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 June 30, 2024, we owned or had an ownership interest in a portfolio of 452 Properties located throughout the United States and Canada containing 172,866 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. 20 Management's Discussion and Analysis (continued) The following table shows the breakdown of our Sites by type (amounts are approximate): Total Sites as of June 30, 2024 MH Sites 73,000 RV Sites: Annual 34,500 Seasonal 11,800 Transient 16,900 Marina Slips 6,900 Membership (1) 26,000 Joint Ventures (2) 3,800 Total 172,900 _________________________ (1) Primarily utilized to service approximately 117,100 members. Includes approximately 5,900 Sites rented on an annual basis. (2) Includes approximately 2,000 annual Sites and 1,800 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 (amounts in thousands) Quarters Ended June 30, 2024 2023 $ Change % Change (1) Net Income per fully diluted Common Share $ 0.42 $ 0.34 $ 0.08 24.3 % FFO per fully diluted Common Share and OP Unit $ 0.69 $ 0.61 $ 0.08 13.5 % Normalized FFO per fully diluted Common Share and OP Unit $ 0.66 $ 0.64 $ 0.02 2.9 % Six Months Ended June 30, 2024 2023 $ Change % Change (1) Net Income per fully diluted Common Share $ 1.01 $ 0.78 $ 0.23 29.5 % FFO per fully diluted Common Share and OP Unit $ 1.55 $ 1.33 $ 0.22 16.6 % Normalized FFO per fully diluted Common Share and OP Unit $ 1.44 $ 1.36 $ 0.08 5.9 % _____________________ 1. Calculations prepared using actual results without rounding. Core property operating revenues increased 4.6% and Core income from property operations, excluding property management increased 5.5% for the quarter ended June 30, 2024, compared to the same period in 2023. For the six months ended June 30, 2024, Core property operating revenues increased 5.2% and Core income from property operations, excluding property management increased 6.4% compared to the same period in 2023. 21 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 June 30, 2024 and December 31, 2023 and 94.8% for the quarter ended June 30, 2023. For the quarter ended June 30, 2024, our Core Portfolio occupancy increased by 29 sites, which included an increase in homeowner occupancy of 171 sites and a decrease in rental occupancy of 142 compared to March 31, 2024. 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 June 30, 2024, we had 2,016 occupied rental homes in our Core MH communities. RV and marina base rental income in our Core Portfolio increased 2.0% for the quarter ended June 30, 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 73.9% of total Core RV and marina base rental income and increased 6.6% for the quarter ended June 30, 2024, compared to the same period in 2023 due to an 8.3% increase in rate, offset by a 1.7% decrease in occupancy. Core seasonal and transient RV and marina base rental income decreased 16.7% and 5.6%, respectively, for the quarter ended June 30, 2024, compared to the same period in 2023 due to non-returning Hurricane Ian workers at our Florida properties, decreased reservation extensions at our Sun Belt locations due to a mild winter and returning competitor supply, partially offset by California properties recovering from weather disruption events in the second quarter of 2023. Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels. We closed 255 new home sales during the quarter ended June 30, 2024, compared to 226 new home sales during the quarter ended June 30, 2023, an increase of 12.8%. The new home sales during the quarter ended June 30, 2024 were primarily in the Florida market. Our gross investment in real estate increased $98.8 million to $7,805.1 million as of June 30, 2024 from $7,706.3 million as of December 31, 2023, primarily due to capital improvements during the six months ended June 30, 2024. The following chart lists the Properties acquired from January 1, 2023 through June 30, 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 Sites added (reconfigured) in 2024 401 Total Sites as of June 30, 2024 (1) 172,900 ______________________ (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. 22 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. 23 Management's Discussion and Analysis (continued) The following table reconciles net income available for Common Stockholders to income from property operations for the quarters and six months ended June 30, 2024 and 2023: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2024 2023 2024 2023 Computation of Income from Property Operations: Net income available for Common Stockholders $ 78,297 $ 62,920 $ 188,202 $ 145,291 Redeemable perpetual preferred stock dividends 8 8 8 8 Income allocated to non-controlling interests – Common OP Units 3,822 3,121 9,188 7,209 Consolidated net income 82,127 66,049 197,398 152,508 Equity in income of unconsolidated joint ventures (579) (973) (862) (1,497) 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 (37,565) (38,913) (67,618) (71,046) Interest income (2,420) (2,259) (4,588) (4,347) Income from other investments, net (2,630) (2,473) (4,668) (4,564) Property management 19,436 19,359 39,146 38,823 Depreciation and amortization 51,344 51,464 102,452 101,966 Cost of home sales, brokered resales and ancillary services 27,650 29,268 49,617 52,409 Home selling expenses and ancillary operating expenses 7,472 7,170 13,619 14,094 General and administrative 8,985 16,607 20,974 28,268 Casualty-related charges/(recoveries), net (1) (6,170) — (21,013) — Other expenses 1,387 1,381 2,718 2,849 Interest and related amortization 36,037 33,122 69,580 65,710 Income from property operations, excluding property management 185,074 179,802 396,516 377,805 Property management (19,436) (19,359) (39,146) (38,823) Income from property operations $ 165,638 $ 160,443 $ 357,370 $ 338,982 _____________________ (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 and six months ended June 30, 2024 and 2023: Quarters Ended June 30, Six Months Ended June 30, (amounts in thousands) 2024 2023 2024 2023 Computation of FFO and Normalized FFO: Net income available for Common Stockholders $ 78,297 $ 62,920 $ 188,202 $ 145,291 Income allocated to non-controlling interests – Common OP Units 3,822 3,121 9,188 7,209 Depreciation and amortization 51,344 51,464 102,452 101,966 Depreciation on unconsolidated joint ventures 1,200 1,081 2,251 2,216 (Gain)/Loss on unconsolidated joint ventures — — — (416) (Gain)/Loss on sale of real estate and impairment, net — — — 2,632 FFO available for Common Stock and OP Unit holders 134,663 118,586 302,093 258,898 Deferred income tax benefit — — (239) — Transaction/pursuit costs and other (1) — — 383 207 Insurance proceeds due to catastrophic weather event (2) (6,170) — (21,013) — Accelerated vesting of stock-based compensation (3) — 6,320 — 6,320 Normalized FFO available for Common Stock and OP Unit holders $ 128,493 $ 124,906 $ 281,224 $ 265,425 Weighted average Common Shares outstanding – Fully Diluted 195,465 195,430 195,505 195,388 _____________________ (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. (3) Represents accelerated vesting of stock-based compensation expense of $6.3 million recognized during the quarter ended June 30, 2023 as a result of the passing of a member of our Board of Directors. 24 Management's Discussion and Analysis (continued) Results of Operations This section discusses the comparison of our results of operations for the quarters and six months ended June 30, 2024 and June 30, 2023 and our operating activities, investing activities and financing activities for the six months ended June 30, 2024 and June 30, 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 and six months ended June 30, 2023 and June 30, 2022 and discussion of our operating activities, investing activities and financing activities for the six months ended June 30, 2023 and June 30, 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 June 30, 2023, filed with the SEC on January 23, 2024. Comparison of the Quarter Ended June 30, 2024 to the Quarter Ended June 30, 2023 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 June 30, Quarters Ended June 30, (amounts in thousands) 2024 2023 Variance % Change 2024 2023 Variance % Change MH base rental income (1) $ 176,529 $ 166,258 $ 10,271 6.2 % $ 176,702 $ 166,416 $ 10,286 6.2 % Rental home income (1) 3,375 3,695 (320) (8.7) % 3,387 3,705 (318) (8.6) % RV and marina base rental income (1) 100,562 98,631 1,931 2.0 % 103,363 101,869 1,494 1.5 % Annual membership subscriptions 16,336 16,128 208 1.3 % 16,369 16,189 180 1.1 % Membership upgrade sales (2) 4,040 3,607 433 12.0 % 4,050 3,614 436 12.1 % Utility and other income (1) 31,352 29,398 1,954 6.6 % 34,680 35,858 (1,178) (3.3) % Property operating revenues 332,194 317,717 14,477 4.6 % 338,551 327,651 10,900 3.3 % Property operating and maintenance (1)(3) 123,030 120,296 2,734 2.3 % 125,689 122,337 3,352 2.7 % Real estate taxes 19,695 18,449 1,246 6.8 % 20,099 18,832 1,267 6.7 % Rental home operating and maintenance 1,557 1,158 399 34.5 % 1,563 1,159 404 34.9 % Membership sales and marketing (4) 6,109 5,514 595 10.8 % 6,126 5,521 605 11.0 % Property operating expenses, excluding property management 150,391 145,417 4,974 3.4 % 153,477 147,849 5,628 3.8 % Income from property operations, excluding property management (5) 181,803 172,300 9,503 5.5 % 185,074 179,802 5,272 2.9 % Property management 19,436 19,360 76 0.4 % 19,436 19,359 77 0.4 % Income from property operations (5) $ 162,367 $ 152,940 $ 9,427 6.2 % $ 165,638 $ 160,443 $ 5,195 3.2 % _____________________ (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 $4.7 million and $5.7 million for the quarters ended June 30, 2024 and June 30, 2023, respectively. (3) Includes bad debt expense for all periods presented. (4) Membership sales and marketing expense is net of sales commission deferrals of $0.9 million for both the quarters ended June 30, 2024 and June 30, 2023. (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 June 30, 2024, increased $5.2 million, or 3.2%, from the quarter ended June 30, 2023, driven by an increase of $9.4 million, or 6.2%, from our Core Portfolio, offset by a decrease of $4.2 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 and utility and other income, partially offset by an increase in property operating and maintenance expenses and real estate taxes. 25 Management's Discussion and Analysis (continued) Property Operating Revenues MH base rental income in our Core Portfolio for the quarter ended June 30, 2024 increased $10.3 million, or 6.2%, from the quarter ended June 30, 2023, which reflects 6.0% growth from rate increases and 0.2% from occupancy gains. The average monthly base rental income per Site in our Core Portfolio increased to approximately $854 for the quarter ended June 30, 2024 from approximately $806 for the quarter ended June 30, 2023. The average occupancy for our Core Portfolio was 94.9% and 94.8% for the quarters ended June 30, 2024 and June 30, 2023, respectively. RV and marina base rental income is comprised of the following: Core Portfolio Total Portfolio Quarters Ended June 30, Quarters Ended June 30, (amounts in thousands) 2024 2023 Variance % Change 2024 2023 Variance % Change Annual $ 74,296 $ 69,717 $ 4,579 6.6 % $ 76,573 $ 72,637 $ 3,936 5.4 % Seasonal 7,720 9,265 (1,545) (16.7) % 7,965 9,486 (1,521) (16.0) % Transient 18,546 19,649 (1,103) (5.6) % 18,825 19,746 (921) (4.7) % RV and marina base rental income $ 100,562 $ 98,631 $ 1,931 2.0 % $ 103,363 $ 101,869 $ 1,494 1.5 % RV and marina base rental income in our Core Portfolio for the quarter ended June 30, 2024 increased $1.9 million, or 2.0%, from the quarter ended June 30, 2023, driven primarily by an increase in Annual RV and marina base rental income. The increase in Annual RV and marina base rental income was partially offset by decreases in Seasonal and Transient RV and marina base rental income of 16.7% and 5.6%, respectively, for the quarter ended June 30, 2024, compared to the same period in 2023. Utility and other income in our Core Portfolio for the quarter ended June 30, 2024 increased $2.0 million, or 6.6%, from the quarter ended June 30, 2023. The increase was primarily due to a $1.2 million and $0.8 million increase in utility income and pass-through income, respectively. The utility recovery rate (utility income divided by utility expenses) for 2024 and 2023 was approximately 46% and 45%, respectively. Property Operating Expenses Property operating expenses, excluding property management, in our Core Portfolio for the quarter ended June 30, 2024 increased $5.0 million, or 3.4%, from the quarter ended June 30, 2023, driven by increases in property operating and maintenance expenses of $2.7 million and real estate taxes of $1.2 million. Core property operating and maintenance expenses were higher in 2024 primarily due to an increase in utility expense of $1.5 million. Real estate taxes were higher in 2024, primarily in the South and North regions, driven by tax increases that were effective in 2023. 26 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 June 30, (amounts in thousands, except home sales volumes) 2024 2023 Variance % Change Gross revenues from new home sales $ 22,706 $ 23,038 $ (332) (1.4) % Cost of new home sales 19,647 20,812 (1,165) (5.6) % Gross revenues from used home sales 1,240 1,034 206 19.9 % Cost of used home sales 769 1,110 (341) (30.7) % Gross revenue from brokered resales and ancillary services 13,619 14,841 (1,222) (8.2) % Cost of brokered resales and ancillary services 7,234 7,346 (112) (1.5) % Home selling and ancillary operating expenses 7,472 7,170 302 4.2 % Home sales volumes New home sales 255 226 29 12.8 % Used home sales 59 66 (7) (10.6) % Brokered home resales 152 201 (49) (24.4) % Gross revenues from new home sales decreased $0.3 million and Cost of new home sales decreased $1.2 million during the quarter ended June 30, 2024, compared to the quarter ended June 30, 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 June 30, (amounts in thousands, except rental unit volumes) 2024 2023 Variance % Change Rental operations revenue (1) $ 8,597 $ 9,827 $ (1,230) (12.5) % Rental home operating and maintenance expenses 1,557 1,158 399 34.5 % Depreciation on rental homes (2) 2,492 2,802 (310) (11.1) % Gross investment in new manufactured home rental units $ 227,569 $ 257,978 $ (30,409) (11.8) % Gross investment in used manufactured home rental units $ 11,521 $ 13,491 $ (1,970) (14.6) % Net investment in new manufactured home rental units $ 187,382 $ 226,759 $ (39,377) (17.4) % Net investment in used manufactured home rental units $ 7,124 $ 9,616 $ (2,492) (25.9) % Number of occupied rentals – new, end of period 1,790 2,236 (446) (19.9) % Number of occupied rentals – used, end of period 226 292 (66) (22.6) % ______________________ (1) Consists of Site rental income and home rental income. Approximately $5.2 million and $6.1 million for the quarters ended June 30, 2024 and June 30, 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 12.5%, lower during the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023, primarily due to a decrease in the number of occupied rentals. 27 Management's Discussion and Analysis (continued) Miscellaneous Other Income and Expenses The following table summarizes other income and expenses, net: Quarters Ended June 30, (amounts in thousands, expenses shown as negative) 2024 2023 Variance % Change Depreciation and amortization $ (51,344) $ (51,464) $ 120 0.2 % Interest income 2,420 2,259 161 7.1 % Income from other investments, net 2,630 2,473 157 6.3 % General and administrative (8,985) (16,607) 7,622 45.9 % Other expenses (1,387) (1,381) (6) (0.4) % Interest and related amortization (36,037) (33,122) (2,915) (8.8) % Total other income and expenses, net $ (92,703) $ (97,842) $ 5,139 5.3 % Total other income and expenses, net decreased $5.1 million for the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023, primarily due to lower general and administrative expenses as a result of an accelerated stock-based compensation expense in 2023, partially offset by higher interest and related amortization. Casualty-related charges/(recoveries), net During the quarters ended June 30, 2024 and June 30, 2023, we recognized expenses of approximately $0.7 million and $1.8 million, respectively, related to debris removal and cleanup costs related to Hurricane Ian and we recognized an offsetting insurance recovery revenue accrual of $0.7 million and $1.8 million, respectively, related to the expected insurance recovery. During the quarters ended June 30, 2024 and June 30, 2023, we also recognized insurance recovery revenue in excess of expenses and business interruption proceeds of approximately $6.2 million and zero, respectively, within Casualty-related charges/(recoveries), net. 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. 28 Management's Discussion and Analysis (continued) Comparison of the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023 Income from Property Operations The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the six months ended June 30, 2024 and 2023: Core Portfolio Total Portfolio Six Months Ended June 30, Six Months Ended June 30, (amounts in thousands) 2024 2023 Variance % Change 2024 2023 Variance % Change MH base rental income (1) $ 351,468 $ 330,662 $ 20,806 6.3 % $ 351,807 $ 330,969 $ 20,838 6.3 % Rental home income (1) 6,879 7,556 (677) (9.0) % 6,903 7,577 (674) (8.9) % RV and marina base rental income (1) 216,190 207,971 8,219 4.0 % 223,530 213,461 10,069 4.7 % Annual membership subscriptions 32,551 31,917 634 2.0 % 32,584 32,159 425 1.3 % Membership upgrade sales (2) 7,987 7,073 914 12.9 % 7,997 7,119 878 12.3 % Utility and other income (1) 62,531 58,919 3,612 6.1 % 69,458 71,189 (1,731) (2.4) % Property operating revenues 677,606 644,098 33,508 5.2 % 692,279 662,474 29,805 4.5 % Property operating and maintenance (1)(3) 235,234 230,658 4,576 2.0 % 240,513 235,044 5,469 2.3 % Real estate taxes 40,112 36,305 3,807 10.5 % 40,886 37,148 3,738 10.1 % Rental home operating and maintenance 2,926 2,117 809 38.2 % 2,941 2,118 823 38.9 % Membership sales and marketing (4) 11,405 10,334 1,071 10.4 % 11,423 10,359 1,064 10.3 % Property operating expenses, excluding property management 289,677 279,414 10,263 3.7 % 295,763 284,669 11,094 3.9 % Income from property operations, excluding property management (5) 387,929 364,684 23,245 6.4 % 396,516 377,805 18,711 5.0 % Property management 39,146 38,824 322 0.8 % 39,146 38,823 323 0.8 % Income from property operations (5) 348,783 325,860 22,923 7.0 % 357,370 338,982 18,388 5.4 % __________________________ (1) Rental income consists of the following total portfolio income items: 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 maintenance expense in this table. (2) Membership upgrade sales revenue is net of deferrals of $8.3 million and $10.1 million for the six months ended June 30, 2024 and June 30, 2023, respectively. (3) Includes bad debt expense for all periods presented. (4) Membership sales and marketing expense is net of sales commission deferrals of $1.3 million and $1.6 million the six months ended June 30, 2024 and June 30, 2023, respectively. (5) See Part I. Item 2. Management's Discussion and Analysis—Non-GAAP Financial Measures for definitions and reconciliation of these Non-GAAP measures to Net Income available for Common Shareholders. Total Portfolio income from property operations for the six months ended June 30, 2024 increased $18.4 million, or 5.4%, from the same period in 2023, driven by an increase of $22.9 million, or 7.0%, from our Core Portfolio, offset by a decrease of $4.5 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 and Utility and other income, partially offset by an increase in property operating and maintenance expenses and real estate taxes. Property Operating Revenues MH base rental income in our Core Portfolio for the six months ended June 30, 2024 increased $20.8 million, or 6.3%, from the same period in 2023, which reflects 6.1% growth from rate increases and 0.2% from occupancy gains. The average monthly base rental income per Site increased to approximately $850 for the six months ended June 30, 2024 from approximately $801 for the six months ended June 30, 2023. The average occupancy for the Core Portfolio was 94.9% for both the six months ended June 30, 2024 and June 30, 2023. 29 Management's Discussion and Analysis (continued) RV and marina base rental income is comprised of the following: Core Portfolio Total Portfolio Six Months Ended June 30, Six Months Ended June 30, (amounts in thousands) 2024 2023 Variance % Change 2024 2023 Variance % Change Annual $ 147,347 $ 137,341 $ 10,006 7.3 % $ 152,048 $ 142,038 $ 10,010 7.0 % Seasonal 35,996 36,871 (875) (2.4) % 37,510 37,446 64 0.2 % Transient 32,847 33,759 (912) (2.7) % 33,972 33,977 (5) — % RV and marina base rental income $ 216,190 $ 207,971 $ 8,219 4.0 % $ 223,530 $ 213,461 $ 10,069 4.7 % RV and marina base rental income in our Core Portfolio for the six months ended June 30, 2024 increased $8.2 million, or 4.0%, from the same period in 2023 primarily due to an increase in Annual RV and marina base rental income, partially offset by a decrease in Seasonal and Transient RV base rental income. The increase in Annual RV and marina base rental income was $10.0 million, or 7.3%. The decrease in Seasonal RV and marina base rental income was $0.9 million, or 2.4%. The decrease in Transient RV and marina base rental income was $0.9 million. Utility and other income in our Core Portfolio for the six months ended June 30, 2024 increased $3.6 million, or 6.1%, from the same period in 2023. The increase was primarily due to an increase in utility income, pass-through income and other property income. The utility recovery rate (utility income divided by utility expenses) for 2024 and 2023 was approximately 46% and 45%, respectively. The increase in pass-through income was due to increases in real estate tax pass-throughs to customers in Florida. Property Operating Expenses Property operating expenses, excluding property management, in our Core Portfolio for the six months ended June 30, 2024 increased $10.3 million, or 3.7%, from the same period in 2023, driven by increases in property operating and maintenance expenses of $4.6 million and real estate taxes of $3.8 million. Core property operating and maintenance expenses were higher during the six months ended June 30, 2024, compared to the same period in 2023 primarily due to increases in insurance of $2.5 million and higher utility expenses. The increase in Core real estate taxes was driven by higher real estate assessments in our Florida portfolio in 2023. Home Sales and Rental Operations Home Sales and Other The following table summarizes certain financial and statistical data for Home Sales and Other Operations: Six Months Ended June 30, (amounts in thousands, except home sales volumes) 2024 2023 Variance % Change Gross revenues from new home sales $ 40,406 $ 41,352 $ (946) (2.3) % Cost of new home sales 35,048 37,474 (2,426) (6.5) % Gross revenues from used home sales 2,078 2,209 (131) (5.9) % Cost of used home sales 1,644 2,055 (411) (20.0) % Gross revenue from brokered resales and ancillary services 25,134 27,485 (2,351) (8.6) % Cost of brokered resales and ancillary services 12,925 12,880 45 0.3 % Home selling and ancillary operating expenses 13,619 14,094 (475) (3.4) % Home sales volumes New home sales 446 402 44 10.9 % Used home sales 113 168 (55) (32.7) % Brokered home resales 261 335 (74) (22.1) % Gross revenues from new home sales decreased $0.9 million and Cost of new home sales decreased $2.4 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to lower average selling prices and lower average cost of home sales. 30 Management's Discussion and Analysis (continued) Rental Operations The following table summarizes certain financial and statistical data for MH Rental Operations: Six Months Ended June 30, (amounts in thousands, except rental unit volumes) 2024 2023 Variance % Change Rental operations revenue (1) $ 17,655 $ 20,085 $ (2,430) (12.1) % Rental home operating and maintenance expenses 2,926 2,117 809 38.2 % Depreciation on rental homes (2) 5,060 5,549 (489) (8.8) % Gross investment in new manufactured home rental units $ 227,569 $ 257,978 $ (30,409) (11.8) % Gross investment in used manufactured home rental units $ 11,521 $ 13,491 $ (1,970) (14.6) % Net investment in new manufactured home rental units $ 187,382 $ 226,759 $ (39,377) (17.4) % Net investment in used manufactured home rental units $ 7,124 $ 9,616 $ (2,492) (25.9) % Number of occupied rentals – new, end of period 1,790 2,236 (446) (19.9) % Number of occupied rentals – used, end of period 226 292 (66) (22.6) % ______________________ (1) Consists of Site rental income and home rental income in our Core Portfolio. Approximately $10.8 million and $12.5 million of Site rental income for the six months ended June 30, 2024 and 2023, respectively, are included in MH base rental income within the Core Portfolio Income from Property Operations table. The remainder of home rental income is included in Rental home income within the 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 $2.4 million or 12.1% lower during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to a decrease in the number of occupied rentals. Miscellaneous Other Income and Expenses The following table summarizes other income and expenses, net: Six Months Ended June 30, (amounts in thousands, expenses shown as negative) 2024 2023 Variance % Change Depreciation and amortization $ (102,452) $ (101,966) $ (486) (0.5) % Interest income 4,588 4,347 241 5.5 % Income from other investments, net 4,668 4,564 104 2.3 % General and administrative (20,974) (28,268) 7,294 25.8 % Other expenses (2,718) (2,849) 131 4.6 % Interest and related amortization (69,580) (65,710) (3,870) (5.9) % Total other income and expenses, net $ (186,468) $ (189,882) $ 3,414 1.8 % Total other income and expenses, net decreased $3.4 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to lower general and administrative expense primarily as a result of accelerated vesting of stock-based compensation expense in 2023 partially offset by interest and related amortization. Casualty-related charges/(recoveries), net During the six months ended June 30, 2024 and June 30, 2023, we recognized expenses of approximately $1.2 million and $10.3 million, respectively, related to debris removal and cleanup costs related to Hurricane Ian and we recognized an offsetting insurance recovery revenue of $1.2 million and $10.3 million, respectively, related to the expected insurance recovery. During the six months ended June 30, 2024 and June 30, 2023, we also recognized insurance recovery revenue in excess of expenses and business interruption proceeds of approximately $21.0 million and zero, respectively, within Casualty-related charges/(recoveries), net. 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. 31 Management's Discussion and Analysis (continued) 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 June 30, 2024, the full capacity of our ATM equity offering program remained available for issuance. As of June 30, 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 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 . 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 June 30, 2024, our LOC had a borrowing capacity of $485.9 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 six months ended June 30, (amounts in thousands) 2024 2023 Net cash provided by operating activities $ 341,877 $ 266,826 Net cash used in investing activities (104,606) (153,606) Net cash used in financing activities (231,550) (107,460) Net increase in cash and restricted cash $ 5,721 $ 5,760 Operating Activities Net cash provided by operating activities increased $75.1 million to $341.9 million for the six months ended June 30, 2024 from $266.8 million for the six months ended June 30, 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. 32 Management's Discussion and Analysis (continued) The following table summarizes our purchase and sale activity of manufactured homes: For the six months ended June 30, (amounts in thousands) 2024 2023 Purchase of manufactured homes $ (24,537) $ (66,562) Sale of manufactured homes 34,497 36,160 Manufactured homes, net $ 9,960 $ (30,402) Investing Activities Net cash used in investing activities decreased $49.0 million to $104.6 million for the six months ended June 30, 2024 from $153.6 million for the six months ended June 30, 2024. The decrease was due to a decrease in capital improvement spending of $31.8 million, a decrease in spending on acquisitions of $9.2 million, and an increase in Hurricane Ian proceeds in 2024 compared to same period in 2023. Capital Improvements The following table summarizes capital improvements: For the six months ended June 30, (amounts in thousands) 2024 2023 Asset preservation (1) $ 20,869 $ 24,994 Improvements and renovations (2) 15,173 19,691 Property upgrades and development (3) 69,352 83,509 Site development (4) 7,130 20,176 Total property improvements 112,524 148,370 Corporate 4,707 631 Total capital improvements $ 117,231 $ 149,001 ______________________ (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 $10.4 million of restoration and improvement capital expenditures related to Hurricane Ian for the six months ended June 30, 2024. (4) Includes capital expenditures to improve the infrastructure required to set manufactured homes. Financing Activities Net cash used in financing activities increased $124.1 million to $231.6 million for the six months ended June 30, 2024 from $107.5 million for the six months ended June 30, 2023. The increase was primarily due to a higher line of credit, net repayment of $24.0 million and a decrease in mortgage note financing proceeds of $88.8 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 June 30, 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 June 30, 2024. 33 Management's Discussion and Analysis (continued) 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,” “estimate,” “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 that could cause actual results or outcomes to differ materially from those expressed in a forward-looking statement due to a number of factors, 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; • 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; • our ability to execute expansion/development opportunities in the face of changes impacting the supply chain or labor markets; • 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. For further information on these and other factors that could impact us and the statements contained herein, refer to Part I. Item 1A. Risk Factors in the 2023 Form 10-K and Part II. Item 1A. Risk Factors herein . 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. 34 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.