It seems like anything that sits on real estate these days may actually be part of a real estate investment trust. Case in point: my newest find, Equity LifeStyle Properties (NYSE:ELS).
What is a lifestyle property? It’s really just a resort community with site-set homes — pre-fabricated homes assembled elsewhere and then delivered to a given location. The homes are cheaper than regular homes since they are built with factory efficiency.
The company has a controlling interest in some 380 resorts across 32 states, and it often outfits these communities with clubhouses, swimming pools, laundry facilities, spas, golf courses, shuffleboard and basketball courts, tennis and exercise rooms.
Equity LifeStyle Properties has carefully chosen its real estate along lakes, beaches, in the mountains and overlooking beautiful landscapes. It chooses land that has lower maintenance and customer turnover costs, has high barriers to entry, are retirement and vacation destinations or are in growth markets, with a significant chance of enjoying the appreciating component of real estate.
The company just reported earnings on Monday and the numbers were strong. FFO was up almost 40% YOY, and up 23% over the same six-month period. This was driven by strong increases in property operating revenues, up 33% and 32% in the three and six month periods, respectively.The company has inserted itself into all aspects of the community’s revenue generating potential, including things such as utility costs. Indeed, utility revenue was up 40%.
Of course, being an REIT, investors want to know about the dividend. It presently is at $1.75 per year, or 2.4%. The good news: funds available for distribution are already at $2.08 for the year, which suggests a possible dividend hike may be on the way. I say that because the balance sheet appears pretty robust, with $135 million in cash, and long term secured debt at $2.1 billion. Interest is at 5.5%, and that expense is easily covered by revenues.
This is a great example of an overlooked company that is in solid shape and has been playing successfully in its niche for over thirty years. Sure, there are other REITs that are even more solid and offer better dividends. Vornado Realty Trust (NYSE:VNO) is a premier commercial property operator paying 3.2%, as is Brookfield Office Properties (NYSE:BPO), also paying 3.2%. Simon Property Group (NYSE: SPG) primarily handles malls and pays 2.5%.
The notable aspect of Equity LifeStyle is that as a smaller player, it has more room to run, and thus may also offer index-beating capital gains.
Lawrence Meyers does not own shares in any company mentioned.
