EQUITY LIFESTYLE PROPERTIES INC 10-Q

Item 1. Financial Statements Equity LifeStyle Properties, Inc. Consolidated Balance Sheets (amounts in thousands, except share and per share data) March 31, 2024 December 31, 2023 (unaudited) Assets Investment in real estate: Land $ 2,088,657 $ 2,088,657 Land improvements 4,435,288 4,380,649 Buildings and other depreciable property 1,229,374 1,236,985 7,753,319 7,706,291 Accumulated depreciation ( 2,497,039 ) ( 2,448,876 ) Net investment in real estate 5,256,280 5,257,415 Cash and restricted cash 47,281 29,937 Notes receivable, net 49,346 49,937 Investment in unconsolidated joint ventures 84,989 85,304 Deferred commission expense 54,024 53,641 Other assets, net 138,314 137,499 Total Assets $ 5,630,234 $ 5,613,733 Liabilities and Equity Liabilities: Mortgage notes payable, net $ 2,974,728 $ 2,989,959 Term loans, net 497,875 497,648 Unsecured line of credit 6,000 31,000 Accounts payable and other liabilities 171,061 151,567 Deferred membership revenue 223,470 218,337 Accrued interest payable 12,543 12,657 Rents and other customer payments received in advance and security deposits 131,547 126,451 Distributions payable 93,264 87,493 Total Liabilities 4,110,488 4,115,112 Equity: Stockholders' Equity: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized as of March 31, 2024 and December 31, 2023; none issued and outstanding. — — Common stock, $ 0.01 par value, 600,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 186,493,598 and 186,426,281 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively. 1,917 1,917 Paid-in capital 1,644,410 1,644,319 Distributions in excess of accumulated earnings ( 202,721 ) ( 223,576 ) Accumulated other comprehensive income 5,280 6,061 Total Stockholders’ Equity 1,448,886 1,428,721 Non-controlling interests – Common OP Units 70,860 69,900 Total Equity 1,519,746 1,498,621 Total Liabilities and Equity $ 5,630,234 $ 5,613,733 The accompanying notes are an integral part of the consolidated financial statements. 3 Equity LifeStyle Properties, Inc. Consolidated Statements of Income and Comprehensive Income (amounts in thousands, except per share data) (unaudited) Quarters Ended March 31, 2024 2023 Revenues: Rental income $ 316,599 $ 296,451 Annual membership subscriptions 16,215 15,970 Membership upgrade sales 3,947 3,505 Other income 15,548 17,714 Gross revenues from home sales, brokered resales and ancillary services 30,053 32,133 Interest income 2,168 2,088 Income from other investments, net 2,038 2,091 Total revenues 386,568 369,952 Expenses: Property operating and maintenance 114,783 112,483 Real estate taxes 20,787 18,316 Membership sales and marketing 5,297 4,838 Property management 19,710 19,464 Depreciation and amortization 51,108 50,502 Cost of home sales, brokered resales and ancillary services 21,967 23,141 Home selling expenses and ancillary operating expenses 6,147 6,924 General and administrative 11,989 11,661 Casualty-related charges/(recoveries), net ( 14,843 ) — Other expenses 1,331 1,468 Interest and related amortization 33,543 32,588 Total expenses 271,819 281,385 Income before income taxes and other items 114,749 88,567 Loss on sale of real estate and impairment, net — ( 2,632 ) Income tax benefit 239 — Equity in income of unconsolidated joint ventures 283 524 Consolidated net income 115,271 86,459 Income allocated to non-controlling interests – Common OP Units ( 5,366 ) ( 4,088 ) Net income available for Common Stockholders $ 109,905 $ 82,371 Consolidated net income $ 115,271 $ 86,459 Other comprehensive income (loss): Adjustment for fair market value of swaps ( 781 ) ( 3,978 ) Consolidated comprehensive income 114,490 82,481 Comprehensive income allocated to non-controlling interests – Common OP Units ( 5,329 ) ( 3,899 ) Comprehensive income attributable to Common Stockholders $ 109,161 $ 78,582 Earnings per Common Share – Basic $ 0.59 $ 0.44 Earnings per Common Share – Fully Diluted $ 0.59 $ 0.44 Weighted average Common Shares outstanding – Basic 186,287 185,900 Weighted average Common Shares outstanding – Fully Diluted 195,545 195,369 The accompanying notes are an integral part of the consolidated financial statements. 4 Equity LifeStyle Properties, Inc. Consolidated Statements of Changes in Equity (amounts in thousands) (unaudited) Common Stock Paid-in Capital Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests – Common OP Units Total Equity Balance as of December 31, 2023 $ 1,917 $ 1,644,319 $ ( 223,576 ) $ 6,061 $ 69,900 $ 1,498,621 Issuance of Common Stock through employee stock purchase plan — 382 — — — 382 Compensation expenses related to restricted stock and stock options — 1,716 — — — 1,716 Repurchase of Common Stock or Common OP Units — ( 1,908 ) — — — ( 1,908 ) Adjustment for Common OP Unitholders in the Operating Partnership — 58 — — ( 58 ) — Adjustment for fair market value of swap — — — ( 781 ) — ( 781 ) Consolidated net income — — 109,905 — 5,366 115,271 Distributions — — ( 89,050 ) — ( 4,348 ) ( 93,398 ) Other — ( 157 ) — — — ( 157 ) Balance as of March 31, 2024 $ 1,917 $ 1,644,410 $ ( 202,721 ) $ 5,280 $ 70,860 $ 1,519,746 Common Stock Paid-in Capital Distributions in Excess of Accumulated Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling interests – Common OP Units Total Equity Balance as of December 31, 2022 $ 1,916 $ 1,628,618 $ ( 204,248 ) $ 19,119 $ 72,080 $ 1,517,485 Exchange of Common OP Units for Common Stock — 198 — — ( 198 ) — Issuance of Common Stock through employee stock purchase plan — 363 — — — 363 Compensation expenses related to restricted stock and stock options — 2,549 — — — 2,549 Repurchase of Common Stock or Common OP Units — ( 1,932 ) — — — ( 1,932 ) Adjustment for Common OP Unitholders in the Operating Partnership — 168 — — ( 168 ) — Adjustment for fair market value of swap — — — ( 3,978 ) — ( 3,978 ) Consolidated net income — — 82,371 — 4,088 86,459 Distributions — — ( 83,326 ) — ( 4,136 ) ( 87,462 ) Other — ( 98 ) — — — ( 98 ) Balance as of March 31, 2023 $ 1,916 $ 1,629,866 $ ( 205,203 ) $ 15,141 $ 71,666 $ 1,513,386 The accompanying notes are an integral part of the consolidated financial statements. 5 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (amounts in thousands) (unaudited) Quarters Ended March 31, 2024 2023 Cash Flows From Operating Activities: Consolidated net income $ 115,271 $ 86,459 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Loss on sale of real estate and impairment, net — 2,632 Depreciation and amortization 52,427 51,860 Amortization of loan costs 1,286 1,208 Debt premium amortization — ( 32 ) Equity in income of unconsolidated joint ventures ( 283 ) ( 524 ) Distributions of income from unconsolidated joint ventures 224 174 Proceeds from insurance claims, net ( 12,349 ) 5,795 Compensation expense related to incentive plans 2,497 3,330 Revenue recognized from membership upgrade sales upfront payments ( 3,947 ) ( 3,505 ) Commission expense recognized related to membership sales 1,108 1,095 Deferred income tax benefit ( 239 ) — Changes in assets and liabilities: Manufactured homes, net 2,333 ( 19,574 ) Notes receivable, net 539 ( 1,345 ) Deferred commission expense ( 1,491 ) ( 1,744 ) Other assets, net 11,396 5,856 Accounts payable and other liabilities 15,801 9,553 Deferred membership revenue 9,080 10,074 Rents and other customer payments received in advance and security deposits 5,095 7,668 Net cash provided by operating activities 198,748 158,980 Cash Flows From Investing Activities: Real estate acquisitions, net — ( 8,803 ) Investment in unconsolidated joint ventures ( 1,330 ) ( 1,752 ) Distributions of capital from unconsolidated joint ventures 1,586 1,012 Proceeds from insurance claims, net 3,158 4,070 Capital improvements ( 54,706 ) ( 60,974 ) Net cash used in investing activities ( 51,292 ) ( 66,447 ) The accompanying notes are an integral part of the consolidated financial statements. 6 Equity LifeStyle Properties, Inc. Consolidated Statements of Cash Flows (continued) (amounts in thousands) (unaudited) Quarters Ended March 31, 2024 2023 Cash Flows From Financing Activities: Proceeds from stock options and employee stock purchase plan 382 363 Distributions: Common Stockholders ( 83,426 ) ( 76,309 ) Common OP Unitholders ( 4,074 ) ( 3,799 ) Share based award tax withholding payments ( 1,908 ) ( 1,932 ) Principal payments and mortgage debt repayment ( 15,929 ) ( 16,443 ) Line of credit repayment ( 158,000 ) ( 104,000 ) Line of credit proceeds 133,000 118,000 Other ( 157 ) ( 99 ) Net cash used in financing activities ( 130,112 ) ( 84,219 ) Net increase in cash and restricted cash 17,344 8,314 Cash and restricted cash, beginning of period 29,937 22,347 Cash and restricted cash, end of period $ 47,281 $ 30,661 Quarters Ended March 31, 2024 2023 Supplemental Information: Cash paid for interest, net $ 33,630 $ 31,630 Cash paid for the purchase of manufactured homes $ 12,927 $ 35,481 Real estate acquisitions: Investment in real estate $ — $ ( 9,535 ) Other assets, net — 14 Rents and other customer payments received in advance and security deposits — 718 Real estate acquisitions, net $ — $ ( 8,803 ) The accompanying notes are an integral part of the consolidated financial statements. 7 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 1 – Organization and Basis of Presentation Equity LifeStyle Properties, Inc. (“ELS”), a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and its other consolidated subsidiaries (the “Subsidiaries”), are referred to herein as “we,” “us,” and “our”. We are a fully integrated owner of lifestyle-oriented properties (“Properties”) consisting of property operations and home sales and rental operations primarily within manufactured home (“MH”) and recreational vehicle (“RV”) communities and marinas. We provide our customers the opportunity to place manufactured homes and cottages, RVs and/or boats on our Properties either on a long-term or short-term basis. Our customers may lease individual developed areas (“Sites”) or enter into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays. Our Properties are owned primarily by the Operating Partnership and managed internally by affiliates of the Operating Partnership. ELS is the sole general partner of the Operating Partnership, has exclusive responsibility and discretion in management and control of the Operating Partnership and held a 95.3 % interest as of March 31, 2024. 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, 2023. Intercompany balances and transactions have been eliminated. All adjustments to the unaudited interim consolidated financial statements are of a normal, recurring nature and, in the opinion of management, are necessary for a fair presentation of results for these interim periods. Revenues and expenses are subject to seasonal fluctuations and accordingly, quarterly interim results may not be indicative of full year results. Certain prior period amounts have been reclassified on our unaudited interim consolidated financial statements to conform with current year presentation. Note 2 – Summary of Significant Accounting Policies (a) Revenue Recognition Our revenue streams are predominantly derived from customers renting our Sites or entering into membership subscriptions. Leases with customers renting our Sites are accounted for as operating leases. The rental income associated with these leases is accounted for in accordance with the Accounting Standards Codification (“ASC”) 842, Leases, and is recognized over the term of the respective lease or the length of a customer’s stay. MH Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. RV and marina Sites are leased to those who generally have an RV, factory-built cottage, boat or other unit placed on the site, including those customers renting marina dry storage slips. Annual Sites are leased on an annual basis, including those Northern Properties that are open for the summer season. Seasonal Sites are leased to customers generally for one to six months . Transient Sites are leased to customers on a short-term basis. We do not separate expenses reimbursed by our customers (“utility recoveries”) from the associated rental income as we meet the practical expedient criteria of ASC 842, Leases to combine the lease and non-lease components. We assessed the criteria and concluded that the timing and pattern of transfer for rental income and the associated utility recoveries are the same and, as our leases qualify as operating leases, we account for and present rental income and utility recoveries as a single component under Rental income in our Consolidated Statements of Income and Comprehensive Income. In addition, customers may lease homes that are located in our communities. These leases are accounted for as operating leases. Rental income derived from customers leasing homes is also accounted for in accordance with ASC 842, Leases and is recognized over the term of the respective lease. The allowance for credit losses related to the collectability of lease receivables is presented as a reduction to Rental income. Lease receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. The estimate for credit losses is a result of our ongoing assessments and evaluations of collectability, including historical loss experience, current market conditions and future expectations in forecasting credit losses. 8 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (continued) Annual membership subscriptions and membership upgrade sales are accounted for in accordance with ASC 606 , Revenue from Contracts with Customers. Membership subscriptions provide our customers access to specific Properties for limited stays at a specified group of Properties. Payments are deferred and recognized on a straight-line basis over the one-year period during which access to Sites at certain Properties is provided. Membership subscription receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. Membership upgrades grant certain additional access rights to the customer and require non-refundable upfront payments. The non-refundable upfront payments are recognized on a straight-line basis over 20 years. Financed upgrade sales (also known as contract receivables) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. 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 March 31, 2024 and December 31, 2023, restricted cash consisted of $ 32.2 million and $ 25.7 million, respectively, primarily related to cash reserved for customer deposits and escrows for insurance and real estate taxes. (c) 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 quarter ended March 31, 2024, we recognized approximately $ 0.5 million of expense related to debris removal and cleanup related to Hurricane Ian, and we recorded an offsetting insurance recovery revenue accrual of $ 0.5 million to offset the expenses incurred during the quarter. We also recorded $ 14.8 million of insurance recovery revenue for reimbursement of capital expenditures related to Hurricane Ian. The debris and cleanup costs and offsetting recovery accrual and reimbursement of capital expenditures are reflected in Casualty-related charges/(recoveries), net on the Consolidated Statements of Income and Comprehensive Income. (d) New Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280) : I mprovements to Reportable Segment Disclosures (“ASU 2023-07”), which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in ASU 2023-07 do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of ASU 2023-07 on our consolidated financial statements. In March 2024, the Securities and Exchange Commission (“SEC”) adopted final rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors , that requires registrants to provide climate-related disclosures in their annual reports and registration statements. On April 4, 2024, the SEC voluntarily stayed implementation of the final rule pending the completion of judicial review. We are currently evaluating the impact of the rule on our disclosures. 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 9 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 3 – Leases (continued) into consideration certain other factors. Additionally, periodic market rate adjustments are made as deemed appropriate. In addition, certain state statutes allow entry into long-term agreements that effectively modify lease terms related to rent amounts and increases over the term of the agreements. The following table presents future minimum rents expected to be received under long-term non-cancelable tenant leases, as well as those leases that are subject to long-term agreements governing rent payments and increases: (amounts in thousands) As of March 31, 2024 2024 $ 79,784 2025 103,593 2026 26,912 2027 25,354 2028 23,690 Thereafter 50,860 Total $ 310,193 Lessee We lease land under non-cancelable operating leases at 10 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 2033. For the quarters ended March 31, 2024 and 2023, total operating lease payments were $ 1.6 million and $ 1.5 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 March 31, 2024: As of March 31, 2024 (amounts in thousands) Ground Leases Office and Other Leases Total 2024 $ 550 $ 3,202 $ 3,752 2025 680 3,757 4,437 2026 684 3,393 4,077 2027 689 3,130 3,819 2028 685 2,955 3,640 Thereafter 3,840 10,744 14,584 Total undiscounted rental payments 7,128 27,181 34,309 Less imputed interest ( 1,774 ) ( 4,524 ) ( 6,298 ) Total lease liabilities $ 5,354 $ 22,657 $ 28,011 Right-of-use (“ROU”) assets and lease liabilities from our operating leases, included within Other assets, net and Accounts payable and other liabilities on the Consolidated Balance Sheets, were $ 25.8 million and $ 28.0 million, respectively, as of March 31, 2024. The weighted average remaining lease term for our operating leases was eight years and the weighted average incremental borrowing rate was 4.0 % as of March 31, 2024. 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 $ 23.6 million and $ 25.7 million, respectively, as of December 31, 2023. The weighted average remaining lease term for our operating leases was eight years and the weighted average incremental borrowing rate was 3.9 % as of December 31, 2023. 10 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 ended March 31, 2024 and 2023: Quarters Ended March 31, (amounts in thousands, except per share data) 2024 2023 Numerators: Net income available for Common Stockholders – Basic $ 109,905 $ 82,371 Amounts allocated to non controlling interest (dilutive securities) 5,366 4,088 Net income available for Common Stockholders – Fully Diluted $ 115,271 $ 86,459 Denominators: Weighted average Common Shares outstanding – Basic 186,287 185,900 Effect of dilutive securities: Exchange of Common OP Units for Common Shares 9,105 9,262 Stock options and restricted stock 153 207 Weighted average Common Shares outstanding – Fully Diluted 195,545 195,369 Earnings per Common Share – Basic $ 0.59 $ 0.44 Earnings per Common Share – Fully Diluted $ 0.59 $ 0.44 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, 2023: Distribution Amount Per Share For the Quarter Ended Stockholder Record Date Payment Date $ 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 $ 0.4475 December 31, 2023 December 29, 2023 January 12, 2024 $ 0.4775 March 31, 2024 March 28, 2024 April 12, 2024 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. There were no OP units exchanged for Common Stock during the quarter ended March 31, 2024 and 25,496 OP Units exchanged for an equal number of shares of Common Stock during the quarter ended March 31, 2023. Equity Offering Program On February 28, 2024, we entered into a new at-the-market (“ATM”) equity offering program, pursuant to which we may sell, from time-to-time, shares of our common stock, par value $ 0.01 per share, having an aggregate offering price of up to $ 500.0 million. As of March 31, 2024, the full capacity of our ATM equity offering program remained available for issuance. 11 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 6 – Investment in Unconsolidated Joint Ventures The following table summarizes our investments in unconsolidated joint ventures (investment and income/(loss) amounts in thousands): Investment as of Income/(Loss) for the Quarters Ended Investment Location (a) Number of Sites Economic Interest (b) March 31, 2024 December 31, 2023 March 31, 2024 March 31, 2023 Meadows Various (2,2) 1,077 50 % $ 611 $ 534 $ 676 $ 374 Lakeshore Florida (3,3) 721 (c) 3,395 3,387 182 172 Voyager Arizona (1,1) — — % (d) — — — 692 ECHO JV Various — 50 % 2,786 2,773 13 ( 190 ) RVC Various 1,283 80 % (e) 62,401 62,441 ( 414 ) ( 353 ) Mulberry Farms Arizona 200 50 % 10,255 10,546 ( 291 ) ( 31 ) Hiawassee KOA JV Georgia 283 50 % 5,541 5,623 117 ( 140 ) 3,564 $ 84,989 $ 85,304 $ 283 $ 524 _____________________ (a) The number of Properties are shown parenthetically for the quarters ended March 31, 2024 and 2023, respectively. (b) The percentages shown approximate our economic interest as of March 31, 2024. Our legal ownership interest may differ. (c) 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. (d) In March 2023, we sold our 33 % interest in the utility plant servicing Voyager RV Resort. (e) Includes three joint ventures of which one joint venture owns a portfolio of seven operating RV communities and two joint ventures each own an RV property under development. We received approximately $ 1.8 million and $ 1.2 million in distributions from our unconsolidated joint ventures for the quarters ended March 31, 2024 and 2023, respectively. Approximately $ 0.6 million and $ 0.3 million of the distributions made to us exceeded our basis in our unconsolidated joint ventures for the quarters ended March 31, 2024 and 2023, respectively, and as such, were recorded as income from unconsolidated joint ventures. Note 7 – Borrowing Arrangements Mortgage Notes Payable Our mortgage notes payable are classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our mortgage notes payable: As of March 31, 2024 As of December 31, 2023 (amounts in thousands) Fair Value Carrying Value Fair Value Carrying Value Mortgage notes payable, excluding deferred financing costs $ 2,412,142 $ 3,001,219 $ 2,425,384 $ 3,017,149 The weighted average interest rate on our outstanding mortgage indebtedness, including the impact of loan cost amortization on mortgage indebtedness, as of March 31, 2024, was approximately 3.9 % 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 of our Properties as of both March 31, 2024 and December 31, 2023, and the gross carrying value of such Properties was approximately $ 3,208.4 million and $ 3,194.1 million, as of March 31, 2024 and December 31, 2023, respectively. Unsecured Debt We previously entered into a Third Amended and Restated Credit Agreement (“Credit Agreement”), pursuant to which we have access to a $ 500.0 million line of credit (“LOC”) and a $ 300.0 million senior unsecured term loan (the “$ 300 million Term Loan”). We have the option to increase the borrowing capacity of the LOC by $ 200.0 million, subject to certain conditions. The LOC bears interest at a rate of SOFR plus 0.10 % plus 1.25 % to 1.65 % and requires an annual facility fee of 0.20 % to 0.35 % and matures on April 18, 2025. The $ 300 million Term Loan has an interest rate of SOFR plus 0.10 % 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. 12 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 7 – Borrowing Arrangements (continued) During the year ended December 31, 2022, we entered into a $ 200.0 million senior unsecured term loan agreement (the “ 200.0 million Term Loan”). The maturity date is January 21, 2027, with an interest rate of SOFR plus 0.10 % plus 1.20 % to 1.70 %, depending on leverage levels. The LOC had a balance of $ 6.0 million and $ 31.0 million outstanding as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, our LOC had a remaining borrowing capacity of $ 493.9 million. As of March 31, 2024, we were in compliance in all material respects with the covenants in all our borrowing arrangements. Note 8 – 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 7. Borrowing Arrangements ). The 2021 Swap had a fixed interest rate of 0.41 % per annum. The 2021 Swap matured on March 25, 2024. In April 2023, we entered into a Swap Agreement (the “2023 Swap”) with a notional amount of $ 200.0 million allowing us to trade the variable interest rate associated with our $ 200.0 million Term Loan for a fixed interest rate. The 2023 Swap has a fixed interest rate of 3.68 % per annum and matures on January 21, 2027. Based on the leverage as of March 31, 2024, our spread over SOFR was 1.20 % resulting in an estimated all-in interest rate of 4.88 % per annum. In April 2024, we entered into new swap agreements. See Note 13. Subsequent Events for additional information. Our derivative financial instruments are classified as Level 2 in the fair value hierarchy. The following table presents the fair value of our derivative financial instruments: As of March 31, As of December 31, (amounts in thousands) Balance Sheet Location 2024 2023 Interest Rate Swaps Other assets, net $ 5,280 $ 6,061 The following table presents the effect of our derivative financial instrument on the Consolidated Statements of Income and Comprehensive Income: Derivatives in Cash Flow Hedging Relationship Amount of (gain)/loss recognized in OCI on derivative for the quarters ended March 31, Location of (gain)/ loss reclassified from Accumulated OCI into income Amount of (gain)/loss reclassified from Accumulated OCI into income for the quarters ended March 31, (amounts in thousands) 2024 2023 (amounts in thousands) 2024 2023 Interest Rate Swaps $ ( 4,057 ) $ 523 Interest Expense $ ( 4,838 ) $ ( 3,455 ) During the next twelve months, we estimate that $ 2.6 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 March 31, 2024, we had not posted any collateral related to the 2023 Swap. 13 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 9 - 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) Quarter Ended March 31, 2024 Quarter Ended March 31, 2023 Deferred revenue - upfront payments from membership upgrade sales, beginning $ 206,625 $ 185,660 Membership upgrade sales 7,543 7,975 Revenue recognized from membership upgrade sales upfront payments ( 3,947 ) ( 3,505 ) Net increase in deferred revenue - upfront payments from membership grade sales 3,596 4,470 Deferred revenue - upfront payments from membership upgrade sales, ending (a) $ 210,221 $ 190,130 Deferred commission expense, beginning $ 53,641 $ 50,441 Deferred commission expense 1,491 1,744 Commission expense recognized ( 1,108 ) ( 1,095 ) Net increase in deferred commission expense 383 649 Deferred commission expense, ending $ 54,024 $ 51,090 _____________________ (a) Included in Deferred membership revenue on the Consolidated Balance Sheets. Note 10 – Equity Incentive Awards Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by the Board of Directors on March 11, 2014 and approved by our stockholders on May 13, 2014. During the quarter ended March 31, 2024, 90,378 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 February 4, 2025, February 3, 2026 and February 7, 2027, respectively, and have a grant date fair value of $ 3.0 million. The remaining 50 % are performance-based awards vesting in equal installments on February 4, 2025, February 3, 2026 and February 7, 2027, 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 15,062 shares of restricted stock subject to 2024 performance goals have a grant date fair value of $ 1.0 million. Stock-based compensation expense, reported in General and administrative expense on the Consolidated Statements of Income and Comprehensive Income, was $ 1.7 million and $ 2.5 million for the quarters ended March 31, 2024 and 2023, respectively. Note 11 – Commitments and Contingencies We are involved in various legal and regulatory proceedings (“Proceedings”) arising in the ordinary course of business. The Proceedings include, but are not limited to, legal claims made by employees, vendors and customers, and notices, consent decrees, information requests, additional permit requirements and other similar enforcement actions by governmental agencies relating to our utility infrastructure, including water and wastewater treatment plants and other waste treatment facilities and electrical systems. Additionally, in the ordinary course of business, our operations are subject to audit by various taxing authorities. Management believes these Proceedings taken together do not represent a material liability. In addition, to the extent any such Proceedings or audits relate to newly acquired Properties, we consider any potential indemnification obligations of sellers in our favor. Beginning on August 31, 2023 through October 12, 2023, certain private party plaintiffs filed several putative class actions in the U.S. District Court for the Northern District of Illinois, Eastern Division, 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 14 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 11 - Commitments and Contingencies (continued) 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. On December 15, 2023, the plaintiffs filed an amended consolidated complaint captioned , In re Manufactured Home Lot Rents Antitrust Litigation, No. 1:23-cv-6715 . Plaintiffs seek both injunctive relief and monetary damages, including attorneys’ fees. The defendants filed a motion to dismiss on January 29, 2024. We believe that the Datacomp Litigation is without merit, and we intend to vigorously defend our interests in this matter. As of March 31, 2024, we have not made an accrual, as we are unable to predict the outcome of this matter or reasonably estimate any possible loss. Note 12 - Reportable Segments We have identified two reportable segments: (i) Property Operations and (ii) Home Sales and Rentals Operations. The Property Operations segment owns and operates land lease Properties and the Home Sales and Rentals Operations segment purchases, sells and leases homes at the Properties. The distribution of the Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences. All revenues were from external customers and there is no customer who contributed 10% or more of our total revenues during the quarters ended March 31, 2024 or 2023. The following tables summarize our segment financial information for the quarters ended March 31, 2024 and 2023: Quarter Ended March 31, 2024 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 359,736 $ 22,626 $ 382,362 Operations expenses ( 169,405 ) ( 19,286 ) ( 188,691 ) Income from segment operations 190,331 3,340 193,671 Interest income 1,686 443 2,129 Depreciation and amortization ( 48,540 ) ( 2,568 ) ( 51,108 ) Income from operations $ 143,477 $ 1,215 $ 144,692 Reconciliation to consolidated net income: Corporate interest income 39 Income from other investments, net 2,038 General and administrative ( 11,989 ) Casualty-related charges/(recoveries), net 14,843 Other expenses ( 1,331 ) Interest and related amortization ( 33,543 ) Income tax benefit 239 Equity in income of unconsolidated joint ventures 283 Consolidated net income $ 115,271 Total assets $ 5,366,765 $ 263,469 $ 5,630,234 Capital improvements $ 51,408 $ 3,298 $ 54,706 15 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) Quarter Ended March 31, 2023 (amounts in thousands) Property Operations Home Sales and Rentals Operations Consolidated Operations revenues $ 341,737 $ 24,036 $ 365,773 Operations expenses ( 165,023 ) ( 20,143 ) ( 185,166 ) Income from segment operations 176,714 3,893 180,607 Interest income 1,566 514 2,080 Depreciation and amortization ( 47,755 ) ( 2,747 ) ( 50,502 ) Loss on sale of real estate and impairment, net ( 2,632 ) — ( 2,632 ) Income from operations $ 127,893 $ 1,660 $ 129,553 Reconciliation to consolidated net income: Corporate interest income 8 Income from other investments, net 2,091 General and administrative ( 11,661 ) Other expenses ( 1,468 ) Interest and related amortization ( 32,588 ) Equity in income of unconsolidated joint ventures 524 Consolidated net income $ 86,459 Total assets $ 5,239,891 $ 279,422 $ 5,519,313 Capital improvements $ 51,412 $ 9,562 $ 60,974 The following table summarizes our financial information for the Property Operations segment for the quarters ended March 31, 2024 and 2023: Quarters Ended March 31, (amounts in thousands) 2024 2023 Revenues: Rental income $ 313,083 $ 292,579 Annual membership subscriptions 16,215 15,970 Membership upgrade sales 3,947 3,505 Other income 15,548 17,714 Gross revenues from ancillary services 10,943 11,969 Total property operations revenues 359,736 341,737 Expenses: Property operating and maintenance 113,405 111,524 Real estate taxes 20,787 18,316 Membership sales and marketing 5,297 4,838 Cost of ancillary services 5,493 5,297 Ancillary operating expenses 4,713 5,584 Property management 19,710 19,464 Total property operations expenses 169,405 165,023 Income from property operations segment $ 190,331 $ 176,714 16 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements Note 12 – Reportable Segments (continued) The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters ended March 31, 2024 and 2023: Quarters Ended March 31, (amounts in thousands) 2024 2023 Revenues: Rental income (1) $ 3,516 $ 3,872 Gross revenue from home sales and brokered resales 19,110 20,164 Total revenues 22,626 24,036 Expenses: Rental home operating and maintenance 1,378 959 Cost of home sales and brokered resales 16,474 17,844 Home selling expenses 1,434 1,340 Total expenses 19,286 20,143 Income from home sales and rentals operations segment $ 3,340 $ 3,893 ______________________ (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 . Note 13 – Subsequent Events On April 1, 2024, we entered into three Swap Agreements (“2024 Swaps”) with an aggregate notional value of $ 300.0 million allowing us to trade the variable interest rate associated with our $ 300.0 million Term Loan (see Note 7. Borrowing Arrangements ) for a fixed interest rate. The 2024 Swaps have a weighted average fixed interest rate of 4.65 % per annum and mature on April 17, 2026. Based on the leverage as of March 31, 2024, our spread over SOFR was 1.40 %, resulting in an estimated weighted average all-in fixed interest rate of 6.05 % per annum. 17 Equity LifeStyle Properties, Inc. Notes to Consolidated Financial Statements