EQUITY LIFESTYLE PROPERTIES INC 10-Q

Item 2. 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 notes thereto included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”), as well as information in Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K. 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 March 31, 2024, we owned or had an ownership interest in a portfolio of 451 Properties located throughout the United States and Canada containing 172,464 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 ten miles of the coastal United States. 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”), Normalized Funds from Operations (“Normalized 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 2029. 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 Generation 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. 18 Management's Discussion and Analysis (continued) The following table shows the breakdown of our Sites by type (amounts are approximate): Total Sites as of March 31, 2024 MH Sites 73,000 RV Sites: Annual 34,900 Seasonal 11,800 Transient 16,300 Marina Slips 6,900 Membership (1) 26,000 Joint Ventures (2) 3,600 Total 172,500 _________________________ (1) Primarily utilized to service approximately 118,900 members. Includes approximately 6,100 Sites rented on an annual basis. (2) Includes approximately 2,000 annual Sites and 1,600 transient Sites. 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. 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. Results Overview For the quarter ended March 31, 2024, net income available for Common Stockholders increased $27.5 million to $109.9 million, or $0.59 per fully diluted Common Share, compared to $82.4 million, or $0.44 per fully diluted Common Share, for the same period in 2023. For the quarter ended March 31, 2024, FFO available for Common Stock and Operating Partnership unit (“OP Unit”) holders increased $27.1 million, or $0.14 per fully diluted Common Share, to $167.4 million, or $0.86 per fully diluted Common Share, compared to $140.3 million, or $0.72 per fully diluted Common Share, for the same period in 2023. For the quarter ended March 31, 2024, Normalized FFO available for Common Stock and OP Unit holders increased $12.2 million, or $0.06 per fully diluted Common Share, to $152.7 million, or $0.78 per fully diluted Common Share, compared to $140.5 million, or $0.72 per fully diluted Common Share, for the same period in 2023. For the quarter ended March 31, 2024, our Core Portfolio property operating revenues increased 5.8% and property operating expenses, excluding property management, increased 3.9%, from the same period in 2023, resulting in an increase in income from property operations, excluding property management, of 7.1%, compared to the same period in 2023. 19 Management's Discussion and Analysis (continued) We continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our Core Portfolio. Our Core Portfolio average occupancy includes both homeowners and renters in our MH communities and was 94.9% for each of the quarters ended March 31, 2024, December 31, 2023 and March 31, 2023. For the quarter ended March 31, 2024, our Core Portfolio occupancy increased by 19 sites, which included an increase in homeowner occupancy of 123 sites and a decrease in rental occupancy of 104 compared to December 31, 2023. 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 depending on local market conditions, availability of vacant sites and success with converting renters to homeowners. As of March 31, 2024, we had 2,158 occupied rental homes in our Core MH communities. RV and marina base rental income in our Core Portfolio increased 5.8% for the quarter ended March 31, 2024, compared to the same period in 2023 driven primarily by an increase in Annual RV rental income. Core RV and marina base rental income from annuals represents 63.2% of total Core RV and marina base rental income and increased 8.0% for the quarter ended March 31, 2024, compared to the same period in 2023 due to an 8.7% increase in rate, offset by a 0.7% decrease in occupancy. Core seasonal and transient RV and marina base rental income increased 2.4% and 1.4%, respectively for the quarter ended March 31, 2024, compared to the same period in 2023 due to higher demand, particularly in our Florida portfolio. Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels. We closed 191 new home sales during the quarter ended March 31, 2024, compared to 176 new home sales during the quarter ended March 31, 2023, an increase of 8.5%. The increase in new home sales during the quarter ended March 31, 2024 was primarily in the Florida and Arizona markets. Our gross investment in real estate increased $47.0 million to $7,753.3 million as of March 31, 2024 from $7,706.3 million as of December 31, 2023, primarily due to capital improvements during the quarter ended March 31, 2024. The following chart lists the Properties acquired from January 1, 2023 through March 31, 2024 and Sites added through expansion opportunities at our existing Properties: Location Type of Property Transaction Date Sites Total Sites as of January 1, 2023 (1) 171,200 Acquisition Properties: Red Oak Shores Campground Ocean View, New Jersey RV March 28, 2023 223 Expansion Site Development: Sites added (reconfigured) in 2023 994 Total Sites as of March 31, 2024 (1) 172,500 ______________________ (1) Sites are approximate. 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 flows 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 flow 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. 20 Management's Discussion and Analysis (continued) 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. 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 2023 and 2024. 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 2023 and 2024, including six properties in Florida impacted by Hurricane Ian and two properties in California that were impacted by storm and flooding events. FFO and 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, 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. 21 Management's Discussion and Analysis (continued) The following table reconciles net income available for Common Stockholders to income from property operations for the quarters ended March 31, 2024 and 2023: Quarters Ended March 31, (amounts in thousands) 2024 2023 Computation of Income from Property Operations: Net income available for Common Stockholders $ 109,905 $ 82,371 Income allocated to non-controlling interests – Common OP Units 5,366 4,088 Consolidated net income 115,271 86,459 Equity in income of unconsolidated joint ventures (283) (524) Income tax benefit (239) — (Gain)/Loss on sale of real estate and impairment, net — 2,632 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) 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 (1) (14,843) — Other expenses 1,331 1,468 Interest and related amortization 33,543 32,588 Income from property operations, excluding property management 211,442 198,003 Property management (19,710) (19,464) Income from property operations $ 191,732 $ 178,539 _____________________ (1) Represents insurance recovery revenue for reimbursement of capital expenditures related to Hurricane Ian. 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 quarters ended March 31, 2024 and 2023: Quarters Ended March 31, (amounts in thousands) 2024 2023 Computation of FFO and Normalized FFO: Net income available for Common Stockholders $ 109,905 $ 82,371 Income allocated to non-controlling interests – Common OP Units 5,366 4,088 Depreciation and amortization 51,108 50,502 Depreciation on unconsolidated joint ventures 1,051 1,135 Gain on unconsolidated joint ventures — (416) Loss on sale of real estate and impairment, net — 2,632 FFO available for Common Stock and OP Unit holders 167,430 140,312 Deferred income tax benefit (239) — Transaction/pursuit costs and other (1) 383 206 Insurance proceeds due to catastrophic weather event (2) (14,843) — Normalized FFO available for Common Stock and OP Unit holders $ 152,731 $ 140,518 Weighted average Common Shares outstanding – Fully Diluted 195,545 195,369 _____________________ (1) Prior period amounts have been reclassified to conform to the current period presentation. (2) Represents insurance recovery revenue for reimbursement of capital expenditures related to Hurricane Ian. 22 Management's Discussion and Analysis (continued) Results of Operations This section discusses the comparison of our results of operations for the quarters ended March 31, 2024 and March 31, 2023 and our operating activities, investing activities and financing activities for the quarters ended March 31, 2024 and March 31, 2023. Our Core Portfolio consists of our Properties owned and operated during all of 2023 and 2024. Our Non-Core Portfolio includes all Properties that were not owned and operated during all of 2023 and 2024, including six properties in Florida impacted by Hurricane Ian and two properties in California that were impacted by storm and flooding events. For the comparison of our results of operations for the quarters ended March 31, 2023 and March 31, 2022 and discussion of our operating activities, investing activities and financing activities for the quarters ended March 31, 2023 and March 31, 2022, refer to Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31, 2023, filed with the SEC on January 23, 2024. Income from Property Operations The following table summarizes certain financial and statistical data for our Core Portfolio and total portfolio: Core Portfolio Total Portfolio Quarters Ended March 31, Quarters Ended March 31, (amounts in thousands) 2024 2023 Variance % Change 2024 2023 Variance % Change MH base rental income (1) $ 174,939 $ 164,404 $ 10,535 6.4 % $ 175,105 $ 164,553 $ 10,552 6.4 % Rental home income (1) 3,504 3,861 (357) (9.2) % 3,516 3,872 (356) (9.2) % RV and marina base rental income (1) 115,628 109,340 6,288 5.8 % 120,167 111,592 8,575 7.7 % Annual membership subscriptions 16,215 15,789 426 2.7 % 16,215 15,970 245 1.5 % Membership upgrades sales (2) 3,947 3,466 481 13.9 % 3,947 3,505 442 12.6 % Utility and other income (1) 31,179 29,521 1,658 5.6 % 34,778 35,331 (553) (1.6) % Property operating revenues 345,412 326,381 19,031 5.8 % 353,728 334,823 18,905 5.6 % Property operating and maintenance (1)(3) 112,204 110,362 1,842 1.7 % 114,824 112,707 2,117 1.9 % Real estate taxes 20,417 17,856 2,561 14.3 % 20,787 18,316 2,471 13.5 % Rental home operating and maintenance 1,369 959 410 42.8 % 1,378 959 419 43.7 % Membership sales and marketing (4) 5,296 4,820 476 9.9 % 5,297 4,838 459 9.5 % Property operating expenses, excluding property management 139,286 133,997 5,289 3.9 % 142,286 136,820 5,466 4.0 % Income from property operations, excluding property management (5) 206,126 192,384 13,742 7.1 % 211,442 198,003 13,439 6.8 % Property management 19,710 19,464 246 1.3 % 19,710 19,464 246 1.3 % Income from property operations (5) $ 186,416 $ 172,920 $ 13,496 7.8 % $ 191,732 $ 178,539 $ 13,193 7.4 % _____________________ (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 $3.6 million and $4.5 million for the quarters ended March 31, 2024 and March 31, 2023, respectively. (3) Includes bad debt expense for all periods presented. (4) Membership sales and marketing expense is net of sales commission deferrals of $0.4 million and $0.7 million for the quarters ended March 31, 2024 and March 31, 2023, respectively. (5) See Part I. Item 2. Management's Discussion and Analysis—Non-GAAP Financial Measures for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders. Total portfolio income from property operations for the quarter ended March 31, 2024, increased $13.2 million, or 7.4%, from the quarter ended March 31, 2023, driven by an increase of $13.5 million, or 7.8%, from our Core Portfolio, offset by a decrease of $0.3 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, RV and marina base rental income, partially offset by an increase in real estate taxes and property operating and maintenance expenses. 23 Management's Discussion and Analysis (continued) Property Operating Revenues MH base rental income in our Core Portfolio for the quarter ended March 31, 2024 increased $10.5 million, or 6.4%, from the quarter ended March 31, 2023, which reflects 6.3% growth from rate increases and 0.1% from occupancy gains. The average monthly base rental income per Site in our Core Portfolio increased to approximately $847 for the quarter ended March 31, 2024 from approximately $797 for the quarter ended March 31, 2023. The average occupancy for our Core Portfolio was 94.9% for both the quarters ended March 31, 2024 and March 31, 2023. RV and marina base rental income is comprised of the following: Core Portfolio Total Portfolio Quarters Ended March 31, Quarters Ended March 31, (amounts in thousands) 2024 2023 Variance % Change 2024 2023 Variance % Change Annual $ 73,051 $ 67,624 $ 5,427 8.0 % $ 75,475 $ 69,401 $ 6,074 8.8 % Seasonal 28,276 27,606 670 2.4 % 29,545 27,960 1,585 5.7 % Transient 14,301 14,110 191 1.4 % 15,147 14,231 916 6.4 % RV and marina base rental income $ 115,628 $ 109,340 $ 6,288 5.8 % $ 120,167 $ 111,592 $ 8,575 7.7 % RV and marina base rental income in our Core Portfolio for the quarter ended March 31, 2024 increased $6.3 million, or 5.8%, from the quarter ended March 31, 2023, driven primarily by an increase in Annual RV and marina base rental income. The increase in Annual RV and marina base rental income of 8.0% was driven by an increase in rate of 8.7%, offset by a decline of 0.7% in occupancy. The increase in Seasonal and Transient RV and marina base rental income of 2.4% and 1.4%, respectively, for the quarter ended March 31, 2024, compared to the same period in 2023, was due to higher demand, particularly in our Florida portfolio. Utility and other income in our Core Portfolio for the quarter ended March 31, 2024 increased $1.7 million, or 5.6%, from the quarter ended March 31, 2023. The increase was primarily due to a $1.1 million and $0.6 million increase in other property income and pass-through income, respectively. The increase in other property income compared to the same period last year was mainly due to $0.8 million of amenity and other income. The increase in pass-through income was driven by increased real estate tax pass-throughs to customers. Property Operating Expenses Property operating expenses, excluding property management, in our Core Portfolio for the quarter ended March 31, 2024 increased $5.3 million, or 3.9%, from the quarter ended March 31, 2023, driven by increases in real estate taxes of $2.6 million and property operating and maintenance expenses of $1.8 million. Core real estate taxes were higher in 2024, primarily in the South and North regions, driven by tax increases that were effective in 2023. Property operating and maintenance expenses were higher in 2024 primarily due to an increase in insurance expense of $1.9 million due to higher insurance premiums following our property and casualty insurance renewal in the second quarter of 2023. 24 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: Quarters Ended March 31, (amounts in thousands, except home sales volumes) 2024 2023 Variance % Change Gross revenues from new home sales $ 17,700 $ 18,314 $ (614) (3.4) % Cost of new home sales 15,401 16,662 (1,261) (7.6) % Gross revenues from used home sales 838 1,175 (337) (28.7) % Cost of used home sales 875 945 (70) (7.4) % Gross revenue from brokered resales and ancillary services 11,515 12,644 (1,129) (8.9) % Cost of brokered resales and ancillary services 5,691 5,534 157 2.8 % Home selling and ancillary operating expenses 6,147 6,924 (777) (11.2) % Home sales volumes New home sales 191 176 15 8.5 % Used home sales 54 102 (48) (47.1) % Brokered home resales 109 134 (25) (18.7) % Gross revenues from new home sales decreased $0.6 million and Cost of new home sales decreased $1.3 million during the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, primarily due to lower average selling prices and lower average cost of home sales, respectively. Rental Operations The following table summarizes certain financial and statistical data for our MH Rental Operations: Quarters Ended March 31, (amounts in thousands, except rental unit volumes) 2024 2023 Variance % Change Rental operations revenue (1) $ 9,058 $ 10,258 $ (1,200) (11.7) % Rental home operating and maintenance expenses 1,369 959 410 42.8 % Depreciation on rental homes (2) 2,568 2,747 (179) (6.5) % Gross investment in new manufactured home rental units $ 238,963 $ 252,204 $ (13,241) (5.3) % Gross investment in used manufactured home rental units $ 11,744 $ 14,056 $ (2,312) (16.4) % Net investment in new manufactured home rental units $ 197,641 $ 209,673 $ (12,032) (5.7) % Net investment in used manufactured home rental units $ 7,118 $ 8,094 $ (976) (12.1) % Number of occupied rentals – new, end of period 1,922 2,389 (467) (19.5) % Number of occupied rentals – used, end of period 236 313 (77) (24.6) % ______________________ (1) Consists of Site rental income and home rental income. Approximately $5.6 million and $6.4 million for the quarters ended March 31, 2024 and March 31, 2023, 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. Rental operations revenues were $1.2 million, or 11.7%, lower during the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, primarily due to a decrease in the number of occupied rentals. 25 Management's Discussion and Analysis (continued) Miscellaneous Other Income and Expenses The following table summarizes other income and expenses, net: Quarters Ended March 31, (amounts in thousands, expenses shown as negative) 2024 2023 Variance % Change Depreciation and amortization $ (51,108) $ (50,502) $ (606) (1.2) % Interest income 2,168 2,088 80 3.8 % Income from other investments, net 2,038 2,091 (53) (2.5) % General and administrative (11,989) (11,661) (328) (2.8) % Other expenses (1,331) (1,468) 137 9.3 % Interest and related amortization (33,543) (32,588) (955) (2.9) % Total other income and expenses, net $ (93,765) $ (92,040) $ (1,725) (1.9) % Total other income and expenses, net increased $1.7 million for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, primarily due to higher interest and related amortization expense as a result of an increase in interest rates, as well as increases in depreciation and amortization and general and administrative expenses. Casualty-related charges/(recoveries), net During the quarters ended March 31, 2024 and March 31, 2023, we recognized expenses of approximately $0.5 million and $8.5 million, respectively, related to debris removal and cleanup costs related to Hurricane Ian and we recognized an offsetting insurance recovery revenue accrual of $0.5 million and $8.5 million, respectively, related to the expected insurance recovery. During the quarter ended March 31, 2024, we also recognized excess insurance recovery revenue of approximately $14.8 million within Casualty-related charges/(recoveries), net for reimbursement of capital expenditures. 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. 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 (the “LOC”) and proceeds from issuance of equity and debt securities, including issuances under our ATM equity offering program (as defined below). 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 low-cost secured debt continues to be our focus. 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. As of March 31, 2024, we had available liquidity in the form of approximately 413.5 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. 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 26 Management's Discussion and Analysis (continued) Comprehensive Income in the period that the hedged forecasted transaction affects earnings. For additional information regarding our interest rate swaps, see Part I. Item 1. Financial Statements—Note 8. Derivative Instruments and Hedging and Note 13. Subsequent Events . 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, issuances of equity under our ATM equity offering program and our LOC. As of March 31, 2024, our LOC had a borrowing capacity of $493.9 million. 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 quarters ended March 31, (amounts in thousands) 2024 2023 Net cash provided by operating activities $ 198,748 $ 158,980 Net cash used in investing activities (51,292) (66,447) Net cash used in financing activities (130,112) (84,219) Net increase in cash and restricted cash $ 17,344 $ 8,314 Operating Activities Net cash provided by operating activities increased $39.8 million to $198.7 million for the quarter ended March 31, 2024 from $159.0 million for the quarter ended March 31, 2023. The increase in net cash provided by operating activities was primarily due to net increases in manufactured homes, net, accounts payable and other liabilities and other assets, net, partially offset by a reduction in proceeds from insurance claims, net. The following table summarizes our purchase and sale activity of manufactured homes: For the quarters ended March 31, (amounts in thousands) 2024 2023 Purchase of manufactured homes $ (12,927) $ (35,481) Sale of manufactured homes 15,260 15,907 Manufactured homes, net $ 2,333 $ (19,574) Investing Activities Net cash used in investing activities decreased $15.1 million to $51.3 million for the quarter ended March 31, 2024 from $66.4 million for the quarter ended March 31, 2023. The decrease was due to a decrease in spending on acquisitions of $8.8 million, a decrease in investments in unconsolidated joint ventures of $0.4 million and a decrease in capital improvement spending of $6.3 million. 27 Management's Discussion and Analysis (continued) Capital Improvements The following table summarizes capital improvements: For the quarters ended March 31, (amounts in thousands) 2024 2023 Asset preservation (1) $ 9,525 $ 11,154 Improvements and renovations (2) 6,297 6,958 Property upgrades and development (3) 31,867 33,204 Site development (4) 3,298 9,562 Total property improvements 50,987 60,878 Corporate 3,719 96 Total capital improvements $ 54,706 $ 60,974 ______________________ (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 $5.6 million of restoration and improvement capital expenditures related to Hurricane Ian for the quarter ended March 31, 2024. (4) Includes capital expenditures to improve the infrastructure required to set manufactured homes. Financing Activities Net cash used in financing activities increased $45.9 million to $130.1 million for the quarter ended March 31, 2024 from $84.2 million for the quarter ended March 31, 2023. The increase was primarily due to a line of credit, net repayment of $39.0 million. Contractual Obligations Significant ongoing contractual obligations consist primarily of long-term borrowings, interest expense, operating leases, LOC maintenance fees and ground leases. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations in our 2023 Form 10-K. Off-Balance Sheet Arrangements As of March 31, 2024, we have no off-balance sheet arrangements. Critical Accounting Policies and Estimates Refer to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K for a discussion of our critical accounting policies. There have been no significant changes to our critical accounting policies and estimates during the quarter ended March 31, 2024. Forward-Looking Statements This Quarterly Report on Form 10-Q includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used, words such as “anticipate,” “expect,” “believe,” “project,” “intend,” “may be” and “will be” and similar words or phrases, or the negative thereof, unless the context requires otherwise, are intended to identify forward-looking statements and may include without limitation, information regarding our expectations, goals or intentions regarding the future, and the expected effect of our acquisitions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, but not limited to: • our ability to control costs and real estate market conditions, our ability to retain customers, the actual use of Sites by customers and our success in acquiring new customers at our Properties (including those that we may acquire); • our ability to maintain historical or increase future rental rates and occupancy with respect to properties currently owned or that we may acquire; • our ability to attract and retain customers entering, renewing and upgrading membership subscriptions; • our assumptions about rental and home sales markets; • our ability to manage counterparty risk; • our ability to renew our insurance policies at existing rates and on consistent terms; 28 Management's Discussion and Analysis (continued) • home sales results could be impacted by the ability of potential homebuyers to sell their existing residences as well as by financial, credit and capital markets volatility; • results from home sales and occupancy will continue to be impacted by local economic conditions, including an adequate supply of homes at reasonable costs, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing; • impact of government intervention to stabilize site-built single-family housing and not manufactured housing; • impact of the COVID-19 pandemic or other highly infectious or contagious diseases on our business operations, our residents, our customers, our employees and the economy generally; • effective integration of recent acquisitions and our estimates regarding the future performance of recent acquisitions; • the completion of future transactions in their entirety, if any, and timing and effective integration with respect thereto; • unanticipated costs or unforeseen liabilities associated with recent acquisitions; • the effect of potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to our business; • our ability to obtain financing or refinance existing debt on favorable terms or at all; • the effect of inflation and interest rates; • the effect from any breach of our, or any of our vendors’, data management systems; • the dilutive effects of issuing additional securities; • the potential impact of, and our ability to remediate, material weaknesses in our internal control over financial reporting; • the outcome of pending or future lawsuits or actions brought by or against us, including those disclosed in our filings with the Securities and Exchange Commission; and • other risks indicated from time to time in our filings with the Securities and Exchange Commission. These forward-looking statements are based on management’s present expectations and beliefs about future events. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. 29 Item 3. Quantitative and Qualitative Disclosures About Market Risk We disclosed a quantitative and qualitative analysis regarding market risk in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2023 Form 10-K. There have been no material changes in the assumptions used or results obtained regarding market risk since December 31, 2023.