quarter. This loan carries an interest rate of 5.5% per annum and matures in 2024.
Unsecured Line of Credit
During the quarter ended March 31, 2020, we borrowed and paid off amounts on our unsecured Line of Credit ("LOC"), leaving no balance outstanding as of March 31, 2020. As of March 31, 2020, our LOC has a remaining borrowing capacity of $400 million with the option to increase the borrowing capacity by $200 million, subject to certain conditions. The LOC had $160 million outstanding at December 31, 2019.
As of September 30, 2017,March 31, 2020, we arewere in compliance in all material respects with the covenants in all our borrowing arrangements.
Note 9 – Derivative Instruments and Hedging Activities
Cash Flow Hedges of Interest Rate Risk
We record all derivatives at fair value. Our objective in utilizing interest rate derivatives is to add stability to our interest expense and to manage our exposure to interest rate movements. We do not enter into derivatives for speculative purposes. In connection with our $200.0 million senior unsecured term loan (the “Term Loan”), which has an interest rate of LIBOR plus 1.20% to 1.90% per annum, we entered into a three-year LIBOR Swap Agreement (the "Swap") allowing us to trade the variable interest rate on the Term Loan for a fixed interest rate. The Swap has a notional amount of $200.0 million of outstanding principal with an underlying LIBOR of 1.85% per annum for the first three years and matures on November 1, 2020. Based on the leverage as of March 31, 2020, our spread over LIBOR was 1.20% resulting in an estimated all-in interest rate of 3.05% per annum.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 9 – Derivative Instruments and Hedging Activities (continued)
Our derivative financial instrument is classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our derivative financial instrument:
|
| | | | | | | | | | |
| | | | As of March 31, | | As of December 31, |
(amounts in thousands) | | Balance Sheet Location | | 2020 | | 2019 |
Interest Rate Swap | | Accounts payable and other liabilities | | $ | 1,713 |
| | $ | 380 |
|
The following table presents the effect of our derivative financial instrument on the Consolidated Statements of Income and Comprehensive Income:
|
| | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationship | | Amount of (gain)/loss recognized in OCI on derivative for the quarter ended March 31, | | Location of (gain)/ loss reclassified from accumulated OCI into income | | Amount of (gain)/loss reclassified from accumulated OCI into income for the quarter ended March 31, |
(amounts in thousands) | | 2020 | | 2019 | | (amounts in thousands) | | 2020 | | 2019 |
Interest Rate Swap | | $ | 1,424 |
| | $ | 606 |
| | Interest Expense | | $ | 91 |
| | $ | (325 | ) |
During the next seven months through the maturity date of November 1, 2020, we estimate that $1.7 million will be reclassified as an increase to interest expense. This estimate may be subject to change as the underlying LIBOR changes. We determined that no adjustment was necessary for non-performance risk on our derivative obligation. As of March 31, 2020, we had not posted any collateral related to this Swap.
Note 810 – Equity Incentive Awards
Stock-based compensation expense, reported in general and administrative on the Consolidated Statements of Income and Comprehensive Income, for the quarters ended September 30, 2017 and 2016 was approximately $2.6 million and $2.4 million, respectively, and for both the nine months ended September 30, 2017 and 2016 was approximately $6.8 million.
Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by ourthe Board of Directors on March 11, 2014 and approved by our stockholders on May 13, 2014. Pursuant toDuring the 2014 Plan, our officers, directors, employees and consultants may be awarded (i)quarter ended March 31, 2020, 90,933 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 September 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.
On May 2, 2017, we awarded certain members of our Board of Directors 55,238 shares of Restricted Stock at a fair market value of approximately $4.5 million and Options to purchase 6,930 shares of common stock with an exercise price of $81.15 per share. The shares of common stock covered by these awards are subject to multiple tranches that vest between November 2, 2017 and May 2, 2020.
On February 1, 2017, we awarded 75,000 shares of Restricted Stock at a fair market value of approximately $5.4 million to certain members of our senior management for their serviceteam. Of these shares, 50% are time-based awards, vesting in 2017. These restricted stock grants will vestequal installments over a three-year period on DecemberJanuary 29, 2021, January 31, 2017.
The2022, and January 27, 2023, respectively, and have a grant date fair market value of our restricted stock grants was determined$3.3 million. The remaining 50% are performance-based awards vesting in equal installments on January 29, 2021, January 31, 2022, and January 27, 2023, respectively, upon meeting performance conditions as established by the Compensation Committee in the year of the vesting period. They are valued using the closing share price at the grant date when all the key terms and conditions are known to all parties. The 15,154 shares of our commonrestricted stock subject to 2020 performance goals have a grant date fair value of $1.1 million.
Stock based compensation expense, reported in General and administrative expense on the dateConsolidated Statements of Income and Comprehensive Income, for the shares were issuedquarters ended March 31, 2020 and is recorded as compensation expense2019, was $3.0 million and paid in capital over the vesting period.$2.4 million, respectively.
Note 911 – Commitments and Contingencies
Hurricane Irma
Based on our assessment and available information as of the quarter ended September 30, 2017, we recognized expense of $3.7 million during the quarter and nine months ended September 30, 2017 related to property damage and restoration work that had been reasonably estimated and/or completed to date at our Florida properties as a result of Hurricane Irma. Based on our evaluation of these costs and our review of the potential insurance claim and our estimate of the related deductible, we recorded a revenue accrual of $3.5 million during the quarter and nine months ended September 30, 2017. As of September 30, 2017, while we expect additional amounts to be identified in the future, we cannot estimate the total expenses or recoveries related to Hurricane Irma.
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
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies (continued)
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.
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 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, legal claims made by employees, vendors and customers, and 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.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies (continued)
Management believes these Other Proceedings taken together do not represent a material liability. In addition, to the extent any such proceedingsProceedings or audits relate to newly acquired Properties, we consider any potential indemnification obligations of sellers in our favor.
The Operating Partnership operates and manages Westwinds, a 720 site mobilehome community, and Nicholson Plaza, an adjacent shopping center, both located in San Jose, California pursuant to ground leases that expire on August 31, 2022 and do not contain extension options. The master lessor of these ground leases, The Nicholson Family Partnership (the “Nicholsons”), has expressed a desire to redevelop Westwinds, and in a written communication, they claimed that we were obligated to deliver the property free and clear of any and all subtenancies upon the expiration of the ground leases on August 31, 2022. In connection
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 11 – Commitments and Contingencies (continued)
with any redevelopment, the City of San Jose’s conversion ordinance requires, among other things, that the landowner provide relocation, rental and purchase assistance to the impacted residents.
We believe the Nicholsons’ demand is unlawful, and on December 30, 2019, the Operating Partnership filed a complaint in California Superior Court for Santa Clara County, seeking declaratory relief pursuant to which it requested that the Court determine, among other things, that the Operating Partnership has no obligation to deliver the property free and clear of the mobilehome residents upon the expiration of the ground leases. The Operating Partnership filed an amended complaint on January 29, 2020. The Nicholsons filed a demand for arbitration on January 28, 2020, which they subsequently amended, pursuant to which they request a declaration that the Operating Partnership, as the “owner and manager” of Westwinds, is “required by the Ground Leases, and State and local law to deliver the Property free of any encumbrances or third-party claims at the expiration of the lease terms.” On February 3, 2020, the Nicholsons filed a motion in California Superior Court to compel arbitration and to stay the litigation, which motion is currently scheduled to be heard on June 25, 2020. We intend to continue to vigorously defend our interests in this matter. As of March 31, 2020 we have not made an accrual, as we are unable to predict the outcome of this matter or reasonably estimate any possible loss.
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 1012 – Reportable Segments
We have identified two2 reportable segments which are:segments: (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.
All revenues arewere from external customers and there is no customer who contributed 10% or more of our total revenues during the quarters and nine months ended September 30, 2017March 31, 2020 or 2016.2019.
The following tables summarize our segment financial information for the quarters ended March 31, 2020 and nine months ended September 30, 2017 and 2016 (amounts in thousands):2019:
Quarter EndedSeptember 30, 2017 March 31, 2020
| | | Property Operations | | Home Sales and Rentals Operations | | Consolidated | |
(amounts in thousands) | | Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 223,184 |
| | $ | 14,415 |
| | $ | 237,599 |
| $ | 262,474 |
| | $ | 15,552 |
| | $ | 278,026 |
|
Operations expenses | (110,431 | ) | | (13,528 | ) | | (123,959 | ) | (117,898 | ) | | (14,467 | ) | | (132,365 | ) |
Income from segment operations | 112,753 |
| | 887 |
| | 113,640 |
| 144,576 |
| | 1,085 |
| | 145,661 |
|
Interest income | 773 |
| | 1,042 |
| | 1,815 |
| 1,075 |
| | 727 |
| | 1,802 |
|
Depreciation on real estate assets and rental homes | (27,879 | ) | | (2,614 | ) | | (30,493 | ) | |
Amortization of in-place leases | (138 | ) | | — |
| | (138 | ) | |
Depreciation and amortization | | (36,220 | ) | | (2,804 | ) | | (39,024 | ) |
Income (loss) from operations | $ | 85,509 |
| | $ | (685 | ) | | $ | 84,824 |
| $ | 109,431 |
| | $ | (992 | ) | | $ | 108,439 |
|
Reconciliation to Consolidated net income: | | | | | | |
Reconciliation to consolidated net income: | | | | | | |
Corporate interest income | | | | | 159 |
| | | | | 5 |
|
Income from other investments, net | | | | | 2,052 |
| | | | | 643 |
|
General and administrative | | | | | (7,505 | ) | | | | | (10,855 | ) |
Property rights initiatives and other | | | | | (324 | ) | |
Other expenses | | | | | | (588 | ) |
Interest and related amortization | | | | | (25,027 | ) | | | | | (26,073 | ) |
Equity in income of unconsolidated joint ventures | | | | | 686 |
| | | | | 207 |
|
Early debt retirement | | | | | | (1,054 | ) |
Consolidated net income | | | | | $ | 54,865 |
| | | | | $ | 70,724 |
|
| | | | | | | | | | |
Total assets | $ | 3,298,122 |
| | $ | 227,725 |
| | $ | 3,525,847 |
| $ | 3,936,862 |
| | $ | 275,602 |
| | $ | 4,212,464 |
|
Capital improvements | | $ | 32,605 |
| | $ | 16,354 |
| | $ | 48,959 |
|
Quarter EndedMarch 31, 2019 |
| | | | | | | | | | | |
(amounts in thousands) | Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 246,016 |
| | $ | 10,337 |
| | $ | 256,353 |
|
Operations expenses | (108,970 | ) | | (8,919 | ) | | (117,889 | ) |
Income from segment operations | 137,046 |
| | 1,418 |
| | 138,464 |
|
Interest income | 894 |
| | 850 |
| | 1,744 |
|
Depreciation and amortization | (35,543 | ) | | (2,434 | ) | | (37,977 | ) |
Gain on sale of real estate, net | 52,507 |
| | — |
| | 52,507 |
|
Income (loss) from operations | $ | 154,904 |
| | $ | (166 | ) | | $ | 154,738 |
|
Reconciliation to consolidated net income: | | | | | |
Corporate interest income | | | | | 7 |
|
Income from other investments, net | | | | | 986 |
|
General and administrative | | | | | (9,909 | ) |
Other expenses | | | | | (427 | ) |
Interest and related amortization | | | | | (26,393 | ) |
Equity in income of unconsolidated joint ventures | | | | | 1,533 |
|
Consolidated net income | | | | | $ | 120,535 |
|
| | | | | |
Total assets | $ | 3,771,453 |
| | $ | 237,424 |
| | $ | 4,008,877 |
|
Capital improvements | $ | 24,406 |
| | $ | 28,035 |
| | $ | 52,441 |
|
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 1012 – Reportable Segments (continued)
Quarter EndedSeptember 30, 2016 |
| | | | | | | | | | | |
| Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 207,162 |
| | $ | 14,655 |
| | $ | 221,817 |
|
Operations expenses | (101,640 | ) | | (13,422 | ) | | (115,062 | ) |
Income from segment operations | 105,522 |
| | 1,233 |
| | 106,755 |
|
Interest income | 711 |
| | 1,056 |
| | 1,767 |
|
Depreciation on real estate assets and rental homes | (26,804 | ) | | (2,714 | ) | | (29,518 | ) |
Amortization of in-place leases | (1,376 | ) | | — |
| | (1,376 | ) |
Income (loss) from operations | $ | 78,053 |
| | $ | (425 | ) | | $ | 77,628 |
|
Reconciliation to Consolidated net income: | | | | | |
Corporate interest income | | | | | — |
|
Income from other investments, net | | | | | 2,581 |
|
General and administrative | | | | | (7,653 | ) |
Property rights initiatives and other | | | | | (855 | ) |
Interest and related amortization | | | | | (25,440 | ) |
Equity in income of unconsolidated joint ventures | | | | | 496 |
|
Consolidated net income | | | | | $ | 46,757 |
|
| | | | | |
Total assets | $ | 3,238,699 |
| | $ | 231,684 |
| | $ | 3,470,383 |
|
Nine Months EndedSeptember 30, 2017 |
| | | | | | | | | | | |
| Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 648,766 |
| | $ | 37,100 |
| | $ | 685,866 |
|
Operations expenses | (310,337 | ) | | (33,604 | ) | | (343,941 | ) |
Income from segment operations | 338,429 |
| | 3,496 |
| | 341,925 |
|
Interest income | 2,256 |
| | 3,122 |
| | 5,378 |
|
Depreciation on real estate assets and rental homes | (82,939 | ) | | (7,910 | ) | | (90,849 | ) |
Amortization of in-place leases | (2,128 | ) | | — |
| | (2,128 | ) |
Income (loss) from operations | $ | 255,618 |
| | $ | (1,292 | ) | | $ | 254,326 |
|
Reconciliation to Consolidated net income: | | | | | |
Corporate interest income | | | | | 164 |
|
Income from other investments, net | | | | | 3,918 |
|
General and administrative | | | | | (23,339 | ) |
Property rights initiatives and other | | | | | (814 | ) |
Interest and related amortization | | | | | (74,728 | ) |
Equity in income of unconsolidated joint ventures | | | | | 2,876 |
|
Consolidated net income | | | | | $ | 162,403 |
|
| | | | | |
Total assets | $ | 3,298,122 |
| | $ | 227,725 |
| | $ | 3,525,847 |
|
Capital improvements | $ | 52,040 |
| | $ | 35,837 |
| | $ | 87,877 |
|
Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 – Reportable Segments (continued)
Nine Months Ended September 30, 2016
|
| | | | | | | | | | | |
| Property Operations | | Home Sales and Rentals Operations | | Consolidated |
Operations revenues | $ | 605,072 |
| | $ | 39,695 |
| | $ | 644,767 |
|
Operations expenses | (286,527 | ) | | (35,929 | ) | | (322,456 | ) |
Income from segment operations | 318,545 |
| | 3,766 |
| | 322,311 |
|
Interest income | 2,164 |
| | 2,841 |
| | 5,005 |
|
Depreciation on real estate assets and rental homes | (79,086 | ) | | (8,117 | ) | | (87,203 | ) |
Amortization of in-place leases | (2,139 | ) | | — |
| | (2,139 | ) |
Income (loss) from operations | $ | 239,484 |
| | $ | (1,510 | ) | | $ | 237,974 |
|
Reconciliation to Consolidated net income: | | | | | |
Corporate interest income | | | | | 47 |
|
Income from other investments, net | | | | | 6,574 |
|
General and administrative | | | | | (23,315 | ) |
Property rights initiatives and other | | | | | (2,036 | ) |
Interest and related amortization | | | | | (76,635 | ) |
Equity in income of unconsolidated joint ventures | | | | | 2,142 |
|
Consolidated net income | | | | | $ | 144,751 |
|
| | | | | |
Total assets | $ | 3,238,699 |
| | $ | 231,684 |
| | $ | 3,470,383 |
|
Capital improvements | $ | 38,758 |
| | $ | 48,558 |
| | $ | 87,316 |
|
The following table summarizes our financial information for the Property Operations segment for the quarters ended March 31, 2020 and nine months ended September 30, 2017 and 2016 (amounts in thousands): 2019:
| | | Quarters Ended | | Nine Months Ended | Quarters Ended March 31, |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 | |
(amounts in thousands) | | 2020 |
| 2019 |
Revenues: | | | | | | | | | | |
Community base rental income | $ | 123,177 |
| | $ | 117,164 |
| | $ | 365,833 |
| | $ | 346,625 |
| |
Resort base rental income | 58,471 |
| | 54,486 |
| | 169,594 |
| | 154,652 |
| |
Right-to-use annual payments | 11,531 |
| | 11,349 |
| | 34,133 |
| | 33,590 |
| |
Right-to-use contracts current period, gross | 4,208 |
| | 3,672 |
| | 11,212 |
| | 9,290 |
| |
Right-to-use contract upfront payments, deferred, net | (1,670 | ) | | (1,327 | ) | | (3,766 | ) | | (2,427 | ) | |
Utility and other income | 26,295 |
| | 21,174 |
| | 69,071 |
| | 61,490 |
| |
Rental income | | $ | 235,364 |
| | $ | 219,982 |
|
Annual membership subscriptions | | 13,073 |
| | 12,316 |
|
Membership upgrade sales current period, gross | | 4,843 |
| | 3,838 |
|
Membership upgrade sales upfront payments, deferred, net | | (2,542 | ) | | (1,771 | ) |
Other income | | 11,059 |
| | 10,370 |
|
Ancillary services revenues, net | 1,172 |
| | 644 |
| | 2,689 |
| | 1,852 |
| 677 |
| | 1,281 |
|
Total property operations revenues | 223,184 |
| | 207,162 |
| | 648,766 |
| | 605,072 |
| 262,474 |
| | 246,016 |
|
Expenses: | | | | | | | |
| | |
Property operating and maintenance | 80,164 |
| | 73,410 |
| | 221,119 |
| | 203,011 |
| 82,291 |
| | 76,744 |
|
Real estate taxes | 14,006 |
| | 13,467 |
| | 41,986 |
| | 39,534 |
| 16,841 |
| | 15,323 |
|
Sales and marketing, gross | 3,277 |
| | 3,100 |
| | 8,861 |
| | 8,524 |
| 3,978 |
| | 3,409 |
|
Right-to-use contract commissions, deferred, net | (176 | ) | | (200 | ) | | (372 | ) | | (212 | ) | |
Membership sales commissions, deferred, net | | (216 | ) | | (191 | ) |
Property management | 13,160 |
| | 11,863 |
| | 38,743 |
| | 35,670 |
| 15,004 |
| | 13,685 |
|
Total property operations expenses | 110,431 |
| | 101,640 |
| | 310,337 |
| | 286,527 |
| 117,898 |
| | 108,970 |
|
Income from property operations segment | $ | 112,753 |
| | $ | 105,522 |
| | $ | 338,429 |
| | $ | 318,545 |
| $ | 144,576 |
| | $ | 137,046 |
|
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 ended March 31, 2020 and nine months ended September 30, 2017 and 2016 (amounts in thousands):2019:
| | | Quarters Ended | | Nine Months Ended | Quarters Ended March 31, |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 | |
(amounts in thousands) | | 2020 | | 2019 |
Revenues: | | | | | | | | | | |
Rental income (a) | | $ | 3,982 |
| | $ | 3,584 |
|
Gross revenue from home sales | $ | 10,012 |
| | $ | 10,895 |
| | $ | 24,872 |
| | $ | 28,239 |
| 11,309 |
| | 6,475 |
|
Brokered resale revenues, net | 337 |
| | 276 |
| | 925 |
| | 884 |
| 261 |
| | 278 |
|
Rental home income (a) | 3,592 |
| | 3,484 |
| | 10,829 |
| | 10,572 |
| |
Ancillary services revenues, net | 474 |
| | — |
| | 474 |
| | — |
| — |
| | — |
|
Total revenues | 14,415 |
| | 14,655 |
| | 37,100 |
| | 39,695 |
| 15,552 |
| | 10,337 |
|
Expenses: | | | | | | | | | | |
Rental home operating and maintenance | | 1,343 |
| | 1,204 |
|
Cost of home sales | 10,377 |
| | 10,745 |
| | 25,391 |
| | 28,507 |
| 11,911 |
| | 6,632 |
|
Home selling expenses | 1,447 |
| | 909 |
| | 3,301 |
| | 2,548 |
| 1,213 |
| | 1,083 |
|
Rental home operating and maintenance | 1,704 |
| | 1,768 |
| | 4,912 |
| | 4,874 |
| |
Total expenses | 13,528 |
| | 13,422 |
| | 33,604 |
| | 35,929 |
| 14,467 |
| | 8,919 |
|
Income from home sales and rentals operations segment | $ | 887 |
| | $ | 1,233 |
| | $ | 3,496 |
| | $ | 3,766 |
| $ | 1,085 |
| | $ | 1,418 |
|
______________________
| |
(a) | Segment informationRental income within Home Sales and Rentals Operations does not include Sitebase rent related to the rental incomehome Sites. Base rent is included in Community base rental income.within property operations. |
Note 11 -13 – Subsequent Events
During October 2017,We are actively monitoring the rapidly evolving situation related to the novel coronavirus (COVID-19) pandemic. On April 1, 2020, we sold 336,290 shares of common stock as part of the ATM equity offering program at a weighted average price of $85.13, resulting in net cash proceeds of $28.3 million. Our Board of Directors has approved a new ATM equity offering program having an aggregate offering price of up to $200.0 million.
On October 16, 2017, we entered into a $204borrowed $100.0 million secured facility with Fannie Mae, maturing in 2037 and bearing a 3.97% fixed interest rate. The loan is secured by five manufactured home communities. We used the proceeds to pay, in full, $194.2 million of loans that would have matured in 2018. We incurred approximately $2.2 million in prepayment penalties associated with the debt repayment.
On October 27, 2017, we entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) by and among us, MHC Operating Limited Partnership, Wells Fargo Bank, National Association, as Administrative Agent (the “Administrative Agent”) and other lenders named therein, which amends and restates the terms of the obligations owed by us under the Amended, Restated and Consolidated Credit Agreement dated as of July 17, 2014 pursuant to which we have access to a $400 million unsecuredon our line of credit (the “LOC”)as a precautionary measure to increase liquidity and the $200preserve financial flexibility. Our line of credit has remaining availability of $300 million, senior unsecured term loan facility (the “Term Loan”). The LOC maturity date was extended to October 27, 2021, and this term can be extended an additional year in two six month increments, subject to certain conditions. The LOC bears interest at a rate
On April 28, 2020, our stockholders approved an amendment to our charter to increase the number of LIBOR plus 1.10% to 1.55% and requires an annual facility fee of 0.15% to 0.35%.
We also extended the termshares of our Term Loan. The Term Loan now matures on April 27, 2023 and has an interest rate of LIBOR plus 1.20%common stock that we are authorized to 1.90% per annum. For both the LOC and Term Loan, the spread over LIBOR is variable based on leverage throughout the respective loan terms. We incurred commitment and arrangement fees of approximately $3.6 millionissue from 400,000,000 to enter into the Second Amended and Restated Credit Agreement.600,000,000 shares.
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 Statementsconsolidated financial statements and related Notesaccompanying notes thereto 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, and with2019 ("2019 Form 10-K"), as well as information in the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report2019 Form 10-K. All shares of common stock ("Common Shares") and units of common interests in our Operating Partnership ("OP Units") as well as per share results reflect the two-for-one stock split that was completed on Form 10-KOctober 15, 2019.
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a pandemic. See the COVID-19 Pandemic Update ("COVID Update") section below for a discussion of the year ended December 31, 2016.impact on our business to date, including operational changes we have implemented, performance indicators such as rent collections through April 17, 2020 and factors that we anticipate will inform our future decisions and actions. The current operating environment is changing rapidly. Our future response and the resulting impact on our business is difficult to predict. The extent of the impact that the COVID-19 pandemic will have on our business going forward, including our financial condition, results of operations and cash flows, is dependent on multiple factors, many of which are unknown. For additional details, see Item 1A. Risk Factors.
Overview and Outlook
We are a self-administered and 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.communities. As of September 30, 2017,March 31, 2020, we owned or had an ownership interest in a portfolio of 404413 Properties located throughout the United States and Canada containing 149,448 Sites.156,655 individual developed areas ("Sites"). These propertiesProperties are located in 3233 states and British Columbia, with more than 90 Properties with lake, river or ocean frontage and more than 100120 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 delivering value to our residents and guests as well as stockholders. Our business model is intended to provide an opportunity for increased cash flows and appreciation in value. We seek growth in earnings, Funds from Operations ("FFO") and cash flows by enhancing the profitability and operation of our Properties and investments. We accomplish this by attracting and retaining high quality customers to our Properties, who take pride in our Properties and in their homes, and efficiently managing our Properties by increasing occupancy, maintaining competitive market rents and controlling expenses. We also actively pursue opportunities that fit our acquisition criteria and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties.
We believe the demand from baby boomers for MH and RV communities will continue to be strong over the long term. It is estimated that approximately 10,000 baby boomers are turning 65 daily through 2030. In addition, the population age 55 and older is expected to grow 18% from 2020 to 2035. These individuals, seeking an active lifestyle, will continue to drive the market for second home sales as vacation properties, investment opportunities or retirement retreats. We expect it is likely that over the next decade, we will continue to see high levels of second-home sales and that manufactured homes and cottages in our Properties will continue to provide a viable second-home alternative to site-built homes. We also believe the Millennial and Generation X demographic will contribute to our future long-term customer pipeline. Millennials and Generation X combined represent over half of RV buyers. There is an increasing trend among these groups to adopt a minimalist lifestyle due to its affordability, preference over home quality relative to its size and the overall unique experience that our communities can provide. We believe the demand from baby boomers and these younger generations will continue to outpace supply for MH and RV communities. The entitlement process to develop new MH and RV communities is extremely restrictive. As a result, there have been limited new communities developed in our target geographic markets.
We generate the majority of our revenues from customers renting our Sites or entering into right-to-use contracts, (also referred toalso known as membership products)subscriptions, which provide our customersthem access to specific Properties for limited stays. Our MH community Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. Annual RV and annual RV resortmarina Sites are leased on an annual basis.basis to customers who generally have an RV, factory-built cottage, boat or other unit placed on the site, including those Northern properties that are open for the summer season. Seasonal RV and marina Sites are leased to customers generally for one to six months. Transient RV and marina 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 106,900We also generate revenue from customers who have entered into right-to-use contracts (otherwise referred to as "memberships")renting our marina slips and who pay annual membership dues.
We alsodry storage. Additionally, we have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures inon the Consolidated Statements of Income and Comprehensive Income. During the quarter, we contributed approximately $30.0 million to acquire a 49% interest in Florida Atlantic Holding, LLC ("Loggerhead"). Loggerhead owns a portfolio of 11 marinas located in Florida.
Management's Discussion and Analysis (continued)
The following table shows the breakdown of our Sites by type are as follows (amounts are approximate):
|
| | | |
| | Total Sites as of September 30, 2017March 31, 2020 |
CommunityMH Sites | 71,100 | 72,200 |
|
ResortRV Sites: | | |
Annual | 26,600 | 29,700 |
|
Seasonal | 11,200 | 10,200 |
|
Transient | 10,500 | 13,900 |
|
Marina Slips | | 2,300 |
|
Right-to-useMembership (1)
| 24,100 | 24,600 |
|
Joint Ventures (2) | 5,900 | 3,600 |
|
Total (3) | 149,400 | 156,700 |
|
_________________________
| |
(1) | Primarily utilized to service the approximately 116,500 members. Includes approximately 5,7005,900 Sites rented on an annual basis. |
| |
(2) | Joint ventures haveIncludes approximately 2,7002,900 annual Sites, 400500 seasonal Sites and 500200 transient Sites and includes approximately 2,300 marina slips.Sites. |
| |
(3) | Total does not foot due to rounding. |
In our Home Sales and RentalRentals Operations business, our revenue streams include home sales, home rentals and brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing Site Setmanufactured homes and cottages 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 thean 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 provideAdditionally, home sale brokerage services are offered to our residents of our Properties who movemay choose to sell their homes rather than relocate them when moving from a Property but do not relocate their home. In addition,Property. At certain Properties, we operate ancillary activities at certain Properties,facilities, 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 homeshomebuyers at our Properties.
Management's Discussion (continued)
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 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 Netnet income computed in accordance with GAAP,U.S. Generally Accepted Accounting Principles ("GAAP"), we assess and measure our overall financial and operating performance using certain Non-GAAP supplemental measures, which include: (i) FFO, (ii) Normalized fundsFunds from operationsOperations ("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 propertiesProperties 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.
COVID-19 Pandemic Update
Since the COVID-19 pandemic began, we have taken actions to prioritize the safety and security of our employees, residents and customers, while maintaining our high-quality standards in service to our residents and customers. As of April 17, 2020, our MH and RV properties, with the exception of 46 Northern RV resorts, are open and are complying with federal, state and local shelter-in-place orders. To achieve compliance with these shelter-in-place orders, we have implemented, and may continue to implement, operational changes. For example, we have implemented Center for Disease Control ("CDC") and local public health department guidelines and developed protocols for social distancing and enhanced community and office cleaning procedures. Our property offices are open to residents and customers by appointment only, and we have closed all indoor amenity areas, including on-site stores and restaurants, pools and playgrounds. We have transitioned to work from home in our corporate and regional offices.
With consideration for the hardship our residents and customers may have experienced as a result of COVID-19 and in response to certain regulatory guidelines, we have taken the following actions: suspended mailing of April 2020 MH rent increase notices, introduced a rent deferral program for financial hardship related to COVID-19, which allows residents to pay April rent over the subsequent three months, waived April late fees and RV cancellation fees, allowed extended stays for Thousand Trails members and suspended eviction proceedings.
Management's Discussion and Analysis (continued)
Certain of our property-level employees are not working or have reduced hours pending a delayed opening or resumption of operations subject to shelter-in-place orders. We introduced a supplemental benefit program to provide continuation of pay for up to two weeks during the period of disruption caused by the pandemic.
During the first quarter of 2020, the primary financial statement impact from the COVID-19 pandemic was a reduction of transient RV revenue as certain transient customers terminated reservations earlier than expected or canceled upcoming reservations to visit our Properties. For the quarter ended March 31, 2020, we earned approximately $11.1 million of transient RV revenue in our Core portfolio as compared to $12.0 million for the same period in 2019.
As we entered the second quarter, we identified cash collections as the primary indicator of disruption to our business. As of April 17, 2020: we received 96% of April MH rent as compared to 97% at the same time in April 2019, and we received 96% of April rent from our RV annual customers as compared to 98% at the same time in April 2019. Our collections from the customers of 46 Northern RV resorts, who generally pay a deposit in advance of the season and make an installment payment upon arrival at the RV resort when the season begins, have been affected by the delayed openings of those resorts. Customers of these Northern RV resorts generated approximately 20% of 2019 RV annual revenue, and as of April 17, 2020, we received approximately 61% of the installment payment amounts as compared to 71% at the same time in April 2019. As of April 17, 2020, seasonal RV customers have made $2.1 million in reservations for April or 88% of the $2.4 million in seasonal RV reservations for April at this time in April 2019. As of April 17, 2020, we have received approximately 95% of the cash receipts from Thousand Trails dues payments at this time in April 2019. We received 93% of Marina April billing as of April 17, 2020.
As we continue to adapt operations in response to COVID-19, we anticipate continuing to make decisions that comply with the various federal, state and local authorities. We are closely monitoring updates to the shelter-in-place orders, and we intend to resume any suspended operations as quickly as permitted and when we believe conditions are safe for our customers and employees to do so. As a result of the various shelter-in-place orders, we stopped accepting reservations for transient stays through April 30, 2020. In 2019, 23% of our RV transient revenue for the second quarter was earned in April, 33% in May and 44% in June. This business disruption represents the most significant impact to our financial performance to date.
Our decision to suspend mailing of MH rent increases in April resulted in approximately 5% of our MH residents not receiving a notice of rent increase effective August 1, 2020. Our April rent deferral program was accepted by approximately 300 residents, and the amount approved was less than 40 basis points of rent billed in April. Our employee time off program has resulted in additional employee benefits of approximately $0.3 million since introduction, which has been offset by reduced payroll expense.
Based on our performance to date, the feedback from our customers and employees and the financial impact of programs we have implemented to date, we intend to continue the following programs in May: rent deferral for residents providing evidence of COVID-19 related hardship similar to the program for April, waiver of late fees, waiver of RV cancellation fees, employee time off program, extension of stays for Thousand Trails members and suspension of eviction proceedings. While this is our current plan for these programs in May, there can be no assurance that these programs will be extended, and we may take additional actions.
We attribute the solid performance of our business, as shown by the April cash collection activity, to the fundamentals of our business model. Our customers have made an investment in a housing unit that is placed on land leased from us. In addition, there is continued demand for our properties. The property locations and the lifestyle we offer have broad appeal to customers interested in enjoying an outdoor experience. We believe this is particularly relevant in a COVID-19 impacted environment. We intend to continue to monitor the rapidly evolving situation and we may take further actions that alter our business operations as may be required and that are in the best interests of our employees, residents, customers and shareholders.
Results Overview
NetFor the quarter ended March 31, 2020, net income available for Common Stockholders increased $7.5 million, to $48.5 million for the quarter ended September 30, 2017, compared to $41.0 million for the quarter ended September 30, 2016. Net income available for Common Stockholders increased $17.8 million, to $144.9 million for the nine months ended September 30, 2017, compared to $127.1 million for the nine months ended September 30, 2016.
For the quarter ended September 30, 2017, Funds from Operations (“FFO”) available for Common Stock and OP Unit holders increased $7.4decreased $46.4 million, or $0.07$0.26 per fully diluted Common Share, to $84.3$66.9 million, or $0.90$0.37 per fully diluted Common Share, compared to $76.9$113.3 million, or $0.83$0.63 per fully diluted Common Share, for the same period in 2016. 2019. Net income available for Common Stockholders for the quarter ended March 31, 2019 included a gain on sale of real estate, net of $52.5 million as a result of the sale of five MH communities.
For the nine monthsquarter ended September 30, 2017,March 31, 2020, FFO available for Common Stock and OP Unit holders increased $21.9$4.3 million, or $0.22$0.02 per fully diluted Common Share, to $252.3$112.3 million, or $2.71$0.58 per fully diluted Common Share, compared to $230.4$108.0 million, or $2.49$0.56 per fully diluted Common Share, for the same period in 2016.2019.
For the quarter ended September 30, 2017, Normalized Funds from Operations (“Normalized FFO”) available for Common Stock and OP Unit holders increased $7.9 million, or $0.08 per Common Share, to $85.1 million, or $0.91 per Common Share, compared to $77.2 million, or $0.83 per Common Share, for the same period in 2016. For the nine months ended September 30, 2017,March 31, 2020, Normalized FFO available for Common Stock and OP Unit holders increased $22.1$5.6 million, or $0.22$0.03 per fully diluted Common Share, to $253.4$113.3 million, or $2.72$0.59 per fully diluted Common Share, compared to $231.3$107.7 million, or $2.50$0.56 per fully diluted Common Share, for the same period in 2016.2019.
Management's Discussion and Analysis (continued)
For the quarter ended September 30, 2017March 31, 2020, our Core Portfolio property operating revenues, in our Core Portfolio, excluding deferrals, were up 7.0%increased 5.4% and property operating expenses, in our Core Portfolio, excluding deferrals and property management, were up 6.8%increased 5.8%, from the quarter ended September 30, 2016,same period in 2019, resulting in an increase in our income from property operations, excluding deferrals and property management, of 7.2%, from the quarter ended September 30, 2016. For the nine months ended September 30, 2017 property operating revenues in our Core Portfolio, excluding deferrals, were up 5.6% and property operating expenses in our Core Portfolio, excluding deferrals and property management, were up 6.2% from the nine months ended September 30, 2016, resulting in an increase in our income from property operations excluding deferrals and property management of 5.2%, from the nine months ended September 30, 2016.
During the quarter ended September 30, 2017, Hurricane Irma made landfall in the state of Florida. Our properties were affected by flooding, wind, wind-blown debris, fallen trees and tree branches. Overall, homes in our communities held up well with most of the structural damage limited to carports, screen rooms and awnings. Structural damage to common areas was also limited. Our Florida mainland properties resumed normal operations shortly after Hurricane Irma. Two RV resorts in the Florida Keys will reopen as utility services are restored. We are in the process of estimating the financial impact of the storm on our properties and we believe we have adequate insurance, subject to deductibles, including business interruption coverage. During the quarter ended September 30, 2017, we recorded expense of $3.7 million related to property damage and restoration work that had been reasonably estimated and/or completed to date. In addition we recorded revenue of $3.5 million related compared to the expected insurance recovery from this loss.same period in 2019.
Management's Discussion (continued)
WeWhile we continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our Core Portfolio.Portfolio, we also believe renting our vacant homes may represent an attractive source of occupancy and an opportunity to potentially convert the renter to a new homebuyer in the future. We continue to expect there to be fluctuations in the sources of occupancy gains depending on local market conditions, availability of vacant sites and success with converting renters to homeowners. Our Core Portfolio average occupancy, consists of occupied home sitesincluding both homeowners and renters, in our MH communities (both homeowners and renters) and was 94.3%95.1% for the quarter ended September 30, 2017,March 31, 2020, compared to 94.2%95.2% for the quarter ended June 30, 2017December 31, 2019 and 93.5%95.0% for the same period in 2019. For the quarter ended September 30, 2016. During the quarter ended September 30, 2017, we increased occupancy of manufactured homes withinMarch 31, 2020, our Core Portfolio occupancy increased by 9513 sites with an increase in homeowner occupancy of 267 sites compared to occupancy as of June 30, 2017.76 sites. By comparison, as of September 30, 2016,for the quarter ended March 31, 2019, our Core Portfolio occupancy increased 17661 sites with an increase in homeowner occupancy of 248 sites47 sites. In addition to higher occupancy, we have increased rental rates during the quarter ended March 31, 2020, contributing to a growth of 4.4% in MH rental income compared to occupancy at June 30, 2016.the same period in 2019.
We continue to experience growth in revenuesgrow RV rental income in our Core RV Portfolio as a result of our ability to increase rental rates and occupancy. RV revenuesrental income in our Core Portfolio for the quarter ended September 30, 2017 were 5.8%March 31, 2020 was 4.8% higher than the quarter ended September 30, 2016.same period in 2019. Annual seasonal and transientseasonal revenues for the quarter ended September 30, 2017March 31, 2020 increased 6.0%7.4% and 7.0%, 18.7%while transient revenue decreased 7.6%. The decrease in transient revenue over the same period in the prior year was primarily as a result of COVID-19. Year to date through February, transient revenue increased 5.8% over the same period in 2019.
We continue to experience strong performance in our membership base within our Thousand Trails portfolio. We sold approximately 3,200 Thousand Trail Camping ("TTC") memberships and 2.7%, respectively, fromapproximately 700 membership upgrades for the quarter ended September 30, 2016.March 31, 2020, an increase in membership subscriptions and upgrade revenues of 6.1% and 26.2%, respectively, over the same period in 2019. In addition, we activated approximately 5,000 TTC memberships through our RV revenuesdealer program for the quarter ended March 31, 2020. Our customers are increasingly choosing self-service options to complete their transactions with us. For the quarter ended March 31, 2020, 38% of our Core RV transient revenue was booked through our website and 15% of our new TTC memberships were purchased online.
Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels. We closed 155 new home sales during the quarter ended March 31, 2020 compared to 91 new home sales during the quarter ended March 31, 2019. The increase in new home sales was primarily due to favorable housing trends and timing of the availability of home inventory ready for sale. We continue to believe renting our vacant homes represents an attractive source of occupancy and an opportunity to convert the renter to a homebuyer in the future.
As of March 31, 2020, we had 3,913 occupied rental homes in our Core MH communities, including 286 homes rented through our ECHO JV. Our Core Portfolio income from rental operations, net of depreciation, was $7.6 million for the quarters ended March 31, 2020 and 2019. Approximately $7.8 million and $7.7 million of rental operations revenue related to Site rental was included in MH base rental income in our Core Portfolio for the nine months ended September 30, 2017 were 5.4% higher than the nine months ended September 30, 2016. Annual, seasonal and transient revenues for the nine months ended September 30, 2017 increased 5.5%, 6.2% and 4.7%, respectively, from the nine months ended September 30, 2016.
We continue to offer the Thousand Trails Camping Pass (“TTC”) 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. During the quarter ended September 30, 2017 online TTC sales increased 52% from the quarter ended September 30, 2016. During the quarter ended September 30, 2017 we sold approximately 4,400 TTCs and activated approximately 4,900 RV dealer TTCs. For the nine months ended September 30, 2017 we sold approximately 11,700 TTCs and activated approximately 14,100 RV dealer TTCs.
We continue to build on our successful multi-channel marketing campaigns, incorporating social media and advanced marketing analytics. The demand for our product offerings is high as seen by web traffic, call center traffic, reservations and sales. We have now completed our summer marketing campaign. We focused on the 100 days of camping between Memorial Day and Labor Day and ran a social media promotion, which had a social media reach of 5.1 million as we encouraged customers to post pictures of themselves enjoying our properties. For the same period in 2016, our summer social media campaign reach was 3.7 million.
We see high demand for our homes and communities. We closed 173 new home sales in the quarter ended September 30, 2017 compared to 207 during the quarter ended September 30, 2016 and 413 new home sales in the nine months ended September 30, 2017 compared to 508 during the nine months ended September 30, 2016. The new home sales during the quarter and nine months ended September 30, 2017 were primarily in our Florida and Colorado communities.
As of September 30, 2017, we had 4,502 occupied rental homes in our MH communities. For the quarters ended September 30, 2017March 31, 2020 and 2016, home rental program net operating income was approximately $7.9 million, net of rental asset depreciation expense of approximately $2.6 million for the quarter ended September 30, 2017 and $2.7 million for the quarter ended September 30, 2016. Approximately $8.7 million and $8.9 million of home rental operations revenue was included in community base rental income for the quarters ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, home rental program net operating income was approximately $24.3 million and $24.6 million, respectively, net of rental asset depreciation expense of approximately $7.9 million for the nine months ended September 30, 2017 and $8.0 million for the nine months ended September 30, 2016. Approximately $26.3 million and $27.0 million of home rental operations revenue was included in community base rental income for the nine months ended September 30, 2017 and nine months ended September 30, 2016,2019, respectively.
Our gross investment in real estate has increased approximately $70.3$38.3 million to $4,755.6$5,781.3 million as of September 30, 2017March 31, 2020 from $4,685.3$5,743.0 million as of December 31, 20162019, primarily due to the acquisition of Paradise Park Largocapital improvements during the second quarter of 2017ended March 31, 2020.
Management's Discussion and increased capital expenditures.Analysis (continued)
The following chart lists both the Properties acquired or invested insold from January 1, 20162019 through September 30, 2017, which represents our Non-Core Portfolio;March 31, 2020 and Sites added through expansion opportunities at our existing Properties.
Management's Discussion (continued)
Properties:
|
| | | | | | | | | |
Property | | Location | | Type of Property | | Transaction Date | | Sites(a) |
| | | | | | | | |
Total Sites as of January 1, 20162019 (1) (2) | | | | | | | | 143,938 | 155,400 |
Acquisitions:Acquisition Properties: | | | | | | | | |
Rose BayDrummer Boy Camping Resort | | Port Orange, FloridaGettysburg, Pennsylvania | | RV | | January 27, 2016March 25, 2019 | | 465 |
Lake of the Woods Campground | | Wautoma, Wisconsin | | RV | | March 25, 2019 | | 303 |
|
Portland FairviewRound Top RV Campground | | Fairview, OregonGettysburg, Pennsylvania | | RV | | April 10, 2019 | | 391 |
White Oak Shores Camping and RV Resort | | Stella, North Carolina | | RV | | May 26, 201629, 2019 | | 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 |
|
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 | | | | | | | | 11 |
|
Total Sites as of September 30, 2017 | | | | | | | | 149,448 | 455 |
| | | | | | | | |
Expansion Site Development: | | | | | | | | |
Sites added (reconfigured) in 2019 | | | | | | | | 891 |
Sites added (reconfigured) in 2020 | | | | | | | | 159 |
| | | | | | | | |
Dispositions: | | | | | | | | |
Hoosier Estates | | Lebanon, Indiana | | MH | | January 23, 2019 | | (288) |
Lake in the Hills | | Auburn Hills, Michigan | | MH | | January 23, 2019 | | (238) |
North Glen Village | | Westfield, Indiana | | MH | | January 23, 2019 | | (282) |
Oak Tree Village | | Portage, Indiana | | MH | | January 23, 2019 | | (361) |
Swan Creek | | Ypsilanti, Michigan | | MH | | January 23, 2019 | | (294) |
Total Sites as of March 31, 2020 (2) | | | | | | | | 156,700 |
______________________
| |
(a)(1) | Loggerhead sites represent slip count.Includes the marina slips from the acquisition of the remaining interest in our joint venture investment of 11 marinas in Florida. |
| |
(2) | Sites are approximate. Total does not foot due to rounding. |
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 investors 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 of recurring annual cash flows 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 operations, 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 Incomeincome from property operations, and Incomeincome 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.Properties. Income from property operations represents rental income, membership subscriptions and upgrade sales, utility income and right-to-useother income less property and rental home operating and maintenance expenses, real estate tax,taxes, 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 deferraldeferrals of right-to-use contractmembership upgrade sales upfront payments and relatedmembership sales commissions, net. For comparative purposes, we present bad debt expense within Property operating, maintenance and real estate taxes in the current and prior periods.
Our Core Portfolio consists of our Properties owned and operated since December 31, 2015.January 1, 2019. 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 2019 and 2017.2020.
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,related to real estate, impairment charges and after adjustments for to reflect our share of FFO of
Management's Discussion and Analysis (continued)
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-front non-refundable upfront payments from the entry of right-to-usemembership upgrade contracts. In accordance with GAAP, the non-refundable upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life.membership upgrade contract term. Although the NAREIT definition of FFO does not address the treatment of non-refundable right-to-useupfront 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) property acquisitioncosts, and other transaction costs related to mergers and acquisitions; and d)b) 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 properties, depreciation and amortization related to real estate all ofand impairment charges, 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
Management's Discussion (continued)
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 acquisitionsmiscellaneous non-comparable items from NFFOFFO 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 Incomeincome 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 expense on rental homes. We believe this measure is meaningful for investors as it provides a 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 flowflows 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.
The following table reconciles Netnet income available for Common Stockholders to Incomeincome from property operations for the quarters ended March 31, 2020 and nine months ended September 30, 2017 and September 30, 2016 (amounts in thousands):2019:
| | | | Quarters ended September 30, | | Nine Months Ended September 30, | | Quarters Ended March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | |
(amounts in thousands) | | | 2020 | | 2019 |
Computation of Income from Property Operations: | | | | | | | | | | | | |
Net income available for Common Stockholders | | $ | 48,525 |
| | $ | 40,998 |
| | $ | 144,911 |
| | $ | 127,071 |
| | $ | 66,875 |
| | $ | 113,309 |
|
Perpetual preferred stock dividends and original issuance costs | | 3,054 |
| | 2,297 |
| | 7,667 |
| | 6,910 |
| |
Income allocated to non-controlling interests - Common OP Units | | 3,286 |
| | 3,462 |
| | 9,825 |
| | 10,770 |
| |
Income allocated to non-controlling interests – Common OP Units | | | 3,849 |
| | 7,226 |
|
Equity in income of unconsolidated joint ventures | | (686 | ) | | (496 | ) | | (2,876 | ) | | (2,142 | ) | | (207 | ) | | (1,533 | ) |
Income before equity in income of unconsolidated joint ventures | | 54,179 |
| | 46,261 |
| | 159,527 |
| | 142,609 |
| | 70,517 |
| | 119,002 |
|
Gain on sale of real estate, net | | | — |
| | (52,507 | ) |
Total other expenses, net | | 59,461 |
| | 60,494 |
| | 182,398 |
| | 179,702 |
| | 75,144 |
| | 71,969 |
|
Income/(loss) from home sales operations and other | | (171 | ) | | (161 | ) | | (268 | ) | | 80 |
| |
Income from home sales operations and other | | | 877 |
| | (319 | ) |
Income from property operations | | $ | 113,469 |
| | $ | 106,594 |
| | $ | 341,657 |
| | $ | 322,391 |
| | $ | 146,538 |
| | $ | 138,145 |
|
Management's Discussion and Analysis (continued)
The following table presents a calculation of FFO available for Common Stock and OP Unit holdersUnitholders and Normalized FFO available for Common Stock and OP Unit holdersUnitholders for the quarters ended March 31, 2020 and nine months ended September 30, 2017 and September 30, 2016 (amounts in thousands):2019:
|
| | | | | | | | | | | | | | | | |
| | Quarters ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Computation of FFO and Normalized FFO: | | | | | | | | |
Net income available for Common Stockholders | | $ | 48,525 |
| | $ | 40,998 |
| | $ | 144,911 |
| | $ | 127,071 |
|
Income allocated to common OP units | | 3,286 |
| | 3,462 |
| | 9,825 |
| | 10,770 |
|
Right-to-use contract upfront payments, deferred, net | | 1,670 |
| | 1,327 |
| | 3,766 |
| | 2,427 |
|
Right-to-use contract commissions, deferred, net | | (176 | ) | | (200 | ) | | (372 | ) | | (212 | ) |
Depreciation on real estate assets | | 27,879 |
| | 26,847 |
| | 82,939 |
| | 79,218 |
|
Depreciation on rental homes | | 2,614 |
| | 2,671 |
| | 7,910 |
| | 7,985 |
|
Amortization of in-place leases | | 138 |
| | 1,376 |
| | 2,128 |
| | 2,139 |
|
Depreciation on unconsolidated joint ventures | | 360 |
| | 373 |
| | 1,171 |
| | 968 |
|
FFO available for Common Stock and OP Unit holders | | 84,296 |
| | 76,854 |
| | 252,278 |
| | 230,366 |
|
Transaction costs | | — |
| | 327 |
| | 324 |
| | 925 |
|
Preferred stock original issuance costs | | 757 |
| | — |
| | 757 |
| | — |
|
Normalized FFO available for Common Stock and OP Unit holders | | $ | 85,053 |
| | $ | 77,181 |
| | $ | 253,359 |
| | $ | 231,291 |
|
Weighted average Common Shares outstanding – fully diluted | | 93,324 |
| | 92,910 |
| | 93,135 |
| | 92,405 |
|
|
| | | | | | | | |
| | Quarters Ended March 31, |
(amounts in thousands) | | 2020 | | 2019 |
Computation of FFO and Normalized FFO: | | | | |
Net income available for Common Stockholders | | $ | 66,875 |
| | $ | 113,309 |
|
Income allocated to non-controlling interests – Common OP Units | | 3,849 |
| | 7,226 |
|
Membership upgrade sales upfront payments, deferred, net | | 2,542 |
| | 1,771 |
|
Membership sales commissions, deferred, net | | (216 | ) | | (191 | ) |
Depreciation and amortization | | 39,024 |
| | 37,977 |
|
Depreciation on unconsolidated joint ventures | | 177 |
| | 433 |
|
Gain on sale of real estate, net | | — |
| | (52,507 | ) |
FFO available for Common Stock and OP Unit holders | | 112,251 |
| | 108,018 |
|
Early debt retirement | | 1,054 |
| | — |
|
Insurance proceeds due to catastrophic weather event (1) | | — |
| | (349 | ) |
Normalized FFO available for Common Stock and OP Unit holders | | $ | 113,305 |
| | $ | 107,669 |
|
Weighted average Common Shares outstanding – Fully Diluted (2) | | 192,564 |
| | 191,248 |
|
______________________
(1) Represents insurance recovery revenue from reimbursement for capital expenditures related to Hurricane Irma.
25(2) Adjusted for the stock split.
Management's Discussion and Analysis (continued)
Results of Operations
ComparisonThis section discusses the comparison of our results of operations for the quarters ended March 31, 2020 and March 31, 2019. For the comparison of our results of operations for the quarters ended March 31, 2019 and March 31, 2018 and discussion of our operating activities, investing activities and financing activities for these quarters, refer to Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Quarter Ended SeptemberQuarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019, filed with the SEC on April 30, 2017 to the Quarter Ended September 30, 20162019.
Income from Property Operations
The following table summarizes certain financial and statistical data for theour Core Portfolio and the total portfolio for the quarters endedSeptember 30, 2017 and 2016 (amounts in thousands). The Core Portfolio in this discussion includes all Properties acquired on or before December 31, 2015 and which we have owned and operated continuously since January 1, 2016. Core Portfolio growth percentages exclude the impact of GAAP deferrals of upfront payments from right-to-use contracts and related commissions.portfolio:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | | Variance | | % Change |
Community base rental income | $ | 121,802 |
| | $ | 116,052 |
| | $ | 5,750 |
| | 5.0 | % | | $ | 123,177 |
| | $ | 117,164 |
| | $ | 6,013 |
| | 5.1 | % |
Rental home income | 3,592 |
| | 3,484 |
| | 108 |
| | 3.1 | % | | 3,592 |
| | 3,484 |
| | 108 |
| | 3.1 | % |
Resort base rental income | 56,399 |
| | 53,317 |
| | 3,082 |
| | 5.8 | % | | 58,471 |
| | 54,486 |
| | 3,985 |
| | 7.3 | % |
Right-to-use annual payments | 11,528 |
| | 11,349 |
| | 179 |
| | 1.6 | % | | 11,531 |
| | 11,349 |
| | 182 |
| | 1.6 | % |
Right-to-use contracts current period, gross | 4,208 |
| | 3,672 |
| | 536 |
| | 14.6 | % | | 4,208 |
| | 3,672 |
| | 536 |
| | 14.6 | % |
Utility and other income | 25,958 |
| | 20,987 |
| | 4,971 |
| | 23.7 | % | | 26,295 |
| | 21,174 |
| | 5,121 |
| | 24.2 | % |
Property operating revenues, excluding deferrals | 223,487 |
| | 208,861 |
| | 14,626 |
| | 7.0 | % | | 227,274 |
| | 211,329 |
| | 15,945 |
| | 7.5 | % |
| | | | | | | | | | | | | | |
|
|
Property operating and maintenance | 78,376 |
| | 72,687 |
| | 5,689 |
| | 7.8 | % | | 80,164 |
| | 73,410 |
| | 6,754 |
| | 9.2 | % |
Rental home operating and maintenance | 1,704 |
| | 1,765 |
| | (61 | ) | | (3.5 | )% | | 1,704 |
| | 1,768 |
| | (64 | ) | | (3.6 | )% |
Real estate taxes | 13,525 |
| | 13,161 |
| | 364 |
| | 2.8 | % | | 14,006 |
| | 13,467 |
| | 539 |
| | 4.0 | % |
Sales and marketing, gross | 3,277 |
| | 3,100 |
| | 177 |
| | 5.7 | % | | 3,277 |
| | 3,100 |
| | 177 |
| | 5.7 | % |
Property operating expenses, excluding deferrals and Property management | 96,882 |
| | 90,713 |
| | 6,169 |
| | 6.8 | % | | 99,151 |
| | 91,745 |
| | 7,406 |
| | 8.1 | % |
Income from property operations, excluding deferrals and Property management (1) | 126,605 |
| | 118,148 |
| | 8,457 |
| | 7.2 | % | | 128,123 |
| | 119,584 |
| | 8,539 |
| | 7.1 | % |
Property management | 13,160 |
| | 11,861 |
| | 1,299 |
| | 11.0 | % | | 13,160 |
| | 11,863 |
| | 1,297 |
| | 10.9 | % |
Income from property operations, excluding deferrals (1) | 113,445 |
| | 106,287 |
| | 7,158 |
| | 6.7 | % | | 114,963 |
| | 107,721 |
| | 7,242 |
| | 6.7 | % |
Right-to-use contracts, deferred and sales and marketing, deferred, net | 1,494 |
| | 1,127 |
| | 367 |
| | 32.6 | % | | 1,494 |
| | 1,127 |
| | 367 |
| | 32.6 | % |
Income from property operations (1) | $ | 111,951 |
| | $ | 105,160 |
| | $ | 6,791 |
| | 6.5 | % | | $ | 113,469 |
| | $ | 106,594 |
|
| $ | 6,875 |
| | 6.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core Portfolio | | Total Portfolio |
| Quarters Ended March 31, | | Quarters Ended March 31, |
(amounts in thousands) | 2020 | | 2019 | | Variance | | % Change | | 2020 | | 2019 | | Variance | | % Change |
MH base rental income | $ | 141,403 |
| | $ | 134,844 |
| | $ | 6,559 |
| | 4.9 | % | | $ | 141,421 |
| | $ | 135,282 |
| | $ | 6,139 |
| | 4.5 | % |
Rental home income | 3,983 |
| | 3,490 |
| | 493 |
| | 14.1 | % | | 3,982 |
| | 3,584 |
| | 398 |
| | 11.1 | % |
RV and marina base rental income (1) | 75,610 |
| | 72,132 |
| | 3,478 |
| | 4.8 | % | | 81,060 |
| | 72,168 |
| | 8,892 |
| | 12.3 | % |
Annual membership subscriptions | 13,073 |
| | 12,316 |
| | 757 |
| | 6.1 | % | | 13,073 |
| | 12,316 |
| | 757 |
| | 6.1 | % |
Membership upgrades sales current period, gross | 4,843 |
| | 3,838 |
| | 1,005 |
| | 26.2 | % | | 4,843 |
| | 3,838 |
| | 1,005 |
| | 26.2 | % |
Utility and other income | 24,860 |
| | 23,657 |
| | 1,203 |
| | 5.1 | % | | 25,303 |
| | 23,751 |
| | 1,552 |
| | 6.5 | % |
Property operating revenues, excluding deferrals | 263,772 |
| | 250,277 |
| | 13,495 |
| | 5.4 | % | | 269,682 |
| | 250,939 |
| | 18,743 |
| | 7.5 | % |
| | | | | | | | | | | | | | |
|
|
Property operating and maintenance | 81,441 |
| | 77,288 |
| | 4,153 |
| | 5.4 | % | | 83,652 |
| | 77,593 |
| | 6,059 |
| | 7.8 | % |
Real estate taxes | 16,000 |
| | 15,276 |
| | 724 |
| | 4.7 | % | | 16,841 |
| | 15,323 |
| | 1,518 |
| | 9.9 | % |
Rental home operating and maintenance | 1,340 |
| | 1,182 |
| | 158 |
| | 13.4 | % | | 1,343 |
| | 1,204 |
| | 139 |
| | 11.5 | % |
Sales and marketing, gross | 3,978 |
| | 3,409 |
| | 569 |
| | 16.7 | % | | 3,978 |
| | 3,409 |
| | 569 |
| | 16.7 | % |
Property operating expenses, excluding deferrals and property management | 102,759 |
| | 97,155 |
| | 5,604 |
| | 5.8 | % | | 105,814 |
| | 97,529 |
| | 8,285 |
| | 8.5 | % |
Income from property operations, excluding deferrals and property management (2) | 161,013 |
| | 153,122 |
| | 7,891 |
| | 5.2 | % | | 163,868 |
| | 153,410 |
| | 10,458 |
| | 6.8 | % |
Property management | 15,004 |
| | 13,685 |
| | 1,319 |
| | 9.6 | % | | 15,004 |
| | 13,685 |
| | 1,319 |
| | 9.6 | % |
Income from property operations, excluding deferrals (2) | 146,009 |
| | 139,437 |
| | 6,572 |
| | 4.7 | % | | 148,864 |
| | 139,725 |
| | 9,139 |
| | 6.5 | % |
Membership upgrade sales upfront payments and membership sales commission, deferred, net | 2,326 |
| | 1,580 |
| | 746 |
| | 47.2 | % | | 2,326 |
| | 1,580 |
| | 746 |
| | 47.2 | % |
Income from property operations (2) | $ | 143,683 |
| | $ | 137,857 |
| | $ | 5,826 |
| | 4.2 | % | | $ | 146,538 |
| | $ | 138,145 |
|
| $ | 8,393 |
| | 6.1 | % |
_______________________________________________
(1) Non-GAAP 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. | |
(1) | Marina rental income has been included in our Non-Core Portfolio since the acquisition of the remaining interest in a joint venture investment of 11 marinas in Florida occurred on September 10, 2019. |
| |
(2) | See Non-GAAP Financial Measures section of the Management Discussion and Analysis for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders. |
Total Portfolioportfolio income from property operations which includes Core and non-Core portfolios, for the quarter ended September 30, 20172020 increased $6.9$8.4 million, or 6.4%6.1%, from the quarter ended September 30, 2016,2019, driven by an increase of $6.8$5.8 million, or 6.5%4.2%, infrom our Core Portfolio and an increase of $2.6 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily driven by higher MH base rental income and a $0.1 millionRV base rental income, partially offset by higher property operating expenses. The increase in our Non-Core income from property operations.operations from our None-Core Portfolio was mainly due to income from property operations from our acquisitions that closed during 2019.
Property Operating Revenues
CommunityMH base rental income in our Core Portfolio for the quarter ended September 30, 20172020 increased $5.8$6.6 million, or 5.0%4.9%, from the quarter ended September 30, 2016,2019, which reflects 4.0%4.4% growth from rate increases and approximately 1.0%0.5% growth from occupancy gains. The average monthly base rental income per Site in our Core Portfolio increased to approximately $615 for the quarter ended September 30, 2017$688 in 2020 from approximately $591 for the quarter ended September 30, 2016.$659 in 2019. The average occupancy for theour Core Portfolio increased to 94.3% for the quarter ended September 30, 201795.1% in 2020 from 93.5% for the quarter ended September 30, 2016.95.0% in 2019.
Management's Discussion and Analysis (continued)
ResortRV base rental income in our Core Portfolio for the quarter ended September 30, 20172020 increased $3.1$3.5 million, or 5.8%4.8%, from the quarter ended September 30, 2016 primarily2019, due to increased rates. Resortthe annual and seasonal rental income, partially offset by a decrease in transient income primarily as a result of COVID-19. RV and marina base rental income is comprised of the following (amounts in thousands):following:
| | | Core Portfolio | | Total Portfolio | | Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | | Variance | | % Change | | Quarters Ended March 31, | | Quarters Ended March 31, |
(amounts in thousands) | | | 2020 | | 2019 | | Variance | | % Change | | 2020 | | 2019 | | Variance | | % Change |
Annual | $ | 32,737 |
| | $ | 30,874 |
| | $ | 1,863 |
| | 6.0 | % | | $ | 33,647 |
| | $ | 31,278 |
| | $ | 2,369 |
| | 7.6 | % | | $ | 41,960 |
| | $ | 39,053 |
| | $ | 2,907 |
| | 7.4 | % | | $ | 47,325 |
| | $ | 39,084 |
| | $ | 8,241 |
| | 21.1 | % |
Seasonal | 4,510 |
| | 3,799 |
| | 711 |
| | 18.7 | % | | 4,952 |
| | 4,244 |
| | 708 |
| | 16.7 | % | | 22,568 |
| | 21,083 |
| | 1,485 |
| | 7.0 | % | | 22,583 |
| | 21,085 |
| | 1,498 |
| | 7.1 | % |
Transient | 19,152 |
| | 18,644 |
| | 508 |
| | 2.7 | % | | 19,872 |
| | 18,964 |
| | 908 |
| | 4.8 | % | | 11,082 |
| | 11,996 |
| | (914 | ) | | (7.6 | )% | | 11,152 |
| | 11,999 |
| | (847 | ) | | (7.1 | )% |
Resort base rental income | $ | 56,399 |
| | $ | 53,317 |
| | $ | 3,082 |
| | 5.8 | % | | $ | 58,471 |
| | $ | 54,486 |
| | $ | 3,985 |
| | 7.3 | % | |
RV and marina base rental income (1) | | | $ | 75,610 |
| | $ | 72,132 |
| | $ | 3,478 |
| | 4.8 | % | | $ | 81,060 |
| | $ | 72,168 |
| | $ | 8,892 |
| | 12.3 | % |
Right-to-use contracts current period, gross, net of sales and marketing, gross, increased by $0.4 million, primarily as a result of an increase in the average price per upgrade sale and a higher number of upgrade sales during the quarter ended September 30, 2017 compared to the quarter ended September 30, 2016. During the quarter ended September 30, 2017 there were 757 upgrade sales with an average price per upgrade sale of $5,558. This compares to 740 upgrade sales with an average price per upgrade sale of $4,962 during the quarter ended September 30, 2016._____________________
Utility and other income increased by $5.0 million primarily due to the Hurricane Irma insurance recovery revenue accrual of $3.1 million and insurance proceeds of $1.5 million related to prior storm events. | |
(1) | Marina rental income has been included in our Non-Core Portfolio following the acquisition of the remaining interest in our joint venture investment of 11 marinas in Florida on September 10, 2019. |
Property Operating Expenses
Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the quarter ended September 30, 20172020 increased $6.2$5.6 million, or 6.8%5.8%, from the quarter ended September 30, 20162019. The increase was primarily driven bydue to an increase in property operating and maintenance expenses of $5.7 million. The$4.2 million and an increase in property taxes of $0.7 million. Property operating and maintenance expenses was primarily due to repairs and maintenance expense of $3.3 million recognized during the quarter ended September 30, 2017 for restoration work that had been reasonably estimated and/or completed to date at our Florida properties impactedhigher mainly driven by Hurricane Irma. The increase in property operating and maintenance expenses was also due to an increase in property payroll primarily as a result of 2017 salary increases$1.1 million, an increase in repairs and maintenance of $1.0 million and an increase in utilityinsurance expense primarilyof $0.9 million. Property taxes in 2020 were higher due to real estate tax increases in water and sewer expenses, which was partially offset by an increase in utility income recovery.Florida.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for our Home Sales for the quarters ended September 30, 2017 and 2016 (amounts in thousands, except home sales volumes).Other Operations:
| | | | 2017 | | 2016 | | Variance | | % Change | | Quarters Ended March 31, |
(amounts in thousands, except home sales volumes) | | | 2020 | | 2019 | | Variance | | % Change |
Gross revenues from new home sales (1) | | $ | 7,233 |
| | $ | 8,057 |
| | $ | (824 | ) | | (10.2 | )% | | $ | 9,382 |
| | $ | 4,564 |
| | $ | 4,818 |
| | 105.6 | % |
Cost of new home sales (1) | | (7,276 | ) | | (7,900 | ) | | 624 |
| | 7.9 | % | | 9,287 |
| | 4,394 |
| | 4,893 |
| | 111.4 | % |
Gross profit (loss) from new home sales | | (43 | ) | | 157 |
| | (200 | ) | | (127.4 | )% | |
Gross profit from new home sales | | | 95 |
| | 170 |
| | (75 | ) | | (44.1 | )% |
| | | | | | | | | |
|
| | | | | | |
Gross revenues from used home sales | | 2,779 |
| | 2,838 |
| | (59 | ) | | (2.1 | )% | | 1,927 |
| | 1,911 |
| | 16 |
| | 0.8 | % |
Cost of used home sales | | (3,101 | ) | | (2,845 | ) | | (256 | ) | | (9.0 | )% | | 2,624 |
| | 2,238 |
| | 386 |
| | 17.2 | % |
Loss from used home sales | | (322 | ) | | (7 | ) | | (315 | ) | | (4,500.0 | )% | | (697 | ) | | (327 | ) | | (370 | ) | | (113.1 | )% |
| | | | | | | | | | | | | | | | |
Brokered resale revenues and ancillary services revenues, net | | 1,983 |
| | 920 |
| | 1,063 |
| | 115.5 | % | |
Brokered resale and ancillary services revenues, net | | | 938 |
| | 1,559 |
| | (621 | ) | | (39.8 | )% |
Home selling expenses | | (1,447 | ) | | (909 | ) | | (538 | ) | | (59.2 | )% | | 1,213 |
| | 1,083 |
| | 130 |
| | 12.0 | % |
Income from home sales and other | | $ | 171 |
| | $ | 161 |
| | $ | 10 |
| | 6.2 | % | |
| | | | | | | | | |
Income (loss) from home sales and other | | | $ | (877 | ) | | $ | 319 |
| | $ | (1,196 | ) | | (374.9 | )% |
| | | | | | | | | | | | | | | | |
Home sales volumes | | | | | | | | | | | | | | | | |
Total new home sales (2) | | 173 |
| | 207 |
| | (34 | ) | | (16.4 | )% | | 155 |
| | 91 |
| | 64 |
| | 70.3 | % |
New Home Sales Volume - ECHO JV | | 48 |
| | 65 |
| | (17 | ) | | (26.2 | )% | | 12 |
| | 13 |
| | (1 | ) | | (7.7 | )% |
Used home sales | | 331 |
| | 335 |
| | (4 | ) | | (1.2 | )% | | 194 |
| | 219 |
| | (25 | ) | | (11.4 | )% |
Brokered home resales | | 239 |
| | 182 |
| | 57 |
| | 31.3 | % | | 176 |
| | 168 |
| | 8 |
| | 4.8 | % |
_________________________(1) New home sales gross revenues and costs of new home sales doesdo 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)
IncomeThe loss from home sales and other operations was $0.2$0.9 million for both the quarters ended September 30, 20172020 compared to income of $0.3 million for 2019. The decrease in income (loss) from home sales and 2016. Theother operations was due to a decrease in brokered resale and ancillary services revenues, net and an increase in the loss from used home selling expenses was primarily due to expense of $0.4 million recorded during the quarter ended September 30, 2017 related to property damage as a result of Hurricane Irma. The expense recorded during the quarter was offset by revenue recorded of $0.4 million related to the expected insurance recovery from this loss.sales.
Management's Discussion and Analysis (continued)
Rental Operations
The following table summarizes certain financial and statistical data for manufactured homeour MH Rental Operations for the quarters ended September 30, 2017 and 2016 (amounts in thousands, except rental unit volumes).Operations:
| | | | 2017 | | 2016 | | Variance | | % Change | | Quarters Ended March 31, |
Manufactured homes: | | | | | | | | | |
New Home | | $ | 7,100 |
| | $ | 6,329 |
| | $ | 771 |
| | 12.2 | % | |
Used Home | | 5,157 |
| | 6,013 |
| | (856 | ) | | (14.2 | )% | |
(amounts in thousands, except rental unit volumes) | | | 2020 | | 2019 | | Variance | | % Change |
Rental operations revenue (1) | | 12,257 |
| | 12,342 |
| | (85 | ) | | (0.7 | )% | | $ | 11,743 |
| | $ | 11,210 |
| | $ | 533 |
| | 4.8 | % |
Rental home operating and maintenance | | (1,704 | ) | | (1,768 | ) | | 64 |
| | 3.6 | % | | 1,340 |
| | 1,182 |
| | 158 |
| | 13.4 | % |
Income from rental operations | | 10,553 |
| | 10,574 |
| | (21 | ) | | (0.2 | )% | | 10,403 |
| | 10,028 |
| | 375 |
| | 3.7 | % |
Depreciation on rental homes (2) | | (2,614 | ) | | (2,671 | ) | | 57 |
| | 2.1 | % | | 2,804 |
| | 2,433 |
| | 371 |
| | 15.2 | % |
Income from rental operations, net of depreciation | | $ | 7,939 |
| | $ | 7,903 |
| | $ | 36 |
| | 0.5 | % | | $ | 7,599 |
| | $ | 7,595 |
| | $ | 4 |
| | 0.1 | % |
| | | | | | | | | | | | | | | | |
Gross investment in new manufactured home rental units (3) | | $ | 131,389 |
| | $ | 123,866 |
| | $ | 7,523 |
| | 6.1 | % | | $ | 233,667 |
| | $ | 174,599 |
| | $ | 59,068 |
| | 33.8 | % |
Gross investment in used manufactured home rental units | | $ | 44,624 |
| | $ | 52,628 |
| | $ | (8,004 | ) | | (15.2 | )% | | $ | 19,633 |
| | $ | 27,347 |
| | $ | (7,714 | ) | | (28.2 | )% |
| | | | | | | | | | | | | | | | |
Net investment in new manufactured home rental units | | $ | 105,424 |
| | $ | 101,768 |
| | $ | 3,656 |
| | 3.6 | % | | $ | 197,311 |
| | $ | 151,640 |
| | $ | 45,671 |
| | 30.1 | % |
Net investment in used manufactured home rental units | | $ | 24,833 |
| | $ | 34,169 |
| | $ | (9,336 | ) | | (27.3 | )% | | $ | 9,026 |
| | $ | 13,461 |
| | $ | (4,435 | ) | | (32.9 | )% |
| | | | | | | | | | | | | | | | |
Number of occupied rentals – new, end of period (4) | | 2,492 |
| | 2,316 |
| | 176 |
| | 7.6 | % | | 3,226 |
| | 2,860 |
| | 366 |
| | 12.8 | % |
Number of occupied rentals – used, end of period | | 2,010 |
| | 2,473 |
| | (463 | ) | | (18.7 | )% | | 687 |
| | 1,106 |
| | (419 | ) | | (37.9 | )% |
______________________
| |
(1) | Rental operations revenue consistsConsists of Site rental income and home rental income. Approximately $8.7$7.8 million and $8.9$7.7 million for the quarters ended September 30, 2017March 31, 2020 and 2016,March 31, 2019, respectively, of Site rental income arewere included in CommunityMH base rental income in the Core Portfolio Income from Property Operations table. The remainder of home rental income is included in Rentalrental home income in theour Core Portfolio Income from Property Operations table. |
| |
(2) | Included in depreciation on real estateDepreciation and other costsamortization 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 $15.5$17.0 million and $15.3$16.4 million as of September 30, 2017March 31, 2020 and 2016,March 31, 2019, respectively. |
| |
(4) | Occupied rentals as of the end of the period in our Core PortfolioIncludes 286 and includes 254 and 158290 homes rented through our ECHO JV during the quarters ended September 30, 2017as of March 31, 2020 and 2016,2019, respectively. |
Other Income and Expenses
The following table summarizes other income and expenses,from rental operations, net for the quarters endedSeptember 30, 2017 and 2016 (amountsof depreciation, in thousands, expenses shown2020 was consistent with 2019 as negative).
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | Variance | | % Change |
Depreciation on real estate and rental homes | | $ | (30,493 | ) | | $ | (29,518 | ) | | $ | (975 | ) | | (3.3 | )% |
Amortization of in-place leases | | (138 | ) | | (1,376 | ) | | 1,238 |
| | 90.0 | % |
Interest income | | 1,974 |
| | 1,767 |
| | 207 |
| | 11.7 | % |
Income from other investments, net | | 2,052 |
| | 2,581 |
| | (529 | ) | | (20.5 | )% |
General and administrative (excluding transaction costs) | | (7,505 | ) | | (7,326 | ) | | (179 | ) | | (2.4 | )% |
Transaction costs | | — |
| | (327 | ) | | 327 |
| | 100.0 | % |
Property rights initiatives and other, net | | (324 | ) | | (855 | ) | | 531 |
| | 62.1 | % |
Interest and related amortization | | (25,027 | ) | | (25,440 | ) | | 413 |
| | 1.6 | % |
Total other income and expenses, net | | $ | (59,461 | ) | | $ | (60,494 | ) | | $ | 1,033 |
| | 1.7 | % |
Other expenses, net decreased $1.0 million for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016. The decrease from the quarter ended September 30, 2016 was primarily due to a decrease in amortization of in-place leases, decrease inhigher income from other investments, net, primarily due torental operations from an increase in the terminationnumber of the Tropical Palms RV ground lease in 2016 and 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). These decreases were partiallynew occupied rental units was offset by an increase in depreciation on real estate and rental homes due to an increase in capital expenditures.
Management's Discussion (continued)
Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016
Income from Property Operations
The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the nine months ended September 30, 2017 and 2016 (amounts in thousands). The Core Portfolio in this discussion includes all Properties acquired on or before December 31, 2015 and which we have owned and operated continuously since January 1, 2016. Core Portfolio growth percentages exclude the impact of GAAP deferrals of upfront payments from right-to-use contracts and related commissions.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | | Variance | | % Change |
Community base rental income | $ | 362,080 |
| | $ | 345,316 |
| | $ | 16,764 |
| | 4.9 | % | | $ | 365,833 |
| | $ | 346,625 |
| | $ | 19,208 |
| | 5.5 | % |
Rental home income | 10,829 |
| | 10,573 |
| | 256 |
| | 2.4 | % | | 10,829 |
| | 10,572 |
| | 257 |
| | 2.4 | % |
Resort base rental income | 161,002 |
| | 152,697 |
| | 8,305 |
| | 5.4 | % | | 169,594 |
| | 154,652 |
| | 14,942 |
| | 9.7 | % |
Right-to-use annual payments | 34,130 |
| | 33,590 |
| | 540 |
| | 1.6 | % | | 34,133 |
| | 33,590 |
| | 543 |
| | 1.6 | % |
Right-to-use contracts current period, gross | 11,212 |
| | 9,290 |
| | 1,922 |
| | 20.7 | % | | 11,212 |
| | 9,290 |
| | 1,922 |
| | 20.7 | % |
Utility and other income | 67,961 |
| | 61,235 |
| | 6,726 |
| | 11.0 | % | | 69,071 |
| | 61,490 |
| | 7,581 |
| | 12.3 | % |
Property operating revenues, excluding deferrals | 647,214 |
| | 612,701 |
| | 34,513 |
| | 5.6 | % | | 660,672 |
| | 616,219 |
| | 44,453 |
| | 7.2 | % |
| | | | | | |
|
| | | | | | | | |
Property operating and maintenance | 215,802 |
| | 201,871 |
| | 13,931 |
| | 6.9 | % | | 221,119 |
| | 203,011 |
| | 18,108 |
| | 8.9 | % |
Rental home operating and maintenance | 4,912 |
| | 4,871 |
| | 41 |
| | 0.8 | % | | 4,912 |
| | 4,874 |
| | 38 |
| | 0.8 | % |
Real estate taxes | 40,557 |
| | 39,118 |
| | 1,439 |
| | 3.7 | % | | 41,986 |
| | 39,534 |
| | 2,452 |
| | 6.2 | % |
Sales and marketing, gross | 8,860 |
| | 8,526 |
| | 334 |
| | 3.9 | % | | 8,861 |
| | 8,524 |
| | 337 |
| | 4.0 | % |
Property operating expenses, excluding deferrals and Property management | 270,131 |
| | 254,386 |
| | 15,745 |
| | 6.2 | % | | 276,878 |
| | 255,943 |
| | 20,935 |
| | 8.2 | % |
Income from property operations, excluding deferrals and Property management (1) | 377,083 |
| | 358,315 |
| | 18,768 |
| | 5.2 | % | | 383,794 |
| | 360,276 |
| | 23,518 |
| | 6.5 | % |
Property management | 38,743 |
| | 35,668 |
| | 3,075 |
| | 8.6 | % | | 38,743 |
| | 35,670 |
| | 3,073 |
| | 8.6 | % |
Income from property operations, excluding deferrals (1) | 338,340 |
| | 322,647 |
| | 15,693 |
| | 4.9 | % | | 345,051 |
| | 324,606 |
| | 20,445 |
| | 6.3 | % |
Right-to-use contracts, deferred and sales and marketing, deferred, net | 3,394 |
| | 2,215 |
| | 1,179 |
| | 53.2 | % | | 3,394 |
| | 2,215 |
| | 1,179 |
| | 53.2 | % |
Income from property operations (1) | $ | 334,946 |
| | $ | 320,432 |
| | $ | 14,514 |
| | 4.5 | % | | $ | 341,657 |
| | $ | 322,391 |
| | $ | 19,266 |
| | 6.0 | % |
__________________________
(1) Non-GAAP 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 Core and non-Core portfolios, for the nine months ended September 30, 2017 increased $19.3 million, or 6.0%, from the nine months ended September 30, 2016, driven by an increase of $14.5 million, or 4.5%, in our Core Portfolio income from property operations and a $4.8 million increase in our Non-Core income from property operations.
Property Operating Revenues
Community base rental income in our Core Portfolio for the nine months ended September 30, 2017 increased $16.8 million, or 4.9% from the nine months ended September 30, 2016, which reflects 4.0% growth from rate increases and approximately 0.9% growth from occupancy gains. The average monthly base rental income per Site increased to approximately $611 for the nine months ended September 30, 2017 from approximately $588 for the nine months ended September 30, 2016. The average occupancy for the Core Portfolio increased to 94.2% for the nine months ended September 30, 2017 from 93.3% for the nine months ended September 30, 2016.
Management's Discussion (continued)
Resort base rental income in our Core Portfolio for the nine months ended September 30, 2017 increased $8.3 million, or 5.4%, from the nine months ended September 30, 2016 primarily due to an increase in annual, seasonal and transient revenues as a result of increased rates. Resort base rental income is comprised of the following (amounts in thousands):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core Portfolio | | Total Portfolio |
| 2017 | | 2016 | | Variance | | % Change | | 2017 | | 2016 | | Variance | | % Change |
Annual | $ | 95,860 |
| | $ | 90,828 |
| | $ | 5,032 |
| | 5.5 | % | | $ | 98,612 |
| | $ | 91,648 |
| | $ | 6,964 |
| | 7.6 | % |
Seasonal | 25,374 |
| | 23,899 |
| | 1,475 |
| | 6.2 | % | | 28,353 |
| | 24,573 |
| | 3,780 |
| | 15.4 | % |
Transient | 39,768 |
| | 37,970 |
| | 1,798 |
| | 4.7 | % | | 42,629 |
| | 38,431 |
| | 4,198 |
| | 10.9 | % |
Resort base rental income | $ | 161,002 |
| | $ | 152,697 |
| | $ | 8,305 |
| | 5.4 | % | | $ | 169,594 |
| | $ | 154,652 |
| | $ | 14,942 |
| | 9.7 | % |
Right-to-use contracts current period, gross, net of sales and marketing, gross, increased by $1.6 million, primarily as a result of a higher average price per upgrade sale during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. During the nine months ended September 30, 2017 there were 2,017 upgrade sales with an average price per upgrade sale of $5,558. This compares to 1,892 upgrade sales with an average price per upgrade sale of $4,910 for the nine months ended September 30, 2016.
Utility and other income in our Core Portfolio increased by $6.7 million, primarily due to the Hurricane Irma insurance recovery revenue accrual of $3.1 million and insurance proceeds of $1.5 million related to prior storm events. In addition, the increase in utility and other income was due to an increase in utility income recovery across all utilities.
Property Operating Expenses
Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the nine months ended September 30, 2017 increased $15.7 million, or 6.2%, from the nine months ended September 30, 2016. The increase was primarily due to an increase in property operating and maintenance expenses of $13.9 million, driven by an increase in repairs and maintenance expense, utility expense and property payroll. The increase in repairs and maintenance expense of $5.7 million was primarily due to an expense of $3.3 million recognized during the quarter ended September 30, 2017 for restoration work that had been reasonably estimated and/or completed to date at our Florida properties impacted by Hurricane Irma and $1.2 million of clean-up costs associated with prior storm events. The increase in utility expense was driven by increases in electric, sewer, trash and gas expenses, which was partially offset by increased utility income recovery. The increase in property payroll expense resulted from 2017 salary increases.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home Sales for the nine months ended September 30, 2017 and 2016 (amounts in thousands, except home sales volumes).
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | Variance | | % Change |
Gross revenues from new home sales (1) | | $ | 16,724 |
| | $ | 19,500 |
| | $ | (2,776 | ) | | (14.2 | )% |
Cost of new home sales (1) | | (16,467 | ) | | (19,598 | ) | | 3,131 |
| | 16.0 | % |
Gross profit (loss) from new home sales | | 257 |
| | (98 | ) | | 355 |
| | 362.2 | % |
| | | | | | | | |
Gross revenues from used home sales | | 8,148 |
| | 8,739 |
| | (591 | ) | | (6.8 | )% |
Cost of used home sales | | (8,924 | ) | | (8,909 | ) | | (15 | ) | | (0.2 | )% |
Loss from used home sales | | (776 | ) | | (170 | ) | | (606 | ) | | (356.5 | )% |
| | | | | | | | |
Brokered resale revenues and ancillary services revenues, net | | 4,088 |
| | 2,736 |
| | 1,352 |
| | 49.4 | % |
Home selling expenses | | (3,301 | ) | | (2,548 | ) | | (753 | ) | | (29.6 | )% |
Income (loss) from home sales and other | | $ | 268 |
| | $ | (80 | ) | | $ | 348 |
| | 435.0 | % |
| | | | | | | | |
Home sales volumes | | | | | | | | |
Total new home sales (2) | | 413 |
| | 508 |
| | (95 | ) | | (18.7 | )% |
New Home Sales Volume - ECHO JV | | 126 |
| | 162 |
| | (36 | ) | | (22.2 | )% |
Used home sales | | 954 |
| | 988 |
| | (34 | ) | | (3.4 | )% |
Brokered home resales | | 659 |
| | 585 |
| | 74 |
| | 12.6 | % |
_________________________(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 for the nine months ended September 30, 2017 and September 30, 2016, respectively.
Management's Discussion (continued)
The increase in income from home sales and other was primarily due to an increase in ancillary activities and an increase in the gross profit from new homes sales, partially offset by an increase in home selling expenses and an increase in the loss from used home sales. The increase in home selling expenses was primarily due to expense of $0.4 million recorded during the quarter ended September 30, 2017 related to property damage as a result of Hurricane Irma. The expense recorded during the quarter was offset by revenue recorded of $0.4 million related to the expected insurance recovery from this loss.
Rental Operations
The following table summarizes certain financial and statistical data for manufactured home Rental Operations for the nine months ended September 30, 2017 and 2016 (amounts in thousands, except rental unit volumes).
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | Variance | | % Change |
Manufactured homes: | | | | | | | | |
New Home | | $ | 20,718 |
| | $ | 18,802 |
| | $ | 1,916 |
| | 10.2 | % |
Used Home | | 16,425 |
| | 18,728 |
| | (2,303 | ) | | (12.3 | )% |
Rental operations revenue (1) | | 37,143 |
| | 37,530 |
| | (387 | ) | | (1.0 | )% |
Rental home operating and maintenance | | (4,912 | ) | | (4,874 | ) | | (38 | ) | | (0.8 | )% |
Income from rental operations | | 32,231 |
| | 32,656 |
| | (425 | ) | | (1.3 | )% |
Depreciation on rental homes (2) | | (7,910 | ) | | (8,007 | ) | | 97 |
| | 1.2 | % |
Income from rental operations, net of depreciation | | $ | 24,321 |
| | $ | 24,649 |
| | $ | (328 | ) | | (1.3 | )% |
| | | | | | | | |
Gross investment in new manufactured home rental units (3) | | $ | 131,389 |
| | $ | 123,866 |
| | $ | 7,523 |
| | 6.1 | % |
Gross investment in used manufactured home rental units | | $ | 44,624 |
| | $ | 52,628 |
| | $ | (8,004 | ) | | (15.2 | )% |
| | | | | | | | |
Net investment in new manufactured home rental units | | $ | 105,424 |
| | $ | 101,768 |
| | $ | 3,656 |
| | 3.6 | % |
Net investment in used manufactured home rental units | | $ | 24,833 |
| | $ | 34,169 |
| | $ | (9,336 | ) | | (27.3 | )% |
| | | | | | | | |
Number of occupied rentals – new, end of period (4) | | 2,492 |
| | 2,316 |
| | 176 |
| | 7.6 | % |
Number of occupied rentals – used, end of period | | 2,010 |
| | 2,473 |
| | (463 | ) | | (18.7 | )% |
______________________
| |
(1)
| Rental operations revenue consists of Site rental income and home rental income. Approximately $26.3 million and $27.0 million for the nine months ended September 30, 2017 and 2016, 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 depreciation on real estate and other costs 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 $15.5 million and $15.3 million as of September 30, 2017 and 2016, respectively. |
| |
(4)
| Occupied rentals as of the end of the period in our Core Portfolio and includes 254 and 158 homes rented through our ECHO JV during the nine months ended September 30, 2017 and 2016, 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, partially offset by the change in the mix of occupied rentals, driven by an increased number of occupied new homes at a higher rental rate.homes.
Other Income and Expenses
The following table summarizes other income and expenses for the nine months ended September 30, 2017 and September 30, 2016 (amounts in thousands, expenses shown as negative).expenses:
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | Variance | | % Change |
Depreciation on real estate and rental homes | | $ | (90,849 | ) | | $ | (87,203 | ) | | $ | (3,646 | ) | | (4.2 | )% |
Amortization of in-place leases | | (2,128 | ) | | (2,139 | ) | | 11 |
| | 0.5 | % |
Interest income | | 5,542 |
| | 5,052 |
| | 490 |
| | 9.7 | % |
Income from other investments, net | | 3,918 |
| | 6,574 |
| | (2,656 | ) | | (40.4 | )% |
General and administrative (excluding transaction costs) | | (23,015 | ) | | (22,390 | ) | | (625 | ) | | (2.8 | )% |
Transaction costs | | (324 | ) | | (925 | ) | | 601 |
| | 65.0 | % |
Property rights initiatives and other | | (814 | ) | | (2,036 | ) | | 1,222 |
| | 60.0 | % |
Interest and related amortization | | (74,728 | ) | | (76,635 | ) | | 1,907 |
| | 2.5 | % |
Total other income and expenses, net | | $ | (182,398 | ) | | $ | (179,702 | ) | | $ | (2,696 | ) | | (1.5 | )% |
|
| | | | | | | | | | | | | | | |
| | Quarters Ended March 31, |
(amounts in thousands, expenses shown as negative) | | 2020 | | 2019 | | Variance | | % Change |
Depreciation and amortization | | $ | (39,024 | ) | | $ | (37,977 | ) | | $ | (1,047 | ) | | (2.8 | )% |
Interest income | | 1,807 |
| | 1,751 |
| | 56 |
| | 3.2 | % |
Income from other investments, net | | 643 |
| | 986 |
| | (343 | ) | | (34.8 | )% |
General and administrative | | (10,855 | ) | | (9,909 | ) | | (946 | ) | | (9.5 | )% |
Other expenses | | (588 | ) | | (427 | ) | | (161 | ) | | (37.7 | )% |
Early debt retirement | | (1,054 | ) | | — |
| | (1,054 | ) | | — | % |
Interest and related amortization | | (26,073 | ) | | (26,393 | ) | | 320 |
| | 1.2 | % |
Total other income and expenses, net | | $ | (75,144 | ) | | $ | (71,969 | ) | | $ | (3,175 | ) | | (4.4 | )% |
OtherTotal other income and expenses, net increased $2.7$3.2 million for the nine months ended September 30, 2017,in 2020 compared to 2019, primarily due to early debt retirement cost incurred in the nine months ended September 30, 2016.current quarter and increases in depreciation and amortization, general and administrative expenses. The increaseearly debt retirement cost was resulted from our repayment of $48.1 million of principal on three mortgage loans that were due to mature in other expenses, net from2020.
Gain on Sale of Real Estate, Net
On January 23, 2019, we closed on the nine months ended September 30, 2016 was primarilysale of five all-age MH communities located in Indiana and Michigan, collectively containing 1,463 sites, for $89.7 million. We recognized a gain on sale of these Properties of $52.5 million during the first quarter of 2019.
Management's Discussion and Analysis (continued)
due to an increase in depreciation on real estate and rental homes, partially offset by a decrease in income from other investments, net, due to the termination of the Tropical Palms RV ground lease in 2016 and 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, dividend distributions, debt service, including principal and interest, capital improvements on properties, purchasing both newProperties, home purchases and pre-owned homes, acquisitions of new Properties, and distributions.property acquisitions. 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.
WeThe impact the COVID-19 pandemic will have entered into an at-the-market (“ATM”) offering program, pursuanton our financial condition and cashflows is uncertain and is dependent upon various factors including the timing and manner in which operations resume at our Properties, customer payment patterns and operational decisions we have made and may make in the future in response to which we may sell,guidance from time-to-time, sharespublic authorities and/or for the health and safety of our common stock, par value $0.01 per share, having an aggregate offering price of upemployees, residents and guests. We believe, based on information currently available and informed in part by our cash collection experience in April as detailed in our COVID Update, that our current cash reserves, including the recent $100.0 million borrowed on our LOC, provide us sufficient cash to $125.0 million. Duringmeet our needs for the next twelve months, including our expected dividend payments. Each quarter we sold 484,913 shares of common stock as part of the ATM equity offering program, at a weighted average price of $86.69, resulting in net cash proceeds of approximately $41.5 million. As of September 30, 2017, $33.0 million of common stock remained available for issuance under the ATM equity offering program. During October 2017, we sold 336,290 shares of common stock as part of the ATM equity offering program at a weighted average price of $85.13, resulting in net cash proceeds of approximately $28.3 million. Ourour Board of Directors has approvedconsiders several factors as it deliberates and decides whether to declare a new ATM equity offering program having an aggregate offering price of upquarterly dividend. The process includes revisiting our annual budget and considering factors including our planned operating performance and related cash flow, our debt service obligations, capital investments to $200.0 million.
In addition, we have available liquidity inmaintain and expand the form of authorizedbusiness, working capital requirements including home purchases and unissued preferred stock of approximately 10.0 million shares and approximately 112.5 million shares of authorized but unissued common 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 uspotential investments to issue up to 200.0 million shares of common stock, par value $0.01 per share, and up to 10.0 million shares of preferred stock, par value $0.01 per share.generate external growth.
One of our stated objectives is to maintain financial flexibility. Achieving this objective allows us to take advantage of strategic opportunities that may arise. When investing capital, we consider all potential uses, including returning capital to our stockholders or the conditions under which we may repurchase our stock. These conditions include, but are not limited to, market price, balance sheet flexibility, alternative opportunistic capital uses and capital requirements. 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 September 30, 2017, we have sufficient liquidity, in the form of $72.1 million in available cash, net of restricted cash, and $400.0 million available on our LOC, to satisfy our near term obligations.
On October 27, 2017, we entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) by and among us, MHC Operating Limited Partnership, Wells Fargo Bank, National Association, as Administrative Agent (the “Administrative Agent”) and other lenders named therein, which amends and restates the terms of the obligations owing by us under the Amended, Restated and Consolidated Agreement dated as of July 17, 2014 pursuant to which we have access to a $400 million unsecured line of credit and the $200 million senior unsecured term loan facility. The LOC maturity date was extended to October 27, 2021, and this term can be extended an additional year in two six month increments, subject to certain conditions. The LOC bears interest at a rate of LIBOR plus 1.10% to 1.55% and requires an annual facility fee of 0.15% to 0.35%. We also extended the term of our Term Loan, which now matures on April 27, 2023 and has an interest rate of LIBOR plus 1.20% to 1.90% per annum.
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 resourcesAccessing long-term low-cost secured debt continues to be adequate to meet our operating requirements for capital improvements, amortizing debt and payment of dividends and distributions.focus.
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,using long-term collateralized and uncollateralized borrowings including borrowings under the existing LOC and the issuance of debt securities or additionalthe issuance of equity securities, in addition to net cash provided by operating activities. As of September 30, 2017, we have no remaining scheduled debt maturities in 2017.including under our ATM equity offering program.
During the quarter ended September 30, 2017, we entered into three new loans, each secured by a manufactured home Property, totaling $146.0 million. The loans have a stated interest rate of 4.07% per year with 20 year maturities and 30 year principal amortization. We utilized the proceeds from these loans to redeem our Series C Preferred Stock for $136.1 million.
Management's Discussion (continued)
On October 16, 2017,March 31, 2020, we entered into a $204$275.4 million secured credit facility with Fannie Mae, maturing in 203710 years and bearing a 3.97% fixed2.69% interest rate. The loanfacility is secured by five manufactured homeeight MH and four RV communities. We usedFor information regarding our debt activities and related borrowing arrangements, see Item 1. Financial Statements—Note 8. Borrowing Arrangements. Total secured debt encumbered a total of 125 and 116 of our Properties as of March 31, 2020 and December 31, 2019, respectively, and the proceedsgross carrying value of such Properties was approximately $2,634.2 million and $2,524.7 million, as of March 31, 2020 and December 31, 2019, respectively.
On April 28, 2020, our stockholders approved an amendment to pay,our charter to increase the number of shares of our common stock that we are authorized to issue from 400,000,000 to 600,000,000 shares. As of March 31, 2020, we have available liquidity in full, $194.2the form of approximately 217.9 million shares of authorized and unissued common stock, par value $0.01 per share of stock, and 10.0 million shares of authorized and unissued preferred stock registered for sale under the Securities Act of 1933, as amended.
Our at-the-market (“ATM”) equity offering program allows us to sell, from time-to-time, shares of our common stock, having an aggregate offering price of up to $200.0 million. As of March 31, 2020, we have $140.7 million of loans that would have matured in 2018. common stock available for issuance under our ATM equity program.
We incurred approximately $2.2expect to meet our short-term liquidity requirements, including principal payments, capital improvements and dividend distributions for the next twelve months, generally through available cash, net cash provided by operating activities and our LOC. As of March 31, 2020, our LOC had a borrowing capacity of $400.0 million in prepayment penalties associated with the debt repayment.option to increase the borrowing capacity by $200.0 million, subject to certain conditions. On April 1, 2020, we borrowed $100.0 million on our LOC to increase liquidity
Duringand preserve financial flexibility. The LOC bears interest at a rate of LIBOR plus 1.10% to 1.55%, requires an annual facility fee of 0.15% to 0.35% and matures on October 27, 2021.
We also utilize interest rate swaps to add stability to our interest expense and to manage our exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the nine months ended September 30, 2017 we paid off two maturing mortgage loans and assumed debtreceipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the purchasefair value of Paradise Park Largo. The two mortgage loans we paid off were approximately $21.1 million, with a weighted averagethe designated derivative are recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets and subsequently reclassified into earnings on the Consolidated Statements of Income and Comprehensive Income in the period that the hedged forecasted transaction affects earnings. For additional information regarding our interest rate swap, see Item 1. Financial Statements—Note 9. Derivative Instruments and Hedging Activities.
Management's Discussion and Analysis (continued)
As part of 5.76% per annum,our unsecured credit facility, our LOC arrangement will mature prior to the expected discontinuation of LIBOR subsequent to 2021 and $6.9our $200.0 million withterm loan is scheduled to mature in April 2023. We continue to monitor the development and adoption of an alternative index to LIBOR to manage the transition and as it pertains to new arrangements to be entered in the future. Given approximately 88% of our current debt is secured and not subject to LIBOR, we do not believe the discontinuation of LIBOR will have a weighted average interest rate of 6.47%. Each loan was secured by a manufactured home Property. In connection with the Paradise Park Largo acquisition during the quarter ended June 30, 2017, we assumed approximately $5.9 million of mortgage debt secured by the manufactured home community with an interest rate of 4.6% that matures in 2040.
significant impact on our consolidated financial statements.
The following table below summarizes our cash flow activity for the nine months ended September 30, 2017 and 2016 (amounts in thousands):flows activity:
| | | Nine Months Ended September 30, | For the quarters ended March 31, |
| 2017 | | 2016 | |
(amounts in thousands) | | 2020 | | 2019 |
Net cash provided by operating activities | $ | 305,509 |
| | $ | 274,582 |
| $ | 130,892 |
| | $ | 128,098 |
|
Net cash used in investing activities | (138,173 | ) | | (166,073 | ) | |
Net cash provided by (used in) investing activities | | (50,161 | ) | | 13,112 |
|
Net cash used in financing activities | (146,281 | ) | | (119,955 | ) | (12,670 | ) | | (65,962 | ) |
Net increase (decrease) in cash | $ | 21,055 |
| | $ | (11,446 | ) | |
Net increase (decrease) in cash and restricted cash | | $ | 68,061 |
| | $ | 75,248 |
|
Operating Activities
Net cash provided by operating activities increased $30.9$2.8 million to $305.5$130.9 million for the nine monthsquarter ended September 30, 2017,March 31, 2020 from $274.6$128.1 million for the nine monthsquarter ended September 30, 2016.March 31, 2019. The increase in net cash provided by operating activities was primarily due to higher income from property operations of $19.3$8.4 million, receiptpartially offset by decreases in rents and other customer payments received in advance and security deposits of $3.5 million and proceeds from insurance proceedsclaims of $10.8 million related to the California failure to maintain lawsuits and insurance proceeds of $1.5 million related to prior storm events, and long term$3.4 million. In addition, long-term incentive plan compensation payments of $4.3$4.4 million were made during the first quarter of 2016. These increases were partially offset by the litigation settlement payment of $13.3 million related to the California failure to maintain lawsuits.2019.
Investing Activities
Net cash used in investing activities was $138.2$50.2 million for the nine monthsquarter ended September 30, 2017 compared to $166.1March 31, 2020. Net cash provided by investing activities was $13.1 million for the nine monthsquarter ended September 30, 2016.March 31, 2019. The decreaseincrease in net cash used in investing activities was primarily due to (1) the acquisitionsproceeds of Forest Lake Estates, Portland Fairview and Rose Bay for $78.2$77.7 million (2) an acquisition of vacant land in Florida for $2.0 million and (3) receipt of capital distribution of $4.1 million from our Voyager JVreceived during the nine months ended September 30, 2016. The decrease wasfirst quarter of 2019 from the sale of real estate, partially offset by investments, inclusive of costs, in the Crosswinds and Loggerhead joint ventures of $2.3 million and $31.4 million, respectively, and a short-term loan of $13.8 million issued to the Crosswinds joint venturemore acquisitions during the nine months ended September 30, 2017.first quarter of 2019.
Capital Improvements
The following table below summarizes capital improvement activity for the nine months ended September 30, 2017 and 2016 (amounts in thousands): |
| | | | | | | |
| Nine Months Ended September 30, (1) |
| 2017 | | 2016 |
Recurring Capital Expenditures (2) | $ | 29,823 |
| | $ | 28,321 |
|
Property upgrades and site development | 20,931 |
| | 9,833 |
|
New home investments (3)(4) | 32,724 |
| | 44,293 |
|
Used home investments (4) | 3,113 |
| | 4,265 |
|
Total Property | 86,591 |
| | 86,712 |
|
Corporate | 1,286 |
| | 604 |
|
Total Capital improvements | $ | 87,877 |
| | $ | 87,316 |
|
______________________ (1) Excludes non-cash activity of approximately $0.2 million and $0.5 million of used homes acquired through foreclosure of Chattel Loans for the nine months ended September 30, 2017 and 2016, respectively.
(2) Recurring capital expenditures are primarily comprised of common area improvements, furniture, and mechanical improvements.
(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.
improvements:
33 |
| | | | | | | |
| For the quarters ended March 31, |
(amounts in thousands) | 2020 | | 2019 |
Recurring capital expenditures (1) | $ | 11,467 |
| | $ | 10,064 |
|
Property upgrades and development (2) | 20,115 |
| | 12,246 |
|
New home investments (3) (4) | 16,268 |
| | 27,362 |
|
Used home investments (4) | 86 |
| | 673 |
|
Total property improvements | 47,936 |
| | 50,345 |
|
Corporate | 1,023 |
| | 2,096 |
|
Total capital improvements | $ | 48,959 |
| | $ | 52,441 |
|
______________________
Management's Discussion (continued)
| |
(1) | Primarily comprised of common area, utility infrastructure and mechanical improvements. |
| |
(2) | Includes $1.3 million of restoration and improvement capital expenditures related to Hurricane Irma for the quarter ended March 31, 2019. |
| |
(3) | Excludes new home investments 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 $146.3$12.7 million for the nine monthsquarter ended September 30, 2017 compared to net cash used in financing activities of $120.0March 31, 2020 and $66.0 million for the nine monthsquarter ended September 30, 2016.March 31, 2019. The increasedecrease in net cash used in financing activities for the nine months ended September 30, 2017 was primarily due to (1) a decrease in newfinancing proceeds of $275.4 million, partially offset by net repayment on the LOC of $160.0 million and total mortgage debt proceeds,repayment of $61.8 million during the quarter ended March 31, 2020.
Management's Discussion and Analysis (continued)
Contractual Obligations
Significant ongoing contractual obligations consist primarily of long-term borrowings, interest expense, operating leases, LOC maintenance fees and ground leases. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the Contractual Obligations section of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Form 10-K.
Westwinds
The Operating Partnership operates and manages Westwinds, a 720 site mobilehome community, and Nicholson Plaza, an adjacent shopping center, both located in San Jose, California pursuant to ground leases that expire on August 31, 2022 and do not contain extension options. Westwinds provides affordable, rent-controlled homes to numerous residents, including families with children and residents over 65 years of age. For the year ended December 31, 2019, Westwinds and Nicholson Plaza generated approximately $5.8 million of net comparedoperating income.
The master lessor of these ground leases, The Nicholson Family Partnership (together with its predecessor in interest, the “Nicholsons”), has expressed a desire to redevelop Westwinds, and in a written communication, they claimed that we were obligated to deliver the property free and clear of any and all subtenancies upon the expiration of the ground leases on August 31, 2022. In connection with any redevelopment, the City of San Jose’s conversion ordinance requires, among other things, that the landowner provide relocation, rental and purchase assistance to the nine months ended September 30, 2016, (2) an increaseimpacted residents. We believe the Nicholsons are unlawfully attempting to impose those obligations upon the Operating Partnership.
Westwinds opened in distributionsthe 1970s and was developed by the original ground lessee with assistance from the Nicholsons. In 1997, the Operating Partnership acquired the leasehold interest in the ground leases. In addition to our common stockholders forrent based on the nine months ended September 30, 2017 due to an increase approved by our Boardoperations of Directors, (3) reducedWestwinds, the Nicholsons receive a percentage of gross proceedsrevenues from the sale of common stocknew or used mobile homes in Westwinds.
The Operating Partnership has entered into subtenancy agreements with the mobilehome residents of Westwinds. Because the ground leases with the Nicholsons have an expiration date of August 31, 2022, and no further right of extension, the Operating Partnership has not entered into any subtenancy agreements that extend beyond August 31, 2022. However, the mobilehome residents’ occupancy rights continue by operation of California state and San Jose municipal law beyond the expiration date of the ground leases. Notwithstanding this, the Nicholsons’ have made what we believe to be an unlawful demand that the Operating Partnership deliver the property free and clear of any subtenancies upon the expiration of the ground leases by August 31, 2022. We believe the Nicholsons’ demand (i) violates California state and San Jose municipal law because the Nicholsons are demanding that the Operating Partnership remove all residents without just cause and (ii) conflicts with the terms and conditions of the ground leases, which contain no express or implied requirement that the Operating Partnership deliver the property free and clear of all subtenancies at the mobile home park and require, instead, that the Operating Partnership continuously operate the mobilehome park during the lease term.
On December 30, 2019, the Operating Partnership filed a complaint in California Superior Court for Santa Clara County, seeking declaratory relief pursuant to which it requested that the Court determine, among other things, that the Operating Partnership has no obligation to deliver the property free and clear of the mobilehome residents upon the expiration of the ground leases. The Operating Partnership filed an amended complaint on January 29, 2020.
The Nicholsons filed a demand for arbitration on January 28, 2020, which they subsequently amended, pursuant to which they request a declaration that the Operating Partnership, as the “owner and manager” of Westwinds, is “required by the Ground Leases, and State and local law to deliver the Property free of any encumbrances or third-party claims at the expiration of the lease terms,” and that the Operating Partnership anticipatorily breached the ground leases by publicly repudiating any such obligation. On February 3, 2020, the Nicholsons filed a motion in California Superior Court to compel arbitration and to stay the litigation, which motion is currently scheduled to be heard on June 25, 2020.
Following the filing of our lawsuit, the City of San Jose took steps to accelerate the passage of a general plan amendment previously under our ATM equity offering program comparedreview by the City to change the designation for Westwinds from its current general plan designation of Urban Residential (which would allow for higher density redevelopment), to a newly created designation of Mobile Home Park. The Nicholsons expressed opposition to this change in designation. However, on March 10, 2020, following significant pressure from residents and advocacy groups, the City Council approved this new designation for all 58 mobilehome communities in with City of San Jose, including Westwinds. In addition to requirements imposed by California state and San Jose municipal law, the change in designation requires, among other things, a further amendment to the nine months ended September 30, 2016, and (4) reduced proceeds from stock options and our employee stock purchase plan.
Contractual Obligations
As of September 30, 2017, we were subjectgeneral plan to certain contractual payment obligations as described ina different land use designation by the table below (amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total (5) | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
Long Term Borrowings (1) | $ | 2,196,259 |
| | $ | 11,544 |
| | $ | 242,082 |
| | $ | 237,497 |
| | $ | 354,758 |
| | $ | 214,448 |
| | $ | 1,135,930 |
|
Interest Expense (2) | 675,257 |
| | 25,525 |
| | 93,878 |
| | 78,862 |
| | 63,396 |
| | 55,369 |
| | 358,227 |
|
Operating Lease | 8,901 |
| | 547 |
| | 2,221 |
| | 2,062 |
| | 2,011 |
| | 1,711 |
| | 349 |
|
LOC Maintenance Fee (3) | 644 |
| | 204 |
| | 440 |
| |
|
| |
|
| |
|
| | — |
|
Ground Lease (4) | 15,534 |
| | 496 |
| | 1,980 |
| | 1,983 |
| | 1,984 |
| | 1,987 |
| | 7,104 |
|
Total Contractual Obligations | $ | 2,896,595 |
| | $ | 38,316 |
| | $ | 340,601 |
| | $ | 320,404 |
| | $ | 422,149 |
| | $ | 273,515 |
| | $ | 1,501,610 |
|
Weighted average interest rates - Long Term Borrowings | 4.35 | % | | 4.66 | % | | 4.57 | % | | 4.38 | % | | 4.45 | % | | 4.36 | % | | 4.23 | % |
| |
(1)
| Balance excludes note premiums of $3.8 million and deferred financing costs of approximately $18.9 million. Balances include debt maturing and scheduled periodic principal payments. |
| |
(2)
| Amounts include interest expected to be incurred on our secured debt and Term Loan based on obligations outstanding as of September 30, 2017. |
| |
(3)
| As of September 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 respectCity Council prior to any refinancing of maturing debt, our future cash flow requirements could be impacted by significant changeschange in interest rates or other debt terms, including required amortization payments.use.
Inflation
Substantially all of the leases at the Properties allow for monthly or annual rent increases which provide us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize our risks of inflation. In addition, our resort Properties are not generally subject to leasesManagement's Discussion 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.Analysis (continued)
Off Balance
Off-Balance Sheet Arrangements
As of September 30, 2017,March 31, 2020, we have no off balanceoff-balance sheet arrangements.
Critical Accounting Policies and Estimates
Refer to the 2016"Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Form 10-K for a discussion of our critical accounting policies, which includes impairment of real estate assets and investments, revenue recognition and business combinations.policies. There have been no significant changes to theseour critical accounting policies and estimates during the quarter ended September 30, 2017.March 31, 2020.
Management's Discussion (continued)
Forward LookingForward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 includes certain “forward-looking statements”"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”"anticipate," "expect," "believe," "project," "intend," "may be" and “will be”"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 attract and retain customers entering, renewing and attract customers renewing, upgrading and entering right-to-use contracts;membership subscriptions;
our assumptions about rental and home sales markets;
our ability to manage counterpartycounter-party 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 effect from any breach of our, or any of our vendor's, data management systems;
the dilutive effects of issuing additional securities;
the effect of accounting for the entry of contracts with customers representing a right-to-use the Properties under the Codification Topic "Revenue Recognition";
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.
In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic, many of which are unknown, including the duration of the pandemic, the extent of the adverse health impact on the general population and on our residents, customers, and employees in particular, its impact on the employment rate and the economy, the extent and impact of governmental responses, and the impact of operational changes we have and may implement in response to the pandemic.
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 onin our 2019 Form 10-K for the year ended December 31, 2016.10-K. There have been no material changes in the assumptions used or results obtained regarding market risk since December 31, 2016.2019.
| |
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 September 30, 2017.March 31, 2020. 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 September 30, 2017.
Notwithstanding the foregoing, a control system,March 31, 2020. 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 September 30, 2017,March 31, 2020, 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 Item 1. Financial Statements—Note 9 of11. Commitments and Contingencies accompanying the Consolidated Financial Statements contained herein.in this Quarterly Report on Form 10-Q.
ThereExcept as set forth below, there have been no material changes to the risk factors discussed in “Item 1A. Risk Factors” in our Annual Report2019 Form 10-K.
The current pandemic of the novel coronavirus, or COVID-19, has adversely impacted us, and COVID-19, or the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our business, including our financial condition, results of operations and cash flows.
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread globally, including throughout the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
COVID-19 has had, and another pandemic could have, significant repercussions across regional, national and global economies and financial markets, and could trigger a period of regional, national and global economic slowdown or regional, national or global recessions. The outbreak of COVID-19 in many countries continues to adversely impact regional, national and global economic activity and has contributed to significant volatility and negative pressure in financial markets.
Many U.S. cities and states, including cities and states where our offices and properties are located, have implemented measures to combat COVID-19, including quarantines, “shelter in place” rules, and restrictions on travel and the types of business that may continue to operate. We have already taken actions in response to or in furtherance of these measures, including, but not limited to, temporarily halting RV reservations by incoming transient customers, delaying opening certain of our northern RV communities, closing all indoor amenity areas, pools and playgrounds, introducing a rent deferral program and waiving certain late fees and cancellation fees, which actions we may continue to implement. See "Management Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic Update."
The effects of COVID-19 have had, and could continue to have, or another pandemic, could have an adverse affect on our financial condition, results of operations and cash flows, which impact could be material, due to, among other factors:
| |
• | Weaknesses in national, regional or local economies may prevent our residents and customers from paying rent in full or on a timely basis. Federal, state, local, and industry-initiated efforts, including eviction moratoriums, and certain actions we have taken, such as the introduction of a rent deferral program, may affect our ability to collect rent, including on a deferred basis, or enforce remedies for the failure to pay rent, which could lead to an increase in our recognition of credit losses related to our rent receivables. In addition, a reduction in the ability or willingness of prospective customers to visit our properties could impact our ability to lease Sites and sell manufactured homes and may result in lower rental revenue and ancillary operating revenue produced by our Properties. |
The seasonal and transient customers that vacation and camp at our Properties, including our RV communities, may be less likely to visit if they have less disposable income for leisure-time activities or are unable to visit if subject to shelter-in-place or stay-at-home orders, which has caused, and could continue to cause, cancellation of existing reservations and reduced transient RV revenue.
A general decline in business activity and discretionary spending could result in few customers purchasing membership subscriptions, or existing customers purchasing fewer membership upgrades or failing to pay annual subscription fees or installments on financed upgrade sales.
A reduction in the demand for our Properties due to a general decline in business activity and discretionary spending could adversely affect the value of our Properties. This could lead to an impairment of our real estate investments. In addition, we may be unable to complete planned development of land for expansion or other capital improvement projects on a timely basis or at all due to government-mandated shutdowns or an inability by our third-party contractors to continue to work on construction projects.
A general decline in business activity or demand for real estate transactions could adversely affect our ability or desire to acquire additional properties, including through our joint ventures.
The financial impact of COVID-19 could negatively impact our ability to comply with financial covenants in our credit arrangements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our credit facilities.
A severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability to access capital necessary to fund business operations, including the acquisition or expansion of properties, or replace or renew maturing liabilities on a timely basis, on attractive terms, or at all and may adversely affect the valuation of financial assets and liabilities.
| |
• | The outbreak of COVID-19 could negatively affect the health, availability and productivity of our current personnel. It could also affect our ability to recruit and attract new employees, retain current employees whose hours have been reduced. An outbreak that directly affects, or threatens to directly affect, any of our properties could also deter or prevent our on-site personnel from reporting to work. In response to shelter-in-place orders, the employees in our corporate and regional offices are currently working remotely. The effects of these shelter-in-place orders, including remote work arrangements for an extended period of time, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. Further, we have and may continue to implement mitigation and other measures to support and protect our employees, which could result in increased labor costs. |
We have also described risks related to changes to federal and state laws and regulations, economic downturn in markets with a large concentration of our properties, and our ability to obtain mortgage financing or refinance maturing mortgages and the effects of these risks on our financial condition, results of operations, cash flows, ability to make distributions, operations and market price of our stock in our 2019 Form 10-K, foreach of which could be exacerbated by the year ended December 31, 2016effects of COVID-19.
The rapid development and fluidity of the circumstances resulting from COVID-19 precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.performance, financial condition, volume of business, results of operations and cash flows, which could adversely affect our ability to make distributions.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| |
Item 3. | Defaults Upon Senior Securities |
None.
| |
Item 4. | Mine Safety DisclosureDisclosures |
None.
None.
On October 27, 2017, we entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) by and among us, MHC Operating Limited Partnership, Wells Fargo Bank, National Association, as Administrative Agent (the “Administrative Agent”) and other lenders named therein, which amends and restates the terms of the obligations owing by us under the Amended, Restated and Consolidated Credit Agreement dated as of July 17, 2014 pursuant to which we have access to a $400 million unsecured line of credit (the “LOC”) and the $200 million senior unsecured term loan facility (the “Term Loan”). We have the option to increase the borrowing capacity by $200 million, subject to certain conditions. The LOC maturity date was extended to October 27, 2021, and this term can be extended an additional year in two six month increments, subject to certain conditions. The LOC bears interest at a rate of LIBOR plus 1.10% to 1.55% and requires an annual facility fee of 0.15% to 0.35%.
We also extended the term of our Term Loan, which now matures on April 27, 2023 and has an interest rate of LIBOR plus 1.20% to 1.90% per annum. For both the LOC and Term Loan, the spread over LIBOR is variable based on leverage throughout the respective loan terms. We incurred commitment and arrangement fees of approximately $3.6 million to enter into the Second Amended and Restated Credit Agreement.
Pursuant to a Second Amended and Restated Guaranty dated as of October 27, 2017, among us and certain of our subsidiaries and the Administrative Agent, we have guaranteed all of the obligations of our operating partnership under the Second Amended and Restated Credit Agreement when due, whether at stated maturity, by acceleration or otherwise.
The foregoing summaries of the Second Amended and Restated Credit Agreement, the Second Amended and Restated Guaranty and the amendments to the LOC and Term Loan are qualified in their entirety by reference to the text of the Second Amended and Restated Credit Agreement and the Second Amended and Restated Guaranty, each of which is attached as Exhibit 10.1 and 10.2, respectively.
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Item 6. | Exhibit IndexExhibits |
|
| |
10.1 | Second Amended and Restated Credit Agreement dated as of October 27, 2017, by and among MHC Operating Limited Partnership, as Borrower, Equity LifeStyle Properties, Inc., as Parent, Wells Fargo Bank, National Association, as Administrative Agent, and each of the Lenders set forth therein.
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10.2 |
|
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101101.INS | The following materials from Equity LifeStyle Properties, Inc.’s Quarterly Report on Form 10-Q forXBRL Instance Document - the quarter ended September 30, 2017 formattedinstance document does not appear in the Interactive Data File because its 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.tags are embedded within the Inline XBRL document. |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
104 | Cover Page Interactive Data File included as Exhibit 101 (embedded within the Inline XBRL document) |
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.
|
| | |
| EQUITY LIFESTYLE PROPERTIES, INC. |
| | |
Date: October 31, 2017April 28, 2020 | By: | /s/ Marguerite Nader |
| | Marguerite Nader |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
Date: October 31, 2017April 28, 2020 | By: | /s/ Paul Seavey |
| | Paul Seavey |
| | Executive Vice President and Chief Financial Officer and Treasurer |
| | (Principal Financial Officer) |
| | |
Date: April 28, 2020 | By: | /s/ Valerie Henry |
| | Valerie Henry |
| | Vice President and Chief Accounting Officer |
| | (Principal Accounting Officer) |