ELS Outperformed Revenue and Earnings Expectations for Q3 2023

Equity Lifestyle Properties Inc, is a listed real estate investment trust (REIT) (NYSE: ELS). it announced its quarterly earnings for the third quarter of FY 2023 on October 16th. As per the earnings report, EPS closely matches the expectations of $0.41 while the total revenue outperformed by 15% that is it exceeded its forecasted value by $50 Million. By the end of the next quarter or this financial year, EPS is expected to remain at $0.4194 and the revenue is expected to decline to $319.67 Million.

Company Profile

Equity Lifestyle Properties is the operator of Manufactured Home (MH) Communities, RV Resorts and Campgrounds in North America. ELS offers beautiful communities and parks in the most desirable locations, while offering various homes and camping options to meet a wide variety of customer’s needs.

Equity Lifestyle Properties Inc, currently owns or has controlling interests in more than 450 communities and resorts in 35 states and British Columbia with more than 170,000 sites in the 50 years of operations.

Price Trend in Share Prices of ELS Stock

Looking at the price trend in the ELS stock price, it is noticeable that the stock is currently in the price range of $64- $66, moving away from the 52-week low after hitting the low at the start of this month. Through the current trend it is expected to rise further by the end of this month pertaining to the outperformance of the company. The current open trading volume is around 1.6 Million. The volume is close to this throughout the year excluding a few huge buying days.

Actual Revenue is up by 15% then the expectations

There is an increase in actual revenues by 4.8% on quarterly basis from $370.99 Million to $388.81 Million which resulted in improvement of net profit (attributable to shareholders) Margin by 2% approximately from 17.80% to 19.80% in a quarter. The major source of revenue for the company is through Rents. The expected revenue for this quarter was around $340 Million.

In the next quarter, revenue from MH base is expected to increase by 6.7% to 7.3% and RV and maria base rental revenue is expected to increase by 4.7% to 5.3%. Despite the expectations of rise in revenue on the segment wise total revenue is expected to decline by 15% to 20% and EPS expectations are expected to remain stable with only an expectation of a slight increase from the current level $0.41.

Looking at the historical performance of ELS in the last five quarters, it can easily outperform the expectations set by the management. The increase in revenue is quite achievable as the notice to renew the rent agreement for year 2024 is already sent to 90% of its RV customers while it is to be sent to its MV customers by the end of this month,

Highlights From the Balance Sheet of Equity Lifestyle Properties

ELS has a very low current ratio of 0.09x, that is, the amount of current liabilities on the quarterly books is much higher than the amount of current assets while the current ratio was 0.15x in the Q3 2022 so it declined further. The long term debt to equity ratio is also close to 2x for both the periods which suggests that the Equity Lifestyle Properties is heavily dependent on debt for its investments and expenses which will lead to increase in expenses in the near future.

Distributing More than 100% of the Earnings as Dividends to Stockholders

Despite the decline in current ratio, it is commendable that ELS has positive funds from operations (FFO) at $113 Million and this is expected to remain steady by the end of next quarter. FFO increased by 18% in comparison with last quarter. The company is distributing $0.4475 which is more than 100% for this quarter. Distributing more that 100% of EPS as dividend is the unique feature of REITs which differentiates them from other real estate companies as they distribute most of the rental income to its shareholders and this is what attracts small real estate investors to invest in REITs.