EQUITY LIFESTYLE PROPERTIES INC (ELS) FY 2021 MD&A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying footnotes thereto included in this Annual Report on Form 10-K. All shares of common stock (“Common Shares”) and units of common interests in our Operating Partnership (“OP Units”) as well as per share results reflect the two-for-one stock split that was completed on October 15, 2019.

2021 Accomplishments

We continued our strong performance in 2021, as marked by these key operational and financial accomplishments:

•Normalized FFO per common share on a fully diluted basis was $2.53 for the year ended December 31, 2021, 17% higher than the year ended December 31, 2020.

•Core Portfolio generated growth of 9% in income from property operations, excluding deferrals and property management, for the year ended December 31, 2021, compared to the year ended December 31, 2020.

•MH occupancy within our Core Portfolio increased by 323 sites during the year ended December 31, 2021, from the year ended December 31, 2020.

•Manufactured homeowners within our Core Portfolio increased by 785 to 65,730 as of December 31, 2021 compared to 64,945 as of December 31, 2020.

•RV Annual occupancy within our Core RV and Thousand Trails portfolios increased by 1,180 sites during the year ended December 31, 2021, from the year ended December 31, 2020.

•RV and MH rental income within our Core Portfolio increased by 12.9% and 4.7%, respectively, compared to December 31, 2020.

•Membership sales and expenses, consisting of membership upgrade sales and expenses, as well as commissions on camping and Trails Collection passes, contributed $12.5 million for the year ended December 31, 2021, an increase of $8.1 million, or 184%, compared to the year ended December 31, 2020.

•New home sales of 1,163 for the year ended December 31, 2021, which was the highest in company history.

•Acquired eleven marinas, five RV communities, a parcel of land occupied by a portion of an RV community managed by a tenant pursuant to a ground lease, an 80% equity interest in a joint venture with six RV communities, MHVillage/Datacomp and three land parcels adjacent to our properties with an aggregate purchase price of $715.6 million during the year ended December 31, 2021.

•Added 1,037 expansion Sites to our Core Portfolio during the year ended December 31, 2021.

•Originated secured debt with gross proceeds of $270.0 million with a maturity of 10 years and an interest rate of 2.4% during the year ended December 31, 2021. We used these proceeds to repay $67.0 million of debt due to mature in 2022 at a weighted average rate of 5.1%. The remainder of the proceeds were used to repay a portion of the outstanding balance on the line of credit.

•Closed on an amended revolving line of credit with borrowing capacity of $500.0 million and a $300.0 million term loan during the year ended December 31, 2021.

•Raised our annual dividend rate for 2022 to $1.64 per share of common stock, an increase of 13.1%, or $0.19, over the current $1.45 per share of common stock for 2021.

•Sold approximately 1.7 million shares of common stock under our ATM equity offering program with a weighted average price of $84.48 per share for net proceeds of $138.4 million during the year ended December 31, 2021.

Overview and Outlook

We are a self-administered and self-managed real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. We are a fully integrated owner of lifestyle-oriented properties (“Properties”) consisting of property operations and home sales and rental operations primarily within manufactured home (“MH”) and recreational vehicle (“RV”) communities and marinas. As of December 31, 2021, we owned or had an ownership interest in a portfolio of 444 Properties located throughout the United States and Canada containing 169,296 individual developed areas (“Sites”). These Properties are located in 35 states and British Columbia, with more than 110 Properties with lake, river or ocean frontage and more than 120 Properties within 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 delivering an exceptional experience to our residents and guests that results in delivery of value to stockholders. Our business model is intended to provide an opportunity for increased cash flows and appreciation in value. We

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Management's Discussion and Analysis (continued)

seek growth in earnings, Funds from Operations (“FFO”) and cash flows by enhancing the profitability and operation of our Properties and investments. We accomplish this by attracting and retaining high quality customers to our Properties, who take pride in our Properties and in their homes and efficiently managing our Properties by increasing occupancy, maintaining competitive market rents and controlling expenses. We also actively pursue opportunities that fit our acquisition criteria and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties.

We believe the demand from baby boomers for MH and RV communities will continue to be strong over the long term. It is estimated that approximately 10,000 baby boomers are turning 65 daily through 2030. In addition, the population age 55 and older is expected to grow 17% within the next 15 years. These individuals, seeking an active lifestyle, will continue to drive the market for second-home sales as vacation properties, investment opportunities or retirement retreats. We expect it is likely that over the next decade, we will continue to see high levels of second-home sales and that manufactured homes and cottages in our Properties will continue to provide a viable second-home alternative to site-built homes. We also believe the Millennial and Generation Z demographic will contribute to our future long-term customer pipeline. After conducting a comprehensive study of RV ownership, according to the Recreational Vehicle Industry Association (“RVIA”), data suggested that RV sales are expected to benefit from an increase in demand from those born in the United States from 1980 to 2003, or Millennials and Gen Z, over the coming years. We believe the demand from baby boomers and these younger generations will continue to outpace supply for MH and RV communities. The entitlement process to develop new MH and RV communities is extremely restrictive. As a result, there have been limited new communities developed in our target geographic markets.

We generate the majority of our revenues from customers renting our Sites or entering into right-to-use contracts, also known as membership subscriptions, which provide them access to specific Properties for limited stays. MH Sites are generally leased on an annual basis to residents who own or lease factory-built homes, including manufactured homes. Annual RV and marina Sites are leased on an annual basis to customers who generally have an RV, factory-built cottage, boat or other unit placed on the site, including those Northern properties that are open for the summer season. Seasonal RV and marina Sites are leased to customers generally for one to six months. Transient RV and marina Sites are leased to customers on a short-term basis. The revenue from seasonal and transient Sites is generally higher during the first and third quarters. We consider the transient revenue stream to be our most volatile as it is subject to weather conditions and other factors affecting the marginal RV customer's vacation and travel preferences. We also generate revenue from customers renting our marina dry storage. Additionally, we have interests in joint venture Properties for which revenue is classified as Equity in income from unconsolidated joint ventures on the Consolidated Statements of Income and Comprehensive Income.

Approximately one quarter of our rental agreements on MH Sites contain rent increase provisions that are directly or indirectly connected to the published CPI statistics issued from June through September of the year prior to the increase effective date. Approximately two-thirds of these rental agreements are subject to a CPI floor of approximately 3.0% to 5.0%.

State and local rent control regulations affect 28 wholly-owned Properties, including 15 of our 49 California Properties, all 7 of our Delaware Properties, 1 of our 5 Massachusetts Properties, 1 of our 7 New York Properties, 1 of our 14 Washington Properties and 3 of our 11 Oregon Properties. These rent control regulations govern rent increases and generally permit us to increase rates by a percentage of the increase in the national, regional or local CPI, depending on the rent control ordinance. These rate increases generally range from 60.0% to 100.0% of CPI with certain limits depending on the jurisdiction.

The following table shows the breakdown of our Sites by type (amounts are approximate):

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(1)Primarily utilized to service the approximately 125,100 members. Includes approximately 6,300 Sites rented on an annual basis.

(2)Includes approximately 1,800 annual Sites and 1,000 transient Sites.

(3)Total does not foot due to rounding.

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Management's Discussion and Analysis (continued)

Membership Sites are primarily utilized to service approximately 125,100 annual subscription members, including 23,600 free trial members added through our RV dealer program. The remaining 101,500 have purchased a Thousand Trails Camping (“TTC”) membership, which is an annual subscription providing the member access to our Properties in one to five geographic regions of the United States. In 2021, a TTC membership for a single geographic region required an annual payment of $615. In addition, members are eligible to upgrade their subscriptions. A membership upgrade may offer (1) increased length of consecutive stay by 50% (i.e., up to 21 days); (2) ability to make earlier advance reservations; (3) discounts on rental units; (4) access to additional Properties, which may include use of Sites at non-membership RV communities, or (5) membership in discount travel programs. Each membership upgrade requires a non-refundable upfront payment, for which we offer financing options to eligible customers. As a customer acquisition tool, we have relationships with a network of RV dealers to provide each new RV owner with a free one-year trial subscription to a TTC membership.

In our Home Sales and Rentals Operations business, our revenue streams include home sales, home rentals and brokerage services and ancillary activities. We generate revenue through home sales and rental operations by selling or leasing manufactured homes and cottages that are located in Properties owned and managed by us. We believe renting our vacant homes represents an attractive source of occupancy and an opportunity to convert the renter to a homebuyer in the future. We also sell and rent homes through our joint venture, ECHO Financing, LLC (the “ECHO JV”). Additionally, home sale brokerage services are offered to our residents who may choose to sell their homes rather than relocate them when moving from a Property. At certain Properties, we operate ancillary facilities, such as golf courses, pro shops, stores and restaurants.

In the manufactured housing industry, options for home financing, also known as chattel financing, are limited. Chattel financing options available today include community owner-funded programs or third-party lender programs that provide subsidized financing to customers and often require the community owner to guarantee customer defaults. Third-party lender programs have stringent underwriting criteria, sizable down payment requirements, short term loan amortization and high interest rates. We have a limited program under which we purchase loans made by an unaffiliated lender to homebuyers at our Properties.

Under the existing administration, the Federal Housing Finance Agency (the “FHFA”), overseer of Fannie Mae, Freddie Mac (the “GSEs”) and the Federal Home Loan Banks, has focused on equitable access to affordable and sustainable housing. In 2017, the FHFA published the Underserved Markets Plans for 2018-2020 (the “GSE Plans”) under the Duty-To-Serve (“DTS”) provisions mandated by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. The GSEs subsequently added a 2021 Plan as a one-year extension and have since submitted their current 2022-2024 Plans to FHFA and have received comment.

The FHFA mandate requires the GSE Plans to address leadership in developing loan products and flexible underwriting guidelines in underserved markets to facilitate a secondary market for mortgages on manufactured homes titled as real property or personal property, blanket loans for certain categories of manufactured housing communities, preserving the affordability of housing for renters and homebuyers, and housing in rural markets. While the FHFA and the current GSE 2022-24 DTS Plans may have a positive impact on the ability of our customers to obtain chattel financing, the actual impact on us, as well as the industry, cannot be determined at this time.

In addition to net income computed in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we assess and measure our overall financial and operating performance using certain Non-GAAP supplemental measures, which include: (i) FFO, (ii) Normalized FFO, (iii) Income from property operations, (iv) Income from property operations, excluding 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.

COVID-19 Pandemic Update

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a pandemic. Since the COVID-19 pandemic began, we have taken actions to prioritize the safety and security of our employees, residents and customers, while maintaining our high-quality standards in service to our residents and customers. We have implemented and may continue to implement Centers for Disease Control and Prevention (“CDC”) and local public health department guidelines and protocols for social distancing and enhanced community and office cleaning procedures. Our Properties continue to be open subject to seasons of operations and state and local guidelines. Our property offices are open to residents and customers and we are complying with CDC recommended protocols.

We began 2021 in an uncertain environment with the Canadian border closed and changing travel patterns throughout our portfolio. As 2021 progressed we experienced strong demand across our business, particularly in our RV portfolio, as our

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Management's Discussion and Analysis (continued)

customers sought safe vacation and leisure activities and appreciated the opportunity to spend time outdoors. For additional details, see Results Overview.

We attribute the solid performance of our business to the fundamentals of our business model. The property locations and the lifestyle we offer have broad appeal to customers interested in enjoying an outdoor experience. We believe this is particularly relevant in a COVID-19 impacted environment. We intend to continue to monitor the rapidly evolving situation and we may take further actions that alter our business operations as may be required and that are in the best interests of our employees, residents, customers and shareholders. The extent of the impact that COVID-19 will have on our business going forward, including our financial condition, results of operations and cash flows, is dependent on multiple factors, many of which are unknown. For additional details, see Item 1A. Risk Factors.

Results Overview

For the year ended December 31, 2021, net income available for Common Stockholders increased $34.2 million, or $0.18 per fully diluted Common Share, to $262.5 million, or $1.43 per fully diluted Common Share, compared to $228.3 million, or $1.25 per fully diluted Common Share, for the same period in 2020. For the year ended December 31, 2021, FFO available for Common Stock and OP Unit holders increased $79.2 million,or $0.41 per fully diluted Common Share, to $485.6 million, or $2.52 per fully diluted Common Share, compared to $406.4 million, or $2.11 per fully diluted Common Share, for the same period in 2020. For the year ended December 31, 2021, Normalized FFO available for Common Stock and OP Unit holders increased $70.3 million, or $0.36 per fully diluted Common Share, to $489.0 million, or $2.53 per fully diluted Common Share, compared to $418.7 million, or $2.17 per fully diluted Common Share, for the same period in 2020.

Our Core Portfolio could change from time-to-time depending on acquisitions, dispositions and significant transactions or unique situations. Our Core Portfolio in 2021 and 2020 includes all Properties acquired prior to December 31, 2019 that we have owned and operated continuously since January 1, 2020. For the year ended December 31, 2021, property operating revenues in our Core Portfolio, excluding deferrals, increased 8.3% and property operating expenses in our Core Portfolio, excluding deferrals and property management, increased 7.7%, from the year ended December 31, 2020, resulting in an increase in income from property operations, excluding deferrals and property management, of 8.8%.

While we continue to focus on increasing the number of manufactured homeowners in our Core Portfolio, we also believe renting our vacant homes represents an attractive source of occupancy and an opportunity to potentially convert the renter to a new homebuyer in the future. We continue to expect there to be fluctuations in the sources of occupancy gains depending on local market conditions, availability of vacant sites and success with converting renters to homeowners. Our Core Portfolio average occupancy, including both homeowners and renters, in our MH communities was 95.2% for the year ended December 31, 2021, compared to 95.2% for the same period in 2020. For the year ended December 31, 2021, our Core Portfolio occupancy increased by 323 sites with an increase in homeowner occupancy of 785 sites. In addition to higher occupancy, we have experienced rental rate increases during the year ended December 31, 2021, contributing to a growth of 4.2% in MH rental income compared to the same period in 2020.

RV rental income in our Core Portfolio for the year ended December 31, 2021, was 12.9% higher than the same period in 2020 and was driven by an increase in annual and transient revenues of 6.8% and 43.2%, respectively, for the year ended December 31, 2021. The increases for annual and transient revenues were due to an increase in occupancy and rates.

We continue to experience strong performance in our membership base within our Thousand Trails portfolio. For the year ended December 31, 2021, annual membership subscriptions revenue increased 9.7% over the same period in 2020. We sold 23,923 TTC memberships during the year ended December 31, 2021, representing a 16.2% increase in sales volume compared to the same period in 2020. For the year ended December 31, 2021, membership upgrade sales increased $14.5 million compared to the same period in 2020, driven by approximately 4,900 membership upgrade sales during the year ended December 31, 2021, representing an increase of 44% in sales volume. In addition, we activated 26,600 TTC memberships through our RV dealer program for the year ended December 31, 2021.

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Management's Discussion and Analysis (continued)

The following table provides additional details regarding our TTC memberships for the past five years:

Demand for our homes and communities remains strong as evidenced by factors including our high occupancy levels. During 2021, we experienced an all-time high for new home sales with an 81% increase from 2020 with over 1,163 new home sales during the year ended December 31, 2021, compared to 644 new home sales during the year ended December 31, 2020. The increases in new home sales was primarily due to favorable housing trends and timing of the availability of home inventory ready for sale.

As of December 31, 2021, we had 3,462 occupied rental homes in our Core MH communities, including 236 homes rented through our ECHO JV. Our Core Portfolio income from rental operations, net of depreciation, was $32.0 million for the year ended December 31, 2021 and $31.1 million for the year ended December 31, 2020. Approximately $31.5 million and $31.4 million of rental operations revenue related to Site rental was included in MH base rental income in our Core Portfolio for the years ended December 31, 2021 and December 31, 2020, respectively.

Our gross investment in real estate increased $828.7 million to $6,989.1 million as of December 31, 2021, from $6,160.4 million as of December 31, 2020, primarily due to new acquisitions as well as capital improvements during the year ended December 31, 2021.

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Management's Discussion and Analysis (continued)

Property Acquisitions/Dispositions and Joint Ventures

The following chart lists the Properties acquired or sold from January 1, 2020 through December 31, 2021 and Sites added through expansion opportunities at our existing Properties.

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(1)    Includes the marina slips.

(2)    Sites are approximate.

(3)    RV community operated by a tenant pursuant to an existing ground lease (See Note 6 - Acquisitions).

(4)    On October 14, 2021, we completed the acquisition of the remaining interest in the Voyager joint venture (see Note 6 - Acquisitions). The Voyager joint venture sites were previously included in the Total Sites as of January 1, 2020.

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Management's Discussion and Analysis (continued)

Markets

The following table identifies our largest markets by number of Sites and provides information regarding our Properties (excluding eleven Properties owned through our Joint Ventures).

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(1)Excludes the impact of GAAP deferrals of membership upgrade sales upfront payments and membership sales commissions as well as approximately $19.1 million of property operating revenue not allocated to Properties, which consists primarily of membership upgrade sales.

Qualification as a REIT

Commencing with our taxable year ended December 31, 1993, we have elected to be taxed as a REIT for U.S. federal income tax purposes. We believe we have met the requirements and have qualified for taxation as a REIT and we plan to continue to meet these requirements. The requirements for qualification as a REIT are highly technical and complex, as they pertain to the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. Examples include that at least 95% of our gross income must come from sources that are itemized in the REIT tax laws and at least 90% of our REIT taxable income, computed without regard to our deduction for dividends paid and our net capital gain, must be distributed to stockholders annually. If we fail to qualify as a REIT and are unable to correct such failure, we would be subject to U.S. federal income tax at regular corporate rates. Additionally, we could remain disqualified as a REIT for four years following the year we first failed to qualify. Even if we qualify for taxation as a REIT, we are subject to certain foreign, state and local taxes on our income and property and U.S. federal income and excise taxes on our undistributed income.

Non-GAAP Financial Measures

Management's discussion and analysis of financial condition and results of operations include certain Non-GAAP financial measures that in management's view of the business are meaningful as they allow investors the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative of recurring annual cash 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 operations, 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 flows 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, 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 Properties. Income from property operations represents rental income, membership subscriptions and upgrade sales, utility and other income less property and rental home operating and maintenance expenses, real estate taxes, 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

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Management's Discussion and Analysis (continued)

expenses and the impact of the GAAP deferrals of membership upgrade sales upfront payments and membership sales commissions, net. For comparative purposes, we present bad debt expense within Property operating, maintenance and real estate taxes in the current and prior periods.

Our Core Portfolio consists of our Properties owned and operated during all of 2020 and 2021. 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 includes all Properties that were not owned and operated during all of 2020 and 2021. This includes, but is not limited to, eight properties and one marina acquired during 2020 and six properties and eleven marinas acquired during 2021.

Funds from Operations (“FFO”) and Normalized Funds from Operations (“Normalized FFO”)

We define FFO as net income, computed in accordance with GAAP, excluding gains or losses from sales of properties, depreciation and amortization related to real estate, impairment charges and adjustments to reflect our share of FFO of unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. We compute FFO in accordance with our interpretation of standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We receive non-refundable upfront payments from membership upgrade contracts. In accordance with GAAP, the non-refundable upfront payments and related commissions are deferred and amortized over the estimated membership upgrade contract term. Although the NAREIT definition of FFO does not address the treatment of non-refundable upfront 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 non-operating income and expense items such as gains and losses from early debt extinguishment, including prepayment penalties and defeasance costs and other miscellaneous non-comparable items. Normalized FFO presented herein is not necessarily comparable to Normalized FFO presented by other real estate companies due to the fact that not all real estate companies use the same methodology for computing this amount.

We believe that FFO and Normalized FFO are helpful to investors as supplemental measures of the performance of an equity REIT. We believe that by excluding the effect of gains or losses from sales of properties, depreciation and amortization related to real estate and impairment charges, which are based on historical costs and 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 normal operations. For example, we believe that excluding the early extinguishment of debt and other miscellaneous non-comparable items from FFO allows investors, analysts and our management to assess the sustainability of operating performance in future periods because these costs do not affect the future operations of the properties. In some cases, we provide information about identified non-cash components of FFO and Normalized FFO because it allows investors, analysts and our management to assess the impact of those items.

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 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 flows from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

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Management's Discussion and Analysis (continued)

The following table reconciles net income available for Common Stockholders to income from property operations for the years ended December 31, 2021, 2020 and 2019:

The following table presents a calculation of FFO available for Common Stock and OP Unitholders and Normalized FFO available for Common Stock and OP Unitholders for the years ended December 31, 2021, 2020 and 2019:

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Management's Discussion and Analysis (continued)

Results of Operations

This section discusses the comparison of our results of operations for the years ended December 31, 2021 and December 31, 2020. For the comparison of our results of operations for the years ended December 31, 2020 and December 31, 2019 and discussion of our operating activities, investing activities and financing activities for these years, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 23, 2021.

Income from Property Operations

The following table summarizes certain financial and statistical data for our Core Portfolio and total portfolio:

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(1)    Rental income consists of the following total portfolio income items in this table: 1) MH base rental income, 2) Rental home income, 3) RV and marina base rental income and 4) Utility income, which is calculated by subtracting Other income on the Consolidated Statements of Income and Comprehensive Income from Utility and other income in this table. The difference between the sum of the total portfolio income items and Rental income on the Consolidated Statements of Income and Comprehensive Income is bad debt expense, which is presented in Property operating and maintenance expense in this table.

(2)    Includes bad debt expense for all periods presented.

(3)     See Non-GAAP Financial Measures section of the Management Discussion and Analysis for definitions and reconciliations of these Non-GAAP measures to Net Income available for Common Shareholders.

Total portfolio income from property operations for 2021 increased $57.6 million, or 10.7%, from 2020, driven by an increase of $35.7 million, or 6.6%, from our Core Portfolio and an increase of $21.9 million from our Non-Core Portfolio. The increase in income from property operations from our Core Portfolio was primarily due to increases in RV and marina base rental income, MH base rental income and Membership upgrade sales, gross. The increase in income from property operations from our Non-Core Portfolio was attributed to income from properties acquired in the fourth quarter of 2020 and during the year ended December 31, 2021.

Property Operating Revenues

MH base rental income in our Core Portfolio for 2021 increased $27.0 million, or 4.7%, from 2020, which reflects 4.2% growth from rate increases and 0.5% growth from occupancy gains. The average monthly base rental income per Site in our Core portfolio increased to approximately $724 in 2021 from approximately $695 in 2020. The average occupancy in our Core Portfolio was 95.2% in both 2021 and 2020.

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Management's Discussion and Analysis (continued)

RV and marina base rental income is comprised of the following:

RV base rental income in our Core Portfolio for 2021 increased $36.9 million, or 12.9%, from 2020 primarily due to increases in Transient RV and marina base rental income of $23.9 million, or 43.2% and Annual RV and marina base rental income of $13.1 million, or 6.8%. Transient RV and marina base rental income increased across all regions, primarily due to recovery of demand following cancellations in RV reservations and site closures during the year ended December 31, 2020, as a result of COVID-19. We continue to see positive Transient demand as our customers seek safe vacation and leisure activities and value the opportunity to spend time outdoors. The increase in Annual RV and marina base rental income was due to growth from rate and occupancy.

Membership upgrade sales, gross for 2021 increased $14.5 million, or 66.8%, from 2020. The increase in membership upgrade sales was due to approximately 4,900 upgrade sales during the year ended December 31, 2021, compared to 3,400 during the year ended December 31, 2020, an increase of 44%. We also experienced a 16% increase in the average sales price per upgrade sold during the year ended December 31, 2021, compared to the same period ended December 31, 2020. The increase in upgrade sales and average sales price was driven by an increase in customer demand, including a new upgrade product, Adventure, introduced during the first quarter of 2021.

Utility and other income in our Core Portfolio for 2021 increased $3.7 million, or 3.8%, from 2020. The increase was primarily due to higher utility income of $3.3 million.

Property Operating Expenses

Property operating expenses, excluding deferrals and property management, in our Core Portfolio for 2021 increased $34.2 million, or 7.7%, from 2020, primarily due to increases in property operating and maintenance expenses of $25.5 million and sales and marketing expenses of $6.4 million. Property operating and maintenance expenses were higher in 2021, primarily due to increases in utility expenses of $10.9 million, property payroll expenses of $4.4 million, insurance expense of $3.1 million and repairs and maintenance expenses of $2.8 million. The increase in gross sales and marketing expenses was primarily due to an increase in membership upgrade sales.

Home Sales and Other

The following table summarizes certain financial and statistical data for our Home Sales and Other Operations:

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(1)New home sales gross revenue and costs of new home sales did not include the revenue and costs associated with our ECHO JV.

(2)Total new home sales volume included home sales from our ECHO JV.

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Management's Discussion and Analysis (continued)

Income from home sales and other operations was $8.4 million for 2021, an increase of $11.4 million compared to 2020. The increase in income from home sales and other was due to an increase in ancillary services revenues, net, driven by increased revenue from restaurants, stores and activities across the portfolio primarily as a result of closures in 2020 as a result of COVID-19 and an increase in gross profit from new home sales as a result of an increase in the number of new homes sold.

Rental Operations

The following table summarizes certain financial and statistical data for our MH Rental Operations:

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(1)Consists of Site rental income and home rental income. Approximately $31.5 million and $31.4 million for the years ended December 31, 2021 and December 31, 2020, respectively, of Site rental income is included in MH base rental income in the Core Portfolio Income from Property Operations table. The remainder of home rental income is included in rental home income in our Core Portfolio Income from Property Operations table.

(2)Presented in Depreciation and amortization in the Consolidated Statements of Income and Comprehensive Income.

(3)New home cost basis did not include the costs associated with our ECHO JV. Our investment in the ECHO JV was $18.1 million and $17.4 million at December 31, 2021 and December 31, 2020, respectively.

(4)Includes 236 and 298 homes rented through our ECHO JV in 2021 and 2020, respectively.

Other Income and Expenses

The following table summarizes other income and expenses:

Total other income and expenses, net increased $32.8 million in 2021 compared to 2020, primarily due to higher depreciation and amortization and interest and related amortization expenses, partially offset by a decrease in early debt retirement costs. The increase in depreciation and amortization was due to depreciation on Non-Core properties acquired in the fourth quarter of 2020 and the year ended December 31, 2021. The increase in interest and related amortization is due to higher debt levels in 2021 compared to 2020. The decrease in early debt retirement costs was due to lower debt repayment costs in 2021 compared to 2020.

Equity in Income of Unconsolidated Joint Ventures

Equity in income of unconsolidated joint ventures decreased $1.5 million in 2021 compared to 2020, primarily due to a decrease in income recognized from distributions from our unconsolidated joint ventures as we acquired the remaining interest in the Voyager joint venture in the fourth quarter of 2021.

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Management's Discussion and Analysis (continued)

Subsequent Events

Acquisitions

On February 15, 2022, we completed the acquisition of two RV communities located in Gunnison, Colorado and Winterhaven, California collectively containing 632 sites for a purchase price of $15.2 million.

Unsecured Financing

On January 21, 2022, we entered into a term loan agreement with Wells Fargo Bank, National Association, as the administrative agent, pursuant to which we have entered into a $200.0 million senior unsecured term loan. The maturity date is January 21, 2027. The term loan bears interest at a rate of Secured Overnight Financing Rate (“SOFR”), plus approximately 1.30% to 1.80%, depending on leverage levels.

ATM

During January 2022, we sold approximately 0.3 million shares of our common stock under our ATM equity offering program with a weighted average price of $86.46 per share for net proceeds of $28.0 million. On February 14, 2022, our Board of Directors approved a new ATM equity offering program with an aggregate offering price of up to $500.0 million.

Dividend

On January 21, 2022, our Board of Directors approved setting the annual dividend rate for 2022 at $1.64 per share of common stock, an increase of $0.19 over the current $1.45 per share of common stock for 2021. Our Board of Directors, in its sole discretion, will determine the amount of each quarterly dividend in advance of payment.

Liquidity and Capital Resources

Liquidity

Our primary demands for liquidity include payment of operating expenses, dividend distributions, debt service, including principal and interest, capital improvements on Properties, home purchases and property acquisitions. We expect similar demand for liquidity will continue for the short-term and long-term. Our primary sources of cash include operating cash flows, proceeds from financings, borrowings under our unsecured Line of Credit (“LOC”) and proceeds from issuance of equity and debt securities.

One of our stated objectives is to maintain financial flexibility. Achieving this objective allows us to take advantage of strategic opportunities that may arise. When investing capital, we consider all potential uses, including returning capital to our stockholders or the conditions under which we may repurchase our stock. These conditions include, but are not limited to, market price, balance sheet flexibility, alternative opportunistic capital uses and capital requirements. We believe effective management of our balance sheet, including maintaining various access points to raise capital, managing future debt maturities and borrowing at competitive rates, enables us to meet this objective. Accessing long-term low-cost secured debt continues to be our focus.

Total secured debt encumbered a total of 117 and 116 of our Properties as of December 31, 2021 and December 31, 2020, respectively, and the gross carrying value of such Properties was approximately $2,817.5 million and $2,580.9 million, as of December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, we have available liquidity in the form of approximately 414.4 million shares of authorized and unissued common stock, par value $0.01 per share and 10.0 million shares of authorized and unissued preferred stock registered for sale under the Securities Act of 1933, as amended.

Our ATM equity offering program allows us to 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 year ended December 31, 2021, we sold 1,660,290 shares of our common stock under our ATM equity program for gross cash proceeds of approximately $140.3 million at a weighted average share price of $84.48. As of December 31, 2021, there was $59.7 million of common stock available for issuance under our ATM equity program. On February 14, 2022, our Board of Directors approved a new ATM equity offering program with an aggregate offering price of up to $500.0 million.

During the year ended December 31, 2021, we closed on an amended revolving line of credit with borrowing capacity of $500.0 million and a $300.0 million term loan (“Term Loan”). The variable interest rate on the Term Loan is LIBOR plus 1.40%. Pursuant to the Swap (as defined below), we have fixed the interest rate at 1.8% per annum. See Item 8. Financial Statements and Supplementary Data—Note 9. Borrowing Arrangements for further details.

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Management's Discussion and Analysis (continued)

We also utilize interest rate swaps to add stability to our interest expense and to manage our exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of the designated derivative are recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets and subsequently reclassified into earnings on the Consolidated Statements of Income and Comprehensive Income in the period that the hedged forecasted transaction affects earnings.

During the year ended December 31, 2021, we entered into a three-year LIBOR Swap Agreement (the “ Swap”) allowing us to trade the variable interest rate associated with our variable rate debt for a fixed interest rate. The Swap has a notional amount of $300.0 million of outstanding principal and fixes the underlying LIBOR rate at 0.39% per annum and matures on March 25, 2024. For additional information regarding our interest rate swap, see Item 8. Financial Statements and Supplementary Data—Note 10. Derivative Instruments and Hedging Activities.

We expect to meet our short-term liquidity requirements, including principal payments, capital improvements and dividend distributions for the next twelve months, generally through available cash, net cash provided by operating activities and our LOC. As of December 31, 2021, our LOC had a borrowing capacity of $151.0 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 1.25% to 1.65%, requires an annual facility fee of 0.20% to 0.35% and matures on April 18, 2025.

We continue to monitor the development and adoption of an alternative index to LIBOR to manage the transition. Given the majority of our current debt is secured and not subject to LIBOR, we do not believe the discontinuation of LIBOR will have a significant impact on our consolidated financial statements.

We expect to meet certain long-term liquidity requirements, such as scheduled debt maturities, property acquisitions and capital improvements, using long-term collateralized and uncollateralized borrowings including the existing LOC and the issuance of debt securities or the issuance of equity including under our ATM equity offering program.

On January 21, 2022, we entered into a term loan agreement with Wells Fargo Bank, National Association, as the administrative agent, pursuant to which we have entered into a $200.0 million senior unsecured term loan. The maturity date is January 21, 2027. The term loan bears interest at a rate of Secured Overnight Financing Rate (“SOFR”), plus approximately 1.30% to 1.80%, depending on leverage levels.

The impact the COVID-19 pandemic will continue to have on our financial condition and cash flows is uncertain and is dependent upon various factors including the manner in which operations will continue at our Properties, customer payment patterns and operational decisions we have made and may make in the future in response to guidance from public authorities and/or for the health and safety of our employees, residents and guests.

The following table summarizes our cash flows activity:

Operating Activities

Net cash provided by operating activities increased $128.5 million to $595.1 million for the year ended December 31, 2021, from $466.5 million for the year ended December 31, 2020. The overall increase in net cash provided by operating activities was primarily due to an increase in income from property operations of $57.6 million in 2021 compared to 2020, an increase in other assets, net and accounts payable and other liabilities of $46.5 million, higher deferred membership revenue of $14.0 million and an increase in rents and other customer payments received in advance and security deposits of $12.6 million.

Investing Activities

Net cash used in investing activities increased $464.1 million to $914.5 million for the year ended December 31, 2021, from $450.4 million for the year ended December 31, 2020. The increase in net cash used in investing activities was primarily

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Management's Discussion and Analysis (continued)

due to increased spending on real estate acquisitions of $298.8 million, increased in capital improvement spending of $73.2 million and increased spending on business acquisitions of $41.8 million.

Capital improvements

The following table summarizes capital improvements:

_____________________

(1)Includes upkeep of property infrastructure including utilities and streets and replacement of community equipment and vehicles.

(2)Includes enhancements to amenities such as buildings, common areas, swimming pools and replacement of furniture and site amenities.

(3)Includes $3.2 million of restoration and improvement capital expenditures related to Hurricane Hanna for the year ended December 31, 2020. Includes $2.5 million of restoration and improvement capital expenditures related to Hurricane Irma for the year ended December 31, 2019.

(4)Excludes new home investments associated with our ECHO JV.

(5)Net proceeds from new and used home sale activities are reflected within Operating Activities.

Financing Activities

Net cash provided by financing activities was $418.7 million for the year ended December 31, 2021, compared to cash used by financing activities of $21.0 million for the year ended December 31, 2020. The increase in net cash provided by financing activities was primarily due to an increases in net term loan proceeds of $300.0 million and increased proceeds from the issuance of common stock of $140.3 million.

Contractual Obligations

As of December 31, 2021, we were subject to certain contractual payment obligations(1) as described in the following table:

_____________________

(1)We do not include insurance, property taxes and cancellable contracts in the contractual obligations table.

(2)Balances exclude note premiums of $0.3 million and unamortized deferred financing costs of $28.9 million. Balances represent debt maturing and scheduled periodic payments as well as our LOC balance of $349.0 million outstanding as of December 31, 2021, on the Consolidated Balance Sheets.

(3)Amounts include interest expected to be incurred on our secured and unsecured debt based on obligations outstanding as of December 31, 2021.

(4)Amounts represent minimum future rental payments for land under non-cancelable operating leases at certain of our Properties expiring at various years through 2054. We operate and manage Westwinds and Nicholson Plaza located in San Jose, California pursuant to ground leases that expire on August 31, 2022 and do not contain extension options. Minimum future rental payments for these Properties for 2022 is approximately $1.0 million.

We believe that we will be able to refinance our maturing debt obligations on a secured or unsecured basis; however, to the extent we are unable to refinance our debt as it matures, we believe that we will be able to repay such maturing debt through available cash as well as operating cash flows, asset sales and/or the proceeds from equity issuances. With respect to any refinancing of maturing debt, our future cash flow requirements could be impacted by significant changes in interest rates or other debt terms, including required amortization payments. As of December 31, 2021, approximately 22.0% of our outstanding debt is fully amortizing.

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Management's Discussion and Analysis (continued)

Westwinds

The Operating Partnership operates and manages Westwinds, a 720 site mobilehome community, and Nicholson Plaza, an adjacent shopping center, both located in San Jose, California pursuant to ground leases that expire on August 31, 2022 and do not contain extension options. Westwinds provides affordable, rent-controlled homes to numerous residents, including families with children and residents over 65 years of age. For the year ended December 31, 2021, Westwinds and Nicholson Plaza generated approximately $6.0 million of net operating income.

The master lessor of these ground leases, The Nicholson Family Partnership (together with its predecessor in interest, the “Nicholsons”), has expressed a desire to redevelop Westwinds, and in a written communication, they claimed that we were obligated to deliver the property free and clear of any and all subtenancies upon the expiration of the ground leases on August 31, 2022. In connection with any redevelopment, the City of San Jose’s conversion ordinance requires, among other things, that the landowner provide relocation, rental and purchase assistance to the impacted residents. We believe the Nicholsons are unlawfully attempting to impose those obligations upon the Operating Partnership.

Westwinds opened in the 1970s and was developed by the original ground lessee with assistance from the Nicholsons. In 1997, the Operating Partnership acquired the leasehold interest in the ground leases. In addition to rent based on the operations of Westwinds, the Nicholsons receive a percentage of gross revenues from the sale of new or used mobile homes in Westwinds.

The Operating Partnership has entered into subtenancy agreements with the mobilehome residents of Westwinds. Because the ground leases with the Nicholsons have an expiration date of August 31, 2022, and no further right of extension, the Operating Partnership has not entered into any subtenancy agreements that extend beyond August 31, 2022. However, the mobilehome residents’ occupancy rights continue by operation of California state and San Jose municipal law beyond the expiration date of the ground leases. Notwithstanding this, the Nicholsons have made what we believe to be an unlawful demand that the Operating Partnership deliver the property free and clear of any subtenancies upon the expiration of the ground leases by August 31, 2022. We believe the Nicholsons’ demand (i) violates California state and San Jose municipal law because the Nicholsons are demanding that the Operating Partnership remove all residents without just cause and (ii) conflicts with the terms and conditions of the ground leases, which contain no express or implied requirement that the Operating Partnership deliver the property free and clear of all subtenancies at the mobile home park and require, instead, that the Operating Partnership continuously operate the mobilehome park during the lease term.

On December 30, 2019, the Operating Partnership, together with certain interested parties, filed a complaint in California Superior Court for Santa Clara County, seeking declaratory relief pursuant to which it requested that the Court determine, among other things, that the Operating Partnership has no obligation to deliver the property free and clear of the mobilehome residents upon the expiration of the ground leases. The Operating Partnership and the interested parties filed an amended complaint on January 29, 2020.

The Nicholsons filed a demand for arbitration on January 28, 2020, which they subsequently amended, pursuant to which they request (i) a declaration that the Operating Partnership, as the “owner and manager” of Westwinds, is “required by the Ground Leases, and State and local law to deliver the Property free of any encumbrances or third-party claims at the expiration of the lease terms,” (ii) that the Operating Partnership anticipatorily breached the ground leases by publicly repudiating any such obligation and (iii) that the Operating Partnership is required to indemnify the Nicholsons with respect to the claims brought by the interested parties in the Superior Court proceeding.

On February 3, 2020, the Nicholsons filed a motion in California Superior Court to compel arbitration and to stay the Superior Court litigation, which motion was heard on June 25, 2020. On July 29, 2020, the Superior Court issued a final order denying the Nicholsons' motion to compel arbitration. The Nicholsons filed a notice of appeal on August 7, 2020, which appeal was heard on February 1, 2022. On February 4, 2022, the California Court of Appeal affirmed the Superior Court’s order denying the Nicholsons' motion to compel arbitration. The arbitration is stayed pursuant to an agreement between MHC and the Nicholsons.

Following the filing of our lawsuit, the City of San Jose took steps to accelerate the passage of a general plan amendment previously under review by the City to change the designation for Westwinds from its current general plan designation of Urban Residential (which would allow for higher density redevelopment), to a newly created designation of Mobile Home Park. The Nicholsons expressed opposition to this change in designation. However, on March 10, 2020, following significant pressure from residents and advocacy groups, the City Council approved this new designation for all 58 mobilehome communities in the City of San Jose, including Westwinds. In addition to requirements imposed by California state and San Jose municipal law, the change in designation requires, among other things, a further amendment to the general plan to a different land use designation by the City Council prior to any change in use.

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Management's Discussion and Analysis (continued)

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. Actual results could differ from these estimates.

For additional information regarding our significant accounting policies, see Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies.

Impairment of Long-Lived Assets

We review our Properties for impairment whenever events or changes in circumstances indicate that the carrying value of the Property may not be recoverable. The economic performance and value of our real estate investments could be adversely impacted by many factors including factors outside of our control. We consider impairment indicators including, but not limited to, the following:

•national, regional and/or local economic conditions;

•competition from MH and RV communities and other housing options;

•changes in laws and governmental regulations and the related costs of compliance;

•changes in market rental rates or occupancy; and

•physical damage or environmental indicators.

Any adverse changes in these factors could cause an impairment in our assets, including our investment in real estate and development projects in progress.

If an impairment indicator exists related to a long-lived asset, the expected future undiscounted cash flows are compared against the carrying amount of that asset. Forecasting cash flows requires us to make estimates and assumptions on various inputs including, but not limited to, rental revenue and expense growth rates, occupancy, levels of capital expenditure and capitalization rates. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recorded for the carrying amount in excess of the estimated fair value.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity or capital resources.

Inflation

Substantially all of the leases at our MH communities allow for monthly or annual rent increases which provide us with the ability to increase rent, where justified by the market. Such types of leases generally minimize our risks of inflation. In addition, rental rates for our annual RV and marina Sites are established on an annual basis. Our membership subscriptions 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. Currently, 20.0% of our dues are frozen.

Some of our costs, including operating and administrative expenses, interest expense and construction costs are subject to inflation. These expenses include but are not limited to property-related contracted services, utilities, repairs and maintenance and insurance and general and administrative costs, including compensation costs.