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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________ 
FORM 10-Q
_________________________________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
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)
_________________________________________________________ 
Maryland
36-3857664
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 
 
Two North Riverside Plaza, Suite 800, Chicago, Illinois
60606
(Address of Principal Executive Offices)
(Zip Code)
(312) 279-1400
(Registrant’s Telephone Number, Including Area Code)
_________________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
87,005,128 shares of Common Stock as of July 24, 2017.
 



Equity LifeStyle Properties, Inc.
Table of Contents
 
 
 
Page
Item 1.
Financial Statements
 
Index To Financial Statements
 
Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016
Consolidated Statements of Income and Comprehensive Income for the quarters and six months ended June 30, 2017 and 2016 (unaudited)
Consolidated Statement of Changes in Equity for the six months ended June 30, 2017 (unaudited)
Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited)
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



2


Equity LifeStyle Properties, Inc.
Consolidated Balance Sheets
As of June 30, 2017 and December 31, 2016
(amounts in thousands, except share and per share data)

 
June 30,
2017
 
December 31,
2016
 
(unaudited)
 
Assets
 
 
 
Investment in real estate:
 
 
 
Land
$
1,167,510

 
$
1,163,987

Land improvements
2,922,201

 
2,893,759

Buildings and other depreciable property
641,931

 
627,590

 
4,731,642

 
4,685,336

Accumulated depreciation
(1,459,931
)
 
(1,399,531
)
Net investment in real estate
3,271,711

 
3,285,805

Cash
67,740

 
56,340

Notes receivable, net
48,253

 
34,520

Investment in unconsolidated joint ventures
21,766

 
19,369

Deferred commission expense
31,453

 
31,375

Escrow deposits, goodwill, and other assets, net
44,435

 
51,578

Total Assets
$
3,485,358

 
$
3,478,987

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Mortgage notes payable, net
$
1,855,028

 
$
1,891,900

Term loan
199,483

 
199,379

Unsecured lines of credit

 

Accrued expenses and accounts payable
93,451

 
89,864

Deferred revenue – upfront payments from right-to-use contracts
83,580

 
81,484

Deferred revenue – right-to-use annual payments
12,559

 
9,817

Accrued interest payable
8,044

 
8,379

Rents and other customer payments received in advance and security deposits
88,543

 
76,906

Distributions payable
45,259

 
39,411

Total Liabilities
2,385,947

 
2,397,140

Equity:
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 9,945,539 shares authorized as of June 30, 2017 and December 31, 2016; none issued and outstanding.

 

6.75% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value, 54,461 shares authorized and 54,458 issued and outstanding as of June 30, 2017 and December 31, 2016 at liquidation value
136,144

 
136,144

Common stock, $0.01 par value, 200,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 87,004,507 and 85,529,386 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
868

 
854

Paid-in capital
1,121,307

 
1,103,048

Distributions in excess of accumulated earnings
(219,641
)
 
(231,276
)
Accumulated other comprehensive loss/(income)
30

 
(227
)
Total Stockholders’ Equity
1,038,708

 
1,008,543

Non-controlling interests – Common OP Units
60,703

 
73,304

Total Equity
1,099,411

 
1,081,847

Total Liabilities and Equity
$
3,485,358

 
$
3,478,987











The accompanying notes are an integral part of these Consolidated Financial Statements.

3


Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income
For the Quarters Ended and Six Months Ended June 30, 2017 and 2016
(amounts in thousands, except per share data)
(unaudited)
 
Quarters Ended
 
Six Months Ended
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Revenues:
 
 
 
 
 
 
 
Community base rental income
$
121,964

 
$
115,385

 
$
242,656

 
$
229,461

Rental home income
3,632

 
3,543

 
7,237

 
7,088

Resort base rental income
50,055

 
44,732

 
111,123

 
100,166

Right-to-use annual payments
11,350

 
11,187

 
22,602

 
22,241

Right-to-use contracts current period, gross
3,798

 
3,086

 
7,004

 
5,618

Right-to-use contract upfront payments, deferred, net
(1,321
)
 
(798
)
 
(2,096
)
 
(1,100
)
Utility and other income
20,650

 
19,523

 
42,776

 
40,316

Gross revenues from home sales
7,833

 
9,130

 
14,860

 
17,344

Brokered resale revenues and ancillary services revenues, net
444

 
398

 
2,105

 
1,816

Interest income
1,798

 
1,625

 
3,568

 
3,285

Income from other investments, net
1,109

 
2,270

 
1,866

 
3,993

Total revenues
221,312

 
210,081


453,701


430,228

Expenses:
 
 
 
 
 
 
 
Property operating and maintenance
72,901

 
66,647

 
140,955

 
129,601

Rental home operating and maintenance
1,657

 
1,581

 
3,208

 
3,106

Real estate taxes
13,943

 
12,869

 
27,980

 
26,067

Sales and marketing, gross
2,894

 
2,931

 
5,584

 
5,424

Right-to-use contract commissions, deferred, net
(112
)
 
(116
)
 
(196
)
 
(12
)
Property management
13,023

 
12,044

 
25,583

 
23,807

Depreciation on real estate assets and rental homes
30,247

 
29,029

 
60,357

 
57,684

Amortization of in-place leases
958

 
428

 
1,990

 
763

Cost of home sales
7,895

 
9,481

 
15,014

 
17,762

Home selling expenses
929

 
805

 
1,854

 
1,639

General and administrative
8,461

 
8,255

 
15,834

 
15,663

Property rights initiatives and other, net
271

 
527

 
490

 
1,181

Interest and related amortization
24,822

 
25,561

 
49,701

 
51,195

Total expenses
177,889

 
170,042


348,354


333,880

Income before equity in income of unconsolidated joint ventures
43,423

 
40,039


105,347


96,348

Equity in income of unconsolidated joint ventures
1,040

 
765

 
2,190

 
1,646

Consolidated net income
44,463

 
40,804


107,537


97,994

 
 
 
 
 
 
 
 
Income allocated to non-controlling interests – Common OP Units
(2,649
)
 
(2,998
)
 
(6,539
)
 
(7,308
)
Series C Redeemable Perpetual Preferred Stock Dividends
(2,316
)
 
(2,316
)
 
(4,613
)
 
(4,613
)
Net income available for Common Stockholders
$
39,498

 
$
35,490


$
96,385


$
86,073

 
 
 
 
 
 
 
 
Consolidated net income
$
44,463

 
$
40,804

 
$
107,537

 
$
97,994

Other comprehensive income (loss) (“OCI”):
 
 
 
 
 
 
 
Adjustment for fair market value of swap
30

 
(36
)
 
257

 
(644
)
Consolidated comprehensive income
44,493

 
40,768


107,794


97,350

Comprehensive income allocated to non-controlling interests – Common OP Units
(2,651
)
 
(2,995
)
 
(6,555
)
 
(7,257
)
Series C Redeemable Perpetual Preferred Stock Dividends
(2,316
)
 
(2,316
)
 
(4,613
)
 
(4,613
)
Comprehensive income attributable to Common Stockholders
$
39,526

 
$
35,457


$
96,626


$
85,480













The accompanying notes are an integral part of these Consolidated Financial Statements.

4


Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income (Continued)
For the Quarters Ended June 30, 2017 and 2016
(amounts in thousands, except per share data)
(unaudited)
 
Quarters Ended
 
Six Months Ended
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Earnings per Common Share – Basic:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.46

 
$
0.42

 
$
1.12

 
$
1.02

Earnings per Common Share – Fully Diluted:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.45

 
$
0.42

 
$
1.11

 
$
1.01

 
 
 
 
 
 
 
 
Distributions declared per Common Share outstanding
$
0.488

 
$
0.425

 
$
0.975

 
$
0.850

Weighted average Common Shares outstanding – basic
86,763

 
84,516

 
86,408

 
84,419

Weighted average Common Shares outstanding – fully diluted
93,063

 
92,264

 
93,041

 
92,163























































The accompanying notes are an integral part of these Consolidated Financial Statements.

5


Equity LifeStyle Properties, Inc.
Consolidated Statement of Changes in Equity
For the Six Months Ended June 30, 2017
(amounts in thousands)
(unaudited)
 
Common
Stock
 
Paid-in
Capital
 
6.75%  Series C Cumulative
Redeemable
Perpetual
Preferred  Stock
 
Distributions
in Excess of
Accumulated
Earnings
 
Non-
controlling
interests –
Common OP
Units
 
Accumulated
Other
Comprehensive
Loss/(Income)
 
Total
Equity
Balance, December 31, 2016
$
854

 
$
1,103,048

 
$
136,144

 
$
(231,276
)
 
$
73,304

 
$
(227
)
 
$
1,081,847

Conversion of Common OP Units to Common Stock
14

 
16,423

 

 

 
(16,437
)
 

 

Issuance of Common Stock through employee stock purchase plan

 
764

 

 

 

 

 
764

Compensation expenses related to restricted stock

 
4,257

 

 

 

 

 
4,257

Adjustment for Common OP Unitholders in the Operating Partnership

 
(3,037
)
 

 

 
3,037

 

 

Adjustment for fair market value of swap

 

 

 

 

 
257

 
257

Net income

 

 
4,613

 
96,385

 
6,539

 

 
107,537

Distributions

 

 
(4,613
)
 
(84,750
)
 
(5,740
)
 

 
(95,103
)
Other

 
(148
)
 

 

 

 

 
(148
)
Balance, June 30, 2017
$
868

 
$
1,121,307

 
$
136,144

 
$
(219,641
)
 
$
60,703

 
$
30

 
$
1,099,411












































The accompanying notes are an integral part of these Consolidated Financial Statements.

6


Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2017 and 2016
(amounts in thousands)
(unaudited) 
 
June 30,
2017
 
June 30,
2016
Cash Flows From Operating Activities:
 
 
 
Consolidated net income
$
107,537

 
$
97,994

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
 
Depreciation
60,960

 
58,242

Amortization of in-place leases
1,990

 
763

Amortization of loan costs
1,788

 
1,876

Debt premium amortization
(1,166
)
 
(1,730
)
Equity in income of unconsolidated joint ventures
(2,190
)
 
(1,646
)
Distributions of income from unconsolidated joint ventures
1,800

 
1,041

Stock-based compensation
4,257

 
4,393

Revenue recognized from right-to-use contract upfront payments
(4,908
)
 
(4,518
)
Commission expense recognized related to right-to-use contracts
2,202

 
2,019

Long term incentive plan compensation
674

 
(3,852
)
Recovery for uncollectible rents receivable
214

 
(679
)
Changes in assets and liabilities:
 
 
 
Notes receivable activity, net
(282
)
 
361

Deferred commission expense
(2,280
)
 
(2,238
)
Escrow deposits, goodwill and other assets
21,814

 
13,137

Accrued expenses and accounts payable
316

 
2,453

Deferred revenue – upfront payments from right-to-use contracts
7,004

 
5,618

Deferred revenue – right-to-use annual payments
2,742

 
3,139

Rents received in advance and security deposits
11,630

 
10,434

Net cash provided by operating activities
214,102

 
186,807

Cash Flows From Investing Activities:
 
 
 
Real estate acquisition
(2,053
)
 
(76,203
)
Investment in unconsolidated joint ventures
(2,267
)
 
(5,000
)
Repayments of notes receivable
5,054

 
5,176

Issuance of notes receivable
(18,696
)
 
(4,356
)
Capital improvements
(53,464
)
 
(55,707
)
Net cash used in investing activities
(71,426
)
 
(136,090
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from stock options and employee stock purchase plan
764

 
5,331

Share based award tax withholding

 
(98
)
Gross proceeds from sale of Common Stock

 
50,000

Distributions:
 
 
 
Common Stockholders
(78,699
)
 
(67,565
)
Common OP Unitholders
(5,942
)
 
(5,766
)
Preferred Stockholders
(4,613
)
 
(4,613
)
Principal payments and mortgage debt payoff
(42,637
)
 
(32,564
)
Debt issuance and defeasance costs

 
(5
)
Other
(149
)
 
(824
)
Net cash used in financing activities
(131,276
)
 
(56,104
)
Net increase (decrease) in cash
11,400

 
(5,387
)
Cash, beginning of period
56,340

 
80,258

Cash, end of period
$
67,740

 
$
74,871










The accompanying notes are an integral part of these Consolidated Financial Statements.

7



Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows (continued)
For the Six Months Ended June 30, 2017 and 2016
(amounts in thousands)
(unaudited)
 
June 30,
2017
 
June 30,
2016
Supplemental Information:
 
 
 
Cash paid during the period for interest
$
51,135

 
$
53,121

Capital improvements – used homes acquired by repossessions
192

 
445

Net repayments of notes receivable – used homes acquired by repossessions
(192
)
 
(445
)
Building and other depreciable property – reclassification of rental homes
15,322

 
15,986

Escrow deposits and other assets – reclassification of rental homes
(15,322
)
 
(15,986
)
 
 
 
 
Real estate acquisitions:
 
 
 
Investment in real estate, fair value
$
(7,985
)
 
$
(100,148
)
Escrow deposits and other assets

 
(20
)
Debt assumed
5,900

 
22,010

Accrued expenses and accounts payable
32

 
1,955

Real estate acquisitions, net
$
(2,053
)
 
$
(76,203
)















































The accompanying notes are an integral part of these Consolidated Financial Statements.

8

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements


Note 1 – Basis of Presentation
Equity LifeStyle Properties, Inc., a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and other consolidated subsidiaries (“Subsidiaries”) are referred to herein as “we,” “us,” and “our.” Capitalized terms used but not defined herein are as defined in our Annual Report on Form 10-K (“2016 Form 10-K”) for the year ended December 31, 2016. These unaudited Consolidated Financial Statements have been prepared pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all of the information and note disclosures required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements and should be read in conjunction with the financial statements and notes thereto included in the 2016 Form 10-K.
The following notes to the Consolidated Financial Statements highlight significant changes to the notes included in the 2016 Form 10-K and present interim disclosures as required by the SEC. The accompanying Consolidated Financial Statements reflect, in the opinion of management, all adjustments and estimates necessary for a fair presentation of the interim financial statements, which are of a normal, recurring nature. Revenues and expenses are subject to seasonal fluctuations and accordingly, quarterly interim results may not be indicative of full year results.
Note 2 – Summary of Significant Accounting Policies
(a)
Consolidation
We consolidate our majority-owned Subsidiaries in which we have the ability to control the operations and all variable interest entities 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.
Effective January 1, 2016, we adopted (“ASU 2015-02”) Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 required us to evaluate whether we should consolidate certain legal entities. The adoption of this standard did not result in any changes to our accounting of interests in less than wholly-owned joint ventures; however, the Operating Partnership now meets the criteria as a VIE. We concluded that the Operating Partnership is a VIE because we are the general partner and controlling owner of approximately 93.7% of the Operating Partnership and the limited partners do not have substantive kick-out or participating rights. Our sole significant asset is our investment in the Operating Partnership, and consequently, substantially all of our assets and liabilities represent those assets and liabilities of the Operating Partnership. The Company has the power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are significant to the VIE. Accordingly, we are the primary beneficiary and we will continue to consolidate the Operating Partnership under this new guidance.
We apply the equity method of accounting to entities in which we do not have a direct or indirect controlling interest or for variable interest entities where we are not considered the primary beneficiary, but can exercise influence over the entity with respect to its operations and major decisions.
(b)
Identified Intangibles and Goodwill
As of both June 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 June 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 June 30, 2017 and December 31, 2016, respectively.
As of both June 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. Accumulated amortization of in-place lease intangible assets was approximately $75.9 million and $74.0 million as of June 30, 2017 and December 31, 2016, respectively.
(c)
Restricted Cash
Cash as of both June 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.

9


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (continued)

(d)
Fair Value of Financial Instruments
Our financial instruments include notes receivable, accounts receivable, accounts payable, other accrued expenses, interest rate swaps and mortgage notes payable. We disclose the estimated fair value of our financial instruments according to a fair value hierarchy (Level 1, 2 and 3).
Our mortgage notes payable and term loan, excluding deferred financing costs of approximately $17.8 million and $18.9 million, respectively, had an aggregate carrying value of approximately $2,072.3 million and $2,110.2 million as of June 30, 2017 and December 31, 2016, respectively, and a fair value of approximately $2,106.4 million and $2,081.2 million as of June 30, 2017 and December 31, 2016, respectively. The fair value was measured using quoted prices and observable inputs from similar liabilities (Level 2). At June 30, 2017 and 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 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. We are currently in the process of evaluating the potential impact that the adoption of this standard may have on our consolidated financial statements and related disclosures.
In August 2016, the 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). ASU 2016-13 requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We are currently in the process of evaluating the potential impact, if any, that adoption of this standard may have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ("ASU 2016-02") Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. We are currently in the process of evaluating the potential impact this standard may have on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ("ASU 2014-09") Revenue from Contracts with Customers which along with related subsequent amendments will replace most existing revenue recognition guidance in GAAP. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The new standard will be effective for the Company beginning on January 1, 2018. The standard permits the use of either the full retrospective or modified retrospective transition method.

10


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 2 – Summary of Significant Accounting Policies (continued)

We expect to adopt ASU 2014-09 on January 1, 2018, using the modified retrospective transition method. We are evaluating the complete impact of the adoption to our consolidated financial results. Our primary source of revenue is generated through leasing arrangements, which are excluded from ASU 2014-09. We continue to evaluate and are in the process of quantifying the impact, if any, the adoption of ASU 2014-09 will have on our non-lease revenue streams, including right-to-use annual payments, right-to-use contracts, and utility and other income.
Note 3 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per Common Share for the quarters and six months ended June 30, 2017 and 2016 (amounts in thousands, except per share data):
 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net Income Available for Common Stockholders:
 
 
 
 
 
 
 
Net income available for Common Stockholders – basic
$
39,498

 
$
35,490

 
$
96,385

 
$
86,073

Amounts allocated to dilutive securities
2,649

 
2,998

 
6,539

 
7,308

Net income available for Common Stockholders – fully diluted
$
42,147

 
$
38,488

 
$
102,924

 
$
93,381

Denominator:
 
 
 
 
 
 
 
Weighted average Common Shares outstanding – basic
86,763

 
84,516

 
86,408

 
84,419

Effect of dilutive securities:
 
 
 
 
 
 
 
Conversion of Common OP Units to Common Shares
5,886

 
7,205

 
6,235

 
7,206

Stock options and restricted shares
414

 
543

 
398

 
538

Weighted average Common Shares outstanding – fully diluted
93,063

 
92,264

 
93,041

 
92,163

 
 
 
 
 
 
 
 
Earnings per Common Share – Basic:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.46

 
$
0.42

 
$
1.12

 
$
1.02

 
 
 
 
 
 
 
 
Earnings per Common Share – Fully Diluted:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.45

 
$
0.42

 
$
1.11

 
$
1.01

Note 4 – Common Stock and Other Equity Related Transactions
Dividends
The following quarterly distributions have been declared on our depositary shares (each representing 1/100 of a share of our Series C Preferred Stock) and paid to our preferred stockholders for the six months ended June 30, 2017.
Distribution Amount Per Share
 
For the Quarter Ended
 
Stockholder Record Date
 
Payment Date
$
0.421875

 
March 31, 2017
 
March 10, 2017
 
March 31, 2017
$
0.421875

 
June 30, 2017
 
June 15, 2017
 
June 30, 2017
The following quarterly distributions have been declared and paid to common stockholders and common OP Unit non-controlling holders for the six months ended June 30, 2017.
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
Conversions
Subject to certain limitations, holders of Common Operating Partnership units ("OP units") can convert their units to Common Stock at any time. During the six months ended June 30, 2017, 1,334,747 OP units were converted to an equal number of shares of Common Stock.


11

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 5 – Real Estate Acquisitions
On May 10, 2017, we completed the acquisition of Paradise Park Largo, a 108-site manufactured home community located in Largo, Florida. The purchase price of approximately $8.0 million was funded with available cash and an assumed loan. The $5.9 million loan has an interest rate of 4.6% that matures in 2040.
Note 6 – Investment in Unconsolidated Joint Ventures
On June 15, 2017, we entered into a joint venture agreement to purchase Crosswinds Mobile Home Park, a 376-site manufactured home community located in St. Petersburg, Florida. The purchase price of the Property was $18.4 million. We contributed $2.2 million for a 49% equity interest in the joint venture. The joint venture is accounted for under the equity method of accounting. As part of the transaction, we issued a short term loan of $13.8 million to the joint venture. The loan bears interest at 5% per annum, can be repaid with no penalty prior to maturity and matures on December 12, 2017.
The following table summarizes our investment in unconsolidated joint ventures (investment amounts in thousands with the number of Properties shown parenthetically as of June 30, 2017 and December 31, 2016):
 
 
 
 
 
 
 
 
 
Investment as of
 
Joint Venture Income/(Loss) for the
Six Months Ended
Investment
 
Location
 
 Number of 
Sites
 
Economic
Interest
(a)
 
 
June 30,
2017
 
December 31,
2016
 
June 30,
2017
 
June 30,
2016
Meadows
 
Various (2,2)
 
1,077

 
50
%
 
 
$
240

 
$
510

 
$
1,130

 
$
577

Lakeshore
 
Florida (3,2)
 
720

 
(b)

 
 
2,321

 
56

 
147

 
160

Voyager
 
Arizona (1,1)
 
1,801

 
50
%
(c) 
 
3,799

 
3,376

 
800

 
917

ECHO JV
 
Various
 

 
50
%
 
 
15,406

 
15,427

 
113

 
(8
)
 
 
 
 
3,598

 
 
 
 
$
21,766

 
$
19,369

 
$
2,190

 
$
1,646

_____________________
(a)
The percentages shown approximate our economic interest as of June 30, 2017. Our legal ownership interest may differ.
(b)
Includes two joint ventures in which we own a 65% interest and Crosswinds joint venture in which we own a 49% interest.
(c)
Voyager joint venture primarily consists of a 50% interest in Voyager RV Resort and 33% interest in the utility plant servicing the Property.
We received approximately $1.8 million and $1.0 million in distributions from these joint ventures for the six months ended June 30, 2017 and 2016, respectively. Approximately $0.3 million and $0.5 million of the distributions made to us exceeded our basis in joint ventures for the quarter and six months ended June 30, 2017, and as such were recorded as income from unconsolidated joint ventures. None of the distributions made to us exceeded our basis in joint ventures for the quarter and six months ended June 30, 2016.
Note 7 – Borrowing Arrangements
Mortgage Notes Payable
As of June 30, 2017 and December 31, 2016, we had outstanding mortgage indebtedness of approximately $1,855.0 million and $1,891.9 million, respectively, net of deferred financing costs. 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. During the quarter ended March 31, 2017, we paid off one maturing mortgage loan of approximately $21.1 million, with a weighted average interest rate of 5.76% per annum, secured by one manufactured home Property.
The weighted average interest rate, including the impact of premium/discount amortization and loan cost amortization on mortgage indebtedness, for the six months ended June 30, 2017 was approximately 4.9% per annum. The debt bears interest at stated rates ranging from 3.5% to 8.9% per annum and matures on various dates ranging from 2017 to 2041. The debt encumbered a total of 126 of our Properties as of both June 30, 2017 and December 31, 2016, and the carrying value of such Properties was approximately $2,282.1 million and $2,296.6 million, as of June 30, 2017 and December 31, 2016, respectively.
As of June 30, 2017, we are in compliance in all material respects with the covenants in our borrowing arrangements.

12


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 8 – Equity Incentive Awards
Stock-based compensation expense, reported in general and administrative on the Consolidated Statements of Income and Comprehensive Income, for both of the quarters ended June 30, 2017 and 2016 was approximately $2.5 million and for the six months ended June 30, 2017 and 2016 was approximately $4.3 million and $4.4 million respectively.
Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by our Board of Directors on March 11, 2014 and approved by our stockholders on May 13, 2014. Pursuant to the 2014 Plan, our officers, directors, employees and consultants may be awarded (i) shares of common stock (“Restricted Stock”), (ii) options to acquire shares of common stock (“Options”), including non-qualified stock options and incentive stock options within the meaning of Section 422 of the Internal Revenue Code, and (iii) other forms of equity awards, subject to conditions and restrictions determined by the Compensation, Nominating, and Corporate Governance Committee of our Board of Directors (the “Compensation Committee”). The Compensation Committee will determine the vesting schedule, if any, of each Restricted Stock Grant or Option and the term of each Option, which term shall not exceed ten years from the date of grant. Shares that do not vest are forfeited. Dividends paid on restricted stock are not returnable, even if the underlying stock does not entirely vest. A maximum of 3,750,000 shares of common stock were originally available for grant under the 2014 Plan. As of June 30, 2017, 3,126,885 shares remained available for grant.
Grants under the 2014 Plan are approved by the Compensation Committee, which determines the individuals eligible to receive awards, the types of awards, and the terms, conditions and restrictions applicable to any award, except grants to directors which are approved by the Board of Directors.
On May 2, 2017, we awarded to 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 service in 2017. These restricted stock grants will vest on December 31, 2017.
The fair market value of our restricted stock grants was determined by using the closing share price of our common stock on the date the shares were issued and is recorded as compensation expense and paid in capital over the vesting period.
Note 9 – Commitments and Contingencies
California Rent Control Litigation
As part of our effort to realize the value of our Properties subject to rent control, we previously initiated lawsuits against certain localities in California with the goal of achieving a level of regulatory fairness in California's rent control jurisdictions, and in particular those jurisdictions that prohibit increasing rents to market upon turnover. Such regulations allow tenants to sell their homes for a price that includes a premium above the intrinsic value of the homes. The premium represents the value of the future discounted rent-controlled rents, which is fully capitalized into the prices of the homes sold. In our view, such regulations result in a transfer to the tenants of the value of our land, which would otherwise be reflected in market rents. We have discovered through the litigation process that certain municipalities considered condemning our Properties at values well below the value of the underlying land. In our view, a failure to articulate market rents for Sites governed by restrictive rent control would put us at risk for condemnation or eminent domain proceedings based on artificially reduced rents. Such a physical taking, should it occur, could represent substantial lost value to stockholders. We are cognizant of the need for affordable housing in the jurisdictions, but assert that restrictive rent regulation does not promote this purpose because tenants pay to their sellers as part of the purchase price of the home all the future rent savings that are expected to result from the rent control regulations, eliminating any supposed improvement in the affordability of housing. In a more well-balanced regulatory environment, we would receive market rents that would eliminate the price premium for homes, which would trade at or near their intrinsic value. Such efforts have included the following matters:
We sued the City of San Rafael on October 13, 2000 in the U.S. District Court for the Northern District of California, challenging its rent control ordinance on constitutional grounds. While the District Court found the rent control ordinance unconstitutional, the United States Court of Appeals for the Ninth Circuit reversed the District Court and ruled that the ordinance had not unconstitutionally taken our property. On September 3, 2013, we filed a petition for review by the U.S. Supreme Court, which was denied.

13


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies (continued)


On January 31, 2012, we sued the City of Santee in the United States District for the Southern District of California challenging its rent control ordinance on constitutional grounds. On September 26, 2013, we entered a settlement agreement with the City pursuant to which we are able to increase Site rents at the Meadowbrook community through January 1, 2034 as follows: (a) a one-time 2.5% rent increase on all Sites in January 2014; plus (b) annual rent increases of 100% of the consumer price index (CPI) beginning in 2014; and (c) a 10% increase in the rent on a site upon turnover of that site. Absent the settlement, the rent control ordinance limited us to annual rent increases of at most 70% of CPI with no increases on turnover of a site.

Settlement of California Lawsuits
On January 18, 2017, we entered into agreements pursuant to which we agreed to settle three California lawsuits related to our California Hawaiian property in San Jose, our Monte del Lago property in Castroville and our Santiago Estates property in Sylmar. Each of the three plaintiff groups was represented by the same law firm and alleged that the Company failed to properly maintain the respective properties. The settlement agreements provided for $9.9 million to be paid to settle the California Hawaiian matter, $1.5 million to be paid to settle the Monte del Lago matter and $1.9 million to be paid to settle the Santiago Estates matter. As a result, a litigation settlement payable was recorded in Accrued expenses and accounts payable as of December 31, 2016. In addition, an insurance receivable was recorded in escrow deposits, goodwill and other assets, net as of December 31, 2016, resulting in a net settlement of approximately $2.4 million reflected as a component of property rights initiatives and other, net on the consolidated statement of income for the year ended December 31, 2016. During the quarter ended March 31, 2017, the settlements were finalized, the settlement payments were made and the insurance payments were received. These settlements resolved all pending matters brought by plaintiffs’ counsel against us or any of our affiliates. Pursuant to the settlement agreements, all plaintiffs provided full releases to each of the defendants and their affiliates including with respect to the claims alleged in the lawsuits, and each of the lawsuits and related appeals were dismissed with prejudice. The settlements do not constitute an admission of liability by us or any of our affiliates and were made to avoid the costs, risks and uncertainties inherent in litigation.

Civil Investigation by Certain California District Attorneys
In November 2014, we received a civil investigative subpoena from the office of the District Attorney for Monterey County, California ("MCDA"), seeking information relating to, among other items, statewide compliance with asbestos and hazardous waste regulations dating back to 2005 primarily in connection with demolition and renovation projects performed by third-party contractors at our California Properties. We responded by providing the information required by the subpoena.
On October 20, 2015, we attended a meeting with representatives of the MCDA and certain other District Attorneys' offices at which the MCDA reviewed the preliminary results of their investigation including, among other things, (i) alleged violations of asbestos and related regulations associated with approximately 200 historical demolition and renovation projects in California; (ii) potential exposure to civil penalties and unpaid fees; and (iii) next steps with respect to a negotiated resolution of the alleged violations. No legal proceedings have been instituted to date and we are involved in settlement discussions with the District Attorneys' offices. We continue to assess the allegations and the underlying facts, and at this time we are unable to predict the outcome of the investigation or reasonably estimate any possible loss.
Other
In addition to legal matters discussed above, we are involved in various other legal and regulatory proceedings ("Other Proceedings") arising in the ordinary course of business. The Other Proceedings include, but are not limited to, notices, consent decrees, information requests, and additional permit requirements and other similar enforcement actions by governmental agencies relating to our utility infrastructure, including water and wastewater treatment plants and other waste treatment facilities and electrical systems. Additionally, in the ordinary course of business, our operations are subject to audit by various taxing authorities. Management believes these Other Proceedings taken together do not represent a material liability. In addition, to the extent any such proceedings or audits relate to newly acquired Properties, we consider any potential indemnification obligations of sellers in our favor.
Note 10 – Reportable Segments
We have identified two reportable segments which are: (i) Property Operations and (ii) Home Sales and Rentals Operations. The Property Operations segment owns and operates land lease Properties and the Home Sales and Rentals Operations segment purchases, sells and leases homes at the Properties. The distribution of the Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences.

14


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 10 - Reportable Segments (Continued)

All revenues are from external customers and there is no customer who contributed 10% or more of our total revenues during the quarters and six months ended June 30, 2017 or 2016.
The following tables summarize our segment financial information for the quarters and six months ended June 30, 2017 and 2016 (amounts in thousands):
Quarter Ended June 30, 2017
 
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
206,594

 
$
11,811

 
$
218,405

Operations expenses
(102,649
)
 
(10,481
)
 
(113,130
)
Income from segment operations
103,945

 
1,330

 
105,275

Interest income
754

 
1,041

 
1,795

Depreciation on real estate assets and rental homes
(27,609
)
 
(2,638
)
 
(30,247
)
Amortization of in-place leases
(958
)
 

 
(958
)
Income (loss) from operations
$
76,132

 
$
(267
)
 
$
75,865

Reconciliation to Consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
3

Income from other investments, net
 
 
 
 
1,109

General and administrative
 
 
 
 
(8,461
)
Property rights initiatives and other
 
 
 
 
(271
)
Interest and related amortization
 
 
 
 
(24,822
)
Equity in income of unconsolidated joint ventures
 
 
 
 
1,040

Consolidated net income
 
 
 
 
$
44,463

 
 
 
 
 
 
Total assets
$
3,267,947

 
$
217,411

 
$
3,485,358


Quarter Ended June 30, 2016
 
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
193,184

 
$
13,002

 
$
206,186

Operations expenses
(94,375
)
 
(11,867
)
 
(106,242
)
Income from segment operations
98,809

 
1,135

 
99,944

Interest income
736

 
867

 
1,603

Depreciation on real estate assets and rental homes
(26,317
)
 
(2,712
)
 
(29,029
)
Amortization of in-place leases
(428
)
 

 
(428
)
Income (loss) from operations
$
72,800

 
$
(710
)
 
$
72,090

Reconciliation to Consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
22

Income from other investments, net
 
 
 
 
2,270

General and administrative
 
 
 
 
(8,255
)
Property rights initiatives and other
 
 
 
 
(527
)
Interest and related amortization
 
 
 
 
(25,561
)
Equity in income of unconsolidated joint ventures
 
 
 
 
765

Consolidated net income
 
 
 
 
$
40,804

 
 
 
 
 
 
Total assets
$
3,249,375

 
$
236,200

 
$
3,485,575


15


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 10 - Reportable Segments (Continued)

Six Months Ended June 30, 2017
 
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
425,582

 
$
22,685

 
$
448,267

Operations expenses
(199,906
)
 
(20,076
)
 
(219,982
)
Income from segment operations
225,676

 
2,609

 
228,285

Interest income
1,484

 
2,079

 
3,563

Depreciation on real estate assets and rental homes
(55,062
)
 
(5,295
)
 
(60,357
)
Amortization of in-place leases
(1,990
)
 

 
(1,990
)
Income (loss) from operations
$
170,108

 
$
(607
)
 
$
169,501

Reconciliation to Consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
5

Income from other investments, net
 
 
 
 
1,866

General and administrative
 
 
 
 
(15,834
)
Property rights initiatives and other
 
 
 
 
(490
)
Interest and related amortization
 
 
 
 
(49,701
)
Equity in income of unconsolidated joint ventures
 
 
 
 
2,190

Consolidated net income
 
 
 
 
$
107,537

 
 
 
 
 
 
Total assets
$
3,267,947

 
$
217,411

 
$
3,485,358

Capital improvements
$
31,731

 
$
21,733

 
$
53,464

Six Months Ended June 30, 2016
 
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
397,910

 
$
25,040

 
$
422,950

Operations expenses
(184,887
)
 
(22,507
)
 
(207,394
)
Income from segment operations
213,023

 
2,533

 
215,556

Interest income
1,453

 
1,785

 
3,238

Depreciation on real estate assets and rental homes
(52,281
)
 
(5,403
)
 
(57,684
)
Amortization of in-place leases
(763
)
 

 
(763
)
Income (loss) from operations
$
161,432

 
$
(1,085
)
 
$
160,347

Reconciliation to Consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
47

Income from other investments, net
 
 
 
 
3,993

General and administrative
 
 
 
 
(15,663
)
Property rights initiatives and other
 
 
 
 
(1,181
)
Interest and related amortization
 
 
 
 
(51,195
)
Equity in income of unconsolidated joint ventures
 
 
 
 
1,646

Consolidated net income
 
 
 
 
$
97,994

 
 
 
 
 
 
Total assets
$
3,249,375

 
$
236,200

 
$
3,485,575


    




16


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 10 - Reportable Segments (Continued)

The following table summarizes our financial information for the Property Operations segment for the quarters and six months ended June 30, 2017 and 2016 (amounts in thousands):    
 
Quarters Ended
 
Six Months Ended
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Revenues:
 
 
 
 
 
 
 
Community base rental income
$
121,964

 
$
115,385

 
$
242,656

 
$
229,461

Resort base rental income
50,055

 
44,732

 
111,123

 
100,166

Right-to-use annual payments
11,350

 
11,187

 
22,602

 
22,241

Right-to-use contracts current period, gross
3,798

 
3,086

 
7,004

 
5,618

Right-to-use contract upfront payments, deferred, net
(1,321
)
 
(798
)
 
(2,096
)
 
(1,100
)
Utility and other income
20,650

 
19,523

 
42,776

 
40,316

Ancillary services revenues, net
98

 
69

 
1,517

 
1,208

Total property operations revenues
206,594

 
193,184

 
425,582

 
397,910

Expenses:
 
 
 
 
 
 
 
Property operating and maintenance
72,901

 
66,647

 
140,955

 
129,601

Real estate taxes
13,943

 
12,869

 
27,980

 
26,067

Sales and marketing, gross
2,894

 
2,931

 
5,584

 
5,424

Right-to-use contract commissions, deferred, net
(112
)
 
(116
)
 
(196
)
 
(12
)
Property management
13,023

 
12,044

 
25,583

 
23,807

Total property operations expenses
102,649

 
94,375

 
199,906

 
184,887

Income from property operations segment
$
103,945

 
$
98,809

 
$
225,676

 
$
213,023


The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters and six months ended June 30, 2017 and 2016 (amounts in thousands):
 
Quarters Ended
 
Six Months Ended
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Revenues:
 
 
 
 
 
 
 
Gross revenue from home sales
$
7,833

 
$
9,130

 
$
14,860

 
$
17,344

Brokered resale revenues, net
346

 
329

 
588

 
608

Rental home income (a)
3,632

 
3,543

 
7,237

 
7,088

Total revenues
11,811

 
13,002

 
22,685

 
25,040

Expenses:
 
 
 
 
 
 
 
Cost of home sales
7,895

 
9,481

 
15,014

 
17,762

Home selling expenses
929

 
805

 
1,854

 
1,639

Rental home operating and maintenance
1,657

 
1,581

 
3,208

 
3,106

Total expenses
10,481

 
11,867

 
20,076

 
22,507

Income from home sales and rentals operations segment
$
1,330

 
$
1,135

 
$
2,609

 
$
2,533

______________________
(a)
Segment information does not include Site rental income included in Community base rental income.



17


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016, and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2016.
Overview
We are a self-administered, self-managed, real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. We are a fully integrated owner and operator of lifestyle-oriented properties (“Properties”) consisting primarily of manufactured home ("MH") communities and recreational vehicle ("RV") resorts and campgrounds. As of June 30, 2017, we owned or had an ownership interest in a portfolio of 393 Properties located throughout the United States and Canada containing 147,107 Sites. These properties are located in 32 states and British Columbia, with more than 80 Properties with lake, river or ocean frontage and more than 100 Properties within 10 miles of the coastal United States.

We generate the majority of our revenues from customers renting our Sites, or entering into right-to-use contracts (also referred to as membership products) which provide our customers access to specific Properties for limited stays. Our MH community Sites and annual RV resort Sites are leased on an annual basis. Seasonal Sites are leased to customers generally for one to six months. Transient Sites are leased to customers on a short-term basis. The revenue from seasonal and transient Sites is generally higher during the first and third quarters. We consider the transient revenue stream to be our most volatile as it is subject to weather conditions and other factors affecting the RV customer's vacation and travel preferences. Sites designated as right-to-use Sites are primarily utilized to service the approximately 106,500 customers who have entered into right-to-use contracts (otherwise referred to as "memberships" or "membership dues"). We also have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures in the Consolidated Statements of Income and Comprehensive Income. The breakdown of our Sites by type are as follows (amounts are approximate):

 
Total Sites as of June 30, 2017
Community Sites
71,100

Resort Sites:
 
Annual
26,600

Seasonal
11,200

Transient
10,500

Right-to-use (1)
24,100

Joint Ventures (2)
3,600

 
147,100

_________________________ 
(1) 
Includes approximately 5,700 Sites rented on an annual basis.
(2) 
Joint ventures have approximately 2,700 annual Sites, approximately 400 seasonal Sites and approximately 500 transient Sites and includes Crosswinds Mobile Home Park joint venture that we entered into during the quarter ended June 30, 2017.

In our Home Sales and Rental Operations business our revenue streams include home sales, home rentals, brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing Site Set homes that are located in Properties owned and managed by us. We continue to focus on our rental operations, as we believe renting our vacant new homes may represent an attractive source of occupancy and the opportunity to convert to a new homebuyer in the future. We also sell and rent homes through our joint venture, ECHO Financing, LLC (the "ECHO JV"). We provide brokerage services to residents of our Properties who move from a Property but do not relocate their home. In addition, we operate ancillary activities at certain Properties, such as golf courses, pro shops, stores and restaurants.
In the manufactured housing industry chattel financing options are limited. Financing options available today include community owner funded programs or third party lender programs that provide subsidized financing to customers and require the community owner to guarantee customer defaults. Third party lender programs have stringent underwriting criteria, sizable down payment requirements, short loan amortization and high interest rates. We have a limited program under which we purchase loans made by an unaffiliated lender to purchasers of homes at our Properties.
We invest in Properties in sought-after locations near retirement and vacation destinations and urban areas across the United States with a focus on increasing operating cash flows. We seek growth in earnings, funds from operations ("FFO") and cash flows by enhancing the profitability and operation of our Properties and investments. We seek to accomplish this by attracting high quality customers to our Properties and retaining these customers who take pride in the Property and in their homes and efficiently

18

Management's Discussion (continued)

managing our Properties to increase operating margins by increasing occupancy, maintaining competitive market rents and controlling expenses.
We actively seek to acquire and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties, which may include contracts outstanding to acquire such properties that are subject to the satisfactory completion of our due diligence review.
In addition to Net income computed in accordance with GAAP, we assess and measure our overall financial and operating performance using certain Non-GAAP supplemental measures, which include: (i) FFO, (ii) Normalized funds from operations ("NFFO"), (iii) Income from property operations, (iv) Income from property operations, excluding deferrals and property management, (v) Core Portfolio income from property operations, excluding deferrals and property management, (operating results for properties owned and operated in both periods under comparison) and (vi) Income from rental operations, net of depreciation. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Definitions and reconciliations of these measures to the most comparable GAAP measures are included below in this discussion.
Results Overview

Net income available for Common Stockholders increased $4.0 million, to $39.5 million for the quarter ended June 30, 2017, compared to $35.5 million for the quarter ended June 30, 2016. Net income available for Common Stockholders increased $10.3 million, to $96.4 million for the six months ended June 30, 2017, compared to $86.1 million for the six months ended June 30, 2016. Both FFO per diluted share and NFFO per diluted share for the quarter ended June 30, 2017 were $0.81 compared to $0.75 for the quarter ended June 30, 2016 driven by improved Core and Non-Core income from property operations. Both FFO per diluted share and NFFO per diluted share for the six months ended June 30, 2017 were $1.81 compared to $1.67 for the six months ended June 30, 2016.

For the quarter ended June 30, 2017 property operating revenues in our Core Portfolio, excluding deferrals, were up 5.5% and property operating expenses in our Core Portfolio, excluding deferrals and property management, were up 6.5% from the quarter ended June 30, 2016, resulting in an increase in our income from property operations before deferrals and property management of 4.8%, from the quarter ended June 30, 2016. For the six months ended June 30, 2017 property operating revenues in our Core Portfolio, excluding deferrals, were up 4.9% and property operating expenses in our Core Portfolio, excluding deferrals and property management, were up 5.9% from the six months ended June 30, 2016, resulting in an increase in our income from property operations before deferrals and property management of 4.3%, from the six months ended June 30, 2016.
We continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our Core Portfolio. Our Core Portfolio average occupancy consists of occupied home sites in our MH communities (both homeowners and renters) and was 94.2% for the quarter ended June 30, 2017, compared to 94.0% for the quarter ended March 31, 2017 and 93.3% for the quarter ended June 30, 2016. During the quarter ended June 30, 2017, we increased occupancy of manufactured homes within our Core Portfolio by 114 sites with an increase in homeowner occupancy of 204 sites compared to occupancy as of March 31, 2017. By comparison, as of June 30, 2016, our Core Portfolio occupancy increased 128 sites with an increase in homeowner occupancy of 229 sites compared to occupancy at March 31, 2016.
We continue to experience growth in revenues in our Core RV Portfolio as a result of our ability to increase rental rates and occupancy. RV revenues in our Core Portfolio for the quarter ended June 30, 2017 were 8.1% higher than the quarter ended June 30, 2016. Annual, seasonal and transient revenues for the quarter ended June 30, 2017 increased 6.0%, 13.7% and 12.3%, respectively, from the quarter ended June 30, 2016. RV revenues in our Core Portfolio for the six months ended June 30, 2017 were 5.3% higher than the six months ended June 30, 2016. Annual, seasonal and transient revenues for the six months ended June 30, 2017 increased 5.3%, 3.8% and 6.7%, respectively, from the six months ended June 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 June 30, 2017 online TTC sales increased 45% from the quarter ended June 30, 2016. During the quarter ended June 30, 2017 we sold approximately 4,700 TTCs and activated approximately 5,700 RV dealer TTCs. For the six months ended June 30, 2017 we sold approximately 7,300 TTCs and activated approximately 9,200 RV dealer TTCs.
Our social media presence continues to increase within our RV customer base and we continue to be successful at providing a venue for our customers to promote our Properties by encouraging them to share their memories of their experiences at our resorts. Year-over-year we have seen an increase in social media fans of 30%. Through our summer marketing campaigns, we have

19

Management's Discussion (continued)

increased the awareness of our product offering and our customers are increasingly choosing the web as a vehicle to transact with us.
We continue to see high demand for our homes and communities. We closed 120 new home sales in the quarter ended June 30, 2017 compared to 180 during the quarter ended June 30, 2016 and 240 new home sales in the six months ended June 30, 2017 compared to 301 during the six months ended June 30, 2016. The new home sales during the quarter and six months ended June 30, 2017 were primarily in our Florida and Colorado communities.
As of June 30, 2017, we had 4,674 occupied rental homes in our MH communities. For the quarters ended June 30, 2017 and 2016, home rental program net operating income was approximately $8.2 million and $8.3 million, respectively, net of rental asset depreciation expense of approximately $2.6 million for the quarter ended June 30, 2017 and $2.7 million for the quarter ended June 30, 2016. Approximately $8.8 million and $9.0 million of home rental operations revenue was included in community base rental income for the quarters ended June 30, 2017 and June 30, 2016, respectively. For the six months ended June 30, 2017 and 2016, home rental program net operating income was approximately $16.4 million and $16.8 million, respectively, net of rental asset depreciation expense of approximately $5.3 million for both the six months ended June 30, 2017 and six months ended June 30, 2016. Approximately $17.7 million and $18.1 million of home rental operations revenue was included in community base rental income for the six months ended June 30, 2017 and six months ended June 30, 2016, respectively.
On May 10, 2017, we completed the acquisition of Paradise Park Largo, a 108-site manufactured home community located in Largo, Florida for a purchase price of approximately $8.0 million. Our gross investment in real estate has increased approximately $46.3 million to $4,731.6 million as of June 30, 2017 from $4,685.3 million as of December 31, 2016 primarily due to the acquisition of Paradise Park Largo and increased capital expenditures.
The following chart lists both the Properties acquired or invested in from January 1, 2016 through June 30, 2017, which represents our Non-Core Portfolio; and Sites added through expansion opportunities at our existing Properties.
Property
 
Location
 
Type of Property
 
Transaction  Date
 
Sites
 
 
 
 
 
 
 
 
 
Total Sites as of January 1, 2016
 
 
 
 
 
 
 
143,938

Acquisitions:
 
 
 
 
 
 
 
 
Rose Bay
 
Port Orange, Florida
 
RV
 
January 27, 2016
 
303

Portland Fairview
 
Fairview, Oregon
 
RV
 
May 26, 2016
 
407

Forest Lake Estates
 
Zephryhills, Florida
 
RV, MH
 
June 15, 2016
 
1,168

Riverside RV
 
Arcadia, Florida
 
RV
 
October 13, 2016
 
499

Paradise Park Largo
 
Largo, Florida
 
MH
 
May 10, 2017
 
108

Joint Venture:
 
 
 
 
 
 
 
 
Crosswinds
 
St. Petersburg, Florida
 
MH
 
June 15, 2017
 
376

Expansion Site Development and other:
 
 
 
 
 
 
 
 
Net Sites added (reconfigured) in 2016
 
 
 
 
 
 
 
295

Net Sites added (reconfigured) in 2017
 
 
 
 
 
 
 
13

Total Sites as of June 30, 2017
 
 
 
 
 
 
 
147,107

 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures
Income from Property Operations and Core Portfolio
We use Income from property operations and Income from property operations, excluding deferrals and property management and Core Portfolio income from property operations, excluding deferrals and property management, as alternative measures to evaluate the operating results of our manufactured home and RV communities. Income from property operations, represents rental income, utility income and right-to-use income less property operating and maintenance expenses, real estate tax, sales and marketing expenses and property management expenses. Income from property operations, excluding deferrals and property management represents income from property operations excluding property management expenses and the impact of the GAAP deferral of right-to-use contract upfront payments and related commissions, net. Our Core Portfolio consists of our Properties owned and operated since December 31, 2015. 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 2016 and 2017.



20

Management's Discussion (continued)



Funds from Operations ("FFO") and Normalized Funds from Operations ("NFFO")
We define FFO as net income, computed in accordance with GAAP, excluding gains and actual or estimated losses from sales of properties, plus real estate related depreciation and amortization, impairments, if any, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with our interpretation of standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We receive up-front non-refundable payments from the entry of right-to-use contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO does not address the treatment of non-refundable right-to-use payments, we believe that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO.
We define NFFO 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 acquisition and other transaction costs related to mergers and acquisitions; and d) other miscellaneous non-comparable items. NFFO presented herein is not necessarily comparable to NFFO presented by other real estate companies due to the fact that not all real estate companies use the same methodology for computing this amount.
We believe that FFO and Normalized FFO are helpful to investors as supplemental measures of the performance of an equity REIT. We believe that by excluding the effect of depreciation, amortization, impairments, if any, and actual or estimated gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. We further believe that Normalized FFO provides useful information to investors, analysts and our management because it allows them to compare our operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences not related to our operations. For example, we believe that excluding the early extinguishment of debt, property acquisition and other transaction costs related to mergers and acquisitions from NFFO 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 NFFO 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 represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.









21

Management's Discussion (continued)



The following table reconciles Net income available for Common Stockholders to Income from property operations for the quarters and six months ended June 30, 2017 and June 30, 2016 (amounts in thousands):
 
 
Quarters ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Computation of Income from Property Operations:
 
 
 
 
 
 
 
 
Net income available for Common Stockholders
 
$
39,498

 
$
35,490

 
$
96,385

 
$
86,073

Series C Redeemable Perpetual Preferred Stock Dividends
 
2,316

 
2,316

 
4,613

 
4,613

Income allocated to non-controlling interests - Common OP Units
 
2,649

 
2,998

 
6,539

 
7,308

Equity in income of unconsolidated joint ventures
 
(1,040
)
 
(765
)
 
(2,190
)
 
(1,646
)
Income before equity in income of unconsolidated joint ventures
 
43,423

 
40,039

 
105,347

 
96,348

Total other expenses, net
 
61,852

 
59,905

 
122,938

 
119,208

Income from home sales operations and other
 
547

 
758

 
(97
)
 
241

Income from property operations
 
$
105,822

 
$
100,702

 
$
228,188

 
$
215,797

The following table presents a calculation of FFO available for Common Stock and OP Unit holders and Normalized FFO available for Common Stock and OP Unit holders for the quarters and six months ended June 30, 2017 and June 30, 2016 (amounts in thousands):
 
 
Quarters ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Computation of FFO and Normalized FFO:
 
 
 
 
 
 
 
 
Net income available for Common Stockholders
 
$
39,498

 
$
35,490

 
$
96,385

 
$
86,073

Income allocated to common OP units
 
2,649

 
2,998

 
6,539

 
7,308

Right-to-use contract upfront payments, deferred, net
 
1,321

 
798

 
2,096

 
1,100

Right-to-use contract commissions, deferred, net
 
(112
)
 
(116
)
 
(196
)
 
(12
)
Depreciation on real estate assets
 
27,608

 
26,362

 
55,061

 
52,370

Depreciation on rental homes
 
2,639

 
2,667

 
5,296

 
5,314

Amortization of in-place leases
 
958

 
428

 
1,990

 
763

Depreciation on unconsolidated joint ventures
 
364

 
305

 
811

 
595

FFO available for Common Stock and OP Unit holders
 
74,925

 
68,932

 
167,982

 
153,511

Transaction costs
 
220

 
398

 
324

 
598

Normalized FFO available for Common Stock and OP Unit holders
 
$
75,145

 
$
69,330

 
$
168,306

 
$
154,109

Weighted average Common Shares outstanding – fully diluted
 
93,063

 
92,264

 
93,041

 
92,163


22

Management's Discussion (continued)


Results of Operations

Comparison of the Quarter Ended June 30, 2017 to the Quarter Ended June 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 quarters ended June 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.
 
Core Portfolio
 
Total Portfolio
 
2017
 
2016
 
Variance
 
%
Change
 
2017
 
2016
 
Variance
 
%
Change
Community base rental income
$
120,699

 
$
115,188

 
$
5,511

 
4.8
 %
 
$
121,964

 
$
115,385

 
$
6,579

 
5.7
 %
Rental home income
3,632

 
3,543

 
89

 
2.5
 %
 
3,632

 
3,543

 
89

 
2.5
 %
Resort base rental income
47,753

 
44,173

 
3,580

 
8.1
 %
 
50,055

 
44,732

 
5,323

 
11.9
 %
Right-to-use annual payments
11,350

 
11,187

 
163

 
1.5
 %
 
11,350

 
11,187

 
163

 
1.5
 %
Right-to-use contracts current period, gross
3,798

 
3,086

 
712

 
23.1
 %
 
3,798

 
3,086

 
712

 
23.1
 %
Utility and other income
20,319

 
19,468

 
851

 
4.4
 %
 
20,650

 
19,523

 
1,127

 
5.8
 %
Property operating revenues, excluding deferrals
207,551

 
196,645

 
10,906

 
5.5
 %
 
211,449

 
197,456

 
13,993

 
7.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Property operating and maintenance
71,096

 
66,363

 
4,733

 
7.1
 %
 
72,901

 
66,647

 
6,254

 
9.4
 %
Rental home operating and maintenance
1,657

 
1,581

 
76

 
4.8
 %
 
1,657

 
1,581

 
76

 
4.8
 %
Real estate taxes
13,462

 
12,781

 
681

 
5.3
 %
 
13,943

 
12,869

 
1,074

 
8.3
 %
Sales and marketing, gross
2,894

 
2,931

 
(37
)
 
(1.3
)%
 
2,894

 
2,931

 
(37
)
 
(1.3
)%
Property operating expenses, excluding deferrals and Property management
89,109

 
83,656

 
5,453

 
6.5
 %
 
91,395

 
84,028

 
7,367

 
8.8
 %
Income from property operations, excluding deferrals and Property management (1)
118,442

 
112,989

 
5,453

 
4.8
 %
 
120,054

 
113,428

 
6,626

 
5.8
 %
Property management
13,023

 
12,044

 
979

 
8.1
 %
 
13,023

 
12,044

 
979

 
8.1
 %
Income from property operations, excluding deferrals (1)
105,419

 
100,945

 
4,474

 
4.4
 %
 
107,031

 
101,384

 
5,647

 
5.6
 %
Right-to-use contracts, deferred and sales and marketing, deferred, net
1,209

 
682

 
527

 
77.3
 %
 
1,209

 
682

 
527

 
77.3
 %
Income from property operations (1)
$
104,210

 
$
100,263

 
$
3,947

 
3.9
 %
 
$
105,822

 
$
100,702


$
5,120

 
5.1
 %
__________________________
(1)     Non-GAAP measure.
Total Portfolio income from property operations, which includes recently acquired properties, for the quarter ended June 30, 2017 increased $5.1 million, or 5.1%, from the quarter ended June 30, 2016, driven by an increase of $3.9 million, or 3.9%, in our Core Portfolio income from property operations and a $1.2 million increase in our Non-Core income from property operations.
Property Operating Revenues
Community base rental income in our Core Portfolio for the quarter ended June 30, 2017 increased $5.5 million, or 4.8% from the quarter ended June 30, 2016, which reflects 3.9% 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 quarter ended June 30, 2017 from approximately $588 for the quarter ended June 30, 2016. The average occupancy for the Core Portfolio increased to 94.2% for the quarter ended June 30, 2017 from 93.3% for the quarter ended June 30, 2016.



23

Management's Discussion (continued)

Resort base rental income in our Core Portfolio for the quarter ended June 30, 2017 increased $3.6 million, or 8.1%, from the quarter ended June 30, 2016 primarily due to increased rates. Resort base rental income is comprised of the following (amounts in thousands):
 
Core Portfolio
 
Total Portfolio
 
2017
 
2016
 
Variance
 
%
Change
 
2017
 
2016
 
Variance
 
%
Change
Annual
$
31,884

 
$
30,089

 
$
1,795

 
6.0
%
 
$
32,869

 
$
30,360

 
$
2,509

 
8.3
%
Seasonal
4,481

 
3,942

 
539

 
13.7
%
 
4,902

 
4,114

 
788

 
19.2
%
Transient
11,388

 
10,142

 
1,246

 
12.3
%
 
12,284

 
10,258

 
2,026

 
19.8
%
Resort base rental income
$
47,753

 
$
44,173

 
$
3,580

 
8.1
%
 
$
50,055

 
$
44,732

 
$
5,323

 
11.9
%
Right-to-use contracts current period, gross, net of sales and marketing, gross, increased by $0.7 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 June 30, 2017 compared to the quarter ended June 30, 2016. During the quarter ended June 30, 2017 there were 635 upgrade sales with an average price per upgrade sale of $5,980. This compares to 626 upgrade sales with an average price per upgrade sale of $4,930 during the quarter ended June 30, 2016.
The increase in utility and other income is primarily due to insurance recovery revenue related to California storm events and increased electric, water, gas, and sewer income recovery.
Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the quarter ended June 30, 2017 increased $5.5 million, or 6.5%, from the quarter ended June 30, 2016 primarily driven by an increase in utility expenses, property payroll and repairs and maintenance. The increase in utility expense was driven by increases in electric, sewer, and gas expenses, which is partially offset by an increase in utility income recovery. The increase in property payroll expense primarily resulted from 2017 salary increases. The increase in repairs and maintenance expense was primarily due to clean-up costs as a result of California storm events.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home Sales for the quarters ended June 30, 2017 and 2016 (amounts in thousands, except home sales volumes).
 
 
2017
 
2016
 
Variance
 
%
Change
Gross revenues from new home sales (1)
 
$
4,548

 
$
6,044

 
$
(1,496
)
 
(24.8
)%
Cost of new home sales (1)
 
(4,419
)
 
(6,246
)
 
1,827

 
29.3
 %
Gross profit (loss) from new home sales
 
129

 
(202
)
 
331

 
163.9
 %
 
 
 
 
 
 
 
 
 
Gross revenues from used home sales
 
3,285

 
3,086

 
199

 
6.4
 %
Cost of used home sales
 
(3,476
)
 
(3,235
)
 
(241
)
 
(7.4
)%
Loss from used home sales
 
(191
)
 
(149
)
 
(42
)
 
(28.2
)%
 
 
 
 
 
 
 
 
 
Brokered resale revenues and ancillary services revenues, net
 
444

 
398

 
46

 
11.6
 %
Home selling expenses
 
(929
)
 
(805
)
 
(124
)
 
(15.4
)%
Loss from home sales and other
 
$
(547
)
 
$
(758
)
 
$
211

 
27.8
 %
 
 
 
 
 
 
 
 
 
Home sales volumes
 
 
 
 
 
 
 
 
Total new home sales (2)
 
120

 
180

 
(60
)
 
(33.3
)%
 New Home Sales Volume - ECHO JV
 
41

 
63

 
(22
)
 
(34.9
)%
Used home sales
 
338

 
342

 
(4
)
 
(1.2
)%
Brokered home resales
 
252

 
217

 
35

 
16.1
 %
_________________________
(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.

24

Management's Discussion (continued)

Loss from home sales and other was $0.5 million and $0.8 million for the quarters ended June 30, 2017 and 2016, respectively. The decrease in loss from home sales and other from the quarter ended June 30, 2016 was primarily due to an increase in the gross profit from new home sales, partially offset by an increase in home selling expenses.
Rental Operations
The following table summarizes certain financial and statistical data for manufactured home Rental Operations for the quarters ended June 30, 2017 and 2016 (amounts in thousands, except rental unit volumes).
 
 
2017
 
2016
 
Variance
 
%
Change
Manufactured homes:
 
 
 
 
 
 
 
 
New Home
 
$
6,985

 
$
6,332

 
$
653

 
10.3
 %
Used Home
 
5,483

 
6,250

 
(767
)
 
(12.3
)%
Rental operations revenue (1)
 
12,468

 
12,582

 
(114
)
 
(0.9
)%
Rental home operating and maintenance
 
(1,657
)
 
(1,581
)
 
(76
)
 
(4.8
)%
Income from rental operations
 
10,811

 
11,001

 
(190
)
 
(1.7
)%
Depreciation on rental homes (2)
 
(2,639
)
 
(2,667
)
 
28

 
1.0
 %
Income from rental operations, net of depreciation
 
$
8,172

 
$
8,334

 
$
(162
)
 
(1.9
)%
 
 
 
 
 
 
 
 
 
Gross investment in new manufactured home rental units (3)
 
$
129,868

 
$
120,708

 
$
9,160

 
7.6
 %
Gross investment in used manufactured home rental units
 
$
48,182

 
$
54,675

 
$
(6,493
)
 
(11.9
)%
 
 
 
 
 
 
 
 
 
Net investment in new manufactured home rental units
 
$
104,710

 
$
99,428

 
$
5,282

 
5.3
 %
Net investment in used manufactured home rental units
 
$
28,182

 
$
36,690

 
$
(8,508
)
 
(23.2
)%
 
 
 
 
 
 
 
 
 
Number of occupied rentals – new, end of period (4)
 
2,517

 
2,267

 
250

 
11.0
 %
Number of occupied rentals – used, end of period
 
2,157

 
2,595

 
(438
)
 
(16.9
)%
______________________
(1) 
Rental operations revenue consists of Site rental income and home rental income. Approximately $8.8 million and $9.0 million for the quarters ended June 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 $15.4 million at both June 30, 2017 and December 31, 2016.
(4) 
Occupied rentals as of the end of the period in our Core Portfolio and includes 257 and 143 homes rented through our ECHO JV during the quarters ended June 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 increase in the number of occupied new rental homes at a higher rental rate.
Other Income and Expenses
The following table summarizes other income and expenses, net for the quarters ended June 30, 2017 and 2016 (amounts in thousands, expenses shown as negative).
 
 
2017
 
2016
 
Variance
 
%
Change
Depreciation on real estate and rental homes
 
$
(30,247
)
 
$
(29,029
)
 
$
(1,218
)
 
(4.2
)%
Amortization of in-place leases
 
(958
)
 
(428
)
 
(530
)
 
(123.8
)%
Interest income
 
1,798

 
1,625

 
173

 
10.6
 %
Income from other investments, net
 
1,109

 
2,270

 
(1,161
)
 
(51.1
)%
General and administrative (excluding transaction costs)
 
(8,241
)
 
(7,857
)
 
(384
)
 
(4.9
)%
Transaction costs
 
(220
)
 
(398
)
 
178

 
44.7
 %
Property rights initiatives and other
 
(271
)
 
(527
)
 
256

 
48.6
 %
Interest and related amortization
 
(24,822
)
 
(25,561
)
 
739

 
2.9
 %
Total other income and expenses, net
 
$
(61,852
)
 
$
(59,905
)
 
$
(1,947
)
 
(3.3
)%

Other expenses, net increased $1.9 million for the quarter ended June 30, 2017, compared to the quarter ended June 30, 2016. The increase from the quarter ended June 30, 2016 was primarily due to an increase in depreciation on real estate and rental

25

Management's Discussion (continued)

homes and amortization of in-place leases due to 2016 acquisition activity and a decrease in income from other investments, net, due to the termination of the Tropical Palms RV ground lease in 2016.

This was partially offset by a decrease in interest and related amortization as a result of the refinancing activities completed during 2016 (see Note 7 to the Consolidated Financial Statements for additional detail regarding borrowing arrangements).

Comparison of the Six Months Ended June 30, 2017 to the Six Months Ended June 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 six months ended June 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.
 
Core Portfolio
 
Total Portfolio
 
2017
 
2016
 
Variance
 
%
Change
 
2017
 
2016
 
Variance
 
%
Change
Community base rental income
$
240,278

 
$
229,264

 
$
11,014

 
4.8
%
 
$
242,656

 
$
229,461

 
$
13,195

 
5.8
%
Rental home income
7,237

 
7,089

 
148

 
2.1
%
 
7,237

 
7,088

 
149

 
2.1
%
Resort base rental income
104,603

 
99,380

 
5,223

 
5.3
%
 
111,123

 
100,166

 
10,957

 
10.9
%
Right-to-use annual payments
22,602

 
22,241

 
361

 
1.6
%
 
22,602

 
22,241

 
361

 
1.6
%
Right-to-use contracts current period, gross
7,004

 
5,618

 
1,386

 
24.7
%
 
7,004

 
5,618

 
1,386

 
24.7
%
Utility and other income
42,003

 
40,249

 
1,754

 
4.4
%
 
42,776

 
40,316

 
2,460

 
6.1
%
Property operating revenues, excluding deferrals
423,727

 
403,841

 
19,886

 
4.9
%
 
433,398

 
404,890

 
28,508

 
7.0
%
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
Property operating and maintenance
137,429

 
129,186

 
8,243

 
6.4
%
 
140,955

 
129,601

 
11,354

 
8.8
%
Rental home operating and maintenance
3,208

 
3,105

 
103

 
3.3
%
 
3,208

 
3,106

 
102

 
3.3
%
Real estate taxes
27,032

 
25,957

 
1,075

 
4.1
%
 
27,980

 
26,067

 
1,913

 
7.3
%
Sales and marketing, gross
5,583

 
5,426

 
157

 
2.9
%
 
5,584

 
5,424

 
160

 
2.9
%
Property operating expenses, excluding deferrals and Property management
173,252

 
163,674

 
9,578

 
5.9
%
 
177,727

 
164,198

 
13,529

 
8.2
%
Income from property operations, excluding deferrals and Property management (1)
250,475

 
240,167

 
10,308

 
4.3
%
 
255,671

 
240,692

 
14,979

 
6.2
%
Property management
25,583

 
23,807

 
1,776

 
7.5
%
 
25,583

 
23,807

 
1,776

 
7.5
%
Income from property operations, excluding deferrals (1)
224,892

 
216,360

 
8,532

 
3.9
%
 
230,088

 
216,885

 
13,203

 
6.1
%
Right-to-use contracts, deferred and sales and marketing, deferred, net
1,900

 
1,088

 
812

 
74.6
%
 
1,900

 
1,088

 
812

 
74.6
%
Income from property operations (1)
$
222,992

 
$
215,272

 
$
7,720

 
3.6
%
 
$
228,188

 
$
215,797

 
$
12,391

 
5.7
%
__________________________
(1)     Non-GAAP measure.
Total Portfolio income from property operations, which includes recently acquired properties, for the six months ended June 30, 2017 increased $12.4 million, or 5.7%, from the six months ended June 30, 2016, driven by an increase of $7.7 million, or 3.6%, in our Core Portfolio income from property operations and a $4.7 million increase in our Non-Core income from property operations.
Property Operating Revenues
Community base rental income in our Core Portfolio for the six months ended June 30, 2017 increased $11.0 million, or 4.8% from the six months ended June 30, 2016, which reflects 3.9% growth from rate increases and approximately 0.9% growth from occupancy gains. The average monthly base rental income per Site increased to approximately $608 for the six months ended June 30, 2017 from approximately $586 for the six months ended June 30, 2016. The average occupancy for the Core Portfolio increased to 94.1% for the six months ended June 30, 2017 from 93.2% for the six months ended June 30, 2016.

26

Management's Discussion (continued)


Resort base rental income in our Core Portfolio for the six months ended June 30, 2017 increased $5.2 million, or 5.3%, from the quarter ended June 30, 2016 primarily due to an increase in annual and transient revenues as a result of increased rates. Resort base rental income is comprised of the following (amounts in thousands):
 
Core Portfolio
 
Total Portfolio
 
2017
 
2016
 
Variance
 
%
Change
 
2017
 
2016
 
Variance
 
%
Change
Annual
$
63,123

 
$
59,953

 
$
3,170

 
5.3
%
 
$
64,965

 
$
60,370

 
$
4,595

 
7.6
%
Seasonal
20,864

 
20,100

 
764

 
3.8
%
 
23,401

 
20,329

 
3,072

 
15.1
%
Transient
20,616

 
19,327

 
1,289

 
6.7
%
 
22,757

 
19,467

 
3,290

 
16.9
%
Resort base rental income
$
104,603

 
$
99,380

 
$
5,223

 
5.3
%
 
$
111,123

 
$
100,166

 
$
10,957

 
10.9
%
Right-to-use contracts current period, gross, net of sales and marketing, gross, increased by $1.4 million, primarily as a result of a higher average price per upgrade sale and higher upgrade sales during the six months ended June 30, 2017 compared to the six months ended June 30, 2016. During the six months ended June 30, 2017 there were 1,260 upgrade sales with an average price per upgrade sale of $5,557. This compares to 1,152 upgrade sales with an average price per upgrade sale of $4,877 for the six months ended June 30, 2016.
The increase in utility and other income is primarily due to insurance recovery revenue related to California storm events and increased electric, water, gas, and sewer income recovery.
Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the six months ended June 30, 2017 increased $9.6 million, or 5.9%, from the six months ended June 30, 2016. The increase was primarily due to an increase in utility expenses, property payroll and repairs and maintenance. 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. The increase in repairs and maintenance expense was primarily due to clean-up costs as a result of California storm events and the hurricanes in Florida in 2016, and an increase in landscaping costs.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home Sales for the six months ended June 30, 2017 and June 30, 2016 (amounts in thousands, except home sales volumes).
 
 
2017
 
2016
 
Variance
 
%
Change
Gross revenues from new home sales (1)
 
$
9,491

 
$
11,443

 
$
(1,952
)
 
(17.1
)%
Cost of new home sales (1)
 
(9,191
)
 
(11,698
)
 
2,507

 
21.4
 %
Gross profit (loss) from new home sales
 
300

 
(255
)
 
555

 
217.6
 %
 
 
 
 
 
 
 
 
 
Gross revenues from used home sales
 
5,369

 
5,901

 
(532
)
 
(9.0
)%
Cost of used home sales
 
(5,823
)
 
(6,064
)
 
241

 
4.0
 %
Loss from used home sales
 
(454
)
 
(163
)
 
(291
)
 
(178.5
)%
 
 
 
 
 
 
 
 
 
Brokered resale revenues and ancillary services revenues, net
 
2,105

 
1,816

 
289

 
15.9
 %
Home selling expenses
 
(1,854
)
 
(1,639
)
 
(215
)
 
(13.1
)%
Income (loss) from home sales and other
 
$
97

 
$
(241
)
 
$
338

 
140.2
 %
 
 
 
 
 
 
 
 
 
Home sales volumes
 
 
 
 
 
 
 
 
Total new home sales (2)
 
240

 
301

 
(61
)
 
(20.3
)%
 New Home Sales Volume - ECHO JV
 
78

 
97

 
(19
)
 
(19.6
)%
Used home sales
 
623

 
653

 
(30
)
 
(4.6
)%
Brokered home resales
 
420

 
403

 
17

 
4.2
 %
_________________________
(1) New home sales gross revenues and costs of new home sales does not include the revenues and costs associated with our ECHO JV.
(2) Total new home sales volume includes home sales from our ECHO JV for the six months ended June 30, 2017 and June 30, 2016, respectively.

27

Management's Discussion (continued)

The increase in income from home sales and other was primarily due to an increase in the gross profit from new home sales, partially offset by an increase in the loss from used home sales.
Rental Operations
The following table summarizes certain financial and statistical data for manufactured home Rental Operations for the six months ended June 30, 2017 and June 30, 2016 (amounts in thousands, except rental unit volumes).
 
 
2017
 
2016
 
Variance
 
%
Change
Manufactured homes:
 
 
 
 
 
 
 
 
New Home
 
$
13,618

 
$
12,473

 
$
1,145

 
9.2
 %
Used Home
 
11,267

 
12,715

 
(1,448
)
 
(11.4
)%
Rental operations revenue (1)
 
24,885

 
25,188

 
(303
)
 
(1.2
)%
Rental home operating and maintenance
 
(3,208
)
 
(3,106
)
 
(102
)
 
(3.3
)%
Income from rental operations
 
21,677

 
22,082

 
(405
)
 
(1.8
)%
Depreciation on rental homes (2)
 
(5,296
)
 
(5,314
)
 
18

 
0.3
 %
Income from rental operations, net of depreciation
 
$
16,381

 
$
16,768

 
$
(387
)
 
(2.3
)%
 
 
 
 
 
 
 
 
 
Gross investment in new manufactured home rental units (3)
 
$
129,868

 
$
120,708

 
$
9,160

 
7.6
 %
Gross investment in used manufactured home rental units
 
$
48,182

 
$
54,675

 
$
(6,493
)
 
(11.9
)%
 
 
 
 
 
 
 
 
 
Net investment in new manufactured home rental units
 
$
104,710

 
$
99,428

 
$
5,282

 
5.3
 %
Net investment in used manufactured home rental units
 
$
28,182

 
$
36,690

 
$
(8,508
)
 
(23.2
)%
 
 
 
 
 
 
 
 
 
Number of occupied rentals – new, end of period (4)
 
2,517

 
2,267

 
250

 
11.0
 %
Number of occupied rentals – used, end of period
 
2,157

 
2,595

 
(438
)
 
(16.9
)%
______________________
(1) 
Rental operations revenue consists of Site rental income and home rental income. Approximately 17.7 million and $18.1 million for the six months ended June 30, 2017 and June 30, 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 $15.4 million at both June 30, 2017 and December 31, 2016.
(4) 
Occupied rentals as of the end of the period in our Core Portfolio and includes 257 and 143 homes rented through our ECHO JV during the six months ended June 30, 2017 and June 30, 2016, respectively.
The decrease in income from rental operations, net of depreciation, was primarily due to a decrease in the number of occupied rental units, which was 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.
Other Income and Expenses
The following table summarizes other income and expenses for the six months ended June 30, 2017 and June 30, 2016 (amounts in thousands, expenses shown as negative).
 
 
2017
 
2016
 
Variance
 
%
Change
Depreciation on real estate and rental homes
 
$
(60,357
)
 
$
(57,684
)
 
$
(2,673
)
 
(4.6
)%
Amortization of in-place leases
 
(1,990
)
 
(763
)
 
(1,227
)
 
(160.8
)%
Interest income
 
3,568

 
3,285

 
283

 
8.6
 %
Income from other investments, net
 
1,866

 
3,993

 
(2,127
)
 
(53.3
)%
General and administrative (excluding transaction costs)
 
(15,510
)
 
(15,065
)
 
(445
)
 
(3.0
)%
Transaction costs
 
(324
)
 
(598
)
 
274

 
45.8
 %
Property rights initiatives and other
 
(490
)
 
(1,181
)
 
691

 
58.5
 %
Interest and related amortization
 
(49,701
)
 
(51,195
)
 
1,494

 
2.9
 %
Total other income and expenses, net
 
$
(122,938
)
 
$
(119,208
)
 
$
(3,730
)
 
(3.1
)%

Other expenses, net increased $3.7 million for the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase in other expenses, net from the six months ended June 30, 2016 was primarily due to an increase in depreciation on real estate and rental homes and amortization of in-place leases due to 2016 acquisition activity and a a decrease in income from other investments, net, due to the termination of the Tropical Palms RV ground lease in 2016.


28

Management's Discussion (continued)

This was partially offset by a decrease in interest and related amortization as a result of the refinancing activities completed during 2016 (see Note 7 to the Consolidated Financial Statements for additional detail regarding borrowing arrangements).

Liquidity and Capital Resources
Liquidity
Our primary demands for liquidity include payment of operating expenses, debt service, including principal and interest, capital improvements on properties, purchasing both new and pre-owned homes, acquisitions of new Properties, and distributions. We expect similar demand for liquidity will continue for the short-term and long-term. Our primary sources of cash include operating cash flows, proceeds from financings, borrowings under our unsecured Line of Credit ("LOC") and proceeds from issuance of equity and debt securities.
We have entered into an at-the-market (“ATM”) offering program, pursuant to which we may sell, from time-to-time, shares of our common stock, par value $0.01 per share, having an aggregate offering price of up to $125.0 million. As of June 30, 2017, $75.0 million of common stock remained available for issuance under the ATM equity offering program. In addition, we have available liquidity in the form of authorized and unissued preferred stock of approximately 9.9 million shares and approximately 113.0 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 us 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.
One of our stated objectives is to maintain financial flexibility. Achieving this objective allows us to take advantage of strategic opportunities that may arise. We believe effective management of our balance sheet, including maintaining various access points to raise capital, manage future debt maturities and borrow at competitive rates enables us to meet this objective. We believe that as of June 30, 2017, we have sufficient liquidity, in the form of $62.5 million in available cash, net of restricted cash, and $400.0 million available on our LOC, to satisfy our near term obligations. Our LOC has a borrowing capacity of $400.0 million with the option to increase the borrowing capacity by $100.0 million, subject to certain conditions. The LOC bears interest at a rate of LIBOR plus 1.20% to 1.65%, requires an annual facility fee of 0.20% to 0.35% and matures on July 17, 2018, with an option to extend for one additional year, subject to certain conditions.
We expect to meet our short-term liquidity requirements, including distributions for the next twelve months, generally through available cash as well as net cash provided by operating activities and availability under our existing LOC. We consider these resources to be adequate to meet our operating requirements for capital improvements, amortizing debt and payment of dividends and distributions.
We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, property acquisitions and capital improvements by use of our current cash balance, long-term collateralized and uncollateralized borrowings including borrowings under the existing LOC and the issuance of debt securities or additional equity securities, in addition to net cash provided by operating activities. As of June 30, 2017, we have approximately $6.9 million of scheduled debt maturities in 2017 (excluding scheduled principal payments on debt maturing in 2017 and beyond). We expect to satisfy our 2017 maturities with existing cash and anticipated operating cash flow.
During the six months ended June 30, 2017 we paid off one maturing mortgage loan and assumed debt in the purchase of Paradise Park Largo. The mortgage loan we paid off was approximately $21.1 million, with a weighted average interest rate of 5.76% per annum, secured by one 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.

The table below summarizes cash flow activity for the six months ended June 30, 2017 and 2016 (amounts in thousands):
 
Six Months Ended
June 30,
 
2017
 
2016
Net cash provided by operating activities
$
214,102

 
$
186,807

Net cash used in investing activities
(71,426
)
 
(136,090
)
Net cash used in financing activities
(131,276
)
 
(56,104
)
Net increase (decrease) in cash
$
11,400

 
$
(5,387
)


29

Management's Discussion (continued)

Operating Activities
Net cash provided by operating activities increased $27.3 million to $214.1 million for the six months ended June 30, 2017, from $186.8 million for the six months ended June 30, 2016. The increase in net cash provided by operating activities was primarily due to higher income from property operations of $12.4 million, receipt of insurance proceeds of $10.8 million related to the California failure to maintain lawsuits, long term incentive plan payments of $4.3 million during the first quarter of 2016, increase of $1.2 million in rents received in advance and an increase of $0.8 million in distributions from unconsolidated joint ventures. These increases were partially offset by the litigation settlement payment of $13.3 million related to the California failure to maintain lawsuits.
Investing Activities
Net cash used in investing activities was $71.4 million for the six months ended June 30, 2017 compared to $136.1 million for the six months ended June 30, 2016. The decrease in net cash used in investing activities was primarily due to the acquisitions of Forest Lake Estates, Portland Fairview and Rose Bay during the six months ended June 30, 2016, partially offset by the short-term loan of $13.8 million issued to the Crosswinds joint venture during the second quarter of 2017.
Capital Improvements
The table below summarizes capital improvement activity for the six months ended June 30, 2017 and 2016 (amounts in thousands):
 
Six Months Ended
June 30,
(1)
 
2017
 
2016
Recurring Capital Expenditures (2)
$
18,808

 
$
18,317

Property upgrades and site development
11,870

 
5,961

New home investments (3)(4)
19,542

 
27,774

Used home investments (4)
2,191

 
3,210

Total Property
52,411

 
55,262

Corporate
1,053

 
445

Total Capital improvements
$
53,464

 
$
55,707

______________________
(1) Excludes non-cash activity of approximately $0.2 million and $0.4 million of used homes acquired through foreclosure of Chattel Loans for the six months ended June 30, 2017 and 2016, respectively.
(2) Recurring capital expenditures are primarily comprised of common area improvements, furniture, and mechanical improvements.
(3) Excludes new home investment associated with our ECHO JV.
(4) Net proceeds from new and used home sale activities are reflected within Operating Activities.
Financing Activities
Net cash used in financing activities was $131.3 million for the six months ended June 30, 2017 compared to net cash used in financing activities of $56.1 million for the six months ended June 30, 2016. The increase in net cash used in financing activities was primarily due to the $50.0 million of cash proceeds received during the six months ended June 30, 2016 as a result of the sale of stock under the ATM equity offering program.









30

Management's Discussion (continued)

Contractual Obligations
As of June 30, 2017, we were subject to certain contractual payment obligations as described in the table below (amounts in thousands):
 
Total (5)
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
Long Term Borrowings (1)
$
2,068,016

 
$
28,900

 
$
239,608

 
$
234,920

 
$
352,089

 
$
211,650

 
$
1,000,849

Interest Expense (2)
605,441

 
48,266

 
87,925

 
73,013

 
57,639

 
49,742

 
288,856

Operating Lease
9,444

 
1,090

 
2,221

 
2,062

 
2,011

 
1,711

 
349

LOC Maintenance Fee (3)
849

 
409

 
440

 

 

 

 

Ground Lease (4)
16,035

 
993

 
1,980

 
1,983

 
1,984

 
1,987

 
7,108

Total Contractual Obligations
$
2,699,785

 
$
79,658

 
$
332,174

 
$
311,978

 
$
413,723

 
$
265,090

 
$
1,297,162

Weighted average interest rates - Long Term Borrowings
4.41
%
 
4.69
%
 
4.61
%
 
4.40
%
 
4.49
%
 
4.39
%
 
4.25
%
______________________________
(1) 
Balance excludes note premiums of $4.3 million and deferred financing costs of approximately $17.8 million. Balances include debt maturing, scheduled periodic principal payments, and Paradise Park Largo mortgage debt of $5.9 million.
(2) 
Amounts include interest expected to be incurred on our secured debt and Term Loan based on obligations outstanding as of June 30, 2017.
(3) 
As of June 30, 2017, assumes we will not exercise our one year extension option on July 17, 2018 and assumes we will maintain our current leverage ratios as defined by the LOC.
(4) 
We also lease land under non-cancelable operating leases at certain of the Properties expiring in various years from 2017 to 2054. The majority of the lease terms require twelve equal payments per year plus additional rents calculated as a percentage of gross revenues.
(5) 
We do not include insurance, property taxes and cancelable contracts in the contractual obligations table.
We believe that we will be able to refinance our maturing debt obligations on a secured or unsecured basis; however, to the extent we are unable to refinance our debt as it matures, we believe that we will be able to repay such maturing debt through available cash as well as operating cash flow, asset sales and/or the proceeds from equity issuances. With respect to any refinancing of maturing debt, our future cash flow requirements could be impacted by significant changes in interest rates or other debt terms, including required amortization payments.
Inflation
Substantially all of the leases at the Properties allow for monthly or annual rent increases which provide us 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 leases and rents are established for these Sites on an annual basis. Our right-to-use contracts generally provide for an annual dues increase, but dues may be frozen under the terms of certain contracts if the customer is over 61 years of age.
Off Balance Sheet Arrangements
As of June 30, 2017, we have no off balance sheet arrangements.
Critical Accounting Policies and Estimates
Refer to the 2016 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. There have been no changes to these policies during the quarter ended June 30, 2017.




31

Management's Discussion (continued)

Forward Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 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, real estate market conditions, the actual rate of decline in 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 retain and attract customers renewing, upgrading and entering right-to-use contracts;
our assumptions about rental and home sales markets;
our ability to manage counterparty risk;
in the age-qualified Properties, home sales results could be impacted by the ability of potential home buyers to sell their existing residences as well as by financial, credit and capital markets volatility;
results from home sales and occupancy will continue to be impacted by local economic conditions, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing;
impact of government intervention to stabilize site-built single-family housing and not manufactured housing;
effective integration of recent acquisitions and our estimates regarding the future performance of recent acquisitions;
the completion of future transactions in their entirety, if any, and timing and effective integration with respect thereto;
unanticipated costs or unforeseen liabilities associated with recent acquisitions;
ability to obtain financing or refinance existing debt on favorable terms or at all;
the effect of interest rates;
the dilutive effects of issuing additional securities;
the effect of 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.
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.


32


Item 3.
Quantitative and Qualitative Disclosure of Market Risk
We disclosed a quantitative and qualitative analysis regarding market risk in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk on Form 10-K for the year ended December 31, 2016. There have been no material changes in the assumptions used or results obtained regarding market risk since December 31, 2016.

Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to us that would potentially be subject to disclosure under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder as of June 30, 2017.
Notwithstanding the foregoing, a control system, 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.
Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2017, 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.



33


Part II – Other Information

Item 1.
Legal Proceedings
See Note 9 of the Consolidated Financial Statements contained herein.

Item 1A.
Risk Factors
    
There have been no material changes to the risk factors discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    
None.

Item 3.
Defaults Upon Senior Securities
None.

Item 4.
Mine Safety Disclosure
None.

Item 5.
Other Information
None.



34


Item 6.
Exhibit Index
 
31.1
31.2
32.1
32.2
101
The following materials from Equity LifeStyle Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flow, and (v) Notes to Consolidated Financial Statements, filed herewith.


35


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: July 26, 2017
By:
/s/ Marguerite Nader
 
 
Marguerite Nader
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
Date: July 26, 2017
By:
/s/ Paul Seavey
 
 
Paul Seavey
 
 
Executive Vice President, Chief Financial Officer and Treasurer
 
 
(Principal Financial and Accounting Officer)


36
Exhibit



CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Paul Seavey, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Equity LifeStyle Properties, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 26, 2017
By:
/s/ Paul Seavey


 
Paul Seavey
 
Executive Vice President, Chief Financial Officer and Treasurer



Exhibit


CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Marguerite Nader, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Equity LifeStyle Properties, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 26, 2017
By:
/s/ Marguerite Nader


 
Marguerite Nader
 
President and Chief Executive Officer



Exhibit


CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Equity LifeStyle Properties, Inc. for the three months ended June 30, 2017 (the “Form 10-Q”), I, Paul Seavey, Executive Vice President, Chief Financial Officer and Treasurer of Equity LifeStyle Properties, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
the Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Equity LifeStyle Properties, Inc.
Date: July 26, 2017
By:
/s/ Paul Seavey


 
Paul Seavey
 
Executive Vice President, Chief Financial Officer and Treasurer
A signed original of this written statement required by Section 906 has been provided to
Equity LifeStyle Properties, Inc. and will be retained by Equity LifeStyle Properties, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.



Exhibit


CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Equity LifeStyle Properties, Inc. for the three months ended June 30, 2017 (the “Form 10-Q”), I, Marguerite Nader, President and Chief Executive Officer of Equity LifeStyle Properties, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
the Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Equity LifeStyle Properties, Inc.
Date: July 26, 2017
By:
/s/ Marguerite Nader


 
Marguerite Nader
 
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to
Equity LifeStyle Properties, Inc. and will be retained by Equity LifeStyle Properties, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.



Document


N E W S R E L E A S E
https://cdn.kscope.io/5f958b2365332a809a78db315fcd3f2a-elscorplogocenteredbluea09.jpg                

CONTACT: Paul Seavey                             FOR IMMEDIATE RELEASE
(800) 247-5279                          July 17, 2017


                                                        
ELS REPORTS SECOND QUARTER RESULTS
Continued Strong Performance

CHICAGO, IL – July 17, 2017 Equity LifeStyle Properties, Inc. (NYSE: ELS) (referred to herein as “we,” “us,” and “our”) today announced results for the quarter and six months ended June 30, 2017. All per share results are reported on a fully diluted basis unless otherwise noted.
Financial Results for the Quarter and Six Months Ended June 30, 2017
For the quarter ended June 30, 2017, total revenues increased $11.2 million, or 5.3 percent, to $221.3 million compared to $210.1 million for the same period in 2016. Net income available for Common Stockholders for the quarter ended June 30, 2017 increased $4.0 million, or $0.03 per Common Share, to $39.5 million, or $0.45 per Common Share, compared to $35.5 million, or $0.42 per Common Share, for the same period in 2016.

For the six months ended June 30, 2017, total revenues increased $23.5 million, or 5.5 percent, to $453.7 million compared to $430.2 million for the same period in 2016. Net income available for Common Stockholders for the six months ended June 30, 2017 increased $10.3 million, or $0.10 per Common Share, to $96.4 million, or $1.11 per Common Share, compared to $86.1 million, or $1.01 per Common Share, for the same period in 2016.
Non-GAAP Financial Measures and Portfolio Performance
For the quarter ended June 30, 2017, Funds from Operations (“FFO”) available for Common Stock and OP Unit holders increased $6.0 million, or $0.06 per Common Share, to $74.9 million or $0.81 per Common Share, compared to $68.9 million, or $0.75 per Common Share, for the same period in 2016. For the six months ended June 30, 2017, FFO available for Common Stock and OP Unit holders increased $14.5 million, or $0.14 per Common Share, to $168.0 million or $1.81 per Common Share, compared to $153.5 million, or $1.67 per Common Share, for the same period in 2016.

For the quarter ended June 30, 2017, Normalized Funds from Operations (“Normalized FFO”) available for Common Stock and OP Unit holders increased $5.8 million, or $0.06 per Common Share, to $75.1 million, or $0.81 per Common Share, compared to $69.3 million, or $0.75 per Common Share, for the same period in 2016. For the six months ended June 30, 2017, Normalized FFO available for Common Stock and OP Unit holders increased $14.2 million, or $0.14 per Common Share, to $168.3 million, or $1.81 per Common Share, compared to $154.1 million, or $1.67 per Common Share, for the same period in 2016.

For the quarter ended June 30, 2017, property operating revenues, excluding deferrals, increased $14.0 million to $211.4 million compared to $197.4 million for the same period in 2016. For the six months ended June 30, 2017, property operating revenues, excluding deferrals, increased $28.5 million to $433.4 million compared to $404.9 million for the same period in 2016. For the quarter ended June 30, 2017, income from property operations, excluding deferrals and property management, increased $6.6 million to $120.0 million compared to $113.4 million for the same period in 2016. For the six months ended June 30, 2017, income from property operations, excluding deferrals and property management, increased $15.0 million to $255.7 million compared to $240.7 million for the same period in 2016.

 
i 
 




For the quarter ended June 30, 2017, Core property operating revenues, excluding deferrals, increased approximately 5.5 percent and Core income from property operations, excluding deferrals and property management, increased approximately 4.8 percent compared to the same period in 2016. For the six months ended June 30, 2017, Core property operating revenues, excluding deferrals, increased approximately 4.9 percent and Core income from property operations, excluding deferrals and property management, increased approximately 4.3 percent compared to the same period in 2016.
Investment Activity
During the quarter, we completed the acquisition of Paradise Park Largo, a 108-site manufactured home community located in Largo, Florida. The purchase price of approximately $8.0 million was funded with available cash, loan assumption of $3.6 million, and new loan proceeds of $2.3 million.
During the quarter, we entered into a joint venture agreement to purchase Crosswinds Mobile Home Park, a 376-site manufactured home community located in St. Petersburg, Florida. Our ownership interest is 49% and the purchase price of the Property was $18.4 million.
About Equity LifeStyle Properties
We are a self-administered, self-managed real estate investment trust (“REIT”) with headquarters in Chicago.
As of July 17, 2017, we own or have an interest in 393 quality properties in 32 states and British Columbia consisting of 147,107 sites.
For additional information, please contact our Investor Relations Department at (800) 247-5279 or at investor_relations@equitylifestyle.com.
Conference Call
A live webcast of our conference call discussing these results will take place tomorrow, Tuesday, July 18, 2017, at 10:00 a.m. Central Time. Please visit the Investor Information section at www.equitylifestyleproperties.com for the link. A replay of the webcast will be available for two weeks at this site.
Reporting Calendar
Quarterly financial results and related earnings conference calls for the next three quarters are expected to occur as follows:
 
 
Release Date
 
Earnings Call
Third Quarter 2017
 
Monday, October 16, 2017
 
Tuesday, October 17, 2017 10:00 a.m. CT
Fourth Quarter 2017
 
Monday, January 29, 2018
 
Tuesday, January 30, 2018 10:00 a.m. CT
First Quarter 2018
 
Monday, April 23, 2018
 
Tuesday, April 24, 2018 10:00 a.m. CT
Forward-Looking Statements
In addition to historical information, this press release 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, real estate market conditions, the actual rate of decline in 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 retain and attract customers renewing, upgrading and entering right-to-use contracts;
our assumptions about rental and home sales markets;
our assumptions and guidance concerning 2017 estimated net income, FFO and Normalized FFO;
our ability to manage counterparty risk;

 
ii 
 




in the age-qualified properties, home sales results could be impacted by the ability of potential home buyers to sell their existing residences as well as by financial, credit and capital markets volatility;
results from home sales and occupancy will continue to be impacted by local economic conditions, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing;
impact of government intervention to stabilize site-built single-family housing and not manufactured housing;
effective integration of recent acquisitions and our estimates regarding the future performance of recent acquisitions;
the completion of future transactions in their entirety, if any, and timing and effective integration with respect thereto;
unanticipated costs or unforeseen liabilities associated with recent acquisitions;
ability to obtain financing or refinance existing debt on favorable terms or at all;
the effect of interest rates;
the dilutive effects of issuing additional securities;
the effect of 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.

For further information on these and other factors that could impact us and the statements contained herein, refer to our filings with the Securities and Exchange Commission, including “Risk Factors” in our most recent Annual Report on Form 10-K and subsequent quarterly reports.
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.


 
iii 
 



Investor Information



Equity Research Coverage (1)
Robert W. Baird & Company
Cantor Fitzgerald
Green Street Advisors
Drew T. Babin
Gaurav Mehta
Ryan Burke/Ryan Lumb
215-553-7816
212-915-1221
949-640-8780
dbabin@rwbaird.com
gmehta@cantor.com
rburke@greenstreetadvisors.com
 
 
rlumb@greenstreetadvisors.com
 
 
 
Bank of America Merrill Lynch Global Research
Citi Research
Wells Fargo Securities
Jeffrey Spector
Michael Bilerman/ Nick Joseph
Todd Stender
646-855-1363
212-816-1383
562-637-1371
jeff.spector@baml.com
michael.bilerman@citi.com
todd.stender@wellsfargo.com
 
nicholas.joseph@citi.com
 
 
 
 
BMO Capital Markets
Evercore ISI
 
John Kim
Steve Sakwa/ Gwen Clark
 
212-885-4170
212-446-5600
 
john.kim@bmo.com
steve.sakwa@evercoreisi.com
 
 
gwen.clark@evercoreisi.com
 
 
 
 
























______________________
1.
Any opinions, estimates or forecasts regarding our performance made by these analysts or agencies do not represent our opinions, forecasts or predictions. We do not by reference to these firms imply our endorsement of or concurrence with such information, conclusions or recommendations.

2Q 2017 Supplemental information
1 
Equity LifeStyle Properties, Inc.



Financial Highlights

(In millions, except Common Stock and OP Units outstanding and per share data, unaudited)
 
As of and for the Three Months Ended
 
June 30, 2017
March 31,
2017
December 31, 2016
September 30, 2016
June 30, 2016
Operating Information
 
 
 
 
 
Total revenues
$
221.3

$
232.4

$
214.0

$
226.2

$
210.1

Net income
$
44.5

$
63.1

$
42.4

$
46.8

$
40.8

Net income available for Common Stockholders
$
39.5

$
56.9

$
37.0

$
41.0

$
35.5

Adjusted EBITDA (1)
$
100.8

$
118.9

$
101.4

$
103.4

$
95.9

FFO available for Common Stock and OP Unit holders(1)(2)
$
74.9

$
93.1

$
72.5

$
76.9

$
68.9

Normalized FFO available for Common Stock and OP Unit holders(1)(2)
$
75.1

$
93.2

$
75.2

$
77.2

$
69.3

Funds available for distribution (FAD) available for Common Stock and OP Unit holders(1)(2)
$
63.5

$
86.0

$
65.8

$
67.2

$
58.4

 
 
 
 
 
 
Common Stock Outstanding (In thousands)
 and Per Share Data
 
 
 
 
 
Common Stock and OP Units, end of the period
92,840

92,780

92,699

92,507

92,499

Weighted average Common Stock and OP Units outstanding - fully diluted
93,063

93,011

92,965

92,910

92,264

Net income per Common Share - fully diluted
$
0.45

$
0.65

$
0.43

$
0.48

$
0.42

FFO per Common Share - fully diluted
$
0.81

$
1.00

$
0.78

$
0.83

$
0.75

Normalized FFO per Common Share - fully diluted
$
0.81

$
1.00

$
0.81

$
0.83

$
0.75

Dividends per Common Share
$
0.488

$
0.488

$
0.425

$
0.425

$
0.425

 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
Total assets
$
3,485

$
3,471

$
3,479

$
3,470

$
3,486

Total liabilities 
$
2,386

$
2,371

$
2,397

$
2,396

$
2,420

 
 
 
 
 
 
Market Capitalization
 
 
 
 
 
Total debt
$
2,072

$
2,078

$
2,110

$
2,111

$
2,134

Total market capitalization (3)
$
10,224

$
9,364

$
8,930

$
9,387

$
9,675

 
 
 
 
 
 
Ratios
 
 
 
 
 
Total debt / total market capitalization
20.3
%
22.2
%
23.6
%
22.5
%
22.1
%
Total debt + preferred stock / total market capitalization
21.6
%
23.6
%
25.2
%
23.9
%
23.5
%
Total debt / Adjusted EBITDA (4)
4.9

5.0

5.1

5.2

5.3

Interest coverage (5)
4.3

4.2

4.1

4.1

4.0

Fixed charges + preferred distributions coverage (6)
3.9

3.8

3.7

3.6

3.5





______________________
1.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for definitions of Adjusted EBITDA, FFO, Normalized FFO and FAD; and reconciliation of Consolidated net income to Adjusted EBITDA.
2.
See page 7 for a reconciliation of Net income available for Common Stockholders to Non-GAAP financial measures FFO available for Common Stock and OP Unit holders, Normalized FFO available for Common Stock and OP Unit holders and FAD available for Common Stock and OP Unit holders.
3.
See page 16 for market capitalization calculation as of June 30, 2017.
4.
Calculated using trailing twelve months Adjusted EBITDA. We believe trailing twelve months Adjusted EBITDA provides additional information for determining our ability to meet future debt service requirements.
5.
Interest coverage is calculated by dividing trailing twelve months Adjusted EBITDA by the interest expense incurred during the same period.
6.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for a definition of fixed charges. This ratio is calculated by dividing trailing twelve months Adjusted EBITDA by the sum of fixed charges and preferred stock dividends during the same period.

2Q 2017 Supplemental information
2 
Equity LifeStyle Properties, Inc.



Balance Sheet

(In thousands, except share and per share data)

 
June 30,
2017
 
December 31,
2016
 
(unaudited)
 
Assets
 
 
 
Investment in real estate:
 
 
 
Land
$
1,167,510

 
$
1,163,987

Land improvements
2,922,201

 
2,893,759

Buildings and other depreciable property
641,931

 
627,590

 
4,731,642

 
4,685,336

Accumulated depreciation
(1,459,931
)
 
(1,399,531
)
Net investment in real estate
3,271,711

 
3,285,805

Cash
67,740

 
56,340

Notes receivable, net
48,253

 
34,520

Investment in unconsolidated joint ventures
21,766

 
19,369

Deferred commission expense
31,453

 
31,375

Escrow deposits, goodwill, and other assets, net (1)
44,435

 
51,578

Total Assets
$
3,485,358

 
$
3,478,987

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Mortgage notes payable
$
1,855,028

 
$
1,891,900

Term loan
199,483

 
199,379

Accrued expenses and accounts payable (1)
93,451

 
89,864

Deferred revenue – upfront payments from right-to-use contracts
83,580

 
81,484

Deferred revenue – right-to-use annual payments
12,559

 
9,817

Accrued interest payable
8,044

 
8,379

Rents and other customer payments received in advance and security deposits
88,543

 
76,906

Distributions payable
45,259

 
39,411

Total Liabilities
2,385,947

 
2,397,140

Equity:
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 9,945,539 shares authorized as of June 30, 2017 and December 31, 2016; none issued and outstanding.

 

6.75% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value, 54,461 shares authorized and 54,458 issued and outstanding as of June 30, 2017 and December 31, 2016 at liquidation value
136,144

 
136,144

Common stock, $0.01 par value, 200,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 87,004,507 and 85,529,386 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
868

 
854

Paid-in capital
1,121,307

 
1,103,048

Distributions in excess of accumulated earnings
(219,641
)
 
(231,276
)
Accumulated other comprehensive income (loss)
30

 
(227
)
Total Stockholders’ Equity
1,038,708

 
1,008,543

Non-controlling interests – Common OP Units
60,703

 
73,304

Total Equity
1,099,411

 
1,081,847

Total Liabilities and Equity
$
3,485,358

 
$
3,478,987

                                
1.
As of December 31, 2016, Escrow deposits, goodwill, and other assets, net includes insurance receivable of approximately $10.9 million, and Accrued expenses and accounts payable includes approximately $13.3 million litigation settlement payable related to resolution of the California lawsuits. These amounts were received and paid during the first quarter of 2017.


2Q 2017 Supplemental information
3 
Equity LifeStyle Properties, Inc.



Consolidated Income Statement

(In thousands, unaudited)

 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Community base rental income
$
121,964

 
$
115,385

 
$
242,656

 
$
229,461

Rental home income
3,632

 
3,543

 
7,237

 
7,088

Resort base rental income
50,055

 
44,732

 
111,123

 
100,166

Right-to-use annual payments
11,350

 
11,187

 
22,602

 
22,241

Right-to-use contracts current period, gross
3,798

 
3,086

 
7,004

 
5,618

Right-to-use contract upfront payments, deferred, net
(1,321
)
 
(798
)
 
(2,096
)
 
(1,100
)
Utility and other income
20,650

 
19,523

 
42,776

 
40,316

Gross revenues from home sales
7,833

 
9,130

 
14,860

 
17,344

Brokered resale revenue and ancillary services revenues, net
444

 
398

 
2,105

 
1,816

Interest income
1,798

 
1,625

 
3,568

 
3,285

Income from other investments, net
1,109

 
2,270

 
1,866

 
3,993

    Total revenues
221,312

 
210,081

 
453,701

 
430,228

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Property operating and maintenance
72,901

 
66,647

 
140,955

 
129,601

Rental home operating and maintenance
1,657

 
1,581

 
3,208

 
3,106

Real estate taxes
13,943

 
12,869

 
27,980

 
26,067

Sales and marketing, gross
2,894

 
2,931

 
5,584

 
5,424

Right-to-use contract commissions, deferred, net
(112
)
 
(116
)
 
(196
)
 
(12
)
Property management
13,023

 
12,044

 
25,583

 
23,807

Depreciation on real estate assets and rental homes
30,247

 
29,029

 
60,357

 
57,684

Amortization of in-place leases
958

 
428

 
1,990

 
763

Cost of home sales
7,895

 
9,481

 
15,014

 
17,762

Home selling expenses
929

 
805

 
1,854

 
1,639

General and administrative
8,461

 
8,255

 
15,834

 
15,663

Other expenses, including property rights initiatives
271

 
527

 
490

 
1,181

Interest and related amortization
24,822

 
25,561

 
49,701

 
51,195

    Total expenses
177,889

 
170,042

 
348,354

 
333,880

Income before equity in income of unconsolidated joint ventures
43,423

 
40,039

 
105,347

 
96,348

Equity in income of unconsolidated joint ventures
1,040


765


2,190


1,646

Consolidated net income
44,463

 
40,804

 
107,537

 
97,994

 
 
 
 
 
 
 
 
Income allocated to non-controlling interest-Common OP Units
(2,649
)
 
(2,998
)
 
(6,539
)
 
(7,308
)
Series C Redeemable Perpetual Preferred Stock Dividends
(2,316
)

(2,316
)

(4,613
)

(4,613
)
Net income available for Common Stockholders
$
39,498


$
35,490


$
96,385


$
86,073













2Q 2017 Supplemental information
4 
Equity LifeStyle Properties, Inc.



























Non-GAAP Financial Measures





2Q 2017 Supplemental information
5 
Equity LifeStyle Properties, Inc.



Second Quarter 2017 - Selected Non-GAAP Financial Measures

(In millions, except per share data, unaudited)

 
Quarter Ended
 
June 30, 2017
Income from property operations, excluding deferrals and property management - 2017 Core (1)
$
118.4

Income from property operations, excluding deferrals and property management - Acquisitions (2)
1.6

Property management and general and administrative (excluding transaction costs)
(21.3
)
Other income and expenses
3.5

Financing costs and other
(27.1
)
Normalized FFO available for Common Stock and OP Unit holders (3)
75.1

Transaction costs
(0.2
)
FFO available for Common Stock and OP Unit holders (3)
$
74.9

 
 
Normalized FFO per Common Share - fully diluted
$
0.81

FFO per Common Share - fully diluted
$
0.81

 
 
 
 
Normalized FFO available for Common Stock and OP Unit holders (3)
$
75.1

Non-revenue producing improvements to real estate
(11.6
)
FAD available for Common Stock and OP Unit holders (3)
$
63.5

 
 
Weighted average Common Stock and OP Units - fully diluted
93.1

 
 















___________________
1.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for definitions of Non-GAAP financial measures Income from property operations, excluding deferrals and property management, and Core, and reconciliation of income from property operations, excluding deferrals and property management to income before equity in income of unconsolidated joint ventures. See page 9 for details of the 2017 Core Income from Property Operations, excluding deferrals and property management.
2.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for a definition of Acquisition properties. See page 10 for details of the Income from Property Operations, excluding deferrals and property management for the Acquisitions.
3.
See page 7 for a reconciliation of Net income available for Common Stockholders to Non-GAAP financial measures FFO available for Common Stock and OP Unit holders, Normalized FFO available for Common Stock and OP Unit holders and FAD available for Common Stock and OP Unit holders. See definitions of Non-GAAP financial measures of FFO, Normalized FFO and FAD and Non-revenue producing improvements in Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information.

2Q 2017 Supplemental information
6 
Equity LifeStyle Properties, Inc.



Reconciliation of Net Income to Non-GAAP Financial Measures

(In thousands, except per share data, unaudited)

 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
   Net income available for Common Stockholders
$
39,498

 
$
35,490

 
$
96,385

 
$
86,073

Income allocated to Common OP Units
2,649

 
2,998

 
6,539

 
7,308

Right-to-use contract upfront payments, deferred, net (1)
1,321

 
798

 
2,096

 
1,100

Right-to-use contract commissions, deferred, net (2)
(112
)
 
(116
)
 
(196
)
 
(12
)
Depreciation on real estate assets
27,608

 
26,362

 
55,061

 
52,370

Depreciation on rental homes 
2,639

 
2,667

 
5,296

 
5,314

Amortization of in-place leases
958

 
428

 
1,990

 
763

Depreciation on unconsolidated joint ventures
364

 
305

 
811

 
595

   FFO available for Common Stock and OP Unit holders (3)
74,925

 
68,932

 
167,982

 
153,511

Transaction costs (4)
220

 
398

 
324

 
598

   Normalized FFO available for Common Stock and OP Unit holders(3)
75,145

 
69,330

 
168,306

 
154,109

Non-revenue producing improvements to real estate
(11,648
)
 
(10,980
)
 
(18,808
)
 
(18,317
)
   FAD available for Common Stock and OP Unit holders (3)
$
63,497

 
$
58,350

 
$
149,498

 
$
135,792

 
 
 
 
 
 
 
 
Net income available per Common Share - Basic
$
0.46

 
$
0.42

 
$
1.12

 
$
1.02

Net income available per Common Share - Fully Diluted
$
0.45

 
$
0.42

 
$
1.11

 
$
1.01

 
 
 
 
 
 
 
 
FFO per Common Share & OP Units-Basic
$
0.81

 
$
0.75

 
$
1.81

 
$
1.68

FFO per Common Share & OP Units-Fully Diluted
$
0.81

 
$
0.75

 
$
1.81

 
$
1.67

 
 
 
 
 
 
 
 
Normalized FFO per Common Share & OP Units-Basic
$
0.81

 
$
0.76

 
$
1.82

 
$
1.68

Normalized FFO per Common Share & OP Units-Fully Diluted
$
0.81

 
$
0.75

 
$
1.81

 
$
1.67

 
 
 
 
 
 
 
 
Average Common Stock - Basic
86,763

 
84,516

 
86,408

 
84,419

Average Common Stock and OP Units - Basic
92,649

 
91,721

 
92,643

 
91,625

Average Common Stock and OP Units - Fully Diluted
93,063

 
92,264

 
93,041

 
92,163











_____________________________
1.
We are required by GAAP to defer, over the estimated customer life, recognition of non-refundable upfront payments from sales of new and upgrade right-to-use contracts. For 2017, the customer life is estimated to be 40 years and is based upon our experience operating the membership platform since 2008. The amount shown represents the deferral of a substantial portion of current period upgrade sales, offset by amortization of prior period sales.
2.
We are required by GAAP to defer recognition of commissions paid related to the entry of right-to-use contracts. The deferred commissions will be amortized using the same method as used for the related non-refundable upfront payments from the entry of right-to-use contracts and upgrade sales. The amount shown represents the deferral of a substantial portion of current period commissions on those contracts, offset by the amortization of prior period commissions.
3.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for Non-GAAP financial measure definitions of FFO, Normalized FFO and FAD and for a definition of Non-revenue producing improvements.
4.
Included in General and administrative on the Consolidated Income Statement on page 4.

2Q 2017 Supplemental information
7 
Equity LifeStyle Properties, Inc.



Consolidated Income from Property Operations (1)

(In millions, except home site and occupancy figures, unaudited)

 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Community base rental income (2)
$
122.0

 
$
115.4

 
$
242.7

 
$
229.5

Rental home income
3.6

 
3.5

 
7.2

 
7.1

Resort base rental income (3)
50.1

 
44.8

 
111.1

 
100.2

Right-to-use annual payments
11.3

 
11.2

 
22.6

 
22.2

Right-to-use contracts current period, gross
3.8

 
3.1

 
7.0

 
5.6

Utility and other income
20.6

 
19.4

 
42.8

 
40.3

    Property operating revenues
211.4

 
197.4

 
433.4

 
404.9

 
 
 
 
 
 
 
 
Property operating, maintenance and real estate taxes
86.8

 
79.5

 
168.9

 
155.7

Rental home operating and maintenance
1.7

 
1.6

 
3.2

 
3.1

Sales and marketing, gross
2.9

 
2.9

 
5.6

 
5.4

    Property operating expenses
91.4

 
84.0

 
177.7

 
164.2

Income from property operations, excluding deferrals and property management (1)
$
120.0

 
$
113.4

 
$
255.7

 
$
240.7

 
 
 
 
 
 
 
 
Manufactured home site figures and occupancy averages:
 
 
 
 
 
 
 
Total sites
71,043

 
70,409

 
71,017

 
70,262

Occupied sites
66,822

 
65,607

 
66,732

 
65,380

Occupancy %
94.0
%
 
93.2
%
 
93.9
%
 
93.1
%
Monthly base rent per site
$
608

 
$
586

 
$
606

 
$
585

 
 
 
 
 
 
 
 
Resort base rental income:
 
 
 
 
 
 
 
Annual
$
32.9

 
$
30.4

 
$
65.0

 
60.4

Seasonal
4.9

 
4.1

 
23.4

 
20.3

Transient
12.3

 
10.3

 
22.7

 
19.5

     Total resort base rental income
$
50.1

 
$
44.8

 
$
111.1

 
$
100.2










_________________________
1.
See page 4 for the Consolidated Income Statement and see Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for Non-GAAP measure definitions and reconciliation of Income from property operations, excluding deferrals and property management.
2.
See the manufactured home site figures and occupancy averages below within this table.
3.
See resort base rental income detail included below within this table.


2Q 2017 Supplemental information
8 
Equity LifeStyle Properties, Inc.



2017 Core Income from Property Operations (1)

(In millions, except home site and occupancy figures, unaudited)

 
Quarters Ended
 
 
 
Six Months Ended
 
 
 
June 30,
 
%
 
June 30,
 
%
 
2017
 
2016
 
Change (2)
 
2017
 
2016
 
Change (2)
Community base rental income (3)
$
120.7

 
$
115.2

 
4.8
 %
 
$
240.3

 
$
229.3

 
4.8
%
Rental home income
3.6

 
3.5

 
2.5
 %
 
7.2

 
7.1

 
2.1
%
Resort base rental income (4)
47.8

 
44.2

 
8.1
 %
 
104.6

 
99.4

 
5.3
%
Right-to-use annual payments
11.3

 
11.2

 
1.5
 %
 
22.6

 
22.2

 
1.6
%
Right-to-use contracts current period, gross
3.8

 
3.1

 
23.1
 %
 
7.0

 
5.6

 
24.7
%
Utility and other income
20.3

 
19.5

 
4.4
 %
 
42.0

 
40.2

 
4.4
%
    Property operating revenues
207.5

 
196.7

 
5.5
 %
 
423.7

 
403.8

 
4.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Property operating, maintenance and real estate taxes
84.5

 
79.2

 
(6.8
)%
 
164.4

 
155.1

 
6.0
%
Rental home operating and maintenance
1.7

 
1.6

 
4.8
 %
 
3.2

 
3.1

 
3.3
%
Sales and marketing, gross
2.9

 
2.9

 
(1.3
)%
 
5.6

 
5.4

 
2.9
%
    Property operating expenses
89.1

 
83.7

 
6.5
 %
 
173.2

 
163.7

 
5.9
%
Income from property operations, excluding deferrals and property management (1)
$
118.4

 
$
113.0

 
4.8
 %
 
$
250.5

 
$
240.1

 
4.3
%
Occupied sites (5)
65,981

 
65,406

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core manufactured home site figures and occupancy averages:
 
 
 
 
 
 
Total sites
69,987

 
69,984

 
 
 
69,979

 
69,985

 
 
Occupied sites
65,898

 
65,312

 
 
 
65,826

 
65,233

 
 
Occupancy %
94.2
%
 
93.3
%
 
 
 
94.1
%
 
93.2
%
 
 
Monthly base rent per site
$
611

 
$
588

 
 
 
$
608

 
$
586

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Resort base rental income:
 
 
 
 
 
 
 
 
 
 
 
Annual
$
31.9

 
$
30.1

 
6.0
 %
 
$
63.1

 
$
60.0

 
5.3
%
Seasonal
4.5

 
4.0

 
13.7
 %
 
20.9

 
20.1

 
3.8
%
Transient
11.4

 
10.1

 
12.3
 %
 
20.6

 
19.3

 
6.7
%
     Total resort base rental income
$
47.8

 
$
44.2

 
8.1
 %
 
$
104.6

 
$
99.4

 
5.3
%








___________________________
1.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for definitions of Non-GAAP measures Income from property operations, excluding deferrals and property management, and Core.
2.
Calculations prepared using actual results without rounding.
3.
See the Core manufactured home site figures and occupancy averages included below within this table.
4.
See resort base rental income detail included below within this table.
5.
Occupied sites as of the end of the period shown. Occupied sites have increased by 255 from 65,726 at December 31, 2016.

2Q 2017 Supplemental information
9 
Equity LifeStyle Properties, Inc.



Acquisitions - Income from Property Operations (1)

(In millions, unaudited)

 
Quarter Ended
 
Six Months Ended
 
June 30,
2017
 
June 30,
2017
Community base rental income
$
1.3

 
$
2.4

Resort base rental income
2.3

 
6.5

Utility income and other property income
0.3

 
0.8

  Property operating revenues
3.9

 
9.7

 
 
 
 
  Property operating expenses
2.3

 
4.5

Income from property operations, excluding deferrals and property management
$
1.6

 
$
5.2






































______________________
1.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for a definition of Acquisitions.


2Q 2017 Supplemental information
10 
Equity LifeStyle Properties, Inc.



Income from Rental Home Operations

(In millions, except occupied rentals, unaudited)

 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Manufactured homes:
 
 
 
 
 
 
 
New home
$
7.0

 
$
6.3

 
$
13.6

 
$
12.5

Used home
5.5

 
6.3

 
11.3

 
12.7

   Rental operations revenues (1)
12.5

 
12.6

 
24.9

 
25.2

Rental operations expense
1.7

 
1.6

 
3.2

 
3.1

   Income from rental operations
10.8

 
11.0

 
21.7

 
22.1

Depreciation on rental homes
2.6

 
2.7

 
5.3

 
5.3

   Income from rental operations, net of depreciation(4)
$
8.2

 
$
8.3

 
$
16.4

 
$
16.8

 
 
 
 
 
 
 
 
Occupied rentals: (2)
 
 
 
 
 
 
 
New
2,517

 
2,267

 
 
 
 
Used
2,157

 
2,595

 
 
 
 
   Total occupied rental sites
4,674

 
4,862

 
 
 
 

 
As of
 
June 30, 2017
 
June 30, 2016
Cost basis in rental homes: (3)
Gross
 
Net of Depreciation
 
Gross
 
Net of Depreciation
New
$
129.9

 
$
104.7

 
$
120.7

 
$
99.4

Used
48.2

 
28.2

 
54.7

 
36.7

  Total rental homes
$
178.1

 
$
132.9

 
$
175.4

 
$
136.1














__________________________
1.
For the quarters ended June 30, 2017 and 2016, approximately $8.8 million and $9.0 million, respectively, of the rental operations revenue are included in the Community base rental income in the Consolidated Income from Property Operations table on page 8. The remainder of the rental operations revenue is included in the Rental home income in the Consolidated Income from Property Operations table on page 8.
2.
Occupied rentals as of the end of the period in our Core portfolio. Included in the quarters ended June 30, 2017 and 2016 are 262 and 143 homes rented through our ECHO joint venture, respectively. For the six months ended June 30, 2017 and 2016, the rental home investment associated with our ECHO joint venture totals approximately $8.8 million and $5.4 million, respectively.
3.
Includes both occupied and unoccupied rental homes. New home cost basis does not include the costs associated with our ECHO joint venture. At both June 30, 2017 and 2016, our investment in the ECHO joint venture was approximately $15.4 million.
4.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for the Non-GAAP measure definition of Income from rental operations, net of depreciation.

2Q 2017 Supplemental information
11 
Equity LifeStyle Properties, Inc.



Total Sites and Home Sales

(In thousands, except sites and home sale volumes, unaudited)

Summary of Total Sites as of June 30, 2017
 
 
Sites
Community sites
71,100

Resort sites:
 
    Annuals
26,600

    Seasonal
11,200

    Transient
10,500

Membership (1)
24,100

Joint Ventures (2)
3,600

Total
147,100


Home Sales - Select Data
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Total New Home Sales Volume (3)
120

 
180

 
240

 
301

     New Home Sales Volume - ECHO joint venture
41

 
63

 
78

 
97

New Home Sales Gross Revenues(3)
$
4,548

 
$
6,044

 
$
9,491

 
$
11,443

 
 
 
 
 
 
 
 
Total Used Home Sales Volume
338

 
342

 
623

 
653

Used Home Sales Gross Revenues
$
3,285

 
$
3,086

 
$
5,369

 
$
5,901

 
 
 
 
 
 
 
 
Brokered Home Resales Volume
252

 
217

 
420

 
403

Brokered Home Resale Revenues, net
$
346

 
$
329

 
$
588

 
$
608

















__________________________
1.
Sites primarily utilized by approximately 107,500 members. Includes approximately 5,700 sites rented on an annual basis.
2.
Joint venture income is included in the Equity in income from unconsolidated joint ventures in the Consolidated Income Statement on page 4.
3.
Total new home sales volume includes home sales from our ECHO joint venture. New home sales gross revenues does not include the revenues associated with our ECHO joint venture.


2Q 2017 Supplemental information
12 
Equity LifeStyle Properties, Inc.



2017 Guidance - Selected Financial Data (1)

Our guidance acknowledges the existence of volatile economic conditions, which may impact our current guidance assumptions. Factors impacting 2017 guidance include, but are not limited to the following: (i) the mix of site usage within the portfolio; (ii) yield management on our short-term resort sites; (iii) scheduled or implemented rate increases on community and resort sites; (iv) scheduled or implemented rate increases in annual payments under right-to-use contracts; (v) occupancy changes; (vi) our ability to retain and attract customers renewing or entering right-to-use contracts; (vii) our ability to integrate and operate recent acquisitions in accordance with our estimates; (viii) completion of pending transactions in their entirety and on assumed schedule; (ix) ongoing legal matters and related fees; and (x) costs to restore property operations and potential revenue losses following storms or other unplanned events.

(In millions, except per share data, unaudited)

 
Quarter Ended
 
Year Ended
 
September 30, 2017
 
December 31, 2017
Income from property operations, excluding deferrals and property management - 2017 Core (2)
$
125.6

 
$
499.1

Income from property operations - Acquisitions (3)
1.5

 
8.8

Property management and general and administrative
(20.4
)
 
(81.0
)
Other income and expenses
3.8

 
13.8

Financing costs and other
(27.2
)
 
(108.3
)
Normalized FFO available for Common Stock and OP Unit holders (4)
83.3

 
332.4

Transaction costs

 
(0.3
)
FFO available for Common Stock and OP Unit holders (4)
83.3

 
332.1

    Depreciation on real estate and other
(28.2
)
 
(114.1
)
    Depreciation on rental homes
(2.6
)
 
(10.6
)
    Deferral of right-to-use contract sales revenue and commission, net
(0.9
)
 
(3.4
)
    Income allocated to non-controlling interest-Common OP Units
(3.2
)
 
(12.8
)
Net income available for Common Stockholders
$
48.4

 
$
191.2

 
 
 
 
 
 
 
 
Net income per Common Share - fully diluted (5)
$0.52 - $0.58

 
$2.14 - $2.24

FFO per Common Share - fully diluted
$0.86 - $0.92

 
$3.52 - $3.62

Normalized FFO per Common Share - fully diluted
$0.86 - $0.92

 
$3.52 - $3.62

 
 
 
 
Weighted average Common Stock outstanding - fully diluted
93.1

 
93.1





_____________________________________
1.
Each line item represents the mid-point of a range of possible outcomes and reflects management’s estimate of the most likely outcome. Actual Normalized FFO available for Common Stock and OP Unit holders, Normalized FFO per Common Share, FFO available for Common Stock and OP Unit holders, FFO per Common Share, Net income available for Common Stockholders and Net income per Common Share could vary materially from amounts presented above if any of our assumptions is incorrect.
2.
See page 14 for 2017 Core Guidance Assumptions. Amount represents 2016 income from property operations, excluding deferrals and property management, from the 2017 Core properties of $118.2 million multiplied by an estimated growth rate of 6.3% and $476.1 million multiplied by an estimated growth rate of 4.8% for the quarter ended June 30, 2017 and the year ended December 31, 2017, respectively.
3.
See page 14 for the 2017 Assumptions regarding the Acquisition properties.
4.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for definitions of Normalized FFO and FFO.
5.
Net income per fully diluted Common Share is calculated before Income allocated to non-controlling interest-Common OP Units.

2Q 2017 Supplemental information
13 
Equity LifeStyle Properties, Inc.



2017 Core Guidance Assumptions (1) 
(In millions, unaudited)
 
Quarter Ended
 
Third Quarter 2017
 
Year Ended
 
2017
 
September 30, 2016
 
Growth Factors (2)
 
December 31, 2016
 
Growth Factors (2)
Community base rental income
$
116.1

 
4.8
 %
 
$
462.3

 
4.7
 %
Rental home income
3.5

 
5.1
 %
 
14.1

 
3.0
 %
Resort base rental income (3)
53.3

 
6.1
 %
 
196.8

 
5.2
 %
Right-to-use annual payments
11.3

 
0.8
 %
 
45.0

 
0.8
 %
Right-to-use contracts current period, gross
3.7

 
(9.9
)%
 
12.3

 
5.5
 %
Utility and other income
21.0

 
0.7
 %
 
80.9

 
1.6
 %
    Property operating revenues
208.9

 
4.2
 %
 
811.4

 
4.3
 %
 
 
 
 
 
 
 
 
Property operating, maintenance, and real estate taxes
85.8

 
1.6
 %
 
317.3

 
3.7
 %
Rental home operating and maintenance
1.8

 
(2.2
)%
 
6.9

 
(1.6
)%
Sales and marketing, gross
3.1

 
 %
 
11.1

 
2.1
 %
    Property operating expenses
90.7

 
1.5
 %
 
335.3

 
3.5
 %
Income from property operations, excluding deferrals and property management
 
$
118.2

 
6.3
 %
 
$
476.1

 
4.8
 %
 
 
 
 
 
 
 
 
Resort base rental income:
 
 
 
 
 
 
 
Annual
$
30.9

 
5.6
 %
 
$
122.3

 
5.3
 %
Seasonal
3.8

 
10.0
 %
 
30.2

 
4.4
 %
Transient
18.6

 
6.0
 %
 
44.3

 
5.5
 %
    Total resort base rental income
$
53.3

 
6.1
 %
 
$
196.8

 
5.2
 %


2017 Assumptions Regarding Acquisition Properties (1) 
(In millions, unaudited)
 
Quarter Ended
 
Year Ended
 
September 30, 2017 (4)
 
December 31, 2017 (4)
Community base rental income
$
1.4

 
$
5.1

Resort base rental income
2.2

 
11.4

Utility income and other property income
0.3

 
1.5

  Property operating revenues
3.9

 
18.0

 
 
 
 
Property operating, maintenance, and real estate taxes
2.4

 
9.2

  Property operating expenses


 


Income from property operations, excluding deferrals and property management
$
1.5

 
$
8.8


_____________________________________
1.
See Non-GAAP Financial Measure Definitions and Other Terms at the end of the supplemental information for a definition of Core and Acquisition properties.
2.
Management’s estimate of the growth of property operations in the 2017 Core Properties compared to actual 2016 performance. Represents our estimate of the mid-point of a range of possible outcomes. Calculations prepared using actual results without rounding. Actual growth could vary materially from amounts presented above if any of our assumptions is incorrect.
3.
See Resort base rental income table included below within this table.
4.
Each line item represents our estimate of the mid-point of a possible range of outcomes and reflects management’s best estimate of the most likely outcome for the Acquisition properties. Actual income from property operations for the Acquisition properties could vary materially from amounts presented above if any of our assumptions is incorrect.

2Q 2017 Supplemental information
14 
Equity LifeStyle Properties, Inc.



Right-To-Use Memberships - Select Data

(In thousands, except member count, number of Thousand Trails Camping Pass, number of annuals and number of upgrades, unaudited)

 
Year Ended December 31,
 
2013
 
2014
 
2015
 
2016
 
2017 (1)
Member Count (2)
98,277

 
96,130

 
102,413

 
104,728

 
106,500

Thousand Trails Camping Pass (TTC) Origination (3)
15,607

 
18,187

 
25,544

 
29,576

 
31,000

    TTC Sales
9,289

 
10,014

 
11,877

 
12,856

 
13,400

    RV Dealer TTC Activations
6,318

 
8,173

 
13,667

 
16,720

 
17,600

Number of annuals (4)
4,830

 
5,142

 
5,470

 
5,756

 
5,900

Number of upgrade sales (5)
2,999

 
2,978

 
2,687

 
2,477

 
2,600

 
 
 
 
 
 
 
 
 
 
Right-to-use annual payments (6)
$
47,967

 
$
44,860

 
$
44,441

 
$
45,036

 
$
45,400

Resort base rental income from annuals
$
11,148

 
$
12,491

 
$
13,821

 
$
15,413

 
$
16,800

Resort base rental income from seasonals/transients
$
12,692

 
$
13,894

 
$
15,795

 
$
17,344

 
$
18,000

Upgrade contract initiations (7)
$
13,815

 
$
13,892

 
$
12,783

 
$
12,312

 
$
13,000

Utility and other income
$
2,293

 
$
2,455

 
$
2,430

 
$
2,442

 
$
2,400

 
 
 
 
 
 
 
 
 
 
























________________________________
1.
Guidance estimate. Each line item represents our estimate of the mid-point of a possible range of outcomes and reflects management’s best estimate of the most likely outcome. Actual figures could vary materially from amounts presented above if any of our assumptions is incorrect.
2.
Members have entered into right-to-use contracts with us that entitle them to use certain properties on a continuous basis for up to 21 days.
3.
TTCs allow access to any of five geographic areas in the United States.
4.
Members who rent a specific site for an entire year in connection with their right-to-use contract.
5.
Existing customers that have upgraded agreements are eligible for longer stays, can make earlier reservations, may receive discounts on rental units, and may have access to additional properties. Upgrades require a non-refundable upfront payment.
6.
The year ended December 31, 2013 includes $2.1 million of revenue recognized related to our right-to-use annual memberships activated through our dealer program. During the third quarter of 2013, we changed the accounting treatment of revenues and expenses associated with the RV dealer program to recognize as revenue only the cash received from members generated by the program.
7.
Revenues associated with contract upgrades, included in Right-to-use contracts current period, gross, on our Consolidated Income Statement on page 4.

2Q 2017 Supplemental information
15 
Equity LifeStyle Properties, Inc.



Market Capitalization

(In millions, except share and OP Unit data, unaudited)

Capital Structure as of June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Common Stock/Units
% of Total Common Stock/Units
Total
% of Total
% of Total Market Capitalization
 
 
 
 
 
 
 
 
Secured Debt
 
 
$
1,872

90.3
%
 
 
Unsecured Debt
 
 
200

9.7
%
 
 
Total Debt (1)
 
 
$
2,072

100.0
%
20.3
%
 
 
 
 
 
 
 
 
Common Stock
87,004,507

93.7
%
 
 
 
 
OP Units
5,835,253

6.3
%
 
 
 
 
Total Common Stock and OP Units
92,839,760

100.0
%
 
 
 
 
Common Stock price at June 30, 2017
$
86.34

 
 
 
 
 
Fair Value of Common Stock and OP Units
 
 
$
8,016

98.3
%
 
 
Perpetual Preferred Stock
 
 
136

1.7
%
 
 
Total Equity
 
 
$
8,152

100.0
%
79.7
%
 
 
 
 
 
 
 
 
Total Market Capitalization
 
 
$
10,224

 
100.0
%
 
 
 
 
 
 
 
 
Perpetual Preferred Stock as of June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Series
Callable Date
 
Outstanding Stock
Liquidation Value
Annual Dividend Per Share
Annual Dividend Value
6.75% Series C
9/7/2017
 
54,458
$
136

$
168.8

$
9.2






















_________________

1.    Excludes deferred financing costs of approximately $17.8 million.


2Q 2017 Supplemental information
16 
Equity LifeStyle Properties, Inc.



Debt Maturity Schedule

Debt Maturity Schedule as of June 30, 2017
(In thousands, unaudited)

Year
 
Secured Debt
 
Weighted Average Interest Rate
 
Unsecured Debt
 
Weighted Average Interest Rate
 
Total Debt
 
% of Total Debt
 
Weighted Average Interest Rate
 
2017
 
6,876

 
6.47
%
 

 

 
6,876

 
0.33
%
 
6.47
%
 
2018
 
203,463

 
5.95
%
 

 

 
203,463

 
9.84
%
 
5.95
%
 
2019
 
199,211

 
6.27
%
 

 

 
199,211

 
9.63
%
 
6.27
%
 
2020
 
120,700

 
6.14
%
 
200,000

 
2.39
%
 
320,700

 
15.51
%
 
3.80
%
 
2021
 
188,724

 
5.01
%
 

 

 
188,724

 
9.13
%
 
5.01
%
 
2022
 
148,368

 
4.59
%
 

 

 
148,368

 
7.17
%
 
4.59
%
 
2023
 
109,992

 
5.11
%
 

 

 
109,992

 
5.32
%
 
5.11
%
 
2024
 

 
%
 

 

 

 
%
 
%
 
2025
 
106,690

 
3.45
%
 

 

 
106,690

 
5.16
%
 
3.45
%
 
2026
 

 
%
 

 

 

 
%
 
%
 
Thereafter
 
783,993

 
4.27
%
 

 

 
783,993

 
37.91
%
 
4.27
%
 
Total
 
$
1,868,017

 
4.90
%
 
$
200,000

 
2.39
%
 
$
2,068,017

 
100.0
%
 
4.65
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note Premiums
 
4,298

 
 
 

 
 
 
4,298

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt
 
1,872,315

 
 
 
200,000

 
 
 
2,072,315

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred Financing Costs
 
(17,287
)
 
 
 
(517
)
 
 
 
(17,804
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt, net
 
1,855,028

 
4.92
%
(1) 
199,483

 
2.52
%
 
$
2,054,511

 
 
 
4.69
%
(1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Years to Maturity
 
10.8
 
 
 
2.6
 
 
 
10.0
 
 
 
 
 






















______________________
1.     Reflects effective interest rate including amortization of note premiums and amortization of deferred loan cost for secured and total debt and stated interest rate for unsecured debt.


2Q 2017 Supplemental information
17 
Equity LifeStyle Properties, Inc.



Non-GAAP Financial Measures Definitions and Other Terms

This document contains certain Non-GAAP measures used by management that we believe are helpful in understanding our business, as further discussed in the paragraphs below. We believe investors should review these Non-GAAP measures along with GAAP net income and cash flow from operating activities, investing activities and financing activities, when evaluating an equity REIT’s operating performance. 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 represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.
FUNDS FROM OPERATIONS (FFO). We define FFO as net income, computed in accordance with GAAP, excluding gains and actual or estimated losses from sales of properties, plus real estate related depreciation and amortization, impairments, if any, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with our interpretation of standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We receive up-front non-refundable payments from the entry of right-to-use contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO does not address the treatment of non-refundable right-to-use payments, we believe that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO.
We believe FFO, as defined by the Board of Governors of NAREIT, is generally a measure of performance for an equity REIT. While FFO is a relevant and widely used measure of operating performance for equity REITs, it does not represent cash flow from operations or net income as defined by GAAP, and it should not be considered as an alternative to these indicators in evaluating liquidity or operating performance.
NORMALIZED FUNDS FROM OPERATIONS (NORMALIZED FFO). We define Normalized 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 acquisition and other transaction costs related to mergers and acquisitions; and d) 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.
FUNDS AVAILABLE FOR DISTRIBUTION (FAD). We define FAD as Normalized FFO less non-revenue producing capital expenditures.
We believe that FFO, Normalized FFO and FAD are helpful to investors as supplemental measures of the performance of an equity REIT. We believe that by excluding the effect of depreciation, amortization, impairments, if any, and actual or estimated gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. We further believe that Normalized FFO provides useful information to investors, analysts and our management because it allows them to compare our operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences not related to our operations. For example, we believe that excluding the early extinguishment of debt, property acquisition and other transaction costs related to mergers and acquisitions from Normalized 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 PROPERTY OPERATIONS, EXCLUDING DEFERRALS AND PROPERTY MANAGEMENT. We define Income from property operations, excluding deferrals and property management as rental income, utility income and right-to-use income less property operating and maintenance expenses, real estate tax, sales and marketing expenses, property management and the GAAP deferral of right-to-use contract upfront payments and related commissions, net. We believe that this Non-GAAP financial measure is helpful to investors and analysts as a measure of the operating results of our manufactured home and RV communities.

2Q 2017 Supplemental information
18 
Equity LifeStyle Properties, Inc.



The following table reconciles Net income available for Common Stockholders to Income from property operations (amounts in thousands):
 
 
Quarters Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2017
 
2016
 
2017
 
2016
 
Net income available for Common Stockholders
 
$
39,498

 
$
35,490

 
$
96,385

 
$
86,073

 
Series C Redeemable Perpetual Preferred Stock Dividends
 
2,316

 
2,316

 
4,613

 
4,613

 
Income allocated to non-controlling interests - Common OP Units
 
2,649

 
2,998

 
6,539

 
7,308

 
Equity in income of unconsolidated joint ventures
 
(1,040
)
 
(765
)
 
(2,190
)
 
(1,646
)
 
Income before equity in income of unconsolidated joint ventures
 
$
43,423

 
$
40,039

 
$
105,347

 
$
96,348

 
Right-to-use upfront payments, deferred, net
 
1,321

 
798

 
2,096

 
1,100

 
Gross revenues from home sales
 
(7,833
)
 
(9,130
)
 
(14,860
)
 
(17,344
)
 
Brokered resale revenues and ancillary services revenues, net
 
(444
)
 
(398
)
 
(2,105
)
 
(1,816
)
 
Interest income
 
(1,798
)
 
(1,625
)
 
(3,568
)
 
(3,285
)
 
Income from other investments, net
 
(1,109
)
 
(2,270
)
 
(1,866
)
 
(3,993
)
 
Right-to-use contract commissions, deferred, net
 
(112
)
 
(116
)
 
(196
)
 
(12
)
 
Property management
 
13,023

 
12,044

 
25,583

 
23,807

 
Depreciation on real estate and rental homes
 
30,247

 
29,029

 
60,357

 
57,684

 
Amortization of in-place leases
 
958

 
428

 
1,990

 
763

 
Cost of homes sales
 
7,895

 
9,481

 
15,014

 
17,762

 
Home selling expenses
 
929

 
805

 
1,854

 
1,639

 
General and administrative
 
8,461

 
8,255

 
15,834

 
15,663

 
Property rights initiatives and other
 
271

 
527

 
490

 
1,181

 
Interest and related amortization
 
24,822

 
25,561

 
49,701

 
51,195

 
Income from property operations, excluding deferrals and property management
 
120,054

 
113,428

 
255,671

 
240,692

 
Right-to-use contracts, deferred and sales and marketing, deferred, net
 
(1,209
)
 
(682
)
 
(1,900
)
 
(1,088
)
 
Property management
 
(13,023
)
 
(12,044
)
 
(25,583
)
 
(23,807
)
 
Income from property operations
 
$
105,822

 
$
100,702

 
$
228,188

 
$
215,797

 
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION (EBITDA) AND ADJUSTED EBITDA. EBITDA is defined as net income or loss before interest income and expense, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA 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 acquisition and other transaction costs related to mergers and acquisitions; d) GAAP deferral of right-to-use contract upfront payments and related commissions, net; e) impairments, if any; and f) other miscellaneous non-comparable items. EBITDA and Adjusted EBITDA provide us with an understanding of one aspect of earnings before the impact of investing and financing charges. We believe that EBITDA and Adjusted EBITDA may be useful to an investor in evaluating our operating performance and liquidity because the measures are widely used to measure a company’s operating performance and they are used by rating agencies and other parties, including lenders, to evaluate our creditworthiness.
The following table reconciles Consolidated net income to EBITDA and Adjusted EBITDA (amounts in thousands):
 
 
Quarters Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2017
 
2016
 
2017
 
2016
 
Consolidated net income
 
$
44,463

 
$
40,804

 
$
107,537

 
$
97,994

 
Interest Income
 
(1,798
)
 
(1,625
)
 
(3,568
)
 
(3,285
)
 
Depreciation on real estate assets and rental homes
 
30,247

 
29,029

 
60,357

 
57,684

 
Amortization of in-place leases
 
958

 
428

 
1,990

 
763

 
Depreciation on corporate assets
 
314

 
279

 
603

 
558

 
Depreciation on unconsolidated joint ventures
 
364

 
305

 
811

 
595

 
Interest and related amortization
 
24,822

 
25,561

 
49,701

 
51,195

 
EBITDA
 
99,370

 
94,781

 
217,431

 
205,504

 
Right-to-use contract upfront payments, deferred, net
 
1,321

 
798

 
2,096

 
1,100

 
Right-to-use contract commissions, deferred, net
 
(112
)
 
(116
)
 
(196
)
 
(12
)
 
Transaction costs
 
220

 
398

 
324

 
598

 
Adjusted EBITDA
 
$
100,799

 
$
95,861

 
$
219,655

 
$
207,190

 

2Q 2017 Supplemental information
19 
Equity LifeStyle Properties, Inc.



CORE. The Core properties include properties we owned and operated during all of 2016 and 2017. We believe Core is a measure that is useful to investors for annual comparison as it removes the fluctuations associated with acquisitions, dispositions and significant transactions or unique situations.
ACQUISITIONS. The Acquisition properties include all properties that were not owned and operated in 2016 and 2017. This includes, but is not limited to, one property acquired during 2017, four properties acquired during 2016, and Tropical Palms RV Resort.
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.
NON-REVENUE PRODUCING IMPROVEMENTS. Represents capital expenditures that will not directly result in increased revenue or expense savings and are primarily comprised of common area improvements, furniture, and mechanical improvements.
FIXED CHARGES. Fixed charges consist of interest expense, amortization of note premiums and debt issuance costs.


2Q 2017 Supplemental information
20 
Equity LifeStyle Properties, Inc.