EQUITY LIFESTYLE PROPERTIES INC 10-Q

Item 1. Financial Statements Equity LifeStyle Properties, Inc. Consolidated Balance Sheets (amounts in thousands, except share and per share data) As of As of June 30, 2021 December 31, 2020 (unaudited) Assets Investment in real estate: Land $ 1,877,023 $ 1,676,636 Land improvements 3,702,696 3,543,479 Buildings and other depreciable property 1,027,716 940,311 6,607,435 6,160,426 Accumulated depreciation ( 2,014,797 ) ( 1,924,585 ) Net investment in real estate 4,592,638 4,235,841 Cash and restricted cash 44,753 24,060 Notes receivable, net 38,072 35,844 Investment in unconsolidated joint ventures 20,496 19,726 Deferred commission expense 45,288 42,472 Other assets, net 82,760 61,026 Total Assets $ 4,824,007 $ 4,418,969 Liabilities and Equity Liabilities: Mortgage notes payable, net $ 2,621,130 $ 2,444,930 Term loan, net 297,261 — Unsecured line of credit 62,000 222,000 Accounts payable and other liabilities 164,331 129,666 Deferred membership revenue 167,631 150,692 Accrued interest payable 8,753 8,336 Rents and other customer payments received in advance and security deposits 130,903 92,587 Distributions payable 70,007 66,003 Total Liabilities 3,522,016 3,114,214 Equity: Stockholders' Equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized as of June 30, 2021 and December 31, 2020; none issued and outstanding. — — Common stock, $ 0.01 par value, 600,000,000 and shares authorized as of June 30, 2021 and December 31, 2020; 183,754,301 and 182,230,631 shares issued and outstanding as of June 30, 2021, and December 31, 2020, respectively. 1,827 1,813 Paid-in capital 1,424,350 1,411,397 Distributions in excess of accumulated earnings ( 185,930 ) ( 179,523 ) Accumulated other comprehensive income (loss) 239 — Total Stockholders’ Equity 1,240,486 1,233,687 Non-controlling interests – Common OP Units 61,505 71,068 Total Equity 1,301,991 1,304,755 Total Liabilities and Equity $ 4,824,007 $ 4,418,969 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenues: Rental income $ 255,698 $ 217,963 $ 504,720 $ 457,309 Annual membership subscriptions 14,267 12,961 27,921 26,034 Membership upgrade sales current period, gross 9,207 5,048 19,221 9,891 Membership upgrade sales upfront payments, deferred, net ( 6,454 ) ( 2,666 ) ( 13,881 ) ( 5,208 ) Other income 14,185 9,680 24,706 20,739 Gross revenues from home sales 24,427 8,866 39,647 20,175 Brokered resale and ancillary services revenues, net 3,129 ( 575 ) 5,466 363 Interest income 1,742 1,791 3,509 3,598 Income from other investments, net 1,222 1,022 2,158 1,665 Total revenues 317,423 254,090 613,467 534,566 Expenses: Property operating and maintenance 102,663 85,265 191,536 168,899 Real estate taxes 17,896 16,668 35,746 33,509 Sales and marketing, gross 6,298 4,276 12,474 8,254 Membership sales commissions, deferred, net ( 1,438 ) ( 481 ) ( 2,937 ) ( 697 ) Property management 16,560 14,813 31,940 29,817 Depreciation and amortization 48,316 38,332 93,714 77,356 Cost of home sales 23,856 8,850 38,724 20,761 Home selling expenses 1,346 1,081 2,652 2,294 General and administrative 10,228 10,609 20,740 21,464 Other expenses 800 639 1,498 1,227 Early debt retirement 755 — 2,784 1,054 Interest and related amortization 27,131 26,249 53,406 52,322 Total expenses 254,411 206,301 482,277 416,260 Loss on sale of real estate, net — — ( 59 ) — Income before equity in income of unconsolidated joint ventures 63,012 47,789 131,131 118,306 Equity in income of unconsolidated joint ventures 1,068 1,064 1,936 1,271 Consolidated net income 64,080 48,853 133,067 119,577 Income allocated to non-controlling interests – Common OP Units ( 3,021 ) ( 2,658 ) ( 6,768 ) ( 6,507 ) Redeemable perpetual preferred stock dividends ( 8 ) ( 8 ) ( 8 ) ( 8 ) Net income available for Common Stockholders $ 61,051 $ 46,187 $ 126,291 $ 113,062 Consolidated net income $ 64,080 $ 48,853 $ 133,067 $ 119,577 Other comprehensive income (loss): Adjustment for fair market value of swap 110 552 239 ( 781 ) Consolidated comprehensive income 64,190 49,405 133,306 118,796 Comprehensive income allocated to non-controlling interests – Common OP Units ( 3,027 ) ( 2,689 ) ( 6,781 ) ( 6,465 ) Redeemable perpetual preferred stock dividends ( 8 ) ( 8 ) ( 8 ) ( 8 ) Comprehensive income attributable to Common Stockholders $ 61,155 $ 46,708 $ 126,517 $ 112,323 Earnings per Common Share – Basic $ 0.33 $ 0.25 $ 0.69 $ 0.62 Earnings per Common Share – Fully Diluted $ 0.33 $ 0.25 $ 0.69 $ 0.62 Weighted average Common Shares outstanding – Basic 182,337 181,833 182,142 181,781 Weighted average Common Shares outstanding – Fully Diluted 192,701 192,542 192,668 192,538 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 Redeemable Perpetual Preferred Stock Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests – Common OP Units Total Equity Balance as of December 31, 2020 $ 1,813 $ 1,411,397 $ — $ ( 179,523 ) $ — $ 71,068 $ 1,304,755 Exchange of Common OP Units for Common Stock — 58 — — — ( 58 ) — Issuance of Common Stock through employee stock purchase plan — 732 — — — — 732 Compensation expenses related to restricted stock and stock options — 2,556 — — — — 2,556 Repurchase of Common Stock or Common OP Units — ( 2,814 ) — — — — ( 2,814 ) Adjustment for fair market value of swap — — — — 129 — 129 Consolidated net income — — — 65,240 — 3,747 68,987 Distributions — — — ( 66,087 ) — ( 3,796 ) ( 69,883 ) Other — ( 116 ) — — — — ( 116 ) Balance as of March 31, 2021 1,813 1,411,813 — ( 180,370 ) 129 70,961 1,304,346 Exchange of Common OP Units for Common Stock 14 9,310 — — — ( 9,324 ) — Issuance of Common Stock through employee stock purchase plan — 605 — — — — 605 Compensation expenses related to restricted stock and stock options — 2,821 — — — — 2,821 Adjustment for Common OP Unitholders in the Operating Partnership — ( 143 ) — — — 143 — Adjustment for fair market value of swap — — — — 110 — 110 Consolidated net income — — 8 61,051 — 3,021 64,080 Distributions — — ( 8 ) ( 66,611 ) — ( 3,296 ) ( 69,915 ) Other — ( 56 ) — — — — ( 56 ) Balance as of June 30, 2021 $ 1,827 $ 1,424,350 $ — $ ( 185,930 ) $ 239 $ 61,505 $ 1,301,991 The accompanying notes are an integral part of the consolidated financial statements. 5 Equity LifeStyle Properties, Inc. Consolidated Statements of Changes in Equity (amounts in thousands) (unaudited) Common Stock Paid-in Capital Redeemable Perpetual Preferred Stock Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling interests – Common OP Units Total Equity Balance as of December 31, 2019 $ 1,812 $ 1,402,696 $ — $ ( 154,318 ) $ ( 380 ) $ 72,078 $ 1,321,888 Cumulative effect of change in accounting principle (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326)) — — — ( 3,875 ) — — ( 3,875 ) Balance as of January 1, 2020 1,812 1,402,696 — ( 158,193 ) ( 380 ) 72,078 1,318,013 Exchange of Common OP Units for Common Stock — 63 — — — ( 63 ) — Issuance of Common Stock through employee stock purchase plan — 619 — — — — 619 Compensation expenses related to restricted stock and stock options — 2,964 — — — — 2,964 Repurchase of Common Stock or Common OP Units — ( 3,962 ) — — — — ( 3,962 ) Adjustment for Common OP Unitholders in the Operating Partnership — 277 — — — ( 277 ) — Adjustment for fair market value of swap — — — — ( 1,333 ) — ( 1,333 ) Consolidated net income — — — 66,875 — 3,849 70,724 Distributions — — — ( 62,385 ) — ( 3,590 ) ( 65,975 ) Other — ( 143 ) — — — — ( 143 ) Balance as of March 31, 2020 1,812 1,402,514 — ( 153,703 ) ( 1,713 ) 71,997 1,320,907 Issuance of Common Stock through employee stock purchase plan — 531 — — — — 531 Compensation expenses related to restricted stock and stock options — 2,669 — — — — 2,669 Adjustment for Common OP Unitholders in the Operating Partnership — 193 — — — ( 193 ) — Adjustment for fair market value of swap — — — — 552 — 552 Consolidated net income — — 8 46,187 — 2,658 48,853 Distributions — — ( 8 ) ( 62,387 ) — ( 3,591 ) ( 65,986 ) Other — ( 143 ) — — — — ( 143 ) Balance as of June 30, 2020 $ 1,812 $ 1,405,764 $ — $ ( 169,903 ) $ ( 1,161 ) $ 70,871 $ 1,307,383 The accompanying notes are an integral part of the consolidated financial statements. 6 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (amounts in thousands) (unaudited) Six Months Ended June 30, 2021 2020 Cash Flows From Operating Activities: Consolidated net income $ 133,067 $ 119,577 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Loss on sale of real estate, net 59 — Early debt retirement 2,784 1,054 Depreciation and amortization 95,188 78,616 Amortization of loan costs 2,346 1,777 Debt premium amortization ( 165 ) ( 211 ) Equity in income of unconsolidated joint ventures ( 1,936 ) ( 1,271 ) Distributions of income from unconsolidated joint ventures 41 81 Proceeds from insurance claims, net 144 1,288 Compensation expense related to incentive plans 6,135 6,398 Revenue recognized from membership upgrade sales upfront payments ( 5,339 ) ( 4,683 ) Commission expense recognized related to membership sales 1,903 1,866 Changes in assets and liabilities: Notes receivable, net ( 2,250 ) ( 484 ) Deferred commission expense ( 4,719 ) ( 2,338 ) Other assets, net 18,901 ( 1,857 ) Accounts payable and other liabilities 33,112 15,918 Deferred membership revenue 22,279 11,947 Rents and other customer payments received in advance and security deposits 27,376 11,067 Net cash provided by operating activities 328,926 238,745 Cash Flows From Investing Activities: Real estate acquisitions, net ( 356,605 ) ( 4,056 ) Proceeds from disposition of properties, net ( 7 ) — Investment in unconsolidated joint ventures ( 493 ) — Distributions of capital from unconsolidated joint ventures 1,617 1,399 Capital improvements ( 119,723 ) ( 103,147 ) Net cash used in investing activities ( 475,211 ) ( 105,804 ) The accompanying notes are an integral part of the consolidated financial statements. 7 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (continued) (amounts in thousands) (unaudited) Six Months Ended June 30, 2021 2020 Cash Flows From Financing Activities: Proceeds from stock options and employee stock purchase plan 1,337 1,150 Distributions: Common Stockholders ( 128,501 ) ( 118,153 ) Common OP Unitholders ( 7,385 ) ( 6,803 ) Preferred Stockholders ( 8 ) ( 8 ) Share based award tax withholding payments ( 2,814 ) ( 3,962 ) Principal payments and mortgage debt repayment ( 94,271 ) ( 75,312 ) Mortgage notes payable financing proceeds 270,016 275,385 Term loan repayment ( 300,000 ) — Term loan proceeds 600,000 — Line of Credit repayment ( 317,500 ) ( 272,500 ) Line of Credit proceeds 157,500 162,500 Debt issuance and defeasance costs ( 11,225 ) ( 3,819 ) Other ( 171 ) ( 286 ) Net cash provided by (used in) financing activities 166,978 ( 41,808 ) Net increase in cash and restricted cash 20,693 91,133 Cash and restricted cash, beginning of period 24,060 28,860 Cash and restricted cash, end of period $ 44,753 $ 119,993 Six Months Ended June 30, 2021 2020 Supplemental Information: Cash paid for interest $ 51,040 $ 51,354 Net investment in real estate – reclassification of rental homes $ 33,793 $ 17,336 Other assets, net – reclassification of rental homes $ ( 33,793 ) $ ( 17,336 ) Real estate acquisitions: Investment in real estate $ ( 366,043 ) $ ( 4,235 ) Other assets, net ( 2,815 ) — Accrued expenses and accounts payable 1,313 — Rents and other customer payments received in advance and security deposits 10,940 179 Real estate acquisitions, net $ ( 356,605 ) $ ( 4,056 ) Real estate dispositions: Investment in real estate $ 52 $ — Loss on sale of real estate, net ( 59 ) — Real estate dispositions, net $ ( 7 ) $ — The accompanying notes are an integral part of the consolidated financial statements. 8 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,” and “our”. We are a fully integrated owner of lifestyle-oriented properties (“Properties”) consisting of property operations and home sales and rental operations primarily within manufactured home (“MH”) and recreational vehicle (“RV”) communities. We provide our customers the opportunity to place manufactured homes, cottages or RVs on our Properties either on a long-term or short-term basis. Our customers may lease individual developed areas (“Sites”) or enter into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays. Our Properties are owned primarily by the Operating Partnership and managed internally by affiliates of the Operating Partnership. ELS is the sole general partner of the Operating Partnership, has exclusive responsibility and discretion in management and control of the Operating Partnership and held a 95.3 % interest as of June 30, 2021. 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. 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 our Annual Report on Form 10-K for the year ended December 31, 2020. 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. Note 2 – Summary of Significant Accounting Policies (a) Revenue Recognition Our revenue streams are predominantly derived from customers renting our Sites or entering into membership subscriptions. Leases with customers renting our Sites are accounted for as operating leases. The rental income associated with these leases is accounted for in accordance with ASC 842, Leases, and is recognized over the term of the respective lease or the length of a customer's stay. MH Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. RV and marina Sites are leased to those who generally have an RV, factory-built cottage, boat or other unit placed on the site, including those customers renting marina dry storage slips. Annual Sites are leased on an annual basis, including those Northern Properties that are open for the summer season. Seasonal Sites are leased to customers generally for one to six months . Transient Sites are leased to customers on a short-term basis. We do not separate expenses reimbursed by our customers (“utility recoveries”) from the associated rental income as we meet the practical expedient criteria to combine the lease and non-lease components. We assessed the criteria and concluded that the timing and pattern of transfer for rental income and the associated utility recoveries are the same and, as our leases qualify as operating leases, we account for and present rental income and utility recoveries as a single component under Rental income in our Consolidated Statements of Income and Comprehensive Income. In addition, customers may lease homes that are located in our communities. These leases are accounted for as operating leases. Rental income derived from customers leasing homes is also accounted for in accordance with ASC 842, Leases and is recognized over the term of the respective lease. The allowance for credit losses related to the collectability of lease receivables is presented as a reduction to Rental income. Lease receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. The estimate for credit losses is a result of our ongoing assessments and evaluations of collectability including historical loss experience, current market conditions and future expectations in forecasting credit losses. 9 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (continued) Annual membership subscriptions and membership upgrade sales are accounted for in accordance with ASC 606, Revenue from Contracts with Customers. Membership subscriptions provide our customers access to specific Properties for limited stays at a specified group of Properties. Payments are deferred and recognized on a straight-line basis over the one-year period during which access to Sites at certain Properties is provided. Membership subscription receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. Membership upgrades 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. Financed upgrade sales (also known as contract receivables) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred. We have a limited program under which we purchase loans made by an unaffiliated lender to homebuyers at our Properties. Financed home sales (also known as chattel loans) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. (b) Restricted Cash As of June 30, 2021 and December 31, 2020, restricted cash consists of $ 31.2 million and $ 24.1 million, respectively, primarily related to cash reserved for customer deposits and escrows for insurance and real estate taxes. (c) Recently Adopted Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The guidance in ASU 2020-04 is optional, effective immediately, and may be elected over time as reference rate reform activities occur generally through December 31, 2022. We continue to evaluate the impact of this guidance and we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. Note 3 – Leases Lessor The leases entered into between the customer and us for 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 June 30, 2021 2021 $ 77,190 2022 157,061 2023 110,501 2024 44,065 2025 22,166 Thereafter 66,634 Total $ 477,617 10 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 3 – Leases (continued) Lessee We lease land under non-cancelable operating leases at 14 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 2032. For the quarters ended June 30, 2021 and 2020, total operating lease payments were $ 2.6 million and $ 2.4 million, respectively. For the six months ended June 30, 2021 and 2020, total operating lease payments were $ 5.1 million and $ 4.8 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 liability for our operating leases as of June 30, 2021: As of June 30, 2021 (amounts in thousands) Ground Leases Office and Other Leases Total 2021 $ 1,153 $ 2,023 $ 3,176 2022 1,638 2,939 4,577 2023 626 2,682 3,308 2024 632 2,326 2,958 2025 637 2,024 2,661 Thereafter 4,941 10,958 15,899 Total undiscounted rental payments 9,627 22,952 32,579 Less imputed interest ( 2,058 ) ( 3,511 ) ( 5,569 ) Total lease liabilities $ 7,569 $ 19,441 $ 27,010 Right-of-use (“ROU”) assets and lease liabilities from our operating leases, included within Other assets, net and Accounts payable and other liabilities on the Consolidated Balance Sheets, were $ 23.7 million and $ 27.0 million, respectively, as of June 30, 2021. The weighted average remaining lease term for our operating leases was ten years and the weighted average incremental borrowing rate was 3.8 % at June 30, 2021. ROU assets and lease liabilities from our operating leases, included within Other assets, net and Accounts payable and other liabilities on the Consolidated Balance Sheets, were $ 15.7 million and $ 16.4 million, respectively, as of December 31, 2020. The weighted average remaining lease term for our operating leases was eight years and the weighted average incremental borrowing rate was 4.0 % at December 31, 2020. 11 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 share of common stock for the quarters and six months ended June 30, 2021 and 2020: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands, except per share data) 2021 2020 2021 2020 Numerators: Net income available for Common Stockholders – Basic $ 61,051 $ 46,187 $ 126,291 $ 113,062 Amounts allocated to dilutive securities 3,021 2,658 6,768 6,507 Net income available for Common Stockholders – Fully Diluted $ 64,072 $ 48,845 $ 133,059 $ 119,569 Denominators: Weighted average Common Shares outstanding – Basic 182,337 181,833 182,142 181,781 Effect of dilutive securities: Exchange of Common OP Units for Common Shares 10,153 10,482 10,312 10,486 Stock options and restricted stock 211 227 214 271 Weighted average Common Shares outstanding – Fully Diluted 192,701 192,542 192,668 192,538 Earnings per Common Share – Basic $ 0.33 $ 0.25 $ 0.69 $ 0.62 Earnings per Common Share – Fully Diluted $ 0.33 $ 0.25 $ 0.69 $ 0.62 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 Operating Partnership unit (“OP Unit”) holders since January 1, 2020. Distribution Amount Per Share For the Quarter Ended Stockholder Record Date Payment Date $ 0.3425 March 31, 2020 March 27, 2020 April 10, 2020 $ 0.3425 June 30, 2020 June 26, 2020 July 10, 2020 $ 0.3425 September 30, 2020 September 25, 2020 October 9, 2020 $ 0.3425 December 31, 2020 December 24, 2020 January 8, 2021 $ 0.3625 March 31, 2021 March 26, 2021 April 9, 2021 $ 0.3625 June 30, 2021 June 25, 2021 July 9, 2021 Equity Offering Program On July 30, 2020, we entered into our current at-the-market (“ATM”) equity offering program with certain sales agents, pursuant to which we may sell, from time-to-time, shares of our common stock, par value $ 0.01 per share, having an aggregate offering price of up to $ 200.0 million. As of June 30, 2021, the full capacity remained available for issuance. Exchanges Subject to certain limitations, 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 six months ended June 30, 2021 and 2020, 1,386,716 and 9,228 OP Units, respectively, were exchanged for an equal number of shares of Common Stock. 12 Note 6 – Investment in Real Estate Acquisitions 2021 On June 3, 2021, we completed the acquisition of Pine Haven, a 629 -site RV community located in Cape May, New Jersey, for a purchase price of $ 62.8 million. The acquisition was funded with our unsecured line of credit. On February 5, 2021, we completed the acquisition of a portfolio of 11 marinas, containing 3,986 slips and 181 RV sites located in Florida, North Carolina, South Carolina, Kentucky and Ohio. The purchase price of these properties was $ 262.0 million, which was funded with proceeds from the Loan as discussed in Note 8. Borrowing Arrangements . On January 21, 2021, we completed the acquisition of Okeechobee KOA Resort, a 740 -site RV community located in Okeechobee, Florida, for a purchase price of $ 42.2 million. The acquisition was funded with our unsecured line of credit. 2020 On April 21, 2020, we completed the acquisition of a 4.6 -acre vacant land parcel in North Ellenton, Florida, adjacent to our MH community, Colony Cove, for additional expansion. The purchase price was $ 2.2 million. Note 7 - Investments 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 June 30, 2021 and December 31, 2020 , respectively ) : Investment as of Income/(Loss) for Years Ended Investment Location Number of Sites Economic Interest (a) June 30, 2021 December 31, 2020 June 30, 2021 June 30, 2020 Meadows Various (2,2) 1,077 50 % $ — $ — $ 1,050 $ 854 Lakeshore Florida (3,3) 721 (b) 2,706 2,281 286 180 Voyager Arizona (1,1) 1,801 50 % (c) 121 83 293 ( 5 ) ECHO JV Various — 50 % 17,669 17,362 307 242 3,599 $ 20,496 $ 19,726 $ 1,936 $ 1,271 _____________________ (a) The percentages shown approximate our economic interest as of June 30, 2021. Our legal ownership interest may differ. (b) Includes two joint ventures in which we own a 65 % interest and the Crosswinds joint venture in which we own a 49 % interest. (c) Primarily consists of a 50 % interest in Voyager RV Resort and a 33 % interest in the utility plant servicing this Property. We received approximately $ 1.7 million and $ 1.5 million in distributions from our unconsolidated joint ventures for the six months ended June 30, 2021 and 2020, respectively. Approximately $ 1.5 million and $ 1.0 million of the distributions made to us exceeded our basis in our unconsolidated joint ventures for the six months ended June 30, 2021 and 2020, respectively, and as such, were recorded as income from unconsolidated joint ventures. Note 8 – Borrowing Arrangements Mortgage Notes Payable Our mortgage notes payable is classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our mortgage notes payable: As of June 30, 2021 As of December 31, 2020 (amounts in thousands) Fair Value Carrying Value Fair Value Carrying Value Mortgage notes payable, excluding deferred financing costs $ 2,848,315 $ 2,648,456 $ 2,537,137 $ 2,472,876 13 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, as of June 30, 2021, was approximately 3.8 % per annum. The debt bears interest at stated rates ranging from 2.4 % to 8.9 % per annum and matures on various dates ranging from 2022 to 2041. The debt encumbered a total of 117 and 116 of our Properties as of June 30, 2021 and December 31, 2020, respectively, and the gross carrying value of such Properties was approximately $ 2,698.2 million and $ 2,580.9 million, as of June 30, 2021 and December 31, 2020, respectively. 2021 Activity During the quarter ended March 31, 2021, we entered into a $ 270.0 million secured financing transaction maturing in 10 years and bearing a fixed interest rate of 2.4 % per annum. The loan is secured by two RV communities and one MH community. The net proceeds from the transaction were used to repay $ 67.0 million of principal on two mortgage loans that were due to mature in 2022, incurring $ 1.9 million of prepayment penalties, as well as to repay a portion of the outstanding balance on our line of credit. These mortgage loans had a weighted average interest rate of 5.1 % per annum and were secured by two RV communities. 2020 Activity During the quarter ended March 31, 2020, we entered into a $ 275.4 million secured credit facility with Fannie Mae, maturing in 10 years and bearing a fixed interest rate of 2.7 % per annum. The facility is secured by eight MH and four RV communities. We also repaid $ 48.1 million of principal on three mortgage loans that were due to mature in 2020, incurring $ 1.0 million of prepayment penalties. These mortgage loans had a weighted average interest rate of 5.2 % per annum and were secured by three MH communities. Third Amended and Restated Unsecured Credit Facility During the quarter ended June 30, 2021, we entered into a Third Amended and Restated Credit Agreement (the “Third Amended and Restated Credit Agreement”) by and among us, MHC Operating Limited Partnership, Wells Fargo Bank, National Association, as Administrative Agent (the “Administrative Agent”), and the other lenders named therein, pursuant to which we have access to a $ 500.0 million unsecured line of credit (the “LOC”) and a $ 300.0 million senior unsecured term loan (the “Term Loan”). We have the option to increase the borrowing capacity by $ 200.0 million, subject to certain conditions. The LOC maturity date was extended to April 18, 2025, and this term can be extended two times for additional six month increments, subject to certain conditions. The LOC bears interest at a rate of LIBOR plus 1.25 % to 1.65 % and requires an annual facility fee of 0.20 % to 0.35 %. The Term Loan matures on April 17, 2026 and has an interest rate of LIBOR plus 1.40 % to 1.95 % per annum. For both the LOC and Term Loan, the spread over LIBOR is variable based on leverage throughout the respective loan terms. Unsecured Debt During the quarter ended March 31, 2021, in conjunction with the marina portfolio acquisition as discussed in Note 6. Investment in Real Estate , we entered into a $ 300.0 million senior unsecured term loan agreement (“Loan”). The maturity date was October 27, 2021 with an interest rate of LIBOR plus 1.45 %. During the quarter ended June 30, 2021, in conjunction with the issuance of the Term Loan, we repaid the Loan. The LOC had a balance of $ 62.0 million and $ 222.0 million outstanding as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021, our LOC had remaining borrowing capacity of $ 438.0 million. As of June 30, 2021, we were in compliance in all material respects with the covenants in all our borrowing arrangements. Note 9 – Derivative Instruments and Hedging Cash Flow Hedges of Interest Rate Risk We record all derivatives at fair value. Our objective in utilizing interest rate derivatives is to add stability to our interest expense and to manage our exposure to interest rate movements. We do not enter into derivatives for speculative purposes. 14 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 9 – Derivative Instruments and Hedging (continued) During the six months ended June 30, 2021, we entered into a three-year LIBOR Swap Agreement (the “Swap”) allowing us to trade the variable interest rate associated with our variable rate debt for a fixed interest rate. The 2021 Swap has a notional amount of $ 300.0 million of outstanding principal with a fixed interest rate of 0.39 % per annum and matures on March 25, 2024. Based on the leverage as of June 30, 2021, our spread over LIBOR was 1.40 % resulting in an estimated all-in interest rate of 1.79 % per annum. Our derivative financial instrument was classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our derivative financial instrument: As of June 30, As of December 31, (amounts in thousands) Balance Sheet Location 2021 2020 Interest Rate Swap Other assets, net $ 239 $ — 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 six months ended June 30, Location of (gain)/ loss reclassified from accumulated OCI into income Amount of (gain)/loss reclassified from accumulated OCI into income for the six months ended June 30, (amounts in thousands) 2021 2020 (amounts in thousands) 2021 2020 Interest Rate Swap $ ( 2 ) $ 1,553 Interest Expense $ 237 $ 772 During the next twelve months, we estimate that $ 0.8 million will be reclassified as a decrease 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 June 30, 2021, we had not posted any collateral related to this Swap. Note 10 – Equity Incentive Awards Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by the Board of Directors on March 11, 2014 and approved by our stockholders on May 13, 2014. During the quarter ended March 31, 2021, 104,734 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, 2022, January 27, 2023 and January 26, 2024, respectively, and have a grant date fair value of $ 3.3 million. The remaining 50 % are performance-based awards vesting in equal installments on January 31, 2022, January 27, 2023 and January 26, 2024, respectively, upon meeting performance conditions as established by the Compensation Committee in the year of the vesting period. They are valued using the closing price at the grant date when all the key terms and conditions are known to all parties. The 17,454 shares of restricted stock subject to 2021 performance goals have a grant date fair value of $ 1.1 million. During the quarter ended June 30, 2021, we awarded to certain members of our Board of Directors 58,192 shares of restricted stock at a fair value of approximately $ 4.0 million and options to purchase 16,185 shares of common stock with an exercise price of $ 68.74 . These are time-based awards subject to various vesting dates between October 27, 2021 and April 27, 2023. Stock based compensation expense, reported in General and administrative expense on the Consolidated Statements of Income and Comprehensive Income, for the quarters ended June 30, 2021 and 2020, was $ 2.8 million and $ 2.7 million, respectively, and for the six months ended June 30, 2021 and 2020, was $ 5.4 million and $ 5.6 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, additional permit requirements and other similar enforcement actions by governmental agencies 15 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 11 – Commitments and Contingencies (continued) 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. The Operating Partnership operates and manages Westwinds, a 720 site mobilehome community, and Nicholson Plaza, an adjacent shopping center, both located in San Jose, California pursuant to ground leases that expire on August 31, 2022 and do not contain extension options. The master lessor of these ground leases, The Nicholson Family Partnership (the “Nicholsons”), has expressed a desire to redevelop Westwinds, and in a written communication, they claimed that we were obligated to deliver the property free and clear of any and all subtenancies upon the expiration of the ground leases on August 31, 2022. In connection with any redevelopment, the City of San Jose’s conversion ordinance requires, among other things, that the landowner provide relocation, rental and purchase assistance to the impacted residents. We believe the Nicholsons’ demand is unlawful, and on December 30, 2019, the Operating Partnership, together with certain interested parties, filed a complaint in California Superior Court for Santa Clara County, seeking declaratory relief pursuant to which it requested that the Court determine, among other things, that the Operating Partnership has no obligation to deliver the property free and clear of the mobilehome residents upon the expiration of the ground leases. The Operating Partnership and the interested parties filed an amended complaint on January 29, 2020. The Nicholsons filed a demand for arbitration on January 28, 2020, which they subsequently amended, pursuant to which they request (i) a declaration that the Operating Partnership, as the “owner and manager” of Westwinds, is “required by the Ground Leases, and State and local law to deliver the Property free of any encumbrances or third-party claims at the expiration of the lease terms,” (ii) that the Operating Partnership anticipatorily breached the ground leases by publicly repudiating any such obligation and (iii) that the Operating Partnership is required to indemnify the Nicholsons with respect to the claims brought by the interested parties in the Superior Court proceeding. On February 3, 2020, the Nicholsons filed a motion in California Superior Court to compel arbitration and to stay the Superior Court litigation, which motion was heard on June 25, 2020. On July 29, 2020, the Superior Court issued a final order denying the Nicholsons' motion to compel arbitration. The Nicholsons filed a notice of appeal on August 7, 2020. The arbitration is stayed pursuant to an agreement between MHC and the Nicholsons. We intend to continue to vigorously defend our interests in this matter. As of June 30, 2021, we have not made an accrual, as we are unable to predict the outcome of this matter or reasonably estimate any possible loss. 16 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments We have identified two reportable segments: (i) Property Operations and (ii) Home Sales and Rentals Operations. The Property Operations segment owns and operates land lease Properties and the Home Sales and Rentals Operations segment purchases, sells and leases homes at the Properties. The distribution of the Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences. All revenues were 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, 2021 or 2020. The following tables summarize our segment financial information for the quarters and six months ended June 30, 2021 and 2020: Quarter Ended June 30, 2021 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 285,378 $ 29,081 $ 314,459 Operations expenses ( 140,667 ) ( 26,514 ) ( 167,181 ) Income from segment operations 144,711 2,567 147,278 Interest income 1,252 468 1,720 Depreciation and amortization ( 45,631 ) ( 2,685 ) ( 48,316 ) Loss on sale of real estate, net — — — Income (loss) from operations $ 100,332 $ 350 $ 100,682 Reconciliation to consolidated net income: Corporate interest income 22 Income from other investments, net 1,222 General and administrative ( 10,228 ) Other expenses ( 800 ) Interest and related amortization ( 27,131 ) Equity in income of unconsolidated joint ventures 1,068 Early debt retirement ( 755 ) Consolidated net income $ 64,080 Total assets $ 4,566,507 $ 257,500 $ 4,824,007 Capital improvements $ 41,306 $ 21,639 $ 62,945 17 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) Quarter Ended June 30, 2020 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 238,155 $ 13,122 $ 251,277 Operations expenses ( 119,296 ) ( 11,176 ) ( 130,472 ) Income from segment operations 118,859 1,946 120,805 Interest income 1,061 726 1,787 Depreciation and amortization ( 35,611 ) ( 2,721 ) ( 38,332 ) Income (loss) from operations $ 84,309 $ ( 49 ) $ 84,260 Reconciliation to consolidated net income: Corporate interest income 4 Income from other investments, net 1,022 General and administrative ( 10,609 ) Other expenses ( 639 ) Interest and related amortization ( 26,249 ) Equity in income of unconsolidated joint ventures 1,064 Early debt retirement — Consolidated net income $ 48,853 Total assets $ 3,998,462 $ 269,712 $ 4,268,174 Capital improvements $ 37,552 $ 16,636 $ 54,188 Six Months Ended June 30, 2021 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 558,933 $ 48,867 $ 607,800 Operations expenses ( 266,204 ) ( 43,931 ) ( 310,135 ) Income from segment operations 292,729 4,936 297,665 Interest income 2,400 1,083 3,483 Depreciation and amortization ( 88,409 ) ( 5,305 ) ( 93,714 ) Gain on sale of real estate, net ( 59 ) — ( 59 ) Income (loss) from operations $ 206,661 $ 714 $ 207,375 Reconciliation to consolidated net income: Corporate interest income 26 Income from other investments, net 2,158 General and administrative ( 20,740 ) Other expenses ( 1,498 ) Interest and related amortization ( 53,406 ) Equity in income of unconsolidated joint ventures 1,936 Early debt retirement ( 2,784 ) Consolidated net income $ 133,067 Total assets $ 4,566,507 $ 257,500 $ 4,824,007 Capital improvements $ 77,774 $ 41,949 $ 119,723 18 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) Six Months Ended June 30, 2020 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 500,629 $ 28,674 $ 529,303 Operations expenses ( 237,194 ) ( 25,643 ) ( 262,837 ) Income from segment operations 263,435 3,031 266,466 Interest income 2,136 1,454 3,590 Depreciation and amortization ( 71,831 ) ( 5,525 ) ( 77,356 ) Income (loss) from operations $ 193,740 $ ( 1,040 ) $ 192,700 Reconciliation to consolidated net income: Corporate interest income 8 Income from other investments, net 1,665 General and administrative ( 21,464 ) Other expenses ( 1,227 ) Interest and related amortization ( 52,322 ) Equity in income of unconsolidated joint venture 1,271 Early debt retirement ( 1,054 ) Consolidated net income $ 119,577 Total assets $ 3,998,462 $ 269,712 $ 4,268,174 Capital Improvements $ 70,157 $ 32,990 $ 103,147 The following table summarizes our financial information for the Property Operations segment for the quarters and six months ended June 30, 2021 and 2020: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2021 2020 2021 2020 Revenues: Rental income $ 251,420 $ 213,885 $ 496,149 $ 449,249 Annual membership subscriptions 14,267 12,961 27,921 26,034 Membership upgrade sales current period, gross 9,207 5,048 19,221 9,891 Membership upgrade sales upfront payments, deferred, net ( 6,454 ) ( 2,666 ) ( 13,881 ) ( 5,208 ) Other income 14,185 9,680 24,706 20,739 Ancillary services revenues, net 2,753 ( 753 ) 4,817 ( 76 ) Total property operations revenues 285,378 238,155 558,933 500,629 Expenses: Property operating and maintenance 101,351 84,020 188,981 166,311 Real estate taxes 17,896 16,668 35,746 33,509 Sales and marketing, gross 6,298 4,276 12,474 8,254 Membership sales commissions, deferred, net ( 1,438 ) ( 481 ) ( 2,937 ) ( 697 ) Property management 16,560 14,813 31,940 29,817 Total property operations expenses 140,667 119,296 266,204 237,194 Income from property operations segment $ 144,711 $ 118,859 $ 292,729 $ 263,435 19 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters and six months ended June 30, 2021 and 2020: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2021 2020 2021 2020 Revenues: Rental income (a) $ 4,278 $ 4,078 $ 8,571 $ 8,060 Gross revenue from home sales 24,427 8,866 39,647 20,175 Brokered resale revenues, net 376 178 649 439 Ancillary services revenues, net — — — — Total revenues 29,081 13,122 48,867 28,674 Expenses: Rental home operating and maintenance 1,312 1,245 2,555 2,588 Cost of home sales 23,856 8,850 38,724 20,761 Home selling expenses 1,346 1,081 2,652 2,294 Total expenses 26,514 11,176 43,931 25,643 Income from home sales and rentals operations segment $ 2,567 $ 1,946 $ 4,936 $ 3,031 ______________________ (a) Rental income within Home Sales and Rentals Operations does not include base rent related to the rental home Sites. Base rent is included within property operations. 20