SecProbe.io

CORRESP
1
filename1.htm

Document

  Equity LifeStyle Properties, Inc.

 Two North Riverside Plaza

 Chicago, Illinois 60606

 (312) 279-1400

 Fax (312) 279-1710

 www.equitylifestyle.com

July 7, 2023

VIA EDGAR

Eric McPhee

Jennifer Monick

Division of Corporation Finance

Office of Real Estate & Construction

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-7010

Re:    Equity LifeStyle Properties, Inc.

Form 10-K for the year ended December 31, 2022

Filed February 21, 2023

Form 8-K Filed April 18, 2023

File No. 001-11718

Dear Mr. McPhee and Ms. Monick:

On behalf of Equity LifeStyle Properties, Inc. (the “Company”), this letter responds to your letter, dated May 17, 2023 (the “Comment Letter”), regarding the above-referenced filings. Each of your comments is set forth below, followed by the corresponding response. For ease of reference, the headings and numbered paragraphs below correspond to the headings and numbered comments in the Comment Letter. Each response of the Company is set forth in ordinary type beneath the corresponding comment of the Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) from the Comment Letter appearing in bold type. Unless otherwise indicated, page references in the descriptions of the Staff’s comments refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Form 10-K for the year ended December 31, 2022

Non-GAAP Financial Measures, page 47

1.We refer you to your non-GAAP financial measures Funds from Operations, Normalized Funds from Operations, Property operating revenues, excluding deferrals, Income from property operations, excluding deferrals and property management, and Income from property operations, excluding deferrals. It appears that such non-GAAP measures are the result of a GAAP measure adjusted to add the change in your deferred revenue liability, having the effect of accelerating the recognition of revenues to recognize the entire amount of payments received as revenues in the current period, as opposed to recognizing the revenues over a 20 year period. Please tell us how you have determined these measures are not tailored measures as contemplated in Question 100.04 of the Non-GAAP C&DI.

Mr. Eric McPhee and Ms. Jennifer Monick

Securities and Exchange Commission

July 7, 2023

Page 2

Response:

We respectfully acknowledge the Staff’s comment, and we confirm that when preparing our 2022 Form 10-K, we considered U.S. Generally Accepted Accounting Principles (“GAAP”), the rules, regulations and applicable interpretive guidance (including related Compliance and Disclosure Interpretations (“C&DIs”)) of the SEC and its Staff, as well as the guidance by the National Association of Real Estate Investment Trusts, Inc. (“Nareit”) related to reporting Funds from Operations (“FFO”), including The Nareit Funds From Operations White Paper – 2018 Restatement (“2018 Nareit White Paper”).

Please see pages 41 to 45 of the 2022 Form 10-K for a discussion of our membership business which we purchased in 2008. We receive non-refundable upfront payments from membership upgrade contracts which provide certain upgraded rights and privileges for as long as the upgraded member maintains a membership in good standing. Upgraded membership rights include (i) increased length of consecutive stay, (ii) the ability to make earlier advance reservations, (iii) discounts on rental accommodations and (iv) access to additional properties, including non-membership recreational vehicle (“RV”) properties. In accordance with GAAP, since 2008, the non-refundable upfront payments and related commissions have been deferred and amortized on a straight-line basis over the estimated life of the upgrade contract.

We consider the sale of a right to use our real estate in exchange for a non-refundable upfront payment to be an activity unique to the real estate industry and to our Company in comparison to other public real estate investment trusts (“REITs”). There is no risk that our deferred revenue will not be recognized as revenue as we do not have any duty or legal obligation to provide any refunds for such upgrades. Although the upgrade rights are conveyed over the contract term, we are not required to deliver any incremental goods or services and are not subject to any contingencies, including in the later years. Other than the deferred sales commissions noted above, there are minimal incremental expenses associated with the membership upgrade contracts beyond the expenses to market and process the non-refundable upfront payments, all of which are expensed in the period incurred.

Since 2008, FFO and the other non-GAAP financial measures we present have consistently included adjustments with respect to the treatment of the non-refundable upfront payments that we receive in connection with our membership upgrade contracts. We believe that FFO and the other non-GAAP financial measures we present, together with our financial statements and other disclosures, effectively illustrate the impact of the revenue and expenses associated with this unique revenue stream on our business.

Such adjustments are clear, detailed and understandable, are immaterial, have been consistently applied since 2008 and are not misleading individually tailored measures as contemplated in Question 100.04 of the C&DIs on Non-GAAP Financial Measures.

Mr. Eric McPhee and Ms. Jennifer Monick

Securities and Exchange Commission

July 7, 2023

Page 3

We believe Net income available for Common Stockholders (“NI”) computed under GAAP remains the primary measure of performance, and that FFO and the other non-GAAP financial measures we present are only meaningful when used in conjunction with NI computed under GAAP. However, FFO and the other non-GAAP financial measures we present are critical operations metrics which provide our investors and analysts with supplemental measures used by management to assess the effectiveness and profitability of our portfolio and illustrate how management views our business. For example, Normalized Funds from Operations (“NFFO”) is used in part by our Board of Directors (the “Board”) to set compensation performance measures for our executive management team. Specifically, fifty percent of the annual restricted stock awards granted to our executive management team are subject to NFFO-based performance conditions. In addition, the non-refundable upfront payments fluctuate as we revise our upgrade program for market conditions. Accordingly, adjusting for the deferred membership revenues and related commissions in FFO and our other non-GAAP financial measures promotes year-to-year consistency in presentation by normalizing changes in our upgrade program and the deferral period and therefore providing continued visibility into the growth of our membership upgrade business. When evaluating potential acquisitions of RV communities that offer membership sales, management underwrites these acquisitions based on expected cash flows, including membership upgrade sales, on a year-by-year basis.

The impact of the adjustments to our non-GAAP financial measures is easily identified and understood by an investor given the comprehensive disclosures, including the reconciliations set forth in the 2022 Form 10-K on pages 48, 49, 50 and F-27. Based on our discussions with our investors and analysts, they have demonstrated their understanding of the GAAP treatment applied to this portion of our real estate business and that this important aspect of our business merits additional disclosure in a manner that is beneficial to their understanding of our operations. Our investors and analysts have noted to us that they use FFO, NFFO and our other non-GAAP financial measures to assess the effectiveness of our operations and to value our membership business based on annual sales revenue and expenses and appreciate both understanding further how management views this aspect of the business as well as the consistency of the presentation on a year-by-year basis. Accordingly, we believe these adjustments, together with our additional disclosures, make our operations transparent and understandable and are useful to, and appreciated by, our investors and analysts.

Question 102.01 of the C&DIs on Non-GAAP Financial Measures, notes that “[t]he staff accepts NAREIT’s definition of FFO in effect as of May 17, 2016 as a performance measure.” We believe that adjusting for the impact of the deferral activity in our calculation of FFO is consistent with “Nareit’s intention…to establish a standard supplemental REIT industry-wide metric that would address certain limitations associated with the measurement of net income in accordance with GAAP for real estate operating companies such as equity REITs,” as noted in the 2018 Nareit White Paper. We believe our membership upgrade revenue stream is unique to our Company in comparison to other public REITs and that it is appropriate to include in our calculation of FFO because doing so is consistent with the principles employed by Nareit for its other adjustments. For example, a membership upgrade relates solely to the right to use our membership properties, taking the form of numerous transactions providing each buyer of an upgraded membership with specified rights to use our properties, akin to selling elements of our real estate as described in section V(C) of the 2018 Nareit White Paper.

Mr. Eric McPhee and Ms. Jennifer Monick

Securities and Exchange Commission

July 7, 2023

Page 4

Lastly, we believe the disclosures in the 2022 Form 10-K satisfy each of the requirements of Item 10(e) of Regulation S-K. The fulsome nature of the disclosure in the 2022 Form 10-K presents the GAAP treatment and FFO, NFFO and our other non-GAAP measures in a manner that is clear and conspicuous and is not misleading to investors. Our presentation has no greater prominence than the presentation of our NI (the most directly comparable GAAP financial measure), we provide a quantitative reconciliation of FFO, NFFO and our other non-GAAP financial measures to NI, we disclose the reasons we believe FFO, NFFO and our other non-GAAP financial measures are appropriate performance measures for a real estate company and provide useful information to investors regarding our results of operations, we specifically state that FFO, NFFO and our other non-GAAP financial measures should not be considered as an alternative to NI computed in accordance with GAAP, we do not exclude charges or liabilities that required or will require cash settlement, we do not exclude any items identified as being non-recurring, infrequent or unusual, no such non-GAAP financial measures are presented on the face of our financial statements and the titles and descriptions are clearly distinguishable from any relevant GAAP financial measure.

2.We note your presentation of the measures Income from home sales and other and Income from rental operations, net of depreciation, on page 52. Please clarify for us if such measures are non-GAAP measures, and tell us how you made that determination. To the extent they are non-GAAP measures, please revise your disclosures in future filings to provide the disclosures required by Regulation G and Item 10(e) of Regulation S-K.

Response:

We respectfully acknowledge the Staff’s comment and confirm that Income from rental operations, net of depreciation and Income from home sales and other are non-GAAP measures. In future communications and Exchange Act reports, beginning with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, we will revise our disclosure to remove the references to Income from rental operations, net of depreciation and Income from home sales.

3.We note your presentation of Property operating expenses, excluding deferrals and property management and Income from property operations, excluding deferrals and property management on page 50. Please tell us, and revise your disclosure to address, how you believe these non-GAAP financial measures provide useful information to investors. In addition, please clarify for us how you determined property management expense is not a normal, recurring, cash operating expense necessary to operate your business. Please refer to Item 10(e) of Regulation S-K and Question 100.01 of the Non-GAAP C&DI.

Mr. Eric McPhee and Ms. Jennifer Monick

Securities and Exchange Commission

July 7, 2023

Page 5

Response:

We respectfully acknowledge the Staff’s comment. We present the non-GAAP measures Income from property operations, excluding deferrals and property management and Property operating expenses, excluding deferrals and property management to demonstrate the operational profitability of our properties on an aggregate basis, excluding corporate level expenses that are not linked to the direct operation of the properties. These non-GAAP measures are critical operational metrics that our management team uses to assess the effectiveness and profitability of our portfolio and that our Board utilizes in part to set the compensation of our management team. Based on discussions with our investors and analysts, we believe these are key metrics that they use to assess the effectiveness of our operations.

We have reviewed the guidance under Question 100.01 of the C&DIs on Non-GAAP Financial Measures, which indicates that “presenting a non-GAAP performance measure that excludes normal, recurring, cash operating expenses necessary to operate a registrant’s business is one example of a measure that could be misleading.”  We respectfully advise the Staff that we have considered this guidance, and we believe that the exclusion of deferrals and property management expenses from our calculation of Income from property operations, excluding deferrals and property management and Property operating expenses, excluding deferrals and property management, is not misleading.

As discussed in our May 24, 2012 response to the Staff’s comment letter dated May 15, 2012, our property management expenses include expenses associated with certain support functions that are not direct costs of operating the properties.  As an example, the expenses associated with indirect costs such as off-site payroll and certain administrative and professional expenses are included in property management expenses.  We believe that most public REITs include the expenses we group under property management expenses directly in their General and administrative expenses.  Therefore, our exclusion of property management expenses is analogous to the exclusion of General and administrative expenses from property level net operating income or income from property operations, which is consistent practice by other public REITs.  While both expenses may include normal, recurring cash operating expenses for our Company’s general corporate operations, such expenses are not allocable to the direct operation of our properties and consequently a permissible adjustment that, as discussed further below, is not misleading.  Our more granular presentation of property management expenses separately from General and administrative expenses only provides greater transparency for our investors and analysts, and therefore should not result in different treatment.  Further, based on our frequent discussions with investors and analysts, we believe they exclude property management expenses when valuing our property operations.

We have reviewed our measures in accordance with Rule 100(b) and determined the measure is not misleading.  To do so, we considered the nature and effect of the non-GAAP adjustment and how it relates to our operations, revenue generating activities, business strategy, industry and regulatory environment.  NI is our primary performance measure.  The non-GAAP financial measures are reconciled to NI and presented as supplemental measur