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EQUITY LIFESTYLE PROPERTIES INC - Quarter Report: 2018 September (Form 10-Q)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________ 
FORM 10-Q
_________________________________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number: 1-11718
_________________________________________________________ 
EQUITY LIFESTYLE PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
_________________________________________________________ 
Maryland
36-3857664
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 
 
Two North Riverside Plaza, Suite 800, Chicago, Illinois
60606
(Address of Principal Executive Offices)
(Zip Code)
(312) 279-1400
(Registrant’s Telephone Number, Including Area Code)
_________________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o  
Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
89,747,439 shares of Common Stock as of October 19, 2018.
 



Equity LifeStyle Properties, Inc.
Table of Contents
 
 
 
Page
Item 1.
Financial Statements (unaudited)
 
Index To Financial Statements
 
Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
Consolidated Statements of Income and Comprehensive Income for the quarters and nine months ended September 30, 2018 and 2017
Consolidated Statements of Changes in Equity for the quarters and nine months ended September 30, 2018 and 2017
Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2


Part I – Financial Information
Item 1. Financial Statements

Equity LifeStyle Properties, Inc.
Consolidated Balance Sheets
(amounts in thousands, except share and per share data)
 
As of
 
As of
 
September 30, 2018
 
December 31, 2017

(unaudited)
 
 
Assets
 
 
 
Investment in real estate:
 
 
 
Land
$
1,342,925

 
$
1,221,375

Land improvements
3,114,815

 
3,045,221

Buildings and other depreciable property
708,600

 
649,217

 
5,166,340

 
4,915,813

Accumulated depreciation
(1,613,158
)
 
(1,516,694
)
Net investment in real estate
3,553,182

 
3,399,119

Cash and restricted cash
112,410

 
31,085

Notes receivable, net
35,889

 
49,477

Investment in unconsolidated joint ventures
57,366

 
53,080

Deferred commission expense
40,352

 
31,443

Escrow deposits, goodwill, and other assets, net
55,838

 
45,828

Total Assets
$
3,855,037

 
$
3,610,032

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Mortgage notes payable, net
$
2,016,257

 
$
1,971,715

Term loan
198,545

 
198,302

Unsecured line of credit
80,000

 
30,000

Accrued expenses and accounts payable
102,620

 
80,744

Deferred revenue – upfront payments from right-to-use contracts
115,172

 
85,596

Deferred revenue – right-to-use annual payments
11,025

 
9,932

Accrued interest payable
8,369

 
8,387

Rents and other customer payments received in advance and security deposits
80,011

 
79,267

Distributions payable
52,521

 
46,047

Total Liabilities
2,664,520

 
2,509,990

Equity:
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 10,000,000 shares authorized as of September 30, 2018 and December 31, 2017; none issued and outstanding.

 

Common stock, $0.01 par value, 200,000,000 shares authorized as of September 30, 2018 and December 31, 2017; 89,746,747 and 88,585,160 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively.
895

 
883

Paid-in capital
1,325,648

 
1,242,109

Distributions in excess of accumulated earnings
(211,743
)
 
(211,980
)
Accumulated other comprehensive income
3,959

 
942

Total Stockholders’ Equity
1,118,759

 
1,031,954

Non-controlling interests – Common OP Units
71,758

 
68,088

Total Equity
1,190,517

 
1,100,042

Total Liabilities and Equity
$
3,855,037

 
$
3,610,032












The accompanying notes are an integral part of these Consolidated Financial Statements.

3


Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income
(amounts in thousands, except per share data)
(unaudited)

 
Quarters Ended September 30,

Nine Months Ended September 30,
 
2018

2017

2018

2017
Revenues:
 
 
 
 
 
 
 
Community base rental income
$
130,746

 
$
123,177

 
$
386,064

 
$
365,833

Rental home income
3,507

 
3,592

 
10,583

 
10,829

Resort base rental income
64,351

 
58,471

 
183,836

 
169,594

Right-to-use annual payments
12,206

 
11,531

 
35,616

 
34,133

Right-to-use contracts current period, gross
4,863

 
4,208

 
11,969

 
11,212

Right-to-use contract upfront payments, deferred, net
(2,883
)
 
(1,670
)
 
(6,189
)
 
(3,766
)
Utility and other income
25,917

 
26,295

 
75,758

 
69,071

Gross revenues from home sales
9,339

 
10,012

 
26,753

 
24,872

Brokered resale and ancillary services revenues, net
1,362

 
1,983

 
3,380

 
4,088

Interest income
1,846

 
1,974

 
5,658

 
5,542

Income from other investments, net
5,421

 
2,052

 
9,774

 
3,918

Total revenues
256,675

 
241,625


743,202


695,326

Expenses:
 
 
 
 
 
 
 
Property operating and maintenance
84,445

 
80,164

 
239,444

 
221,119

Rental home operating and maintenance
1,904

 
1,704

 
4,957

 
4,912

Real estate taxes
13,240

 
14,006

 
40,815

 
41,986

Sales and marketing, gross
3,568

 
3,277

 
9,685

 
8,861

Right-to-use contract commissions, deferred, net
(458
)
 
(176
)
 
(744
)
 
(372
)
Property management
13,589

 
13,160

 
40,742

 
38,743

Depreciation on real estate assets and rental homes
32,856

 
30,493

 
96,630

 
90,849

Amortization of in-place leases
2,124

 
138

 
5,069

 
2,128

Cost of home sales
9,742

 
10,377

 
27,948

 
25,391

Home selling expenses
1,101

 
1,447

 
3,149

 
3,301

General and administrative
8,816

 
7,505

 
26,523

 
23,339

Other expenses
386

 
324

 
1,096

 
814

Interest and related amortization
26,490

 
25,027

 
78,478

 
74,728

Total expenses
197,803

 
187,446


573,792


535,799

Income before equity in income of unconsolidated joint ventures
58,872

 
54,179


169,410


159,527

Equity in income of unconsolidated joint ventures
788

 
686

 
3,596

 
2,876

Consolidated net income
59,660

 
54,865


173,006


162,403

 
 
 
 
 
 
 
 
Income allocated to non-controlling interests – Common OP Units
(3,590
)
 
(3,286
)
 
(10,569
)
 
(9,825
)
Redeemable perpetual preferred stock dividends and original issuance costs

 
(3,054
)
 
(8
)
 
(7,667
)
Net income available for Common Stockholders
$
56,070

 
$
48,525


$
162,429


$
144,911

 
 
 
 
 
 
 
 
Consolidated net income
$
59,660

 
$
54,865

 
$
173,006

 
$
162,403

Other comprehensive income:
 
 
 
 
 
 
 
Adjustment for fair market value of swap
380

 
(30
)
 
3,017

 
227

Consolidated comprehensive income
60,040

 
54,835


176,023


162,630

Comprehensive income allocated to non-controlling interests – Common OP Units
(3,613
)
 
(3,237
)
 
(10,754
)
 
(9,792
)
Redeemable perpetual preferred stock dividends and original issuance costs

 
(3,054
)
 
(8
)
 
(7,667
)
Comprehensive income attributable to Common Stockholders
$
56,427

 
$
48,544


$
165,261


$
145,171













The accompanying notes are an integral part of these Consolidated Financial Statements.

4


Equity LifeStyle Properties, Inc.
Consolidated Statements of Income and Comprehensive Income (Continued)
(amounts in thousands, except per share data)
(unaudited)
 
Quarters Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Earnings per Common Share – Basic:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.63

 
$
0.56

 
$
1.83

 
$
1.67

Earnings per Common Share – Fully Diluted:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.63

 
$
0.56

 
$
1.82

 
$
1.66

 
 
 
 
 
 
 
 
Weighted average Common Shares outstanding – basic
89,200

 
87,037

 
88,760

 
86,620

Weighted average Common Shares outstanding – fully diluted
95,263

 
93,324

 
94,827

 
93,135


























































The accompanying notes are an integral part of these Consolidated Financial Statements.

5


Equity LifeStyle Properties, Inc.
Consolidated Statements of Changes in Equity
(amounts in thousands)
(unaudited)
 
Common
Stock
 
Paid-in
Capital
 
Redeemable Perpetual
Preferred  Stock
 
Distributions
in Excess of
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss/(Income)
 
Non-
controlling
interests –
Common OP
Units
 
Total
Equity
Balance, December 31, 2017
$
883

 
$
1,242,109

 
$

 
$
(211,980
)
 
$
942

 
$
68,088

 
$
1,100,042

Cumulative effect of change in accounting principle (as described in Note 2)

 

 

 
(15,186
)
 

 

 
(15,186
)
Balance, January 1, 2018
883

 
1,242,109

 

 
(227,166
)
 
942

 
68,088

 
1,084,856

Exchange of Common OP Units for Common Stock

 
80

 

 

 

 
(80
)
 

Issuance of Common Stock through employee stock purchase plan

 
503

 

 

 

 

 
503

Compensation expenses related to restricted stock and stock options

 
1,800

 

 

 

 

 
1,800

Adjustment for Common OP Unitholders in the Operating Partnership

 
782

 

 

 

 
(782
)
 

Adjustment for fair market value of swap

 

 

 

 
1,873

 

 
1,873

Consolidated net income

 

 

 
60,222

 

 
3,955

 
64,177

Distributions

 

 

 
(48,805
)
 

 
(3,205
)
 
(52,010
)
Other

 
(60
)
 

 

 

 

 
(60
)
Balance, March 31, 2018
883

 
1,245,214

 

 
(215,749
)
 
2,815

 
67,976

 
1,101,139

Exchange of Common OP Units for Common Stock
1

 
81

 

 

 

 
(82
)
 

Issuance of Common Stock through employee stock purchase plan

 
343

 

 

 

 

 
343

Compensation expenses related to restricted stock and stock options

 
2,741

 

 

 

 

 
2,741

Adjustment for Common OP Unitholders in the Operating Partnership

 
(57
)
 

 

 

 
57

 

Adjustment for fair market value of swap

 

 

 

 
764

 

 
764

Consolidated net income

 

 
8

 
46,137

 

 
3,024

 
49,169

Distributions

 

 
(8
)
 
(48,841
)
 

 
(3,201
)
 
(52,050
)
Other

 
(275
)
 

 

 

 

 
(275
)
Balance, June 30, 2018
884

 
1,248,047

 

 
(218,453
)
 
3,579

 
67,774

 
1,101,831

Exchange of Common OP Units for Common Stock
1

 
858

 

 

 

 
(859
)
 

Issuance of Common Stock through employee stock purchase plan

 
765

 

 

 

 

 
765

Issuance of Common Stock
10

 
78,745

 

 

 

 

 
78,755

Compensation expenses related to restricted stock and stock options

 
2,746

 

 

 

 

 
2,746

Adjustment for Common OP Unitholders in the Operating Partnership

 
(4,414
)
 

 

 

 
4,414

 

Adjustment for fair market value of swap

 

 

 

 
380

 

 
380

Consolidated net income

 

 

 
56,070

 

 
3,590

 
59,660

Distributions

 

 

 
(49,360
)
 

 
(3,161
)
 
(52,521
)
Other

 
(1,099
)
 

 

 

 

 
(1,099
)
Balance, September 30, 2018
$
895

 
$
1,325,648

 
$

 
$
(211,743
)
 
$
3,959

 
$
71,758

 
$
1,190,517










The accompanying notes are an integral part of these Consolidated Financial Statements.

6



Equity LifeStyle Properties, Inc.
Consolidated Statements of Changes in Equity
(amounts in thousands)
(unaudited)
 
Common
Stock
 
Paid-in
Capital
 
Redeemable Perpetual
Preferred  Stock
 
Distributions
in Excess of
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss/(Income)
 
Non-
controlling
interests –
Common OP
Units
 
Total
Equity
Balance, January 1, 2017
$
854

 
$
1,103,048

 
$
136,144

 
$
(231,276
)
 
$
(227
)
 
$
73,304

 
$
1,081,847

Exchange of Common OP Units for Common Stock
12

 
15,339

 


 


 


 
(15,351
)
 

Issuance of Common Stock through employee stock purchase plan

 
403

 

 

 

 

 
403

Compensation expenses related to restricted stock and stock options

 
1,755

 

 

 

 

 
1,755

Adjustment for Common OP Unitholders in the Operating Partnership

 
(2,885
)
 

 

 

 
2,885

 

Adjustment for fair market value of swap

 

 

 

 
226

 

 
226

Consolidated net income

 

 
2,297

 
56,888

 

 
3,890

 
63,075

Distributions

 

 
(2,297
)
 
(42,335
)
 

 
(2,895
)
 
(47,527
)
Other

 
(32
)
 

 
(1
)
 

 

 
(33
)
Balance, March 31, 2017
866

 
1,117,628

 
136,144

 
(216,724
)
 
(1
)
 
61,833

 
1,099,746

Exchange of Common OP Units for Common Stock
1

 
1,085

 

 

 

 
(1,086
)
 

Issuance of Common Stock through employee stock purchase plan

 
361

 

 

 

 

 
361

Compensation expenses related to restricted stock and stock options

 
2,502

 

 

 

 

 
2,502

Adjustment for Common OP Unitholders in the Operating Partnership

 
(152
)
 

 

 

 
152

 

Adjustment for fair market value of swap

 

 

 

 
31

 

 
31

Consolidated net income

 

 
2,316

 
39,497

 

 
2,649

 
44,462

Distributions

 

 
(2,316
)
 
(42,415
)
 

 
(2,845
)
 
(47,576
)
Other

 
(116
)
 

 
1

 

 

 
(115
)
Balance, June 30, 2017
867

 
1,121,308

 
136,144

 
(219,641
)
 
30

 
60,703

 
1,099,411

Exchange of Common OP Units for Common Stock

 
5

 

 

 

 
(5
)
 

Issuance of Common Stock through employee stock purchase plan

 
851

 

 

 

 

 
851

Issuance of Common Stock
5

 
42,032

 

 

 

 

 
42,037

Compensation expenses related to restricted stock and stock options

 
2,556

 

 

 

 

 
2,556

Adjustment for Common OP Unitholders in the Operating Partnership

 
(2,276
)
 

 

 

 
2,276

 

Adjustment for fair market value of swap

 

 

 

 
(30
)
 

 
(30
)
Consolidated net income

 

 
3,054

 
48,525

 

 
3,286

 
54,865

Distributions

 

 
(2,297
)
 
(42,655
)
 

 
(2,844
)
 
(47,796
)
Series C Preferred stock redemption

 

 
(136,144
)
 

 

 

 
(136,144
)
Series C Preferred stock original issuance costs

 
757

 
(757
)
 

 

 

 

Other

 
(575
)
 

 

 

 

 
(575
)
Balance, September 30, 2017
$
872


$
1,164,658


$


$
(213,771
)

$


$
63,416


$
1,015,175

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 


The accompanying notes are an integral part of these Consolidated Financial Statements.

7


Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited) 
 
Nine Months Ended September 30,
 
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
Consolidated net income
$
173,006

 
$
162,403

Adjustments to reconcile Consolidated net income to Net cash provided by operating activities:
 
 
 
Depreciation
97,729

 
91,781

Amortization of in-place leases
5,069

 
2,128

Amortization of loan costs
2,675

 
2,676

Debt premium amortization
(1,061
)
 
(1,664
)
Equity in income of unconsolidated joint ventures
(3,596
)
 
(2,876
)
Distributions of income from unconsolidated joint ventures
2,869

 
2,071

Proceeds from insurance claims, net
(3,353
)
 
(134
)
Compensation expenses related to restricted stock and stock options
7,287

 
6,813

Revenue recognized from right-to-use contract upfront payments
(5,780
)
 
(7,440
)
Commission expense recognized related to right-to-use contracts
2,715

 
3,327

Long-term incentive plan compensation
819

 
1,011

Provision for (recovery of) uncollectible rents receivable
412

 
(52
)
Changes in assets and liabilities:
 
 
 
Notes receivable activity, net
280

 
(337
)
Deferred commission expense
(3,424
)
 
(3,560
)
Escrow deposits, goodwill and other assets
17,910

 
21,822

Accrued expenses and accounts payable
13,858

 
16,752

Deferred revenue – upfront payments from right-to-use contracts
11,969

 
11,210

Deferred revenue – right-to-use annual payments
1,093

 
696

Rents received in advance and security deposits
665

 
(3,305
)
Net cash provided by operating activities
321,142

 
303,322

Cash Flows From Investing Activities:
 
 
 
Real estate acquisitions, net
(131,804
)
 
(2,163
)
Investment in unconsolidated joint ventures
(3,914
)
 
(33,479
)
Distributions of capital from unconsolidated joint ventures
168

 
640

Proceeds from insurance claims
6,615

 
1,547

Repayments of notes receivable
21,618

 
7,643

Issuance of notes receivable
(8,716
)
 
(22,297
)
Capital improvements
(128,436
)
 
(87,877
)
Net cash used in investing activities
(244,469
)
 
(135,986
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from stock options and employee stock purchase plan
1,610

 
1,615

Gross proceeds from sale of Common Stock
78,755

 
42,037

Distributions:
 
 
 
Common Stockholders
(140,850
)
 
(121,114
)
Common OP Unitholders
(9,250
)
 
(8,786
)
Perpetual Preferred Stockholders
(8
)
 
(6,910
)
Principal payments and mortgage debt payoff
(36,308
)
 
(60,392
)
New mortgage notes payable financing proceeds
64,014

 
146,000

Line of Credit payoff
(174,000
)
 

Line of Credit proceeds
224,000

 

Redemption of preferred stock

 
(136,144
)
Debt issuance and defeasance costs
(1,878
)
 
(1,864
)
Other
(1,433
)
 
(723
)
Net cash provided by (used in) financing activities
4,652

 
(146,281
)
Net increase in Cash and restricted cash
81,325

 
21,055

Cash and restricted cash, beginning of period
31,085

 
56,340

Cash and restricted cash, end of period
$
112,410

 
$
77,395


The accompanying notes are an integral part of these Consolidated Financial Statements.

8


Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows (continued)
(amounts in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2018
 
2017
Supplemental Information:
 
 
 
Cash paid during the period for interest
$
76,881

 
$
76,713

Building and other depreciable property – reclassification of rental homes
29,170

 
25,852

Escrow deposits and other assets – reclassification of rental homes
(29,170
)
 
(25,852
)
 
 
 
 
Real estate acquisitions:
 
 
 
Investment in real estate, fair value
$
(150,926
)
 
$
(7,985
)
Investment in real estate, cost

 
(110
)
Escrow deposits and other assets
(9
)
 

Debt assumed
9,200

 
5,900

Debt financed
8,786

 

Accrued expenses and accounts payable
1,066

 
32

Rents and other customer payments received in advance and security deposits
79

 

Real estate acquisitions, net
$
(131,804
)
 
$
(2,163
)
















































The accompanying notes are an integral part of these Consolidated Financial Statements.

9


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements


Note 1 – Basis of Presentation
Equity LifeStyle Properties, Inc., a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and other consolidated subsidiaries (“Subsidiaries”) are referred to herein as “we,” “us,” and “our.” We are a fully integrated owner and operator of lifestyle-oriented properties ("Properties") consisting primarily of manufactured home ("MH") communities and recreational vehicle ("RV") resorts and campgrounds. We provide our customers the opportunity to place factory built homes, cottages, cabins or RVs on our properties either on a long-term or short-term basis. Our customers may lease individual developed areas ("Sites") or enter right-to-use contracts, which provide them access to specific Properties for limited stays.
Capitalized terms used but not defined herein are as defined in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”). These unaudited interim Consolidated Financial Statements have been prepared pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all of the information and note disclosures required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements and should be read in conjunction with the financial statements and notes thereto included in the 2017 Form 10-K.
The following notes to the unaudited interim Consolidated Financial Statements highlight significant changes to the notes included in the 2017 Form 10-K and present interim disclosures as required by the SEC. The accompanying Consolidated Financial Statements reflect, in the opinion of management, all adjustments and estimates necessary for a fair presentation of the interim financial statements, which are of a normal, recurring nature. Revenues and expenses are subject to seasonal fluctuations and accordingly, quarterly interim results may not be indicative of full year results.
Note 2 – Summary of Significant Accounting Policies
(a)
Consolidation
We consolidate our majority-owned Subsidiaries in which we have the ability to control the operations and all variable interest entities ("VIEs") with respect to which we are the primary beneficiary. We have determined the Operating Partnership, which is our sole significant asset, meets the definition of a VIE. Therefore, we consolidate the Operating Partnership. We also consolidate entities in which we have a direct or indirect controlling or voting interest. All significant intercompany balances and transactions have been eliminated in consolidation.
We apply the equity method of accounting to entities in which we do not have a direct or indirect controlling interest or for variable interest entities where we are not considered the primary beneficiary, but can exercise significant influence over the entity with respect to its operations and major decisions. We apply the cost method of accounting when our investment is (i) minimal (typically less than 5.0%) and (ii) passive. Our exposure to losses associated with unconsolidated joint ventures is primarily limited to the carrying value of these investments. Accordingly, distributions from a joint venture in excess of our carrying value are recognized in earnings.
(b)
Identified Intangibles and Goodwill
As of both September 30, 2018 and December 31, 2017, the gross carrying amount of identified intangible assets and goodwill, a component of Escrow deposits, goodwill and other assets, net on the Consolidated Balance Sheets, was approximately $12.1 million. As of both September 30, 2018 and December 31, 2017, this amount was comprised of approximately $4.3 million of identified intangible assets and approximately $7.8 million of goodwill. Accumulated amortization of identified intangible assets was approximately $3.0 million and $2.9 million as of September 30, 2018 and December 31, 2017, respectively.
As of September 30, 2018 and December 31, 2017, the gross carrying amount of in-place lease intangible assets, a component of Buildings and other depreciable property on the Consolidated Balance Sheets, was approximately $84.9 million and $76.7 million, respectively. Accumulated amortization of in-place lease intangible assets was approximately $81.7 million and $76.5 million as of September 30, 2018 and December 31, 2017, respectively.
(c)
Restricted Cash
As of both September 30, 2018 and December 31, 2017, Cash and restricted cash included approximately $5.3 million of restricted cash for the payment of capital improvements, insurance or real estate taxes pursuant to certain loan agreements.



10

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (continued)

(d)
Fair Value of Financial Instruments
Our financial instruments include notes receivable, accounts receivable, accounts payable, other accrued expenses, interest rate swaps and mortgage notes payable. We disclose the estimated fair value of our financial instruments according to a fair value hierarchy (Level 1, 2 and 3).
Our mortgage notes payable and term loan, excluding deferred financing costs of approximately $23.6 million and $23.7 million as of September 30, 2018 and December 31, 2017, respectively, had an aggregate carrying value of approximately $2,238.4 million and $2,193.7 million as of September 30, 2018 and December 31, 2017, respectively, and a fair value of approximately $2,200.8 million and $2,184.0 million as of September 30, 2018 and December 31, 2017, respectively. The fair value was measured using quoted prices and observable inputs from similar liabilities (Level 2). At September 30, 2018 and December 31, 2017, our cash flow hedge of interest rate risk included in Escrow deposits, goodwill and other assets, net was measured using quoted prices and observable inputs from similar assets and liabilities (Level 2). We consider our own credit risk as well as the credit risk of our counterparties when evaluating the fair value of our derivative. The fair values of our notes receivable approximate their carrying or contract values. We also utilize Level 2 inputs as part of our determination of the purchase price allocation for our acquisitions.
(e)
Revenue Recognition
Our revenue streams are predominantly derived from customers renting our Sites and are accounted for in accordance with ("ASC 840"), Leases, which include the following classifications on the Consolidated Statements of Income and Comprehensive Income: Community base rental income; Rental home income; Resort base rental income; and Utility and other income. Customers lease the Site on which their home is located, and either own or lease their home. Lease revenues for Sites and homes are accounted for as operating leases and recognized over the term of the respective lease or the length of a customer’s stay. A typical lease for the rental of a Site between us and the owner or renter of a home is month-to-month or for a one-year term, renewable upon the consent of both parties, or in some instances, as provided by statute.
All other classifications on the Consolidated Statements of Income and Comprehensive Income are accounted for under other applicable accounting standards.

We enter into right-to-use contracts that give the customer the right to a set schedule of usage at a specified group of Properties. Payments are deferred and recognized ratably over the one year period in which access to Sites at certain Properties are provided. Right-to-use upgrade contracts grant certain additional access rights to the customer and require upfront non-refundable payments. The right-to-use upfront non-refundable payments are recognized on a straight-line basis over 20 years. On January 1, 2018, we adopted (“ASU 2014-09”), Revenue from Contracts with Customers. See Recently Adopted Accounting Pronouncements within Note 2 for further discussion.

Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred.
(f)
Recently Adopted Accounting Pronouncements
On January 1, 2018, we adopted on a prospective basis ("ASU 2017-01") Business Combinations: Clarifying the Definition of a Business (Topic 805). This guidance clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not considered a business and, thus, is accounted for as an asset acquisition rather than a business combination. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not considered a business. Under this new guidance, transaction costs associated with asset acquisitions are capitalized, while transaction costs associated with business combinations are expensed as incurred. All of the acquisitions completed subsequent to January 1, 2018 met the screen and, therefore, were accounted for as asset acquisitions and, as such, the related transaction costs of $1.5 million were capitalized for the nine months ended September 30, 2018.
On January 1, 2018, we adopted (“ASU 2016-18”) Statement of Cash Flows: Restricted Cash (Topic 230). This guidance requires companies to include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this guidance did not have any effect on the Consolidated Financial Statements.

11

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (continued)

On January 1, 2018, we adopted (“ASU 2016-15”) Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230) on a retrospective basis. This update adds or clarifies guidance on the classification of certain cash receipts and payments on the Consolidated Statements of Cash Flows. The adoption of ASU 2016-15 impacted our classification of proceeds from the settlement of insurance claims and distributions received from equity method investments. The retrospective adoption of this guidance resulted in the reclassification of $1.5 million of insurance proceeds from Operating Activities to Investing Activities and $0.6 million of distributions from equity method investments from Operating Activities to Investing Activities on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2017.
On January 1, 2018, we adopted ASU 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. We applied the modified retrospective method to our right-to-use upgrade contracts and related commissions that were not fully amortized as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. As a result of the cumulative impact of adopting this guidance, we recorded a net reduction to retained earnings of approximately $15.2 million as of January 1, 2018 in Distributions in excess of accumulated earnings on the Consolidated Statement of Changes in Equity. There have not been significant changes to our business processes, systems, or internal controls as a result of implementing the standard. In addition to the information included within Note 2 regarding the impact of ASU 2014-09, also see Note 10, Reportable Segments, for further disaggregation of our various revenue streams by major source.

The cumulative effect adjustments resulting from the adoption of ASU 2014-09 as of January 1, 2018 were as follows:
    
(amounts in thousands)
 
Balance at December 31, 2017
 
Adjustment due to ASU 2014-09 Adoption
 
Balance at January 1, 2018
Assets
 
 
 
 
 
 
Deferred commission expense
 
$
31,443

 
$
8,200

 
$
39,643

Liabilities
 
 
 
 
 
 
Deferred revenue-upfront payment from right-to-use contracts
 
$
85,596

 
$
23,386

 
$
108,982

Equity
 
 
 
 
 
 
Distribution in excess of accumulated earnings
 
$
(211,980
)
 
$
(15,186
)
 
$
(227,166
)
The impact of ASU 2014-09 on the Company’s Consolidated Statements of Income and Comprehensive Income for the quarter ended September 30, 2018 was as follows:
(amounts in thousands, except per share data)
 
As Reported
 
Balances Without Adoption of ASU 2014-09 (a)
 
Effect of Change Higher/(Lower)
Revenues
 
 
 
 
 
 
Right-to-use contract upfront payments, deferred, net
 
$
(2,883
)
 
$
(2,131
)
 
$
752

Total revenues
 
$
256,675

 
$
257,427

 
$
(752
)
 
 
 
 
 
 


Expenses
 
 
 
 
 


Right-to-use contract commissions, deferred, net
 
$
(458
)
 
$
(245
)
 
$
213

Total expenses
 
$
197,803

 
$
198,016

 
$
(213
)
 
 
 
 
 
 


Consolidated net income
 
$
59,660

 
$
60,189

 
$
(529
)
Net income available for Common Stockholders
 
$
56,070

 
$
56,567

 
$
(497
)
Earnings per Common Share - Basic
 
$
0.63

 
$
0.63

 
$

Earnings per Common Share - Fully Diluted
 
$
0.63

 
$
0.63

 
$

_____________________
(a) Represents the amounts that would have been reported under GAAP that existed prior to the January 1, 2018 adoption of ASU 2014-09.

12

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (continued)

The impact of ASU 2014-09 on the Company’s Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2018 was as follows:
(amounts in thousands, except per share data)
 
As Reported
 
Balances Without Adoption of ASU 2014-09 (a)
 
Effect of Change Higher/(Lower)
Revenues
 
 
 
 
 
 
Right-to-use contract upfront payments, deferred, net
 
$
(6,189
)
 
$
(3,968
)
 
$
2,221

Total revenues
 
$
743,202

 
$
745,423

 
$
(2,221
)
 
 
 
 
 
 


Expenses
 
 
 
 
 


Right-to-use contract commissions, deferred, net
 
$
(744
)
 
$
(81
)
 
$
663

Total expenses
 
$
573,792

 
$
574,455

 
$
(663
)
 
 
 
 
 
 


Consolidated net income
 
$
173,006

 
$
174,554

 
$
(1,548
)
Net income available for Common Stockholders
 
$
162,429

 
$
163,890

 
$
(1,461
)
Earnings per Common Share - Basic
 
$
1.83

 
$
1.85

 
$
(0.02
)
Earnings per Common Share - Fully Diluted
 
$
1.82

 
$
1.84

 
$
(0.02
)
_____________________
(a) Represents the amounts that would have been reported under GAAP that existed prior to the January 1, 2018 adoption of ASU 2014-09.
(g)
New Accounting Pronouncements
In August 2018, the FASB issued ("ASU 2018-15") Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 provides clarity on the accounting for implementation costs of a cloud computing arrangement that is a service contract. The project stage (that is, preliminary project stage, application development stage, or post implementation stage) and the nature of the implementation costs determine which costs to capitalize as an asset related to the service contract and which ones to expense. This update also requires the capitalized implementation costs to be expensed over the term of the arrangement and presented in the same line item in the Consolidated Financial Statements as the fees associated with the service of the arrangement. ASU 2018-15 is effective in fiscal years beginning after December 15, 2019, including interim periods within those years. Early adoption is permitted. This guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently in the process of evaluating the potential impact, if any, that the adoption of this standard may have on the Consolidated Financial Statements and related disclosures.
In August 2017, the FASB issued ("ASU 2017-12") Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815). ASU 2017-12 provides guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments including ineffectiveness will be recorded in Other comprehensive income ("OCI") and amounts deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported. The new guidance also amends the presentation and disclosure requirements. The intention is to align hedge accounting with companies' risk management strategies more closely, thereby simplifying the application of hedge accounting and increasing transparency as to the scope and results of hedging programs. ASU 2017-12 is effective in fiscal years beginning after December 15, 2018, including interim periods within those years. We are currently in the process of evaluating the potential impact, if any, that the adoption of this standard may have on the Consolidated Financial Statements and related disclosures.
In June 2016, the FASB issued (“ASU 2016-13”) Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We are currently in the process of evaluating the potential impact, if any, that adoption of this standard may have on the Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ("ASU 2016-02") Leases, regarding the accounting for leases for both lessees and lessors. The pronouncement generally requires lessees to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. In July 2018, ASU 2016-02 was amended, providing another transition

13

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (continued)

method by allowing companies to initially apply the new lease standard in the period of adoption, recognizing a cumulative-effect adjustment to the opening balance sheet of retained earnings, if necessary. The lease standard amendment also provided a practical expedient for an accounting policy election for lessors, by class of underlying asset, to not separate nonlease components from the associated lease components, if certain requirements are met. The new guidance is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2018.
The Company expects to adopt this new guidance on January 1, 2019 using the modified retrospective approach, which will result in a cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2019. Upon adoption, the Company will recognize a right of use asset and corresponding lease liability for operating leases where it is the lessee, such as ground leases and office leases. The Company is in the process of evaluating the inputs required to calculate the amounts that will be recorded on its balance sheet for each lease. For leases with a term of 12 months or less, the Company expects to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. For leases where we are the lessor, the Company expects that accounting for lease components will be largely unchanged from existing GAAP and to elect the practical expedient to not separate non-lease components from lease components based upon the predominant component for these operating leases.
Note 3 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the quarters and nine months ended September 30, 2018 and 2017:
 
Quarters Ended September 30,
 
Nine Months Ended September 30,
 (amounts in thousands, except per share data)
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net Income Available for Common Stockholders:
 
 
 
 
 
 
 
Net income available for Common Stockholders – basic
$
56,070

 
$
48,525

 
$
162,429

 
$
144,911

Amounts allocated to dilutive securities
3,590

 
3,286

 
10,569

 
9,825

Net income available for Common Stockholders – fully dilutive
$
59,660

 
$
51,811

 
$
172,998

 
$
154,736

Denominator:
 
 
 
 
 
 
 
Weighted average Common Shares outstanding – basic
89,200

 
87,037

 
88,760

 
86,620

Effect of dilutive securities:
 
 
 
 
 
 
 
Exchange of Common OP Units for Common Shares
5,771

 
5,836

 
5,808

 
6,100

Stock options and restricted shares
292

 
451

 
259

 
415

Weighted average Common Shares outstanding – fully diluted
95,263

 
93,324

 
94,827

 
93,135

 
 
 
 
 
 
 
 
Earnings per Common Share – Basic:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.63

 
$
0.56

 
$
1.83

 
$
1.67

 
 
 
 
 
 
 
 
Earnings per Common Share – Fully Diluted:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
0.63

 
$
0.56

 
$
1.82

 
$
1.66


14


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements



Note 4 – Common Stock and Other Equity Related Transactions
Common Stockholder Distribution Activity
The following quarterly distributions have been declared and paid to common stockholders and non-controlling common operating partnership unit ("OP Unit") holders since January 1, 2017:
Distribution Amount Per Share
 
For the Quarter Ended
 
Stockholder Record Date
 
Payment Date
$0.4875
 
March 31, 2017
 
March 31, 2017
 
April 14, 2017
$0.4875
 
June 30, 2017
 
June 30, 2017
 
July 14, 2017
$0.4875
 
September 30, 2017
 
September 29, 2017
 
October 13, 2017
$0.4875
 
December 31, 2017
 
December 29, 2017
 
January 12, 2018
$0.5500
 
March 31, 2018
 
March 30, 2018
 
April 13, 2018
$0.5500
 
June 30, 2018
 
June 29, 2018
 
July 13, 2018
$0.5500
 
September 30, 2018
 
September 28, 2018
 
October 12, 2018
On November 2, 2017, we adopted a new at-the-market (“ATM”) equity offering program with certain sales agents, pursuant to which we may sell, from time-to-time, shares of our Common Stock, par value $0.01 per share, having an aggregate offering price of up to $200.0 million. Under our prior ATM program, the aggregate offering price was up to $125.0 million.
The following table presents the shares that were issued under the ATM equity offering programs during the nine months ended September 30, 2018 and nine months ended September 30, 2017.
(amounts in thousands, except stock data):
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
Shares of Common Stock sold
 
861,141

 
484,913

Weighted average price
 
$
91.45

 
$
86.69

Total gross proceeds 
 
$
78,755

 
$
42,037

Commissions paid to sales agents
 
$
1,028

 
$
526

As of September 30, 2018, approximately $71.2 million of Common Stock remained available for issuance under the ATM equity offering program.
Exchanges
Subject to certain limitations, holders of OP Units can request an exchange of any or all of their OP Units for shares of Common Stock at any time. Upon receipt of such a request, we may, in lieu of issuing shares of Common Stock, cause the Operating Partnership to pay cash. During the nine months ended September 30, 2018, 87,718 OP Units were exchanged for an equal number of shares of Common Stock. During the same period in 2017, 1,335,247 OP Units were exchanged for an equal number of shares of Common Stock.
Series C Preferred Stock Redemption and Distribution Activity
During the nine months ended September 30, 2017, we redeemed our 6.75% Series C Preferred Stock for $138.4 million, including accrued dividends. The shares of Series C Preferred Stock that were redeemed now have the status of authorized but unissued preferred stock, without designation as to class or series. There were no shares of 6.75% Series C Preferred Stock issued or outstanding as of September 30, 2017 or 2018.






15


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 4 –Common Stock and Other Equity Related Transactions (continued)

The following quarterly distributions have been declared and paid to our preferred stockholders since January 1, 2017 and prior to the stock's redemption, which occurred in September 2017:
Distribution Amount Per Share
 
For the Quarter Ended
 
Stockholder Record Date
 
Payment Date
$0.421875
 
March 31, 2017
 
March 10, 2017
 
March 31, 2017
$0.421875
 
June 30, 2017
 
June 15, 2017
 
June 30, 2017
$0.421875
 
September 30, 2017
 
September 15, 2017
 
September 25, 2017
Note 5 – Real Estate Acquisitions
On September 21, 2018, we completed the acquisition of Sunseekers, a 241-site RV resort in North Fort Myers, Florida. The purchase price was $6.5 million and was funded with net proceeds from sales of Common Stock under our ATM equity offering program.
On July 20, 2018, we completed the acquisition of Everglades Lakes, a 612-site manufactured home community in Fort Lauderdale, Florida. The purchase price was $72.2 million, including $0.2 million of transaction costs, and was funded with net proceeds from sales of Common Stock under our ATM equity offering program.
On April 20, 2018, we completed the acquisition of Holiday Travel Park, a 613-site RV Resort in Holiday, Florida. The purchase price was $22.5 million, including $0.3 million of transaction costs, and was funded with available cash and proceeds from our line of credit.
On March 15, 2018, we completed the acquisition of Serendipity, a 425-site manufactured home community located in Clearwater, Florida. The purchase price was $30.7 million, including $0.6 million of transaction costs, and was funded with available cash, a loan assumption of $9.2 million and new loan proceeds of $8.8 million.
On March 8, 2018, we completed the acquisition of Kingswood, a 229-site manufactured home community located in Riverview, Florida. The purchase price was $17.5 million, including $0.4 million of transaction costs, and was funded with available cash.

16


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 6 – Investment in Unconsolidated Joint Ventures
The following table summarizes our Investment in unconsolidated joint ventures (amounts in thousands, except number of Properties shown parenthetically as of September 30, 2018 and December 31, 2017):
 
 
 
 
 
 
 
 
 
Investment as of
 
Joint Venture Income/(Loss)
Nine Months Ended
Investment
 
Location
 
 Number of 
Sites (a)
 
Economic
Interest
(b)
 
 
September 30,
2018
 
December 31,
2017
 
September 30,
2018
 
September 30,
2017
Meadows
 
Various (2,2)
 
1,077

 
50
%
 
 
$
558

 
$
307

 
$
1,252

 
$
1,610

Lakeshore
 
Florida (3,3)
 
720

 
(c)

 
 
2,278

 
2,530

 
(62
)
 
10

Voyager
 
Arizona (1,1)
 
1,801

 
50
%
(d) 
 
3,249

 
3,205

 
866

 
795

Loggerhead
 
Florida
 
2,343

 
49
%
 
 
35,205

 
31,414

 
1,089

 
230

ECHO JV
 
Various
 

 
50
%
 
 
16,076

 
15,624

 
451

 
231

 
 
 
 
5,941

 
 
 
 
$
57,366

 
$
53,080

 
$
3,596

 
$
2,876

_____________________
(a)
Loggerhead sites represent marina slip count.
(b)
The percentages shown approximate our economic interest as of September 30, 2018. Our legal ownership interest may differ.
(c)
Includes two joint ventures in which we own a 65% interest and Crosswinds joint venture in which we own a 49% interest.
(d)
Voyager joint venture primarily consists of a 50% interest in Voyager RV Resort and 33% interest in the utility plant servicing the Property.
On March 29, 2018, the Crosswinds joint venture repaid a short-term loan to us in the amount of $13.8 million. We provided the loan to Crosswinds in conjunction with the formation of the joint venture in June 2017.
We received approximately $3.0 million and $2.7 million in distributions from these joint ventures for the nine months ended September 30, 2018 and 2017, respectively. Approximately $0.1 million and $0.6 million of the distributions made to us exceeded our basis in joint ventures for the nine months ended September 30, 2018 and September 30, 2017, respectively, and as such were recorded as income from unconsolidated joint ventures.
Note 7 – Borrowing Arrangements
Mortgage Notes Payable
During the nine months ended September 30, 2018, we closed on one loan, secured by two RV resorts, for gross proceeds of approximately $64.0 million. The loan carries an interest rate of 4.83% per annum and matures in 2038.
In connection with the Serendipity acquisition during the first quarter of 2018, we assumed a loan of approximately $9.2 million and obtained additional financing of $8.8 million for a total mortgage debt, secured by the manufactured home community, of $18.0 million. The loans carry an average interest rate of 4.75% and mature in 2039.
As of September 30, 2018 and December 31, 2017, we had outstanding mortgage indebtedness of approximately $2,016.3 million and $1,971.7 million, respectively, net of deferred financing costs.
The weighted average interest rate on our outstanding mortgage indebtedness, including the impact of premium/discount amortization and loan cost amortization on mortgage indebtedness, for the nine months ended September 30, 2018 was approximately 4.7% per annum. The debt bears interest at stated rates ranging from 3.1% to 8.9% per annum and matures on various dates ranging from 2018 to 2041. The debt encumbered a total of 124 and 120 of our Properties as of September 30, 2018 and December 31, 2017, respectively, and the carrying value of such Properties was approximately $2,508.5 million and $2,323.1 million, as of September 30, 2018 and December 31, 2017, respectively.
Unsecured Line of Credit
During the nine months ended September 30, 2018, we borrowed and paid off amounts on our unsecured line of credit, leaving a balance of $80.0 million outstanding as of September 30, 2018.
As of September 30, 2018, we are in compliance in all material respects with the covenants in our borrowing arrangements.

17


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 8 – Equity Incentive Awards
Compensation expense related to restricted stock and stock options, reported in General and administrative on the Consolidated Statements of Income and Comprehensive Income, for the quarters ended September 30, 2018 and 2017 was approximately $2.7 million and $2.6 million, respectively, and for the nine months ended September 30, 2018 and 2017 was approximately $7.3 million and $6.8 million, respectively.
Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by our Board of Directors on March 11, 2014 and approved by our stockholders on May 13, 2014. Grants under the 2014 Plan are approved by the Compensation Committee, which determines the individuals eligible to receive awards, the types of awards, and the terms, conditions and restrictions applicable to any award, except grants to directors which are approved by the Board of Directors. The Compensation Committee determines the vesting schedule, if any, of each restricted stock grant or stock option grant and the term of each stock option, which term shall not exceed ten years from the date of grant. Shares that do not vest are forfeited. Dividends paid on restricted stock are not returnable, even if the underlying stock does not entirely vest. A maximum of 3,750,000 shares of Common Stock were originally available for grant under the 2014 Plan. As of September 30, 2018, 2,927,923 shares remained available for grant.
On February 1, 2018, we awarded 70,250 shares of restricted stock (the “2018 Awards”) at a fair market value of approximately $5.9 million to certain members of our senior management for their service in 2018. These restricted stock grants vest over a three-year vesting period, with one-third vesting on December 28, 2018 and the remaining two-thirds vesting on each of December 28, 2019 and December 28, 2020, respectively (the “Extended Vesting Portion”). One-half of the Extended Vesting Portion of the 2018 Awards provide solely for time-based vesting and will vest in equal installments on December 28, 2019 and December 28, 2020. The remaining one-half of the Extended Vesting Portion of the 2018 Awards provide for performance-based vesting and will vest, subject to the satisfaction of the performance conditions to be established by the Compensation Committee in the year of the vesting period, in equal installments on December 28, 2019 and December 28, 2020.
Additionally, on February 1, 2018, we awarded a one-time transition award of time-based restricted stock (the "Transition Awards") as a transition from our prior practice of granting annual restricted stock awards which vest in full on December 31 of the relevant grant year. On February 1, 2018, we awarded Transition Awards for 70,250 shares of common stock at a fair market value of approximately $5.9 million to certain members of our senior management. These Transition Awards are intended to mitigate the impact of a reduction in the realized pay for certain members of our senior management in 2018 and 2019 resulting from the three-year vesting period for the 2018 Awards. Two-thirds of each Transition Award will vest on December 28, 2018, and the remaining one-third will vest on December 28, 2019. The Transition Awards are not subject to performance goals. The Compensation Committee does not intend to replicate these Transition Awards in future years. 
On May 1, 2018, we awarded to certain members of our Board of Directors, 51,388 shares of Restricted Stock at a fair market value of approximately $4.6 million and Options to purchase 6,270 shares of common stock with an exercise price of $89.65 per share. The shares of common stock covered by these awards are subject to multiple tranches that vest between November 1, 2018 and May 1, 2021.
On July 31, 2018, we awarded to certain members of our Board of Directors 617 shares of Restricted Stock at a fair market value of approximately $0.1 million. The shares of common stock covered by these awards are subject to multiple tranches that vest between January 31, 2019 and July 31, 2021.
The fair market value of our restricted stock grants was determined by using the closing share price of our common stock on the date the shares were issued. Time-based restricted stock awards are recorded as stock-based compensation expense and paid in capital over the vesting period. Stock-based compensation for restricted stock awards with performance conditions will be recognized using the closing price of our common stock at the grant date when the key terms and conditions are known to all parties.

18


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 9 – Commitments and Contingencies

Civil Investigation by Certain California District Attorneys
In November 2014, we received a civil investigative subpoena from the office of the District Attorney for Monterey County, California ("MCDA"), seeking information relating to, among other items, statewide compliance with asbestos and hazardous waste regulations dating back to 2005 primarily in connection with demolition and renovation projects performed by third-party contractors at our California Properties. We responded by providing the information required by the subpoena.
On October 20, 2015, we attended a meeting with representatives of the MCDA and certain other District Attorneys' offices at which the MCDA reviewed the preliminary results of their investigation including, among other things, (i) alleged violations of asbestos and related regulations associated with approximately 200 historical demolition and renovation projects in California; (ii) potential exposure to civil penalties and unpaid fees; and (iii) next steps with respect to a negotiated resolution of the alleged violations. No legal proceedings have been instituted to date and we are involved in settlement discussions with the District Attorneys' offices. We continue to assess the allegations and the underlying facts, and at this time we are unable to predict the outcome of the investigation or reasonably estimate any possible loss.
Other
In addition to legal matters discussed above, we are involved in various other legal and regulatory proceedings ("Other Proceedings") arising in the ordinary course of business. Other Proceedings include, but are not limited to, notices, consent decrees, information requests, and additional permit requirements and other similar enforcement actions by governmental agencies relating to our utility infrastructure, including water and wastewater treatment plants and other waste treatment facilities and electrical systems. Additionally, in the ordinary course of business, our operations are subject to audit by various taxing authorities. Management believes these Other Proceedings taken together do not represent a material liability. In addition, to the extent any such proceedings or audits relate to newly acquired Properties, we consider any potential indemnification obligations of sellers in our favor.

19


Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements

Note 10 – Reportable Segments
We have identified two reportable segments which are: (i) Property Operations and (ii) Home Sales and Rentals Operations. The Property Operations segment owns and operates land lease Properties and the Home Sales and Rentals Operations segment purchases, sells and leases homes at the Properties. The distribution of the Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences.
All revenues are from external customers and there is no customer who contributed 10% or more of our total revenues during the quarters and nine months ended September 30, 2018 or 2017.
The following tables summarize our segment financial information for the quarters and nine months ended September 30, 2018 and 2017:
Quarter Ended September 30, 2018
(amounts in thousands)
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
236,204

 
$
13,204

 
$
249,408

Operations expenses
(114,384
)
 
(12,747
)
 
(127,131
)
Income from segment operations
121,820

 
457

 
122,277

Interest income
863

 
978

 
1,841

Depreciation on real estate assets and rental homes
(30,425
)
 
(2,431
)
 
(32,856
)
Amortization of in-place leases
(2,124
)
 

 
(2,124
)
Income (loss) from operations
$
90,134

 
$
(996
)
 
$
89,138

Reconciliation to consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
5

Income from other investments, net
 
 
 
 
5,421

General and administrative
 
 
 
 
(8,816
)
Other expenses
 
 
 
 
(386
)
Interest and related amortization
 
 
 
 
(26,490
)
Equity in income of unconsolidated joint ventures
 
 
 
 
788

Consolidated net income
 
 
 
 
$
59,660

 
 
 
 
 
 
Total assets
$
3,630,136

 
$
224,901

 
$
3,855,037

Capital improvements
$
21,722

 
$
25,339

 
$
47,061



20

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 – Reportable Segments (continued)


Quarter Ended September 30, 2017
(amounts in thousands)
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
223,184

 
$
14,415

 
$
237,599

Operations expenses
(110,431
)
 
(13,528
)
 
(123,959
)
Income from segment operations
112,753

 
887

 
113,640

Interest income
773

 
1,042

 
1,815

Depreciation on real estate assets and rental homes
(27,879
)
 
(2,614
)
 
(30,493
)
Amortization of in-place leases
(138
)
 

 
(138
)
Income (loss) from operations
$
85,509

 
$
(685
)
 
$
84,824

Reconciliation to consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
159

Income from other investments, net
 
 
 
 
2,052

General and administrative
 
 
 
 
(7,505
)
Other expenses
 
 
 
 
(324
)
Interest and related amortization
 
 
 
 
(25,027
)
Equity in income of unconsolidated joint ventures
 
 
 
 
686

Consolidated net income
 
 
 
 
$
54,865

 
 
 
 
 
 
Total assets
$
3,298,122

 
$
227,725

 
$
3,525,847

Capital improvements
$
20,308

 
$
14,104

 
$
34,412


Nine Months Ended September 30, 2018
(amounts in thousands)
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
689,387

 
$
38,383

 
$
727,770

Operations expenses
(329,942
)
 
(36,054
)
 
(365,996
)
Income from segment operations
359,445

 
2,329

 
361,774

Interest income
2,494

 
2,918

 
5,412

Depreciation on real estate assets and rental homes
(89,308
)
 
(7,322
)
 
(96,630
)
Amortization of in-place leases
(5,069
)
 

 
(5,069
)
Income (loss) from operations
$
267,562

 
$
(2,075
)
 
$
265,487

Reconciliation to consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
246

Income from other investments, net
 
 
 
 
9,774

General and administrative
 
 
 
 
(26,523
)
Other expenses
 
 
 
 
(1,096
)
Interest and related amortization
 
 
 
 
(78,478
)
Equity in income of unconsolidated joint ventures
 
 
 
 
3,596

Consolidated net income
 
 
 
 
$
173,006

 
 
 
 
 
 
Total assets
$
3,630,136

 
$
224,901

 
$
3,855,037

Capital improvements
$
69,591

 
$
58,845

 
$
128,436











21

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 – Reportable Segments (continued)


Nine Months Ended September 30, 2017
(amounts in thousands)
Property
Operations
 
Home Sales
and Rentals
Operations
 
Consolidated
Operations revenues
$
648,766

 
$
37,100

 
$
685,866

Operations expenses
(310,337
)
 
(33,604
)
 
(343,941
)
Income from segment operations
338,429

 
3,496

 
341,925

Interest income
2,256

 
3,122

 
5,378

Depreciation on real estate assets and rental homes
(82,939
)
 
(7,910
)
 
(90,849
)
Amortization of in-place leases
(2,128
)
 

 
(2,128
)
Income (loss) from operations
$
255,618

 
$
(1,292
)
 
$
254,326

Reconciliation to consolidated net income:
 
 
 
 
 
Corporate interest income
 
 
 
 
164

Income from other investments, net
 
 
 
 
3,918

General and administrative
 
 
 
 
(23,339
)
Other expenses
 
 
 
 
(814
)
Interest and related amortization
 
 
 
 
(74,728
)
Equity in income of unconsolidated joint ventures
 
 
 
 
2,876

Consolidated net income
 
 
 
 
$
162,403

 
 
 
 
 
 
Total assets
$
3,298,122

 
$
227,725

 
$
3,525,847

Capital improvements
$
52,040

 
$
35,837

 
$
87,877

The following table summarizes our financial information for the Property Operations segment for the quarters and nine months ended September 30, 2018 and 2017:    
 
Quarters Ended September 30,
 
Nine Months Ended September 30,
(amounts in thousands)
2018

2017

2018

2017
Revenues:
 
 
 
 
 
 
 
Community base rental income
$
130,746

 
$
123,177

 
$
386,064

 
$
365,833

Resort base rental income
64,351

 
58,471

 
183,836

 
169,594

Right-to-use annual payments
12,206

 
11,531

 
35,616

 
34,133

Right-to-use contracts current period, gross
4,863

 
4,208

 
11,969

 
11,212

Right-to-use contract upfront payments, deferred, net
(2,883
)
 
(1,670
)
 
(6,189
)
 
(3,766
)
Utility and other income
25,917

 
26,295

 
75,758

 
69,071

Ancillary services revenues, net
1,004

 
1,172

 
2,333

 
2,689

Total property operations revenues
236,204

 
223,184

 
689,387

 
648,766

Expenses:
 
 
 
 
 
 
 
Property operating and maintenance
84,445

 
80,164

 
239,444

 
221,119

Real estate taxes
13,240

 
14,006

 
40,815

 
41,986

Sales and marketing, gross
3,568

 
3,277

 
9,685

 
8,861

Right-to-use contract commissions, deferred, net
(458
)
 
(176
)
 
(744
)
 
(372
)
Property management
13,589

 
13,160

 
40,742

 
38,743

Total property operations expenses
114,384

 
110,431

 
329,942

 
310,337

Income from property operations segment
$
121,820

 
$
112,753

 
$
359,445

 
$
338,429












22

Equity LifeStyle Properties, Inc.
Notes to Consolidated Financial Statements
Note 10 – Reportable Segments (continued)


The following table summarizes our financial information for the Home Sales and Rentals Operations segment for the quarters and nine months ended September 30, 2018 and 2017:
 
Quarters Ended September 30,
 
Nine Months Ended September 30,
(amounts in thousands)
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Gross revenue from home sales
$
9,339

 
$
10,012

 
$
26,753

 
$
24,872

Brokered resale revenues, net
358

 
337

 
1,009

 
925

Rental home income (a)
3,507

 
3,592

 
10,583

 
10,829

Ancillary services revenues, net

 
474

 
38

 
474

Total revenues
13,204

 
14,415

 
38,383

 
37,100

Expenses:
 
 
 
 
 
 
 
Cost of home sales
9,742

 
10,377

 
27,948

 
25,391

Home selling expenses
1,101

 
1,447

 
3,149

 
3,301

Rental home operating and maintenance
1,904

 
1,704

 
4,957

 
4,912

Total expenses
12,747

 
13,528

 
36,054

 
33,604

Income from home sales and rentals operations segment
$
457

 
$
887

 
$
2,329

 
$
3,496

______________________
(a)
Segment information does not include Site rental income included in Community base rental income.


Note 11 - Subsequent Events
On October 1, 2018, we paid off six mortgage loans of $66.3 million, including $0.1 million of prepayment penalties, using our line of credit. The loans, which would have matured in 2019, had a weighted average interest rate of 6.07% per annum and were secured by six MH properties.






23


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 related Notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2017, and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2017.
Overview and Outlook
We are a self-administered, self-managed, real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. We are a fully integrated owner and operator of lifestyle-oriented properties (“Properties”) consisting primarily of manufactured home ("MH") communities and recreational vehicle ("RV") resorts and campgrounds. As of September 30, 2018, we owned or had an ownership interest in a portfolio of 411 Properties located throughout the United States and Canada containing 153,847 Sites. These Properties are located in 32 states and British Columbia, with more than 90 Properties with lake, river or ocean frontage and more than 100 Properties within 10 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 increasing operating cash flows. We seek growth in earnings, funds from operations ("FFO") and cash flows by enhancing the profitability and operation of our Properties and investments. We seek to accomplish this by attracting high- quality customers to our Properties and retaining these customers who take pride in the Property and in their homes and efficiently managing our Properties to increase operating margins by increasing occupancy, maintaining competitive market rents and controlling expenses.
We believe that demand from baby boomers for manufactured housing and RV resorts will continue to outpace supply for several years. We believe these individuals will continue to drive the market for second home sales as vacation properties, investment opportunities, or retirement retreats. We believe it is likely that over the next decade we will continue to see high levels of second home sales and that resort homes and cottages in our Properties will continue to provide a viable second-home alternative to site-built homes.
We also believe that our Properties and our business model provide an opportunity for increased cash flows and appreciation in value. These may be achieved through increases in rental and occupancy rates, as well as expense controls, expansion of existing Properties and opportunistic acquisitions. We actively seek to acquire and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties, which may include contracts outstanding to acquire such properties that are subject to the satisfactory completion of our due diligence review.

We generate the majority of our revenues from customers renting our individual developed areas ("Sites"), or entering into right-to-use contracts (also referred to as membership products) which provide our customers access to specific Properties for limited stays. Our MH community Sites and annual RV resort Sites are leased on an annual basis. Seasonal Sites are leased to customers generally for one to six months. Transient 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 have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures in the Consolidated Statements of Income and Comprehensive Income.

The breakdown of our Sites by type is as follows (amounts are approximate):
 
Total Sites as of September 30, 2018
Community Sites
72,400

Resort Sites:
 
Annual
28,500

Seasonal
11,300

Transient
11,400

Membership (1)
24,300

Joint Ventures (2)
5,900

 
153,800

_________________________ 
(1) 
Primarily utilized to service the approximately 112,500 membership customers who have entered into a right-to-use contract. Includes approximately 5,800 Sites rented on an annual basis.
(2) 
Joint ventures have approximately 2,700 annual Sites, 400 seasonal Sites, and 500 transient Sites and includes approximately 2,300 marina slips.

24

Management's Discussion and Analysis (continued)


In our Home Sales and Rental Operations business our revenue streams include home sales, home rentals, brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing Site set homes that are located in Properties owned and managed by us. We continue to focus on our rental operations, as we believe renting our vacant new homes represents an attractive source of occupancy and the opportunity to convert the renter to a homebuyer in the future. We also sell and rent homes through our joint venture, ECHO Financing, LLC (the "ECHO JV"). We provide brokerage services to residents of our Properties who move from a Property but do not relocate their home. In addition, we operate ancillary activities at certain Properties, 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 loan amortization and high interest rates. We have a limited program under which we purchase loans made by an unaffiliated lender to purchasers of homes at our Properties.
In addition to Net income computed in accordance with GAAP, we assess and measure our overall financial and operating performance using certain Non-GAAP supplemental measures, which include: (i) FFO, (ii) Normalized funds from operations ("Normalized FFO"), (iii) Income from property operations, (iv) Income from property operations, excluding deferrals and property management, (v) Core Portfolio income from property operations, excluding deferrals and property management, (operating results for properties owned and operated in both periods under comparison) and (vi) Income from rental operations, net of depreciation. 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 September 30, 2018, Net income available for Common Stockholders increased $7.6 million, or $0.07 per Common Share, to $56.1 million, or $0.63 per fully diluted Common Share, compared to $48.5 million, or $0.56 per fully diluted Common Share, for the same period in 2017. For the nine months ended September 30, 2018, Net income available for Common Stockholders increased $17.5 million, or $0.16 per Common Share, to $162.4 million, or $1.82 per fully diluted Common Share, compared to $144.9 million, or $1.66 per fully diluted Common Share, for the same period in 2017.
For the quarter ended September 30, 2018, FFO available for Common Stock and OP Unit holders increased $13.4 million, or $0.13 per Common Share, to $97.7 million, or $1.03 per fully diluted Common Share, compared to $84.3 million, or $0.90 per fully diluted Common Share, for the same period in 2017. For the nine months ended September 30, 2018, FFO available for Common Stock and OP Unit holders increased $29.2 million, or $0.26 per Common Share, to $281.5 million, or $2.97 per fully diluted Common Share, compared to $252.3 million, or $2.71 per fully diluted Common Share, for the same period in 2017.
For the quarter ended September 30, 2018, Normalized FFO available for Common Stock and OP Unit holders increased $8.8 million, or $0.08 per Common Share, to $93.9 million, or $0.99 per fully diluted Common Share, compared to $85.1 million, or $0.91 per fully diluted Common Share, for the same period in 2017. For the nine months ended September 30, 2018, Normalized FFO available for Common Stock and OP Unit holders increased $22.2 million, or $0.19 per Common Share, to $275.6 million, or $2.91 per fully diluted Common Share, compared to $253.4 million, or $2.72 per fully diluted Common Share, for the same period in 2017.
For the quarter ended September 30, 2018, property operating revenues in our Core Portfolio, excluding deferrals, increased $8.0 million, or 3.5% and property operating expenses in our Core Portfolio, excluding deferrals and property management, increased $1.9 million, or 1.9%, from the quarter ended September 30, 2017, resulting in an increase of $6.1 million, or 4.8%, in our income from property operations, excluding deferrals and property management, from the quarter ended September 30, 2017. For the nine months ended September 30, 2018, property operating revenues in our Core Portfolio, excluding deferrals, increased $31.9 million, or 4.9%, and property operating expenses in our Core Portfolio, excluding deferrals and property management, increased $13.8 million, or 5.1%, from the nine months ended September 30, 2017, resulting in an increase of $18.1 million, or 4.8%, in our income from property operations, excluding deferrals and property management, from the nine months ended September 30, 2017.


25

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 consists of occupied home Sites in our MH communities (both homeowners and renters) and was 94.7% for the quarter ended September 30, 2018, consistent with the quarter ended June 30, 2018 and increased by 0.3% from 94.4% for the same period in 2017. As of September 30, 2018, our Core Portfolio occupancy increased 81 Sites with an increase in homeowner occupancy of 144 Sites compared to occupancy as of June 30, 2018. By comparison, as of September 30, 2017, our Core Portfolio occupancy increased 95 Sites with an increase in homeowner occupancy of 267 Sites. Additionally, for both the quarter and nine months ended September 30, 2018, we have experienced rental rate increases, which contributed a 4.0% growth to Community base rent compared to the same periods in 2017.
We have experienced growth in revenues in our Core RV Portfolio as a result of our ability to increase both rental rates and occupancy. RV rental income in our Core Portfolio for the quarter ended September 30, 2018 was 5.9% higher than the same period in 2017. Annual, seasonal and transient rental income for the quarter ended September 30, 2018 increased 6.4%, 4.0% and 5.4%, respectively, from the quarter ended September 30, 2017. RV rental income in our Core Portfolio for the nine months ended September 30, 2018 was 7.0% higher than the same period in 2017. Annual, seasonal and transient rental income for the nine months ended September 30, 2018 increased 6.7%, 8.6% and 6.6%, respectively, from the nine months ended September 30, 2017.
We continue to build on our successful multi-channel marketing campaigns, incorporating social media and advanced marketing analytics. During the quarter ended September 30, 2018, our total RV rental income through digital channels increased 24% and our sales of online camping passes increased 43% compared to the same period in 2017. We have increased the awareness of our product offerings and year over year we have seen an increase in social media fans and followers to a current base of over 500,000.
We continue to see high demand for our homes and communities. We closed 141 new home sales in the quarter ended September 30, 2018 compared to 173 during the quarter ended September 30, 2017 and 417 new home sales in the nine months ended September 30, 2018 compared to 413 during the nine months ended September 30, 2017. The new home sales during the quarter and nine months ended September 30, 2018 were primarily in our Arizona, Florida, Colorado and California communities.
As of September 30, 2018, we had 4,219 occupied rental homes in our MH communities, including 265 homes rented through our ECHO JV. Home rental program net operating income was approximately $7.2 million, net of rental asset depreciation expense of approximately $2.4 million for the quarter ended September 30, 2018, and approximately $7.9 million, net of rental asset depreciation expense of approximately $2.6 million for the quarter ended September 30, 2017. Approximately $8.0 million and $8.7 million of home rental operations revenue was included in community base rental income for the quarters ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, home rental program net operating income was approximately $22.8 million and $24.3 million, respectively, net of rental asset depreciation expense of approximately $7.3 million for the nine months ended September 30, 2018 and $7.9 million for the nine months ended September 30, 2017. Approximately $24.5 million and $26.3 million of home rental operations revenue was included in community base rental income for the nine months ended September 30, 2018 and nine months ended September 30, 2017, respectively.
Our gross investment in real estate increased approximately $250.5 million to $5,166.3 million as of September 30, 2018 from $4,915.8 million as of December 31, 2017, primarily due to new acquisitions, as well as capital expenditures during the nine months ended September 30, 2018.











26

Management's Discussion and Analysis (continued)


The following chart lists both the Properties acquired or invested in from January 1, 2017 through September 30, 2018, which represents Non-Core Properties, and Sites added through expansion opportunities at our existing Properties.
Property
 
Location
 
Type of Property
 
Transaction Date
 
Sites
 
 
 
 
 
 
 
 
 
Total Sites as of January 1, 2017
 
 
 
 
 
 
 
146,610
Acquisitions:
 
 
 
 
 
 
 
 
Paradise Park - Largo
 
Largo, Florida
 
MH
 
May 10, 2017
 
108
Bethpage Camp Resort
 
Urbanna, Virginia
 
RV
 
November 15, 2017
 
1,034
Grey's Point Camp
 
Topping, Virginia
 
RV
 
November 15, 2017
 
728
Kingswood
 
Riverview, Florida
 
MH
 
March 8, 2018
 
229
Serendipity
 
Clearwater, Florida
 
MH
 
March 15, 2018
 
425
Holiday Travel Park
 
Holiday, Florida
 
RV
 
April 20, 2018
 
613
Everglades Lakes
 
Fort Lauderdale, Florida
 
MH
 
July 20, 2018
 
612
Sunseekers RV Resort
 
North Fort Myers, Florida
 
RV
 
September 21, 2018
 
241
Joint Venture:
 
 
 
 
 
 
 
 
Crosswinds
 
St. Petersburg, Florida
 
MH
 
June 15, 2017
 
376
Loggerhead (a)
 
Multiple, Florida
 
Marina
 
August 8, 2017
 
2,343
Expansion Site Development and other:
 
 
 
 
 
 
 
 
Net Sites added (reconfigured) in 2017
 
 
 
 
 
 
 
124
Net Sites added (reconfigured) in 2018
 
 
 
 
 
 
 
404
Total Sites as of September 30, 2018
 
 
 
 
 
 
 
153,847
 
 
 
 
 
 
 
 
 
                                                    
(a)
Loggerhead sites represent marina slip count.
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 the investor the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative of recurring annual cash flow of the portfolio. These Non-GAAP financial measures as determined and presented by us may not be comparable to similarly titled measures reported by other companies, and include Income from Property Operations and Core Portfolio, FFO, Normalized FFO and Income from Rental Operation, net of depreciation.
We believe investors should review Income from Property Operations and Core Portfolio, FFO, Normalized FFO and Income from Rental Operations, net of depreciation, 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, Normalized FFO and Income from rental operations, net of depreciation, and a reconciliation to net income, are included below.
Income from Property Operations and Core Portfolio
We use Income from property operations and Income from property operations, excluding deferrals and property management, and Core Portfolio income from property operations, excluding deferrals and property management, as alternative measures to evaluate the operating results of our manufactured home and RV communities. Income from property operations represents rental income, utility and other income and right-to-use income less property and rental home operating and maintenance expenses, real estate tax, sales and marketing expenses and property management expenses. Income from property operations, excluding deferrals and property management, represents income from property operations excluding property management expenses and the impact of the GAAP deferral of right-to-use contract upfront payments and related commissions, net. Our Core Portfolio consists of our Properties owned and operated since December 31, 2016. Core Portfolio income from property operations, excluding deferrals and 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 (or Acquisitions) includes all Properties that were not owned and operated during all of 2017 and 2018. This includes, but is not limited to, five properties acquired during 2018, three properties acquired during 2017 and Fiesta Key and Sunshine Key RV Resorts.
Funds from Operations ("FFO") and Normalized Funds from Operations ("Normalized FFO")
We define FFO as net income, computed in accordance with GAAP, excluding gains and actual or estimated losses from sales of properties, plus real estate related depreciation and amortization, impairments, if any, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and 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

27

Management's Discussion and Analysis (continued)


do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We receive upfront non-refundable payments from the entry of right-to-use contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO does not address the treatment of non-refundable right-to-use payments, we believe that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO.
We define Normalized FFO as FFO excluding the following non-operating income and expense items: a) gains and losses from early debt extinguishment, including prepayment penalties and defeasance costs; b) acquisition and other transaction costs related to business combinations; and c) 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 depreciation, amortization, impairments, if any, and actual or estimated gains or losses from sales of real estate, all of which are based on historical costs and which 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 operations. For example, we believe that excluding the early extinguishment of debt, property acquisition and other transaction costs related to business combinations from Normalized 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.
Income from Rental Operations, Net of Depreciation    
We use Income from rental operations, net of depreciation as an alternative measure to evaluate the operating results of our home rental program. Income from rental operations, net of depreciation, represents income from rental operations less depreciation expense on rental homes. We believe this measure is meaningful for investors as it provides a more complete picture of the home rental program operating results including the impact of depreciation which affects our home rental program investment decisions.
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 flow 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.
The following table reconciles Net income available for Common Stockholders to Income from property operations:
 
Quarters Ended September 30,

Nine Months Ended September 30,
(amounts in thousands)
2018
 
2017
 
2018
 
2017
Computation of Income from Property Operations:
 
 
 
 
 
 
 
Net income available for Common Stockholders
$
56,070

 
$
48,525

 
$
162,429

 
$
144,911

Redeemable perpetual preferred stock dividends and original issuance costs

 
3,054

 
8

 
7,667

Income allocated to non-controlling interests - Common OP Units
3,590

 
3,286

 
10,569

 
9,825

Equity in income of unconsolidated joint ventures
(788
)
 
(686
)
 
(3,596
)
 
(2,876
)
Income before equity in income of unconsolidated joint ventures
58,872

 
54,179

 
169,410

 
159,527

Total (other income) /expenses, net
63,405

 
59,461

 
192,364

 
182,398

(Income)/Loss from home sales operations and other
142

 
(171
)
 
964

 
(268
)
Income from property operations
$
122,419

 
$
113,469

 
$
362,738

 
$
341,657


28

Management's Discussion and Analysis (continued)


The following table presents a calculation of FFO available for Common Stock and OP Unit holders and Normalized FFO available for Common Stock and OP Unit holders:
 
 
Quarters Ended September 30,
 
Nine Months Ended September 30,
(amounts in thousands)
 
2018
 
2017
 
2018
 
2017
Computation of FFO and Normalized FFO:
 
 
 
 
 
 
 
 
Net income available for Common Stockholders
 
$
56,070

 
$
48,525

 
$
162,429

 
$
144,911

Income allocated to non-controlling interests - Common OP units
 
3,590

 
3,286

 
10,569

 
9,825

Right-to-use contract upfront payments, deferred, net (1)
 
2,883

 
1,670

 
6,189

 
3,766

Right-to-use contract commissions, deferred, net
 
(458
)
 
(176
)
 
(744
)
 
(372
)
Depreciation on real estate assets
 
30,424

 
27,879

 
89,307

 
82,939

Depreciation on rental homes
 
2,432

 
2,614

 
7,323

 
7,910

Amortization of in-place leases
 
2,124

 
138

 
5,069

 
2,128

Depreciation on unconsolidated joint ventures
 
651

 
360

 
1,390

 
1,171

FFO available for Common Stock and OP Unit holders
 
97,716

 
84,296

 
281,532

 
252,278

Transaction costs (2)
 

 

 

 
324

Preferred stock original issuance costs
 

 
757

 

 
757

Insurance proceeds due to catastrophic weather event (3)
 
(3,833
)
 

 
(5,925
)
 

Normalized FFO available for Common Stock and OP Unit holders
 
$
93,883

 
$
85,053

 
$
275,607

 
$
253,359

Weighted average Common Shares outstanding – fully diluted
 
95,263

 
93,324

 
94,827

 
93,135

______________________
(1) The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and all related amendments, effective January 1, 2018. Upon adoption, right-to-use upfront nonrefundable payments are recognized on a straight-line basis over 20 years to reflect our current estimated customer life for the majority of our upgrade contracts. Results for reporting periods beginning after January 1, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards.
(2) The Company adopted ASU 2017-01, Business Combinations, effective January 1, 2018. Upon adoption, transaction costs related to asset acquisitions are capitalized. All acquisitions completed subsequent to January 1, 2018 were determined by the Company to be asset acquisitions and, as such, the related transaction costs were capitalized. Transaction costs related to 2017 acquisitions, occurring prior to the adoption of this guidance, are included in General and administrative on the Consolidated Income Statement.
(3) Represents insurance recovery revenue from reimbursement for capital expenditures related to Hurricane Irma.


29

Management's Discussion and Analysis (continued)


Results of Operations

Comparison of the Quarter Ended September 30, 2018 to the Quarter Ended September 30, 2017
Income from Property Operations
The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the quarters ended September 30, 2018 and 2017. The Core Portfolio in this discussion includes all Properties acquired on or before December 31, 2016 and which we have owned and operated continuously since January 1, 2017. Core Portfolio growth percentages exclude the impact of GAAP deferrals of upfront payments from right-to-use contracts and related commissions.
 
Core Portfolio
 
Total Portfolio
(amounts in thousands)
2018
 
2017
 
Variance
 
%
Change
 
2018
 
2017
 
Variance
 
%
Change
Community base rental income
$
128,420

 
$
122,975

 
$
5,445

 
4.4
 %
 
$
130,746

 
$
123,177

 
$
7,569

 
6.1
 %
Rental home income
3,507

 
3,592

 
(85
)
 
(2.4
)%
 
3,507

 
3,592

 
(85
)
 
(2.4
)%
Resort base rental income
59,941

 
56,628

 
3,313

 
5.9
 %
 
64,351

 
58,471

 
5,880

 
10.1
 %
Right-to-use annual payments
12,205

 
11,507

 
698

 
6.1
 %
 
12,206

 
11,531

 
675

 
5.9
 %
Right-to-use contracts current period, gross
4,863

 
4,208

 
655

 
15.6
 %
 
4,863

 
4,208

 
655

 
15.6
 %
Utility and other income
24,045

 
26,109

 
(2,064
)
 
(7.9
)%
 
25,917

 
26,295

 
(378
)
 
(1.4
)%
Property operating revenues, excluding deferrals
232,981

 
225,019

 
7,962

 
3.5
 %
 
241,590

 
227,274

 
14,316

 
6.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Property operating and maintenance
80,891

 
78,875

 
2,016

 
2.6
 %
 
84,445

 
80,164

 
4,281

 
5.3
 %
Rental home operating and maintenance
1,904

 
1,705

 
199

 
11.7
 %
 
1,904

 
1,704

 
200

 
11.7
 %
Real estate taxes
13,308

 
13,921

 
(613
)
 
(4.4
)%
 
13,240

 
14,006

 
(766
)
 
(5.5
)%
Sales and marketing, gross
3,567

 
3,277

 
290

 
8.8
 %
 
3,568

 
3,277

 
291

 
8.9
 %
Property operating expenses, excluding deferrals and Property management
99,670

 
97,778

 
1,892

 
1.9
 %
 
103,157

 
99,151

 
4,006

 
4.0
 %
Income from property operations, excluding deferrals and Property management (1)
133,311

 
127,241

 
6,070

 
4.8
 %
 
138,433

 
128,123

 
10,310

 
8.0
 %
Property management
13,587

 
13,160

 
427

 
3.2
 %
 
13,589

 
13,160

 
429

 
3.3
 %
Income from property operations, excluding deferrals (1)
119,724

 
114,081

 
5,643

 
4.9
 %
 
124,844

 
114,963

 
9,881

 
8.6
 %
Right-to-use contracts, deferred and sales and marketing, deferred, net
2,425

 
1,494

 
931

 
62.3
 %
 
2,425

 
1,494

 
931

 
62.3
 %
Income from property operations (1)
$
117,299

 
$
112,587

 
$
4,712

 
4.2
 %
 
$
122,419

 
$
113,469


$
8,950

 
7.9
 %
__________________________
(1)     Non-GAAP measure, see the Results Overview section of the Management Discussion and Analysis for Non-GAAP Financial Measure Definitions and reconciliations of these Non-GAAP measures to Net Income available to Common Shareholders.
Total Portfolio income from property operations, which includes Core and Non-Core Portfolios, for the quarter ended September 30, 2018 increased $9.0 million, or 7.9%, from the quarter ended September 30, 2017, primarily driven by an increase of $4.7 million, or 4.2%, in our Core Portfolio income from property operations and an increase of $4.2 million, in our Non-Core Portfolio income from property operations. The increase in Core Portfolio income from property operations for the quarter ended September 30, 2018 is primarily due to an increase in Community base rental income and Resort base rental income, partially offset by a decrease in Utility and other income and an increase in Property operating expenses, excluding deferrals and property management. The increase in Non-Core Portfolio income from property operations is primarily due to contribution from our Everglades acquisition that closed during the quarter ended September 30, 2018 and $1.2 million of insurance proceeds received during the quarter ended September 30, 2018, which we have identified as business interruption recovery at our RV properties in the Florida Keys.
Property Operating Revenues
Community base rental income in our Core Portfolio for the quarter ended September 30, 2018 increased $5.4 million, or 4.4%, from the quarter ended September 30, 2017, which reflects 4.0% growth from rate increases and 0.4% growth from occupancy gains. The average monthly base rental income per Site increased to approximately $637 for the quarter ended September 30, 2018 from approximately $613 for the same period in 2017. The average occupancy for the Core Portfolio increased to 94.7% for the quarter ended September 30, 2018 from 94.4% for the same period in 2017.

30

Management's Discussion and Analysis (continued)


Resort base rental income in our Core Portfolio for the quarter ended September 30, 2018 increased $3.3 million, or 5.9%, from the quarter ended September 30, 2017 driven by increases in annual, seasonal and transient revenues as a result of higher rental rates and occupancy. Resort base rental income for the quarters ended September 30, 2018 and 2017 is comprised of the following:
 
Core Portfolio
 
Total Portfolio
(amounts in thousands)
2018
 
2017
 
Variance
 
%
Change
 
2018
 
2017
 
Variance
 
%
Change
Annual
$
35,407

 
$
33,291

 
$
2,116

 
6.4
%
 
$
37,424

 
$
33,647

 
$
3,777

 
11.2
 %
Seasonal
4,477

 
4,304

 
173

 
4.0
%
 
4,838

 
4,952

 
(114
)
 
(2.3
)%
Transient
20,057

 
19,033

 
1,024

 
5.4
%
 
22,089

 
19,872

 
2,217

 
11.2
 %
Resort base rental income
$
59,941

 
$
56,628

 
$
3,313

 
5.9
%
 
$
64,351

 
$
58,471

 
$
5,880

 
10.1
 %
Utility and other income in our Core Portfolio for the quarter ended September 30, 2018 decreased by $2.1 million, or 7.9%, from the quarter ended September 30, 2017 due to insurance recovery revenue related to Hurricane Irma of $3.1 million recorded in the Core portfolio during the third quarter of 2017 to offset expenses incurred. This decrease was partially offset by an insurance recovery revenue accrual of $0.4 million related to Hurricane Florence recorded during the third quarter of 2018 to offset expenses incurred and an increase in utility income of $0.5 million, primarily due to higher electric and water usage and rates.
Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the quarter ended September 30, 2018 increased $1.9 million, or 1.9%, from the quarter ended September 30, 2017, mainly due to an increase in property payroll as a result of 2018 salary increases, higher utility expense from increased electric, trash and sewer expenses and higher insurance expense as a result of increased insurance premiums from our 2018 policy renewal. These increases were partially offset by a $2.0 million decrease in repair and maintenance expenses. We recorded clean up costs of $0.5 million related to Hurricane Florence during the third quarter of 2018 and $3.1 million related to Hurricane Irma during the third quarter of 2017.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home Sales.
 
 
Quarters Ended September 30,
(amounts in thousands, except home sales volumes)
 
2018
 
2017
 
Variance
 
%
Change
Gross revenues from new home sales (1)
 
$
7,048

 
$
7,233

 
$
(185
)
 
(2.6
)%
Cost of new home sales (1)
 
(6,946
)
 
(7,276
)
 
330

 
4.5
 %
Gross profit (loss) from new home sales
 
102

 
(43
)
 
145

 
337.2
 %
 
 
 
 
 
 
 
 
 
Gross revenues from used home sales
 
2,291

 
2,779

 
(488
)
 
(17.6
)%
Cost of used home sales
 
(2,796
)
 
(3,101
)
 
305

 
9.8
 %
Loss from used home sales
 
(505
)
 
(322
)
 
(183
)
 
(56.8
)%
 
 
 
 
 
 
 
 
 
Brokered resale and ancillary services revenues, net
 
1,362

 
1,983

 
(621
)
 
(31.3
)%
Home selling expenses
 
(1,101
)
 
(1,447
)
 
346

 
23.9
 %
Income (loss) from home sales and other
 
$
(142
)
 
$
171

 
$
(313
)
 
(183.0
)%
 
 
 
 
 
 
 
 
 
Home sales volumes
 
 
 
 
 
 
 
 
Total new home sales (2)
 
141

 
173

 
(32
)
 
(18.5
)%
 New Home Sales Volume - ECHO JV
 
31

 
48

 
(17
)
 
(35.4
)%
Used home sales
 
304

 
331

 
(27
)
 
(8.2
)%
Brokered home resales
 
231

 
239

 
(8
)
 
(3.3
)%
_________________________
(1) New home sales gross revenues and costs of new home sales does not include the revenues and costs associated with our ECHO JV.
(2) Total new home sales volume includes home sales from our ECHO JV.
Loss from home sales and other was $0.1 million for the quarter ended September 30, 2018 compared to income of $0.2 million for the quarter ended September 30, 2017. The loss from home sales and other was primarily due to lower ancillary services revenues partially offset by lower home selling expenses.

31

Management's Discussion and Analysis (continued)


Rental Operations
The following table summarizes certain financial and statistical data for manufactured home Rental Operations.
 
 
Quarters Ended September 30,
(amounts in thousands, except rental unit volumes)
 
2018
 
2017
 
Variance
 
%
Change
Manufactured homes:
 
 
 
 
 
 
 
 
Rental operations revenue (1)
 
$
11,539

 
$
12,257

 
$
(718
)
 
(5.9
)%
Rental home operating and maintenance
 
(1,904
)
 
(1,704
)
 
(200
)
 
(11.7
)%
Income from rental operations
 
9,635

 
10,553

 
(918
)
 
(8.7
)%
Depreciation on rental homes (2)
 
(2,432
)
 
(2,614
)
 
182

 
7.0
 %
Income from rental operations, net of depreciation
 
$
7,203

 
$
7,939

 
$
(736
)
 
(9.3
)%
 
 
 
 
 
 
 
 
 
Gross investment in new manufactured home rental units (3)
 
$
151,917

 
$
131,389

 
$
20,528

 
15.6
 %
Gross investment in used manufactured home rental units
 
$
36,588

 
$
44,624

 
$
(8,036
)
 
(18.0
)%
 
 
 
 
 
 
 
 
 
Net investment in new manufactured home rental units
 
$
122,947

 
$
105,424

 
$
17,523

 
16.6
 %
Net investment in used manufactured home rental units
 
$
17,810

 
$
24,833

 
$
(7,023
)
 
(28.3
)%
 
 
 
 
 
 
 
 
 
Number of occupied rentals – new, end of period (4)
 
2,704

 
2,492

 
212

 
8.5
 %
Number of occupied rentals – used, end of period
 
1,515

 
2,010

 
(495
)
 
(24.6
)%
______________________
(1) 
Rental operations revenue consists of Site rental income and home rental income. Approximately $8.0 million and $8.7 million for the quarters ended September 30, 2018 and 2017, respectively, of Site rental income are included in Community base rental income in the Income from Property Operations table. The remainder of home rental income is included in Rental home income in the Income from Property Operations table.
(2) 
Included in Depreciation on real estate and rental homes in the Consolidated Statements of Income and Comprehensive Income.
(3) 
Includes both occupied and unoccupied rental homes. New home cost basis does not include the costs associated with our ECHO JV. Our investment in the ECHO JV was $16.1 million and $15.5 million as of September 30, 2018 and 2017, respectively.
(4) 
Occupied rentals as of the end of the period in our Core Portfolio and includes 265 and 254 homes rented through our ECHO JV during the quarters ended September 30, 2018 and 2017, respectively.
The decrease in income from rental operations, net of depreciation, was primarily due to a decrease in the number of used occupied rental units. This was partially offset by an increase in the number of new occupied rentals.
Other Income and Expenses
The following table summarizes other income and expenses, net.
 
 
Quarters Ended September 30,
(amounts in thousands, expenses shown as negative)
 
2018
 
2017
 
Variance
 
%
Change
Depreciation on real estate and rental homes
 
$
(32,856
)
 
$
(30,493
)
 
$
(2,363
)
 
(7.7
)%
Amortization of in-place leases
 
(2,124
)
 
(138
)
 
(1,986
)
 
(1,439.1
)%
Interest income
 
1,846

 
1,974

 
(128
)
 
(6.5
)%
Income from other investments, net
 
5,421

 
2,052

 
3,369

 
164.2
 %
General and administrative
 
(8,816
)
 
(7,505
)
 
(1,311
)
 
(17.5
)%
Other expenses
 
(386
)
 
(324
)
 
(62
)
 
(19.1
)%
Interest and related amortization
 
(26,490
)
 
(25,027
)
 
(1,463
)
 
(5.8
)%
Total other income and expenses, net
 
$
(63,405
)
 
$
(59,461
)
 
$
(3,944
)
 
(6.6
)%

Other expenses, net increased $3.9 million for the quarter ended September 30, 2018, compared to the quarter ended September 30, 2017. The increase was primarily due to increases in depreciation on real estate and rental homes, amortization of in-place leases, interest and related amortization and general and administrative costs. These increases were partially offset by $3.8 million insurance recovery revenue from reimbursement for capital expenditures related to Hurricane Irma during the quarter ended September 30, 2018.

32

Management's Discussion and Analysis (continued)


Comparison of the Nine Months Ended September 30, 2018 to the Nine Months Ended September 30, 2017
Income from Property Operations
The following table summarizes certain financial and statistical data for the Core Portfolio and the total portfolio for the nine months ended September 30, 2018 and 2017. The Core Portfolio in this discussion includes all Properties acquired on or before December 31, 2016 and which we have owned and operated continuously since January 1, 2017. Core Portfolio growth percentages exclude the impact of GAAP deferrals of upfront payments from right-to-use contracts and related commissions.
 
Core Portfolio
 
Total Portfolio
(amounts in thousands)
2018
 
2017
 
Variance
 
%
Change
 
2018
 
2017
 
Variance
 
%
Change
Community base rental income
$
382,152

 
$
365,515

 
$
16,637

 
4.6
 %
 
$
386,064

 
$
365,833

 
$
20,231

 
5.5
 %
Rental home income
10,583

 
10,829

 
(246
)
 
(2.3
)%
 
10,583

 
10,829

 
(246
)
 
(2.3
)%
Resort base rental income
173,811

 
162,475

 
11,336

 
7.0
 %
 
183,836

 
169,594

 
14,242

 
8.4
 %
Right-to-use annual payments
35,612

 
34,109

 
1,503

 
4.4
 %
 
35,616

 
34,133

 
1,483

 
4.3
 %
Right-to-use contracts current period, gross
11,969

 
11,212

 
757

 
6.8
 %
 
11,969

 
11,212

 
757

 
6.8
 %
Utility and other income
70,429

 
68,549

 
1,880

 
2.7
 %
 
75,758

 
69,071

 
6,687

 
9.7
 %
Property operating revenues, excluding deferrals
684,556

 
652,689

 
31,867

 
4.9
 %
 
703,826

 
660,672

 
43,154

 
6.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating and maintenance
231,506

 
217,221

 
14,285

 
6.6
 %
 
239,444

 
221,119

 
18,325

 
8.3
 %
Rental home operating and maintenance
4,958

 
4,913

 
45

 
0.9
 %
 
4,957

 
4,912

 
45

 
0.9
 %
Real estate taxes
40,374

 
41,751

 
(1,377
)
 
(3.3
)%
 
40,815

 
41,986

 
(1,171
)
 
(2.8
)%
Sales and marketing, gross
9,684

 
8,861

 
823

 
9.3
 %
 
9,685

 
8,861

 
824

 
9.3
 %
Property operating expenses, excluding deferrals and Property management
286,522

 
272,746

 
13,776

 
5.1
 %
 
294,901

 
276,878

 
18,023

 
6.5
 %
Income from property operations, excluding deferrals and Property management (1)
398,034

 
379,943

 
18,091

 
4.8
 %
 
408,925

 
383,794

 
25,131

 
6.5
 %
Property management
40,740

 
38,743

 
1,997

 
5.2
 %
 
40,742

 
38,743

 
1,999

 
5.2
 %
Income from property operations, excluding deferrals (1)
357,294

 
341,200

 
16,094

 
4.7
 %
 
368,183

 
345,051

 
23,132

 
6.7
 %
Right-to-use contracts, deferred and sales and marketing, deferred, net
5,445

 
3,394

 
2,051

 
60.4
 %
 
5,445

 
3,394

 
2,051

 
60.4
 %
Income from property operations (1)
$
351,849

 
$
337,806

 
$
14,043

 
4.2
 %
 
$
362,738

 
$
341,657

 
$
21,081

 
6.2
 %
__________________________
(1)     Non-GAAP measure, see the Results Overview section of the Management Discussion and Analysis for Non-GAAP Financial Measure Definitions and reconciliations of these Non-GAAP measures to Net Income available to Common Shareholders.
Total Portfolio income from property operations, which includes Core and Non-Core portfolios, for the nine months ended September 30, 2018 increased $21.1 million, or 6.2%, from the nine months ended September 30, 2017, primarily as a result of an increase of $14.0 million, or 4.2%, in our Core Portfolio income from property operations and an increase of $7.0 million, in our Non-Core Portfolio income from property operations from the nine months ended September 30, 2017. The increase in Core Portfolio income from property operations is primarily due to an increase in Community base rental income and Resort base rental income, partially offset by an increase in Property operating expenses, excluding deferrals and property management. The increase in Non-Core Portfolio income from property operations from the nine months ended September 30, 2017 is primarily driven by the performance of newly acquired properties and $3.7 million of insurance proceeds received during the nine months ended September 30, 2018, which we have identified as business interruption recovery at our RV properties in the Florida Keys.
Property Operating Revenues
Community base rental income in our Core Portfolio for the nine months ended September 30, 2018 increased $16.6 million, or 4.6% from the quarter ended September 30, 2017, which reflects 4.0% growth from rate increases and approximately 0.6% growth from occupancy gains. The average monthly base rental income per Site increased to approximately $633 for the nine months ended September 30, 2018 from approximately $608 for the nine months ended September 30, 2017. The average occupancy for the Core Portfolio increased to 94.7% for the nine months ended September 30, 2018 from 94.2% for the nine months ended September 30, 2017.


33

Management's Discussion and Analysis (continued)



Resort base rental income in our Core Portfolio for the nine months ended September 30, 2018 increased $11.3 million, or 7.0%, from the nine months ended September 30, 2017 driven by increases in annual, seasonal and transient revenues. Resort base rental income for the nine months ended September 30, 2018 and 2017 is comprised of the following:
 
Core Portfolio
 
Total Portfolio
(amounts in thousands)
2018
 
2017
 
Variance
 
%
Change
 
2018
 
2017
 
Variance
 
%
Change
Annual
$
104,120

 
$
97,588

 
$
6,532

 
6.7
%
 
$
109,175

 
$
98,612

 
$
10,563

 
10.7
%
Seasonal
28,075

 
25,844

 
2,231

 
8.6
%
 
29,067

 
28,353

 
714

 
2.5
%
Transient
41,616

 
39,043

 
2,573

 
6.6
%
 
45,594

 
42,629

 
2,965

 
7.0
%
Resort base rental income
$
173,811

 
$
162,475

 
$
11,336

 
7.0
%
 
$
183,836

 
$
169,594

 
$
14,242

 
8.4
%
Utility and other income in our Core Portfolio increased by $1.9 million primarily driven by an increase in utility income as a result of higher electric and water income. This increase is offset by increased utility expense discussed below.
Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for the nine months ended September 30, 2018 increased $13.8 million, or 5.1%, from the nine months ended September 30, 2017, primarily driven by an increase in property operating and maintenance expenses of $14.3 million. The increase in property operating and maintenance expenses was primarily driven by an increase in utility expense from increased electric, trash and sewer expenses, higher property payroll as a result of 2018 salary increases, higher insurance expense as a result of increased insurance premiums from our 2018 policy renewal and an increase in landscaping, tree trimming and contract repairs expenses. These increases were partially offset by higher clean up costs in 2017 related to storm events, most notably Hurricane Irma.
Home Sales and Rental Operations
Home Sales and Other
The following table summarizes certain financial and statistical data for Home Sales.
 
 
Nine Months Ended September 30,
(amounts in thousands, except home sales volumes)
 
2018
 
2017
 
Variance
 
%
Change
Gross revenues from new home sales (1)
 
$
20,643

 
$
16,724

 
$
3,919

 
23.4
 %
Cost of new home sales (1)
 
(20,256
)
 
(16,467
)
 
(3,789
)
 
(23.0
)%
Gross profit from new home sales
 
387

 
257

 
130

 
50.6
 %
 
 
 
 
 
 
 
 
 
Gross revenues from used home sales
 
6,110

 
8,148

 
(2,038
)
 
(25.0
)%
Cost of used home sales
 
(7,692
)
 
(8,924
)
 
1,232

 
13.8
 %
Loss from used home sales
 
(1,582
)
 
(776
)
 
(806
)
 
(103.9
)%
 
 
 
 
 
 
 
 
 
Brokered resale and ancillary services revenues, net
 
3,380

 
4,088

 
(708
)
 
(17.3
)%
Home selling expenses
 
(3,149
)
 
(3,301
)
 
152

 
4.6
 %
Income (loss) from home sales and other
 
$
(964
)
 
$
268

 
$
(1,232
)
 
(459.7
)%
 
 
 
 
 
 
 
 
 
Home sales volumes
 
 
 
 
 
 
 
 
Total new home sales (2)
 
417

 
413

 
4

 
1.0
 %
 New Home Sales Volume - ECHO JV
 
74

 
126

 
(52
)
 
(41.3
)%
Used home sales
 
842

 
954

 
(112
)
 
(11.7
)%
Brokered home resales
 
677

 
659

 
18

 
2.7
 %
_________________________
(1) New home sales gross revenues and costs of new home sales does not include the revenues and costs associated with our ECHO JV.
(2) Total new home sales volume includes home sales from our ECHO JV.
Loss from home sales and other was $1.0 million for the nine months ended September 30, 2018 compared with income from homes sales and other of $0.3 million for the nine months ended September 30, 2017. The loss from home sales and other was primarily due to an increase in the loss from used home sales and a decrease in ancillary services revenues.


34

Management's Discussion and Analysis (continued)


Rental Operations
The following table summarizes certain financial and statistical data for manufactured home Rental Operations.
 
 
Nine Months Ended September 30,
(amounts in thousands, except rental unit volumes)
 
2018
 
2017
 
Variance
 
%
Change
Manufactured homes:
 
 
 
 
 
 
 
 
Rental operations revenue (1)
 
$
35,107

 
$
37,143

 
$
(2,036
)
 
(5.5
)%
Rental home operating and maintenance
 
(4,957
)
 
(4,912
)
 
(45
)
 
(0.9
)%
Income from rental operations
 
30,150

 
32,231

 
(2,081
)
 
(6.5
)%
Depreciation on rental homes (2)
 
(7,323
)

(7,910
)
 
587

 
7.4
 %
Income from rental operations, net of depreciation
 
$
22,827

 
$
24,321

 
$
(1,494
)
 
(6.1
)%
 
 
 
 
 
 
 
 
 
Gross investment in new manufactured home rental units (3)
 
$
151,917

 
$
131,389

 
$
20,528

 
15.6
 %
Gross investment in used manufactured home rental units
 
$
36,588

 
$
44,624

 
$
(8,036
)
 
(18.0
)%
 
 
 
 
 
 
 
 
 
Net investment in new manufactured home rental units
 
$
122,947

 
$
105,424

 
$
17,523

 
16.6
 %
Net investment in used manufactured home rental units
 
$
17,810

 
$
24,833

 
$
(7,023
)
 
(28.3
)%
 
 
 
 
 
 
 
 
 
Number of occupied rentals – new, end of period (4)
 
2,704

 
2,492

 
212

 
8.5
 %
Number of occupied rentals – used, end of period
 
1,515

 
2,010

 
(495
)
 
(24.6
)%
______________________
(1) 
Rental operations revenue consists of Site rental income and home rental income. Approximately $24.5 million and $26.3 million for the nine months ended September 30, 2018 and 2017, respectively, of Site rental income are included in Community base rental income in the Income from Property Operations table. The remainder of home rental income is included in Rental home income in the Income from Property Operations table.
(2) 
Included in Depreciation on real estate and rental homes in the Consolidated Statements of Income and Comprehensive Income.
(3) 
New home cost basis does not include the costs associated with our ECHO JV. Our investment in the ECHO JV was $16.1 million and $15.5 million as of September 30, 2018 and 2017, respectively.
(4) 
Occupied rentals as of the end of the period in our Core Portfolio and includes 265 and 254 homes rented through our ECHO JV during the nine months ended September 30, 2018 and 2017, respectively.
The decrease in income from rental operations, net of depreciation, was primarily due to a decrease in the number of used occupied rental units. This was partially offset by an increase in the number of new occupied rentals.
Other Income and Expenses
The following table summarizes other income and expenses, net.
 
 
Nine Months Ended September 30,
(amounts in thousands, expenses shown as negative)
 
2018
 
2017
 
Variance
 
%
Change
Depreciation on real estate and rental homes
 
$
(96,630
)
 
$
(90,849
)
 
$
(5,781
)
 
(6.4
)%
Amortization of in-place leases
 
(5,069
)
 
(2,128
)
 
(2,941
)
 
(138.2
)%
Interest income
 
5,658

 
5,542

 
116

 
2.1
 %
Income from other investments, net
 
9,774

 
3,918

 
5,856

 
149.5
 %
General and administrative
 
(26,523
)
 
(23,015
)
 
(3,508
)
 
(15.2
)%
Transaction costs
 

 
(324
)
 
324

 
100.0
 %
Other expenses
 
(1,096
)
 
(814
)
 
(282
)
 
(34.6
)%
Interest and related amortization
 
(78,478
)
 
(74,728
)
 
(3,750
)
 
(5.0
)%
Total other income and expenses, net
 
$
(192,364
)
 
$
(182,398
)
 
$
(9,966
)
 
(5.5
)%

Other expenses, net increased $10.0 million for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. The increase was primarily due to increases in depreciation on real estate and rental homes, interest and related amortization, general and administrative expenses and amortization of in-place leases. These increases were partially offset by $5.9 million insurance recovery revenue from reimbursement for capital expenditures related to Hurricane Irma during the nine months ended September 30, 2018.

35

Management's Discussion and Analysis (continued)


Liquidity and Capital Resources
Liquidity
Our primary demands for liquidity include payment of operating expenses, debt service, including principal and interest, capital improvements on properties, purchasing both new and pre-owned homes, acquisitions of new Properties and distributions. We expect similar demand for liquidity will continue for the short-term and long-term. Our primary sources of cash include operating cash flows, proceeds from financings, borrowings under our unsecured Line of Credit ("LOC") and proceeds from issuance of equity and debt securities.
We have entered into an at-the-market (“ATM”) 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 $200.0 million. During the quarter ended September 30, 2018, we sold 861,141 shares of common stock as part of our ATM equity offering program at a weighted average price per share of $91.45, resulting in gross cash proceeds of approximately $78.8 million. As of September 30, 2018, $71.2 million of common stock remained available for issuance under the ATM equity offering program.
In addition, we have available liquidity in the form of approximately 110.3 million shares of authorized but unissued common stock and approximately 10.0 million shares of authorized unissued preferred stock registered for sale under the Securities Act of 1933, as amended, by a shelf registration statement which was automatically effective when filed with the SEC. Our charter allows us to issue up to 200.0 million shares of Common Stock, par value $0.01 per share, and up to 10.0 million shares of preferred stock, par value $0.01 per share.
One of our stated objectives is to maintain financial flexibility. Achieving this objective allows us to take advantage of strategic opportunities that may arise. 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. 
We expect to meet our short-term liquidity requirements, including capital improvements and dividend distributions for the next twelve months, mainly through available cash as well as net cash provided by operating activities and availability under our existing LOC. Our LOC has a borrowing capacity of $400.0 million with the option to increase the borrowing capacity by $200.0 million, subject to certain conditions. The LOC bears interest at a rate of LIBOR plus 1.10% to 1.55%, requires an annual facility fee of 0.15% to 0.35% and matures on October 27, 2021.
During the nine months ended September 30, 2018, we closed on one loan, secured by two RV resorts, for gross proceeds of approximately $64.0 million. The loan carries an interest rate of 4.83% per annum and matures in 2038. In connection with the Serendipity acquisition during the nine months ended September 30, 2018, we assumed a loan of approximately $9.2 million and obtained additional financing of $8.8 million for total mortgage debt, secured by the manufactured home community, of $18.0 million. The loans carry an interest rate of 4.75% and mature in 2039.
During the nine months ended September 30, 2018, we borrowed and paid off amounts on our unsecured LOC, leaving a balance of $80.0 million at September 30, 2018. We believe that as of September 30, 2018, we have sufficient liquidity, in the form of $107.2 million in unrestricted cash and $320.0 million available on our LOC, to satisfy our near term obligations. On October 1, 2018, we paid off six mortgage loans of $66.3 million, including $0.1 million of prepayment penalties, using our LOC. The loans, which would have matured in 2019, had a weighted average interest rate of 6.07% per annum and were secured by six MH properties.
We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, property acquisitions and capital improvements by use of our long-term collateralized and uncollateralized borrowings including the existing LOC and the issuance of debt securities or additional equity securities. As of September 30, 2018, we have approximately $3.0 million of scheduled debt maturities in 2018 (excluding scheduled principal payments on debt maturing in 2018 and beyond). We expect to satisfy our 2018 maturities with existing cash and anticipated operating cash flow.

The table below summarizes cash flow activities:
 
Nine Months Ended September 30,
(amounts in thousands)
2018
 
2017
Net cash provided by operating activities
$
321,142

 
$
303,322

Net cash used in investing activities
(244,469
)
 
(135,986
)
Net cash provided by (used in) financing activities
4,652

 
(146,281
)
Net increase in cash and restricted cash
$
81,325

 
$
21,055



36

Management's Discussion and Analysis (continued)


Operating Activities
Net cash provided by operating activities increased $17.8 million to $321.1 million for the nine months ended September 30, 2018, from $303.3 million for the nine months ended September 30, 2017. The increase in net cash provided by operating activities was primarily due to higher income from property operations of $21.1 million and an increase in rents received in advance and security deposits, partially offset by a decrease in insurance proceeds.
Investing Activities
Net cash used in investing activities was $244.5 million for the nine months ended September 30, 2018 compared to $136.0 million for the nine months ended September 30, 2017. The increase in net cash used in investing activities was primarily due to an increase in real estate acquisitions and an increase in capital improvements. These increases were partially offset by a decrease in investment in joint ventures compared to the nine months ended September 30, 2017.
Capital Improvements
The table below summarizes capital improvement activities:
 
Nine Months Ended September 30,
(amounts in thousands)
2018
 
2017
Recurring capital expenditures (1)
$
32,965

 
$
29,823

Property upgrades and site development(2)
35,200

 
20,931

New home investments (3)(4)
56,182

 
32,724

Used home investments (4)
2,663

 
3,113

Total property
127,010

 
86,591

Corporate
1,426

 
1,286

Total capital improvements
$
128,436

 
$
87,877

______________________
(1) Recurring capital expenditures are primarily comprised of common area improvements, furniture, and mechanical improvements.
(2) Includes $12.3 million of restoration and improvement capital expenditures related to Hurricane Irma for the nine months ended September 30, 2018.
(3) Excludes new home investment associated with our ECHO JV.
(4) Net proceeds from new and used home sale activities are reflected within Operating Activities.
Financing Activities
Net cash provided by financing activities was $4.7 million for the nine months ended September 30, 2018 compared to net cash used in financing activities of $146.3 million for the nine months ended September 30, 2017. The change in financing activities was primarily due to redemption of our Series C Preferred Stock, increased proceeds from the sale of Common stock, increased proceeds from the line of credit compared to the nine months ended September 30, 2017, partially offset by a decrease in new mortgage debt proceeds, net and increased distributions during the nine months ended September 30, 2018.
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 the Contractual Obligations section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 2018.
Inflation
Substantially all of the leases at the Properties allow for monthly or annual rent increases. In addition, we have the opportunity to achieve rate increases, where justified by the market, as each lease matures. Such types of leases generally minimize our risks of inflation. In addition, our RV resort Properties are not generally subject to leases and rents are established for these Sites on an annual basis. Our right-to-use contracts generally provide for an annual dues increase, but dues may be frozen under the terms of certain contracts if the customer is over 61 years old.
Off-Balance Sheet Arrangements
As of September 30, 2018, we have no off-balance sheet arrangements.


37

Management's Discussion and Analysis (continued)


Critical Accounting Policies and Estimates
Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of our critical accounting policies, which include impairment, lease accounting, revenue recognition and business combinations. There have been no significant changes to our critical accounting policies and estimates during the quarter ended September 30, 2018, except that we updated our revenue recognition policy related to right-to-use contracts pursuant to the adoption of ASU 2014-09 (see "Recently Adopted Accounting Pronouncements" within Note 2).
Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 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 retain and attract customers renewing, upgrading and entering right-to-use contracts;
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;
in the age-qualified Properties, home sales results could be impacted by the ability of potential home buyers 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, 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;
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;
ability to obtain financing or refinance existing debt on favorable terms or at all;
the effect of interest rates;
the dilutive effects of issuing additional securities;
the effect of changes in accounting for Leases set forth under the Codification Topic "Leases";
the outcome of pending or future lawsuits or actions brought 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.

38


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 on Form 10-K for the year ended December 31, 2017. There have been no material changes in the assumptions used or results obtained regarding market risk since December 31, 2017.

Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to us that would potentially be subject to disclosure under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder as of September 30, 2018. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. 
Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2018, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



39


Part II – Other Information

Item 1.
Legal Proceedings
See Note 9 of the Consolidated Financial Statements contained herein.

Item 1A.
Risk Factors
    
There have been no material changes to the risk factors discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    
None.

Item 3.
Defaults Upon Senior Securities
None.

Item 4.
Mine Safety Disclosures
None.

Item 5.
Other Information

None.


40


Item 6.
Exhibits
 
31.1
31.2
32.1
32.2
101
The following materials from Equity LifeStyle Properties, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flow and (v) Notes to Consolidated Financial Statements, filed herewith.


41


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
EQUITY LIFESTYLE PROPERTIES, INC.
 
 
 
Date: October 25, 2018
By:
/s/ Marguerite Nader
 
 
Marguerite Nader
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
Date: October 25, 2018
By:
/s/ Paul Seavey
 
 
Paul Seavey
 
 
Executive Vice President, Chief Financial Officer and Treasurer
 
 
(Principal Financial and Accounting Officer)


42