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) March 31, 2023 December 31, 2022 (unaudited) Assets Investment in real estate: Land $ 2,086,725 $ 2,084,532 Land improvements 4,170,166 4,115,439 Buildings and other depreciable property 1,197,416 1,169,590 7,454,307 7,369,561 Accumulated depreciation ( 2,306,538 ) ( 2,258,540 ) Net investment in real estate 5,147,769 5,111,021 Cash and restricted cash 30,661 22,347 Notes receivable, net 46,655 45,356 Investment in unconsolidated joint ventures 81,135 81,404 Deferred commission expense 51,090 50,441 Other assets, net 162,003 181,950 Total Assets $ 5,519,313 $ 5,492,519 Liabilities and Equity Liabilities: Mortgage notes payable, net $ 2,677,318 $ 2,693,167 Term loan, net 497,039 496,817 Unsecured line of credit 212,000 198,000 Accounts payable and other liabilities 185,126 175,148 Deferred membership revenue 204,312 197,743 Accrued interest payable 12,090 11,739 Rents and other customer payments received in advance and security deposits 130,704 122,318 Distributions payable 87,338 80,102 Total Liabilities 4,005,927 3,975,034 Equity: Stockholders' Equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; none issued and outstanding. — — Common stock, $ 0.01 par value, 600,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 186,205,815 and 186,120,298 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. 1,916 1,916 Paid-in capital 1,629,866 1,628,618 Distributions in excess of accumulated earnings ( 205,203 ) ( 204,248 ) Accumulated other comprehensive income 15,141 19,119 Total Stockholders’ Equity 1,441,720 1,445,405 Non-controlling interests – Common OP Units 71,666 72,080 Total Equity 1,513,386 1,517,485 Total Liabilities and Equity $ 5,519,313 $ 5,492,519 The accompanying notes are an integral part of the consolidated financial statements. 3 Equity LifeStyle Properties, Inc. Consolidated Statements of Income and Comprehensive Income (amounts in thousands, except per share data) (unaudited) Quarters Ended March 31, 2023 2022 Revenues: Rental income $ 296,451 $ 285,065 Annual membership subscriptions 15,970 15,157 Membership upgrade sales current period, gross 7,975 7,151 Membership upgrade sales upfront payments, deferred, net ( 4,470 ) ( 4,084 ) Other income 17,714 13,542 Gross revenues from home sales, brokered resales and ancillary services 32,133 39,695 Interest income 2,088 1,759 Income from other investments, net 2,091 1,904 Total revenues 369,952 360,189 Expenses: Property operating and maintenance 112,483 103,992 Real estate taxes 18,316 19,457 Sales and marketing, gross 5,517 4,914 Membership sales commissions, deferred, net ( 679 ) ( 583 ) Property management 19,464 17,871 Depreciation and amortization 50,502 49,394 Cost of home sales, brokered resales and ancillary services 23,141 30,684 Home selling expenses and ancillary operating expenses 6,924 6,481 General and administrative 11,661 12,072 Casualty-related charges/(recoveries), net — — Other expenses 1,468 1,048 Early debt retirement — 516 Interest and related amortization 32,588 27,464 Total expenses 281,385 273,310 Loss on sale of real estate and impairment, net ( 2,632 ) — Income before equity in income of unconsolidated joint ventures 85,935 86,879 Equity in income of unconsolidated joint ventures 524 171 Consolidated net income 86,459 87,050 Income allocated to non-controlling interests – Common OP Units ( 4,088 ) ( 4,144 ) Net income available for Common Stockholders $ 82,371 $ 82,906 Consolidated net income $ 86,459 $ 87,050 Other comprehensive income (loss): Adjustment for fair market value of swap ( 3,978 ) 9,924 Consolidated comprehensive income 82,481 96,974 Comprehensive income allocated to non-controlling interests – Common OP Units ( 3,899 ) ( 4,616 ) Comprehensive income attributable to Common Stockholders $ 78,582 $ 92,358 Earnings per Common Share – Basic $ 0.44 $ 0.45 Earnings per Common Share – Fully Diluted $ 0.44 $ 0.45 Weighted average Common Shares outstanding – Basic 185,900 185,690 Weighted average Common Shares outstanding – Fully Diluted 195,369 195,246 The accompanying notes are an integral part of the consolidated financial statements. 4 Equity LifeStyle Properties, Inc. Consolidated Statements of Changes in Equity (amounts in thousands) (unaudited) Common Stock Paid-in Capital Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests – Common OP Units Total Equity Balance as of December 31, 2022 $ 1,916 $ 1,628,618 $ ( 204,248 ) $ 19,119 $ 72,080 $ 1,517,485 Exchange of Common OP Units for Common Stock — 198 — — ( 198 ) — Issuance of Common Stock through employee stock purchase plan — 363 — — — 363 Compensation expenses related to restricted stock and stock options — 2,549 — — — 2,549 Repurchase of Common Stock or Common OP Units — ( 1,932 ) — — — ( 1,932 ) Adjustment for Common OP Unitholders in the Operating Partnership — 168 — — ( 168 ) — Adjustment for fair market value of swap — — — ( 3,978 ) — ( 3,978 ) Consolidated net income — — 82,371 — 4,088 86,459 Distributions — — ( 83,326 ) — ( 4,136 ) ( 87,462 ) Other — ( 98 ) — — — ( 98 ) Balance as of March 31, 2023 $ 1,916 $ 1,629,866 $ ( 205,203 ) $ 15,141 $ 71,666 $ 1,513,386 Common Stock Paid-in Capital Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling interests – Common OP Units Total Equity Balance 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 . The accompanying notes are an integral part of the consolidated financial statements. 5 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (amounts in thousands) (unaudited) Quarters Ended March 31, 2023 2022 Cash Flows From Operating Activities: Consolidated net income $ 86,459 $ 87,050 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Loss on sale of real estate and impairment, net 2,632 — Early debt retirement — 516 Depreciation and amortization 51,860 50,237 Amortization of loan costs 1,208 1,213 Debt premium amortization ( 32 ) ( 60 ) Equity in income of unconsolidated joint ventures ( 524 ) ( 171 ) Distributions of income from unconsolidated joint ventures 174 — Proceeds from insurance claims, net 5,795 59 Compensation expense related to incentive plans 3,330 ( 1,529 ) Revenue recognized from membership upgrade sales upfront payments ( 3,505 ) ( 3,067 ) Commission expense recognized related to membership sales 1,095 1,040 Changes in assets and liabilities: Notes receivable, net ( 1,345 ) 189 Deferred commission expense ( 1,744 ) ( 1,550 ) Other assets, net 21,763 23,168 Accounts payable and other liabilities 9,553 ( 1,923 ) Deferred membership revenue 10,074 8,494 Rents and other customer payments received in advance and security deposits 7,668 13,665 Net cash provided by operating activities 194,461 177,331 Cash Flows From Investing Activities: Real estate acquisitions, net ( 8,803 ) ( 15,402 ) Investment in unconsolidated joint ventures ( 1,752 ) ( 7,912 ) Distributions of capital from unconsolidated joint ventures 1,012 374 Proceeds from insurance claims, net 4,070 1,405 Capital improvements ( 96,455 ) ( 83,647 ) Net cash used in investing activities ( 101,928 ) ( 105,182 ) The accompanying notes are an integral part of the consolidated financial statements. 6 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (continued) (amounts in thousands) (unaudited) Quarters Ended March 31, 2023 2022 Cash Flows From Financing Activities: Proceeds from stock options and employee stock purchase plan 363 513 Gross proceeds from the issuance of common stock — 28,370 Distributions: Common Stockholders ( 76,309 ) ( 67,295 ) Common OP Unitholders ( 3,799 ) ( 3,373 ) Share based award tax withholding payments ( 1,932 ) ( 3,449 ) Principal payments and mortgage debt repayment ( 16,443 ) ( 29,592 ) Term loan proceeds — 200,000 Line of Credit repayment ( 104,000 ) ( 319,000 ) Line of Credit proceeds 118,000 39,000 Debt issuance and defeasance costs — ( 1,957 ) Other ( 99 ) ( 644 ) Net cash used in financing activities ( 84,219 ) ( 157,427 ) Net increase (decrease) in cash and restricted cash 8,314 ( 85,278 ) Cash and restricted cash, beginning of period 22,347 123,398 Cash and restricted cash, end of period $ 30,661 $ 38,120 Quarters Ended March 31, 2023 2022 Supplemental Information: Cash paid for interest, net $ 31,630 $ 26,839 Net investment in real estate – reclassification of rental homes $ 15,907 $ 21,311 Other assets, net – reclassification of rental homes $ ( 15,907 ) $ ( 21,311 ) Real estate acquisitions: Investment in real estate $ ( 9,535 ) $ ( 15,075 ) Notes receivable, net — ( 772 ) Other assets, net 14 — Deferred membership revenue — 315 Other liabilities — 79 Rents and other customer payments received in advance and security deposits 718 51 Real estate acquisitions, net $ ( 8,803 ) $ ( 15,402 ) The accompanying notes are an integral part of the consolidated financial statements. 7 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 1 – Organization and Basis of Presentation Equity LifeStyle Properties, Inc. (“ELS”), a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and its other consolidated subsidiaries (the “Subsidiaries”), are referred to herein as “we,” “us,” 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 provide our customers the opportunity to place manufactured homes and cottages, RVs and/or boats on our Properties either on a long-term or short-term basis. Our customers may lease individual developed areas (“Sites”) or enter into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays. Our Properties are owned primarily by the Operating Partnership and managed internally by affiliates of the Operating Partnership. ELS is the sole general partner of the Operating Partnership, has exclusive responsibility and discretion in management and control of the Operating Partnership and held a 95.3 % interest as of March 31, 2023. 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, 2022. 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 of ASC 842, Leases 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. 8 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 March 31, 2023 and December 31, 2022, restricted cash consisted of $ 19.8 million and $ 19.7 million, respectively, primarily related to cash reserved for customer deposits and escrows for insurance and real estate taxes. (c) Casualty related charges/(recoveries), net During the quarter ended March 31, 2023, we recognized expenses of approximately $ 8.5 million related to debris removal and cleanup related to Hurricane Ian and an offsetting insurance recovery revenue accrual of $ 8.5 million related to the expected insurance recovery as a result of Hurricane Ian. 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 March 31, 2023 2023 $ 86,670 2024 115,394 2025 42,805 2026 23,963 2027 22,544 Thereafter 57,200 Total $ 348,576 Lessee We lease land under non-cancelable operating leases at 10 Properties expiring at various dates between 2028 and 2054. The majority of the leases have terms requiring fixed payments plus additional rents based on a percentage of gross revenues at those Properties. We also have other operating leases, primarily office space, expiring at various dates through 2032. For the quarters ended March 31, 2023 and 2022, total operating lease payments were $ 1.5 million and $ 2.6 million, respectively. 9 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 March 31, 2023: As of March 31, 2023 (amounts in thousands) Ground Leases Office and Other Leases Total 2023 $ 544 $ 3,081 $ 3,625 2024 675 3,407 4,082 2025 680 3,108 3,788 2026 684 2,613 3,297 2027 689 2,424 3,113 Thereafter 4,525 10,794 15,319 Total undiscounted rental payments 7,797 25,427 33,224 Less imputed interest ( 2,013 ) ( 3,741 ) ( 5,754 ) Total lease liabilities $ 5,784 $ 21,686 $ 27,470 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 $ 25.3 million and $ 27.5 million, respectively, as of March 31, 2023. The weighted average remaining lease term for our operating leases was nine years and the weighted average incremental borrowing rate was 3.8 % at March 31, 2023. 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 $ 28.0 million, respectively, as of December 31, 2022. The weighted average remaining lease term for our operating leases was nine years and the weighted average incremental borrowing rate was 3.8 % at December 31, 2022. Note 4 – Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per share of common stock (Common Share) for the quarters ended March 31, 2023 and 2022: Quarters Ended March 31, (amounts in thousands, except per share data) 2023 2022 Numerators: Net income available for Common Stockholders – Basic $ 82,371 $ 82,906 Amounts allocated to non controlling interest (dilutive securities) 4,088 4,144 Net income available for Common Stockholders – Fully Diluted $ 86,459 $ 87,050 Denominators: Weighted average Common Shares outstanding – Basic 185,900 185,690 Effect of dilutive securities: Exchange of Common OP Units for Common Shares 9,262 9,301 Stock options and restricted stock 207 255 Weighted average Common Shares outstanding – Fully Diluted 195,369 195,246 Earnings per Common Share – Basic $ 0.44 $ 0.45 Earnings per Common Share – Fully Diluted $ 0.44 $ 0.45 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, 2022. 10 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 $ 0.4100 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 $ 0.4100 December 31, 2022 December 30, 2022 January 13, 2023 $ 0.4475 March 31, 2023 March 31, 2023 April 14, 2023 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. As of March 31, 2023, the full capacity remained available for issuance under our ATM equity offering program. 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 quarters ended March 31, 2023 and 2022, 25,496 and 8,640 OP Units, respectively, were exchanged for an equal number of shares of Common Stock. Note 6 – Investment in Real Estate Acquisitions 2023 On March 28, 2023, we completed the acquisition of Red Oak Shores Campground, a 223 -site RV community located in Ocean View, New Jersey for a purchase price of $ 9.5 million. The acquisition was accounted for as an asset acquisition under ASC 805, Business Combinations and was funded from our unsecured line of credit. Impairment During the quarter ended March 31, 2023, we recorded an impairment charge of approximately $ 2.6 million related to flooding events at certain Properties in California. 11 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements 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 March 31, 2023 and December 31, 2022 , respectively): Investment as of Income/(Loss) for the Quarters Ended Investment Location Number of Sites Economic Interest (a) March 31, 2023 December 31, 2022 March 31, 2023 March 31, 2022 Meadows Various (2,2) 1,077 50 % $ 232 $ 158 $ 374 $ 260 Lakeshore Florida (3,3) 721 (b) 2,866 2,625 172 135 Voyager Arizona (1,1) — — % (c) — 139 692 20 ECHO JV Various — 50 % 2,773 2,963 ( 190 ) 177 RVC Various 1,282 80 % (d) 60,036 60,323 ( 353 ) ( 421 ) Mulberry Farms Arizona 200 50 % 10,071 9,902 ( 31 ) — Hiawassee KOA JV Georgia 283 50 % $ 5,157 $ 5,294 $ ( 140 ) $ — 3,563 $ 81,135 $ 81,404 $ 524 $ 171 _____________________ (a) The percentages shown approximate our economic interest as of March 31, 2023. 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) During the quarter ended March 31, 2023 we sold our 33 % interest in the utility plant servicing Voyager RV Resort. (d) Includes three joint ventures of which one joint venture owns a portfolio of seven operating RV communities and two joint ventures each own an RV property under development. We received approximately $ 1.2 million and $ 0.4 million in distributions from our unconsolidated joint ventures for the quarters ended March 31, 2023 and 2022, respectively. Approximately $ 0.3 million of the distributions made to us exceeded our basis in our unconsolidated joint ventures for the quarters ended March 31, 2023 and 2022, and as such, were recorded as income from unconsolidated joint ventures. Note 8 – Borrowing Arrangements Mortgage Notes Payable Our mortgage notes payable are classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our mortgage notes payable: As of March 31, 2023 As of December 31, 2022 (amounts in thousands) Fair Value Carrying Value Fair Value Carrying Value Mortgage notes payable, excluding deferred financing costs $ 2,100,665 $ 2,701,638 $ 2,043,412 $ 2,718,114 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 March 31, 2023, 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 of our Properties as of March 31, 2023 and December 31, 2022, and the gross carrying value of such Properties was approximately $ 2,895.2 million and $ 2,868.3 million, as of March 31, 2023 and December 31, 2022, respectively. Unsecured Debt We previously entered into a Third Amended and Restated Credit Agreement (“Credit Agreement”), pursuant to which we have access to a $ 500.0 million unsecured line of credit (the “LOC”) and a $ 300.0 million senior unsecured term loan (the “$ 300 million Term Loan”). On March 1, 2023, we amended the Credit Agreement to transition the LIBOR rate borrowings to Secured Overnight Financing Rate (“SOFR”) borrowings. The LOC bears interest at a rate of SOFR plus 1.25 % to 1.65 % and requires an annual facility fee of 0.20 % to 0.35 %. The $ 300 million Term Loan has an interest rate of SOFR plus 1.40 % to 1.95 % per annum. For both the LOC and the $ 300 million Term Loan, the spread over SOFR is variable based on leverage throughout the respective loan terms. As of March 31, 2023, the Company has no remaining LIBOR based borrowings. 12 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 8 – Borrowing Arrangements (continued) The LOC had a balance of $ 212.0 million and $ 198.0 million outstanding as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, our LOC had a remaining borrowing capacity of $ 288.0 million. As of March 31, 2023, we were in compliance in all material respects with the covenants in all our borrowing arrangements. During the year ended December 31, 2022, we entered into a $ 200.0 million senior unsecured term loan agreement (the “$ 200 million Term Loan”). The maturity date is January 21, 2027, with an interest rate of SOFR plus approximately 1.30 % to 1.80 %, depending on leverage levels. 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. In March 2021, we entered into a Swap Agreement (the “2021 Swap”) with a notional amount of $ 300.0 million allowing us to trade the variable interest rate associated with our $ 300.0 million Term Loan for a fixed interest rate. In March 2023, we amended the 2021 Swap agreement to reflect the change in the $ 300.0 million Term Loan interest rate benchmark from LIBOR to SOFR ( see Note 8.Borrowing arrangements ). The 2021 Swap has a fixed interest rate of 0.41 % per annum and matures on March 25, 2024. Based on the leverage as of March 31, 2023, our spread over SOFR was 1.40 % resulting in an estimated all-in interest rate of 1.81 % per annum. In April 2023, we entered into a Swap Agreement (the “2023 Swap”) with a notional amount of $ 200.0 million allowing us to trade the variable interest rate associated with our $ 200.0 million Term Loan for a fixed interest rate. The 2023 Swap has a fixed interest rate of 3.68 % per annum and matures on January 21, 2027. Based on the leverage as of March 31, 2023, our spread over SOFR was 1.20 % resulting in an estimated all-in interest rate of 4.88 % 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 March 31, As of December 31, (amounts in thousands) Balance Sheet Location 2023 2022 Interest Rate Swap Other assets, net $ 15,141 $ 19,119 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 quarters ended March 31, Location of (gain)/ loss reclassified from accumulated OCI into income Amount of (gain)/loss reclassified from accumulated OCI into income for the quarters ended March 31, (amounts in thousands) 2023 2022 (amounts in thousands) 2023 2022 Interest Rate Swap $ 523 $ ( 9,661 ) Interest Expense $ ( 3,455 ) $ 263 During the next twelve months, we estimate that $ 14.0 million will be reclassified as a decrease to interest expense. This estimate may be subject to change as the underlying SOFR changes. We determined that no adjustment was necessary for non-performance risk on our derivative obligation. As of March 31, 2023, we had not posted any collateral related to the 2021 Swap. 13 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements 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, 2023, 82,884 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 30, 2024, February 4, 2025 and February 3, 2026, 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 30, 2024, February 4, 2025 and February 3, 2026, 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 13,812 shares of restricted stock subject to 2023 performance goals have a grant date fair value of $ 1.0 million. Stock based compensation expense, reported in General and administrative expense on the Consolidated Statements of Income and Comprehensive Income, was $ 2.5 million and $ 2.6 million for the quarters ended March 31, 2023 and 2022, 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. 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 ended March 31, 2023 or 2022. 14 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 ended March 31, 2023 and 2022: Quarter Ended March 31, 2023 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 341,737 $ 24,036 $ 365,773 Operations expenses ( 165,023 ) ( 20,143 ) ( 185,166 ) Income from segment operations 176,714 3,893 180,607 Interest income 1,566 514 2,080 Depreciation and amortization ( 47,755 ) ( 2,747 ) ( 50,502 ) Loss on sale of real estate and impairment, net ( 2,632 ) — ( 2,632 ) Income from operations $ 127,893 $ 1,660 $ 129,553 Reconciliation to consolidated net income: Corporate interest income 8 Income from other investments, net 2,091 General and administrative ( 11,661 ) Other expenses ( 1,468 ) Interest and related amortization ( 32,588 ) Equity in income of unconsolidated joint ventures 524 Consolidated net income $ 86,459 Total assets $ 5,239,891 $ 279,422 $ 5,519,313 Capital improvements $ 51,412 $ 45,043 $ 96,455 Quarter Ended March 31, 2022 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 325,426 $ 31,100 $ 356,526 Operations expenses ( 154,988 ) ( 27,828 ) ( 182,816 ) Income from segment operations 170,438 3,272 173,710 Interest income 1,377 380 1,757 Depreciation and amortization ( 46,877 ) ( 2,517 ) ( 49,394 ) Income from operations $ 124,938 $ 1,135 $ 126,073 Reconciliation to consolidated net income: Corporate interest income 2 Income from other investments, net 1,904 General and administrative (1) ( 12,072 ) Other expenses (1) ( 1,048 ) Interest and related amortization ( 27,464 ) Equity in income of unconsolidated joint ventures 171 Early debt retirement ( 516 ) Consolidated net income $ 87,050 Total assets $ 5,012,335 $ 252,470 $ 5,264,805 Capital improvements $ 54,990 $ 28,657 $ 83,647 ______________________ (1) Prior period amounts have been reclassified to conform to the current period presentation. 15 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) The following table summarizes our financial information for the Property Operations segment for the quarters ended March 31, 2023 and 2022: Quarters Ended March 31, (amounts in thousands) 2023 2022 Revenues: Rental income $ 292,579 $ 281,104 Annual membership subscriptions 15,970 15,157 Membership upgrade sales current period, gross 7,975 7,151 Membership upgrade sales upfront payments, deferred, net ( 4,470 ) ( 4,084 ) Other income 17,714 13,542 Gross revenues from ancillary services 11,969 12,556 Total property operations revenues 341,737 325,426 Expenses: Property operating and maintenance 111,524 102,590 Real estate taxes 18,316 19,457 Sales and marketing, gross 5,517 4,914 Membership sales commissions, deferred, net ( 679 ) ( 583 ) Cost of ancillary services 5,297 5,721 Ancillary operating expenses 5,584 5,018 Property management 19,464 17,871 Total property operations expenses 165,023 154,988 Income from property operations segment $ 176,714 $ 170,438 The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters ended March 31, 2023 and 2022: Quarters Ended March 31, (amounts in thousands) 2023 2022 Revenues: Rental income (a) $ 3,872 $ 3,961 Gross revenue from home sales and brokered resales 20,164 27,139 Total revenues 24,036 31,100 Expenses: Rental home operating and maintenance 959 1,402 Cost of home sales and brokered resales 17,844 24,963 Home selling expenses 1,340 1,463 Total expenses 20,143 27,828 Income from home sales and rentals operations segment $ 3,893 $ 3,272 ______________________ (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 . 16