EQUITY LIFESTYLE PROPERTIES INC 10-Q

Item 1. Financial Statements Equity LifeStyle Properties, Inc. Consolidated Balance Sheets (amounts in thousands, except share and per share data) September 30, 2022 December 31, 2021 (unaudited) Assets Investment in real estate: Land $ 2,080,234 $ 2,019,787 Land improvements 4,050,685 3,912,062 Buildings and other depreciable property 1,137,297 1,057,215 7,268,216 6,989,064 Accumulated depreciation ( 2,211,405 ) ( 2,103,774 ) Net investment in real estate 5,056,811 4,885,290 Cash and restricted cash 30,510 123,398 Notes receivable, net 44,653 39,955 Investment in unconsolidated joint ventures 88,352 70,312 Deferred commission expense 50,029 47,349 Other assets, net 135,091 141,567 Total Assets $ 5,405,446 $ 5,307,871 Liabilities and Equity Liabilities: Mortgage notes payable, net $ 2,708,751 $ 2,627,783 Term loan, net 496,595 297,436 Unsecured line of credit 94,984 349,000 Accounts payable and other liabilities 184,771 172,285 Deferred membership revenue 195,290 176,439 Accrued interest payable 10,317 9,293 Rents and other customer payments received in advance and security deposits 115,035 118,696 Distributions payable 80,314 70,768 Total Liabilities 3,886,057 3,821,700 Equity: Stockholders' Equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized as of September 30, 2022 and December 31, 2021; none issued and outstanding. — — Common stock, $ 0.01 par value, 600,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 186,108,851 and 185,640,379 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. 1,916 1,913 Paid-in capital 1,625,751 1,593,362 Distributions in excess of accumulated earnings ( 200,969 ) ( 183,689 ) Accumulated other comprehensive income 20,476 3,524 Total Stockholders’ Equity 1,447,174 1,415,110 Non-controlling interests – Common OP Units 72,215 71,061 Total Equity 1,519,389 1,486,171 Total Liabilities and Equity $ 5,405,446 $ 5,307,871 The accompanying notes are an integral part of the consolidated financial statements. 3 Equity LifeStyle Properties, Inc. Consolidated Statements of Income and Comprehensive Income (amounts in thousands, except per share data) (unaudited) Quarters Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues: Rental income $ 289,016 $ 269,573 $ 849,411 $ 774,293 Annual membership subscriptions 16,254 15,127 47,003 43,048 Membership upgrade sales current period, gross 11,085 10,122 27,771 29,343 Membership upgrade sales upfront payments, deferred, net ( 7,777 ) ( 7,253 ) ( 18,228 ) ( 21,134 ) Other income 15,580 12,053 43,316 36,759 Gross revenues from home sales, brokered resales and ancillary services 52,547 44,570 144,937 110,048 Interest income 1,865 1,805 5,346 5,314 Income from other investments, net 2,399 1,238 6,920 3,396 Total revenues 380,969 347,235 1,106,476 981,067 Expenses: Property operating and maintenance 123,181 109,164 341,480 300,700 Real estate taxes 17,734 18,408 56,373 54,154 Sales and marketing, gross 7,143 6,513 18,466 18,987 Membership sales commissions, deferred, net ( 1,206 ) ( 1,468 ) ( 2,746 ) ( 4,405 ) Property management 19,003 17,015 55,973 48,955 Depreciation and amortization 52,547 44,414 152,737 138,127 Cost of home sales, brokered resales and ancillary services 40,224 34,830 111,894 85,541 Home selling expenses and ancillary operating expenses 7,080 6,558 21,146 17,588 General and administrative 11,086 10,401 35,078 31,141 Other expenses 1,627 797 6,636 2,295 Early debt retirement — — 1,156 2,784 Interest and related amortization 29,759 27,361 85,276 80,767 Total expenses 308,178 273,993 883,469 776,634 Loss on sale of real estate and impairment, net ( 3,747 ) — ( 3,747 ) ( 59 ) Income before equity in income of unconsolidated joint ventures 69,044 73,242 219,260 204,374 Equity in income of unconsolidated joint ventures 1,465 851 2,889 2,786 Consolidated net income 70,509 74,093 222,149 207,160 Income allocated to non-controlling interests – Common OP Units ( 3,346 ) ( 3,468 ) ( 10,563 ) ( 10,236 ) Redeemable perpetual preferred stock dividends — — ( 8 ) ( 8 ) Net income available for Common Stockholders $ 67,163 $ 70,625 $ 211,578 $ 196,916 Consolidated net income $ 70,509 $ 74,093 $ 222,149 $ 207,160 Other comprehensive income (loss): Adjustment for fair market value of swap 4,235 86 16,952 325 Consolidated comprehensive income 74,744 74,179 239,101 207,485 Comprehensive income allocated to non-controlling interests – Common OP Units ( 3,547 ) ( 3,472 ) ( 11,370 ) ( 10,253 ) Redeemable perpetual preferred stock dividends — — ( 8 ) ( 8 ) Comprehensive income attributable to Common Stockholders $ 71,197 $ 70,707 $ 227,723 $ 197,224 Earnings per Common Share – Basic $ 0.36 $ 0.38 $ 1.14 $ 1.08 Earnings per Common Share – Fully Diluted $ 0.36 $ 0.38 $ 1.14 $ 1.08 Weighted average Common Shares outstanding – Basic 185,814 183,469 185,758 182,590 Weighted average Common Shares outstanding – Fully Diluted 195,269 192,736 195,248 192,689 The accompanying notes are an integral part of the consolidated financial statements. 4 Equity LifeStyle Properties, Inc. Consolidated Statements of Changes in Equity (amounts in thousands) (unaudited) Common Stock Paid-in Capital Redeemable Perpetual Preferred Stock Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests – Common OP Units Total Equity Balance as of December 31, 2021 $ 1,913 $ 1,593,362 $ — $ ( 183,689 ) $ 3,524 $ 71,061 $ 1,486,171 Exchange of Common OP Units for Common Stock — 67 — — — ( 67 ) — Issuance of Common Stock through employee stock purchase plan — 513 — — — — 513 Issuance of Common Stock 3 28,367 — — — 28,370 Compensation expenses related to restricted stock and stock options — 2,590 — — — — 2,590 Repurchase of Common Stock or Common OP Units — ( 3,449 ) — — — — ( 3,449 ) Adjustment for Common OP Unitholders in the Operating Partnership — ( 1,641 ) — — — 1,641 — Adjustment for fair market value of swap — — — — 9,924 — 9,924 Consolidated net income — — — 82,906 — 4,144 87,050 Distributions — — — ( 76,375 ) — ( 3,812 ) ( 80,187 ) Other — ( 645 ) — — — — ( 645 ) Balance as of March 31, 2022 1,916 1,619,164 — ( 177,158 ) 13,448 72,967 1,530,337 Issuance of Common Stock through employee stock purchase plan — 1,388 — — — — 1,388 Compensation expenses related to restricted stock and stock options — 2,681 — — — — 2,681 Adjustment for Common OP Unitholders in the Operating Partnership — ( 303 ) — — — 303 — Adjustment for fair market value of swap — — — — 2,793 — 2,793 Consolidated net income — — 8 61,509 — 3,073 64,590 Distributions — — ( 8 ) ( 76,179 ) — ( 3,812 ) ( 79,999 ) Other — ( 54 ) — — — — ( 54 ) Balance as of June 30, 2022 1,916 1,622,876 — ( 191,828 ) 16,241 72,531 1,521,736 Exchange of Common OP Units for Common Stock — 203 — — — ( 203 ) — Issuance of Common Stock through employee stock purchase plan — 458 — — — — 458 Compensation expenses related to restricted stock and stock options — 2,654 — — — — 2,654 Adjustment for Common OP Unitholders in the Operating Partnership — ( 342 ) — — — 342 — Adjustment for fair market value of swap — — — — 4,235 — 4,235 Consolidated net income — — — 67,164 — 3,346 70,510 Distributions — — — ( 76,305 ) — ( 3,801 ) ( 80,106 ) Other — ( 98 ) — — — — ( 98 ) Balance as of September 30, 2022 $ 1,916 $ 1,625,751 $ — $ ( 200,969 ) $ 20,476 $ 72,215 $ 1,519,389 5 Equity LifeStyle Properties, Inc. Consolidated Statements of Changes in Equity (amounts in thousands) (unaudited) Common Stock Paid-in Capital Redeemable Perpetual Preferred Stock Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling interests – Common OP Units Total Equity Balance as of December 31, 2020 $ 1,813 $ 1,411,397 $ — $ ( 179,523 ) $ — $ 71,068 $ 1,304,755 Exchange of Common OP Units for Common Stock — 58 — — — ( 58 ) — Issuance of Common Stock through employee stock purchase plan — 732 — — — — 732 Compensation expenses related to restricted stock and stock options — 2,556 — — — — 2,556 Repurchase of Common Stock or Common OP Units — ( 2,814 ) — — — — ( 2,814 ) Adjustment for fair market value of swap — — — — 129 — 129 Consolidated net income — — — 65,240 — 3,747 68,987 Distributions — — — ( 66,087 ) — ( 3,796 ) ( 69,883 ) Other — ( 116 ) — — — — ( 116 ) Balance as of March 31, 2021 1,813 1,411,813 — ( 180,370 ) 129 70,961 1,304,346 Exchange of Common OP Units for Common Stock 14 9,310 — — — ( 9,324 ) — Issuance of Common Stock through employee stock purchase plan — 605 — — — — 605 Compensation expenses related to restricted stock and stock options — 2,821 — — — — 2,821 Adjustment for Common OP Unitholders in the Operating Partnership — ( 143 ) — — — 143 — Adjustment for fair market value of swap — — — — 110 — 110 Consolidated net income — — 8 61,051 — 3,021 64,080 Distributions — — ( 8 ) ( 66,611 ) — ( 3,296 ) ( 69,915 ) Other — ( 56 ) — — — — ( 56 ) Balance as of June 30, 2021 1,827 1,424,350 — ( 185,930 ) 239 61,505 1,301,991 Exchange of Common OP Units for Common Stock 1 438 — — — ( 439 ) — Issuance of Common Stock through employee stock purchase plan — 379 — — — — 379 Compensation expenses related to restricted stock and stock options — 2,774 — — — — 2,774 Adjustment for Common OP Unitholders in the Operating Partnership — ( 142 ) — — — 142 — Adjustment for fair market value of swap — — — — 86 — 86 Consolidated net income — — — 70,625 — 3,468 74,093 Distributions — — — ( 66,636 ) — ( 3,272 ) ( 69,908 ) Other — ( 193 ) — — — — ( 193 ) Balance as of September 30, 2021 $ 1,828 $ 1,427,606 $ — $ ( 181,941 ) $ 325 $ 61,404 $ 1,309,222 . The accompanying notes are an integral part of the consolidated financial statements. 6 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (amounts in thousands) (unaudited) Nine Months Ended September 30, 2022 2021 Cash Flows From Operating Activities: Consolidated net income $ 222,149 $ 207,160 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Loss on sale of real estate and impairment, net 3,747 59 Early debt retirement 1,156 2,784 Depreciation and amortization 156,074 140,336 Amortization of loan costs 3,631 3,505 Debt premium amortization ( 145 ) ( 243 ) Equity in income of unconsolidated joint ventures ( 2,889 ) ( 2,786 ) Distributions of income from unconsolidated joint ventures 340 52 Proceeds from insurance claims, net ( 457 ) 589 Compensation expense related to incentive plans 5,367 9,434 Revenue recognized from membership upgrade sales upfront payments ( 9,544 ) ( 8,208 ) Commission expense recognized related to membership sales 3,089 2,843 Changes in assets and liabilities: Notes receivable, net ( 3,954 ) ( 4,129 ) Deferred commission expense ( 5,769 ) ( 7,119 ) Other assets, net 75,428 24,616 Accounts payable and other liabilities 15,475 47,520 Deferred membership revenue 28,080 30,738 Rents and other customer payments received in advance and security deposits ( 3,957 ) 6,456 Net cash provided by operating activities 487,821 453,607 Cash Flows From Investing Activities: Real estate acquisitions, net ( 119,255 ) ( 477,785 ) Proceeds from disposition of properties, net — ( 7 ) Investment in unconsolidated joint ventures ( 16,022 ) ( 493 ) Distributions of capital from unconsolidated joint ventures 3,602 2,320 Proceeds from insurance claims 1,405 2,048 Capital improvements ( 268,614 ) ( 204,037 ) Net cash used in investing activities ( 398,884 ) ( 677,954 ) The accompanying notes are an integral part of the consolidated financial statements. 7 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (continued) (amounts in thousands) (unaudited) Nine Months Ended September 30, 2022 2021 Cash Flows From Financing Activities: Proceeds from stock options and employee stock purchase plan 2,359 1,717 Gross proceeds from the issuance of common stock 28,370 — Distributions: Common Stockholders ( 219,854 ) ( 195,112 ) Common OP Unitholders ( 10,997 ) ( 10,681 ) Preferred Stockholders ( 8 ) ( 8 ) Share based award tax withholding payments ( 3,449 ) ( 2,814 ) Principal payments and mortgage debt repayment ( 119,608 ) ( 108,968 ) Mortgage notes payable financing proceeds 200,000 270,016 Term loan repayment — ( 300,000 ) Term loan proceeds 200,000 600,000 Line of Credit repayment ( 495,016 ) ( 379,500 ) Line of Credit proceeds 241,000 377,500 Debt issuance and defeasance costs ( 3,826 ) ( 11,225 ) Other ( 796 ) ( 366 ) Net cash (used in) provided by financing activities ( 181,825 ) 240,559 Net (decrease) increase in cash and restricted cash ( 92,888 ) 16,212 Cash and restricted cash, beginning of year 123,398 24,060 Cash and restricted cash, end of period $ 30,510 $ 40,272 Nine Months Ended September 30, 2022 2021 Supplemental Information: Cash paid for interest, net $ 82,368 $ 77,377 Net investment in real estate – reclassification of rental homes $ 75,726 $ 55,355 Other assets, net – reclassification of rental homes $ ( 75,726 ) $ ( 55,355 ) Real estate acquisitions: Investment in real estate $ ( 119,796 ) $ ( 494,342 ) Notes receivable, net ( 772 ) — Other assets, net — ( 2,815 ) Deferred revenue - sale of right-to-use contracts 315 — Accrued expenses and accounts payable — 8,432 Other liabilities 702 — Rents and other customer payments received in advance and security deposits 296 10,940 Real estate acquisitions, net $ ( 119,255 ) $ ( 477,785 ) Real estate dispositions: Investment in real estate $ — $ 52 Loss on sale of real estate, net — ( 59 ) Real estate dispositions, net $ — $ ( 7 ) The accompanying notes are an integral part of the consolidated financial statements. 8 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 1 – Organization and Basis of Presentation Equity LifeStyle Properties, Inc. (“ELS”), a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and its other consolidated subsidiaries (the “Subsidiaries”), are referred to herein as “we,” “us,” and “our”. We are a fully integrated owner of lifestyle-oriented properties (“Properties”) consisting of property operations and home sales and rental operations primarily within manufactured home (“MH”) and recreational vehicle (“RV”) communities and marinas. We have a unique business model where we own the land which we lease to customers who own manufactured homes and cottages, RVs and/or boats either on a long-term or short-term basis. Our customers may lease individual developed areas (“Sites”) or enter into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays. Our Properties are owned primarily by the Operating Partnership and managed internally by affiliates of the Operating Partnership. ELS is the sole general partner of the Operating Partnership, has exclusive responsibility and discretion in management and control of the Operating Partnership and held a 95.3 % interest as of September 30, 2022. As the general partner with control, ELS is the primary beneficiary of, and therefore consolidates, the Operating Partnership. Equity method of accounting is applied to entities in which ELS does not have a controlling interest or for variable interest entities in which ELS is not considered the primary beneficiary, but with respect to which it can exercise significant influence over operations and major decisions. Our exposure to losses associated with unconsolidated joint ventures is primarily limited to the carrying value of these investments. Accordingly, distributions from a joint venture in excess of our carrying value are recognized in earnings. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Securities and Exchange Commission (“SEC”) rules and regulations for Quarterly Reports on Form 10-Q. Accordingly, they do not include all of the information and note disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. Intercompany balances and transactions have been eliminated. All adjustments to the unaudited interim consolidated financial statements are of a normal, recurring nature and, in the opinion of management, are necessary for a fair presentation of results for these interim periods. Revenues and expenses are subject to seasonal fluctuations and accordingly, quarterly interim results may not be indicative of full year results. Certain prior period amounts have been reclassified on our unaudited interim consolidated financial statements to conform with current year presentation. Note 2 – Summary of Significant Accounting Policies (a) Revenue Recognition Our revenue streams are predominantly derived from customers renting our Sites or entering into membership subscriptions. Leases with customers renting our Sites are accounted for as operating leases. The rental income associated with these leases is accounted for in accordance with the Accounting Standards Codification (“ASC”) 842, Leases, and is recognized over the term of the respective lease or the length of a customer’s stay. MH Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. RV and marina Sites are leased to those who generally have an RV, factory-built cottage, boat or other unit placed on the site, including those customers renting marina dry storage slips. Annual Sites are leased on an annual basis, including those Northern Properties that are open for the summer season. Seasonal Sites are leased to customers generally for one to six months . Transient Sites are leased to customers on a short-term basis. We do not separate expenses reimbursed by our customers (“utility recoveries”) from the associated rental income as we meet the practical expedient criteria to combine the lease and non-lease components. We assessed the criteria and concluded that the timing and pattern of transfer for rental income and the associated utility recoveries are the same and, as our leases qualify as operating leases, we account for and present rental income and utility recoveries as a single component under Rental income in our Consolidated Statements of Income and Comprehensive Income. In addition, customers may lease homes that are located in our communities. These leases are accounted for as operating leases. Rental income derived from customers leasing homes is also accounted for in accordance with ASC 842, Leases and is recognized over the term of the respective lease. The allowance for credit losses related to the collectability of lease receivables is presented as a reduction to Rental income. Lease receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. The estimate for credit losses is a result of our ongoing assessments and evaluations of collectability, including historical loss experience, current market conditions and future expectations in forecasting credit losses. 9 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (continued) Annual membership subscriptions and membership upgrade sales are accounted for in accordance with ASC 606 , Revenue from Contracts with Customers. Membership subscriptions provide our customers access to specific Properties for limited stays at a specified group of Properties. Payments are deferred and recognized on a straight-line basis over the one-year period during which access to Sites at certain Properties is provided. Membership subscription receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. Membership upgrades grant certain additional access rights to the customer and require non-refundable upfront payments. The non-refundable upfront payments are recognized on a straight-line basis over 20 years. Financed upgrade sales (also known as contract receivables) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred. We have a limited program under which we purchase loans made by an unaffiliated lender to homebuyers at our Properties. Financed home sales (also known as chattel loans) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. (b) Restricted Cash As of September 30, 2022 and December 31, 2021, restricted cash consisted of $ 23.2 million and $ 29.3 million, respectively, primarily related to cash reserved for customer deposits and escrows for insurance and real estate taxes. Note 3 – Leases Lessor The leases entered into between the customer and us for rental of a Site are renewable upon the consent of both parties or, in some instances, as provided by statute. Long-term leases that are non-cancelable by the tenants are in effect at certain Properties. Rental rate increases at these Properties are primarily a function of increases in the Consumer Price Index, taking into consideration certain conditions. Additionally, periodic market rate adjustments are made as deemed appropriate. In addition, certain state statutes allow entry into long-term agreements that effectively modify lease terms related to rent amounts and increases over the term of the agreements. The following table presents future minimum rents expected to be received under long-term non-cancelable tenant leases, as well as those leases that are subject to long-term agreements governing rent payments and increases: (amounts in thousands) As of September 30, 2022 2022 $ 42,224 2023 170,732 2024 105,054 2025 40,852 2026 21,909 Thereafter 67,992 Total $ 448,763 Lessee We lease land under non-cancelable operating leases at 10 Properties expiring at various dates between 2028 and 2054. The Westwinds ground leases expired August 31, 2022, for additional information see Part I. Item 1. Financial Statements —Note 11. Commitments and Contingencies. The majority of the leases have terms requiring fixed payments plus additional rents based on a percentage of gross revenues at those Properties. We also have other operating leases, primarily office space, expiring at various dates through 2032. For the quarters ended September 30, 2022 and 2021, total operating lease payments were $ 2.7 million and $ 2.9 million, respectively. For the nine months ended September 30, 2022 and 2021, total operating lease payments were $ 8.2 million and $ 8.0 million, respectively. 10 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 3 – Leases (continued) The following table summarizes our minimum future rental payments, excluding variable costs, which are discounted by our incremental borrowing rate to calculate the lease liability for our operating leases as of September 30, 2022: As of September 30, 2022 (amounts in thousands) Ground Leases Office and Other Leases Total 2022 $ 145 $ 1,728 $ 1,873 2023 626 3,523 4,149 2024 632 3,097 3,729 2025 637 2,763 3,400 2026 615 2,543 3,158 Thereafter 4,325 13,140 17,465 Total undiscounted rental payments 6,980 26,794 33,774 Less imputed interest ( 1,705 ) ( 4,137 ) ( 5,842 ) Total lease liabilities $ 5,275 $ 22,657 $ 27,932 Right-of-use (“ROU”) assets and lease liabilities from our operating leases, included within Other assets, net and Accounts payable and other liabilities on the Consolidated Balance Sheets, were $ 25.9 million and $ 27.9 million, respectively, as of September 30, 2022. The weighted average remaining lease term for our operating leases was nine years and the weighted average incremental borrowing rate was 3.7 % at September 30, 2022. ROU assets and lease liabilities from our operating leases, included within Other assets, net and Accounts payable and other liabilities on the Consolidated Balance Sheets, were $ 30.3 million and $ 30.7 million, respectively, as of December 31, 2021. The weighted average remaining lease term for our operating leases was seven years and the weighted average incremental borrowing rate was 3.8 % at December 31, 2021. Note 4 – Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per share of common stock for the quarters and nine months ended September 30, 2022 and 2021: Quarters Ended September 30, Nine Months Ended September 30, (amounts in thousands, except per share data) 2022 2021 2022 2021 Numerators: Net income available for Common Stockholders – Basic $ 67,163 $ 70,625 $ 211,578 $ 196,916 Amounts allocated to non controlling interest (dilutive securities) 3,346 3,468 10,563 10,236 Net income available for Common Stockholders – Fully Diluted $ 70,509 $ 74,093 $ 222,141 $ 207,152 Denominators: Weighted average Common Shares outstanding – Basic 185,814 183,469 185,758 182,590 Effect of dilutive securities: Exchange of Common OP Units for Common Shares 9,288 9,056 9,295 9,888 Stock options and restricted stock 167 211 195 211 Weighted average Common Shares outstanding – Fully Diluted 195,269 192,736 195,248 192,689 Earnings per Common Share – Basic $ 0.36 $ 0.38 $ 1.14 $ 1.08 Earnings per Common Share – Fully Diluted $ 0.36 $ 0.38 $ 1.14 $ 1.08 Note 5 – Common Stock and Other Equity Related Transactions Common Stockholder Distribution Activity The following quarterly distributions have been declared and paid to Common Stockholders and the Operating Partnership unit (“OP Unit”) holders since January 1, 2021. 11 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 5 – Common Stock and Other Equity Related Transactions (continued) Distribution Amount Per Share For the Quarter Ended Stockholder Record Date Payment Date $ 0.3625 March 31, 2021 March 26, 2021 April 9, 2021 $ 0.3625 June 30, 2021 June 25, 2021 July 9, 2021 $ 0.3625 September 30, 2021 September 24, 2021 October 8, 2021 $ 0.3625 December 31, 2021 December 31, 2021 January 14, 2022 $ 0.4100 March 31, 2022 March 25, 2022 April 8, 2022 $ 0.4100 June 30, 2022 June 24, 2022 July 8, 2022 $ 0.4100 September 30, 2022 September 30, 2022 October 14, 2022 Equity Offering Program On February 24, 2022, we entered into our current at-the-market (“ATM”) equity offering program with certain sales agents, pursuant to which we may sell, from time-to-time, shares of our common stock, par value $ 0.01 per share, having an aggregate offering price of up to $ 500.0 million. Prior to the new program, the aggregate offering price was up to $ 200.0 million. The following table presents the shares that were issued under our prior ATM equity offering program during the quarter ended March 31, 2022. (amounts in thousands, except share data) Shares of common stock sold 328,123 Weighted average price $ 86.46 Total gross proceeds $ 28,370 Commissions paid to sales agents $ 389 There has been no ATM activity under the current ATM equity offering program during the nine months ended September 30, 2022 and as of September 30, 2022, the full capacity remained available for issuance. There was no ATM equity activity during the nine months ended September 30, 2021. Exchanges Subject to certain limitations, OP Unit holders can request an exchange of any or all of their OP Units for shares of Common Stock at any time. Upon receipt of such a request, we may, in lieu of issuing shares of Common Stock, cause the Operating Partnership to pay cash. During the nine months ended September 30, 2022 and 2021, 34,680 and 1,451,710 OP Units, respectively, were exchanged for an equal number of shares of Common Stock. Note 6 – Investment in Real Estate Acquisitions 2022 On February 18, 2022, we completed the acquisition of Blue Mesa Recreational Ranch, a 385 -site membership RV community located in Gunnison, Colorado, and Pilot Knob RV Resort a 247 -site RV community located in Winterhaven, California for a combined purchase price of $ 15.9 million. The acquisition was funded with available cash. On June 1, 2022, we completed the acquisition of a nine acre vacant land parcel in Sarasota, Florida, adjacent to one of our properties, for a purchase price of $ 2.3 million. The acquisition was funded with available cash. On June 15, 2022, we completed the acquisition of Holiday Trav-L-Park Resort, a 299 -site oceanfront RV community located in Emerald Isle, North Carolina for a purchase price of $ 50.7 million. The acquisition was funded with available cash and debt financing from the unsecured line of credit. 12 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 6 – Investment in Real Estate (continued) On June 16, 2022, we completed the acquisition of Oceanside RV Resort, a 139 -site RV community located in Oceanside, California for a total purchase price of $ 44.4 million. The acquisition was funded with available cash and debt financing from the unsecured line of credit. On July 21, 2022, we completed the acquisition of an 83 -acre vacant land parcel in North Fort Myers, Florida, adjacent to one of our properties, for a purchase price of $ 6.4 million. The acquisition was funded with available cash. On August 9, 2022, we completed the acquisition of a 78 -acre vacant land parcel in Beecher, Illinois, adjacent to one of our properties, for a purchase price of $ 0.9 million. The acquisition was funded with available cash. Impairment Hurricane Ian made landfall on the west coast of Florida on September 28, 2022. The most significant damage to our properties occurred in or near the Fort Myers area. Six of our Properties in or near this market are temporarily closed. As a result of the storm event and the damage caused, we wrote down the carrying value of certain assets at these properties by approximately $ 3.7 million during the quarter and nine months ended September 30, 2022, which is included in Loss on sale of real estate and impairment, net in the Consolidated Statements of Income. Note 7 – Investments in Unconsolidated Joint Ventures The following table summarizes our investment in unconsolidated joint ventures (investment amounts in thousands with the number of Properties shown parenthetically as of September 30, 2022 and December 31, 2021 , respectively): Investment as of Income/(Loss) for the Nine Months Ended Investment Location Number of Sites Economic Interest (a) September 30, 2022 December 31, 2021 September 30, 2022 September 30, 2021 Meadows Various (2,2) 1,077 50 % $ 150 $ — $ 1,850 $ 1,350 Lakeshore Florida (3,3) 721 (b) 2,596 2,638 480 417 Voyager Arizona (1,1) — 33 % (c) 138 141 39 544 ECHO JV Various — 50 % 18,979 18,136 843 475 RVC Various 1,282 80 % (d) 57,779 49,397 ( 323 ) — Mulberry Farms Various — 50 % (e) 8,710 — — — 3,080 $ 88,352 $ 70,312 $ 2,889 $ 2,786 _____________________ (a) The percentages shown approximate our economic interest as of September 30, 2022. Our legal ownership interest may differ. (b) Includes two joint ventures in which we own a 65 % interest in each and the Crosswinds joint venture in which we own a 49 % interest. (c) Consists of a 33 % interest in the utility plant servicing Voyager RV Resort. On October 14, 2021, we completed the acquisition of the remaining 50 % interest in Voyager RV Resort. (d) On July 1, 2022, we acquired an 80 % interest in an additional joint venture with RVC Outdoor Destinations ("RVC") for a total value of $ 1.1 million. (e) On January 18, 2022, we acquired a 50 % equity interest in an entity developing an age-restricted community in Prescott Valley, Arizona. We received approximately $ 3.9 million and $ 2.4 million in distributions from our unconsolidated joint ventures for the nine months ended September 30, 2022 and 2021, respectively. Approximately $ 1.7 million and $ 2.2 million of the distributions made to us exceeded our basis in our unconsolidated joint ventures for the nine months ended September 30, 2022 and 2021, respectively, and as such, were recorded as income from unconsolidated joint ventures. Note 8 – Borrowing Arrangements Mortgage Notes Payable Our mortgage notes payable is classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our mortgage notes payable: 13 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 8 - Borrowing Arrangements (continued) As of September 30, 2022 As of December 31, 2021 (amounts in thousands) Fair Value Carrying Value Fair Value Carrying Value Mortgage notes payable, excluding deferred financing costs $ 2,027,030 $ 2,734,310 $ 2,743,527 $ 2,654,086 The weighted average interest rate on our outstanding mortgage indebtedness, including the impact of premium/discount amortization and loan cost amortization on mortgage indebtedness, as of September 30, 2022, was approximately 3.7 % per annum. The debt bears interest at stated rates ranging from 2.4 % to 8.9 % per annum and matures on various dates ranging from 2023 to 2041. The debt encumbered a total of 114 and 117 of our Properties as of September 30, 2022 and December 31, 2021, respectively, and the gross carrying value of such Properties was approximately $ 2,851.5 million and $ 2,817.5 million, as of September 30, 2022 and December 31, 2021, respectively. During the nine months ended September 30, 2022, we repaid $ 14.2 million of principal on two mortgage loans that were due to mature in 2022, incurring $ 0.5 million of prepayment penalties. These mortgage loans had a weighted average interest rate of 5.25 % per annum and were secured by three RV communities. During the nine months ended September 30, 2022, we entered into a $ 200.0 million secured refinancing transaction. The loan is secured by one MH community, has a fixed interest rate of 3.36 % per annum and has a maturity date of May 1, 2034. The net proceeds from the transaction were used to repay all debt scheduled to mature in 2022 and to repay amounts outstanding on the Line of Credit (“LOC”). Unsecured Debt During the nine months ended September 30, 2022, we entered into a $ 200.0 million senior unsecured term loan agreement. The maturity date is January 21, 2027, with an interest rate of Secured Overnight Financing Rate (“SOFR”) plus approximately 1.30 % to 1.80 %, depending on leverage levels. The LOC had a balance of $ 95.0 million and $ 349.0 million outstanding as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, our LOC had a remaining borrowing capacity of $ 405.0 million. As of September 30, 2022, we were in compliance in all material respects with the covenants in all our borrowing arrangements. Note 9 – Derivative Instruments and Hedging Cash Flow Hedges of Interest Rate Risk We record all derivatives at fair value. Our objective in utilizing interest rate derivatives is to add stability to our interest expense and to manage our exposure to interest rate movements. We do not enter into derivatives for speculative purposes. We have 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 with a fixed interest rate of 0.39 % per annum and matures on March 25, 2024. Based on the leverage as of September 30, 2022, our spread over LIBOR was 1.40 % resulting in an estimated all-in interest rate of 1.79 % per annum. Our derivative financial instrument was classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our derivative financial instrument: As of September 30, As of December 31, (amounts in thousands) Balance Sheet Location 2022 2021 Interest Rate Swap Other assets, net $ 20,474 $ 3,524 14 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 9 – Derivative Instruments and Hedging (continued) The following table presents the effect of our derivative financial instrument on the Consolidated Statements of Income and Comprehensive Income: Derivatives in Cash Flow Hedging Relationship Amount of (gain)/loss recognized in OCI on derivative for the nine months ended September 30, Location of (gain)/ loss reclassified from accumulated OCI into income Amount of (gain)/loss reclassified from accumulated OCI into income for the nine months ended September 30, (amounts in thousands) 2022 2021 (amounts in thousands) 2022 2021 Interest Rate Swap $ ( 18,479 ) $ 142 Interest Expense $ ( 1,527 ) $ 467 During the next twelve months, we estimate that $ 11.7 million will be reclassified as a decrease to interest expense. This estimate may be subject to change as the underlying LIBOR changes. We determined that no adjustment was necessary for non-performance risk on our derivative obligation. As of September 30, 2022, we had not posted any collateral related to the Swap. Note 10 – Equity Incentive Awards Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by the Board of Directors on March 11, 2014 and approved by our stockholders on May 13, 2014. During the quarter ended March 31, 2022, 79,078 shares of restricted stock were awarded to certain members of our management team. Of these shares, 50 % are time-based awards, vesting in equal installments over a three-year period on January 27, 2023, January 26, 2024 and January 31, 2025, respectively, and have a grant date fair value of $ 3.0 million. The remaining 50 % are performance-based awards vesting in equal installments on January 27, 2023, January 26, 2024 and January 31, 2025, respectively, upon meeting performance conditions as established by the Compensation Committee in the year of the vesting period. They are valued using the closing price at the grant date when all the key terms and conditions are known to all parties. The 13,178 shares of restricted stock subject to 2022 performance goals have a grant date fair value of $ 1.0 million. During the quarter ended June 30, 2022 we awarded to certain members of our Board of Directors 51,522 shares of restricted stock at a fair value of approximately $ 4.1 million and options to purchase 7,210 shares of common stock with an exercise price of $ 79.72 . These are time-based awards subject to various vesting dates between October 26, 2022 and April 26, 2025. Stock based compensation expense, reported in General and administrative expense on the Consolidated Statements of Income and Comprehensive Income, was $ 2.6 million and $ 2.8 million for the quarters ended September 30, 2022 and 2021, respectively, and $ 7.9 million and $ 8.2 million for the nine months ended September 30, 2022 and 2021, respectively. Note 11 – Commitments and Contingencies We are involved in various legal and regulatory proceedings (“Proceedings”) arising in the ordinary course of business. The Proceedings include, but are not limited to, legal claims made by employees, vendors and customers, and notices, consent decrees, information requests, additional permit requirements and other similar enforcement actions by governmental agencies relating to our utility infrastructure, including water and wastewater treatment plants and other waste treatment facilities and electrical systems. Additionally, in the ordinary course of business, our operations are subject to audit by various taxing authorities. Management believes these Proceedings taken together do not represent a material liability. In addition, to the extent any such Proceedings or audits relate to newly acquired Properties, we consider any potential indemnification obligations of sellers in our favor. The Operating Partnership 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. 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. 15 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 11 - Commitments and Contingencies (continued) We believe the Nicholsons’ demand to be unlawful, and on December 30, 2019, the Operating Partnership, together with certain interested parties, filed a complaint in California Superior Court for Santa Clara County, seeking declaratory relief pursuant to which it requested that the Court determine, among other things, that the Operating Partnership 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, 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. 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, which appeal was heard on February 1, 2022. On February 4, 2022, the California Court of Appeal affirmed the Superior Court’s order denying the Nicholsons' motion to compel arbitration. On February 22, 2022, the Nicholsons filed a petition for rehearing, which the Court of Appeal denied on March 2, 2022. On March 16, 2022, the Nicholsons filed a petition for review with the California Supreme Court, which the California Supreme Court denied on April 20, 2022. On May 18, 2022, the Nicholsons filed a cross complaint alleging that the Operating Partnership is obligated to deliver Westwinds free and clear of encumbrances and in good condition and repair. 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 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 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. We do not expect the settlement agreement to have a material impact to our Consolidated Financial Statements. Note 12 - Reportable Segments We have identified two reportable segments: (i) Property Operations and (ii) Home Sales and Rentals Operations. The Property Operations segment owns and operates land lease Properties and the Home Sales and Rentals Operations segment purchases, sells and leases homes at the Properties. The distribution of the Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences. All revenues were from external customers and there is no customer who contributed 10% or more of our total revenues during the quarters and nine months ended September 30, 2022 or 2021. 16 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) The following tables summarize our segment financial information for the quarters and nine months ended September 30, 2022 and 2021: Quarter Ended September 30, 2022 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 338,208 $ 38,497 $ 376,705 Operations expenses ( 179,775 ) ( 33,384 ) ( 213,159 ) Income from segment operations 158,433 5,113 163,546 Interest income 1,441 422 1,863 Depreciation and amortization ( 50,026 ) ( 2,521 ) ( 52,547 ) Loss on sale of real estate and impairment, net ( 2,289 ) ( 1,458 ) ( 3,747 ) Income from operations $ 107,559 $ 1,556 $ 109,115 Reconciliation to consolidated net income: Corporate interest income 2 Income from other investments, net 2,399 General and administrative ( 11,086 ) Other expenses ( 1,627 ) Interest and related amortization ( 29,759 ) Equity in income of unconsolidated joint ventures 1,465 Consolidated net income $ 70,509 Total assets $ 5,160,230 $ 245,216 $ 5,405,446 Capital improvements $ 49,585 $ 37,994 $ 87,579 Quarter Ended September 30, 2021 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 312,239 $ 31,954 $ 344,193 Operations expenses ( 162,234 ) ( 28,787 ) ( 191,021 ) Income from segment operations 150,005 3,167 153,172 Interest income 1,320 483 1,803 Depreciation and amortization ( 41,761 ) ( 2,653 ) ( 44,414 ) Income (loss) from operations $ 109,564 $ 997 $ 110,561 Reconciliation to consolidated net income: Corporate interest income 2 Income from other investments, net 1,238 General and administrative ( 10,401 ) Other expenses ( 797 ) Interest and related amortization ( 27,361 ) Equity in income of unconsolidated joint ventures 851 Consolidated net income $ 74,093 Total assets $ 4,723,386 $ 258,474 $ 4,981,860 Capital improvements $ 52,146 $ 32,169 $ 84,315 17 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) Nine Months Ended September 30, 2022 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 984,535 $ 109,675 $ 1,094,210 Operations expenses ( 506,739 ) ( 95,847 ) ( 602,586 ) Income from segment operations 477,796 13,828 491,624 Interest income 4,198 1,143 5,341 Depreciation and amortization ( 145,200 ) ( 7,537 ) ( 152,737 ) Loss on sale of real estate and impairment, net ( 2,289 ) ( 1,458 ) ( 3,747 ) Income (loss) from operations $ 334,505 $ 5,976 $ 340,481 Reconciliation to consolidated net income: Corporate interest income 5 Income from other investments, net 6,920 General and administrative ( 35,078 ) Other expenses ( 6,636 ) Interest and related amortization ( 85,276 ) Equity in income of unconsolidated joint ventures 2,889 Early debt retirement ( 1,156 ) Consolidated net income $ 222,149 Total assets $ 5,160,230 $ 245,216 $ 5,405,446 Capital improvements $ 169,265 $ 99,349 $ 268,614 18 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) Nine Months Ended September 30, 2021 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 891,166 $ 81,191 $ 972,357 Operations expenses ( 448,432 ) ( 73,088 ) ( 521,520 ) Income from segment operations 442,734 8,103 450,837 Interest income 3,720 1,566 5,286 Depreciation and amortization ( 130,169 ) ( 7,958 ) ( 138,127 ) Loss on sale of real estate, net ( 59 ) — ( 59 ) Income (loss) from operations $ 316,226 $ 1,711 $ 317,937 Reconciliation to consolidated net income: Corporate interest income 28 Income from other investments, net 3,396 General and administrative ( 31,141 ) Other expenses ( 2,295 ) Interest and related amortization ( 80,767 ) Equity in income of unconsolidated joint ventures 2,786 Early debt retirement ( 2,784 ) Consolidated net income $ 207,160 Total assets $ 4,723,386 $ 258,474 $ 4,981,860 Capital improvements $ 129,919 $ 74,118 $ 204,037 The following table summarizes our financial information for the Property Operations segment for the quarters and nine months ended September 30, 2022 and 2021: Quarters Ended September 30, Nine Months Ended September 30, (amounts in thousands) 2022 2021 2022 2021 Revenues: Rental income $ 285,272 $ 265,431 $ 837,892 $ 761,580 Annual membership subscriptions 16,254 15,127 47,003 43,048 Membership upgrade sales current period, gross 11,085 10,122 27,771 29,343 Membership upgrade sales upfront payments, deferred, net ( 7,777 ) ( 7,253 ) ( 18,228 ) ( 21,134 ) Other income 15,580 12,053 43,316 36,759 Gross revenues from ancillary services 17,794 16,759 46,781 41,570 Total property operations revenues 338,208 312,239 984,535 891,166 Expenses: Property operating and maintenance 121,692 107,626 337,363 296,607 Real estate taxes 17,734 18,408 56,373 54,154 Sales and marketing, gross 7,143 6,513 18,466 18,987 Membership sales commissions, deferred, net ( 1,206 ) ( 1,468 ) ( 2,746 ) ( 4,405 ) Cost of ancillary services 9,765 8,785 24,639 20,401 Ancillary operating expenses 5,644 5,355 16,671 13,733 Property management 19,003 17,015 55,973 48,955 Total property operations expenses 179,775 162,234 506,739 448,432 Income from property operations segment $ 158,433 $ 150,005 $ 477,796 $ 442,734 19 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters and nine months ended September 30, 2022 and 2021: Quarters Ended September 30, Nine Months Ended September 30, (amounts in thousands) 2022 2021 2022 2021 Revenues: Rental income (a) $ 3,744 $ 4,142 $ 11,519 $ 12,713 Gross revenue from home sales and brokered resales 34,753 27,812 98,156 68,478 Total revenues 38,497 31,954 109,675 81,191 Expenses: Rental home operating and maintenance 1,489 1,538 4,117 4,093 Cost of home sales and brokered resales 30,459 26,046 87,255 65,140 Home selling expenses 1,436 1,203 4,475 3,855 Total expenses 33,384 28,787 95,847 73,088 Income from home sales and rentals operations segment $ 5,113 $ 3,167 $ 13,828 $ 8,103 ______________________ (a) Rental income within Home Sales and Rentals Operations does not include base rent related to the rental home Sites. Base rent is included within property operations. 20