EQUITY LIFESTYLE PROPERTIES INC 10-K/A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying footnotes thereto included in this Annual Report on Form 10-K/A. Certain items within this Management’s Discussion and Analysis have been updated as a result of the amendment and restatement of this Annual Report on Form 10-K/A, as described in further detail in the “Explanatory Note.” For further detail regarding the restatement, also see Item 8. Financial Statements and Supplementary Data—Note 3, Restatement of Previously Issued Consolidated Financial Statements and Item 9A. Controls and Procedures. 2022 Accomplishments We continued our strong performance in 2022, as marked by these key operational and financial accomplishments: • Net income available for Common Stockholders was $1.53 per fully diluted share, for the year ended December 31, 2022, 7.0% higher than the year ended December 31, 2021. • Normalized FFO per Common Share on a fully diluted basis was $2.63 for the year ended December 31, 2022, 8.1% higher than the year ended December 31, 2021. • Core portfolio generated growth of 6.1% in income from property operations, excluding property management, for the year ended December 31, 2022, compared to the year ended December 31, 2021. • Core MH base rental income increased by 5.8% during the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase is due to 5.4% growth from rate increases and 0.4% from occupancy gains. • Maintained average Core MH occupancy at 95.1% for the years ended December 31, 2022 and 2021. • Manufactured homeowners within our Core portfolio increased by 637 to 66,069 as of December 31, 2022, compared to 65,432 as of December 31, 2021. • Core RV and marina base rental income for the year ended December 31, 2022 increased by 9.1%, compared to the year ended December 31, 2021. • Combined Core Seasonal and Transient RV base rental income for the year ended December 31, 2022 increased by 9.5% or $11.1 million, compared to the year ended December 31, 2021. • RV Annual occupancy within our Core RV and Thousand Trails portfolios increased by 570 sites during the year ended December 31, 2022, compared to the year ended December 31, 2021. • New home sales of 1,176 for the year ended December 31, 2022, which was the highest in company history. • Acquired four RV communities, one membership RV community, an 80% interest in two joint ventures with RV properties under development, a 50% interest in one joint venture with one RV community, and three land parcels with an aggregate value of approximately $150.9 million. • Added 1,034 expansion sites during the year ended December 31, 2022. • During the year ended December 31, 2022, we entered into a $200.0 million unsecured term loan agreement. The term of the loan is five years and bears interest at a rate of SOFR plus approximately 1.30% to 1.80%, depending on leverage levels. • During the year ended December 31, 2022, we closed on a secured refinancing transaction generating gross proceeds of $200.0 million. The loan is secured by one MH community, has a fixed interest rate of 3.36% per annum and matures in 11 years. • During the year ended December 31, 2022, we entered into our current at-the-market (“ATM”) equity offering program with an aggregate offering price of up to $500.0 million. The full capacity remains available for issuance. Overview and Outlook We are a self-administered and self-managed real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. We are a fully integrated owner of lifestyle-oriented properties (“Properties”) consisting of property operations and home sales and rental operations primarily within manufactured home (“MH”) and recreational vehicle (“RV”) communities and marinas. As of December 31, 2022, we owned or had an ownership interest in a portfolio of 449 Properties located throughout the United States and Canada containing 171,248 individual developed areas (“Sites”). These Properties are located in 35 states and British Columbia, with more than 110 Properties with lake, river or ocean frontage and more than 120 Properties within 10 miles of the coastal United States. 43 Management's Discussion and Analysis (continued) We invest in properties in sought-after locations near retirement and vacation destinations and urban areas across the United States with a focus on delivering an exceptional experience to our residents and guests that results in delivery of value to stockholders. Our business model is intended to provide an opportunity for increased cash flows and appreciation in value. We seek growth in earnings, Funds from Operations (“FFO”) and cash flows by enhancing the profitability and operation of our Properties and investments. We accomplish this by attracting and retaining high quality customers to our Properties, who take pride in our Properties and in their homes and efficiently managing our Properties by increasing occupancy, maintaining competitive market rents and controlling expenses. We also actively pursue opportunities that fit our acquisition criteria and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties. We believe the demand from baby boomers for MH and RV communities will continue to be strong over the long term. It is estimated that approximately 10,000 baby boomers are turning 65 daily through 2030. In addition, the population age 55 and older is expected to grow 17% within the next 15 years. These individuals, seeking an active lifestyle, will continue to drive the market for second-home sales as vacation properties, investment opportunities or retirement retreats. We expect it is likely that over the next decade, we will continue to see high levels of second-home sales and that manufactured homes and cottages in our Properties will continue to provide a viable second-home alternative to site-built homes. We also believe the Millennial and Generation Z demographic will contribute to our future long-term customer pipeline. After conducting a comprehensive study of RV ownership, according to the Recreational Vehicle Industry Association (“RVIA”), data suggested that RV sales are expected to benefit from an increase in demand from those born in the United States from 1980 to 2003, or Millennials and Gen Z, over the coming years. We believe the demand from baby boomers and these younger generations will continue to outpace supply for MH and RV communities. The entitlement process to develop new MH and RV communities is extremely restrictive. As a result, there have been limited new communities developed in our target geographic markets. We generate the majority of our revenues from customers renting our Sites or entering into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays. MH Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. Annual RV and marina Sites are leased on an annual basis to customers who generally have an RV, factory-built cottage, boat or other unit placed on the site, including those Northern properties that are open for the summer season. Seasonal RV and marina Sites are leased to customers generally for one to six months. Transient RV and marina Sites are leased to customers on a short-term basis. The revenue from seasonal and transient Sites is generally higher during the first and third quarters. We consider the transient revenue stream to be our most volatile as it is subject to weather conditions and other factors affecting the marginal RV customer’s vacation and travel preferences. We also generate revenue from customers renting our marina dry storage. Additionally, we have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures on the Consolidated Statements of Income and Comprehensive Income. Approximately one quarter of our rental agreements on MH Sites contain rent increase provisions that are directly or indirectly connected to the published CPI statistics issued from June through September of the year prior to the increase effective date. Approximately two-thirds of these rental agreements are subject to a CPI floor of approximately 3.0% to 5.0%. State and local rent control regulations affect 26 wholly-owned Properties, including 14 of our 47 California Properties, all 7 of our Delaware Properties, 1 of our 5 Massachusetts Properties, 1 of our 7 New York Properties and 3 of our 11 Oregon Properties. These rent control regulations govern rent increases and generally permit us to increase rates by a percentage of the increase in the national, regional or local CPI, depending on the rent control ordinance. These rate increases generally range from 60.0% to 100.0% of CPI with certain limits depending on the jurisdiction. The following table shows the breakdown of our Sites by type (amounts are approximate): Total Sites as of December 31, 2022 MH Sites 72,700 RV Sites: Annual 34,300 Seasonal 12,700 Transient 15,200 Marina Slips 6,900 Membership (1) 25,800 Joint Ventures (2) 3,600 Total (3) 171,200 ____________________________________ (1) Primarily utilized to service the approximately 128,400 members. Includes approximately 6,400 Sites rented on an annual basis. (2) Includes approximately 2,000 annual Sites and 1,600 transient Sites. 44 Management's Discussion and Analysis (continued) (3) Total does not foot due to rounding. Membership Sites are primarily utilized to service approximately 128,400 annual subscription members, including 26,000 free trial members added through our RV dealer program. The remaining 102,400 have purchased a Thousand Trails Camping (“TTC”) membership, which is an annual subscription providing the member access to our Properties in one to five geographic regions of the United States. In 2022, a TTC membership for a single geographic region required an annual payment of $630. In addition, members are eligible to upgrade their subscriptions. A membership upgrade may offer (1) increased length of consecutive stay by 50% (i.e., up to 21 days); (2) ability to make earlier advance reservations; (3) discounts on rental units; (4) access to additional Properties, which may include use of Sites at non-membership RV communities, or (5) membership in discount travel programs. Each membership upgrade requires a non-refundable upfront payment, for which we offer financing options to eligible customers. As a customer acquisition tool, we have relationships with a network of RV dealers to provide each new RV owner with a free one-year trial subscription to a TTC membership. In our Home Sales and Rentals Operations business, our revenue streams include home sales, home rentals and brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing manufactured homes and cottages that are located in Properties owned and managed by us. We believe renting our vacant homes represents an attractive source of occupancy and an opportunity to convert the renter to a homebuyer in the future. Additionally, home sale brokerage services are offered to our residents who may choose to sell their homes rather than relocate them when moving from a Property. At certain Properties, we operate ancillary facilities, such as golf courses, pro shops, stores and restaurants. In the manufactured housing industry, options for home financing, also known as chattel financing, are limited. Chattel financing options available today include community owner-funded programs or third-party lender programs that provide subsidized financing to customers and often require the community owner to guarantee customer defaults. Third-party lender programs have stringent underwriting criteria, sizable down payment requirements, short term loan amortization and high interest rates. We have a limited program under which we purchase loans made by an unaffiliated lender to homebuyers at our Properties. Under the existing administration, the Federal Housing Finance Agency (the “FHFA”), overseer of Fannie Mae, Freddie Mac (the “GSEs”) and the Federal Home Loan Banks, has focused on equitable access to affordable and sustainable housing. In 2017, the FHFA published the Underserved Markets Plans for 2018-2020 (the “GSE Plans”) under the Duty-To-Serve (“DTS”) provisions mandated by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. The GSEs subsequently added a 2021 Plan as a one-year extension and have since published their current 2022-2024 Plans. The FHFA mandate requires the GSE Plans to address leadership in developing loan products and flexible underwriting guidelines in underserved markets to facilitate a secondary market for mortgages on manufactured homes titled as real property or personal property, blanket loans for certain categories of manufactured housing communities, preserving the affordability of housing for renters and homebuyers, and housing in rural markets. While the FHFA and the current GSE 2022-24 DTS Plans may have a positive impact on the ability of our customers to obtain chattel financing, the actual impact on us, as well as the industry, cannot be determined at this time. In addition to net income computed in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we assess and measure our overall financial and operating performance using certain Non-GAAP supplemental measures, which include: (i) FFO, (ii) Normalized FFO, (iii) Income from property operations, (iv) Income from property operations, excluding property management, and (v) Core Portfolio income from property operations, excluding property management (operating results for Properties owned and operated in both periods under comparison). We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Definitions and reconciliations of these measures to the most comparable GAAP measures are included below in this discussion. COVID-19 Pandemic Update On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a pandemic. Since the COVID-19 pandemic began, we have taken actions to prioritize the safety and security of our employees, residents and customers, while maintaining our high-quality standards in service to our residents and customers. Our Properties continue to be open subject to seasons of operations and state and local guidelines. Our property offices are open to residents and customers and we are complying with Center for Disease Control and Prevention recommended protocols. 45 Management's Discussion and Analysis (continued) While the pandemic and related government measures, including the temporary closure of the Canadian border, adversely impacted our business in certain prior periods, we have experienced strong demand across our business in 2022, particularly in our RV portfolio. For additional details, see Results Overview. We attribute the solid performance of our business to the fundamentals of our business model. The property locations and the lifestyle we offer have broad appeal to customers interested in enjoying an outdoor experience. We intend to continue to monitor the situation and we may take further actions that alter our business operations as may be required and that are in the best interests of our employees, residents, customers and shareholders. The extent of the impact that COVID-19 will have on our business going forward, including our financial condition, results of operations and cash flows, is dependent on multiple factors, many of which are unknown. For additional details, see Item 1A. Risk Factors. Results Overview For the year ended December 31, 2022, net income available for Common Stockholders increased $22.1 million, or $0.10 per fully diluted Common Share, to $284.6 million, or $1.53 per fully diluted Common Share, compared to $262.5 million, or $1.43 per fully diluted Common Share, for the same period in 2021. For the year ended December 31, 2022, FFO available for Common Stock and OP Unit holders increased $39.5 million,or $0.18 per fully diluted Common Share, to $505.1 million, or $2.59 per fully diluted Common Share, compared to $465.6 million, or $2.41 per fully diluted Common Share, for the same period in 2021. For the year ended December 31, 2022, Normalized FFO available for Common Stock and OP Unit holders increased $44.1 million, or $0.20 per fully diluted Common Share, to $513.1 million, or $2.63 per fully diluted Common Share, compared to $469.0 million, or $2.43 per fully diluted Common Share, for the same period in 2021. Hurricane Ian made landfall on the west coast of Florida on September 28, 2022. For the majority of our Florida Properties, the impact was limited to flooding, wind, wind-blown debris and falling trees and branches. These properties have resumed operations. The most significant damage to our Properties occurred in or near the Fort Myers area. Six of our Properties in or near this market experienced utility disruptions. The properties include four RV parks and two marinas with a total of 2,100 sites/slips. During the storm, the four RV properties experienced strong winds as well as significant flooding, including from unprecedented storm surges that resulted in damage to certain common area buildings, utility infrastructure and residents’ homes. The two marinas suffered wind related building damage and the process of restoring the buildings has begun. Four of the six properties have resumed operations and two are expected to resume operations by the third quarter of 2023. During the year ended December 31, 2022, we recognized $40.6 million of expenses for debris removal and cleanup costs related to Hurricane Ian and an offsetting insurance recovery revenue accrual of $40.6 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. In addition, during the year ended December 31, 2022, we recorded a $5.4 million reduction to the carrying value of certain assets and an offsetting insurance recovery revenue of $5.4 million as a result of Hurricane Ian, which is included in Gain/(loss) on sale of real estate and impairment, net in the Consolidated Statements of Income and Comprehensive Income. We believe we have adequate insurance coverage, subject to deductibles, including business interruption though we are unable to predict the timing or amount of insurance recovery. As of February 21, 2023, we have received $19.7 million in proofs of loss from our insurance carriers in connection with our initial claim submissions. Our Core Portfolio could change from time-to-time depending on acquisitions, dispositions and significant transactions or unique situations. Our Core Portfolio in 2022 and 2021 includes all Properties acquired prior to December 31, 2020 that we have owned and operated continuously since January 1, 2021. During the quarter ended December 31, 2022, operations at our Fort Myers Beach, Gulf Air, Pine Island, and Ramblers Rest properties were interrupted as a result of Hurricane Ian, therefore we designated them as Non-core properties. This change is reflected throughout the Results Overview . For the year ended December 31, 2022, property operating revenues in our Core Portfolio increased 6.5% and property operating expenses in our Core Portfolio, excluding property management, increased 7.2%, from the year ended December 31, 2021, resulting in an increase in income from property operations, excluding property management, of 6.1%. While we continue to focus on increasing the number of manufactured homeowners in our Core Portfolio, we also believe renting our vacant homes represents an attractive source of occupancy and an opportunity to potentially convert the renter to a new homebuyer in the future. We continue to expect there to be fluctuations in the sources of occupancy gains depending on local market conditions, availability of vacant sites and success with converting renters to homeowners. Our Core Portfolio average occupancy, including both homeowners and renters, in our MH communities was 95.1% for each of the years ended December 31, 2022 and December 31, 2021. For the year ended December 31, 2022, our Core Portfolio occupancy decreased by 15 sites with an increase in homeowner occupancy of 637 sites and a decrease in rental occupancy of 652. In addition to maintaining occupancy, we have experienced rental rate increases during the year ended December 31, 2022, contributing to a growth of 5.4% in MH rental income compared to the same period in 2021. 46 Management's Discussion and Analysis (continued) RV and marina base rental income in our Core Portfolio for the year ended December 31, 2022, was 9.1% higher than the same period in 2021 and was driven by an increase in annual and seasonal revenues. Core RV and marina base rental income from annuals represents more than 60% of total Core RV and marina base rental income and increased 8.8% for the year ended December 31, 2022 compared to the same period in 2021. Core seasonal RV and marina base rental income increased 38.6% for the year ended December 31, 2022 compared to the same period in 2021. Core transient RV and marina base rental income decreased $3.4 million or 4.3%, for the year ended December 31, 2022 compared to the same period in 2021. We continue to experience strong performance in our membership base within our Thousand Trails portfolio. For the year ended December 31, 2022, annual membership subscriptions revenue increased 8.5% over the same period in 2021. During the year ended December 31, 2022, we sold 23,237 TTC memberships and activated 28,178 TTC memberships through our RV dealer program. The following table provides additional details regarding our TTC memberships for the past five years: 2022 2021 2020 2019 2018 TTC Origination 51,415 50,523 44,129 41,484 37,528 TTC Sales 23,237 23,923 20,587 19,267 17,194 RV Dealer TTC Activations 28,178 26,600 23,542 22,217 20,334 Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels. During 2022, we continued to experience an all-time high for new home sales with 1,176 new home sales during the year ended December 31, 2022, compared to 1,163 new home sales during the year ended December 31, 2021. The increase in new home sales was primarily due to favorable housing trends and timing of the availability of home inventory ready for sale. As of December 31, 2022, we had 2,811 occupied rental homes in our Core MH communities. Approximately $27.7 million and $31.5 million of rental operations revenue related to Site rental was included in MH base rental income in our Core Portfolio for the years ended December 31, 2022 and December 31, 2021, respectively. Our gross investment in real estate increased $380.5 million to $7,369.6 million as of December 31, 2022, from $6,989.1 million as of December 31, 2021, primarily due to new acquisitions as well as capital improvements during the year ended December 31, 2022. 47 Management's Discussion and Analysis (continued) Property Acquisitions/Dispositions and Joint Ventures The following chart lists the Properties acquired or sold from January 1, 2021 through December 31, 2022 and Sites added through expansion opportunities at our existing Properties. Location Type of Property Transaction Date Sites Total Sites as of January 1, 2021 (1) (2) 160,500 Acquisition Properties: Okeechobee KOA Resort Okeechobee, Florida RV January 21, 2021 740 Cortez Village Marina Cortez, Florida Marina February 5, 2021 353 Fish Tale Marina Fort Myers Beach, Florida Marina February 5, 2021 296 Hi-Lift Marina Adventure, Florida Marina February 5, 2021 211 Hidden Harbour Marina Pompano Beach, Florida Marina February 5, 2021 357 Inlet Harbor Marina Ponce Inlet, Florida Marina February 5, 2021 295 Palm Harbour Marina Cape Haze, Florida Marina February 5, 2021 260 Riverwatch Marina Stuart, Florida Marina February 5, 2021 306 Boathouse Marina Beaufort, North Carolina Marina February 5, 2021 547 Dale Hollow State Park Marina Burkesville, Kentucky Marina February 5, 2021 198 Bay Point Marina Marblehead, Ohio Marina February 5, 2021 841 Rivers Edge Marina North Charleston, South Carolina Marina February 5, 2021 503 Pine Haven Cape May, New Jersey RV June 3, 2021 629 Myrtle Beach Property (3) Myrtle Beach, South Carolina RV August 26, 2021 813 Voyager RV Resort (4) Tucson, Arizona RV October 14, 2021 — RVC Portfolio (5) Multiple Unconsolidated JV November 1, 2021 988 Hope Valley Turner, Oregon RV November 18, 2021 164 Lake Conroe KOA Montgomery, Texas RV December 15, 2021 261 Blue Mesa Recreational Ranch Gunnison, Colorado Membership February 18, 2022 385 Pilot Knob RV Resort Winterhaven, California RV February 18, 2022 247 Holiday Trav-L-Park Resort Emerald Isle, North Carolina RV June 15, 2022 299 Oceanside RV Resort Oceanside, California RV June 16, 2022 139 Hiawasee KOA JV Hiawassee, Georgia Unconsolidated JV November 10, 2022 283 Whippoorwill Campground Marmora, New Jersey RV December 20, 2022 288 Expansion Site Development: Sites added (reconfigured) in 2021 1,037 Sites added (reconfigured) in 2022 1,034 Total Sites as of December 31, 2022 (2) 171,200 ____________________________________ (1) Includes the marina slips. (2) Sites are approximate. (3) RV community operated by a tenant pursuant to an existing ground lease (See Item 8. Financial Statements and Supplementary Data — Note 7. Investment in Real Estate). (4) On October 14, 2021, we completed the acquisition of the remaining interest in the Voyager joint venture (See Item 8. Financial Statements and Supplementary Data — Note 7. Investment in Real Estate). The Voyager joint venture sites were previously included in the Total Sites as of January 1, 2021. (5) During the year ended December 31, 2022 we made investments in two additional joint ventures with RVC Outdoor Destinations. The joint ventures each have one property under development. 48 Management's Discussion and Analysis (continued) Markets The following table identifies our largest markets by number of Sites and provides information regarding our Properties (excluding fourteen Properties owned through our Joint Ventures). Major Market Total Sites Number of Properties Percent of Total Sites Percent of Total Property Operating Revenue Florida 64,039 151 38.2 % 44.3 % Northeast 21,683 58 12.9 % 11.1 % Arizona 19,121 43 11.4 % 10.2 % California 13,440 47 8.0 % 11.7 % Southeast 12,991 34 7.7 % 5.7 % Midwest 12,474 31 7.4 % 5.4 % Texas 10,336 20 6.2 % 2.7 % Northwest 6,457 26 3.9 % 3.2 % Colorado 3,829 11 2.3 % 3.3 % Other 3,314 14 2.0 % 2.4 % Total 167,684 435 100.0 % 100.0 % Qualification as a REIT Commencing with our taxable year ended December 31, 1993, we have elected to be taxed as a REIT for U.S. federal income tax purposes. We believe we have met the requirements and have qualified for taxation as a REIT and we plan to continue to meet these requirements. The requirements for qualification as a REIT are highly technical and complex, as they pertain to the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. Examples include that at least 95% of our gross income must come from sources that are itemized in the REIT tax laws and at least 90% of our REIT taxable income, computed without regard to our deduction for dividends paid and our net capital gain, must be distributed to stockholders annually. If we fail to qualify as a REIT and are unable to correct such failure, we would be subject to U.S. federal income tax at regular corporate rates. Additionally, we could remain disqualified as a REIT for four years following the year we first failed to qualify. Even if we qualify for taxation as a REIT, we are subject to certain foreign, state and local taxes on our income and property and U.S. federal income and excise taxes on our undistributed income. Non-GAAP Financial Measures Management’s discussion and analysis of financial condition and results of operations include certain Non-GAAP financial measures that in management’s view of the business are meaningful as they allow investors the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative of recurring annual cash flow of the portfolio. These Non-GAAP financial measures as determined and presented by us may not be comparable to similarly titled measures reported by other companies and include income from property operations and Core Portfolio, FFO and Normalized FFO. We believe investors should review Income from property operations and Core Portfolio, FFO and Normalized FFO, along with GAAP net income and cash flows from operating activities, investing activities and financing activities, when evaluating an equity REIT’s operating performance. A discussion of Income from property operations and Core Portfolio, FFO, and Normalized FFO and a reconciliation to net income, are included below. Income from Property Operations and Core Portfolio We use income from property operations, income from property operations, excluding property management and Core Portfolio income from property operations, excluding property management, as alternative measures to evaluate the operating results of our Properties. Income from property operations represents rental income, membership subscriptions and upgrade sales, utility and other income less property and rental home operating and maintenance expenses, real estate taxes, membership sales and marketing expenses and property management expenses. Income from property operations, excluding property management, represents income from property operations excluding property management expenses. Property management represents the expenses associated with indirect costs such as off-site payroll and certain administrative and professional expenses. We believe exclusion of property management expenses is helpful to investors and analysts as a measure of the operating results of our properties, excluding items that are not directly related to the operation of the properties. For comparative purposes, we present bad debt expense within Property operating and maintenance in the current and prior periods. 49 Management's Discussion and Analysis (continued) We believe that this Non-GAAP financial measure is helpful to investors and analysts as a measure of the operating results of our properties. Our Core Portfolio consists of our Properties owned and operated during all of 2021 and 2022. Core Portfolio income from property operations, excluding property management, is useful to investors for annual comparison as it removes the fluctuations associated with acquisitions, dispositions and significant transactions or unique situations. Our Non-Core Portfolio includes all Properties that were not owned and operated during all of 2021 and 2022. This includes, but is not limited to, six properties and eleven marinas acquired during 2021, four RV communities and one membership RV community acquired during 2022 and our Westwinds MH community and an adjacent shopping center. The ground leases with respect to Westwinds and the adjacent shopping center terminated on August 31, 2022. The Non-Core properties also include Fort Myers Beach, Gulf Air, Pine Island, and Ramblers Rest. Funds from Operations ( “ FFO ” ) and Normalized Funds from Operations ( “ Normalized FFO ” ) We define FFO as net income, computed in accordance with GAAP, excluding gains or losses from sales of properties, depreciation and amortization related to real estate, impairment charges and adjustments to reflect our share of FFO of unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with our interpretation of standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We believe FFO, as defined by the Board of Governors of NAREIT, is generally a measure of performance for an equity REIT. While FFO is a relevant and widely used measure of operating performance for equity REITs, it does not represent cash flow from operations or net income as defined by GAAP, and it should not be considered as an alternative to these indicators in evaluating liquidity or operating performance. We define Normalized FFO as FFO excluding non-operating income and expense items such as gains and losses from early debt extinguishment, including prepayment penalties, defeasance costs, transaction/pursuit costs, and other miscellaneous non-comparable items. Normalized FFO presented herein is not necessarily comparable to Normalized FFO presented by other real estate companies due to the fact that not all real estate companies use the same methodology for computing this amount. We believe that FFO and Normalized FFO are helpful to investors as supplemental measures of the performance of an equity REIT. We believe that by excluding the effect of gains or losses from sales of properties, depreciation and amortization related to real estate and impairment charges, which are based on historical costs and may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. We further believe that Normalized FFO provides useful information to investors, analysts and our management because it allows them to compare our operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences not related to our normal operations. For example, we believe that excluding the early extinguishment of debt and other miscellaneous non-comparable items from FFO allows investors, analysts and our management to assess the sustainability of operating performance in future periods because these costs do not affect the future operations of the properties. In some cases, we provide information about identified non-cash components of FFO and Normalized FFO because it allows investors, analysts and our management to assess the impact of those items. Our definitions and calculations of these Non-GAAP financial and operating measures and other terms may differ from the definitions and methodologies used by other REITs and accordingly, may not be comparable. These Non-GAAP financial and operating measures do not represent cash generated from operating activities in accordance with GAAP, nor do they represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flows from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions. 50 Management's Discussion and Analysis (continued) The following table reconciles net income available for Common Stockholders to income from property operations for the years ended December 31, 2022, 2021 and 2020: Total Portfolio (amounts in thousands) 2022 2021 2020 Computation of Income from Property Operations: Net income available for Common Stockholders $ 284,611 $ 262,462 $ 228,268 Redeemable preferred stock dividends 16 16 16 Income allocated to non-controlling interests – Common OP Units 14,198 13,522 13,132 Equity in income of unconsolidated joint ventures (3,363) (3,881) (5,399) Income before equity in income of unconsolidated joint ventures 295,462 272,119 236,017 Loss on sale of real estate and impairment, net — 59 — Total other expenses, net 357,600 332,192 299,351 (Gain)/loss from home sales operations and other (13,846) (8,356) 3,046 Income from property operations $ 639,216 $ 596,014 $ 538,414 The following table presents a calculation of FFO available for Common Stock and OP Unitholders and Normalized FFO available for Common Stock and OP Unitholders for the years ended December 31, 2022, 2021 and 2020: (amounts in thousands) 2022 2021 2020 Computation of FFO and Normalized FFO: Net income available for Common Stockholders $ 284,611 $ 262,462 $ 228,268 Income allocated to non-controlling interests – Common OP Units 14,198 13,522 13,132 Depreciation and amortization 202,362 188,444 155,131 Depreciation on unconsolidated joint ventures 3,886 1,083 727 Gain on unconsolidated joint ventures — — (1,229) Loss on sale of real estate and impairment, net (1) — 59 — FFO available for Common Stock and OP Unit holders 505,057 465,570 396,029 Early debt retirement 1,156 2,784 10,786 Transaction/pursuit costs (2) 3,807 598 — Lease termination expenses 3,119 — 1,446 Normalized FFO available for Common Stock and OP Unit holders $ 513,139 $ 468,952 $ 408,261 Weighted average Common Shares outstanding—Fully Diluted 195,255 192,883 192,555 _____________________ (1) Reflects a $5.4 million reduction to the carrying value of certain assets and insurance recovery revenue of $5.4 million as a result of Hurricane Ian for the year ended December 31, 2022. (2) Represents transaction/pursuit costs related to unconsummated acquisitions included in Other expenses in the Consolidated Statements of Income. (3) Represents non-operating expenses associated with the Westwinds ground leases that terminated on August 31, 2022 and is included in General and Administrative expenses in the Consolidated Statement of Income. 51 Management's Discussion and Analysis (continued) Results of Operations This section discusses the comparison of our results of operations for the years ended December 31, 2022 and December 31, 2021. Our Core Portfolio could change from time-to-time depending on acquisitions, dispositions and significant transactions or unique situations. Our Core Portfolio in 2022 and 2021 includes all Properties acquired prior to December 31, 2020 that we have owned and operated continuously since January 1, 2021. During the year ended December 31, 2022, operations at our Fort Myers Beach, Gulf Air, Pine Island, and Ramblers Rest properties were interrupted as a result of Hurricane Ian, therefore we designated them as Non-core properties. This change is reflected in the results of operations for the comparison of the year ended December 31, 2022 to the year ended December 31, 2021. For the comparison of our results of operations for the years ended December 31, 2021 and December 31, 2020 and discussion of our operating activities, investing activities and financing activities for these years, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 22, 2022. Income from Property Operations The following table summarizes certain financial and statistical data for our Core Portfolio and total portfolio: Core Portfolio Total Portfolio (amounts in thousands) 2022 2021 Variance % Change 2022 2021 Variance % Change MH base rental income (1) $ 625,989 $ 591,725 $ 34,264 5.8 % $ 633,958 $ 603,066 $ 30,892 5.1 % Rental home income (1) 15,198 16,672 (1,474) (8.8) % 15,244 16,696 (1,452) (8.7) % RV and marina base rental income (1) 352,727 323,391 29,336 9.1 % 409,615 362,818 46,797 12.9 % Annual membership subscriptions 62,502 58,122 4,380 7.5 % 63,215 58,251 4,964 8.5 % Membership upgrades sales (2) 11,681 11,121 560 5.0 % 12,958 11,191 1,767 15.8 % Utility and other income (1) 105,279 100,363 4,916 4.9 % 120,750 108,543 12,207 11.2 % Property operating revenues 1,173,376 1,101,394 71,982 6.5 % 1,255,740 1,160,565 95,175 8.2 % Property operating and maintenance (1)(3) 409,067 378,869 30,198 8.0 % 442,586 401,506 41,080 10.2 % Real estate taxes 67,130 64,572 2,558 4.0 % 74,145 72,671 1,474 2.0 % Rental home operating and maintenance 5,367 5,674 (307) (5.4) % 5,393 5,727 (334) (5.8) % Membership sales and marketing (4) 19,684 18,619 1,065 5.7 % 20,317 18,668 1,649 8.8 % Property operating expenses, excluding property management 501,248 467,734 33,514 7.2 % 542,441 498,572 43,869 8.8 % Income from property operations, excluding property management (5) 672,128 633,660 38,468 6.1 % 713,299 661,993 51,306 7.8 % Property management 74,083 65,975 8,108 12.3 % 74,083 65,979 8,104 12.3 % Income from property operations (5) 598,045 567,685 30,360 5.3 % 639,216 596,014 43,202 7.2 % ____________________________________ (1) Rental income consists of the following total portfolio income items in this table: 1) MH base rental income, 2) Rental home income, 3) RV and marina base rental income and 4) Utility income, which is calculated by subtracting Other income on the Consolidated Statements of Income and Comprehensive Income from Utility and other income in this table. The difference between the sum of the total portfolio income items and Rental income on the Consolidated Statements of Income and Comprehensive Income is bad debt expense, which is presented in Property operating and maintenance expense in this table. (2) Membership upgrade sales revenue is net of deferrals of $21.7 million and $25.1 million for the for the years ended December 31, 2022 and December 31, 2021, respectively. (3) Includes bad debt expense for all periods presented. (4) Membership sales and marketing expense is net of sales commission deferrals of $3.2 million and $5.1 million for the years ended December 31, 2022 and December 31, 2021, respectively. (5) See Non-GAAP Financial Measures section of the Management’s Discussion and Analysis for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders. Total portfolio income from property operations for 2022 increased $43.2 million, or 7.2%, from 2021, driven by an increase of $30.4 million, or 5.3%, from our Core Portfolio and an increase of $12.8 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily due to higher property operating revenues, primarily in MH base rental income and RV and marina base rental income, partially offset by an increase in property operating expenses, excluding property management. The increase in income from property operations from our Non-Core Portfolio was attributed to income from properties acquired in the fourth quarter of 2021 and during the year ended December 31, 2022. The increase in income from property operations from our Non-Core Portfolio was primarily attributed to income from properties acquired throughout 2021 and 2022. 52 Management's Discussion and Analysis (continued) Property Operating Revenues MH base rental income in our Core Portfolio for 2022 increased $34.3 million, or 5.8%, from 2021, which reflects 5.4% growth from rate increases and 0.4% growth from occupancy gains. The average monthly base rental income per Site in our Core portfolio increased to approximately $757 in 2022 from approximately $718 in 2021. The average occupancy in our Core Portfolio was 95.1% in both 2022 and 2021. RV and marina base rental income is comprised of the following: Core Portfolio Total Portfolio (amounts in thousands) 2022 2021 Variance % Change 2022 2021 Variance % Change Annual $ 224,647 $ 206,405 $ 18,242 8.8 % $ 266,100 $ 237,204 $ 28,896 12.2 % Seasonal 52,103 37,590 14,513 38.6 % 58,874 41,742 17,132 41.0 % Transient 75,977 79,396 (3,419) (4.3) % 84,641 83,872 769 0.9 % RV and marina base rental income $ 352,727 $ 323,391 $ 29,336 9.1 % $ 409,615 $ 362,818 $ 46,797 12.9 % Annual RV and marina base rental income increased during the year ended December 31, 2022, from the year ended December 31, 2021, across all regions and was due to increases in rate and occupancy. The increase in Seasonal RV and marina base rental income was driven by increases in the South and West regions during the first quarter of 2022, as these regions were adversely impacted in 2021 by travel restrictions resulting from COVID-19, in particular from the closure of the Canadian border. The decrease in Transient RV and marina base rental income was primarily due to a decrease in transient RV revenue as a result of a reduction in the number of Transient Sites available. Utility and other income in our Core Portfolio for 2022 increased $4.9 million, or 4.9%, from 2021. The increase was primarily due to higher utility income of $6.1 million and pass-through income of $1.7 million, partially offset by lower other property income of $2.9 million. Utility income increased across all utility types. The increase in pass-through income was primarily due to increases in real estate taxes based on tax assessment notices received in the prior year. The decrease in other property income is primarily related to Hurricane Hanna insurance proceeds received in 2021. Property Operating Expenses Property operating expenses, excluding property management, in our Core Portfolio for 2022 increased $33.5 million, or 7.2%, from 2021, primarily due to increases in property operating and maintenance expenses of $30.2 million and real estate taxes of $2.6 million. Property operating and maintenance expenses were higher in 2022, primarily due to increases in utility expenses of $13.3 million, property payroll expenses of $7.7 million, repair and maintenance expenses of $5.8 million and insurance and other expenses of $3.1 million. 53 Management's Discussion and Analysis (continued) Home Sales and Other The following table summarizes certain financial and statistical data for our Home Sales and Other Operations: (amounts in thousands, except home sales volumes) 2022 2021 Variance % Change Gross revenue from new home sales (1) $ 116,790 $ 94,160 $ 22,630 24.0 % Cost of new home sales (1) 104,684 88,404 16,280 18.4 % Gross revenue from used home sales 4,401 4,297 104 2.4 % Cost of used home sales 4,212 5,910 (1,698) (28.7) % Gross revenue from brokered resales and ancillary services 58,988 54,060 4,928 9.1 % Cost of brokered resales and ancillary services 30,116 26,309 3,807 14.5 % Home selling and ancillary operating expenses 27,321 23,538 3,783 16.1 % Home sales volumes: New home sales (2) 1,176 1,163 13 1.1 % New Home Sales Volume - ECHO JV 78 82 (4) (4.9) % Used home sales 337 432 (95) (22.0) % Brokered home resales 808 735 73 9.9 % __________________________ (1) New home sales gross revenue and costs of new home sales do not include the revenue and costs associated with our ECHO JV. (2) Total new home sales volume includes home sales from our ECHO JV through December 22, 2022. On December 22, 2022, we completed the purchase of all homes held by the ECHO JV. Gross revenues from new home sales increased $22.6 million and Cost of new home sales increased $16.3 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to an increase in the number of new homes sold and an increase in the average sales price during the year ended December 31, 2022, compared to the year ended December 31, 2021. Rental Operations The following table summarizes certain financial and statistical data for our MH Rental Operations: (amounts in thousands, except rental unit volumes) 2022 2021 Variance % Change Rental operations revenue (1) $ 42,871 $ 48,202 $ (5,331) (11.1) % Rental home operating and maintenance 5,367 5,674 (307) (5.4) % Depreciation on rental homes (2) 10,060 10,548 (488) (4.6) % Gross investment in new manufactured home rental units (3) $ 237,816 $ 226,761 $ 11,055 4.9 % Gross investment in used manufactured home rental units $ 14,685 $ 16,100 $ (1,415) (8.8) % Net investment in new manufactured home rental units $ 196,053 $ 184,539 $ 11,514 6.2 % Net investment in used manufactured home rental units $ 8,210 $ 8,700 $ (490) (5.6) % Number of occupied rentals – new, end of period 2,481 3,038 (557) (18.3) % Number of occupied rentals—used, end of period 330 424 (94) (22.2) % _____________________ (1) Consists of Site rental income and home rental income. Approximately $27.7 million and $31.5 million for the years ended December 31, 2022 and December 31, 2021, respectively, of Site rental income is included in MH base rental income in the Core Portfolio Income from Property Operations table. The remainder of home rental income is included in rental home income in our Core Portfolio Income from Property Operations table. (2) Presented in Depreciation and amortization in the Consolidated Statements of Income and Comprehensive Income. (3) New home cost basis in 2021 does not include the costs associated with our ECHO JV. On December 22, 2022, we completed the acquisition of all manufactured homes held by the ECHO joint venture for a purchase price of $10.0 million. 54 Management's Discussion and Analysis (continued) Other Income and Expenses The following table summarizes other income and expenses: (amounts in thousands, expenses shown as negative) 2022 2021 Variance % Change Depreciation and amortization $ (202,362) $ (188,444) $ (13,918) (7.4) % Interest income 7,430 7,016 414 5.9 % Income from other investments, net 8,553 4,555 3,998 87.8 % General and administrative (44,857) (39,576) (5,281) (13.3) % Other expenses (8,646) (4,241) (4,405) (103.9) % Early debt retirement (1,156) (2,784) 1,628 58.5 % Interest and related amortization (116,562) (108,718) (7,844) (7.2) % Total other income and expenses, net $ (357,600) $ (332,192) $ (25,408) (7.6) % Total other income and expenses, net increased $25.4 million in 2022 compared to 2021, primarily due to higher depreciation and amortization, interest and related amortization expenses, general and administrative and other expenses. The increase in depreciation and amortization was due to depreciation on Non-Core properties acquired throughout 2021 and 2022. The increase in interest and related amortization is due to higher debt levels in 2022 compared to 2021. The increase in general and administrative expenses was primarily due to non-operating costs associated with the Westwinds ground leases that terminated on August 31, 2022. The increase in other expenses was primarily due to transaction/pursuit costs of $3.8 million related to unconsummated transactions. Casualty related charges/(recoveries), net During the year ended December 31, 2022, we recorded $40.6 million of expenses for debris removal and cleanup costs and an offsetting insurance recovery revenue accrual of $40.6 million related to related to the expected insurance recovery as a result of Hurricane Ian. For additional information see Results Overview. Loss on sale of real estate and impairment, net During the year ended December 31, 2022, we recorded a $5.4 million reduction to the carrying value of certain assets as a result of property damage caused by Hurricane Ian and offsetting insurance recovery revenue of $5.4 million for the expected recovery from this loss. For additional information see Results Overview . Liquidity and Capital Resources Liquidity Our primary demands for liquidity include payment of operating expenses, dividend distributions, debt service, including principal and interest, capital improvements on Properties, home purchases and property acquisitions. We expect similar demand for liquidity will continue for the short-term and long-term. Our primary sources of cash include operating cash flows, proceeds from financings, borrowings under our unsecured Line of Credit (“LOC”) and proceeds from issuance of equity and debt securities. One of our stated objectives is to maintain financial flexibility. Achieving this objective allows us to take advantage of strategic opportunities that may arise. When investing capital, we consider all potential uses, including returning capital to our stockholders or the conditions under which we may repurchase our stock. These conditions include, but are not limited to, market price, balance sheet flexibility, alternative opportunistic capital uses and capital requirements. We believe effective management of our balance sheet, including maintaining various access points to raise capital, managing future debt maturities and borrowing at competitive rates, enables us to meet this objective. Accessing long-term secured debt continues to be our focus. Total secured debt encumbered a total of 114 and 117 of our Properties as of December 31, 2022 and December 31, 2021, respectively, and the gross carrying value of such Properties was approximately $2,868.3 million and $2,817.5 million, as of December 31, 2022 and December 31, 2021, respectively. As of December 31, 2022, we have available liquidity in the form of approximately 413.9 million shares of authorized and unissued common stock, par value $0.01 per share and 10.0 million shares of authorized and unissued preferred stock registered for sale under the Securities Act of 1933, as amended. 55 Management's Discussion and Analysis (continued) 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 establishing our current ATM program, our prior ATM equity offering program had an aggregate offering price of up to $200.0 million. During the year ended December 31, 2022, we sold 328,123 shares of our common stock under our prior ATM equity program for gross cash proceeds of approximately $28.0 million at a weighted average share price of $86.46. As of December 31, 2022, the full capacity of our current ATM equity offering program remained available for issuance. During the year ended December 31, 2022, we closed on a $200.0 million senior unsecured term loan (the "Unsecured Term Loan"). The maturity date is January 21, 2027. The Unsecured Term Loan bears interest at a rate of SOFR, plus approximately 1.30% to 1.80%, depending on leverage levels. We also closed on a secured refinancing transaction generating gross proceeds of $200.0 million. 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. See Item 8. Financial Statements and Supplementary Data—Note 10. Borrowing Arrangements for further details. During the year ended December 31, 2021, we closed on an amended revolving line of credit with borrowing capacity of $500.0 million and a $300.0 million term loan (“Term Loan”). The variable interest rate on the Term Loan is LIBOR plus 1.40%. Pursuant to the Swap (as defined below), we have fixed the interest rate at 1.8% per annum. See Item 8. Financial Statements and Supplementary Data—Note 10. Borrowing Arrangements for further details. We also utilize interest rate swaps to add stability to our interest expense and to manage our exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of the designated derivative are recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets and subsequently reclassified into earnings on the Consolidated Statements of Income and Comprehensive Income in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2021, we entered into a three-year LIBOR Swap Agreement (the “ Swap”) allowing us to trade the variable interest rate associated with our variable rate debt for a fixed interest rate. The Swap has a notional amount of $300.0 million of outstanding principal and fixes the underlying LIBOR rate at 0.39% per annum and matures on March 25, 2024. For additional information regarding our interest rate swap, see Item 8. Financial Statements and Supplementary Data—Note 11 . Derivative Instruments and Hedging Activities. We expect to meet our short-term liquidity requirements, including principal payments, capital improvements and dividend distributions for the next twelve months, generally through available cash, net cash provided by operating activities and our LOC. As of December 31, 2022, our LOC had a borrowing capacity of $302.0 million with the option to increase the borrowing capacity by $200.0 million, subject to certain conditions. The LOC bears interest at a rate of LIBOR plus 1.25% to 1.65%, requires an annual facility fee of 0.20% to 0.35% and matures on April 18, 2025. We continue to monitor the development and adoption of an alternative index to LIBOR to manage the transition. Given the majority of our current debt is secured and not subject to LIBOR, we do not believe the transition from LIBOR to an alternative index will have a significant impact on our consolidated financial statements. We expect to meet certain long-term liquidity requirements, such as scheduled debt maturities, property acquisitions and capital improvements, using long-term collateralized and uncollateralized borrowings including the existing LOC and the issuance of debt securities or the issuance of equity including under our ATM equity offering program. The following table summarizes our cash flows activity: For the years ended December 31, (amounts in thousands) 2022 2021 2020 Net cash provided by operating activities (1) $ 475,814 $ 509,027 $ 417,412 Net cash used in investing activities (1) (402,067) (828,430) (401,254) Net cash (used in) provided by financing activities (174,798) 418,741 (20,958) Net (decrease) increase in cash and restricted cash $ (101,051) $ 99,338 $ (4,800) _____________________ (1) Amounts are restated. See Item 8. Financial Statements and Supplementary Data—Note 3, Restatement of Previously Issued Consolidated Financial Statements for more information. 56 Management's Discussion and Analysis (continued) Operating Activities Net cash provided by operating activities decreased $33.2 million to $475.8 million for the year ended December 31, 2022, from $509.0 million for the year ended December 31, 2021. The overall decrease in net cash provided by operating activities was primarily due to an increase in net purchases of manufactured homes of $27.4 million, a decrease in rents and other customer payments received in advance and security deposits of $9.1 million and payment of $4.4 million in 2022 related to the 2019 Long-Term Cash Incentive Plan Award. The following table summarizes our purchase and sale activity of manufactured homes: For the years ended December 31, (amounts in thousands) 2022 2021 2020 Purchase of manufactured homes $ (123,522) $ (86,025) $ (49,125) Sale of manufactured homes 96,103 81,062 38,845 Manufactured homes, net $ (27,419) $ (4,963) $ (10,280) Investing Activities Net cash used in investing activities decreased $426.4 million to $402.1 million for the year ended December 31, 2022, from $828.4 million for the year ended December 31, 2021. The decrease in net cash used in investing activities was primarily due to a decrease in acquisitions of $439.7 million, partially offset by an increase in capital improvements of $45.0 million. Capital Improvements The following table summarizes capital improvements: For the years ended December 31, (amounts in thousands) 2022 2021 2020 Asset preservation (1) $ 46,406 $ 43,618 $ 35,409 Improvements and renovations (2) 34,121 26,887 24,580 Property upgrades and development (3) 134,318 120,209 93,139 Site development (4)(5) 22,105 10,370 10,490 Total property improvements (5) 236,950 201,084 163,618 Corporate 12,327 3,181 4,339 Total capital improvements (5) $ 249,277 $ 204,265 $ 167,957 _____________________ (1) Includes upkeep of property infrastructure including utilities and streets and replacement of community equipment and vehicles. (2) Includes enhancements to amenities such as buildings, common areas, swimming pools and replacement of furniture and site amenities. (3) Includes $3.2 million of restoration and improvement capital expenditures related to Hurricane Hanna for the year ended December 31, 2020. (4) Includes capital expenditures to improve the infrastructure required to set Manufactured homes. (5) Amounts are restated. See Item 8. Financial Statements and Supplementary Data—Note 3, Restatement of Previously Issued Consolidated Financial Statements for more information. Financing Activities Net cash used in financing activities was $174.8 million for the year ended December 31, 2022. Net cash provided by financing activities was $418.7 million for the year ended December 31, 2021. The increase in net cash used in financing activities was primarily due to an increase in net payments on the LOC of $278.0 million and decreased proceeds from the issuance of $111.9 million of common stock. 57 Management's Discussion and Analysis (continued) Contractual Obligations As of December 31, 2022, we were subject to certain contractual payment obligations (1) as described in the following table: (amounts in thousands) Total 2023 2024 2025 2026 2027 Thereafter Long Term Borrowings (2) $ 3,415,979 $ 154,814 $ 74,214 $ 349,820 $ 366,784 $ 269,481 $ 2,200,866 Interest Expense (3) 845,785 100,422 95,524 90,277 82,815 78,763 397,984 LOC Maintenance Fee 2,336 1,019 1,017 300 — — — Ground Leases (4) 7,921 668 675 680 684 689 4,525 Office and Other Leases 26,116 3,770 3,407 3,108 2,613 2,424 10,794 Total Contractual Obligations $ 4,298,137 $ 260,693 $ 174,837 $ 444,185 $ 452,896 $ 351,357 $ 2,614,168 Weighted average interest rates - Long Term Borrowings 3.52 % 3.42 % 3.38 % 3.36 % 3.49 % 3.53 % 3.63 % _____________________ (1) We do not include insurance, property taxes and cancellable contracts in the contractual obligations table. (2) Balances exclude note premiums of $0.1 million and unamortized deferred financing costs of $28.1 million. Balances represent debt maturing and scheduled periodic payments as well as our LOC balance of $198.0 million outstanding as of December 31, 2022, on the Consolidated Balance Sheets. (3) Amounts include interest expected to be incurred on our secured and unsecured debt based on obligations outstanding as of December 31, 2022. (4) Amounts represent minimum future rental payments for land under non-cancelable operating leases at certain of our Properties expiring at various years through 2054. The Westwinds ground leases terminated on August 31, 2022. We believe that we will be able to refinance our maturing debt obligations on a secured or unsecured basis; however, to the extent we are unable to refinance our debt as it matures, we believe that we will be able to repay such maturing debt through available cash as well as operating cash flows, asset sales and/or the proceeds from equity issuances. With respect to any refinancing of maturing debt, our future cash flow requirements could be impacted by significant changes in interest rates or other debt terms, including required amortization payments. As of December 31, 2022, approximately 19.8% of our outstanding debt is fully amortizing. Westwinds 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. For the year ended December 31, 2022, Westwinds and Nicholson Plaza generated approximately $3.2 million of net operating income. The master lessor of these ground leases, The Nicholson Family Partnership (together with its predecessor in interest, the “Nicholsons”), expressed a desire to redevelop Westwinds, and in a written communication, they claimed that we were obligated to deliver the property free and clear of any and all subtenancies upon the expiration of the ground leases on August 31, 2022. In connection with any redevelopment, the City of San Jose’s conversion ordinance requires, among other things, that the landowner provide relocation, rental and purchase assistance to the impacted residents. We believe the Nicholsons were unlawfully attempting to impose those obligations upon the Operating Partnership. Westwinds opened in the 1970s and was developed by the original ground lessee with assistance from the Nicholsons. In 1997, the Operating Partnership acquired the leasehold interest in the ground leases. In addition to rent based on the operations of Westwinds, the Nicholsons received a percentage of gross revenues from the sale of new or used mobile homes in Westwinds. The Operating Partnership entered into subtenancy agreements with the mobilehome residents of Westwinds. Because the ground leases with the Nicholsons had an expiration date of August 31, 2022, and no further right of extension, the Operating Partnership did not enter into any subtenancy agreements that extended beyond August 31, 2022. However, the mobilehome residents’ occupancy rights continued by operation of California state and San Jose municipal law beyond the expiration date of the ground leases. Notwithstanding this, the Nicholsons made what we believe to be an unlawful demand that the Operating Partnership deliver the property free and clear of any subtenancies upon the expiration of the ground leases by August 31, 2022. We believe the Nicholsons’ demand (i) violated California state and San Jose municipal law because the Nicholsons had demanded that the Operating Partnership remove all residents without just cause and (ii) conflicted with the terms and conditions of the ground leases, which contained no express or implied requirement that the Operating Partnership deliver the property free and clear of all subtenancies at the mobile home park and required, instead, that the Operating Partnership continuously operate the mobilehome park during the lease term. 58 Management's Discussion and Analysis (continued) 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. Following the filing of our lawsuit, the City of San Jose took steps to accelerate the passage of a general plan amendment previously under review by the City to change the designation for Westwinds from its current general plan designation of Urban Residential (which would allow for higher density redevelopment), to a newly created designation of Mobile Home Park. The Nicholsons expressed opposition to this change in designation. However, on March 10, 2020, following significant pressure from residents and advocacy groups, the City Council approved this new designation for all 58 mobilehome communities in the City of San Jose, including Westwinds. In addition to requirements imposed by California state and San Jose municipal law, the change in designation requires, among other things, a further amendment to the general plan to a different land use designation by the City Council prior to any change in use. The Nicholsons filed a demand for arbitration on January 28, 2020, which they subsequently amended, seeking (i) a declaration that the Operating Partnership, as the “owner and manager” of Westwinds, was “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 was 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 was obligated to deliver Westwinds free and clear of encumbrances and in good condition and repair. The cross complaint asserted that it was no longer feasible for the Operating Partnership to cure its alleged breaches given that the ground leases terminated as of 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 was 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 which was subsequently documented and implemented, pursuant to which, among other things, all claims pending in the Superior Court and in the arbitration were dismissed with prejudice; 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. Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. Actual results could differ from these estimates. 59 Management's Discussion and Analysis (continued) For additional information regarding our significant accounting policies, see Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies. Impairment of Long-Lived Assets We review our Properties for impairment whenever events or changes in circumstances indicate that the carrying value of the Property may not be recoverable. The economic performance and value of our real estate investments could be adversely impacted by many factors including factors outside of our control. We consider impairment indicators including, but not limited to, the following: • national, regional and/or local economic conditions; • competition from MH and RV communities and other housing options; • changes in laws and governmental regulations and the related costs of compliance; • changes in market rental rates or occupancy; and • physical damage or environmental indicators. Any adverse changes in these factors could cause an impairment in our assets, including our investment in real estate and development projects in progress. If an impairment indicator exists related to a long-lived asset, the expected future undiscounted cash flows are compared against the carrying amount of that asset. Forecasting cash flows requires us to make estimates and assumptions on various inputs including, but not limited to, rental revenue and expense growth rates, occupancy, levels of capital expenditure and capitalization rates. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recorded for the carrying amount in excess of the estimated fair value. Off Balance Sheet Arrangements We do not have any off balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity or capital resources. Inflation Substantially all of the leases at our MH communities allow for monthly or annual rent increases which provide us with the ability to increase rent, where justified by the market. Such types of leases generally minimize our risks of inflation. In addition, rental rates for our annual RV and marina Sites are established on an annual basis. Our membership subscriptions generally provide for an annual dues increase, but dues may be frozen under the terms of certain contracts if the customer is over 61 years old. Currently, approximately 20.0% of our dues are frozen. Some of our costs, including operating and administrative expenses, interest expense and construction costs are subject to inflation. These expenses include but are not limited to property-related contracted services, utilities, repairs and maintenance and insurance and general and administrative costs, including compensation costs. 60 Management's Discussion and Analysis (continued)