EQUITY LIFESTYLE PROPERTIES, INC. The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 ("2021 Form 10-K"), as well as information in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K.
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
of lifestyle-oriented properties ("Properties") consisting of property
operations and home sales and rental operations primarily within manufactured
home ("MH") and recreational vehicle ("RV") communities and marinas. As of June
30, 2022 , we owned or had an ownership interest in a portfolio of 449 Properties
located throughout the United States and Canada containing 170,880 individual
developed areas ("Sites"). These Properties are located in 35 states and British
Columbia , with more than 110 Properties with lake, river or ocean frontage and
more than 120 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
an exceptional experience to our residents and guests that results in delivery
of value to 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"), Normalized Funds from Operations
("Normalized 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 17% within the next 15 years. 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 Z demographic
will contribute to our future long-term customer pipeline. After conducting a
comprehensive study of RV ownership, according to the Recreational Vehicle
Industry Association ("RVIA"), data suggested that RV sales are expected to
benefit from an increase in demand from those born in the United States from
1980 to 2003, or Millennials and Generation Z, over the coming years. 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 known as membership subscriptions,
which provide them access to specific Properties for limited stays. 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. 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. We also generate revenue from customers renting our marina
dry storage. Additionally, we have interests in joint venture Properties for
which revenue is classified as Equity in income from unconsolidated joint
ventures on the Consolidated Statements of Income and Comprehensive Income.
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Management's Discussion and Analysis (continued)
The following table shows the breakdown of our Sites by type (amounts are
approximate):
Total Sites as of June 30, 2022
MH Sites 73,400
RV Sites:
Annual 34,200
Seasonal 12,700
Transient 14,900
Marina Slips 6,900
Membership (1) 25,800
Joint Ventures (2) 3,000
Total 170,900
_________________________
(1)Primarily utilized to service approximately 131,000 members. Includes approximately 6,300 Sites rented on an annual basis. (2)Includes approximately 1,800 annual Sites and 1,200 transient Sites.
In our Home Sales and Rentals 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 manufactured homes and cottages that are located in Properties owned and managed by us. We believe renting our vacant homes represents an attractive source of occupancy and an opportunity to convert the renter to a homebuyer in the future. We also sell and rent homes through our joint venture,ECHO Financing, LLC (the "ECHO JV"). Additionally, home sale brokerage services are offered to our residents who may choose to sell their homes rather than relocate them when moving from a Property. At certain Properties, we operate ancillary facilities, such as golf courses, pro shops, stores and restaurants. In the manufactured housing industry, options for home financing, also known as chattel financing, are limited. Chattel financing options available today include community owner-funded programs or third-party lender programs that provide subsidized financing to customers and often require the community owner to guarantee customer defaults. Third-party lender programs have stringent underwriting criteria, sizable down payment requirements, short term loan amortization and high interest rates. We have a limited program under which we purchase loans made by an unaffiliated lender to homebuyers at our Properties. In addition to net income computed in accordance withU.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 FFO, (iii) Income from property operations, (iv) Income from property operations, excluding deferrals and property management, (v) Core Portfolio income from property operations, excluding deferrals and property management (operating results for Properties owned and operated in both periods under comparison), and (vi) Income from rental operations, net of depreciation. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Definitions and reconciliations of these measures to the most comparable GAAP measures are included below in this discussion.
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. We have implemented and may continue to implementCenters for Disease Control and Prevention ("CDC") and local public health department guidelines and protocols for social distancing and enhanced community and office cleaning procedures. Our Properties continue to be open subject to seasons of operations and state and local guidelines. Our property offices are open to residents and customers and we are complying withCDC recommended protocols. We attribute the solid performance of our business to the fundamentals of our business model. 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 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. The extent of the impact that COVID-19 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. 21
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Management's Discussion and Analysis (continued)
Results Overview
For the quarter endedJune 30, 2022 , net income available for Common Stockholders increased$0.4 million to$61.5 million , or$0.33 per fully diluted Common Share, compared to$61.1 million , or$0.33 per fully diluted Common Share, for the same period in 2021. For the six months endedJune 30, 2022 , net income available for Common Stockholders increased$18.1 million , or$0.09 per fully diluted Common Share, to$144.4 million , or$0.78 per fully diluted Common Share, compared to$126.3 million , or$0.69 per fully diluted Common Share, for the same period in 2021. For the quarter endedJune 30, 2022 , FFO available forCommon Stock and Operating Partnership unit ("OP Unit") holders increased$4.0 million , or$0.01 per fully diluted Common Share, to$121.6 million , or$0.62 per fully diluted Common Share, compared to$117.6 million , or$0.61 per fully diluted Common Share, for the same period in 2021. For the six months endedJune 30, 2022 , FFO available for Common Stock and OP Unit holders increased$24.4 million , or$0.10 per fully diluted Common Share, to$262.5 million , or$1.34 per fully diluted Common Share, compared to$238.1 million , or$1.24 per fully diluted Common Share, for the same period in 2021. For the quarter endedJune 30, 2022 , Normalized FFO available for Common Stock and OP Unit holders increased$7.0 million , or$0.03 per fully diluted Common Share, to$125.3 million , or$0.64 per fully diluted Common Share, compared to$118.3 million , or$0.61 per fully diluted Common Share, for the same period in 2021. For the six months endedJune 30, 2022 , Normalized FFO available for Common Stock and OP Unit holders increased$25.8 million , or$0.12 per fully diluted Common Share, to$266.7 million or$1.37 per fully diluted Common Share, compared$240.9 million , or$1.25 per fully diluted Common Share, for the same period 2021. For the quarter endedJune 30, 2022 , our Core Portfolio property operating revenues, excluding deferrals, increased 4.9% and property operating expenses, excluding deferrals and property management, increased 7.0%, from the same period in 2021, resulting in an increase in income from property operations, excluding deferrals and property management, of 3.3%, compared to the same period in 2021. For the six months endedJune 30, 2022 , our Core Portfolio property operating revenues, excluding deferrals, increased 7.2% and property operating expenses, excluding deferrals and property management, increased 8.6%, from the same period in 2021, resulting in an increase in income from property operations, excluding deferrals and property management, of 6.2% compared to the same period in 2021. We continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our Core Portfolio. Our Core Portfolio average occupancy includes both homeowners and renters in our MH communities and was 95.1% for each of the quarters endedJune 30, 2022 ,December 31, 2021 andJune 30, 2021 . For the quarter endedJune 30, 2022 , our Core Portfolio occupancy increased by 59 sites with an increase in homeowner occupancy of 252 sites, compared to occupancy as ofMarch 31, 2022 . By comparison, for the quarter endedJune 30, 2021 , our Core Portfolio occupancy increased 74 sites with an increase in homeowner occupancy of 185 sites. While we continue to focus on increasing the number of manufactured homeowners in our Core Portfolio, we also believe renting our vacant homes represents 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. As ofJune 30, 2022 , we had 3,117 occupied rental homes in our Core MH communities, including 185 homes rented through our ECHO JV. RV and marina base rental income in our Core Portfolio increased 6.6% and 13.9% for the quarter endedJune 30, 2022 and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021 driven by annual and seasonal rental income. Core RV and marina base rental income from annuals represents more than 60% of total Core RV and marina base rental income and increased 9.1% and 8.9% for the quarter endedJune 30, 2022 and six months endedJune 30, 2022 , respectively, compared to the same period in 2021. Core seasonal RV and marina base rental income increased 30.6% and 54.1% for the quarter endedJune 30, 2022 and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021. Core transient RV and marina base rental income decreased by$1.4 million , or 6.6% for the quarter endedJune 30, 2022 , compared to the same period in 2021 and increased$1.3 million or 3.7% for the six months endedJune 30, 2022 , compared to the same period in 2021. Annual membership subscription revenue increased$1.3 million , or 9.3% for the quarter endedJune 30, 2022 and$2.8 million , or 10.1% for the six months endedJune 30, 2022 , compared to the same periods in 2021. The increase in annual membership subscription revenue for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 was primarily offset by a decrease in Membership upgrade sales current period, gross of$2.5 million , or 13.2%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels. We closed 365 new home sales during the quarter endedJune 30, 2022 , compared to 295 new home sales during the quarter endedJune 30, 2021 , an increase of 23.7%. We closed 626 new home sales during the six months endedJune 30, 2022 , 22
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Management's Discussion and Analysis (continued)
compared to 487 new home sales during the six months endedJune 30, 2021 , an increase of 28.5%. The increase in new home sales was primarily due to favorable housing trends in the broader real estate market. Our gross investment in real estate increased$253.5 million to$7,242.6 million as ofJune 30, 2022 from$6,989.1 million as ofDecember 31, 2021 , primarily due to acquisitions and capital improvements during the six months endedJune 30, 2022 . The following chart lists the Properties acquired or sold fromJanuary 1, 2021 throughJune 30, 2022 and Sites added through expansion opportunities at our existing Properties: Location Type of Property Transaction Date Sites Total Sites as of January 1, 2021 (1) 160,500Acquisition Properties : Okeechobee KOA Resort Okeechobee, Florida RV January 21, 2021 740 Cortez Village Marina Cortez, Florida Marina February 5, 2021 353 Fish Tale Marina Fort Myers Beach, Florida Marina February 5, 2021 296 Hi-Lift Marina Adventure, Florida Marina February 5, 2021 211 Hidden Harbour Marina Pompano Beach, Florida Marina February 5, 2021 357 Inlet Harbor Marina Ponce Inlet, Florida Marina February 5, 2021 295 Palm Harbour Marina Cape Haze, Florida Marina February 5, 2021 260 Riverwatch Marina Stuart, Florida Marina February 5, 2021 306 Boathouse Marina Beaufort, North Carolina Marina February 5, 2021 547 Dale Hollow State Park Marina Burkesville, Kentucky Marina February 5, 2021 198 Bay Point Marina Marblehead, Ohio Marina February 5, 2021 841 North Charleston, South Rivers Edge Marina Carolina Marina February 5, 2021 503 Pine Haven Cape May, New Jersey RV June 3, 2021 629 Myrtle Beach, South Myrtle Beach Property (2) Carolina RV August 26, 2021 813 Voyager RV Resort (3) Tucson, Arizona RV October 14, 2021 - RVC Portfolio Multiple Unconsolidated JV November 1, 2021 988 Hope Valley Turner, Oregon RV November 18, 2021 164 Lake Conroe Montgomery, Texas RV December 15, 2021 261 Blue Mesa Recreational Ranch Gunnison, Colorado Membership February 18, 2022 385 Pilot Knob RV Resort Winterhaven, California RV February 18, 2022 247 Emerald Isle, North Holiday Trav-L-Park Resort Carolina RV June 15, 2022 299 Oceanside RV Resort Oceanside, California RV June 16, 2022 139Expansion Site Development : Sites added (reconfigured) in 2021 1,037 Sites added (reconfigured) in 2022 514 Total Sites as ofJune 30, 2022 (1) 170,900 ______________________ (1) Sites are approximate. Total does not foot due to rounding. (2) RV community operated by a tenant pursuant to an existing ground lease. (3) OnOctober 14, 2021 , we completed the acquisition of the remaining interest in theVoyager RV Resort joint venture.The Voyager RV Resort joint venture sites are included in the Total Sites as ofJanuary 1, 2021 .
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.
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Management's Discussion and Analysis (continued)
Income from Property Operations and Core Portfolio
We use income from property operations, income from property operations, excluding deferrals and property management, and Core Portfolio income from property operations, excluding deferrals and property management, as alternative measures to evaluate the operating results of our Properties. Income from property operations represents rental income, membership subscriptions and upgrade sales, utility and other income less property and rental home operating and maintenance expenses, real estate 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 deferrals of membership upgrade sales upfront payments and membership sales commissions, net. We present bad debt expense within Property operating and maintenance in the current and prior periods. Our Core Portfolio consists of our Properties owned and operated during all of 2021 and 2022. 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 includes all Properties that were not owned and operated during all of 2021 and 2022. This includes, but is not limited to, six RV communities and eleven marinas acquired during 2021, one membership RV community and three RV communities acquired during 2022 and our Westwinds MH community andNicholson Plaza .
Funds from Operations ("FFO") and Normalized Funds from Operations ("Normalized FFO")
We define FFO as net income, computed in accordance with GAAP, excluding gains or losses from sales of properties, depreciation and amortization related to real estate, impairment charges and adjustments to reflect our share of FFO of unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with our interpretation of standards established by theNational 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 non-refundable upfront payments from membership upgrade contracts. In accordance with GAAP, the non-refundable upfront payments and related commissions are deferred and amortized over the estimated membership upgrade contract term. Although the NAREIT definition of FFO does not address the treatment of non-refundable upfront payments, we believe that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO.
We define Normalized FFO as FFO excluding non-operating income and expense items, such as gains and losses from early debt extinguishment, including prepayment penalties, defeasance costs and transaction/pursuit costs, and other miscellaneous non-comparable items. Normalized FFO presented herein is not necessarily comparable to Normalized 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 gains or losses from sales of properties, depreciation and amortization related to real estate and 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 a consistent basis without having to account for differences not related to our normal operations. For example, we believe that excluding the early extinguishment of debt and other miscellaneous non-comparable items from FFO allows investors, analysts and our management to assess the sustainability of operating performance in future periods because these costs do not affect the future operations of the properties. In some cases, we provide information about identified non-cash components of FFO and Normalized FFO because it allows investors, analysts and our management to assess the impact of those items.
Income from Rental Operations, Net of Depreciation
We use income from rental operations, net of depreciation as an alternative
measure to evaluate the operating results of our home rental program. Income
from rental operations, net of depreciation represents income from rental
operations less depreciation 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-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-GAAP financial
and operating measures do not represent cash generated from operating activities
in accordance with GAAP, nor do they
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Management's Discussion and Analysis (continued)
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 flows 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 net income available for Common Stockholders to income from property operations for the quarters and six months endedJune 30, 2022 and 2021: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2022 2021 2022 2021 Computation of Income from Property Operations: Net income available for Common$ 61,509 $ 61,051 Stockholders$ 144,415 $ 126,291 Redeemable preferred stock dividends 8 8 8 8 Income allocated to non-controlling 3,073
3,021
interests - Common OP Units 7,217 6,768 Equity in income of unconsolidated joint (1,253)
(1,068)
ventures (1,424) (1,936) Income before equity in income of 63,337
63,012
unconsolidated joint ventures 150,216 131,131 Loss on sale of real estate, net - - - 59 Total other expenses, net 91,034 84,266 177,862 166,475 Gain from home sales operations and other (4,126) (2,354) (6,654) (3,737) Income from property operations$ 150,245
The following table presents a calculation of FFO available for Common Stock and OP Unitholders and Normalized FFO available for Common Stock and OP Unitholders for the quarters and six months endedJune 30, 2022 and 2021: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2022 2021 2022 2021 Computation of FFO and Normalized FFO: Net income available for Common Stockholders$ 61,509 $ 61,051 $ 144,415 $ 126,291 Income allocated to non-controlling interests - 3,073 3,021 Common OP Units 7,217 6,768 Membership upgrade sales upfront payments, deferred, 6,367 6,454 net 10,451 13,881 Membership sales commissions, deferred, net (957) (1,438) (1,540) (2,937) Depreciation and amortization 50,796 48,316 100,190 93,714 Depreciation on unconsolidated joint ventures 835 184 1,776 367 Loss on sale of real estate, net - - - 59 FFO available for Common Stock and OP Unit holders 121,623 117,588 262,509 238,143 Early debt retirement 640 755 1,156 2,784 Transaction/pursuit costs (1)$ 3,082 $ -$ 3,082 $ -
Normalized FFO available for Common Stock and OP Unit
$ 118,343 $ 266,747 $ 240,927
holders
Weighted average Common Shares outstanding - Fully 195,227 192,701 195,253 192,668 Diluted _____________________
(1)Represents transaction/pursuit costs related to unconsummated acquisitions included in Other expenses in the Consolidated Statements of Income.
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Management's Discussion and Analysis (continued)
Results of Operations
This section discusses the comparison of our results of operations for the quarters and six months endedJune 30, 2022 andJune 30, 2021 and our operating activities, investing activities and financing activities for the six months endedJune 30, 2022 andJune 30, 2021 . For the comparison of our results of operations for the quarters and six months endedJune 30, 2021 andJune 30, 2020 and discussion of our operating activities, investing activities and financing activities for the six months endedJune 30, 2021 andJune 30, 2020 , refer to Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Quarterly Report on Form 10-Q for the fiscal quarter endedJune 30, 2021 , filed with theSEC onJuly 27, 2021 .
Comparison of the quarter ended
Income from Property Operations
The following table summarizes certain financial and statistical data for our Core Portfolio and total portfolio for the quarters endedJune 30, 2022 andJune 30, 2021 : Core Portfolio Total Portfolio Quarters Ended June 30, Quarters Ended June 30, % % (amounts in thousands) 2022 2021 Variance Change 2022 2021 Variance Change MH base rental income (1)$ 155,763 $ 147,350 $ 8,413 5.7 %$ 158,689 $ 150,145 $ 8,544 5.7 % Rental home income (1) 3,804 4,271 (467) (10.9) % 3,814 4,278 (464) (10.8) % RV and marina base rental income (1) 87,390 81,958 5,432 6.6 % 98,338 89,008 9,330 10.5 % Annual membership subscriptions 15,395 14,266 1,129 7.9 % 15,592 14,267 1,325 9.3 % Membership upgrades sales current period, gross 9,322 9,207 115 1.2 % 9,535 9,207 328 3.6 % Utility and other income (1) 26,122 26,850 (728) (2.7) % 29,823 28,205 1,618 5.7 % Property operating revenues, excluding deferrals 297,796 283,902 13,894 4.9 % 315,791 295,110 20,681 7.0 % Property operating and maintenance (1)(2) 106,922 98,882 8,040 8.1 % 114,220 103,104 11,116 10.8 % Real estate taxes 16,718 16,167 551 3.4 % 19,182 17,896 1,286 7.2 % Rental home operating and maintenance 1,220 1,285 (65) (5.1) % 1,226 1,312 (86) (6.6) % Sales and marketing, gross 6,345 6,297 48 0.8 % 6,409 6,298 111 1.8 % Property operating expenses, excluding deferrals and property management 131,205 122,631 8,574 7.0 % 141,037 128,610 12,427 9.7 % Income from property operations, excluding deferrals and property management (3) 166,591 161,271 5,320 3.3 % 174,754 166,500 8,254 5.0 % Property management 19,099 16,560 2,539 15.3 % 19,099 16,560 2,539 15.3 % Income from property operations, excluding deferrals (3) 147,492 144,711 2,781 1.9 % 155,655 149,940 5,715 3.8 % Membership upgrade sales upfront payments and membership sales commission, deferred, net 5,410 5,016 394 7.9 % 5,410 5,016 394 7.9 % Income from property operations (3)$ 142,082 $ 139,695 $ 2,387 1.7 %$ 150,245 $ 144,924 $ 5,321 3.7 % _____________________ (1)Rental income consists of the following total portfolio income items in this table: 1) MH base rental income, 2) Rental home income, 3) RV and marina base rental income and 4) Utility income, which is calculated by subtracting Other income on the Consolidated Statements of Income and Comprehensive Income from Utility and other income in this table. The difference between the sum of the total portfolio income items and Rental income on the Consolidated Statements of Income and Comprehensive Income is bad debt expense, which is presented in Property operating and maintenance expense in this table. (2)Includes bad debt expense for all periods presented. (3)See Part I. Item 2. Management Discussion and Analysis-Non-GAAP Financial Measures for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders. Total portfolio income from property operations for the quarter endedJune 30, 2022 , increased$5.3 million , or 3.7%, from the quarter endedJune 30, 2021 , driven by an increase of$2.4 million , or 1.7%, from our Core Portfolio and an increase of$2.9 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily due to higher property operating revenues, excluding deferrals, primarily in RV and marina base rental income and MH base rental income, partially offset by an increase in property operating expenses, excluding deferrals and property management. The increase in income from property operations from our Non-Core Portfolio was primarily attributed to income from properties acquired in 2021 and the first half of 2022. 26
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Management's Discussion and Analysis (continued)
Property Operating Revenues
MH base rental income in our Core Portfolio for the quarter endedJune 30, 2022 increased$8.4 million , or 5.7%, from the quarter endedJune 30, 2021 , which reflects 5.3% growth from rate increases and 0.4% growth from occupancy gains. The average monthly base rental income per Site in our Core Portfolio increased to approximately$753 for the quarter endedJune 30, 2022 from approximately$716 for the quarter endedJune 30, 2021 . The average occupancy for our Core Portfolio was 95.1% for the quarters endedJune 30, 2022 andJune 30, 2021 . The average occupancy rate decreased slightly due to the addition of expansion sites.
RV and marina base rental income is comprised of the following:
Core Portfolio Total Portfolio
Quarters Ended June 30, Quarters Ended June 30,
% %
(amounts in thousands) 2022 2021 Variance Change 2022 2021 Variance Change
Annual $ 57,403 $ 52,615 $ 4,788 9.1 % $ 66,653 $ 58,748 $ 7,905 13.5 %
Seasonal 9,034 6,915 2,119 30.6 % 9,473 7,447 2,026 27.2 %
Transient 20,953 22,428 (1,475) (6.6) % 22,212 22,813 (601) (2.6) %
RV and marina base rental
income $ 87,390 $ 81,958 $ 5,432 6.6 % $ 98,338 $ 89,008 $ 9,330 10.5 %
RV and marina base rental income in our Core Portfolio for the quarter ended
June 30, 2022 increased $5.4 million , or 6.6%, from the quarter ended June 30,
2021 , driven by an increase in Annual and Seasonal RV and marina base rental
income that was partially offset by a decrease in Transient rental income. The
increase in Annual RV and marina base rental income of 9.1% was seen across all
regions with the South, West and Northeast being the primary contributors. The
increase in Seasonal RV and marina base rental income of 30.6% was driven by
demand for extended stays, mainly in Florida . The decrease in Transient RV and
marina base rental income of 6.6% was due to difficult weather in April and May
and an increase in longer stays which reduced the number of Transient sites
available.
Annual membership subscription revenue in our Core Portfolio for the quarter
ended June 30, 2022 increased $1.1 million , or 7.9%, from the quarter ended June
30, 2021 , reflecting a 6.5% increase in the number of Thousand Trails Camping
members.
Utility and other income in our Core Portfolio for the quarter ended June 30,
2022 decreased $0.7 million , or 2.7%, from the quarter ended June 30, 2021 . The
decrease was due to a decrease of $2.3 million in other property income related
to Hurricane Hanna insurance proceeds received in 2021 partially offset by
higher utility income of $1.3 million . The increase in utility income was
primarily due to an increase in electric income across the South and West, sewer
income in all regions and trash income in the South. The utility recovery rate
(utility income divided by utility expenses) for the quarters ended June 30,
2022 and 2021 was approximately 44% and 43%, respectively.
Property Operating Expenses
Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the quarter endedJune 30, 2022 increased$8.6 million , or 7.0%, from the quarter endedJune 30, 2021 , driven by increases in property operating and maintenance expenses of$8.0 million and real estate taxes of$0.6 million . Core property operating and maintenance expenses were higher in 2022 primarily due to increases in utility expenses of$2.8 million , repair and maintenance of$2.6 million , property payroll of$1.8 million and administrative expenses of$1.4 million . 27
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Management's Discussion and Analysis (continued)
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for our Home Sales and Other Operations:
Quarters Ended June 30,
(amounts in thousands, except home sales %
volumes) 2022 2021 Variance Change
Gross revenues from new home sales (1) $ 33,848 $ 23,320 $ 10,528 45.1 %
Cost of new home sales (1) 30,020 22,243 7,777 35.0 %
Gross profit from new home sales 3,828 1,077 2,751 255.4 %
Gross revenues from used home sales 1,367 1,107 260 23.5 %
Cost of used home sales 1,437 1,613 (176) (10.9) %
Loss from used home sales (70) (506) 436 86.2 %
Gross revenue from brokered resales and
ancillary services 17,466 15,810 1,656 10.5 %
Cost of brokered resales and ancillary
services 9,514 7,937 1,577 19.9 %
Gross profit from brokered resales and
ancillary services 7,952 7,873 79 1.0 %
Home selling and ancillary operating
expenses 7,584 6,090 1,494 24.5 %
Income from home sales and other $ 4,126 $ 2,354 $ 1,772 75.3 %
Home sales volumes
Total new home sales (2) 365 295 70 23.7 %
New Home Sales Volume - ECHO JV 29 16 13 81.3 %
Used home sales 97 108 (11) (10.2) %
Brokered home resales 263 212 51 24.1 %
_________________________
(1) New home sales gross revenues and costs of new home sales do not include the
revenues and costs associated with our ECHO JV.
(2) Total new home sales volume includes home sales from our ECHO JV.
Income from home sales and other operations was $4.1 million for the second
quarter of 2022, an increase of $1.8 million , compared to $2.4 million in the
second quarter of 2021. The increase in income from home sales and other
operations was primarily due to an increase in gross profit from new home sales
resulting from an increase of 70 new home sales during the second quarter of
2022 compared to the second quarter of 2021, primarily driven by favorable
housing trends in the broader real estate market.
28--------------------------------------------------------------------------------
Management's Discussion and Analysis (continued)
Rental Operations
The following table summarizes certain financial and statistical data for our MH
Rental Operations:
Quarters Ended June 30,
(amounts in thousands, except rental unit %
volumes) 2022 2021 Variance Change
Rental operations revenue (1) $ 10,868 $ 12,357 $ (1,489) (12.0) %
Rental home operating and maintenance 1,220 1,285 (65) (5.1) %
expenses
Income from rental operations 9,648 11,072 (1,424) (12.9) % Depreciation on rental homes (2) 2,499 2,685 (186) (6.9) % Income from rental operations, net of$ 7,149 $ 8,387 $ (1,238) (14.8) %
depreciation
Gross investment in new manufactured home
(4.1) %
rental units (3)
Gross investment in used manufactured home
(17.9) %
rental units
Net investment in new manufactured home$ 184,101 $ 196,494 $ (12,393) (6.3) % rental units Net investment in used manufactured home$ 6,076 $ 11,688 $ (5,612) (48.0) %
rental units
Number of occupied rentals - new, end of 2,742 3,305 (563) (17.0) % period (4) Number of occupied rentals - used, end of 375 491 (116) (23.6) % period ______________________ (1)Consists of Site rental income and home rental income. Approximately$7.1 million and$8.1 million for the quarters endedJune 30, 2022 andJune 30, 2021 , respectively, of Site rental income is included in MH base rental income in the Core Portfolio Income from Property Operations table. The remainder of home rental income is included in rental home income in our Core Portfolio Income from Property Operations table. (2)Presented in Depreciation and amortization 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$18.7 million and$17.7 million as ofJune 30, 2022 andJune 30, 2021 , respectively. (4)Includes 185 and 282 homes rented through our ECHO JV as ofJune 30, 2022 and 2021, respectively.
Income from rental operations, net of depreciation, decreased
Other Income and Expenses
The following table summarizes other income and expenses, net:
Quarters Ended June 30,
(amounts in thousands, expenses shown as %
negative) 2022 2021 Variance Change
Depreciation and amortization $ (50,796) $ (48,316) $ (2,480) (5.1) %
Interest income 1,722 1,742 (20) (1.1) %
Income from other investments, net 2,617 1,222 1,395 114.2 %
General and administrative (11,695) (10,228) (1,467) (14.3) %
Other expenses (4,189) (800) (3,389) (423.6) %
Early debt retirement (640) (755) 115 15.2 %
Interest and related amortization (28,053) (27,131) (922) (3.4) %
Total other income and expenses, net $ (91,034) $ (84,266) $ (6,768) (8.0) %
Total other income and expenses, net increased $6.8 million for the quarter
ended June 30, 2022 compared to the quarter ended June 30, 2021 , primarily due
to an increase in other expenses, higher depreciation and amortization and an
increase in general and administrative costs, partially offset by an increase in
income from other investments. The increase in other expenses was primarily due
to transaction/pursuit costs of $3.1 million related to unconsummated
acquisitions recognized during the quarter. The increase in depreciation and
amortization is due to depreciation on Non-core properties acquired in 2021 and
the first half of 2022. The increase in income from other investments, net was
primarily due to net income from MHVillage/Datacomp (acquired in the fourth
quarter of 2021).
29--------------------------------------------------------------------------------
Management's Discussion and Analysis (continued)
Comparison of the Six Months Ended
Income from Property Operations
The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the six months endedJune 30, 2022 and 2021. Core Portfolio Total Portfolio Six Months Ended June 30, Six Months Ended June 30, % % (amounts in thousands) 2022 2021 Variance Change 2022 2021 Variance Change MH base rental income (1)$ 310,199 $ 293,556 $ 16,643 5.7 %$ 316,025 $ 299,119 $ 16,906 5.7 % Rental home income (1) 7,758 8,559 (801) (9.4) % 7,775 8,571 (796) (9.3) % RV and marina base rental income (1) 183,792 161,361 22,431 13.9 % 207,102 172,596 34,506 20.0 % Annual membership subscriptions 30,498 27,918 2,580 9.2 % 30,749 27,921 2,828 10.1 % Membership upgrade sales current period, gross 16,437 19,221 (2,784) (14.5) % 16,686 19,221 (2,535) (13.2) % Utility and other income (1) 52,436 50,306 2,130 4.2 % 59,866 52,923 6,943 13.1 % Property operating revenues, excluding deferrals 601,120 560,921 40,199 7.2 % 638,203 580,351 57,852 10.0 % Property operating and maintenance (1)(2) 204,659 185,178 19,481 10.5 % 218,308 192,764 25,544 13.3 % Real estate taxes 33,932 32,400 1,532 4.7 % 38,639 35,746 2,893 8.1 % Rental home operating and maintenance 2,608 2,509 99 3.9 % 2,628 2,555 73 2.9 % Sales and marketing, gross 11,244 12,472 (1,228) (9.8) % 11,323 12,474 (1,151) (9.2) % Property operating expenses, excluding deferrals and property management 252,443 232,559 19,884 8.6 % 270,898 243,539 27,359 11.2 % Income from property operations, excluding deferrals and property management (3) 348,677 328,362 20,315 6.2 % 367,305 336,812 30,493 9.1 % Property management 36,970 31,941 5,029 15.7 % 36,970 31,940 5,030 15.7 % Income from property operations, excluding deferrals (3) 311,707 296,421 15,286 5.2 % 330,335 304,872 25,463 8.4 % Membership upgrade sales upfront payments and membership sales commission, deferred, net 8,911 10,944 (2,033) (18.6) % 8,911 10,944 (2,033) (18.6) %
Income from property operations (3)
6.1 % $ 321,424 $ 293,928 $ 27,496 9.4 %
__________________________
(1)Rental income consists of the following total portfolio income items: 1) MH base rental income, 2) Rental home income, 3) RV and marina base rental income and 4) Utility income, which is calculated by subtracting Other income on the Consolidated Statements of Income and Comprehensive Income from Utility and other income in this table. The difference between the sum of the total portfolio income items and Rental income on the Consolidated Statements of Income and Comprehensive Income is bad debt expense, which is presented in Property operating maintenance expense in this table. (2)Includes bad debt expense for all periods presented. (3)See Part I. Item 2. Management Discussion and Analysis-Non-GAAP Financial Measures for definitions and reconciliation of these Non-GAAP measures to Net Income available for Common Shareholders. Total Portfolio income from property operations for 2022 increased$27.5 million , or 9.4%, from 2021, driven by an increase of$17.3 million , or 6.1%, from our Core Portfolio and by an increase of$10.2 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily due to higher property operating revenues, excluding deferrals, primarily in RV and marina base rental income and MH base rental income, partially offset by an increase in property operating expenses, excluding deferrals and property management. The increase in income from property operations from our Non-Core Portfolio was attributed to income from properties acquired in 2021 and the first half of 2022.
Property Operating Revenues
MH base rental income in our Core Portfolio for 2022 increased$16.6 million , or 5.7%, from 2021, which reflects 5.2% growth from rate increases and 0.5% growth from occupancy gains. The average monthly base rental income per Site increased to approximately$750 in 2022 from approximately$713 in 2021. The average occupancy for the Core Portfolio was 95.1% for the six months endedJune 30, 2022 compared to 95.2% for the six months endedJune 30, 2021 . The decrease in the average occupancy is due to expansion sites added. 30
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Management's Discussion and Analysis (continued)
RV and marina base rental income is comprised of the following:
Core Portfolio Total Portfolio
Six Months Ended June 30, Six Months Ended June 30,
% %
(amounts in thousands) 2022 2021 Variance Change 2022 2021 Variance Change
Annual $ 112,811 $ 103,636 $ 9,175 8.9 % $ 130,986 $ 113,267 $ 17,719 15.6 %
Seasonal 33,962 22,040 11,922 54.1 % 36,098 22,809 13,289 58.3 %
Transient 37,019 35,685 1,334 3.7 % 40,018 36,520 3,498 9.6 %
RV and marina base rental
income $ 183,792 $ 161,361 $ 22,431 13.9 % $ 207,102 $ 172,596 $ 34,506 20.0 %
RV and marina base rental income in our Core Portfolio for 2022 increased $22.4
million , or 13.9%, from 2021 primarily due to increases in Seasonal and Annual
RV and marina base rental income. The increase of Seasonal RV and marina base
rental income of $11.9 million , or 54.1% was due to the rebound of seasonal
demand in the South and West as we welcomed back our Canadian guests and our
domestic customers were able to travel without restrictions. The increase in
Annual RV and marina base rental income of $9.2 million , or 8.9% was seen across
all regions, primarily in the South, West and Northeast.
Annual membership subscription revenue in our Core Portfolio for 2022 increased
$2.6 million , or 9.2%, from 2021, reflecting a 6.5% increase in the number of
Thousand Trails Camping members. The increase in annual membership subscription
revenue of $2.6 million , or 9.2% from 2021 was offset by a Membership upgrade
sales current period, gross decrease of $2.8 million , or 14.5%, from 2021, as a
result of the decrease in the number of upgrades sold primarily due to the
introduction of the Adventure product during the first quarter of 2021.
Utility and other income in our Core Portfolio for 2022 increased $2.1 million ,
or 4.2%, from 2021. The increase was primarily due to an increase in utility
income of $3.3 million and pass-through income of $0.7 million , partially offset
by a decrease in other property income of $1.9 million . The increase in utility
income was primarily due to an increase in electric income. The utility recovery
rate (utility income divided by utility expenses) for both 2022 and 2021 was
approximately 45%. The decrease in other property income was due to Hurricane
Hanna recovery revenue received in 2021.
Property Operating Expenses
Property operating expenses, excluding deferrals and property management, in our Core Portfolio for 2022 increased$19.9 million , or 8.6%, from 2021, driven by increases in property operating and maintenance expenses of$19.5 million . Core property operating and maintenance expenses were higher in 2022 compared to 2021 due to increases in utility expenses of$7.4 million , repairs and maintenance expenses of$5.5 million , and property payroll expenses of$3.4 million . 31
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Management's Discussion and Analysis (continued)
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home
Sales and Other Operations:
Six Months Ended June 30,
(amounts in thousands, except home sales %
volumes) 2022 2021 Variance Change
Gross revenues from new home sales (1) $ 59,378 $ 37,658 $ 21,720 57.7 %
Cost of new home sales (1) 53,346 35,958 17,388 48.4 %
Gross profit from new home sales 6,032 1,700 4,332 254.8 %
Gross revenues from used home sales 2,365 1,989 376 18.9 %
Cost of used home sales 2,847 2,766 81 2.9 %
Loss from used home sales (482) (777) 295 38.0 %
Gross revenue from brokered resales and
ancillary services 30,647 25,831 4,816 18.6 %
Cost of brokered resales and ancillary
services 15,477 11,986 3,491 29.1 %
Gross profit from brokered resales and
ancillary services 15,170 13,845 1,325 9.6 %
Home selling and ancillary operating
expenses 14,066 11,031 3,035 27.5 %
Income from home sales and other $ 6,654 $ 3,737 $ 2,917 78.1 %
Home sales volumes
Total new home sales (2) 626 487 139 28.5 %
New Home Sales Volume - ECHO JV 51 24 27 112.5 %
Used home sales 169 210 (41) (19.5) %
Brokered home resales 451 372 79 21.2 %
_________________________
(1) New home sales gross revenues and costs of new home sales do not include the
revenues and costs associated with our ECHO JV.
(2) Total new home sales volume includes home sales from our ECHO JV.
The income from home sales and other was $6.7 million for the six months ended
June 30, 2022 , an increase of $2.9 million , compared to $3.7 million for the six
months ended June 30, 2021 . The increase in income from home sales and other
operations was primarily due to an increase in gross profit from new home sales
resulting from an increase of 139 new home sales during the six months ended
June 30, 2022 compared to the six months ended June 30 2021, primarily driven by
favorable housing trends in the broader real estate market.
32--------------------------------------------------------------------------------
Management's Discussion and Analysis (continued)
Rental Operations
The following table summarizes certain financial and statistical data for MH
Rental Operations.
Six Months Ended June 30,
(amounts in thousands, except rental unit %
volumes) 2022 2021 Variance Change
Rental operations revenue (1) $ 22,216 $ 24,752 $ (2,536) (10.2) %
Rental home operating and maintenance
expenses 2,608 2,509 99 3.9 %
Income from rental operations 19,608 22,243 (2,635) (11.8) %
Depreciation on rental homes (2) 5,016 5,305 (289) (5.4) %
Income from rental operations, net of
depreciation $ 14,592 $ 16,938 $ (2,346) (13.9) %
Gross investment in new manufactured home
rental units (3) $ 221,251 $ 230,774 $ (9,523) (4.1) %
Gross investment in used manufactured home
rental units $ 14,571 $ 17,753 $ (3,182) (17.9) %
Net investment in new manufactured home
rental units $ 184,101 $ 196,494 $ (12,393) (6.3) %
Net investment in used manufactured home
rental units $ 6,076 $ 11,688 $ (5,612) (48.0) %
Number of occupied rentals - new, end of
period (4) 2,742 3,305 (563) (17.0) %
Number of occupied rentals - used, end of
period 375 491 (116) (23.6) %
______________________
(1)Rental operations revenue consists of Site rental income and home rental
income in our Core Portfolio. Approximately $14.5 million and $16.2 million of
Site rental income for the six months ended June 30, 2022 and 2021,
respectively, are included in community base rental income within the Core
Portfolio Income from Property Operations table. The remainder of home rental
income is included in rental home income within the Core Portfolio Income from
Property Operations table.
(2)Presented in Depreciation and amortization in the Consolidated Statements of
Income and Comprehensive Income.
(3)Includes both occupied and unoccupied rental homes in our Core Portfolio. New
home cost basis does not include the costs associated with our ECHO JV. Our
investment in the ECHO JV was $18.7 million and $17.7 million as of June 30,
2022 and 2021, respectively.
(4)Occupied rentals as of the end of the period in our Core Portfolio and
includes 185 and 282 homes rented through our ECHO JV as of June 30, 2022 and
2021, respectively.
Income from rental operations, net of depreciation, was $2.3 million lower
during the six months ended June 30, 2022 compared to the six months ended June
30, 2021 , primarily due to a decrease in rental operations revenues as a result
of a decrease in the number of new occupied rentals.
Other Income and Expenses
The following table summarizes other income and expenses, net:
Six Months Ended June 30,
(amounts in thousands, expenses shown as %
negative) 2022 2021 Variance Change
Depreciation and amortization $ (100,190) $ (93,714) $ (6,476) (6.9) %
Interest income 3,481 3,509 (28) (0.8) %
Income from other investments, net 4,521 2,158 2,363 109.5 %
General and administrative (23,992) (20,740) (3,252) (15.7) %
Other expenses (5,009) (1,498) (3,511) (234.4) %
Early debt retirement (1,156) (2,784) 1,628 58.5 %
Interest and related amortization (55,517) (53,406) (2,111) (4.0) %
Total other income and expenses, net $ (177,862) $ (166,475) $ (11,387) (6.8) %
Total other income and expenses, net increased $11.4 million during the six
months ended June 30, 2022 compared to the six months ended June 30, 2021 ,
primarily due to higher depreciation and amortization, other expenses and
general administrative expenses. The increase in depreciation and amortization
was due to depreciation on Non-Core properties acquired in 2021 and the first
half of 2022. The increase in Other expenses was primarily due to
transaction/pursuit costs of $3.1 million related to unconsummated acquisitions.
The increase in general and administrative expense was due to higher payroll
costs.
33--------------------------------------------------------------------------------
Management's Discussion and Analysis (continued)
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, home purchases and 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 LOC and proceeds from issuance of equity and debt securities. 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, managing future debt maturities and borrowing at competitive rates, enables us to meet this objective. Accessing long-term low-cost secured debt continues to be our focus. OnFebruary 24, 2022 , we entered into our current at-the-market ("ATM") equity offering program with certain sales agents, pursuant to which we may sell, from time-to-time, shares of our common stock, par value$0.01 per share, having an aggregate offering price of up to$500.0 million . Prior to the new program, the aggregate offering price was up to$200.0 million . During the six months endedJune 30, 2022 , we sold 328,123 shares of our common stock under our prior ATM equity program for gross cash proceeds of approximately$28.0 million at a weighted average share price of$86.46 . As ofJune 30, 2022 , the full capacity of our current ATM equity offering program remained available for issuance. As ofJune 30, 2022 , we had available liquidity in the form of approximately 413.9 million shares of authorized and unissued common stock, par value$0.01 per share, and 10.0 million shares of authorized and unissued preferred stock registered for sale under the Securities Act of 1933, as amended. During the six months endedJune 30, 2022 , we closed on a$200.0 million senior unsecured term loan. The maturity date isJanuary 21, 2027 . The term loan bears interest at a rate of Secured Overnight Financing Rate ("SOFR"), plus approximately 1.30% to 1.80%, depending on leverage levels. We also closed on a secured refinancing transaction generating gross proceeds of$200.0 million . The loan is secured by one MH community, has a fixed interest rate of 3.36% per annum and has a maturity date ofMay 1, 2034 . The net proceeds from the refinancing transaction were used to repay all debt scheduled to mature in 2022 and to repay amounts outstanding on the LOC. See Part I. Item 1. Financial Statements-Note 8. Borrowing Arrangements for further details. 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 receipt 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 fair value of the 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 Part I. Item 1. Financial Statements-Note 9. Derivative Instruments and Hedging. We expect 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 ofJune 30, 2022 , our LOC had a borrowing capacity of$452.2 million . As ofJune 30, 2022 , the LOC bears interest at a rate of LIBOR plus 1.25% to 1.65%, carries an annual facility fee of 0.20% to 0.35% and matures onApril 18, 2025 . We expect to meet certain long-term liquidity requirements, such as scheduled debt maturities, property acquisitions and capital improvements, using long-term collateralized and uncollateralized borrowings including the existing LOC and the issuance of debt securities or the issuance of equity including under our ATM equity offering program. We continue to monitor the development and adoption of an alternative index to LIBOR to manage the transition. Given the majority of our current debt is secured and not subject to LIBOR, we do not believe the discontinuation of LIBOR will have a significant impact on our consolidated financial statements.
The impact the COVID-19 pandemic will continue to have on our financial condition and cashflows is uncertain and is dependent upon various factors including the manner in which operations will continue at our Properties, customer payment
34--------------------------------------------------------------------------------
Management's Discussion and Analysis (continued)
patterns and operational decisions we have made and may make in the future in response to guidance from public authorities and/or for the health and safety of our employees, residents and guests.
The following table summarizes our cash flows activity:
Six Months ended June 30,
(amounts in thousands) 2022 2021
Net cash provided by operating activities $ 354,463 $ 328,926
Net cash used in investing activities (302,050) (475,211)
Net cash (used in) provided by financing activities (133,385) 166,978
Net (decrease) increase in cash and restricted cash $ (80,972) $ 20,693
Operating Activities
Net cash provided by operating activities increased $25.5 million to $354.5
million for the six months ended June 30, 2022 from $328.9 million for the six
months ended June 30, 2021 . The increase in net cash provided by operating
activities was primarily due to higher income from property operations of $27.5
million .
Investing Activities
Net cash used in investing activities decreased $173.2 million to $302.1 million
for the six months ended June 30, 2022 from $475.2 million for the six months
ended June 30, 2021 . The decrease was due to a decrease in spending on
acquisitions of $244.7 million , partially offset by an increase in capital
improvement spending of $61.3 million and an increase in investments in
unconsolidated joint ventures of $11.8 million .
Capital Improvements
The following table summarizes capital improvements:
Six Months ended June 30,
(amounts in thousands) 2022 2021
Asset preservation (1) $ 20,073 $ 18,999
Improvements and renovations(2) 18,034
11,893
Property upgrades and development 70,263
45,008
New and used home investments (3) (4) 61,355 41,949 Total property improvements 169,725 117,849 Corporate 11,310 1,874 Total capital improvements$ 181,035 $ 119,723 ______________________ (1)Includes upkeep of property infrastructure including utilities and streets and replacement of community equipment and vehicles. (2)Includes enhancements to amenities such as buildings, common areas, swimming pools and replacement of furniture and site amenities. (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$133.4 million for the six months endedJune 30, 2022 . Net cash provided by financing activities was$167.0 million for the six months endedJune 30, 2021 . The decrease in net cash provided by financing activities was primarily due to a decrease in net debt proceeds of approximately$320.7 million , partially offset by proceeds from the sale of common stock under our ATM program of approximately$28.4 million .
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 Part II. Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Contractual Obligations in our 2021 Form 10-K.
35--------------------------------------------------------------------------------
Management's Discussion and Analysis (continued)
Westwinds
The Operating Partnership operates and manages Westwinds, a 720 site mobilehome community, andNicholson Plaza , an adjacent shopping center, both located inSan Jose, California pursuant to ground leases that expire onAugust 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 endedDecember 31, 2021 , Westwinds andNicholson Plaza generated approximately$6.0 million of net operating 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 onAugust 31, 2022 . In connection with any redevelopment, theCity 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 are unlawfully attempting to impose those obligations upon theOperating Partnership . Westwinds opened in the 1970s and was developed by the original ground lessee with assistance from the Nicholsons. In 1997, theOperating Partnership acquired the leasehold interest in the ground leases. In addition to rent based on the operations of Westwinds, the Nicholsons receive a percentage of gross revenues from the sale of new 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 ofAugust 31, 2022 , and no further right of extension, theOperating Partnership has not entered into any subtenancy agreements that extend beyondAugust 31, 2022 . However, the mobilehome residents' occupancy rights continue by operation ofCalifornia state andSan 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 theOperating Partnership deliver the property free and clear of any subtenancies upon the expiration of the ground leases byAugust 31, 2022 . We believe the Nicholsons' demand (i) violatesCalifornia state andSan Jose municipal law because the Nicholsons are demanding that theOperating 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 theOperating Partnership deliver the property free and clear of all subtenancies at the mobile home park and require, instead, that theOperating Partnership continuously operate the mobilehome park during the lease term. OnDecember 30, 2019 , theOperating Partnership , together with certain interested parties, filed a complaint inCalifornia Superior Court for Santa Clara County , seeking declaratory relief pursuant to which it requested that the Court determine, among other things, that theOperating 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 and the interested parties filed an amended complaint onJanuary 29, 2020 . The Nicholsons filed a demand for arbitration onJanuary 28, 2020 , which they subsequently amended, pursuant to which they request (i) a declaration that theOperating 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," (ii) that theOperating Partnership anticipatorily breached the ground leases by publicly repudiating any such obligation and (iii) that theOperating Partnership is required to indemnify the Nicholsons with respect to the claims brought by the interested parties in theSuperior Court proceeding. OnFebruary 3, 2020 , the Nicholsons filed a motion inCalifornia Superior Court to compel arbitration and to stay theSuperior Court litigation, which motion was heard onJune 25, 2020 . OnJuly 29, 2020 , theSuperior Court issued a final order denying the Nicholsons' motion to compel arbitration. The Nicholsons filed a notice of appeal onAugust 7, 2020 , which appeal was heard onFebruary 1, 2022 . OnFebruary 4, 2022 , theCalifornia Court of Appeal affirmed theSuperior Court's order denying the Nicholsons' motion to compel arbitration. OnFebruary 22, 2022 , the Nicholsons filed a petition for rehearing, which theCourt of Appeal denied onMarch 2, 2022 . OnMarch 16, 2022 , the Nicholsons filed a petition for review with theCalifornia Supreme Court , which theCalifornia Supreme Court denied onApril 20, 2022 . OnMay 18, 2022 , the Nicholsons filed a cross complaint alleging that theOperating Partnership is obligated to deliver Westwinds free and clear of encumbrances and in good condition and repair. The cross complaint asserts that it is no longer feasible for theOperating Partnership to cure its alleged breaches given that the ground leases terminate onAugust 31, 2022 .The Operating Partnership has filed a demurrer seeking dismissal of this cross complaint, and the Nicholsons also filed a demurrer to our complaint. OnJuly 19, 2022 , the Nicholsons sent two notices of default to theOperating Partnership , one related to Westwinds and the other related toNicholson Plaza , the adjacent shopping center. The notices generally assert that theOperating Partnership failed to maintain or repair certain infrastructure and improvements at Westwinds andNicholson Plaza .The Operating Partnership is evaluating the notices but expects to dispute the contention that it has not maintained Westwinds andNicholson Plaza in compliance with the terms of the applicable ground leases. 36
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Management's Discussion and Analysis (continued)
The arbitration which was previously stayed pursuant to an agreement between theOperating Partnership and the Nicholsons is now proceeding with respect to the Nicholsons' indemnification claim that theOperating Partnership is required to indemnify the Nicholsons with respect to the claims brought by the interested parties in theSuperior Court proceeding and a claim by theOperating Partnership for recovery of fees incurred in connection with the Nicholsons' failed motion to compel arbitration. Following the filing of our lawsuit, theCity of San Jose took steps to accelerate the passage of a general plan amendment previously under review 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 ofMobile Home Park . The Nicholsons expressed opposition to this change in designation. However, onMarch 10, 2020 , following significant pressure from residents and advocacy groups, theCity Council approved this new designation for all 58 mobilehome communities in theCity of San Jose , including Westwinds. In addition to requirements imposed byCalifornia state andSan Jose municipal law, the change in designation requires, among other things, a further amendment to the general plan to a different land use designation by theCity Council prior to any change in use.
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
Refer to Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K for a discussion of our critical accounting policies. There have been no significant changes to our critical accounting policies and estimates during the quarter endedJune 30, 2022 . Forward-Looking Statements This Quarterly Report on Form 10-Q includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used, words such as "anticipate," "expect," "believe," "project," "intend," "may be" and "will be" and similar words or phrases, or the negative thereof, unless the context requires otherwise, are intended to identify forward-looking statements and may include without limitation, information regarding our expectations, goals or intentions regarding the future, and the expected effect of our acquisitions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, but not limited to: •our ability to control costs and real estate market conditions, our 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 properties currently owned or that we may acquire; •our ability to attract and retain customers entering, renewing and upgrading membership subscriptions; •our assumptions about rental and home sales markets; •our ability to manage counterparty risk; •our ability to renew our insurance policies at existing rates and on consistent terms; •home sales results could be impacted by the ability of potential homebuyers 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, including an adequate supply of homes at reasonable costs, 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; •our ability to obtain financing or refinance existing debt on favorable terms or at all; •the effect of inflation and interest rates; •the effect from any breach of our, or any of our vendors', data management systems; •the dilutive effects of issuing additional securities; •the outcome of pending or future lawsuits or actions brought by or against us, including those disclosed in our filings with theSecurities and Exchange Commission ; and •other risks indicated from time to time in our filings with theSecurities and Exchange Commission . 37
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Management's Discussion and Analysis (continued)
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 implemented 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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