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Item 2. Management’s Discussion and Analysis

2022-10-21 compared with 2022-07-27 · 188 added, 146 removed, 519 unchanged (39% of the section changed)

5 unchanged sentences

We are a fully integrated owner of lifestyle-oriented properties (“Properties”) consisting of property operations and home sales and rental operations primarily within manufactured home (“MH”) and recreational vehicle (“RV”) communities and marinas.

As of June 30, 2022, we owned or had an ownership interest in a portfolio of 449 Properties located throughout the United States and Canada containing 170,880 individual developed areas (“Sites”).

As of September 30, 2022, we owned or had an ownership interest in a portfolio of 445 Properties located throughout the United States and Canada containing 170,245 individual developed areas (“Sites”).

These Properties are located in 35 states and British Columbia, with more than 110 Properties with lake, river or ocean frontage and more than 120 Properties within 10 miles of the coastal United States.

See discussion of Hurricane Ian, including the impact to our Florida Properties in Part I.

Management's Discussion and Analysis — Results Overview on page 23 .

We invest in properties in sought-after locations near retirement and vacation destinations and urban areas across the United States with a focus on delivering an exceptional experience to our residents and guests that results in delivery of value to stockholders.

24 unchanged sentences

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

Total Sites as of June 30, 2022

Total Sites as of September 30, 2022

MH Sites 72,700

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Results Overview

For the quarter ended June 30, 2022, net income available for Common Stockholders increased $0.4 million to $61.5 million, or $0.33 per fully diluted Common Share, compared to $61.1 million, or $0.33 per fully diluted Common Share, for the same period in 2021.

For the six months ended June 30, 2022, net income available for Common Stockholders increased $18.1 million, or $0.09 per fully diluted Common Share, to $144.4 million, or $0.78 per fully diluted Common Share, compared to $126.3 million, or $0.69 per fully diluted Common Share, for the same period in 2021.

For the quarter ended June 30, 2022, FFO available for Common Stock and Operating Partnership unit (“OP Unit”) holders increased $4.0 million, or $0.01 per fully diluted Common Share, to $121.6 million, or $0.62 per fully diluted Common Share, compared to $117.6 million, or $0.61 per fully diluted Common Share, for the same period in 2021.

For the six months ended June 30, 2022, FFO available for Common Stock and OP Unit holders increased $24.4 million, or $0.10 per fully diluted Common Share, to $262.5 million, or $1.34 per fully diluted Common Share, compared to $238.1 million, or $1.24 per fully diluted Common Share, for the same period in 2021.

For the quarter ended June 30, 2022, Normalized FFO available for Common Stock and OP Unit holders increased $7.0 million, or $0.03 per fully diluted Common Share, to $125.3 million, or $0.64 per fully diluted Common Share, compared to $118.3 million, or $0.61 per fully diluted Common Share, for the same period in 2021.

For the six months ended June 30, 2022, Normalized FFO available for Common Stock and OP Unit holders increased $25.8 million, or $0.12 per fully diluted Common Share, to $266.7 million or $1.37 per fully diluted Common Share, compared $240.9 million, or $1.25 per fully diluted Common Share, for the same period 2021.

For the quarter ended June 30, 2022, our Core Portfolio property operating revenues, excluding deferrals, increased 4.9% and property operating expenses, excluding deferrals and property management, increased 7.0%, from the same period in 2021, resulting in an increase in income from property operations, excluding deferrals and property management, of 3.3%, compared to the same period in 2021.

For the six months ended June 30, 2022, our Core Portfolio property operating revenues, excluding deferrals, increased 7.2% and property operating expenses, excluding deferrals and property management, increased 8.6%, from the same period in 2021, resulting in an increase in income from property operations, excluding deferrals and property management, of 6.2% compared to the same period in 2021.

For the quarter ended September 30, 2022, net income available for Common Stockholders decreased $3.4 million to $67.2 million, or $0.36 per fully diluted Common Share, compared to $70.6 million, or $0.38 per fully diluted Common Share, for the same period in 2021.

For the nine months ended September 30, 2022, net income available for Common Stockholders increased $14.7 million, or $0.06 per fully diluted Common Share, to $211.6 million, or $1.14 per fully diluted Common Share, compared to $196.9 million, or $1.08 per fully diluted Common Share, for the same period in 2021.

For the quarter ended September 30, 2022, FFO available for Common Stock and Operating Partnership unit (“OP Unit”) holders increased $9.9 million, or $0.04 per fully diluted Common Share, to $134.4 million, or $0.69 per fully diluted Common Share, compared to $124.5 million, or $0.65 per fully diluted Common Share, for the same period in 2021.

For the nine months ended September 30, 2022, FFO available for Common Stock and OP Unit holders increased $34.3 million, or $0.15 per fully diluted Common Share, to $396.9 million, or $2.03 per fully diluted Common Share, compared to $362.6 million, or $1.88 per fully diluted Common Share, for the same period in 2021.

For the quarter ended September 30, 2022, Normalized FFO available for Common Stock and OP Unit holders increased $12.3 million, or $0.05 per fully diluted Common Share, to $136.8 million, or $0.70 per fully diluted Common Share, compared to $124.5 million, or $0.65 per fully diluted Common Share, for the same period in 2021.

For the nine months ended September 30, 2022, Normalized FFO available for Common Stock and OP Unit holders increased $38.1 million, or $0.17 per fully diluted Common Share, to $403.5 million, or $2.07 per fully diluted Common Share, compared to $365.4 million, or $1.90 per fully diluted Common Share, for the same period 2021.

For the quarter ended September 30, 2022, our Core Portfolio property operating revenues, excluding deferrals, increased 5.3% and property operating expenses, excluding deferrals and property management, increased 7.8%, from the same period in 2021, resulting in an increase in income from property operations, excluding deferrals and property management, of 3.5%, compared to the same period in 2021.

For the nine months ended September 30, 2022, our Core Portfolio property operating revenues, excluding deferrals, increased 6.5% and property operating expenses, excluding deferrals and property management, increased 8.3%, from the same period in 2021, resulting in an increase in income from property operations, excluding deferrals and property management, of 5.3%, compared to the same period in 2021.

Hurricane Ian made landfall on the west coast of Florida on September 28, 2022.

Approximately 60% of our Florida portfolio was in the path of the storm as it moved across the state.

During the storm, we prioritized the safety of our residents, guests and employees.

For the majority of our properties the impact was limited to flooding, wind, wind-blown debris and falling trees and branches.

These properties have resumed operations.

The most significant damage to our properties occurred in or near the Fort Myers area.

Six of our Properties in or near this market continue to experience utility disruptions and are temporarily closed.

The properties include four RV parks and two marinas with a total of 2,100 sites/slips.

During the storm, the four RV properties experienced strong winds as well as significant flooding, including from unprecedented storm surges that resulted in damage to certain common area buildings, utility infrastructure and residents’ homes.

The two marinas suffered wind related building damage and the process of restoring the buildings has begun.

We currently expect these properties will resume operations during the fourth quarter, although certain locations may operate at a limited capacity.

Since the storm passed, we have worked towards quickly returning our properties to full operating condition with efforts focused on debris cleanup and removal and initiating the process to restore impacted buildings and infrastructure.

Based on our prior experience with recovery following major storms, developing restoration plans and estimating costs to execute on those plans takes time, often several weeks.

We did not accrue any repair and maintenance expenses related to cleanup or restoration efforts during the third quarter of 2022 given the short period of time between the storm’s passage and the end of the reporting period.

However, as part of our review and based on information currently available, we have determined that storm-related damage to certain assets supported a $3.7 million reduction to the carrying value of those assets, which is included in Loss on sale of real estate and impairment, net in the Consolidated Statements of Income.

We believe the costs to restore these damaged assets will be included in our insurance claim.

We believe we have adequate insurance coverage, subject to deductibles, including business interruption though we are unable to predict the timing or amount of insurance recovery.

Management's Discussion and Analysis (continued)

We continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our Core Portfolio.

Our Core Portfolio average occupancy includes both homeowners and renters in our MH communities and was 95.1% for each of the quarters ended June 30, 2022, December 31, 2021 and June 30, 2021.

For the quarter ended June 30, 2022, our Core Portfolio occupancy increased by 59 sites with an increase in homeowner occupancy of 252 sites, compared to occupancy as of March 31, 2022.

By comparison, for the quarter ended June 30, 2021, our Core Portfolio occupancy increased 74 sites with an increase in homeowner occupancy of 185 sites.

Our Core Portfolio average occupancy includes both homeowners and renters in our MH communities and was 95.2%, 95.1% and 95.0% for the quarters ended September 30, 2022, December 31, 2021 and September 30, 2021, respectively.

For the quarter ended September 30, 2022, our Core Portfolio occupancy increased by 22 sites with an increase in homeowner occupancy of 190 sites, compared to occupancy as of June 30, 2022.

By comparison, for the quarter ended September 30, 2021, our Core Portfolio occupancy increased 67 sites with an increase in homeowner occupancy of 275 sites.

While we continue to focus on increasing the number of manufactured homeowners in our Core Portfolio, we also believe renting our vacant homes represents an attractive source of occupancy and an opportunity to potentially convert the renter to a new homebuyer in the future.

We continue to expect there to be fluctuations in the sources of occupancy gains depending on local market conditions, availability of vacant sites and success with converting renters to homeowners.

As of June 30, 2022, we had 3,117 occupied rental homes in our Core MH communities, including 185 homes rented through our ECHO JV.

RV and marina base rental income in our Core Portfolio increased 6.6% and 13.9% for the quarter ended June 30, 2022 and six months ended June 30, 2022, respectively, compared to the same periods in 2021 driven by annual and seasonal rental income.

Core RV and marina base rental income from annuals represents more than 60% of total Core RV and marina base rental income and increased 9.1% and 8.9% for the quarter ended June 30, 2022 and six months ended June 30, 2022, respectively, compared to the same period in 2021.

Core seasonal RV and marina base rental income increased 30.6% and 54.1% for the quarter ended June 30, 2022 and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

Core transient RV and marina base rental income decreased by $1.4 million, or 6.6% for the quarter ended June 30, 2022, compared to the same period in 2021 and increased $1.3 million or 3.7% for the six months ended June 30, 2022, compared to the same period in 2021.

Annual membership subscription revenue increased $1.3 million, or 9.3% for the quarter ended June 30, 2022 and $2.8 million, or 10.1% for the six months ended June 30, 2022, compared to the same periods in 2021.

The increase in annual membership subscription revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily offset by a decrease in Membership upgrade sales current period, gross of $2.5 million, or 13.2%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

As of September 30, 2022, we had 2,949 occupied rental homes in our Core MH communities, including 165 homes rented through our ECHO JV.

RV and marina base rental income in our Core Portfolio increased 4.1% and 10.3% for the quarter ended September 30, 2022 and nine months ended September 30, 2022, respectively, compared to the same periods in 2021 driven by annual and seasonal rental income.

Core RV and marina base rental income from annuals represents more than 60% of total Core RV and marina base rental income and increased 8.6% and 8.8% for the quarter ended September 30, 2022 and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

Core seasonal RV and marina base rental income increased 21.2% and 46.0% for the quarter ended September 30, 2022 and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

Core transient RV and marina base rental income decreased by $2.3 million, or 7.2% for the quarter ended September 30, 2022, compared to the same period in 2021 and decreased $1.0 million, or 1.4% for the nine months ended September 30, 2022, compared to the same period in 2021.

Annual membership subscription revenue increased $1.1 million, or 7.5% for the quarter ended September 30, 2022 and $4.0 million, or 9.2% for the nine months ended September 30, 2022, compared to the same periods in 2021.

The increase in annual membership subscription revenue for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily offset by a decrease in Membership upgrade sales current period, gross of $1.6 million, or 5.4%, for the nine months ended September 30, 2022 compared to the same period in 2021.

Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels.

We closed 365 new home sales during the quarter ended June 30, 2022, compared to 295 new home sales during the quarter ended June 30, 2021, an increase of 23.7%.

We closed 626 new home sales during the six months ended June 30, 2022,

We closed 331 new home sales during the quarter ended September 30, 2022, compared to 338 new home sales during the quarter ended September 30, 2021, a decrease of 2.1%.

We closed 957 new home sales during the nine months ended September 30, 2022, compared to 825 new home sales during the nine months ended September 30, 2021, an increase of 16.0%.

The increase in new home sales was primarily in the Florida and Arizona markets due to favorable housing trends.

Our gross investment in real estate increased $279.1 million to $7,268.2 million as of September 30, 2022 from $6,989.1 million as of December 31, 2021, primarily due to acquisitions and capital improvements during the nine months ended September 30, 2022.

Management's Discussion and Analysis (continued)

compared to 487 new home sales during the six months ended June 30, 2021, an increase of 28.5%.

The increase in new home sales was primarily due to favorable housing trends in the broader real estate market.

Our gross investment in real estate increased $253.5 million to $7,242.6 million as of June 30, 2022 from $6,989.1 million as of December 31, 2021, primarily due to acquisitions and capital improvements during the six months ended June 30, 2022.

The following chart lists the Properties acquired or sold from January 1, 2021 through June 30, 2022 and Sites added through expansion opportunities at our existing Properties:

The following chart lists the Properties acquired or sold from January 1, 2021 through September 30, 2022 and Sites added through expansion opportunities at our existing Properties:

Location Type of Property Transaction Date Sites

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Sites added (reconfigured) in 2022 602

Total Sites as of June 30, 2022 (1)

Ground Lease Termination:

Westwinds (4)

San Jose, California MH August 31, 2022 (723)

Total Sites as of September 30, 2022 (1) (5)

______________________

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The Voyager RV Resort joint venture sites are included in the Total Sites as of January 1, 2021.

(4) MH communities operated and managed by the Operating Partnership pursuant to ground leases that expired on August 31, 2022.

For additional information see Part I.

Financial Statements — Note 11.

Commitments and Contingencies.

(5) See discussion of Hurricane Ian, including the impact to our Florida Properties in Part I.

Management's Discussion and Analysis—Results Overview on page 23.

Non-GAAP Financial Measures

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Our Non-Core Portfolio includes all Properties that were not owned and operated during all of 2021 and 2022.

This includes, but is not limited to, six RV communities and eleven marinas acquired during 2021, one membership RV community and three RV communities acquired during 2022 and our Westwinds MH community and Nicholson Plaza.

Funds from Operations ( “ FFO”) and Normalized Funds from Operations ( “ Normalized FFO”)

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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

Management's Discussion and Analysis (continued)

represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flows from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

The following table reconciles net income available for Common Stockholders to income from property operations for the quarters and six months ended June 30, 2022 and 2021:

Quarters Ended June 30, Six Months Ended June 30,

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.

The following table reconciles net income available for Common Stockholders to income from property operations for the quarters and nine months ended September 30, 2022 and 2021:

Quarters Ended September 30, Nine Months Ended September 30,

(amounts in thousands)

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Income before equity in income of unconsolidated joint ventures 69,044 73,242 219,260 204,374

Loss on sale of real estate, net — — — 59

Loss on sale of real estate and impairment, net 3,747 — 3,747 59

Total other expenses, net 90,755 79,930 268,617 246,404

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Income from property operations $ 158,303 $ 149,990 $ 479,727 $ 443,918

The following table presents a calculation of FFO available for Common Stock and OP Unitholders and Normalized FFO available for Common Stock and OP Unitholders for the quarters and six months ended June 30, 2022 and 2021:

Quarters Ended June 30, Six Months Ended June 30,

Management's Discussion and Analysis (continued)

Quarters Ended September 30, Nine Months Ended September 30,

(amounts in thousands)

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Depreciation on unconsolidated joint ventures 1,035 180 2,811 547

Loss on sale of real estate, net — — — 59

Loss on sale of real estate and impairment, net (1)

3,747 — 3,747 59

FFO available for Common Stock and OP Unit holders 134,409 124,472 396,918 362,614

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302 — 3,384 —

Lease termination expenses (3)

2,073 — 2,073 —

Normalized FFO available for Common Stock and OP Unit holders $ 136,784 $ 124,472 $ 403,531 $ 365,398

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_____________________

(1) Reflects a $3.7 million reduction to the carrying value of certain assets, including home inventory as a result of Hurricane Ian for the quarter and nine months ended September 30, 2022.

(2) Represents transaction/pursuit costs related to unconsummated acquisitions included in Other expenses in the Consolidated Statements of Income.

(3) Represents non-operating expenses associated with the Westwinds ground leases that terminated on August 31, 2022 and is included in General and Administrative expenses in the Consolidated Statement of Income.

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, 2022 and June 30, 2021 and our operating activities, investing activities and financing activities for the six months ended June 30, 2022 and June 30, 2021.

For the comparison of our results of operations for the quarters and six months ended June 30, 2021 and June 30, 2020 and discussion of our operating activities, investing activities and financing activities for the six months ended June 30, 2021 and June 30, 2020, refer to Part I, Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2021, filed with the SEC on July 27, 2021.

Comparison of the quarter ended June 30, 2022 to the quarter ended June 30, 2021

This section discusses the comparison of our results of operations for the quarters and nine months ended September 30, 2022 and September 30, 2021 and our operating activities, investing activities and financing activities for the nine months ended September 30, 2022 and September 30, 2021.

For the comparison of our results of operations for the quarters and nine months ended September 30, 2021 and September 30, 2020 and discussion of our operating activities, investing activities and financing activities for the nine months ended September 30, 2021 and September 30, 2020, refer to Part I, Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2021, filed with the SEC on October 26, 2021.

Comparison of the quarter ended September 30, 2022 to the quarter ended September 30, 2021

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, 2022 and June 30, 2021:

The following table summarizes certain financial and statistical data for our Core Portfolio and total portfolio for the quarters ended September 30, 2022 and September 30, 2021:

Core Portfolio Total Portfolio

Quarters Ended June 30, Quarters Ended June 30,

Quarters Ended September 30, Quarters Ended September 30,

(amounts in thousands) 2022 2021 Variance %

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(3) See Part I.

Management Discussion and Analysis—Non-GAAP Financial Measures for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders.

Total portfolio income from property operations for the quarter ended June 30, 2022, increased $5.3 million, or 3.7%, from the quarter ended June 30, 2021, driven by an increase of $2.4 million, or 1.7%, from our Core Portfolio and an increase of $2.9 million from our Non-Core Portfolio.

The increase in income from property operations from our Core Portfolio was primarily due to higher property operating revenues, excluding deferrals, primarily in RV and marina base rental income and MH base rental income, partially offset by an increase in property operating expenses, excluding deferrals and property management.

The increase in income from property operations from our Non-Core Portfolio was primarily attributed to income from properties acquired in 2021 and the first half of 2022.

Management's Discussion and Analysis—Non-GAAP Financial Measures for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders.

Total portfolio income from property operations for the quarter ended September 30, 2022, increased $8.3 million, or 5.5%, from the quarter ended September 30, 2021, driven by an increase of $3.0 million, or 2.1%, from our Core Portfolio and an increase of $5.3 million from our Non-Core Portfolio.

The increase in income from property operations from our Core Portfolio was primarily due to higher property operating revenues, excluding deferrals, primarily in MH base rental income and RV and marina base rental income, partially offset by an increase in property operating expenses, excluding deferrals and property management.

The increase in income from property operations from our Non-Core Portfolio was primarily attributed to income from properties acquired in 2021 and the first three quarters of 2022.

Management's Discussion and Analysis (continued)

Property Operating Revenues

MH base rental income in our Core Portfolio for the quarter ended June 30, 2022 increased $8.4 million, or 5.7%, from the quarter ended June 30, 2021, which reflects 5.3% growth from rate increases and 0.4% growth from occupancy gains.

The average monthly base rental income per Site in our Core Portfolio increased to approximately $753 for the quarter ended June 30, 2022 from approximately $716 for the quarter ended June 30, 2021.

The average occupancy for our Core Portfolio was 95.1% for the quarters ended June 30, 2022 and June 30, 2021.

The average occupancy rate decreased slightly due to the addition of expansion sites.

MH base rental income in our Core Portfolio for the quarter ended September 30, 2022 increased $8.7 million, or 5.9%, from the quarter ended September 30, 2021, which reflects 5.5% growth from rate increases and 0.4% growth from occupancy gains.

The average monthly base rental income per Site in our Core Portfolio increased to approximately $759 for the quarter ended September 30, 2022 from approximately $720 for the quarter ended September 30, 2021.

The average occupancy for our Core Portfolio was 95.2% for the quarter ended September 30, 2022 and 95.0% for the quarter ended September 30, 2021.

RV and marina base rental income is comprised of the following:

Core Portfolio Total Portfolio

Quarters Ended June 30, Quarters Ended June 30,

Quarters Ended September 30, Quarters Ended September 30,

(amounts in thousands) 2022 2021 Variance %

4 unchanged sentences

RV and marina base rental income $ 96,722 $ 92,878 $ 3,844 4.1 % $ 109,882 $ 100,589 $ 9,293 9.2 %

RV and marina base rental income in our Core Portfolio for the quarter ended June 30, 2022 increased $5.4 million, or 6.6%, from the quarter ended June 30, 2021, driven by an increase in Annual and Seasonal RV and marina base rental income that was partially offset by a decrease in Transient rental income.

The increase in Annual RV and marina base rental income of 9.1% was seen across all regions with the South, West and Northeast being the primary contributors.

The increase in Seasonal RV and marina base rental income of 30.6% was driven by demand for extended stays, mainly in Florida.

The decrease in Transient RV and marina base rental income of 6.6% was due to difficult weather in April and May and an increase in longer stays which reduced the number of Transient sites available.

Annual membership subscription revenue in our Core Portfolio for the quarter ended June 30, 2022 increased $1.1 million, or 7.9%, from the quarter ended June 30, 2021, reflecting a 6.5% increase in the number of Thousand Trails Camping members.

Utility and other income in our Core Portfolio for the quarter ended June 30, 2022 decreased $0.7 million, or 2.7%, from the quarter ended June 30, 2021.

The decrease was due to a decrease of $2.3 million in other property income related to Hurricane Hanna insurance proceeds received in 2021 partially offset by higher utility income of $1.3 million.

The increase in utility income was primarily due to an increase in electric income across the South and West, sewer income in all regions and trash income in the South.

The utility recovery rate (utility income divided by utility expenses) for the quarters ended June 30, 2022 and 2021 was approximately 44% and 43%, respectively.

RV and marina base rental income in our Core Portfolio for the quarter ended September 30, 2022 increased $3.8 million, or 4.1%, from the quarter ended September 30, 2021, driven by an increase in Annual and Seasonal RV and marina base rental income that was partially offset by a decrease in Transient rental income.

The increase in Annual RV and marina base rental income of 8.6% was driven by a net increase in Annual RV sites.

The increase in Seasonal RV and marina base rental income of 21.2% was driven by increases in all regions except the Northeast, with the South as the largest contributor.

The decrease in Transient RV and marina base rental income of 7.2% was primarily due to a decrease in transient RV revenue as a result of a reduction in the number of Transient sites available.

Annual membership subscription revenue in our Core Portfolio for the quarter ended September 30, 2022 increased $0.9 million, or 6.1%, from the quarter ended September 30, 2021.

During the quarter ended September 30, 2022 we sold approximately 7,200 Thousand Trails Camping Pass memberships, an increase of 7.5% from the quarter ended September 30, 2021.

Utility and other income in our Core Portfolio for the quarter ended September 30, 2022 increased $2.5 million, or 9.9%, from the quarter ended September 30, 2021.

The increase was primarily due to a $1.5 million increase in utility income, which was primarily due to an increase in electric income in the South and West, sewer income in all regions and trash income in the South.

The utility recovery rate (utility income divided by utility expenses) for the quarters ended September 30, 2022 and 2021 was approximately 42% and 43%, respectively.

Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the quarter ended June 30, 2022 increased $8.6 million, or 7.0%, from the quarter ended June 30, 2021, driven by increases in property operating and maintenance expenses of $8.0 million and real estate taxes of $0.6 million.

Core property operating and maintenance expenses were higher in 2022 primarily due to increases in utility expenses of $2.8 million, repair and maintenance of $2.6 million, property payroll of $1.8 million and administrative expenses of $1.4 million.

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the quarter ended September 30, 2022 increased $10.0 million, or 7.8%, from the quarter ended September 30, 2021, driven by increases in property operating and maintenance expenses of $9.4 million and real estate taxes of $0.5 million.

Core property operating and maintenance expenses were higher in 2022 primarily due to increases in utility expenses of $4.2 million, property payroll of $2.8 million, administrative expenses of $1.3 million, and repair and maintenance of $1.2 million.

Management's Discussion and Analysis (continued)

2 unchanged sentences

The following table summarizes certain financial and statistical data for our Home Sales and Other Operations:

Quarters Ended June 30,

Quarters Ended September 30,

(amounts in thousands, except home sales volumes) 2022 2021 Variance %

6 unchanged sentences

Cost of used home sales 747 1,328 (581) (43.8) %

Loss from used home sales (70) (506) 436 86.2 %

Profit (Loss) from used home sales 225 (465) 690 148.4 %

Gross revenue from brokered resales and ancillary services 18,725 17,294 1,431 8.3 %

12 unchanged sentences

(2) Total new home sales volume includes home sales from our ECHO JV.

Income from home sales and other operations was $4.1 million for the second quarter of 2022, an increase of $1.8 million, compared to $2.4 million in the second quarter of 2021.

The increase in income from home sales and other operations was primarily due to an increase in gross profit from new home sales resulting from an increase of 70 new home sales during the second quarter of 2022 compared to the second quarter of 2021, primarily driven by favorable housing trends in the broader real estate market.

Income from home sales and other operations was $5.2 million for the quarter ended September 30, 2022, an increase of $2.1 million, compared to $3.2 million in the quarter ended September 30, 2021.

The increase in income from home sales and other operations was primarily due to an increase in gross profit from new home sales during the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, primarily driven by favorable housing trends in the broader real estate market.

Management's Discussion and Analysis (continued)

1 unchanged sentence

The following table summarizes certain financial and statistical data for our MH Rental Operations:

Quarters Ended June 30,

Quarters Ended September 30,

(amounts in thousands, except rental unit volumes)

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(1) Consists of Site rental income and home rental income.

Approximately $7.1 million and $8.1 million for the quarters ended June 30, 2022 and June 30, 2021, respectively, of Site rental income is included in MH base rental income in the Core Portfolio Income from Property Operations table.

Approximately $6.7 million and $7.8 million for the quarters ended September 30, 2022 and September 30, 2021, respectively, of Site rental income is included in MH base rental income in the Core Portfolio Income from Property Operations table.

The remainder of home rental income is included in rental home income in our Core Portfolio Income from Property Operations table.

1 unchanged sentence

(3) New home cost basis does not include the costs associated with our ECHO JV.

Our investment in the ECHO JV was $18.7 million and $17.7 million as of June 30, 2022 and June 30, 2021, respectively.

(4) Includes 185 and 282 homes rented through our ECHO JV as of June 30, 2022 and 2021, respectively.

Income from rental operations, net of depreciation, decreased $1.2 million during the second quarter of 2022, compared to the second quarter of 2021, primarily due to a decrease in rental operations revenues as a result of a decrease in the number of new occupied rentals.

Our investment in the ECHO JV was $19.0 million and $17.8 million as of September 30, 2022 and September 30, 2021, respectively.

(4) Includes 165 and 253 homes rented through our ECHO JV as of September 30, 2022 and 2021, respectively.

Income from rental operations, net of depreciation, decreased $1.4 million during the quarter ended September 30, 2022, compared to the quarter ended September 30, 2021, primarily due to a decrease in the number of occupied rentals.

Other Income and Expenses

The following table summarizes other income and expenses, net:

Quarters Ended June 30,

Quarters Ended September 30,

(amounts in thousands, expenses shown as negative)

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Other expenses (1,627) (797) (830) (104.1) %

Early debt retirement (640) (755) 115 15.2 %

Interest and related amortization (29,759) (27,361) (2,398) (8.8) %

Total other income and expenses, net $ (90,755) $ (79,930) $ (10,825) (13.5) %

Total other income and expenses, net increased $6.8 million for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, primarily due to an increase in other expenses, higher depreciation and amortization and an increase in general and administrative costs, partially offset by an increase in income from other investments.

The increase in other expenses was primarily due to transaction/pursuit costs of $3.1 million related to unconsummated acquisitions recognized during the quarter.

The increase in depreciation and amortization is due to depreciation on Non-core properties acquired in 2021 and the first half of 2022.

The increase in income from other investments, net was primarily due to net income from MHVillage/Datacomp (acquired in the fourth quarter of 2021).

Total other income and expenses, net increased $10.8 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, primarily due to higher depreciation and amortization and higher interest and related amortization.

The increase in depreciation and amortization is due to depreciation on Non-core properties acquired in 2021 and the nine months ended September 30, 2022.

Loss on sale of real estate and impairment, net

During the quarter ended September 30, 2022, we wrote down the carrying value of certain assets at six properties by approximately $3.7 million as a result of property damage caused by Hurricane Ian.

For additional information see Part I.

Management's Discussion and Analysis — Results Overview.

Management's Discussion and Analysis (continued)

Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

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, 2022 and 2021.

The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the nine months ended September 30, 2022 and 2021.

Core Portfolio Total Portfolio

Six Months Ended June 30, Six Months Ended June 30,

Nine Months Ended September 30, Nine Months Ended September 30,

(amounts in thousands) 2022 2021 Variance %

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(3) See Part I.

Management Discussion and Analysis—Non-GAAP Financial Measures for definitions and reconciliation of these Non-GAAP measures to Net Income available for Common Shareholders.

Total Portfolio income from property operations for 2022 increased $27.5 million, or 9.4%, from 2021, driven by an increase of $17.3 million, or 6.1%, from our Core Portfolio and by an increase of $10.2 million from our Non-Core Portfolio.

Management's Discussion and Analysis—Non-GAAP Financial Measures for definitions and reconciliation of these Non-GAAP measures to Net Income available for Common Shareholders.

Total Portfolio income from property operations for the nine months ended September 30, 2022 increased $35.8 million, or 8.1%, from the same period in 2021, driven by an increase of $20.3 million, or 4.7%, from our Core Portfolio and by an increase of $15.5 million from our Non-Core Portfolio.

The increase in income from property operations from our Non-Core Portfolio was attributed to income from properties acquired in 2021 and the first half of 2022.

The increase in income from property operations from our Non-Core Portfolio was attributed to income from properties acquired in 2021 and the first three quarters of 2022.

Property Operating Revenues

MH base rental income in our Core Portfolio for 2022 increased $16.6 million, or 5.7%, from 2021, which reflects 5.2% growth from rate increases and 0.5% growth from occupancy gains.

MH base rental income in our Core Portfolio for the nine months ended September 30, 2022 increased $25.3 million, or 5.7%, from the same period in 2021, which reflects 5.3% growth from rate increases and 0.4% growth from occupancy gains.

The average monthly base rental income per Site increased to approximately $753 in 2022 from approximately $715 in 2021.

The average occupancy for the Core Portfolio was 95.1% for the six months ended June 30, 2022 compared to 95.2% for the six months ended June 30, 2021.

The decrease in the average occupancy is due to expansion sites added.

The average occupancy for the Core Portfolio was 95.1% for both the nine months ended September 30, 2022 and 2021.

Management's Discussion and Analysis (continued)

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Core Portfolio Total Portfolio

Six Months Ended June 30, Six Months Ended June 30,

Nine Months Ended September 30, Nine Months Ended September 30,

(amounts in thousands)

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RV and marina base rental income $ 280,514 $ 254,239 $ 26,275 10.3 % $ 316,984 $ 273,185 $ 43,799 16.0 %

RV and marina base rental income in our Core Portfolio for 2022 increased $22.4 million, or 13.9%, from 2021 primarily due to increases in Seasonal and Annual RV and marina base rental income.

The increase of Seasonal RV and marina base rental income of $11.9 million, or 54.1% was due to the rebound of seasonal demand in the South and West as we welcomed back our Canadian guests and our domestic customers were able to travel without restrictions.

RV and marina base rental income in our Core Portfolio for the nine months ended September 30, 2022 increased $26.3 million, or 10.3%, from the same period in 2021 primarily due to increases in Annual and Seasonal RV and marina base rental income.

The increase in Annual RV and marina base rental income of $13.8 million, or 8.8% was seen across all regions, primarily in the South, West and Northeast.

Annual membership subscription revenue in our Core Portfolio for 2022 increased $2.6 million, or 9.2%, from 2021, reflecting a 6.5% increase in the number of Thousand Trails Camping members.

The increase in annual membership subscription revenue of $2.6 million, or 9.2% from 2021 was offset by a Membership upgrade sales current period, gross decrease of $2.8 million, or 14.5%, from 2021, as a result of the decrease in the number of upgrades sold primarily due to the introduction of the Adventure product during the first quarter of 2021.

Utility and other income in our Core Portfolio for 2022 increased $2.1 million, or 4.2%, from 2021.

The increase was primarily due to an increase in utility income of $3.3 million and pass-through income of $0.7 million, partially offset by a decrease in other property income of $1.9 million.

The increase in Seasonal RV and marina base rental income of $13.4 million, or 46.0% was due to the rebound of seasonal demand in the South and West as we welcomed back our Canadian guests and our domestic customers were able to travel without restrictions.

Annual membership subscription revenue in our Core Portfolio for the nine months ended September 30, 2022 increased $3.5 million, or 8.1%, from the same period in 2021, reflecting a 5.7% increase in the number of Thousand Trails Camping members.

The increase in annual membership subscription revenue of $3.5 million, or 8.1%, from 2021 was offset by a Membership upgrade sales current period, gross decrease of $2.6 million, or 8.8%, from 2021, as a result of the decrease in the number of upgrades sold primarily due to the introduction of the Adventure product during the quarter ended March 31, 2021.

Utility and other income in our Core Portfolio for the nine months ended September 30, 2022 increased $4.7 million, or 6.1%, from the same period in 2021.

The increase was primarily due to an increase in utility income of $4.8 million and pass-through income of $1.2 million, partially offset by a decrease in insurance proceeds of $1.8 million.

The increase in utility income was primarily due to an increase in electric income.

The utility recovery rate (utility income divided by utility expenses) for both 2022 and 2021 was approximately 44%.

The decrease in other property income was due to Hurricane Hanna recovery revenue received in 2021.

Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for 2022 increased $19.9 million, or 8.6%, from 2021, driven by increases in property operating and maintenance expenses of $19.5 million.

Core property operating and maintenance expenses were higher in 2022 compared to 2021 due to increases in utility expenses of $7.4 million, repairs and maintenance expenses of $5.5 million, and property payroll expenses of $3.4 million.

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the nine months ended September 30, 2022 increased $29.9 million, or 8.3%, from the same period in 2021, driven by increases in property operating and maintenance expenses of $28.9 million.

Core property operating and maintenance expenses were higher during the nine months ended September 30, 2022, compared to the same period in 2021 due to increases in utility expenses of $11.6 million, repairs and maintenance expenses of $6.7 million, and property payroll expenses of $6.2 million.

Management's Discussion and Analysis (continued)

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The following table summarizes certain financial and statistical data for Home Sales and Other Operations:

Six Months Ended June 30,

Nine Months Ended September 30,

(amounts in thousands, except home sales volumes)

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(2) Total new home sales volume includes home sales from our ECHO JV.

The income from home sales and other was $6.7 million for the six months ended June 30, 2022, an increase of $2.9 million, compared to $3.7 million for the six months ended June 30, 2021.

The increase in income from home sales and other operations was primarily due to an increase in gross profit from new home sales resulting from an increase of 139 new home sales during the six months ended June 30, 2022 compared to the six months ended June 30 2021, primarily driven by favorable housing trends in the broader real estate market.

The income from home sales and other was $11.9 million for the nine months ended September 30, 2022, an increase of $5.0 million, compared to $6.9 million for the nine months ended September 30, 2021.

The increase in income from home sales and other operations was primarily due to an increase in gross profit from new home sales resulting from an increase of 132 new home sales during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by favorable housing trends in the broader real estate market.

Management's Discussion and Analysis (continued)

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The following table summarizes certain financial and statistical data for MH Rental Operations.

Six Months Ended June 30,

Nine Months Ended September 30,

(amounts in thousands, except rental unit volumes)

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(1) Rental operations revenue consists of Site rental income and home rental income in our Core Portfolio.

Approximately $14.5 million and $16.2 million of Site rental income for the six months ended June 30, 2022 and 2021, respectively, are included in community base rental income within the Core Portfolio Income from Property Operations table.

Approximately $21.1 million and $24.0 million of Site rental income for the nine months ended September 30, 2022 and 2021, respectively, are included in community base rental income within the Core Portfolio Income from Property Operations table.

The remainder of home rental income is included in rental home income within the Core Portfolio Income from Property Operations table.

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New home cost basis does not include the costs associated with our ECHO JV.

Our investment in the ECHO JV was $18.7 million and $17.7 million as of June 30, 2022 and 2021, respectively.

(4) Occupied rentals as of the end of the period in our Core Portfolio and includes 185 and 282 homes rented through our ECHO JV as of June 30, 2022 and 2021, respectively.

Income from rental operations, net of depreciation, was $2.3 million lower during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to a decrease in rental operations revenues as a result of a decrease in the number of new occupied rentals.

Our investment in the ECHO JV was $19.0 million and $17.8 million as of September 30, 2022 and 2021, respectively.

(4) Occupied rentals as of the end of the period in our Core Portfolio and includes 165 and 253 homes rented through our ECHO JV as of September 30, 2022 and 2021, respectively.

Income from rental operations, net of depreciation, was $3.7 million lower during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to a decrease in rental operations revenues as a result of a decrease in the number of new occupied rentals.

Other Income and Expenses

The following table summarizes other income and expenses, net:

Six Months Ended June 30,

Nine Months Ended September 30,

(amounts in thousands, expenses shown as negative)

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Total other income and expenses, net $ (268,617) $ (246,404) $ (22,213) (9.0) %

Total other income and expenses, net increased $11.4 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher depreciation and amortization, other expenses and general administrative expenses.

The increase in depreciation and amortization was due to depreciation on Non-Core properties acquired in 2021 and the first half of 2022.

Total other income and expenses, net increased $22.2 million during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher depreciation and amortization, interest and related amortization and other expenses.

The increase in depreciation and amortization was due to depreciation on Non-Core properties acquired in 2021 and the nine months ended September 30, 2022.

The increase in Interest and related amortization was due to higher interest rates.

The increase in Other expenses was primarily due to transaction/pursuit costs of $3.4 million related to unconsummated acquisitions.

The increase in general and administrative expense was due to higher payroll costs.

Management's Discussion and Analysis (continued)

Loss on sale of real estate and impairment, net

During the nine months ended September 30, 2022, we wrote down the carrying value of certain assets at six properties by approximately $3.7 million as a result of property damage caused by Hurricane Ian.

For additional information see Part 1.

Management's Discussion and Analysis - Results Overview.

Liquidity and Capital Resources

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Prior to the new program, the aggregate offering price was up to $200.0 million.

During the six months ended June 30, 2022, we sold 328,123 shares of our common stock under our prior ATM equity program for gross cash proceeds of approximately $28.0 million at a weighted average share price of $86.46.

As of June 30, 2022, the full capacity of our current ATM equity offering program remained available for issuance.

As of June 30, 2022, we had available liquidity in the form of approximately 413.9 million shares of authorized and unissued common stock, par value $0.01 per share, and 10.0 million shares of authorized and unissued preferred stock registered for sale under the Securities Act of 1933, as amended.

During the six months ended June 30, 2022, we closed on a $200.0 million senior unsecured term loan.

During the nine months ended September 30, 2022, we sold 328,123 shares of our common stock under our prior ATM equity program for gross cash proceeds of approximately $28.0 million at a weighted average share price of $86.46.

As of September 30, 2022, the full capacity of our current ATM equity offering program remained available for issuance.

As of September 30, 2022, we had available liquidity in the form of approximately 413.9 million shares of authorized and unissued common stock, par value $0.01 per share, and 10.0 million shares of authorized and unissued preferred stock registered for sale under the Securities Act of 1933, as amended.

During the nine months ended September 30, 2022, we closed on a $200.0 million senior unsecured term loan.

The maturity date is January 21, 2027.

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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, 2022, our LOC had a borrowing capacity of $452.2 million.

As of June 30, 2022, the LOC bears interest at a rate of LIBOR plus 1.25% to 1.65%, carries an annual facility fee of 0.20% to 0.35% and matures 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.

As of September 30, 2022, our LOC had a borrowing capacity of $405.0 million.

As of September 30, 2022, the LOC bears interest at a rate of LIBOR plus 1.25% to 1.65%, carries an annual facility fee of 0.20% to 0.35% and matures on April 18, 2025.

Management's Discussion and Analysis (continued)

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.

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 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 patterns and operational decisions we have made and may make in the future in response to guidance from public authorities and/or for the health and safety of our employees, residents and guests.

The following table summarizes our cash flows activity:

Six Months ended June 30,

Nine Months ended September 30,

(amounts in thousands) 2022 2021

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Operating Activities

Net cash provided by operating activities increased $25.5 million to $354.5 million for the six months ended June 30, 2022 from $328.9 million for the six months ended June 30, 2021.

Net cash provided by operating activities increased $34.2 million to $487.8 million for the nine months ended September 30, 2022 from $453.6 million for the nine months ended September 30, 2021.

The increase in net cash provided by operating activities was primarily due to higher income from property operations of $35.8 million.

Investing Activities

Net cash used in investing activities decreased $173.2 million to $302.1 million for the six months ended June 30, 2022 from $475.2 million for the six months ended June 30, 2021.

Net cash used in investing activities decreased $279.1 million to $398.9 million for the nine months ended September 30, 2022 from $678.0 million for the nine months ended September 30, 2021.

The decrease was due to a decrease in spending on acquisitions of $358.5 million, partially offset by an increase in capital improvement spending of $64.6 million and an increase in investments in unconsolidated joint ventures of $15.5 million.

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The following table summarizes capital improvements:

Six Months ended June 30,

Nine Months ended September 30,

(amounts in thousands) 2022 2021

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94,761 74,118

Used home investments (3)

Total property improvements 256,433 201,803

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Financing Activities

Net cash used in financing activities was $133.4 million for the six months ended June 30, 2022.

Net cash provided by financing activities was $167.0 million for the six months ended June 30, 2021.

Net cash used in financing activities was $181.8 million for the nine months ended September 30, 2022.

Net cash provided by financing activities was $240.6 million for the nine months ended September 30, 2021.

The decrease in net cash provided by financing activities was primarily due to a decrease in net debt proceeds of approximately $432.7 million, partially offset by proceeds from the sale of common stock under our ATM program of approximately $28.4 million.

Management's Discussion and Analysis (continued)

Contractual Obligations

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Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations in our 2021 Form 10-K.

Management's Discussion and Analysis (continued)

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 Operating Partnership operated and managed Westwinds, a 720 site mobilehome community, and Nicholson Plaza, an adjacent shopping center, both located in San Jose, California pursuant to ground leases that expired on August 31, 2022 and did not contain extension options.

Westwinds provides affordable, rent-controlled homes to numerous residents, including families with children and residents over 65 years of age.

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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.

In addition to rent based on the operations of Westwinds, the Nicholsons received a percentage of gross revenues from the sale of new or used mobile homes in Westwinds.

The Operating Partnership entered into subtenancy agreements with the mobilehome residents of Westwinds.

Because the ground leases with the Nicholsons had an expiration date of August 31, 2022, and no further right of extension, the Operating Partnership did not enter into any subtenancy agreements that extended beyond August 31, 2022.

However, the mobilehome residents’ occupancy rights continued by operation of California state and San Jose municipal law beyond the expiration date of the ground leases.

Notwithstanding this, the Nicholsons 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) violated California state and San Jose municipal law because the Nicholsons had demanded that the Operating Partnership remove all residents without just cause and (ii) conflicted 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 had 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.

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 the 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.

The Nicholsons filed a demand for arbitration on January 28, 2020, which they subsequently amended, seeking (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.

Management's Discussion and Analysis (continued)

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.

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The cross complaint asserts that it is no longer feasible for the Operating Partnership to cure its alleged breaches given that the ground leases terminate on August 31, 2022.

The Operating Partnership has filed a demurrer seeking dismissal of this cross complaint, and the Nicholsons also filed a demurrer to our complaint.

The Nicholsons filed a demurrer to our complaint which was denied by the Superior Court.

On July 19, 2022, the Nicholsons sent two notices of default to the Operating Partnership, one related to Westwinds and the other related to Nicholson Plaza, the adjacent shopping center.

The notices generally assert that the Operating Partnership failed to maintain or repair certain infrastructure and improvements at Westwinds and Nicholson Plaza.

The Operating Partnership is evaluating the notices but expects to dispute the contention that it has not maintained Westwinds and Nicholson Plaza in compliance with the terms of the applicable ground leases.

Management's Discussion and Analysis (continued)

The arbitration which was previously stayed pursuant to an agreement between the Operating Partnership and the Nicholsons is now proceeding with respect to the Nicholsons’ indemnification claim 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 and a claim by the Operating Partnership for recovery of fees incurred in connection with the Nicholsons’ failed motion to compel arbitration.

The Nicholsons expressed opposition to this change in designation.

The Operating Partnership disputes the contention that it did not maintain Westwinds and Nicholson Plaza in compliance with the terms of the applicable ground leases.

The arbitration that was previously stayed pursuant to an agreement between the Operating Partnership and the Nicholsons was set for a hearing on October 31, 2022 with respect to the Nicholsons’ claim 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 and a claim by the Operating Partnership for recovery of fees incurred in connection with the Nicholsons’ failed motion to compel arbitration.

On October 6, 2022, the parties to the Superior Court proceeding as well as the arbitration entered into a binding agreement pursuant to which, among other things, the parties agreed to dismiss with prejudice all claims pending in the Superior Court and in the arbitration;

however, the Nicholsons reserved their rights to pursue their claim that the Operating Partnership failed to maintain or repair certain infrastructure and improvements at Westwinds and Nicholson Plaza.

To the extent the Nicholsons pursue such claim, we intend to vigorously defend our interests.

The parties are in the process of further documenting and implementing the settlement agreement.

Off-Balance Sheet Arrangements

As of June 30, 2022, we have no off-balance sheet arrangements.

As of September 30, 2022, we have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K for a discussion of our critical accounting policies.

There have been no significant changes to our critical accounting policies and estimates during the quarter ended June 30, 2022.

There have been no significant changes to our critical accounting policies and estimates during the quarter ended September 30, 2022.

Forward-Looking Statements

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• 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;

Management's Discussion and Analysis (continued)

• results from home sales and occupancy will continue to be impacted by local economic conditions, including an adequate supply of homes at reasonable costs, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing;

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• unanticipated costs or unforeseen liabilities associated with recent acquisitions;

• the effect of Hurricane Ian on our business including, but not limited to the following:

(i) the timing and cost of recovery, (ii) the impact of the condition of properties and homes on occupancy demand and related rent revenue and (iii) the timing and amount of insurance proceeds;

• our ability to obtain financing or refinance existing debt on favorable terms or at all;

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• other risks indicated from time to time in our filings with the Securities and Exchange Commission.

Management's Discussion and Analysis (continued)

In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic, many of which are unknown, including the duration of the pandemic, the extent of the adverse health impact on the general population and on our residents, customers, and employees in particular, its impact on the employment rate and the economy, the extent and impact of governmental responses, and the impact of operational changes we have implemented and may implement in response to the pandemic.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis