EQUITY LIFESTYLE PROPERTIES INC 10-Q

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 accompanying notes thereto included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”), as well as information in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. Overview and Outlook We are a self-administered and self-managed real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. We are a fully integrated owner of lifestyle-oriented properties (“Properties”) consisting of property operations and home sales and rental operations primarily within manufactured home (“MH”) and recreational vehicle (“RV”) communities. As of June 30, 2021, we owned or had an ownership interest in a portfolio of 435 Properties located throughout the United States and Canada containing 166,188 individual developed areas (“Sites”). These Properties are located in 33 states and British Columbia, with more than 110 Properties with lake, river or ocean frontage and more than 120 Properties within 10 miles of the coastal United States. We invest in properties in sought-after locations near retirement and vacation destinations and urban areas across the United States with a focus on delivering value to our residents and guests as well as stockholders. Our business model is intended to provide an opportunity for increased cash flows and appreciation in value. We seek growth in earnings, Funds from Operations (“FFO”), Normalized Funds from Operations (“Normalized FFO”) and cash flows by enhancing the profitability and operation of our Properties and investments. We accomplish this by attracting and retaining high quality customers to our Properties, who take pride in our Properties and in their homes, and efficiently managing our Properties by increasing occupancy, maintaining competitive market rents and controlling expenses. We also actively pursue opportunities that fit our acquisition criteria and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties. We believe the demand from baby boomers for MH and RV communities will continue to be strong over the long term. It is estimated that approximately 10,000 baby boomers are turning 65 daily through 2030. In addition, the population age 55 and older is expected to grow 17% from 2021 to 2036. These individuals, seeking an active lifestyle, will continue to drive the market for second home sales as vacation properties, investment opportunities or retirement retreats. We expect it is likely that over the next decade, we will continue to see high levels of second-home sales and that manufactured homes and cottages in our Properties will continue to provide a viable second-home alternative to site-built homes. We also believe the Millennial and Generation X demographic will contribute to our future long-term customer pipeline. RV Industry Association (“RVIA”) tracking of the RV industry as of 2021 showed that those under 45 years of age is the fastest growing segment of RV owners and has been for the past few years. The RVIA also completed a survey showing that RV purchase intent is strongest among Millennials, followed closely by Generation X. Millennials and Generation X combined represent over half of RV buyers. RVIA statistics as of 2021 show that over 11 million U.S. households own an RV, an increase of 62% over the past 20 years. The increase is driven by strong interest from younger individuals and families who live an active, outdoor lifestyle and baby boomers who are entering retirement. These groups exhibit interest in adopting a minimalist lifestyle due to its affordability, preference over home quality relative to its size and the overall unique experience that our communities can provide. We believe the demand from baby boomers and these younger generations will continue to outpace supply for MH and RV communities. The entitlement process to develop new MH and RV communities is extremely restrictive. As a result, there have been limited new communities developed in our target geographic markets. We generate the majority of our revenues from customers renting our Sites or entering into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays. MH Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. 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. 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. Additionally, we have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures on the Consolidated Statements of Income and Comprehensive Income. 21 Management's Discussion and Analysis (continued) The following table shows the breakdown of our Sites by type (amounts are approximate): Total Sites as of June 30, 2021 MH Sites 73,300 RV Sites: Annual 32,200 Seasonal 10,700 Transient 14,700 Marina Slips 6,800 Membership (1) 24,800 Joint Ventures (2) 3,600 Total (3) 166,200 _________________________ (1) Primarily utilized to service the approximately 123,400 members. Includes approximately 6,210 Sites rented on an annual basis. (2) Includes approximately 2,900 annual Sites, 200 seasonal Sites and 500 transient Sites. (3) Total does not foot due to rounding. In our Home Sales and Rentals Operations business, our revenue streams include home sales, home rentals and brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing manufactured homes and cottages that are located in Properties owned and managed by us. We believe renting our vacant homes represents an attractive source of occupancy and an opportunity to convert the renter to a homebuyer in the future. We also sell and rent homes through our joint venture, ECHO Financing, LLC (the “ECHO JV”). Additionally, home sale brokerage services are offered to our residents who may choose to sell their homes rather than relocate them when moving from a Property. At certain Properties, we operate ancillary facilities, such as golf courses, retail operations 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 relatively high interest rates. We have a limited program under which we purchase loans made by an unaffiliated lender to homebuyers at our Properties. In addition to net income computed in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we assess and measure our overall financial and operating performance using certain Non-GAAP supplemental measures, which include: (i) FFO, (ii) Normalized FFO, (iii) Income from property operations, (iv) Income from property operations, excluding deferrals and property management, (v) Core Portfolio income from property operations, excluding deferrals and property management (operating results for Properties owned and operated in both periods under comparison), and (vi) Income from rental operations, net of depreciation. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Definitions and reconciliations of these measures to the most comparable GAAP measures are included below in this discussion. COVID-19 Pandemic Update Since the COVID-19 pandemic began, we have taken actions to prioritize the safety and security of our employees, residents and customers, while maintaining our high-quality standards in service to our residents and customers. We have implemented and may continue to implement Centers for Disease Control and Prevention (“CDC”) and local public health department guidelines and protocols for social distancing and enhanced community and office cleaning procedures. All properties continue to be open subject to seasons of operation and state and local guidelines. Our property offices are open to residents and customers, and we are complying with CDC recommended protocols. We continue to see strong demand in our RV business as our customers seek safe vacation and leisure activities and value the opportunity to spend time outdoors. During the second quarter of 2021, Core Transient RV rental income increased $14.0 million, or 180% compared to the second quarter of 2020. Transient RV rental income for the second quarter of 2020 was negatively impacted by temporary site closures as a result of COVID-19. As compared to the second quarter of 2019, Transient RV rental income for the second quarter of 2021 increased $7.3 million or 50%. RV and marina rental income in our Core Portfolio for the six months ended June 30, 2021 was 10.7% higher than the six months ended June 30, 2020. Annual and transient rental income for the six months ended June 30, 2021 increased 5.8% and 83.0%, respectively, while seasonal rental income decreased 21.7%. The decrease in seasonal rental income was primarily due to lower seasonal RV rental income in the South and West regions during the first quarter of 2021, as seasonal customers, in particular Canadian customers, were impacted by travel restrictions resulting from COVID-19. 22 Management's Discussion and Analysis (continued) We attribute the solid performance of our business, as shown by our cash collection activity, increases in home sales and occupancy, and growth in transient RV rental income, to the fundamentals of our business model. Our customers have made an investment in a housing unit that is placed on land leased from us. In addition, there is continued demand for our Properties. The property locations and the lifestyle we offer have broad appeal to customers interested in enjoying an outdoor experience. We believe this is particularly relevant in a COVID-19 impacted environment. We intend to continue to monitor the rapidly evolving situation and we may take further actions that alter our business operations as may be required and that are in the best interests of our employees, residents, customers and shareholders. Results Overview For the quarter ended June 30, 2021, net income available for Common Stockholders increased $14.9 million, or $0.08 per fully diluted Common Share, to $61.1 million, or $0.33 per fully diluted Common Share, compared to $46.2 million, or $0.25 per fully diluted Common Share, for the same period in 2020. For the six months ended June 30, 2021, net income available for Common Stockholders increased $13.2 million, or $0.07 per fully diluted Common Share, to $126.3 million, or $0.69 per fully diluted Common Share, compared to $113.1 million, or $0.62 per fully diluted Common Share, for the same period in 2020. For the quarter ended June 30, 2021, FFO available for Common Stock and Operating Partnership unit (“OP Unit”) holders increased $28.1 million, or $0.14 per fully diluted Common Share, to $117.6 million, or $0.61 per fully diluted Common Share, compared to $89.5 million, or $0.47 per fully diluted Common Share, for the same period in 2020. For the six months ended June 30, 2021, FFO available for Common Stock and Operating Partnership unit (“OP Unit”) holders increased $36.3 million, or $0.19 per fully diluted Common Share, to $238.1 million, or $1.24 per fully diluted Common Share, compared to $201.8 million, or $1.05 per fully diluted Common Share, for the same period in 2020. For the quarter ended June 30, 2021, Normalized FFO available for Common Stock and OP Unit holders increased $27.4 million, or $0.14 per fully diluted Common Share, to $118.3 million, or $0.61 per fully diluted Common Share, compared to $90.9 million, or $0.47 per fully diluted Common Share, for the same period in 2020. For the six months ended June 30, 2021, Normalized FFO available for Common Stock and OP Unit holders increased $36.6 million, or $0.19 per fully diluted Common Share, to $240.9 million, or $1.25 per fully diluted Common Share, compared to $204.3 million, or $1.06 per fully diluted Common Share, for the same period in 2020. For the quarter ended June 30, 2021, our Core Portfolio property operating revenues, excluding deferrals, increased 14.9% and property operating expenses, excluding deferrals and property management, increased 13.9%, from the same period in 2020, resulting in an increase in income from property operations, excluding deferrals and property management, of 15.6% compared to the same period in 2020. For the six months ended June 30, 2021, our Core Portfolio property operating revenues, excluding deferrals, increased 8.5% and property operating expenses, excluding deferrals and property management, increased 9.1%, from the same period in 2020, resulting in an increase in income from property operations, excluding deferrals and property management, of 8.2% compared to the same period in 2020. While we continue to focus on increasing the number of manufactured homeowners in our Core Portfolio, we also believe renting our vacant homes represents an attractive source of occupancy and an opportunity to potentially convert the renter to a new homebuyer in the future. We continue to expect there to be fluctuations in the sources of occupancy gains depending on local market conditions, availability of vacant sites and success with converting renters to homeowners. Our Core Portfolio average occupancy, including both homeowners and renters, in our MH communities was 95.2% for the quarter ended June 30, 2021, compared to 95.3% for the quarter ended March 31, 2021 and 95.2% for the same period in 2020. The decrease in average occupancy from the prior quarter is due to expansion sites completed and added to our Core Portfolio during the quarter but not yet occupied as of June 30, 2021. For the quarter ended June 30, 2021, our Core Portfolio occupancy increased by 68 sites with an increase in homeowner occupancy of 179 sites, compared to occupancy as of March 31, 2021. By comparison, for the quarter ended June 30, 2020, our Core Portfolio occupancy increased 90 sites with an increase in homeowner occupancy of 80 sites. In addition to higher occupancy, we have increased rental rates during the quarter and six months ended June 30, 2021, contributing to a growth of 4.1% for each respective period in MH rental income, compared to the same period in 2020. RV and marina rental income in our Core Portfolio for the quarter ended June 30, 2021 was 32.0% higher than the same period in 2020. Annual, seasonal and transient rental income for the quarter ended June 30, 2021 increased 7.6%, 31.1% and 180.3%, respectively. Annual rental income increased primarily due to rate growth, including in the Core marina portfolio. Core annual marina revenue represents 99% of Core marina base rental income. Seasonal rental income increased due to increases in all regions, primarily due to cancellations in RV reservations and site closures during the second quarter of 2020 as a result of COVID-19. Transient rental income increased as we have continued to see positive demand as our customers seek safe vacation and leisure activities and value the opportunity to spend time outdoors. RV and marina rental income in our Core Portfolio for 23 Management's Discussion and Analysis (continued) the six months ended June 30, 2021 was 10.7% higher than the same period in 2020. Annual and transient rental income for the six months ended June 30, 2021 increased 5.8% and 83.0%, respectively, while seasonal rental income decreased 21.7%. The decrease in seasonal rental income was primarily due to lower seasonal RV rental income in the South and West regions during the first quarter of 2021, as seasonal customers, in particular Canadian customers, were impacted by travel restrictions resulting from COVID-19. We continue to experience strong performance in our membership base within our Thousand Trails portfolio. For the quarter ended June 30, 2021, annual membership subscriptions revenue increased 10.1% over the same period in 2020. We sold approximately 8,200 TTC memberships during the quarter ended June 30, 2021, representing a 41% increase in sales volume compared to the same period in 2020. We also activated approximately 7,800 TTC memberships through our RV dealer program for the quarter ended June 30, 2021. Membership upgrade sales, gross increased $4.2 million for the quarter ended June 30, 2021 compared to the same period in 2020, driven by approximately 1,200 membership upgrade sales during the quarter. We also experienced a 22% increase in the average sales price per upgrade sold during the quarter ended June 30, 2021 compared to the same period June 30, 2020. The increase in upgrade sales and average sales price was driven by an increase in customer demand, including a new upgrade product, Adventure, introduced in the first quarter of 2021. Adventure was introduced in response to demand we were seeing from our current customers who were looking for longer stays and advanced booking windows. We periodically introduce new upgrade products. Based on our historical experience, during the first 60 to 90 days following a new product launch, we experience an increase in upgrade sales and thereafter the upgrade sales fall back in line with historical run rate performance. For the six months ended June 30, 2021, we sold approximately 13,500 TTC memberships and approximately 2,600 membership upgrades, an increase in membership subscriptions and upgrade revenues of 7.2% and 94.3%, respectively, over the same period in 2020. Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels. We closed 295 new home sales during the quarter ended June 30, 2021, compared to 133 new home sales during the quarter ended June 30, 2020. We closed 487 new home sales during the six months ended June 30, 2021, compared to 288 new home sales during the six months ended June 30, 2020. The increase in new home sales was primarily due to favorable housing trends in the broader real estate market. As of June 30, 2021, we had 3,794 occupied rental homes in our Core MH communities, including 282 homes rented through our ECHO JV. Our Core Portfolio income from rental operations, net of depreciation, was $8.4 million and $8 million for the quarters ended June 30, 2021 and 2020, respectively. Approximately $8.1 million and $7.8 million of rental operations revenue related to Site rental was included in MH base rental income in our Core Portfolio for the quarters ended June 30, 2021 and 2020, respectively. Our Core Portfolio income from rental operations, net of depreciation, was $16.9 million and $15.5 million for the six months ended June 30, 2021 and 2020, respectively. Approximately $16.2 million and $15.6 million of rental operations revenue related to Site rental was included in MH base rental income in our Core Portfolio for the six months ended June 30, 2021 and 2020, respectively. Our gross investment in real estate increased $447.0 million to $6,607.4 million as of June 30, 2021 from $6,160.4 million as of December 31, 2020, primarily due to acquisitions and capital improvements during the six months ended June 30, 2021. 24 Management's Discussion and Analysis (continued) The following chart lists the Properties acquired or sold from January 1, 2020 through June 30, 2021 and Sites added through expansion opportunities at our existing Properties: Location Type of Property Transaction Date Sites Total Sites as of January 1, 2020 (1) 156,500 Acquisition Properties: Marina Dunes RV Park Marina, California RV October 15, 2020 96 Acorn Campground Green Creek, New Jersey RV October 16, 2020 323 Dolce Vita at Superstition Mountain Apache Junction, Arizona MH December 8, 2020 484 Leisure World RV Resort Weslaco, Texas RV December 9, 2020 333 Trails End RV Resort Weslaco, Texas RV December 9, 2020 362 Meridian RV Resort Apache Junction, Arizona RV December 14, 2020 264 Harbor Point RV Community Sneads Ferry, North Carolina RV December 16, 2020 203 Topsail Sound RV Park Holly Ridge, North Carolina RV December 17, 2020 230 Marker 1 Marina Dunedin, Florida Marina December 30, 2020 477 Okeechobee KOA Resort Okeechobee, Florida RV January 21, 2021 740 Marina Portfolio (11 Properties) Multiple Marina February 5, 2021 4,167 Pine Haven Cape May, New Jersey RV June 3, 2021 629 Expansion Site Development: Sites added (reconfigured) in 2020 1,202 Sites added (reconfigured) in 2021 131 Total Sites as of June 30, 2021 (1) 166,200 ______________________ (1) Sites are approximate. Total does not foot due to rounding. Non-GAAP Financial Measures Management's discussion and analysis of financial condition and results of operations include certain Non-GAAP financial measures that in management's view of the business are meaningful as they allow investors the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative of recurring annual cash flows of the portfolio. These Non-GAAP financial measures as determined and presented by us may not be comparable to similarly titled measures reported by other companies, and include income from property operations and Core Portfolio, FFO, Normalized FFO and income from rental operations, net of depreciation. We believe investors should review Income from property operations and Core Portfolio, FFO, Normalized FFO and Income from rental operations, net of depreciation, along with GAAP net income and cash flow from operating activities, investing activities and financing activities, when evaluating an equity REIT's operating performance. A discussion of Income from property operations and Core Portfolio, FFO, Normalized FFO and Income from rental operations, net of depreciation, and a reconciliation to net income, are included below. Income from Property Operations and Core Portfolio We use income from property operations, income from property operations, excluding deferrals and property management, and Core Portfolio income from property operations, excluding deferrals and property management, as alternative measures to evaluate the operating results of our Properties. Income from property operations represents rental income, membership subscriptions and upgrade sales, utility and other income less property and rental home operating and maintenance expenses, real estate taxes, sales and marketing expenses and property management expenses. Income from property operations, excluding deferrals and property management, represents income from property operations excluding property management expenses and the impact of the GAAP deferrals of membership upgrade sales upfront payments and membership sales commissions, net. We present bad debt expense within Property operating, maintenance and real estate taxes in the current and prior periods. Our Core Portfolio consists of our Properties owned and operated during all of 2020 and 2021. 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 2020 and 2021. This includes, but is not limited to, one MH community, seven RV communities and one marina acquired during 2020 and two RV communities and eleven marinas acquired during 2021. 25 Management's Discussion and Analysis (continued) 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 non-refundable upfront payments from membership upgrade contracts. In accordance with GAAP, the non-refundable upfront payments and related commissions are deferred and amortized over the estimated membership upgrade contract term. Although the NAREIT definition of FFO does not address the treatment of non-refundable upfront payments, we believe that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO. We define Normalized FFO as FFO excluding non-operating income and expense items, such as gains and losses from early debt extinguishment, including prepayment penalties and defeasance costs, and other miscellaneous non-comparable items. Normalized FFO presented herein is not necessarily comparable to Normalized FFO presented by other real estate companies due to the fact that not all real estate companies use the same methodology for computing this amount. We believe that FFO and Normalized FFO are helpful to investors as supplemental measures of the performance of an equity REIT. We believe that by excluding the effect of gains or losses from sales of properties, depreciation and amortization related to real estate and impairment charges, which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. We further believe that Normalized FFO provides useful information to investors, analysts and our management because it allows them to compare our operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences not related to our normal operations. For example, we believe that excluding the early extinguishment of debt and other miscellaneous non-comparable items from FFO allows investors, analysts and our management to assess the sustainability of operating performance in future periods because these costs do not affect the future operations of the properties. In some cases, we provide information about identified non-cash components of FFO and Normalized FFO because it allows investors, analysts and our management to assess the impact of those items. Income from Rental Operations, Net of Depreciation We use income from rental operations, net of depreciation as an alternative measure to evaluate the operating results of our home rental program. Income from rental operations, net of depreciation represents income from rental operations less depreciation expense on rental homes. We believe this measure is meaningful for investors as it provides a complete picture of the home rental program operating results including the impact of depreciation which affects our home rental program investment decisions. Our definitions and calculations of these Non-GAAP financial and operating measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. These Non-GAAP financial and operating measures do not represent cash generated from operating activities in accordance with GAAP, nor do they represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flows from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions. 26 Management's Discussion and Analysis (continued) The following table reconciles net income available for Common Stockholders to income from property operations for the quarters ended June 30, 2021 and 2020: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2021 2020 2021 2020 Computation of Income from Property Operations: Net income available for Common Stockholders $ 61,051 $ 46,187 $ 126,291 $ 113,062 Redeemable preferred stock dividends 8 8 8 8 Income allocated to non-controlling interests – Common OP Units 3,021 2,658 6,768 6,507 Equity in income of unconsolidated joint ventures (1,068) (1,064) (1,936) (1,271) Income before equity in income of unconsolidated joint ventures 63,012 47,789 131,131 118,306 Loss on sale of real estate, net — — 59 — Total other expenses, net 84,266 73,016 166,475 148,160 Loss from home sales operations and other (2,354) 1,640 (3,737) 2,517 Income from property operations $ 144,924 $ 122,445 $ 293,928 $ 268,983 The following table presents a calculation of FFO available for Common Stock and OP Unitholders and Normalized FFO available for Common Stock and OP Unitholders for the quarters ended June 30, 2021 and 2020: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2021 2020 2021 2020 Computation of FFO and Normalized FFO: Net income available for Common Stockholders $ 61,051 $ 46,187 $ 126,291 $ 113,062 Income allocated to non-controlling interests – Common OP Units 3,021 2,658 6,768 6,507 Membership upgrade sales upfront payments, deferred, net 6,454 2,666 13,881 5,208 Membership sales commissions, deferred, net (1,438) (481) (2,937) (697) Depreciation and amortization 48,316 38,332 93,714 77,356 Depreciation on unconsolidated joint ventures 184 184 367 361 Loss on sale of real estate, net — — 59 — FFO available for Common Stock and OP Unit holders 117,588 89,546 238,143 201,797 Early debt retirement 755 — 2,784 1,054 COVID-19 expenses — 1,407 — 1,446 Normalized FFO available for Common Stock and OP Unit holders $ 118,343 $ 90,953 $ 240,927 $ 204,297 Weighted average Common Shares outstanding – Fully Diluted 192,701 192,542 192,668 192,538 27 Management's Discussion and Analysis (continued) Results of Operations This section discusses the comparison of our results of operations for the quarters and six months ended June 30, 2021 and June 30, 2020 and our operating activities, investing activities and financing activities for the six months ended June 30, 2021 and June 30, 2020. For the comparison of our results of operations for the quarters and six months ended June 30, 2020 and June 30, 2019 and discussion of our operating activities, investing activities and financing activities for the six months ended June 30, 2020 and June 30, 2019, refer to Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, filed with the SEC on July 28, 2020. Comparison of the quarter ended June 30, 2021 to the quarter ended June 30, 2020 Income from Property Operations The following table summarizes certain financial and statistical data for our Core Portfolio and total portfolio for the quarters ended June 30, 2021 and June 30, 2020: Core Portfolio Total Portfolio Quarters Ended June 30, Quarters Ended June 30, (amounts in thousands) 2021 2020 Variance % Change 2021 2020 Variance % Change MH base rental income (1) $ 149,214 $ 142,535 $ 6,679 4.7 % $ 150,145 $ 142,557 $ 7,588 5.3 % Rental home income (1) 4,266 4,077 189 4.6 % 4,278 4,078 200 4.9 % RV and marina base rental income (1) 79,352 60,107 19,245 32.0 % 89,008 60,107 28,901 48.1 % Annual membership subscriptions 14,266 12,961 1,305 10.1 % 14,267 12,961 1,306 10.1 % Membership upgrades sales current period, gross 9,207 5,048 4,159 82.4 % 9,207 5,048 4,159 82.4 % Utility and other income (1) 27,364 22,259 5,105 22.9 % 28,205 22,259 5,946 26.7 % Property operating revenues, excluding deferrals 283,669 246,987 36,682 14.9 % 295,110 247,010 48,100 19.5 % Property operating and maintenance (1)(2) 97,870 85,281 12,589 14.8 % 103,104 85,378 17,726 20.8 % Real estate taxes 16,964 16,638 326 2.0 % 17,896 16,668 1,228 7.4 % Rental home operating and maintenance 1,285 1,243 42 3.4 % 1,312 1,245 67 5.4 % Sales and marketing, gross 6,296 4,276 2,020 47.2 % 6,298 4,276 2,022 47.3 % Property operating expenses, excluding deferrals and property management 122,415 107,438 14,977 13.9 % 128,610 107,567 21,043 19.6 % Income from property operations, excluding deferrals and property management (3) 161,254 139,549 21,705 15.6 % 166,500 139,443 27,057 19.4 % Property management 16,560 14,813 1,747 11.8 % 16,560 14,813 1,747 11.8 % Income from property operations, excluding deferrals (3) 144,694 124,736 19,958 16.0 % 149,940 124,630 25,310 20.3 % Membership upgrade sales upfront payments and membership sales commission, deferred, net 5,016 2,185 2,831 129.6 % 5,016 2,185 2,831 129.6 % Income from property operations (3) $ 139,678 $ 122,551 $ 17,127 14.0 % $ 144,924 $ 122,445 $ 22,479 18.4 % _____________________ (1) Rental income consists of the following total portfolio income items: 1) MH base rental income, 2) Rental home income, 3) RV and marina base rental income and 4) Utility income, which is calculated by subtracting Other income on the Consolidated Statements of Income and Comprehensive Income from Utility and other income in this table. The difference between the sum of the total portfolio income items and Rental income on the Consolidated Statements of Income and Comprehensive Income is bad debt expense, which is presented in Property operating and maintenance expense in this table. (2) Includes bad debt expense for all periods presented. (3) See Non-GAAP Financial Measures section of the Management Discussion and Analysis for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders. Total portfolio income from property operations for 2021 increased $22.5 million, or 18.4%, from 2020, driven by an an increase of $17.1 million, or 14.0%, from our Core Portfolio and an increase of $5.4 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily due to higher property operating revenues, excluding deferrals primarily from increased RV and marina and MH base rental income, partially offset by an increase in property operating expenses, excluding deferrals and property management. The increase in income from property operations from our Non-Core Portfolio was attributed to income from properties acquired in the fourth quarter of 2020 and the first and second quarters of 2021. 28 Management's Discussion and Analysis (continued) Property Operating Revenues MH base rental income in our Core Portfolio for 2021 increased $6.7 million, or 4.7%, from 2020, which reflects 4.1% 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 $721 in 2021 from approximately $693 in 2020. The average occupancy for our Core Portfolio was 95.2% for both the quarters ended June 30, 2021 and June 30, 2020. RV and marina base rental income is comprised of the following: Core Portfolio Total Portfolio Quarters Ended June 30, Quarters Ended June 30, (amounts in thousands) 2021 2020 Variance % Change 2021 2020 Variance % Change Annual $ 50,721 $ 47,122 $ 3,599 7.6 % $ 58,748 $ 47,122 $ 11,626 24.7 % Seasonal 6,823 5,204 1,619 31.1 % 7,447 5,204 2,243 43.1 % Transient 21,808 7,781 14,027 180.3 % 22,813 7,781 15,032 193.2 % RV and marina base rental income $ 79,352 $ 60,107 $ 19,245 32.0 % $ 89,008 $ 60,107 $ 28,901 48.1 % RV and marina base rental income in our Core Portfolio for 2021 increased by $19.2 million, or 32.0%, from 2020 primarily due to increases in Transient RV and marina base rental income of $14.0 million or 180.3%, Annual RV and marina base rental income of $3.6 million or 7.6% and Seasonal RV and marina base rental income of $1.6 million or 31.1%. Transient and Seasonal RV and marina base rental income increased across all regions, primarily due to cancellations in RV reservations and site closures during the second quarter of 2020 as a result of COVID-19. In addition, we continue to see positive Transient demand as our customers seek safe vacation and leisure activities and value the opportunity to spend time outdoors. The increase in Annual rental income is attributable to both rate and occupancy, driven by occupancy gains in the North and Northeast regions. Membership upgrade sales, gross for 2021 increased $4.2 million, or 82.4%, from 2020. The increase in membership upgrade sales was due to approximately 1,200 upgrade sales in 2021, compared to 800 in 2020, an increase of 49%. We also experienced a 22% increase in the average sales price per upgrade sold during the second quarter of 2021, compared to the second quarter of 2020. The increase in upgrade sales and average sales price was driven by an increase in customer demand, including a new upgrade product, Adventure, introduced during the first quarter of 2021. Utility and other income in our Core Portfolio for 2021 increased $5.1 million, or 22.9%, from 2020. The increase was primarily due to an increase in other property income of $3.7 million and an increase in utility income of $1.2 million. The increase in other property income was primarily due to insurance recovery revenue of $2.4 million related to Hurricane Hanna recorded during the second quarter of 2021 and an increase in late fees due to the suspension of late fees in 2020 as a result of COVID-19. The increase in utility income was primarily due to an increase in electric income. Property Operating Expenses Property operating expenses, excluding deferrals and property management, in our Core Portfolio for 2021 increased $15.0 million, or 13.9%, from 2020, driven by increases in property operating and maintenance expenses of $12.6 million and gross sales and marketing expenses of $2.0 million. Core property operating and maintenance expenses were higher in 2021 primarily due to increases in utility expenses of $4.5 million, repairs and maintenance expenses of $2.7 million and property payroll of $2.2 million. The increase in gross sales and marketing expense is primarily due to an increase in membership upgrade sales during the second quarter of 2021 compared to the second quarter 2020. 29 Management's Discussion and Analysis (continued) Home Sales and Rental Operations Home Sales and Other The following table summarizes certain financial and statistical data for our Home Sales and Other Operations: Quarters Ended June 30, (amounts in thousands, except home sales volumes) 2021 2020 Variance % Change Gross revenues from new home sales (1) $ 23,320 $ 7,552 $ 15,768 208.8 % Cost of new home sales (1) 22,243 7,382 14,861 201.3 % Gross profit from new home sales 1,077 170 907 533.5 % Gross revenues from used home sales 1,107 1,314 (207) (15.8) % Cost of used home sales 1,613 1,468 145 9.9 % Loss from used home sales (506) (154) (352) (228.6) % Brokered resale and ancillary services revenues, net 3,129 (575) 3,704 644.2 % Home selling expenses 1,346 1,081 265 24.5 % Income (loss) from home sales and other $ 2,354 $ (1,640) $ 3,994 243.5 % Home sales volumes Total new home sales (2) 295 133 162 121.8 % New Home Sales Volume - ECHO JV 16 11 5 45.5 % Used home sales 108 136 (28) (20.6) % Brokered home resales 212 111 101 91.0 % _________________________ (1) New home sales gross revenues and costs of new home sales do not include the revenues and costs associated with our ECHO JV. (2) Total new home sales volume includes home sales from our ECHO JV. The income from home sales and other operations was $2.4 million for the second quarter of 2021, compared to a loss of $1.6 million in the second quarter of 2020. The increase in income from home sales and other operations was primarily due to an increase in ancillary services revenues, net, due to increased revenue from restaurants, stores and activities across the portfolio that were closed last year as a result of COVID-19 and an increase in non-core marina ancillary revenues, net. Income from home sales and other operations also increased due to an increase in gross profit from new home sales due to an increase of 162 new homes sales during the second quarter of 2021 compared to the second quarter of 2020 primarily due to favorable housing trends in the broader real estate market. 30 Management's Discussion and Analysis (continued) Rental Operations The following table summarizes certain financial and statistical data for our MH Rental Operations: Quarters Ended June 30, (amounts in thousands, except rental unit volumes) 2021 2020 Variance % Change Rental operations revenue (1) $ 12,344 $ 11,904 $ 440 3.7 % Rental home operating and maintenance expenses 1,285 1,243 42 3.4 % Income from rental operations 11,059 10,661 398 3.7 % Depreciation on rental homes (2) 2,685 2,721 (36) (1.3) % Income from rental operations, net of depreciation $ 8,374 $ 7,940 $ 434 5.5 % Gross investment in new manufactured home rental units (3) $ 230,394 $ 235,516 $ (5,122) (2.2) % Gross investment in used manufactured home rental units $ 17,732 $ 17,722 $ 10 0.1 % Net investment in new manufactured home rental units $ 188,343 $ 202,115 $ (13,772) (6.8) % Net investment in used manufactured home rental units $ 9,288 $ 10,430 $ (1,142) (10.9) % Number of occupied rentals – new, end of period (4) 3,303 3,291 12 0.4 % Number of occupied rentals – used, end of period 491 632 (141) (22.3) % ______________________ (1) Consists of Site rental income and home rental income. Approximately $8.1 million and $7.8 million for the quarters ended June 30, 2021 and June 30, 2020, respectively, of Site rental income is included in MH base rental income in the Core Portfolio Income from Property Operations table. The remainder of home rental income is included in rental home income in our Core Portfolio Income from Property Operations table. (2) Presented in Depreciation and amortization in the Consolidated Statements of Income and Comprehensive Income. (3) New home cost basis does not include the costs associated with our ECHO JV. Our investment in the ECHO JV was $17.7 million and $17.1 million as of June 30, 2021 and June 30, 2020, respectively. (4) Includes 282 and 283 homes rented through our ECHO JV as of June 30, 2021 and 2020, respectively. Income from rental operations, net of depreciation, was $0.4 million higher during the second quarter of 2021, compared to the second quarter of 2020, primarily due to an increase in the number of occupied new rental homes which command a higher rental rate than occupied used homes. Other Income and Expenses The following table summarizes other income and expenses, net: Quarters Ended June 30, (amounts in thousands, expenses shown as negative) 2021 2020 Variance % Change Depreciation and amortization $ (48,316) $ (38,332) $ (9,984) (26.0) % Interest income 1,742 1,791 (49) (2.7) % Income from other investments, net 1,222 1,022 200 19.6 % General and administrative (10,228) (10,609) 381 3.6 % Other expenses (800) (639) (161) (25.2) % Early debt retirement (755) — (755) — % Interest and related amortization (27,131) (26,249) (882) (3.4) % Total other income and expenses, net $ (84,266) $ (73,016) $ (11,250) (15.4) % Total other income and expenses, net increased $11.3 million in 2021 compared to 2020, primarily due to higher depreciation and amortization, higher interest and related amortization, and early debt retirement costs incurred during the second quarter of 2021. The increase in depreciation and amortization is due to depreciation on Non-core properties acquired in the fourth quarter of 2020, and the first and second quarters of 2021. The increase in interest and related amortization is due to higher debt levels than the same period in 2021. 31 Management's Discussion and Analysis (continued) Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020 Income from Property Operations The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the six months ended June 30, 2021 and 2020. Core Portfolio Total Portfolio Six Months Ended June 30, Six Months Ended June 30, (amounts in thousands) 2021 2020 Variance % Change 2021 2020 Variance % Change MH base rental income (1) $ 297,278 $ 283,938 $ 13,340 4.7 % $ 299,119 $ 283,978 $ 15,141 5.3 % Rental home income (1) 8,554 8,060 494 6.1 % 8,571 8,060 511 6.3 % RV and marina base rental income (1) 156,318 141,167 15,151 10.7 % 172,596 141,167 31,429 22.3 % Annual membership subscriptions 27,917 26,033 1,884 7.2 % 27,921 26,034 1,887 7.2 % Membership upgrade sales current period, gross 19,221 9,891 9,330 94.3 % 19,221 9,891 9,330 94.3 % Utility and other income (1) 51,488 47,564 3,924 8.2 % 52,923 47,562 5,361 11.3 % Property operating revenues, excluding deferrals 560,776 516,653 44,123 8.5 % 580,351 516,692 63,659 12.3 % Property operating and maintenance (1)(2) 183,477 168,832 14,645 8.7 % 192,764 169,030 23,734 14.0 % Real estate taxes 34,028 33,450 578 1.7 % 35,746 33,509 2,237 6.7 % Rental home operating and maintenance 2,509 2,582 (73) (2.8) % 2,555 2,588 (33) (1.3) % Sales and marketing, gross 12,471 8,255 4,216 51.1 % 12,474 8,254 4,220 51.1 % Property operating expenses, excluding deferrals and property management 232,485 213,119 19,366 9.1 % 243,539 213,381 30,158 14.1 % Income from property operations, excluding deferrals and property management (3) 328,291 303,534 24,757 8.2 % 336,812 303,311 33,501 11.0 % Property management 31,930 29,817 2,113 7.1 % 31,940 29,817 2,123 7.1 % Income from property operations, excluding deferrals (3) 296,361 273,717 22,644 8.3 % 304,872 273,494 31,378 11.5 % Membership upgrade sales upfront payments and membership sales commission, deferred, net 10,944 4,511 6,433 142.6 % 10,944 4,511 6,433 142.6 % Income from property operations (3) $ 285,417 $ 269,206 $ 16,211 6.0 % $ 293,928 $ 268,983 $ 24,945 9.3 % __________________________ (1) Rental income consists of the following total portfolio income items: 1) MH base rental income, 2) Rental home income, 3) RV and marina base rental income and 4) Utility income, which is calculated by subtracting Other income on the Consolidated Statements of Income and Comprehensive Income from Utility and other income in this table. The difference between the sum of the total portfolio income items and Rental income on the Consolidated Statements of Income and Comprehensive Income is bad debt expense, which is presented in Property operating maintenance expense in this table. (2) Includes bad debt expense for all periods presented. (3) See Non-GAAP Financial Measures section of the Management Discussion and Analysis for definitions and reconciliation of these Non-GAAP measures to Net Income available for Common Shareholders. Total Portfolio income from property operations for 2021 increased $24.9 million, or 9.3%, from 2020, driven by an increase of $16.2 million, or 6.0%, from our Core Portfolio and by an increase of $8.7 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily due to increases in RV and marina base rental income, MH base rental income and Membership upgrade sales, gross. The increase in income from property operations from our Non-Core Portfolio was attributed to income from properties acquired in the fourth quarter of 2020 and during the six months ended June 30, 2021. Property Operating Revenues MH base rental income in our Core Portfolio for 2021 increased $13.3 million, or 4.7%, from 2020, which reflects 4.1% growth from rate increases and 0.6% growth from occupancy gains. The average monthly base rental income per Site increased to approximately $719 in 2021 from approximately $690 in 2020. The average occupancy for the Core Portfolio was 95.3% for the six months ended June 30, 2021 compared to 95.2% for the six months ended June 30, 2020. 32 Management's Discussion and Analysis (continued) RV and marina base rental income is comprised of the following: Core Portfolio Total Portfolio Six Months Ended June 30, Six Months Ended June 30, (amounts in thousands) 2021 2020 Variance % Change 2021 2020 Variance % Change Annual $ 99,910 $ 94,447 $ 5,463 5.8 % $ 113,267 $ 94,447 $ 18,820 19.9 % Seasonal 21,767 27,787 (6,020) (21.7) % 22,809 27,787 (4,978) (17.9) % Transient 34,641 18,933 15,708 83.0 % 36,520 18,933 17,587 92.9 % RV and marina base rental income $ 156,318 $ 141,167 $ 15,151 10.7 % $ 172,596 $ 141,167 $ 31,429 22.3 % RV and marina base rental income in our Core Portfolio for 2021 increased $15.2 million, or 10.7%, from 2020 primarily due to increases in Transient RV and marina base rental income of $15.7 million, or 83.0% and Annual RV and marina base rental income of $5.5 million, or 5.8%, partially offset by a decrease in Seasonal RV and marina base rental income of $6.0 million, or 21.7%. Transient RV and marina base rental income increased across all regions, primarily due to cancellations in RV reservations and site closures during the six months ended June 30, 2020 as a result of COVID-19. In addition, we continue to see positive Transient demand as our customers seek safe vacation and leisure activities and value the opportunity to spend time outdoors. The increase in Annual RV and marina base rental income was primarily due to growth from rate increases. The decrease in Seasonal RV and marina base rental income was primarily due to a decrease in seasonal RV rental income in the South and West regions during the first quarter of 2021, as seasonal customers, in particular Canadian customers, were impacted by travel restrictions resulting from COVID-19. Membership upgrade sales, gross for 2021 increased $9.3 million, or 94.3%, from 2020. The increase in membership upgrade sales was due to approximately 2,600 upgrade sales during the six months ended June 30, 2021, compared to 1,600 during the six months ended June 30, 2020, an increase of 67%. We also experienced a 16% increase in the average sales price per upgrade sold during the six months ended June 30, 2021, compared to the same period ended June 30, 2020. The increase in upgrade sales and average sales price was driven by an increase in customer demand, including a new upgrade product, Adventure, introduced during the first quarter of 2021. Utility and other income in our Core Portfolio for 2021 increased $3.9 million, or 8.2%, from 2020. The increase was primarily due to an increase in other property income of $2.8 million and an increase in utility income of $0.9 million. The increase in other property income was driven by insurance recovery revenue of $2.4 million related to Hurricane Hanna recorded during the second quarter of 2021 and increased late fees due to the suspension of late fees in 2020 as a result of COVID-19. Property Operating Expenses Property operating expenses, excluding deferrals and property management, in our Core Portfolio for 2021 increased $19.4 million, or 9.1%, from 2020, driven by increases in property operating and maintenance expenses of $14.6 million and gross sales and marketing expenses of $4.2 million. Core property operating and maintenance expenses were higher during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to increases in utility expenses of $5.1 million, repairs and maintenance expenses of $3.3 million, property payroll expenses of $2.6 million and insurance expense of $2.0 million. The increase in gross sales and marketing expenses was primarily due to an increase in membership upgrade sales. 33 Management's Discussion and Analysis (continued) Home Sales and Rental Operations Home Sales and Other The following table summarizes certain financial and statistical data for Home Sales and Other Operations: Six Months Ended June 30, (amounts in thousands, except home sales volumes) 2021 2020 Variance % Change Gross revenues from new home sales (1) $ 37,658 $ 16,934 $ 20,724 122.4 % Cost of new home sales (1) 35,958 16,669 19,289 115.7 % Gross profit from new home sales 1,700 265 1,435 541.5 % Gross revenues from used home sales 1,989 3,241 (1,252) (38.6) % Cost of used home sales 2,766 4,092 (1,326) (32.4) % Loss from used home sales (777) (851) 74 8.7 % Brokered resale and ancillary services revenues, net 5,466 363 5,103 1,405.8 % Home selling expenses 2,652 2,294 358 15.6 % Income (loss) from home sales and other $ 3,737 $ (2,517) $ 6,254 248.5 % Home sales volumes Total new home sales (2) 487 288 199 69.1 % New Home Sales Volume - ECHO JV 24 23 1 4.3 % Used home sales 210 330 (120) (36.4) % Brokered home resales 372 287 85 29.6 % _________________________ (1) New home sales gross revenues and costs of new home sales do not include the revenues and costs associated with our ECHO JV. (2) Total new home sales volume includes home sales from our ECHO JV. The income from home sales and other was $3.7 million for the six months ended June 30, 2021 compared to a loss of $2.5 million for the six months ended June 30, 2020. The increase in income from home sales and other was due to an increase in ancillary services revenues, net, driven by increased revenue from restaurants, stores and activities across the portfolio primarily as a result of closures in 2020 as a result of COVID-19, an increase in non-core marina ancillary revenues, net and an increase in gross profit from new home sales as a result of an increase in the number of new homes sold. 34 Management's Discussion and Analysis (continued) Rental Operations The following table summarizes certain financial and statistical data for MH Rental Operations. Six Months Ended June 30, (amounts in thousands, except rental unit volumes) 2021 2020 Variance % Change Rental operations revenue (1) $ 24,733 $ 23,647 $ 1,086 4.6 % Rental home operating and maintenance expenses 2,509 2,582 (73) (2.8) % Income from rental operations 22,224 21,065 1,159 5.5 % Depreciation on rental homes (2) 5,305 5,525 (220) (4.0) % Income from rental operations, net of depreciation $ 16,919 $ 15,540 $ 1,379 8.9 % Gross investment in new manufactured home rental units (3) $ 230,394 $ 235,516 $ (5,122) (2.2) % Gross investment in used manufactured home rental units $ 17,732 $ 17,722 $ 10 0.1 % Net investment in new manufactured home rental units $ 188,343 $ 202,115 $ (13,772) (6.8) % Net investment in used manufactured home rental units $ 9,288 $ 10,430 $ (1,142) (10.9) % Number of occupied rentals – new, end of period (4) 3,303 3,291 12 0.4 % Number of occupied rentals – used, end of period 491 632 (141) (22.3) % ______________________ (1) Rental operations revenue consists of Site rental income and home rental income in our Core Portfolio. Approximately $16.2 million and $15.6 million of Site rental income for the six months ended June 30, 2021 and 2020, respectively, are included in community base rental income within the Core Portfolio Income from Property Operations table. The remainder of home rental income is included in rental home income within the Core Portfolio Income from Property Operations table. (2) Presented in Depreciation and amortization in the Consolidated Statements of Income and Comprehensive Income. (3) Includes both occupied and unoccupied rental homes in our Core Portfolio. New home cost basis does not include the costs associated with our ECHO JV. Our investment in the ECHO JV was $17.7 million and $17.1 million as of June 30, 2021 and 2020, respectively. (4) Occupied rentals as of the end of the period in our Core Portfolio and includes 282 and 283 homes rented through our ECHO JV as of June 30, 2021 and 2020, respectively. Income from rental operations, net of depreciation, was $1.4 million higher during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to an increase in the number of occupied new rental homes which command a higher rental rate than occupied used homes. Other Income and Expenses The following table summarizes other income and expenses, net: Six Months Ended June 30, (amounts in thousands, expenses shown as negative) 2021 2020 Variance % Change Depreciation and amortization $ (93,714) $ (77,356) $ (16,358) (21.1) % Interest income 3,509 3,598 (89) (2.5) % Income from other investments, net 2,158 1,665 493 29.6 % General and administrative (20,740) (21,464) 724 3.4 % Other expenses (1,498) (1,227) (271) (22.1) % Early debt retirement (2,784) (1,054) (1,730) (164.1) % Interest and related amortization (53,406) (52,322) (1,084) (2.1) % Total other income and expenses, net $ (166,475) $ (148,160) $ (18,315) (12.4) % Total other income and expenses, net increased $18.3 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to higher depreciation and amortization and higher early debt retirement costs. The increase in depreciation and amortization was due to depreciation on Non-Core properties acquired in the fourth quarter of 2020 and the six months ended June 30, 2021. The increase in early debt retirement costs was due to higher debt repayment costs in 2021 compared to 2020. Equity in income of unconsolidated joint ventures Equity in income of unconsolidated joint ventures increased $0.7 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to an increase in distributions received in 2021 compared to 2020. 35 Management's Discussion and Analysis (continued) Liquidity and Capital Resources Liquidity Our primary demands for liquidity include payment of operating expenses, dividend distributions, debt service, including principal and interest, capital improvements on Properties, home purchases and property acquisitions. We expect similar demand for liquidity will continue for the short-term and long-term. Our primary sources of cash include operating cash flows, proceeds from financings, borrowings under our unsecured Line of Credit (“LOC”) and proceeds from issuance of equity and debt securities. One of our stated objectives is to maintain financial flexibility. Achieving this objective allows us to take advantage of strategic opportunities that may arise. When investing capital, we consider all potential uses, including returning capital to our stockholders or the conditions under which we may repurchase our stock. These conditions include, but are not limited to, market price, balance sheet flexibility, alternative opportunistic capital uses and capital requirements. We believe effective management of our balance sheet, including maintaining various access points to raise capital, managing future debt maturities and borrowing at competitive rates, enables us to meet this objective. Accessing long-term low-cost secured debt continues to be our focus. Our at-the-market (“ATM”) equity offering program allows us, from time-to-time, to sell shares of our common stock, par value $0.01 per share, having an aggregate offering price up to $200.0 million. As of June 30, 2021, the full capacity remained available for issuance. As of June 30, 2021, we had available liquidity in the form of approximately 416.2 million shares of authorized and unissued common stock, par value $0.01 per share, and 10.0 million shares of authorized and unissued preferred stock registered for sale under the Securities Act of 1933, as amended. During the six months ended June 30, 2021, we closed on an amended revolving line of credit with borrowing capacity of $500.0 million and a $300.0 million term loan (“Term Loan”). The variable interest rate on the Term Loan is LIBOR plus 1.40%. Pursuant to the Swap (as defined below), we have fixed the interest rate at 1.8% per annum. See Item 1. Financial Statements—Note 8. Borrowing Arrangements for further details. We also utilize interest rate swaps to add stability to our interest expense and to manage our exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of the designated derivative are recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets and subsequently reclassified into earnings on the Consolidated Statements of Income and Comprehensive Income in the period that the hedged forecasted transaction affects earnings. 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 Swap has a notional amount of $300.0 million of outstanding principal and fixes the underlying LIBOR rate at 0.39% per annum and matures on March 25, 2024. For additional information regarding our interest rate swap, see Item 1. Financial Statements—Note 9. Derivative Instruments and Hedging Activities. We expect to meet our short-term liquidity requirements, including principal payments, capital improvements and dividend distributions for the next twelve months, generally through available cash, net cash provided by operating activities and our LOC. As of June 30, 2021, our LOC had a borrowing capacity of $438.0 million. As of June 30, 2021, the LOC bears interest at a rate of LIBOR plus 1.25% to 1.65%, carries an annual facility fee of 0.20% to 0.35% and matures on April 18, 2025. We expect to meet certain long-term liquidity requirements, such as scheduled debt maturities, property acquisitions and capital improvements, using long-term collateralized and uncollateralized borrowings including the existing LOC and the issuance of debt securities or the issuance of equity including under our ATM equity offering program. We continue to monitor the development and adoption of an alternative index to LIBOR to manage the transition. Given the majority of our current debt is secured and not subject to LIBOR, we do not believe the discontinuation of LIBOR will have a significant impact on our consolidated financial statements. The impact the COVID-19 pandemic will continue to have on our financial condition and cashflows is uncertain and is dependent upon various factors including the manner in which operations will continue at our Properties, customer payment 36 Management's Discussion and Analysis (continued) patterns and operational decisions we have made and may make in the future in response to guidance from public authorities and/or for the health and safety of our employees, residents and guests. The following table summarizes our cash flows activity: For the six months ended June 30, (amounts in thousands) 2021 2020 Net cash provided by operating activities $ 328,926 $ 238,745 Net cash used in investing activities (475,211) (105,804) Net cash provided by (used in) financing activities 166,978 (41,808) Net increase in cash and restricted cash $ 20,693 $ 91,133 Operating Activities Net cash provided by operating activities increased $90.2 million to $328.9 million for the quarter ended June 30, 2021 from $238.7 million for the quarter ended June 30, 2020. The increase in net cash provided by operating activities was primarily due to an increase in other assets, net and accounts payable and other liabilities of $38.0 million, higher income from property operations of $24.9 million, an increase in rents and other customer payments received in advance and security deposits of $16.3 million and higher deferred membership revenue of $10.3 million. Investing Activities Net cash used in investing activities increased $369.4 million to $475.2 million for the quarter ended June 30, 2021 from $105.8 million for the quarter ended June 30, 2020. The increase was due to increased spending on acquisitions of $352.5 million along with an increase in capital improvement spending of $16.6 million. Capital Improvements The following table summarizes capital improvements: For the six months ended June 30, (amounts in thousands) 2021 2020 Recurring capital expenditures (1) $ 30,892 $ 26,796 Property upgrades and development 45,008 41,374 New and used home investments (2) (3) 41,949 32,990 Total property improvements 117,849 101,160 Corporate 1,874 1,987 Total capital improvements $ 119,723 $ 103,147 ______________________ (1) Primarily comprised of common area, utility infrastructure and mechanical improvements. (2) Excludes new home investments associated with our ECHO JV. (3) Net proceeds from home sale activities are reflected within Operating Activities. Financing Activities Net cash provided by financing activities was $167.0 million for the quarter ended June 30, 2021. Net cash used in financing activities was $41.8 million for the quarter ended June 30, 2020. The increase in net cash provided by financing activities was primarily due to an increase net term loan proceeds of $300.0 million, partially offset by an increase in net repayments on the LOC of $50.0 million and an increase in mortgage debt repayments of $19.0 million. Contractual Obligations Significant ongoing contractual obligations consist primarily of long-term borrowings, interest expense, operating leases, LOC maintenance fees and ground leases. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the Contractual Obligations section of the “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. Westwinds The Operating Partnership operates and manages Westwinds, a 720 site mobilehome community, and Nicholson Plaza, an adjacent shopping center, both located in San Jose, California pursuant to ground leases that expire on August 31, 2022 and do not contain extension options. Westwinds provides affordable, rent-controlled homes to numerous residents, including 37 Management's Discussion and Analysis (continued) families with children and residents over 65 years of age. For the year ended December 31, 2020, Westwinds and Nicholson Plaza generated approximately $5.8 million of net operating income. The master lessor of these ground leases, The Nicholson Family Partnership (together with its predecessor in interest, the “Nicholsons”), has expressed a desire to redevelop Westwinds, and in a written communication, they claimed that we were obligated to deliver the property free and clear of any and all subtenancies upon the expiration of the ground leases 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 are unlawfully attempting to impose those obligations upon the Operating Partnership. Westwinds opened in the 1970s and was developed by the original ground lessee with assistance from the Nicholsons. In 1997, the Operating Partnership acquired the leasehold interest in the ground leases. In addition to rent based on the operations of Westwinds, the Nicholsons receive a percentage of gross revenues from the sale of new or used mobile homes in Westwinds. The Operating Partnership has entered into subtenancy agreements with the mobilehome residents of Westwinds. Because the ground leases with the Nicholsons have an expiration date of August 31, 2022, and no further right of extension, the Operating Partnership has not entered into any subtenancy agreements that extend beyond August 31, 2022. However, the mobilehome residents’ occupancy rights continue by operation of California state and San Jose municipal law beyond the expiration date of the ground leases. Notwithstanding this, the Nicholsons have made what we believe to be an unlawful demand that the Operating Partnership deliver the property free and clear of any subtenancies upon the expiration of the ground leases by August 31, 2022. We believe the Nicholsons’ demand (i) violates California state and San Jose municipal law because the Nicholsons are demanding that the Operating Partnership remove all residents without just cause and (ii) conflicts with the terms and conditions of the ground leases, which contain no express or implied requirement that the Operating Partnership deliver the property free and clear of all subtenancies at the mobile home park and require, instead, that the Operating Partnership continuously operate the mobilehome park during the lease term. On December 30, 2019, the Operating Partnership, 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. Following the filing of our lawsuit, the City of San Jose took steps to accelerate the passage of a general plan amendment previously under review by the City to change the designation for Westwinds from its current general plan designation of Urban Residential (which would allow for higher density redevelopment), to a newly created designation of Mobile Home Park. The Nicholsons expressed opposition to this change in designation. However, on March 10, 2020, following significant pressure from residents and advocacy groups, the City Council approved this new designation for all 58 mobilehome communities in with City of San Jose, including Westwinds. In addition to requirements imposed by California state and San Jose municipal law, the change in designation requires, among other things, a further amendment to the general plan to a different land use designation by the City Council prior to any change in use. Off-Balance Sheet Arrangements As of June 30, 2021, we have no off-balance sheet arrangements. 38 Management's Discussion and Analysis (continued) Critical Accounting Policies and Estimates Refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K for a discussion of our critical accounting policies. There have been no significant changes to our critical accounting policies and estimates during the quarter ended June 30, 2021. Forward-Looking Statements This Quarterly Report on Form 10-Q includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used, words such as “anticipate,” “expect,” “believe,” “project,” “intend,” “may be” and “will be” and similar words or phrases, or the negative thereof, unless the context requires otherwise, are intended to identify forward-looking statements and may include without limitation, information regarding our expectations, goals or intentions regarding the future, and the expected effect of our acquisitions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, but not limited to: • our ability to control costs and real estate market conditions, our ability to retain customers, the actual use of Sites by customers and our success in acquiring new customers at our Properties (including those that we may acquire); • our ability to maintain historical or increase future rental rates and occupancy with respect to properties currently owned or that we may acquire; • our ability to attract and retain customers entering, renewing and upgrading membership subscriptions; • our assumptions about rental and home sales markets; • our ability to manage counterparty risk; • our ability to renew our insurance policies at existing rates and on consistent terms; • in the age-qualified Properties, home sales results could be impacted by the ability of potential homebuyers to sell their existing residences as well as by financial, credit and capital markets volatility; • results from home sales and occupancy will continue to be impacted by local economic conditions, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing; • impact of government intervention to stabilize site-built single-family housing and not manufactured housing; • effective integration of recent acquisitions and our estimates regarding the future performance of recent acquisitions; • the completion of future transactions in their entirety, if any, and timing and effective integration with respect thereto; • unanticipated costs or unforeseen liabilities associated with recent acquisitions; • our ability to obtain financing or refinance existing debt on favorable terms or at all; • the effect of interest rates; • the effect from any breach of our, or any of our vendors', data management systems; • the dilutive effects of issuing additional securities; • the outcome of pending or future lawsuits or actions brought against us, including those disclosed in our filings with the Securities and Exchange Commission; and • other risks indicated from time to time in our filings with the Securities and Exchange Commission. In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic, many of which are unknown, including the duration of the pandemic, the extent of the adverse health impact on the general population and on our residents, customers, and employees in particular, its impact on the employment rate and the economy, the extent and impact of governmental responses, and the impact of operational changes we have implemented and may implement in response to the pandemic. These forward-looking statements are based on management's present expectations and beliefs about future events. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. 39 Item 3. Quantitative and Qualitative Disclosures About Market Risk We disclosed a quantitative and qualitative analysis regarding market risk in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 Form 10-K. There have been no material changes in the assumptions used or results obtained regarding market risk since December 31, 2020.