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, 2023 December 31, 2022 (unaudited) Assets Investment in real estate: Land $ 2,088,657 $ 2,084,532 Land improvements 4,307,943 4,115,439 Buildings and other depreciable property 1,228,897 1,169,590 7,625,497 7,369,561 Accumulated depreciation ( 2,401,384 ) ( 2,258,540 ) Net investment in real estate 5,224,113 5,111,021 Cash and restricted cash 59,680 22,347 Notes receivable, net 49,684 45,356 Investment in unconsolidated joint ventures 84,328 81,404 Deferred commission expense 53,180 50,441 Other assets, net 155,306 181,950 Total Assets $ 5,626,291 $ 5,492,519 Liabilities and Equity Liabilities: Mortgage notes payable, net $ 3,005,034 $ 2,693,167 Term loan, net 497,422 496,817 Unsecured line of credit — 198,000 Accounts payable and other liabilities 189,090 175,148 Deferred membership revenue 216,021 197,743 Accrued interest payable 12,296 11,739 Rents and other customer payments received in advance and security deposits 121,930 122,318 Distributions payable 87,491 80,102 Total Liabilities 4,129,284 3,975,034 Equity: Stockholders' Equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized as of September 30, 2023 and December 31, 2022; none issued and outstanding. — — Common stock, $ 0.01 par value, 600,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 186,390,612 and 186,120,298 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively. 1,917 1,916 Paid-in capital 1,641,553 1,628,618 Distributions in excess of accumulated earnings ( 232,081 ) ( 204,248 ) Accumulated other comprehensive income 15,564 19,119 Total Stockholders’ Equity 1,426,953 1,445,405 Non-controlling interests – Common OP Units 70,054 72,080 Total Equity 1,497,007 1,517,485 Total Liabilities and Equity $ 5,626,291 $ 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Rental income $ 303,334 $ 289,016 $ 888,440 $ 849,411 Annual membership subscriptions 16,673 16,254 48,832 47,003 Membership upgrade sales 3,744 3,308 10,863 9,543 Other income 15,658 15,580 51,283 43,316 Gross revenues from home sales, brokered resales and ancillary services 44,795 52,547 115,841 144,937 Interest income 2,276 1,865 6,623 5,346 Income from other investments, net 2,333 2,399 6,897 6,920 Total revenues 388,813 380,969 1,128,779 1,106,476 Expenses: Property operating and maintenance 126,846 123,181 361,543 341,480 Real estate taxes 19,017 17,734 56,165 56,373 Membership sales and marketing 5,696 5,937 16,055 15,720 Property management 19,887 19,003 58,710 55,973 Depreciation and amortization 50,968 52,547 152,934 152,737 Cost of home sales, brokered resales and ancillary services 33,471 40,224 85,880 111,894 Home selling expenses and ancillary operating expenses 7,164 7,080 21,258 21,146 General and administrative 9,895 11,086 38,163 34,834 Casualty-related charges/(recoveries), net — — — — Other expenses 1,338 1,627 4,187 6,880 Early debt retirement 68 — 68 1,156 Interest and related amortization 33,434 29,759 99,144 85,276 Total expenses 307,784 308,178 894,107 883,469 Loss on sale of real estate and impairment, net ( 949 ) ( 3,747 ) ( 3,581 ) ( 3,747 ) Income before equity in income of unconsolidated joint ventures 80,080 69,044 231,091 219,260 Equity in income of unconsolidated joint ventures 661 1,465 2,158 2,889 Consolidated net income 80,741 70,509 233,249 222,149 Income allocated to non-controlling interests – Common OP Units ( 3,772 ) ( 3,346 ) ( 10,981 ) ( 10,563 ) Redeemable perpetual preferred stock dividends — — ( 8 ) ( 8 ) Net income available for Common Stockholders $ 76,969 $ 67,163 $ 222,260 $ 211,578 Consolidated net income $ 80,741 $ 70,509 $ 233,249 $ 222,149 Other comprehensive income (loss): Adjustment for fair market value of swaps ( 1,763 ) 4,235 ( 3,555 ) 16,952 Consolidated comprehensive income 78,978 74,744 229,694 239,101 Comprehensive income allocated to non-controlling interests – Common OP Units ( 3,690 ) ( 3,547 ) ( 10,814 ) ( 11,370 ) Redeemable perpetual preferred stock dividends — — ( 8 ) ( 8 ) Comprehensive income attributable to Common Stockholders $ 75,288 $ 71,197 $ 218,872 $ 227,723 Earnings per Common Share – Basic $ 0.41 $ 0.36 $ 1.19 $ 1.14 Earnings per Common Share – Fully Diluted $ 0.41 $ 0.36 $ 1.19 $ 1.14 Weighted average Common Shares outstanding – Basic 186,100 185,814 186,008 185,758 Weighted average Common Shares outstanding – Fully Diluted 195,440 195,269 195,414 195,248 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, 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 Issuance of Common Stock through employee stock purchase plan — 504 — — — — 504 Compensation expenses related to restricted stock and stock options — 8,584 — — — — 8,584 Adjustment for Common OP Unitholders in the Operating Partnership — ( 503 ) — — — 503 — Adjustment for fair market value of swap — — — — 2,186 — 2,186 Consolidated net income — — 8 62,920 — 3,121 66,049 Distributions — — ( 8 ) ( 83,357 ) — ( 4,135 ) ( 87,500 ) Other — ( 97 ) — — — — ( 97 ) Balance as of June 30, 2023 $ 1,916 $ 1,638,354 $ — $ ( 225,640 ) $ 17,327 $ 71,155 $ 1,503,112 Exchange of Common OP Units for Common Stock 1 812 — — — ( 813 ) — Issuance of Common Stock through employee stock purchase plan — 736 — — — — 736 Compensation expenses related to restricted stock and stock options — 1,799 — — — — 1,799 Adjustment for Common OP Unitholders in the Operating Partnership — ( 27 ) — — — 27 — Adjustment for fair market value of swaps — — — — ( 1,763 ) — ( 1,763 ) Consolidated net income — — — 76,969 — 3,772 80,741 Distributions — — — ( 83,410 ) — ( 4,087 ) ( 87,497 ) Other — ( 121 ) — — — — ( 121 ) Balance as of September 30, 2023 $ 1,917 $ 1,641,553 $ — $ ( 232,081 ) $ 15,564 $ 70,054 $ 1,497,007 5 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 . 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, 2023 2022 Cash Flows From Operating Activities: Consolidated net income $ 233,249 $ 222,149 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Loss on sale of real estate and impairment, net 3,581 3,747 Early debt retirement 68 1,156 Depreciation and amortization 156,967 156,074 Amortization of loan costs 3,637 3,631 Debt premium amortization ( 62 ) ( 145 ) Equity in income of unconsolidated joint ventures ( 2,158 ) ( 2,889 ) Distributions of income from unconsolidated joint ventures 1,155 340 Proceeds from insurance claims, net 21,770 ( 457 ) Compensation expense related to incentive plans 15,275 5,367 Revenue recognized from membership upgrade sales upfront payments ( 10,863 ) ( 9,543 ) Commission expense recognized related to membership sales 3,122 2,850 Changes in assets and liabilities: Manufactured homes, net ( 31,980 ) ( 6,972 ) Notes receivable, net ( 4,365 ) ( 3,954 ) Deferred commission expense ( 5,861 ) ( 5,531 ) Other assets, net ( 5,076 ) ( 298 ) Accounts payable and other liabilities 12,165 15,475 Deferred membership revenue 29,140 28,080 Rents and other customer payments received in advance and security deposits ( 1,106 ) ( 3,957 ) Net cash provided by operating activities 418,658 405,123 Cash Flows From Investing Activities: Real estate acquisitions, net ( 9,326 ) ( 119,255 ) Investment in unconsolidated joint ventures ( 6,060 ) ( 16,022 ) Distributions of capital from unconsolidated joint ventures 3,730 3,602 Proceeds from insurance claims, net 5,309 1,405 Capital improvements ( 231,172 ) ( 185,916 ) Net cash used in investing activities ( 237,519 ) ( 316,186 ) 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, 2023 2022 Cash Flows From Financing Activities: Proceeds from stock options and employee stock purchase plan 1,604 2,359 Gross proceeds from the issuance of common stock — 28,370 Distributions: Common Stockholders ( 242,994 ) ( 219,854 ) Common OP Unitholders ( 12,069 ) ( 10,997 ) Preferred Stockholders ( 8 ) ( 8 ) Share based award tax withholding payments ( 1,932 ) ( 3,449 ) Principal payments and mortgage debt repayment ( 148,811 ) ( 119,608 ) Mortgage notes payable financing proceeds 463,753 200,000 Term loan proceeds — 200,000 Line of credit repayment ( 605,000 ) ( 495,016 ) Line of credit proceeds 407,000 241,000 Debt issuance and defeasance costs ( 5,033 ) ( 3,826 ) Other ( 316 ) ( 796 ) Net cash used in financing activities ( 143,806 ) ( 181,825 ) Net increase (decrease) in cash and restricted cash 37,333 ( 92,888 ) Cash and restricted cash, beginning of period 22,347 123,398 Cash and restricted cash, end of period $ 59,680 $ 30,510 Nine Months Ended September 30, 2023 2022 Supplemental Information: Cash paid for interest, net $ 97,297 $ 82,368 Cash paid for the purchase of manufactured homes $ 90,477 $ 82,698 Real estate acquisitions: Investment in real estate $ ( 10,057 ) $ ( 119,796 ) Notes receivable, net — ( 772 ) Other assets, net 13 — Deferred membership revenue — 315 Other liabilities — 702 Rents and other customer payments received in advance and security deposits 718 296 Real estate acquisitions, net $ ( 9,326 ) $ ( 119,255 ) 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 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 September 30, 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. 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. Revenue 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, 2023 and December 31, 2022, restricted cash consisted of $ 21.2 million and $ 19.7 million, respectively, primarily related to cash reserved for customer deposits and escrows for insurance and real estate taxes. (c) Reclassifications Certain prior period amounts have been reclassified to conform to the current year presentation. (d) Insurance Recoveries We carry comprehensive insurance coverage for losses resulting from property damage and environmental liability and business interruption claims on all of our properties. We record the estimated amount of expected insurance proceeds for property damage, clean-up costs and other losses incurred as an asset (typically a receivable from our insurance carriers) and income up to the amount of the losses incurred when receipt of insurance proceeds is deemed probable. Any amount of insurance recovery in excess of the losses incurred and any amount of insurance recovery related to business interruption are considered a gain contingency and will be recognized in the period in which the insurance proceeds are received. During the nine months ended September 30, 2023, we recognized expenses of approximately $ 12.1 million related to debris removal and cleanup related to Hurricane Ian and an offsetting insurance recovery revenue accrual of $ 12.1 million related to the expected insurance recovery as a result of Hurricane Ian which is included in Casualty-related charges/(recoveries), net in the Consolidated Statements of Income and Comprehensive Income. During the nine months ended September 30, 2023, we received insurance proceeds of approximately $ 48.8 million, of which $ 9.6 million represented business interruption recovery revenue. (e) Prior period correction During the six months ended June 30, 2023, the Company identified and corrected an immaterial error related to the classification of cash outflows associated with the purchase of MHs in the Consolidated Statements of Cash Flows. Previously, the Company classified these cash outflows within investing activities in the Consolidated Statements of Cash Flows to align with the balance sheet classification. Based on the predominance principle in ASC 230-10-45-22, the Company determined that all of the cash flows associated with the purchase and sale of manufactured homes should be classified within operating activities in the Consolidated Statements of Cash Flows. Based on an analysis of quantitative and qualitative factors in accordance with SEC Staff Accounting Bulletins 99, Materiality and 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , the Company concluded that this error was immaterial to the Consolidated Statements of Cash Flows as presented in the Company’s previously filed Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. There was no impact to the Consolidated Statements of Income and Comprehensive Income, Consolidated Balance Sheets, or Consolidated Statements of Changes in Equity for any periods presented. The revisions to the Consolidated Statements of Cash Flows are reflected for the nine months ended September 30, 2022, included in these financial statements, and will also be reflected in the historical periods included in the Company’s subsequent annual consolidated financial statements. 10 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (continued) The impact of the revisions on the line items within the Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 previously filed in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 is as follows (in thousands): Nine Months Ended September 30, 2022 Operating Activities As Reported Effect of Revision As Revised Manufactured homes $ — ( 6,972 ) $ ( 6,972 ) Other assets, net $ 75,428 ( 75,726 ) $ ( 298 ) Net cash provided by operating activities $ 487,821 ( 82,698 ) $ 405,123 Investing Activities Capital improvements $ ( 268,614 ) 82,698 $ ( 185,916 ) Net cash used in investing activities $ ( 398,884 ) 82,698 $ ( 316,186 ) Note 3 – Leases Lessor The leases entered into between a 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, 2023 2023 $ 31,687 2024 129,794 2025 55,073 2026 24,570 2027 23,096 Thereafter 58,914 Total $ 323,134 11 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 3 – Leases (continued) Lessee We lease land under non-cancelable operating leases at ten Properties expiring on 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 September 30, 2023 and 2022, total operating lease payments were $ 1.6 million and $ 2.7 million, respectively. For the nine months ended September 30, 2023 and 2022, total operating lease payments were $ 4.9 million and $ 8.2 million, respectively. The following table summarizes our minimum future rental payments, excluding variable costs, which are discounted by our incremental borrowing rate to calculate the lease liability for our operating leases as of September 30, 2023: As of September 30, 2023 (amounts in thousands) Ground Leases Office and Other Leases Total 2023 $ 152 $ 1,698 $ 1,850 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 7,405 24,044 31,449 Less imputed interest ( 1,890 ) ( 3,397 ) ( 5,287 ) Total lease liabilities $ 5,515 $ 20,647 $ 26,162 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 $ 24.0 million and $ 26.2 million, respectively, as of September 30, 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 September 30, 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. 12 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 4 – Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per share of common stock (“Common Share”) for the quarters and nine months ended September 30, 2023 and 2022: Quarters Ended September 30, Nine Months Ended September 30, (amounts in thousands, except per share data) 2023 2022 2023 2022 Numerators: Net income available for Common Stockholders – Basic $ 76,969 $ 67,163 $ 222,260 $ 211,578 Amounts allocated to non controlling interest (dilutive securities) 3,772 3,346 10,981 10,563 Net income available for Common Stockholders – Fully Diluted $ 80,741 $ 70,509 $ 233,241 $ 222,141 Denominators: Weighted average Common Shares outstanding – Basic 186,100 185,814 186,008 185,758 Effect of dilutive securities: Exchange of Common OP Units for Common Shares 9,235 9,288 9,246 9,295 Stock options and restricted stock 105 167 160 195 Weighted average Common Shares outstanding – Fully Diluted 195,440 195,269 195,414 195,248 Earnings per Common Share – Basic $ 0.41 $ 0.36 $ 1.19 $ 1.14 Earnings per Common Share – Fully Diluted $ 0.41 $ 0.36 $ 1.19 $ 1.14 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: 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 $ 0.4475 June 30, 2023 June 30, 2023 July 14, 2023 $ 0.4475 September 30, 2023 September 29, 2023 October 13, 2023 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, 2023 and 2022, 131,192 and 34,680 OP Units, respectively, were exchanged for an equal number of shares of Common Stock. Note 6 – Investment in Real Estate Acquisitions 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 nine months ended September 30, 2023, we recorded impairment charges of approximately $ 3.6 million primarily related to flooding events at certain Properties in California. 13 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 7 – Investments in Unconsolidated Joint Ventures The following table summarizes our investments in unconsolidated joint ventures (investment and income/(loss) amounts in thousands with the number of Properties shown parenthetically as of September 30, 2023 and December 31, 2022 , respectively): Investment as of Income/(Loss) for the Nine Months Ended Investment Location Number of Sites Economic Interest (a) September 30, 2023 December 31, 2022 September 30, 2023 September 30, 2022 Meadows Various (2,2) 1,077 50 % $ 407 $ 158 $ 1,649 $ 1,850 Lakeshore Florida (3,3) 721 (b) 3,048 2,625 487 480 Voyager Arizona (1,1) — — % (c) — 139 694 39 ECHO JV Various — 50 % 2,764 2,963 ( 199 ) 843 RVC Various 1,283 80 % (d) 61,805 60,323 ( 297 ) ( 323 ) Mulberry Farms Arizona 200 50 % 10,560 9,902 96 — Hiawassee KOA JV Georgia 283 50 % 5,744 5,294 ( 272 ) — 3,564 $ 84,328 $ 81,404 $ 2,158 $ 2,889 _____________________ (a) The percentages shown approximate our economic interest as of September 30, 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) In March of 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 $ 4.9 million and $ 3.9 million in distributions from our unconsolidated joint ventures for the nine months ended September 30, 2023 and 2022, respectively. Approximately $ 1.4 million and $ 1.7 million of the distributions made to us exceeded our basis in our unconsolidated joint ventures for the nine months ended September 30, 2023 and 2022, respectively, 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 September 30, 2023 As of December 31, 2022 (amounts in thousands) Fair Value Carrying Value Fair Value Carrying Value Mortgage notes payable, excluding deferred financing costs $ 2,116,027 $ 3,032,920 $ 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 September 30, 2023, was approximately 3.7 % per annum. The debt bears interest at stated rates ranging from 2.4 % to 5.1 % per annum and matures on various dates ranging from 2025 to 2041. The debt encumbered a total of 120 and 114 of our Properties as of September 30, 2023 and December 31, 2022, respectively, and the gross carrying value of such Properties was approximately $ 3,167.2 million and $ 2,868.3 million, as of September 30, 2023 and December 31, 2022, respectively. During the quarter ended June 30, 2023, we closed on a secured financing transaction generating gross proceeds of $ 89.0 million. The loan represents an incremental borrowing from an existing secured facility, has a fixed interest rate of 5.04 % per annum and matures in ten years . During the quarter ended September 30, 2023, we closed on three secured financing transactions generating gross proceeds of $ 375.0 million. The loans are secured by 20 MH and RV properties, have a weighted average fixed interest rate of 5.05 % per annum and a weighted average maturity of approximately eight years . 14 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 8 – Borrowing Arrangements (continued) During the quarter ended September 30, 2023, proceeds from the four secured financing transactions were used to repay $ 100.4 million of principal on three mortgage loans that were due to mature in 2023 and 2024 and the remaining outstanding balance on our unsecured line of credit (the “LOC”). The repaid mortgage loans had a weighted average fixed interest rate of 4.94 % per annum and were secured by 14 MH and RV properties. 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 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 September 30, 2023, the Company has no remaining LIBOR based borrowings. The LOC had no outstanding balance and $ 198.0 million outstanding as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, our LOC had a remaining borrowing capacity of $ 500.0 million. As of September 30, 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 September 30, 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 September 30, 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 September 30, As of December 31, (amounts in thousands) Balance Sheet Location 2023 2022 Interest Rate Swaps Other assets, net $ 15,564 $ 19,119 15 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 instruments 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) 2023 2022 (amounts in thousands) 2023 2022 Interest Rate Swaps $ ( 9,364 ) $ ( 18,479 ) Interest Expense $ ( 12,919 ) $ ( 1,527 ) During the next twelve months, we estimate that $ 10.7 million will be reclassified from accumulated other comprehensive income (loss) 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 September 30, 2023, we had not posted any collateral related to the 2021 Swap or 2023 Swap. Note 10 - Deferred Revenue from Membership Upgrade Sales and Deferred Commission Expense The components of the change in deferred revenue from membership upgrades and deferred commission expense were as follows: (amounts in thousands) Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Deferred revenue - upfront payments from membership upgrade sales, beginning $ 185,660 $ 163,957 Membership upgrade sales, gross 28,041 27,771 Revenue recognized from membership upgrade sales upfront payments ( 10,863 ) ( 9,543 ) Net increase in deferred revenue - upfront payments from membership grade sales 17,178 18,228 Deferred revenue - upfront payments from membership upgrade sales, ending (a) $ 202,838 $ 182,185 Deferred commission expense, beginning $ 50,441 $ 47,349 Deferred commission expense 5,850 5,594 Commission expense recognized ( 3,122 ) ( 2,850 ) Net increase in deferred commission expense 2,728 2,744 Deferred commission expense, ending $ 53,169 $ 50,093 _____________________ (a) Included in Deferred membership revenue on the Consolidated Balance Sheets. 16 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 11 – 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. During the quarter ended June 30, 2023, we awarded to certain members of our Board of Directors 60,391 shares of restricted stock at a fair value of approximately $ 4.1 million and options to purchase 8,450 shares of common stock with an exercise price of $ 68.01 . These are time-based awards subject to various vesting dates between October 25, 2023 and April 24, 2026. Stock-based compensation expense, reported in General and administrative expense on the Consolidated Statements of Income and Comprehensive Income, was $ 1.8 million and $ 2.6 million for the quarters ended September 30, 2023 and 2022, respectively, and $ 12.9 million and $ 7.9 million for the nine months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense of $ 12.9 million for the nine months ended September 30, 2023 includes accelerated vesting of stock-based compensation expense of $ 6.3 million recognized during the quarter ended June 30, 2023, as a result of the passing of a member of our Board of Directors. Note 12 – 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. Beginning on August 31, 2023 through October 12, 2023, certain private party plaintiffs filed several putative class actions against Datacomp Appraisal Systems, Inc. (“Datacomp”) and several owner/operators of manufactured housing communities, including ELS (the “Datacomp Litigation”), alleging that the community owner/operators used JLT Market Reports produced by Datacomp to conspire to raise manufactured home lot rents in violation of Section 1 of the Sherman Act. ELS purchased Datacomp in connection with the MHVillage/Datacomp acquisition during the year ended December 31, 2021. We believe that the Datacomp Litigation is without merit, and we intend to vigorously defend our interests in this matter. As of September 30, 2023, we have not made an accrual, as we are unable to predict the outcome of this matter or reasonably estimate any possible loss. Note 13 - 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, 2023 or 2022. 17 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 13 – Reportable Segments (continued) The following tables summarize our segment financial information for the quarters and nine months ended September 30, 2023 and 2022: Quarter Ended September 30, 2023 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 351,243 $ 32,961 $ 384,204 Operations expenses ( 183,579 ) ( 28,502 ) ( 212,081 ) Income from segment operations 167,664 4,459 172,123 Interest income 1,637 631 2,268 Depreciation and amortization ( 48,242 ) ( 2,726 ) ( 50,968 ) Loss on sale of real estate and impairment, net ( 949 ) — ( 949 ) Income from operations $ 120,110 $ 2,364 $ 122,474 Reconciliation to consolidated net income: Corporate interest income 8 Income from other investments, net 2,333 General and administrative ( 9,895 ) Other expenses ( 1,338 ) Interest and related amortization ( 33,434 ) Equity in income of unconsolidated joint ventures 661 Early debt retirement ( 68 ) Consolidated net income $ 80,741 Total assets $ 5,351,993 $ 274,298 $ 5,626,291 Capital improvements $ 79,750 $ 2,420 $ 82,170 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 (1) ( 11,086 ) Other expenses (1) ( 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 $ 49,553 $ 6,026 $ 55,579 ______________________ (1) Prior period amounts have been reclassified to conform to the current period presentation. 18 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 13 – Reportable Segments (continued) Nine Months Ended September 30, 2023 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 1,029,609 $ 85,650 $ 1,115,259 Operations expenses ( 526,052 ) ( 73,559 ) ( 599,611 ) Income from segment operations 503,557 12,091 515,648 Interest income 4,819 1,782 6,601 Depreciation and amortization ( 144,659 ) ( 8,275 ) ( 152,934 ) Loss on sale of real estate and impairment, net ( 3,581 ) — ( 3,581 ) Income from operations $ 360,136 $ 5,598 $ 365,734 Reconciliation to consolidated net income: Corporate interest income 22 Income from other investments, net 6,897 General and administrative ( 38,163 ) Other expenses ( 4,187 ) Interest and related amortization ( 99,144 ) Equity in income of unconsolidated joint ventures 2,158 Early debt retirement ( 68 ) Consolidated net income $ 233,249 Total assets $ 5,351,993 $ 274,298 $ 5,626,291 Capital improvements $ 208,576 $ 22,596 $ 231,172 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 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 (1) ( 34,834 ) Other expenses (1) ( 6,880 ) 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 $ 169,233 $ 16,683 $ 185,916 ________________ (1) Prior period amounts have been reclassified to conform to the current period presentation. 19 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 13 – Reportable Segments (continued) The following table summarizes our financial information for the Property Operations segment for the quarters and nine months ended September 30, 2023 and 2022: Quarters Ended September 30, Nine Months Ended September 30, (amounts in thousands) 2023 2022 2023 2022 Revenues: Rental income $ 299,781 $ 285,272 $ 877,310 $ 837,892 Annual membership subscriptions 16,673 16,254 48,832 47,003 Membership upgrade sales 3,744 3,308 10,863 9,543 Other income 15,658 15,580 51,283 43,316 Gross revenues from ancillary services 15,387 17,794 41,321 46,781 Total property operations revenues 351,243 338,208 1,029,609 984,535 Expenses: Property operating and maintenance 125,081 121,692 357,660 337,363 Real estate taxes 19,017 17,734 56,165 56,373 Membership sales and marketing 5,696 5,937 16,055 15,720 Cost of ancillary services 8,226 9,765 20,562 24,639 Ancillary operating expenses 5,672 5,644 16,900 16,671 Property management 19,887 19,003 58,710 55,973 Total property operations expenses 183,579 179,775 526,052 506,739 Income from property operations segment $ 167,664 $ 158,433 $ 503,557 $ 477,796 The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters and nine months ended September 30, 2023 and 2022: Quarters Ended September 30, Nine Months Ended September 30, (amounts in thousands) 2023 2022 2023 2022 Revenues: Rental income (1) $ 3,553 $ 3,744 $ 11,130 $ 11,519 Gross revenue from home sales and brokered resales 29,408 34,753 74,520 98,156 Total revenues 32,961 38,497 85,650 109,675 Expenses: Rental home operating and maintenance 1,765 1,489 3,883 4,117 Cost of home sales and brokered resales 25,245 30,459 65,318 87,255 Home selling expenses 1,492 1,436 4,358 4,475 Total expenses 28,502 33,384 73,559 95,847 Income from home sales and rentals operations segment $ 4,459 $ 5,113 $ 12,091 $ 13,828 ______________________ (1) 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 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements