Company Quick10K Filing
Quick10K
Equity Lifestyle Properties
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$115.71 90 $10,410
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-30 Amend Bylaw, Shareholder Vote, Other Events, Exhibits
8-K 2019-04-22 Earnings, Exhibits
8-K 2019-03-14 Other Events, Exhibits
8-K 2019-02-12 Officers, Other Events
8-K 2019-01-28 Earnings, Exhibits
8-K 2019-01-23 Other Events
8-K 2019-01-23 Other Events
8-K 2018-11-06 Earnings, Regulation FD, Exhibits
8-K 2018-10-30 Other Events
8-K 2018-10-22 Earnings, Regulation FD, Exhibits
8-K 2018-09-21 Earnings, Regulation FD, Exhibits
8-K 2018-08-01 Officers, Other Events
8-K 2018-07-23 Earnings, Exhibits
8-K 2018-05-15 Earnings, Regulation FD, Exhibits
8-K 2018-04-23 Earnings, Exhibits
8-K 2018-03-15 Other Events, Exhibits
8-K 2018-03-09 Officers
8-K 2018-03-02 Earnings, Regulation FD
8-K 2018-02-27 Earnings, Officers, Amend Bylaw, Regulation FD, Other Events, Exhibits
8-K 2018-01-30 Earnings, Officers, Other Events, Exhibits
8-K 2017-10-26 Enter Agreement, Leave Agreement, Exhibits
PNFP Pinnacle Financial Partners 4,440
WWW Wolverine World Wide 2,860
WLDN Willdan Group 411
AIRG Airgain 158
EMX EMX Royalty 97
EGL Engility Holdings 0
INFOR Infor 0
LSMG Lode-Star Mining 0
SWKH SWK Holdings 0
ALRT ALR Technologies 0
ELS 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Leases
Note 4 - Earnings per Common Share
Note 5 - Common Stock and Other Equity Related Transactions
Note 6 - Investment in Real Estate
Note 7 - Investment in Unconsolidated Joint Ventures
Note 8 - Borrowing Arrangements
Note 9 - Derivative Instruments and Hedging Activities
Note 10 - Equity Incentive Awards
Note 11 - Commitments and Contingencies
Note 12 - Reportable Segments
Note 13 - Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 elsex311331201910q.htm
EX-31.2 elsex312331201910q.htm
EX-32.1 elsex321331201910q.htm
EX-32.2 elsex322331201910q.htm

Equity Lifestyle Properties Earnings 2019-03-31

ELS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 els331201910q.htm 10-Q Document
 
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 March 31, 2019
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 every Interactive Data File required to be submitted 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 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  
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:
89,998,829 shares of Common Stock as of April 22, 2019.
 



Equity LifeStyle Properties, Inc.
Table of Contents
 
 
 
Page
Item 1.
Financial Statements (unaudited)
 
 
Index To Financial Statements
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2


Part I – Financial Information

Item 1. Financial Statements

Equity LifeStyle Properties, Inc.
Consolidated Balance Sheets
(amounts in thousands, except share and per share data)
 
As of
 
As of
 
March 31, 2019
 
December 31, 2018

(unaudited)
 
 
Assets
 
 
 
Investment in real estate:
 
 
 
Land
$
1,412,050

 
$
1,408,832

Land improvements
3,184,597

 
3,143,745

Buildings and other depreciable property
747,268

 
720,900

 
5,343,915

 
5,273,477

Accumulated depreciation
(1,668,008
)
 
(1,631,888
)
Net investment in real estate
3,675,907

 
3,641,589

Cash and restricted cash
144,222

 
68,974

Notes receivable, net
34,811

 
35,041

Investment in unconsolidated joint ventures
58,465

 
57,755

Deferred commission expense
40,405

 
40,308

Other assets, net
55,067

 
46,227

Assets held for sale, net

 
35,914

Total Assets
$
4,008,877

 
$
3,925,808

 
 
 
 
Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Mortgage notes payable, net
$
2,147,490

 
$
2,149,726

Term loan, net
198,706

 
198,626

Accounts payable and other liabilities
120,298

 
102,854

Deferred revenue – upfront payments from right-to-use contracts
118,134

 
116,363

Deferred revenue – right-to-use annual payments
13,046

 
10,055

Accrued interest payable
8,729

 
8,759

Rents and other customer payments received in advance and security deposits
86,519

 
81,114

Distributions payable
58,637

 
52,617

Liabilities related to assets held for sale

 
12,350

Total Liabilities
2,751,559

 
2,732,464

Equity:
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 10,000,000 shares authorized as of March 31, 2019 and December 31, 2018; none issued and outstanding.

 

Common stock, $0.01 par value, 200,000,000 shares authorized as of March 31, 2019 and December 31, 2018; 89,996,134 and 89,921,018 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively.
896

 
896

Paid-in capital
1,332,410

 
1,329,391

Distributions in excess of accumulated earnings
(152,848
)
 
(211,034
)
Accumulated other comprehensive income
1,368

 
2,299

Total Stockholders’ Equity
1,181,826

 
1,121,552

Non-controlling interests – Common OP Units
75,492

 
71,792

Total Equity
1,257,318

 
1,193,344

Total Liabilities and Equity
$
4,008,877

 
$
3,925,808







The accompanying notes are an integral part of the consolidated financial statements.

3


Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income
(amounts in thousands, except per share data)
(unaudited)
 
Quarters Ended March 31,

 
2019

2018

Revenues:
 
 
 
 
Rental income
$
223,566

 
$
206,993

 
Right-to-use annual payments
12,316

 
11,519

 
Right-to-use contracts current period, gross
3,838

 
3,162

 
Right-to-use contract upfront payments, deferred, net
(1,771
)
 
(1,285
)
 
Other income
10,370

 
13,036

 
Gross revenues from home sales
6,475

 
8,309

 
Brokered resale and ancillary services revenues, net
1,559

 
1,401

 
Interest income
1,751

 
1,950

 
Income from other investments, net
986

 
940

 
Total revenues
259,090

 
246,025


Expenses:
 
 
 
 
Property operating and maintenance
77,948

 
76,332

 
Real estate taxes
15,323

 
14,135

 
Sales and marketing, gross
3,409

 
2,812

 
Right-to-use contract commissions, deferred, net
(191
)
 
(24
)
 
Property management
13,685

 
13,681

 
Depreciation and amortization
37,977

 
32,374

 
Cost of home sales
6,632

 
8,574

 
Home selling expenses
1,083

 
1,075

 
General and administrative
9,909

 
8,038

 
Other expenses
427

 
343

 
Interest and related amortization
26,393

 
25,703

 
Total expenses
192,595

 
183,043


Gain on sale of real estate, net
52,507

 

 
Income before equity in income of unconsolidated joint ventures
119,002

 
62,982


Equity in income of unconsolidated joint ventures
1,533

 
1,195

 
Consolidated net income
120,535

 
64,177


 
 
 
 
 
Income allocated to non-controlling interests – Common OP Units
(7,226
)
 
(3,955
)
 
Net income available for Common Stockholders
$
113,309

 
$
60,222


 
 
 
 
 
Consolidated net income
$
120,535

 
$
64,177

 
Other comprehensive income (loss):
 
 
 
 
Adjustment for fair market value of swap
(931
)
 
1,873

 
Consolidated comprehensive income
119,604

 
66,050


Comprehensive income allocated to non-controlling interests – Common OP Units
(7,170
)
 
(4,070
)
 
Comprehensive income attributable to Common Stockholders
$
112,434

 
$
61,980


 
 
 
 
 
Earnings per Common Share – Basic
$
1.26

 
$
0.68

 
 
 
 
 
 
Earnings per Common Share – Fully Diluted
$
1.26

 
$
0.68

 
 
 
 
 
 
Weighted average Common Shares outstanding – Basic
89,780

 
88,524

 
Weighted average Common Shares outstanding – Fully Diluted
95,624

 
94,577

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






The accompanying notes are an integral part of the consolidated financial statements.

4


Equity LifeStyle Properties, Inc.
Consolidated Statements of Changes in Equity
(amounts in thousands)
(unaudited)
 
Common
Stock
 
Paid-in
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests –
Common OP
Units
 
Total
Equity
Balance, December 31, 2018
$
896

 
$
1,329,391

 
$
(211,034
)
 
$
2,299

 
$
71,792

 
$
1,193,344

Exchange of Common OP Units for common stock

 
66

 

 

 
(66
)
 

Issuance of common stock through exercise of options

 
53

 

 

 
 
 
53

Issuance of common stock through employee stock purchase plan

 
652

 

 

 

 
652

Compensation expenses related to restricted stock and stock options

 
2,420

 

 

 

 
2,420

Repurchase of common stock or Common OP Units

 
(53
)
 

 

 
 
 
(53
)
Adjustment for Common OP Unitholders in the Operating Partnership

 
(56
)
 

 

 
56

 

Adjustment for fair market value of swap

 

 

 
(931
)
 

 
(931
)
Consolidated net income

 

 
113,309

 

 
7,226

 
120,535

Distributions

 

 
(55,123
)
 

 
(3,516
)
 
(58,639
)
Other

 
(63
)
 

 

 

 
(63
)
Balance, March 31, 2019
$
896

 
$
1,332,410

 
$
(152,848
)
 
$
1,368

 
$
75,492

 
$
1,257,318




 
Common
Stock
 
Paid-in
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
interests –
Common OP
Units
 
Total
Equity
Balance, December 31, 2017
$
883

 
$
1,242,109

 
$
(211,980
)
 
$
942

 
$
68,088

 
$
1,100,042

Cumulative effect of change in accounting principle
(ASC 606, Revenue Recognition)

 

 
(15,186
)
 

 

 
(15,186
)
Balance, January 1, 2018
883

 
1,242,109

 
(227,166
)
 
942

 
68,088

 
1,084,856

Exchange of Common OP Units for common stock

 
80

 

 

 
(80
)
 

Issuance of common stock through employee stock purchase plan

 
503

 

 

 

 
503

Compensation expenses related to restricted stock and stock options

 
1,800

 

 

 

 
1,800

Adjustment for Common OP Unitholders in the Operating Partnership

 
782

 

 

 
(782
)
 

Adjustment for fair market value of swap

 

 

 
1,873

 

 
1,873

Consolidated net income

 

 
60,222

 

 
3,955

 
64,177

Distributions

 

 
(48,805
)
 

 
(3,205
)
 
(52,010
)
Other

 
(60
)
 

 

 

 
(60
)
Balance, March 31, 2018
$
883

 
$
1,245,214

 
$
(215,749
)
 
$
2,815

 
$
67,976

 
$
1,101,139


 










The accompanying notes are an integral part of the consolidated financial statements.

5


Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited) 
 
Quarters Ended March 31,
 
2019
 
2018
Cash Flows From Operating Activities:
 
 
 
Consolidated net income
$
120,535

 
$
64,177

Adjustments to reconcile Consolidated net income to Net cash provided by operating activities:
 
 
 
Gain on sale of real estate, net
(52,507
)
 

Depreciation and amortization
38,404

 
32,717

Amortization of loan costs
887

 
871

Debt premium amortization
(101
)
 
(357
)
Equity in income of unconsolidated joint ventures
(1,533
)
 
(1,195
)
Distributions of income from unconsolidated joint ventures
677

 
490

Proceeds from insurance claims, net
4,150

 
3,031

Compensation expense related to restricted stock and stock options
2,420

 
1,800

Revenue recognized from right-to-use contract upfront payments
(2,067
)
 
(1,877
)
Commission expense recognized related to right-to-use contracts
938

 
901

Long-term incentive plan compensation
(3,987
)
 
238

Changes in assets and liabilities:
 
 
 
Notes receivable activity, net
122

 
639

Deferred commission expense
(1,035
)
 
(812
)
Other assets, net
(9,238
)
 
8,977

Accounts payable and other liabilities
20,402

 
4,527

Deferred revenue – upfront payments from right-to-use contracts
3,838

 
3,162

Deferred revenue – right-to-use annual payments
2,991

 
3,179

Rents and other customer payments received in advance and security deposits
3,202

 
1,233

Net cash provided by operating activities
128,098

 
121,701

Cash Flows From Investing Activities:
 
 
 
Real estate acquisitions, net
(13,012
)
 
(29,929
)
Proceeds from disposition of property, net
77,746

 

Investment in unconsolidated joint ventures

 
(3,791
)
Distributions of capital from unconsolidated joint ventures
58

 

Proceeds from insurance claims
761

 
265

Repayments of notes receivable

 
13,823

Capital improvements
(52,441
)
 
(31,316
)
Net cash provided by (used in) investing activities
13,112

 
(50,948
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from stock options and employee stock purchase plan
652

 
503

Distributions:
 
 
 
Common Stockholders
(49,457
)
 
(43,202
)
Common OP Unitholders
(3,161
)
 
(2,844
)
Principal payments and mortgage debt payoff
(13,683
)
 
(11,787
)
New mortgage notes payable financing proceeds

 
64,014

Line of Credit payoff

 
(77,000
)
Line of Credit proceeds

 
47,000

Debt issuance and defeasance costs
(250
)
 
(1,645
)
Other
(63
)
 
(57
)
Net cash used in financing activities
(65,962
)
 
(25,018
)
Net increase in Cash and restricted cash
75,248

 
45,735

Cash and restricted cash, beginning of period
68,974

 
35,631

Cash and restricted cash, end of period
$
144,222

 
$
81,366







The accompanying notes are an integral part of the consolidated financial statements.

6



Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows (continued)
(amounts in thousands)
(unaudited)
 
Quarters Ended March 31,
 
2019
 
2018
Supplemental Information:
 
 
 
Cash paid during the period for interest
$
25,729

 
$
25,943

Building and other depreciable property – reclassification of rental homes
$
5,520

 
$
9,385

Other assets, net – reclassification of rental homes
$
(5,520
)
 
$
(9,385
)
 
 
 
 
Real estate acquisitions:
 
 
 
Investment in real estate
$
(25,797
)
 
$
(48,186
)
Debt assumed
11,208

 
9,200

Debt financed

 
8,786

Other liabilities
1,577

 
271

Real estate acquisitions, net
$
(13,012
)
 
$
(29,929
)
 
 
 
 
Real estate dispositions:
 
 
 
Investment in real estate
$
35,572

 
$

Notes receivable, net
295

 

Other assets, net
97

 

Mortgage notes payable, net
(11,175
)
 

Other liabilities
450

 

Gain on sale of real estate, net
52,507

 
 
Real estate dispositions, net
$
77,746

 
$








































The accompanying notes are an integral part of the consolidated financial statements.

7


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements


Note 1 – Organization and Basis of Presentation
Equity LifeStyle Properties, Inc. ("ELS"), a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and its other consolidated subsidiaries (the “Subsidiaries”) are referred to herein as “we,” “us,” "the Company," and “our.” We are a fully integrated owner and operator of lifestyle-oriented properties ("Properties") consisting primarily of manufactured home ("MH") and recreational vehicle ("RV") communities. We provide our customers the opportunity to place factory-built homes, cottages, cabins or RVs on our Properties either on a long-term or short-term basis. Our customers may lease individual developed areas ("Sites") or enter right-to-use contracts, which provide them access to specific Properties for limited stays.
Our Properties are owned primarily by the Operating Partnership and managed internally by wholly-owned affiliates of the Operating Partnership. ELS is the sole general partner of the Operating Partnership, has exclusive responsibility and discretion in management and control of the Operating Partnership and held a 94.0% interest as of March 31, 2019. As the general partner with control, ELS is the primary beneficiary of, and therefore consolidates, the Operating Partnership.
Equity method of accounting is applied to entities in which ELS does not have a controlling interest or for variable interest entities in which ELS is not considered the primary beneficiary, but with respect to which it can exercise significant influence over operations and major decisions. Our exposure to losses associated with unconsolidated joint ventures is primarily limited to the carrying value of these investments. Accordingly, distributions from a joint venture in excess of our carrying value are recognized in earnings.
Capitalized terms used but not defined herein are as defined in our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Securities and Exchange Commission (“SEC”) rules and regulations for Quarterly Reports on Form 10-Q. Accordingly, they do not include all of the information and note disclosures required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2018 Form 10-K.
Intercompany balances and transactions have been eliminated. All adjustments to the interim consolidated financial statements are of a normal, recurring nature and, in the opinion of management, are necessary for a fair presentation of results for these interim periods. Revenues and expenses are subject to seasonal fluctuations and accordingly, quarterly interim results may not be indicative of full year results. Certain prior period amounts have been reclassified on our interim consolidated financial statements to conform with current year presentation.
Note 2 – Summary of Significant Accounting Policies
(a)    Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ("ASU 2016-02") Leases. This new guidance, including the related subsequently issued ASUs, provides the principles for the recognition, measurement, presentation and disclosure of leases, including the requirement that lessees recognize right-of-use ("ROU") assets and lease liabilities for leases on the Consolidated Balance Sheets.
We adopted the new lease standard effective January 1, 2019 and have elected to use January 1, 2019 as our date of initial application. Results for reporting periods beginning January 1, 2019 are presented under the new lease standard. We made an accounting policy election to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less. We elected the package of practical expedients permitted under the transition guidance within the new standard and were not required to reassess the following upon adoption: (i) whether an expired or existing contract met the definition of a lease, (ii) the lease classification at January 1, 2019 for existing leases and (iii) whether leasing costs previously capitalized as initial direct costs would continue to be amortized. Upon adoption, we did not have an adjustment to the opening balance of retained earnings due to the election of these practical expedients.
As a lessor, we adopted the practical expedient that allowed us not to separate expenses reimbursed by our customers (“utility recoveries”) from the associated rental revenue if certain criteria were met. We assessed these criteria and concluded the timing and pattern of transfer for rental revenue and the associated utility recoveries are the same and as our leases qualify as operating leases, we accounted for and presented rental revenue and utility recoveries as a single component under Rental income in our Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2019 and 2018. In addition, the new standard requires our expected credit loss related to the collectability of lease receivables to be reflected as an adjustment to the line item Rental income. For the three months ended March 31, 2018, the credit loss related to the collectability of lease

8

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (continued)

receivables was recognized in the line item Property operating and maintenance and was not significant. The guidance regarding capitalization of leasing costs did not have any effect on our consolidated financial statements.
On January 1, 2019, we recognized ROU assets of $17.5 million and lease liabilities of $18.7 million on the Consolidated Balance Sheets, principally for our ground and office space leases, in which we are the lessee.
For more disclosure on the adoption of the new lease accounting standard, see Note 3. Leases.
(b)    New Accounting Pronouncements
In August 2018, the FASB issued ("ASU 2018-15") Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 provides clarity on the accounting for implementation costs of a cloud computing arrangement that is a service contract. The project stage (that is, preliminary project stage, application development stage, or post implementation stage) and the nature of the implementation costs determine which costs to capitalize as an asset related to the service contract and which ones to expense. This update also requires the capitalized implementation costs to be expensed over the term of the arrangement and to be presented in the same line item in the consolidated financial statements as the fees associated with the service of the arrangement. ASU 2018-15 is effective in fiscal years beginning after December 15, 2019, including interim periods within those years. Early adoption is permitted. This guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently in the process of evaluating the potential impact, if any, that the adoption of this standard may have on the consolidated financial statements and related disclosures.
In June 2018, the SEC issued a final rule, Inline XBRL Filing of Tagged Data, which will require the use of the Inline eXtensible Business Reporting Language (XBRL) format for the submission of operating company financial statement information. In addition, the final rule will eliminate the requirement for operating companies to post “Interactive Data Files” (i.e., machine-readable computer code that presents information in XBRL format) on their websites. Large accelerated filers that prepare their financial statements in accordance with GAAP will be subject to Inline XBRL requirements beginning with the fiscal period ending on or after June 15, 2019. We expect to use Inline XBRL starting with the Form 10-Q for the quarter ending June 30, 2019. 
In June 2016, the FASB issued (“ASU 2016-13”) Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We are currently in the process of evaluating the potential impact, if any, that adoption of this standard may have on the consolidated financial statements and related disclosures.
(c)    Revenue Recognition
Right-to-use contracts (also referred to as memberships), provide our customers access to specific Properties for limited stays at a specified group of Properties. Payments are deferred and recognized on a straight-line basis over the one-year period in which access to Sites at certain Properties are provided. Right-to-use upgrade contracts grant certain additional access rights to the customer and require non-refundable upfront payments. The non-refundable upfront payments are recognized on a straight-line basis over 20 years.
Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred.
(d)    Restricted Cash
As of March 31, 2019 and December 31, 2018, restricted cash consists of $27.4 million and $24.1 million, respectively, primarily related to cash reserved for customer deposits and amounts escrowed for insurance and real estate taxes.


9


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 3 – Leases

Lessor
Rental income derived from customers renting our Sites is accounted for in accordance with Accounting Standard Codification (ASC) 842, Leases, and is recognized over the term of the respective operating lease or the length of a customer's stay. Our MH community Sites and annual RV community 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. In addition, customers may lease homes that are located in our Properties.
The leases entered into between the customer and us for the rental of a Site are renewable upon the consent of both parties or, in some instances, as provided by statute. Long-term leases that are non-cancelable by the tenants are in effect at certain Properties. Rental rate increases at these Properties are primarily a function of increases in the Consumer Price Index, taking into consideration certain conditions. Additionally, periodic market rate adjustments are made as deemed appropriate. In addition, certain state statutes allow entry into long-term agreements that effectively modify lease terms related to rent amounts and increases over the term of the agreements. The following table presents future minimum rents expected to be received under long-term non-cancelable tenant leases, as well as those leases that are subject to long-term agreements governing rent payments and increases:
 
(amounts in thousands)
 
As of
March 31, 2019
2019
 
$
73,507

2020
 
97,380

2021
 
41,914

2022
 
20,021

2023
 
19,702

Thereafter
 
84,616

Total
 
$
337,140

Lessee
We lease land under non-cancelable operating leases at 13 Properties expiring at various dates through 2054. The majority of the leases have terms requiring fixed payments plus additional rents based on a percentage of gross revenues at those Properties. We also have other operating leases, primarily office space expiring at various dates through 2026. For the quarters ended March 31, 2019 and 2018, total operating lease payments were $2.3 million and $2.0 million, respectively.
The following table summarizes our minimum future rental payments, excluding variable costs, which are discounted by our incremental borrowing rate to calculate the lease liabilities for our operating leases:
(amounts in thousands)
 
As of
March 31, 2019
 
As of
December 31, 2018
2019
 
$
3,925

 
$
4,921

2020
 
4,801

 
4,801

2021
 
4,179

 
4,179

2022
 
2,103

 
2,103

2023
 
953

 
953

Thereafter
 
5,054

 
5,054

Total undiscounted rental payments
 
21,015

 
22,011

Less imputed interest
 
3,087

 
3,289

Total lease liabilities
 
$
17,928

 
$
18,722

    
ROU assets and lease liabilities from our operating leases included within Other assets, net and Accounts payable and other liabilities in the Consolidated Balance Sheets were $16.6 million and $17.9 million, respectively, as of March 31, 2019. The weighted average remaining lease term for our operating leases was 8 years and the weighted average incremental borrowing rate was 4.4% at March 31, 2019.

10


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 4 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the quarters ended March 31, 2019 and 2018:
 
Quarters Ended March 31,
 (amounts in thousands, except per share data)
2019
 
2018
Numerator:
 
 
 
Net income available to Common Stockholders – Basic
113,309

 
60,222

Amounts allocated to dilutive securities
7,226

 
3,955

Net income available to Common Stockholders – Fully Diluted
$
120,535

 
$
64,177

Denominator:
 
 
 
Weighted average Common Shares outstanding – Basic
89,780

 
88,524

Effect of dilutive securities:
 
 
 
Exchange of Common OP Units for Common Shares
5,741

 
5,828

Restricted stock and stock options
103

 
225

Weighted average Common Shares outstanding – Fully Diluted
95,624

 
94,577

 
 
 
 
Earnings per Common Share – Basic
$
1.26

 
$
0.68

 
 
 
 
Earnings per Common Share – Fully Diluted
$
1.26

 
$
0.68


Note 5 – Common Stock and Other Equity Related Transactions
Common Stockholder Distribution Activity
The following quarterly distributions have been declared and paid to common stockholders and the limited partners of the Operating Partnership (the "Common OP Unit holders") since January 1, 2018.
Distribution Amount Per Share
 
For the Quarter Ended
 
Stockholder Record Date
 
Payment Date
$0.5500
 
March 31, 2018
 
March 30, 2018
 
April 13, 2018
$0.5500
 
June 30, 2018
 
June 29, 2018
 
July 13, 2018
$0.5500
 
September 30, 2018
 
September 28, 2018
 
October 12, 2018
$0.5500
 
December 31, 2018
 
December 28, 2018
 
January 11, 2019
$0.6125
 
March 31, 2019
 
March 29, 2019
 
April 12, 2019
On October 26, 2018, we entered into our current at-the-market equity offering program with certain sales agents, pursuant to which we may sell, from time-to-time, shares of our Common Stock, par value $0.01 per share, having an aggregate offering price of up to $200.0 million. The full capacity remained available for issuance as of March 31, 2019.
Exchanges
Subject to certain limitations, Common OP Unit holders can request an exchange of any or all of their OP Units for shares of Common Stock at any time. Upon receipt of such a request, we may, in lieu of issuing shares of Common Stock, cause the Operating Partnership to pay cash. During the quarter ended March 31, 2019, 5,325 OP Units were exchanged for an equal number of shares of Common Stock. During the same period in 2018, 6,838 OP Units were exchanged for an equal number of shares of Common Stock.

11


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 6 – Investment in Real Estate
Acquisitions
On March 25, 2019, we completed the acquisitions of Drummer Boy Camping Resort, a 465-site RV community located in Gettysburg, Pennsylvania, and Lake of the Woods Campground, a 303-site RV community located in Wautoma, Wisconsin, for a total purchase price of $25.4 million. These acquisitions were funded with available cash and a loan assumption of approximately $10.8 million, excluding mortgage premium of $0.4 million.
Dispositions
On January 23, 2019, we closed on the sale of five all-age MH communities located in Indiana and Michigan, collectively containing 1,463 sites, for $89.7 million. The assets and liabilities associated with the transaction were classifieds as held for sale on the Consolidated Balance Sheets as of December 31, 2018. We recognized a gain on sale of these Properties of $52.5 million during the first quarter of 2019.
Note 7 – Investment in Unconsolidated Joint Ventures
The following table summarizes our investment in unconsolidated joint ventures (investment amounts in thousands with the number of Properties shown parenthetically as of March 31, 2019 and December 31, 2018, respectively):
 
 
 
 
 
 
 
 
 
Investment as of
 
Income/(Loss) for
Quarters Ended
Investment
 
Location
 
 Number of Sites (a)
 
Economic
Interest
(b)
 
 
March 31,
2019
 
December 31,
2018
 
March 31,
2019
 
March 31,
2018
Meadows
 
Various (2,2)
 
1,077

 
50%
 
 
$
443

 
$
346

 
$
397

 
$
418

Lakeshore
 
Florida (3,3)
 
720

 
(c)
 
 
2,217

 
2,263

 
69

 
45

Voyager
 
Arizona (1,1)
 
1,801

 
50%
(d) 
 
3,651

 
3,135

 
604

 
571

Loggerhead
 
Florida
 
2,343

 
49%
 
 
35,789

 
35,789

 
321

 

ECHO JV
 
Various
 

 
50%
 
 
16,365

 
16,222

 
142

 
161

 
 
 
 
5,941

 
 
 
 
$
58,465

 
$
57,755

 
$
1,533

 
$
1,195

_____________________
(a)
Loggerhead sites represent marina slip count.
(b)
The percentages shown approximate our economic interest as of March 31, 2019. Our legal ownership interest may differ.
(c)
Includes two joint ventures in which we own a 65% interest and Crosswinds joint venture in which we own a 49% interest.
(d)
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 $0.7 million and $0.5 million in distributions from these joint ventures for the quarters ended March 31, 2019 and 2018, respectively. None of the distributions made to us exceeded our basis in joint ventures for the quarters ended March 31, 2019 and 2018.
Note 8 – Borrowing Arrangements
Mortgage Notes Payable
During the quarter ended March 31, 2019, we defeased mortgage debt of $11.2 million in conjunction with the disposition of the five MH Properties as disclosed in Note 6. Investment in Real Estate. These loans had a weighted average interest rate of 5.03% per annum. We also assumed mortgage debt of $10.8 million, excluding mortgage note premium of $0.4 million, as a result of acquisitions that closed during the quarter ended March 31, 2019. The loan carries an interest rate of 5.49% per annum and matures in 2024.
Our mortgage notes payable is classified as Level 2 in the fair value hierarchy as of March 31, 2019 and December 31, 2018. The following table presents the fair value of our mortgage notes payable:
 
 
As of March 31, 2019
 
As of December 31, 2018
(amounts in thousands)
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Mortgage notes payable, excluding deferred financing costs
 
$
2,236,125

 
$
2,172,139

 
$
2,164,563

 
$
2,174,715



12

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 8 – Borrowing Arrangements (continued)


The weighted average interest rate on our outstanding mortgage indebtedness, including the impact of premium/discount amortization and loan cost amortization on mortgage indebtedness, for the quarter ended March 31, 2019 was approximately 4.5% 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 2020 to 2041. The debt encumbered a total of 119 and 118 of our Properties as of March 31, 2019 and December 31, 2018, respectively, and the carrying value of such Properties was approximately $2,522.2 million and $2,489.8 million, as of March 31, 2019 and December 31, 2018, respectively.
Unsecured Line of Credit
During the quarter ended March 31, 2019, we did not borrow or pay off amounts on our unsecured Line of Credit ("LOC"). The full capacity on our LOC remained available.
As of March 31, 2019, we were in compliance in all material respects with the covenants in our borrowing arrangements.
Note 9 – Derivative Instruments and Hedging Activities
Cash Flow Hedges of Interest Rate Risk
Our objective in utilizing interest rate derivatives is to add stability to our interest expense and to manage our exposure to interest rate movements. We do not enter into derivatives for speculative purposes. In connection with our $200.0 million senior unsecured term loan (the “Term Loan”), which has an interest rate of LIBOR plus 1.20% to 1.90% per annum, we entered into a three-year LIBOR Swap Agreement (the "Swap") allowing us to trade the variable interest rate on the Term Loan for a fixed interest rate. The Swap has a notional amount of $200.0 million of outstanding principal with an underlying LIBOR of 1.85% per annum and matures on November 1, 2020. Based on the leverage as of March 31, 2019 and December 31, 2018, our spread over LIBOR was 1.20% resulting in an estimated all-in interest rate of 3.05% per annum.
Our derivative financial instrument is classified as Level 2 in the fair value hierarchy as of March 31, 2019 and December 31, 2018. The following table presents the fair value of our derivative financial instrument:
 
 
 
 
As of March 31,
 
As of December 31,
(amounts in thousands)
 
Balance Sheet Location
 
2019
 
2018
Interest Rate Swap
 
Other assets, net
 
$
1,368

 
$
2,299

The following table presents the effect of our derivative financial instrument on the Consolidated Statements of Income and Comprehensive Income:
Derivatives in Cash Flow Hedging Relationship
 
Amount of (gain)/loss recognized
in OCI on derivative
for the quarter ended March 31,
Location of (gain)/ loss reclassified from
accumulated OCI into income
 
Amount of (gain)/loss reclassified from
accumulated OCI into income
for the quarter ended March 31,
(amounts in thousands)
 
2019
 
2018
 
(amounts in thousands)
 
2019
 
2018
Interest Rate Swap
 
$
606

 
$
(1,746
)
 
Interest Expense
 
$
(325
)
 
$
127

During the next twelve months through March 31, 2020, we estimate that an additional $1.1 million will be reclassified as an increase to interest expense. This estimate may be subject to change as the underlying LIBOR changes. We determined that no adjustment was necessary for non-performance risk on our derivative obligation. As of March 31, 2019, we did not post any collateral related to this agreement.
Note 10 – Equity Incentive Awards
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. During the quarter ended March 31, 2019, 61,200 shares of restricted stock were awarded to certain members of our management team. Of these shares, 50% are time-based awards, vesting in equal installments over a three-year period on January 31, 2020, January 29, 2021, and January 31, 2022, respectively, and have a grant date fair value of $3.2 million. The remaining 50% are performance-based awards, and are valued using the closing price at the grant date when all the key terms and conditions are known to all parties. The 10,201 shares of restricted stock awarded in 2019 subject to 2019 performance goals have a grant date fair value of $1.1 million. Additionally, 11,711 shares of restricted stock awarded in 2018 subject to 2019 performance goals have a grant date fair value of $1.3 million.

13

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 – Equity Incentive Awards (continued)



Compensation expense related to restricted stock and stock options, reported in General and administrative on the Consolidated Statements of Income and Comprehensive Income, for the quarters ended March 31, 2019 and 2018 was approximately $2.4 million and $1.8 million, respectively.
Note 11 – Commitments and Contingencies
We are involved in various legal and regulatory proceedings ("Proceedings") arising in the ordinary course of business. The Proceedings include, but are not limited to, legal claims made by employees, vendors and customers, and notices, consent decrees, information requests, and additional permit requirements and other similar enforcement actions by governmental agencies relating to our utility infrastructure, including water and wastewater treatment plants and other waste treatment facilities and electrical systems. Additionally, in the ordinary course of business, our operations are subject to audit by various taxing authorities. Management believes these 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.

14


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 12 – 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.
All revenues were from external customers and there was no customer who contributed 10% or more of our total revenues during the quarters ended March 31, 2019 or 2018.
The following tables summarize our segment financial information for the quarters ended March 31, 2019 and 2018:
Quarter Ended March 31, 2019
(amounts in thousands)
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
246,016

 
$
10,337

 
$
256,353

Operations expenses
(108,970
)
 
(8,919
)
 
$
(117,889
)
Income from segment operations
137,046

 
1,418

 
$
138,464

Interest income
894

 
850

 
$
1,744

Depreciation and amortization
(35,543
)
 
(2,434
)
 
$
(37,977
)
Gain on sale of real estate, net
52,507

 

 
$
52,507

Income (loss) from operations
$
154,904

 
$
(166
)
 
$
154,738

Reconciliation to consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
7

Income from other investments, net
 
 
 
 
986

General and administrative
 
 
 
 
(9,909
)
Other expenses
 
 
 
 
(427
)
Interest and related amortization
 
 
 
 
(26,393
)
Equity in income of unconsolidated joint ventures
 
 
 
 
1,533

Consolidated net income
 
 
 
 
$
120,535

 
 
 
 
 
 
Total assets
$
3,771,453

 
$
237,424

 
$
4,008,877

Capital improvements
$
24,406

 
$
28,035

 
$
52,441


Quarter Ended March 31, 2018
(amounts in thousands)
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
231,016

 
$
12,119

 
$
243,135

Operations expenses
(105,512
)
 
(11,073
)
 
(116,585
)
Income from segment operations
125,504

 
1,046

 
126,550

Interest income
808

 
907

 
1,715

Depreciation and amortization
(29,874
)
 
(2,500
)
 
(32,374
)
Income (loss) from operations
$
96,438

 
$
(547
)
 
$
95,891

Reconciliation to consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
235

Income from other investments, net
 
 
 
 
940

General and administrative
 
 
 
 
(8,038
)
Other expenses
 
 
 
 
(343
)
Interest and related amortization
 
 
 
 
(25,703
)
Equity in income of unconsolidated joint ventures
 
 
 
 
1,195

Consolidated net income
 
 
 
 
$
64,177

 
 
 
 
 
 
Total assets
$
3,547,466

 
$
142,617

 
$
3,690,083

Capital improvements
$
21,267

 
$
10,049

 
$
31,316


15

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 12 - Reportable Segments (continued)


The following table summarizes our financial information for the Property Operations segment for the quarters ended March 31, 2019 and 2018:    
 
Quarters Ended March 31,
(amounts in thousands)
2019

2018
Revenues:
 
 
 
Rental income
$
219,982

 
$
203,478

Right-to-use annual payments
12,316

 
11,519

Right-to-use contracts current period, gross
3,838

 
3,162

Right-to-use contract upfront payments, deferred, net
(1,771
)
 
(1,285
)
Other income
10,370

 
13,036

Ancillary services revenues, net
1,281

 
1,106

Total property operations revenues
246,016

 
231,016

Expenses:
 
 
 
Property operating and maintenance
76,744

 
74,908

Real estate taxes
15,323

 
14,135

Sales and marketing, gross
3,409

 
2,812

Right-to-use contract commissions, deferred, net
(191
)
 
(24
)
Property management
13,685

 
13,681

Total property operations expenses
108,970

 
105,512

Income from property operations segment
$
137,046

 
$
125,504


The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters ended March 31, 2019 and 2018:
 
Quarters Ended March 31,
(amounts in thousands)
2019
 
2018
Revenues:
 
 
 
Rental income (a)
$
3,584

 
$
3,515

Gross revenue from home sales
6,475

 
8,309

Brokered resale revenues, net
278

 
282

Ancillary services revenues, net

 
13

Total revenues
10,337

 
12,119

Expenses:
 
 
 
Property operating and maintenance
1,204

 
1,424

Cost of home sales
6,632

 
8,574

Home selling expenses
1,083

 
1,075

Total expenses
8,919

 
11,073

Income from home sales and rentals operations segment
$
1,418

 
$
1,046

______________________
(a)
Segment information includes income related to rental homes. Income related to Site rent on rental homes is included within property operations.

Note 13 – Subsequent Event
On April 10, 2019, we completed the acquisition of Round Top RV Campground, a 391-site RV community located in Gettysburg, Pennsylvania. The purchase price was approximately $12.4 million. This acquisition was funded with available cash and a loan assumption of approximately $7.8 million, excluding mortgage premium of $0.2 million.


16


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 in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Form 10-K"), as well as information in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2018 Form 10-K.
Overview and Outlook
We are a self-administered and self-managed real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. We are a fully integrated owner and operator of lifestyle-oriented properties (“Properties”) consisting primarily of manufactured home ("MH") and recreational vehicle ("RV") communities. As of March 31, 2019, we owned or had an ownership interest in a portfolio of 411 Properties located throughout the United States and Canada containing 154,742 Sites. These Properties are located in 33 states and British Columbia, with more than 90 Properties with lake, river or ocean frontage and more than 120 Properties within 10 miles of the coastal United States.
We invest in Properties in sought-after locations near retirement and vacation destinations and urban areas across the United States with a focus on delivering value for both customers and stockholders. 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 and retaining high quality customers, who take pride in our Properties and in their homes, and efficiently managing our Properties by increasing occupancy, maintaining competitive market rents and controlling expenses.
We believe that demand from baby boomers for manufactured housing and RV communities will continue to outpace supply for several years. We believe these individuals, seeking an active lifestyle, will continue to drive the market for second-home sales as vacation properties, investment opportunities, or retirement retreats. The entitlement process to develop new MH and RV communities is extremely restrictive. As a result, there have been few new communities developed in our target geographic markets. We believe it is likely that over the next decade, we will continue to see high levels of second-home sales and that manufactured homes and cottages in our Properties will continue to provide a viable second-home alternative to site-built homes.
We also believe that our Properties and our business model provide an opportunity for increased cash flows and appreciation in value. These may be achieved through increasing occupancy and maintaining market rents, as well as expense controls, expansion of existing Properties and opportunistic acquisitions. We actively seek to acquire and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties, which may include contracts outstanding to acquire such properties that are subject to the satisfactory completion of our due diligence review.

We generate the majority of our revenues from customers renting our individual developed areas ("Sites"), or entering into right-to-use contracts (also referred to as memberships), which provide our customers access to specific Properties for limited stays. Our MH community Sites and annual RV community Sites are leased on an annual basis. Seasonal Sites are leased to customers generally for one to six months. Transient Sites are leased to customers on a short-term basis. The revenue from seasonal and transient Sites is generally higher during the first and third quarters. We consider the transient revenue stream to be our most volatile as it is subject to weather conditions and other factors affecting the marginal RV customer's vacation and travel preferences. We also have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures on the Consolidated Statements of Income and Comprehensive Income.

The following table shows the breakdown of our Sites by type (amounts are approximate):

 
Total Sites as of March 31, 2019
MH Community Sites
71,900

RV Community Sites:
 
Annual
29,500

Seasonal
11,300

Transient
11,800

Right-to-use Membership (1)
24,300

Joint Ventures (2)
5,900

 
154,700

_________________________ 
(1) 
Primarily utilized to service the approximately 112,400 membership customers who have entered into a right-to-use contract. Includes approximately 5,900 Sites rented on an annual basis.
(2) 
Includes approximately 2,700 annual Sites, 400 seasonal Sites, and 500 transient Sites and includes approximately 2,300 marina slips.

17

Management's Discussion and Analysis (continued)


In our Home Sales and Rental Operations business, our revenue streams include home sales, home rentals, brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing factory-built 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 represents an attractive source of occupancy and the opportunity to convert the renter to a homebuyer in the future. We also sell and rent homes through our joint venture, ECHO Financing, LLC (the "ECHO JV"). We offer home sale brokerage services to residents of our Properties who move from a Property but do not relocate their home. In addition, we operate ancillary activities at certain Properties, such as golf courses, pro shops, stores and restaurants.
In the manufactured housing industry, options for home financing, also known as chattel financing, are limited. Chattel financing options available today include community owner-funded programs or third party lender programs that provide subsidized financing to customers and often require the community owner to guarantee customer defaults. Third party lender programs have stringent underwriting criteria, sizable down payment requirements, short 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.
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 ("Normalized FFO"), (iii) Income from property operations, (iv) Income from property operations, excluding deferrals and property management, (v) Core Portfolio income from property operations, excluding deferrals and property management (operating results for Properties owned and operated in both periods under comparison), and (vi) Income from rental operations, net of depreciation. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Definitions and reconciliations of these measures to the most comparable GAAP measures are included below in this discussion.
Results Overview
For the quarter ended March 31, 2019, Net income available for Common Stockholders increased $53.1 million, or $0.58 per fully diluted Common Share, to $113.3 million, or $1.26 per fully diluted Common Share, compared to $60.2 million, or $0.68 per fully diluted Common Share, for the same period in 2018. Net income available for Common Stockholders for the quarter ended March 31, 2019 included a gain on sale of real estate, net of $52.5 million as a result of the sale of five MH communities.
For the quarter ended March 31, 2019, FFO available for Common Stock and OP Unit holders increased $9.8 million, or $0.09 per fully diluted Common Share, to $108.0 million, or $1.13 per fully diluted Common Share, compared to $98.2 million, or $1.04 per fully diluted Common Share, for the same period in 2018.
For the quarter ended March 31, 2019, Normalized FFO available for Common Stock and OP Unit holders increased $9.8 million, or $0.09 per fully diluted Common Share, to $107.7 million, or $1.13 per fully diluted Common Share, compared to $97.9 million, or $1.04 per fully diluted Common Share, for the same period in 2018.
For the quarter ended March 31, 2019, property operating revenues in our Core Portfolio, excluding deferrals, increased 4.0% and property operating expenses in our Core Portfolio, excluding deferrals and property management, increased 2.6%, from the quarter ended March 31, 2018, resulting in an increase in income from property operations, excluding deferrals and property management, of 4.9% compared to the same period in 2018.
We continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our Core Portfolio. Our Core Portfolio average occupancy includes both homeowners and renters in our MH communities and was 95.3% for the quarter ended March 31, 2019, compared to 95.1% for the quarter ended December 31, 2018 and 94.8% for the quarter ended March 31, 2018. As of March 31, 2019, our Core Portfolio occupancy increased 78 Sites with an increase in homeowner occupancy of 64 Sites compared to occupancy as of December 31, 2018. By comparison, our Core Portfolio occupancy increased 67 Sites with an increase in homeowner occupancy of 114 Sites from the same period in 2018. Additionally, for the quarter ended March 31, 2019, we have experienced rental rate increases, contributing to a 4.4% growth in community base rent compared to the same period in 2018.
We continue to experience growth in RV rental income in our Core Portfolio as a result of our ability to increase rates and occupancy. RV rental income in our Core Portfolio for the quarter ended March 31, 2019 was 4.2% higher than the same period in 2018. Annual and seasonal rental income for the quarter ended March 31, 2019 increased 6.1% and 2.8%, respectively. Transient rental income was flat for the quarter ended March 31, 2019 compared to the same period in 2018, mainly due to weather related events at a limited number of Properties.
We experienced growth in our membership base within our Thousand Trails portfolio during the quarter ended March 31, 2019. We sold approximately 3,600 Thousand Trails camping passes in the quarter, an increase of 16.1% over the same period in 2018. In addition, we upgraded 634 members during the quarter ended March 31, 2019, 9.1% more than the same period in 2018.

18

Management's Discussion and Analysis (continued)


We are now focused on our summer season, where we will start our 100 days of camping campaign. Our customers are increasingly choosing self-service options to complete their transactions with us. During the quarter ended March 31, 2019, our total Core RV rental income through digital channels increased 31.6% and our sales of online camping passes increased 33.1% compared to the same period in 2018.
We continue to see high demand for our homes and communities. We closed 91 new home sales during the quarter ended March 31, 2019 compared to 130 during the same period in 2018. The decline from the same period last year was mainly attributable to filling sites in our communities, particularly in Colorado.
As of March 31, 2019, we had 3,966 occupied rental homes in our Core MH communities, including 290 homes rented through our ECHO JV. Home rental program net operating income in our Core Portfolio was $7.6 million, net of rental asset depreciation expense of $2.4 million, for the quarter ended March 31, 2019, and $7.4 million, net of rental asset depreciation expense of $2.4 million for the quarter ended March 31, 2018. Approximately $7.7 million and $7.9 million of home rental operations revenue was included in community base rental income in our Core Portfolio for the quarters ended March 31, 2019 and 2018, respectively.
Our gross investment in real estate increased approximately $70.4 million to $5,343.9 million as of March 31, 2019 from $5,273.5 million as of December 31, 2018, primarily due to new acquisitions, as well as capital expenditures during the quarter ended March 31, 2019.
The following chart lists the Properties acquired or sold from January 1, 2018 through March 31, 2019 and Sites added through expansion opportunities at our existing Properties.
Property
 
Location
 
Type of Property
 
Transaction Date
 
Sites
 
 
 
 
 
 
 
 
 
Total Sites as of January 1, 2018
 
 
 
 
 
 
 
151,323
Acquisitions:
 
 
 
 
 
 
 
 
Kingswood
 
Riverview, Florida
 
MH
 
March 8, 2018
 
229
Serendipity
 
Clearwater, Florida
 
MH
 
March 15, 2018
 
425
Holiday Travel Park
 
Holiday, Florida
 
RV
 
April 20, 2018
 
613
Everglades Lakes
 
Fort Lauderdale, Florida
 
MH
 
July 20, 2018
 
612
Sunseekers RV Resort
 
North Fort Myers, Florida
 
RV
 
September 21, 2018
 
241
Timber Creek RV Resort
 
Westerly, Rhode Island
 
RV
 
November 20, 2018
 
364
Palm Lake
 
Riviera Beach, Florida
 
MH
 
December 13, 2018
 
915
King Nummy Trail Campground
 
Cape May Court House, New Jersey
 
RV
 
December 20, 2018
 
313
Drummer Boy Camping Resort
 
Gettysburg, Pennsylvania
 
RV
 
March 25, 2019
 
465
Lake of the Woods Campground
 
Wautoma, Wisconsin
 
RV
 
March 25, 2019
 
303
 
 
 
 
 
 
 
 
 
Expansion Site Development:
 
 
 
 
 
 
 
 
Sites added in 2018
 
 
 
 
 
 
 
419
 
 
 
 
 
 
 
 
 
Site Reconfigured
 
 
 
 
 
 
 
(17)
 
 
 
 
 
 
 
 
 
Dispositions:
 
 
 
 
 
 
 
 
Hoosier Estates
 
Lebanon, Indiana
 
MH
 
January 23, 2019
 
(288)
Lake in the Hills
 
Auburn Hills, Michigan
 
MH
 
January 23, 2019
 
(238)
North Glen Village
 
Westfield, Indiana
 
MH
 
January 23, 2019
 
(282)
Oak Tree Village
 
Portage, Indiana
 
MH
 
January 23, 2019
 
(361)
Swan Creek
 
Ypsilanti, Michigan
 
MH
 
January 23, 2019
 
(294)
Total Sites as of March 31, 2019
 
 
 
 
 
 
 
154,742
 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures
Management's discussion and analysis of financial condition and results of operations include certain Non-GAAP financial measures that in management's view of the business are meaningful as they allow investors the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative of recurring annual cash flow of the portfolio. These Non-GAAP financial measures as determined and presented by us may not be comparable to similarly titled measures reported by other companies, and include Income from property operations and Core Portfolio, FFO, Normalized FFO and Income from rental operations, net of depreciation.
We believe investors should review Income from property operations and Core Portfolio, FFO, Normalized FFO and Income from rental operations, net of depreciation, along with GAAP net income and cash flow from operating activities, investing activities

19

Management's Discussion and Analysis (continued)


and financing activities, when evaluating an equity REIT's operating performance. A discussion of Income from property operations and Core Portfolio, FFO, Normalized FFO and Income from rental operations, net of depreciation, and a reconciliation to net income, are included below.
Income from Property Operations and Core Portfolio
We use Income from property operations and Income from property operations, excluding deferrals and property management, and Core Portfolio income from property operations, excluding deferrals and property management, as alternative measures to evaluate the operating results of our MH and RV communities. Income from property operations represents rental income, utility and other income and right-to-use income less property and rental home operating and maintenance expenses, real estate taxes, sales and marketing expenses and property management expenses. Income from property operations, excluding deferrals and property management, represents income from property operations excluding property management expenses and the impact of the GAAP deferral of right-to-use contract upfront payments and related commissions, net. For comparative purposes, we present bad debt expense within Property operating, maintenance and real estate taxes in the current and prior periods.
Our Core Portfolio consists of our Properties owned and operated since January 1, 2018. Core Portfolio income from property operations, excluding deferrals and property management, is useful to investors for annual comparison as it removes the fluctuations associated with acquisitions, dispositions and significant transactions or unique situations. Our Non-Core Portfolio includes all Properties that were not owned and operated during all of 2018 and 2019, including Fiesta Key and Sunshine Key RV communities.
Funds from Operations ("FFO") and Normalized Funds from Operations ("Normalized FFO")
We define FFO as net income, computed in accordance with GAAP, excluding gains or losses from sales of properties, depreciation and amortization related to real estate, impairment charges, and adjustments to reflect our share of FFO of unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with our interpretation of standards established by 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 upfront 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 Normalized FFO as FFO excluding the following non-operating income and expense items: a) gains and losses from early debt extinguishment, including prepayment penalties and defeasance costs, and b) other miscellaneous non-comparable items. Normalized FFO presented herein is not necessarily comparable to Normalized FFO presented by other real estate companies due to the fact that not all real estate companies use the same methodology for computing this amount.
We believe that FFO and Normalized FFO are helpful to investors as supplemental measures of the performance of an equity REIT. We believe that by excluding the effect of gains or losses from sales of properties, depreciation and amortization related to real estate and impairment charges, which are based on historical costs and 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, including prepayment penalties and defeasance costs 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 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 more complete picture of the home rental program operating results including the impact of depreciation which affects our home rental program investment decisions.
Our definitions and calculations of these Non-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

20

Management's Discussion and Analysis (continued)


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.
The following table reconciles Net income available for Common Stockholders to Income from property operations:
 
Quarters Ended March 31,
(amounts in thousands)
2019
 
2018
Computation of Income from Property Operations:
 
 
 
Net income available for Common Stockholders
$
113,309

 
$
60,222

Income allocated to non-controlling interests - Common OP Units
7,226

 
3,955

Equity in income of unconsolidated joint ventures
(1,533
)
 
(1,195
)
Income before equity in income of unconsolidated joint ventures
119,002

 
62,982

Gain on sale of real estate, net
(52,507
)
 

Total other expenses, net
71,969

 
63,568

Income from home sales operations and other
(319
)
 
(61
)
Income from property operations
$
138,145

 
$
126,489

    
The following table presents a calculation of FFO and Normalized FFO available for Common Stock and OP Unit holders:
 
 
Quarters Ended March 31,
(amounts in thousands)
 
2019
 
2018
Computation of FFO and Normalized FFO:
 
 
 
 
Net income available for Common Stockholders
 
$
113,309

 
$
60,222

Income allocated to non-controlling interests - Common OP units
 
7,226

 
3,955

Right-to-use contract upfront payments, deferred, net
 
1,771

 
1,285

Right-to-use contract commissions, deferred, net
 
(191
)
 
(24
)
Depreciation and amortization
 
37,977

 
32,374

Depreciation on unconsolidated joint ventures
 
433

 
373

Gain on sale of real estate, net
 
(52,507
)
 

FFO available for Common Stock and OP Unit holders
 
108,018

 
98,185

Insurance proceeds due to catastrophic weather event (1)
 
(349
)
 
(286
)
Normalized FFO available for Common Stock and OP Unit holders
 
$
107,669

 
$
97,899

Weighted average Common Shares outstanding – fully diluted
 
95,624

 
94,577

______________________
(1) Represents insurance recovery revenue from reimbursement for capital expenditures related to Hurricane Irma.


21

Management's Discussion and Analysis (continued)


Results of Operations

Comparison of the Quarter Ended March 31, 2019 to the Quarter Ended March 31, 2018
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 March 31, 2019 and 2018. 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
(amounts in thousands)
2019
 
2018
 
Variance
 
%
Change
 
2019
 
2018
 
Variance
 
%
Change
Community base rental income
$
131,038

 
$
124,789

 
$
6,249

 
5.0
 %
 
$
135,282

 
$
126,739

 
$
8,543

 
6.7
 %
Rental home income
3,490

 
3,231

 
259

 
8.0
 %
 
3,584

 
3,515

 
69

 
2.0
 %
Resort base rental income
65,934

 
63,287

 
2,647

 
4.2
 %
 
72,168

 
64,254

 
7,914

 
12.3
 %
Right-to-use annual payments
12,310

 
11,517

 
793

 
6.9
 %
 
12,316

 
11,519

 
797

 
6.9
 %
Right-to-use contracts current period, gross
3,838

 
3,162

 
676

 
21.4
 %
 
3,838

 
3,162

 
676

 
21.4
 %
Utility and other income
22,617

 
24,059

 
(1,442
)
 
(6.0
)%
 
23,751

 
25,521

 
(1,770
)
 
(6.9
)%
Property operating revenues, excluding deferrals
239,227

 
230,045

 
9,182

 
4.0
 %
 
250,939

 
234,710

 
16,229

 
6.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Property operating and maintenance
74,301

 
73,137

 
1,164

 
1.6
 %
 
77,593

 
74,908

 
2,685

 
3.6
 %
Rental home operating and maintenance
1,182

 
1,360

 
(178
)
 
(13.1
)%
 
1,204

 
1,424

 
(220
)
 
(15.4
)%
Real estate taxes
14,574

 
13,824

 
750

 
5.4
 %
 
15,323

 
14,135

 
1,188

 
8.4
 %
Sales and marketing, gross
3,413

 
2,812

 
601

 
21.4
 %
 
3,409

 
2,812

 
597

 
21.2
 %
Property operating expenses, excluding deferrals and Property management
93,470

 
91,133

 
2,337

 
2.6
 %
 
97,529

 
93,279

 
4,250

 
4.6
 %
Income from property operations, excluding deferrals and Property management (1)
145,757

 
138,912

 
6,845

 
4.9
 %
 
153,410

 
141,431

 
11,979

 
8.5
 %
Property management
13,684

 
13,681

 
3

 
 %
 
13,685

 
13,681

 
4

 
 %
Income from property operations, excluding deferrals (1)
132,073

 
125,231

 
6,842

 
5.5
 %
 
139,725

 
127,750

 
11,975

 
9.4
 %
Right-to-use contracts, deferred and sales and marketing, deferred, net
1,580

 
1,261

 
319

 
25.3
 %
 
1,580

 
1,261

 
319

 
25.3
 %
Income from property operations (1)
$
130,493

 
$
123,970

 
$
6,523

 
5.3
 %
 
$
138,145

 
$
126,489


$
11,656

 
9.2
 %
__________________________
(1)     Non-GAAP measure, see the Results Overview section of the Management Discussion and Analysis for Non-GAAP Financial Measure Definitions and reconciliations of these Non-GAAP measures to Net Income available to Common Shareholders.
Total Portfolio income from property operations for 2019 increased $11.7 million, or 9.2%, from 2018, comprised of an increase of $6.5 million, or 5.3%, from our Core Portfolio and an increase of $5.1 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily due to higher community base rental income and resort base rental income. The increase in income from property operations from our Non-Core Portfolio was mainly due to income from property operations from our acquisitions that closed during 2018 and Fiesta Key and Sunshine Key RV communities.
Property Operating Revenues
Community base rental income in our Core Portfolio for 2019 increased $6.2 million, or 5.0%, from 2018, which reflects 4.4% growth from rate increases and 0.6% growth from occupancy gains. The average monthly base rental income per Site in our Core Portfolio increased to approximately $659 in 2019 from approximately $631 in the same period in 2018. The average occupancy for our Core Portfolio increased to 95.3% in 2019 from 94.8% in the same period in 2018.
Resort base rental income in our Core Portfolio for 2019 increased $2.6 million, or 4.2%, from 2018, primarily driven by higher rental rates. Resort base rental income is comprised of the following:

22

Management's Discussion and Analysis (continued)


 
Core Portfolio
 
Total Portfolio
(amounts in thousands)
2019
 
2018
 
Variance
 
%
Change
 
2019
 
2018
 
Variance
 
%
Change
Annual
$
37,349

 
$
35,199

 
$
2,150

 
6.1
 %
 
$
39,084

 
$
35,156

 
$
3,928

 
11.2
%
Seasonal
19,184

 
18,659

 
525

 
2.8
 %
 
21,085

 
19,023

 
2,062

 
10.8
%
Transient
9,401

 
9,429

 
(28
)
 
(0.3
)%
 
11,999

 
10,075

 
1,924

 
19.1
%
Resort base rental income
$
65,934

 
$
63,287

 
$
2,647

 
4.2
 %
 
$
72,168

 
$
64,254

 
$
7,914

 
12.3
%
Utility and other income in our Core Portfolio for 2019 decreased by $1.4 million, or 6.0%, from 2018 due to insurance recovery revenue related to Hurricane Irma of $2.2 million recorded in our Core portfolio during the first quarter of 2018 to offset expenses incurred. This decrease was partially offset by a $0.7 million increase in utility income, primarily in electric and gas.
Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for 2019 increased $2.3 million, or 2.6%, from 2018, mainly due to an increase of $0.8 million in property taxes, an increase of $0.8 million in insurance expense and an increase of $0.7 million in property payroll primarily from wage increases.
Home Sales and Rental Operations
Home Sales Operation
The following table summarizes certain financial and statistical data for Home Sales Operation.
 
 
Quarters Ended March 31,
(amounts in thousands, except home sales volumes)
 
2019
 
2018
 
Variance
 
%
Change
Gross revenues from new home sales (1)
 
$
4,564

 
$
6,736

 
$
(2,172
)
 
(32.2
)%
Cost of new home sales (1)
 
(4,394
)
 
(6,510
)
 
2,116

 
32.5
 %
Gross profit from new home sales
 
170

 
226

 
(56
)
 
(24.8
)%
 
 
 
 
 
 
 
 
 
Gross revenues from used home sales
 
1,911

 
1,573

 
338

 
21.5
 %
Cost of used home sales
 
(2,238
)
 
(2,064
)
 
(174
)
 
(8.4
)%
Loss from used home sales
 
(327
)
 
(491
)
 
164

 
33.4
 %
 
 
 
 
 
 
 
 
 
Brokered resale and ancillary services revenues, net
 
1,559

 
1,401

 
158

 
11.3
 %
Home selling expenses
 
(1,083
)
 
(1,075
)
 
(8
)
 
(0.7
)%
Income from home sales operations and other
 
$
319

 
$
61

 
$
258

 
423.0
 %
 
 
 
 
 
 
 
 
 
Home sales volumes
 
 
 
 
 
 
 
 
Total new home sales (2)
 
91