UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
---------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER:Commission File Number: 1-11718
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 36-3857664
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA, SUITE 800, 60606
800,
CHICAGO, ILLINOIS (Zip Code)
(Address of principal executive offices)
(312) 279-1400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) OF THE ACT:of the Act:
Common Stock, $.01 Par Value The New York Stock Exchange
(Title of Class) (Name of exchange on which
registered)
SECURITIES REGISTERED PURSUANT TO SECTIONSecurities registered pursuant to Section 12(g) OF THE ACT: NONEof the Act: None
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates was
approximately $640.1$699.2 million as of FebruaryMarch 11, 20022005 based upon the closing price
of $32.55$34.80 on such date using beneficial ownership of stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting
stock owned by Directors and Officers, some of whom may not be held to be
affiliates upon judicial determination.
At March 15, 2002, 21,740,24811, 2005, 23,172,094 shares of the Registrant's
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference the Registrant's Proxy Statement relating to
the Annual Meeting of Stockholders to be held on May 8, 2002.10, 2005.
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
TABLE OF CONTENTS
PAGEPage
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PART II.
Item 1. Business.................................................................................Business ............................................................................ 3
Item 2. Properties............................................................................... 8Properties .......................................................................... 9
Item 3. Legal Proceedings........................................................................ 13Proceedings ................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders...................................... 16Holders ................................. 17
PART IIII.
Item 5. Market for the Registrant's Common Equity, and Related Stockholder Matters................ 17Matters and Issuer
Purchases of Equity Securities ................................................... 18
Item 6. Selected Financial Data and Operating Information........................................ 18............................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.... 20Operations ....................................................................... 22
Item 7A. Quantitative and Qualitative DisclosureDisclosures About Market Risk................................ 30Risk .......................... 36
Item 8. Financial Statements and Supplementary Data.............................................. 30Data ......................................... 36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..... 30Disclosure ....................................................................... 36
Item 9A. Controls and Procedures ............................................................. 37
Item 9B. Other Information ................................................................... 38
PART IIIIII.
Item 10. Directors and Executive Officers of the Registrant....................................... 30Registrant .................................. 39
Item 11. Executive Compensation................................................................... 30Compensation .............................................................. 39
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 30Management ...................... 39
Item 13. Certain Relationships and Related Transactions........................................... 30
PART IVTransactions ...................................... 39
Item 14. Principal Accountant Fees and Services .............................................. 39
PART IV.
Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K.......................... 31.......................................... 40
2
PART I
ITEM 1. BUSINESS
THE COMPANYEQUITY LIFESTYLE PROPERTIES, INC.
GENERAL
Manufactured Home Communities,Equity Lifestyle Properties, Inc. (together, a Maryland corporation, together with
itsMHC Operating Limited Partnership (the "Operating Partnership") and other
consolidated subsidiaries ("Subsidiaries"), is referred to herein as the
"Company"), "ELS", "we", "us", and "our". The Company is a fully integrated company which ownsowner
and operates manufactured home communitiesoperator of resort and retirement oriented properties ("Communities"Properties"). Communities are
residential developments designed and improvedThe
Company leases individual developed areas ("sites" or "pads") with access to
utilities for the placement of detached,
single-family manufacturedfactory built homes which are produced off-site and installed and
set on residential sites ("Site Set") within the Community. The owner of each
home leases the site on which it is located. Modern Communities are similar to
typical residential subdivisions, containing centralized entrances, paved
streets, curbs and gutters and parkways. In addition, these Communities often
provide a clubhouse for social activities and recreation and other amenities,
which may include swimming pools, shuffleboard courts, tennis courts, laundry
facilities and cable television service. In some cases, utilities are provided
or arranged for by the owner of the Community, otherwise, the resident contracts
the utility directly. Some Communities provide water and sewer service through
municipal or regulated utilities, while others provide these services to
residents from on-site facilities.
Each Community is generally designed to attract, and is marketed to one of
two types of residents -- (1) retirees and empty nesters or (2) families and
first-time homeowners. The Company believes both types of Communities are
attractive investments and focuses on owning Communities in or near large
metropolitan markets and retirement destinations.recreational vehicles. The
Company was formed to continue the property operations, business objectives and
acquisition strategies of an entity that had owned and operated CommunitiesProperties since
1969. As of December 31, 2001, the Company2004, we owned or had an ownership interest in a
portfolio of 148 Communities and recreational vehicle
("RV") resorts (the "Properties")275 Properties located throughout the United States containing
50,761101,231 residential sites. TheThese Properties are located in 2325 states and British
Columbia (with the number of Properties in each state shown parenthetically) ---
Florida (49)(84), California (25)(46), Arizona (17)(35), Michigan (11)Texas (15), Washington (13),
Colorado (10), Oregon (9), Delaware (7), Indiana (7), Pennsylvania (7), Nevada
(6), North Carolina (6), Wisconsin (5), Indiana (3), Oregon (3)Virginia (4), Illinois (2)(3), Iowa (2),
Michigan (2), New YorkJersey (2), Ohio (2), South Carolina (2), Tennessee (2), Utah
(2), Pennsylvania (1), Maryland (1), Minnesota (1), Montana (1), New Mexico (1), Ohio (1), Texas (1), Virginia (1), West VirginiaNew York (1), and WashingtonBritish Columbia (1).
AsProperties are designed and improved for several home options of December 31, 2001,various
sizes and designs that are produced off-site, installed and set ("Site Set").
These homes can range from 400 to over 2,000 square feet. The smallest of these
are referred to as "Resort Cottages". Properties may also have pads that can
accommodate a variety of recreational vehicles ("RVs"). Properties generally
contain centralized entrances, paved streets, curbs and gutters and parkways. In
addition, Properties often provide a clubhouse for social activities and
recreation and other amenities, which may include restaurants, swimming pools,
golf courses, lawn bowling, shuffleboard courts, tennis courts, laundry
facilities and cable television service. In some cases, utilities are provided
or arranged for by us; otherwise, the customer contracts for the utility
directly. Some Properties provide water and sewer service through municipal or
regulated utilities, while others provide these services to customers from
on-site facilities. Properties generally are designed to attract retirees,
empty-nesters, vacationers and second home owners; however, certain of the
Properties focus on affordable housing for families. We focus on owning
Properties in or near large metropolitan markets and retirement and vacation
destinations.
On November 10, 2004, we acquired KTTI Holding Company, also owned a commercial building locatedInc., owner of 57
Properties and approximately 3,000 acres of vacant land, for $160 million. These
Properties are leased to Thousand Trails Operations Holding Company, L.P.
("Thousand Trails"), the largest operator of membership-based campgrounds in California.the
United States. The Company has provided a long-term lease of the real estate
(excluding the vacant land) to Thousand Trails, which will continue to operate
the Properties for the benefit of over 100,000 members nationwide. These
Properties are located in 16 states (primarily in the western and southern
United States) and British Columbia, and contain 17,911 sites. The lease will
generate $16 million in annual rental income to the Company on an absolute
triple net basis, subject to annual escalations of 3.25%.
EMPLOYEE AND ORGANIZATIONAL STRUCTURE
We have approximately 8001,500 full-time, part-time and seasonal employees
dedicated to carrying out the Company'sour operating philosophy and strategies of value
enhancement and service to residents.our customers. The Companyoperations of each Property are
coordinated by an on-site team of employees that typically utilizesincludes a onemanager or
two-person management team, for the on-site management of each of the Properties. Typically,
clerical and maintenance workers, are employedeach of whom works
to assist these individuals in the
managementprovide maintenance and care of the Properties. Direct supervision of on-site
management is the responsibility of the Company'sour regional vice presidents and regional
and district managers. These individuals have significant experience in
addressing the needs of residentscustomers and in finding or creating innovative
approaches to maximize value and increase cash flow from property operations.
Complementing this field management staff are approximately 6070 corporate
employees who assist on-site management in all property functions.
FORMATION OF THE COMPANY
The Company, formedWe originally incorporated as Manufactured Home Communities, Inc. in
Maryland in December 1992 and completed an initial public offering in March
1993, is a Maryland corporation which has
elected1993. On November 16, 2004, we changed our name to be taxedEquity Lifestyle Properties,
Inc.
We believe that we have qualified for taxation as a real estate investment
trust ("REIT"). for federal income tax purposes since our taxable year ended
December 31, 1993. We plan to continue to meet the requirements for taxation as
a REIT. Many of these requirements, however, are highly technical and complex.
We cannot, therefore,
3
guarantee that we have qualified or will qualify in the future as a REIT. The
Company
generally willdetermination that we are a REIT requires an analysis of various factual matters
that may not be subject to Federal income tax tototally within our control and we cannot provide any assurance
that the extent it distributes
its REIT taxable income to its stockholders. REITs are subject to a number of
organizational and operational requirements. If the Company failsInternal Revenue Service ("IRS") will agree with our analysis. For
example, to qualify as a REIT, at least 95% of our gross income must come from
sources that are itemized in the REIT tax laws. We are also required to
distribute to stockholders at least 90% of our REIT taxable income excluding
capital gains. The fact that we hold our assets through MHC Operating Limited
Partnership and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or inadvertent mistake could jeopardize our REIT
status. Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible, for us to remain qualified as a REIT. We do not believe, however,
that any pending or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income is taxabletax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain state and local taxes on
its income and property and Federal income and excise taxes on its undistributed
income.
The operations of the Company are conducted primarily through certain entities which
are owned or controlled by the Company. MHC Operating
Limited Partnership (the
"Operating Partnership") isPartnership. The Company contributed the entity through which the Company conducts
substantially all ofproceeds from its operations. Subsidiaries ofinitial public
offering and subsequent offerings to the Operating Partnership have been created to: (i) facilitate mortgage financing (the "Financing
Partnerships"); (ii) facilitatefor a general
partnership interest. In 2004, the Company's abilitygeneral partnership interest was contributed
to provide financingMHC Trust (see Note 5 of the Notes to the owners of Communities ("Lending Partnership"); and (iii) own the assets and
operations of certain utility companies which service the Properties ("MHC
Systems")Consolidated Financial Statements
contained in this Form 10-K). The financial results of the Operating Partnership
and subsidiaries
(together, the "Subsidiaries")Subsidiaries are consolidated in the Company's consolidated financial
statements. The operations of the Company are managed on a
property-by-property basis therefor the results of our financing, lending and
property management and utility operations are not reviewed separately by
management to make decisions regarding allocation of resources or to assess
performance.
3
In addition, since certain activities, if performed by the Company,
may not have beenbe qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has investedformed taxable REIT subsidiaries as
defined in the non-voting preferred stock
of various corporations whichCode to engage in such activities.
Several Properties acquired during 2004 are wholly owned by taxable REIT
subsidiaries of the Company. In addition, Realty Systems, Inc. ("RSI") is a
preferred stockwholly owned taxable REIT subsidiary of the Company that, doing business as
Carefree Sales, is engaged in the business of purchasing, selling and leasing
and
financing manufacturedsite set homes that are located or will be located in Properties owned and managed by the Company.
Carefree Sales also provides brokerage services to residents at such Properties.
Typically, residents move from a CommunityProperty but do not relocate their homes.
Carefree Sales may provide brokerage services, in competition with other local
brokers, by seeking buyers for the site set homes. Carefree Sales also leases
inventory homes to prospective residents with the expectation that the tenant
eventually will purchase the home. LP Management
Corp. leasesSubsidiaries of RSI also lease from the
Operating Partnership certain real property within or adjacent to certain
of the Properties consisting of golf courses, pro shops, restaurantsstores and RV areas. The Company believes that the activities of RSI and LP
Management Corp. (collectively, "Affiliates") benefit the Company by maintaining
and enhancing occupancy at the Properties. The Company accounts for its
investment in and advances to Affiliates using the equity method of accounting.restaurants.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The CompanyOur strategy seeks to maximize both current income and long-term growth in
income. The Company focusesWe focus on CommunitiesProperties that have strong cash flow and expectswe expect to hold
such Properties for long-term investment and capital appreciation. In
determining cash flow potential, the Company evaluates the
Community'swe evaluate our ability to attract and retain
high quality residentscustomers in our Properties who take pride in their Communitythe Property and in
their home. These business objectives and their implementation are determined by
the Company'sour Board of Directors and may be changed at any time. The Company'sOur investment, operating
and operatingfinancing approach includes:
- Providing consistently high levels of services and amenities in
attractive surroundings to foster a strong sense of community and
pride of home ownership;
- Efficiently managing the Properties to increase operating margins by
controlling expenses, increasing occupancy and maintaining competitive
market rents;
- Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
- Utilizing management information systems to evaluate potential
acquisitions, identify and track competing propertiesProperties and monitor
residentcustomer satisfaction; and
- Selectively acquiring CommunitiesProperties that have potential for long-term
cash flow growth and to create property concentrations in and around
major metropolitan areas and retirement or vacation destinations to
capitalize on operating synergies and incremental efficiencies.
The Company is committedefficiencies; and
4
- Managing our debt balances such that we maintain financial
flexibility, minimize exposure to enhancing its reputation as the most respected
brand name in the industry. Itsinterest rate fluctuations, and
maintain an appropriate degree of leverage to maximize return on
capital.
Our strategy is to own and operate the highest quality CommunitiesProperties in
major metropolitansought-after locations near urban areas, retirement and retirementvacation destinations
across the United States. TheWe focus is on creating an attractive residential
environment for homeowners by providing a well-maintained, comfortable CommunityProperty with a variety
of organized recreational and social activities and superior amenities.amenities as well
as offering a multitude of lifestyle housing choices. In addition, we regularly
conduct evaluations of the Company regularly surveyscost of housing in the marketplaces in which our
Properties are located and survey rental rates of competing properties and conductsProperties. From
time to time we also conduct satisfaction surveys of residentsour customers to determine
the factors residentsthey consider most important in choosing a manufactured home
community.
FUTUREProperty.
ACQUISITIONS The Company acquiredAND DISPOSITIONS
Over the last nine years our portfolio of Properties has grown
significantly. We owned or gained a controllinghad an interest in eighty-eight40 Properties during 1997 throughwith approximately
12,000 sites in 1996. Today we have 275 Properties with over 100,000 sites. We
continually review the Properties in our portfolio to ensure that they fit our
business objectives. Between 1999 more than doubling its portfolio. The
Company believesand 2003, we sold 26 Properties, and we
redeployed capital to markets we believe had greater long-term potential. In
2004, we purchased or acquired interests in 135 Properties containing
approximately 50,000 sites. We believe that opportunities for propertyProperty
acquisitions are still available and in general consolidation within the industry will continue
(see -- The Industry -- Industry Consolidation). However, the Company believes
that transactions occurring during 1999 and 2000 in the private marketplace are
at valuations significantly in excess of the Company's current public market
valuation. As a result, during 1999 and 2000 the Company accelerated its stock
repurchase program. The Company's Board of Directors continues to review the
conditions under which the Company will repurchase its stock. These conditions
include, but are not limited to, market price, balance sheet flexibility, other
opportunities and capital requirements. (For more information on the Company's
stock repurchase program see Note 4 to the accompanying financial
4
statements.)available. Increasing acceptability of and demand for a
lifestyle that includes Site Set homes and RVs as well as continued constraints
on development of new CommunitiesProperties continue to add to their attractiveness as an
investment. The Company believes it hasWe believe we have a competitive advantage in the acquisition of
new Communitiesadditional Properties due to itsour experienced management, significant presence in
major real estate markets and substantial capital resources. The Company isWe are actively
seeking to acquire additional CommunitiesProperties and currently isare engaged in various stages of
negotiations relating to the possible acquisition of a number of Communities.
The Company anticipatesProperties.
We anticipate that newly acquired propertiesProperties will be located in the United
States. The Company utilizesStates, although we may consider other geographic locations provided they meet
our acquisition criteria. We utilize market information systems to identify and
evaluate acquisition opportunities, including a market database to review the
primary economic indicators of the various locations in which the Company
expectswe expect to
expand itsour operations. Acquisitions will be financed from the most appropriate
sources of capital, which may include undistributed funds from operations,
issuance of additional equity securities, sales of investments, collateralized
and uncollateralized borrowings and issuance of debt securities. In addition,
the Company may cause the Operating Partnership tomay issue units of limited partnership interest ("OP
Units") to finance acquisitions. The Company
believesWe believe that an ownership structure whichthat
includes the Operating Partnership will permit the Companyus to acquire additional
CommunitiesProperties in transactions that may defer all or a portion of the sellers' tax
consequences.
When evaluating potential acquisitions, the Company willwe consider such factors as:
(i) the- The replacement cost of the property; (ii) theProperty,
- The geographic area and type of property; (iii) theProperty,
- The location, construction quality, condition and design of the
property; (iv) theProperty,
- The current and projected cash flow of the propertyProperty and the ability to
increase cash flow; (v) theflow,
- The potential for capital appreciation of the property; (vi) theProperty,
- The terms of tenant leases, including the potential for rent
increases; (vii) theincreases,
- The potential for economic growth and the tax and regulatory
environment of the community in which the propertyProperty is located; (viii) thelocated,
- The potential for expansion of the physical layout of the propertyProperty and
the number of sites; (ix) thesites and/or pads,
- The occupancy and demand by residentscustomers for propertiesProperties of a similar type
in the vicinity and the residents profile; (x) thecustomers' profile,
- The prospects for liquidity through sale, financing or refinancing of
the property;Property, and
(xi)- The competition from existing CommunitiesProperties and the potential for the
construction of new CommunitiesProperties in the area.
When evaluating potential dispositions, we consider such factors as:
- The Company expectsability to purchase
Communities with physicalsell the Property at a price that we believe will
provide an appropriate return for our stockholders,
- Our desire to exit certain non-core markets and recycle the capital
into core markets, and
- Whether the Property meets our current investment criteria.
When investing capital we consider all potential uses of the capital
including returning capital to our stockholders. As a result, during 1999 and
2000 we implemented our stock repurchase program, and our Board of Directors
continues
5
to review the conditions under which we will repurchase our stock. These
conditions include, but are not limited to, market characteristics similar to the Properties
in its current portfolio.price, balance sheet
flexibility, other opportunities and capital requirements. On January 16, 2004
we paid a special dividend of $8.00 per share using proceeds from a
recapitalization (see Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financing Activities).
PROPERTY EXPANSIONS
Several of the Company'sour Properties have available land for expanding the number of
sites available to be leased to residents.utilized by our customers. Development of these sites
("Expansion Sites") is predicated by local market conditions and permitted by
zoning and other applicable laws. When justified, development of Expansion Sites
allows the Companyus to leverage existing facilities and amenities to increase the income
generated from the Properties. Where appropriate, facilities and amenities may
be upgraded or added to certain Properties in order to make those Properties more
attractive in their markets. The Company'sOur acquisition philosophy has included the desire
to own Properties with potential Expansion Site development, and the Company haswe have been
successful in acquiring a number of such Properties. Several examplesExamples of these
Properties include the 1993 acquisition of The Heritage with potential
development of approximately 288 Expansion Sites, the 1994 acquisition of Bulow
VillagePlantation with potential development of approximately 725 Expansion Sites, the
1997 acquisition of Golf Vista Estates with potential development of
approximately 12888 Expansion Sites, and the 1999 acquisition in 1999 of Coquina Crossing with
potential development of approximately 393300 Expansion Sites, and the acquisition in 2001
acquisitions of Grand Island and The Lakes at Countrywood with combined
potential development of approximately 224 Expansion Sites. In 2004 we acquired
several Properties with potential Expansion Sites, including O'Connell's with
approximately 350 Expansion Sites, Monte Vista with 418 Expansion Sites and
Viewpoint with 566 Expansion Sites. In addition, included in the purchase of 224 sites.
Of the
Company's 148Thousand Trails Properties ten may be expanded consistent with
existing zoning regulations.are 3,000 acres available for expansion.
Approximately 40 of our Properties have expansion potential. In 2002, the Company expects2005, we
expect to develop an
additional 141commence development of approximately 750 Expansion Sites within threefive
of these Properties. As of December 31, 2001, the Company2004, we had approximately 817815 Expansion
Sites available for occupancy in 2426 of the Properties. The CompanyWe filled 205112 Expansion
Sites in 20012004 and expectsexpect to fill an additional 200 to 250150 Expansion Sites in 2002.2005.
LEASES
TheAt our Properties, a typical lease entered into between the residentcustomer and
the Company for the rental of a site is for a month-to-month or year-to-year
term, renewable upon the consent of both parties or, in some instances, as
provided by statute. These leases are cancelable, depending on applicable law,
for non-payment of rent, violation of communityProperty rules and regulations or other
specified defaults. Non-cancelable long-term leases, with remaining terms
ranging up to ten years, are in effect at certain sites within 2237 of the
Properties. TheseSome of these leases are subject to rental rate increases based on
the Consumer Price Index ("CPI"), in some instances taking into consideration
certain floors and ceilings and allowing for pass-throughs of certain items such
as real estate taxes, utility expenses and capital expenditures. Generally,
market rate adjustments are made on an annual basis. 5
At resort-oriented
Properties, many annual and seasonal customers generally prepay for their stay.
Many resort customers will also leave deposits to reserve a site for the
following year.
REGULATIONS AND INSURANCE
General. CommunitiesOur Properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, clubhouses and other common areas. The Company believesWe believe that each Property
has the necessary permits and approvals to operate.
Rent Control Legislation. StateAt certain of our Properties, state and local
rent control laws, principally in California, and Florida, limit the Company'sour ability to increase
rents and to recover increases in operating expenses and the costs of capital
improvements at
certain Properties.improvements. Enactment of such laws has been considered from time to time in
other jurisdictions. The CompanyWe presently expectsexpect to continue to maintain Communities,Properties, and
may purchase additional properties,Properties, in markets that are either subject to rent
control or in which rent-limiting legislation exists or may be enacted. For
example, Florida has enacted a law that generally provides that rental increases
must be reasonable. Also, certain jurisdictions in California in which the Company ownswe own
Properties limit rent increases to changes in the CPI or some percentage
thereof. As part of our effort to realize the value of our Properties subject to
restrictive regulation, we have initiated lawsuits against several
municipalities imposing such regulation in an attempt to balance the interests
of our stockholders with the interests of our customers (see Item 3 - Legal
Proceedings).
Insurance. Management believesWe believe that the Properties are covered by adequate fire,
flood, property, earthquake and business interruption insurance (where
appropriate) provided by reputable companies and with commercially reasonable
deductibles and limits. Due to the lack of available commercially reasonable
coverage, the company iswe are self-insured for terrorist incidents. The Company
believes itsincidents, except at certain
Properties where terrorist insurance coverage is required by debt covenants. We
6
believe our insurance coverage is adequate based on the Company'sour assessment of the risks
to be insured, the probability of loss and the relative cost of available
coverage. The Company hasWe have obtained title insurance insuring feegood title to the Properties in an
aggregate amount which the Company believesthat we believe to be adequate. INDUSTRY
THE INDUSTRYApproximately 70 Florida
Properties suffered damage from the four hurricanes that struck Florida during
August and September 2004. As of December 31, 2004, total expenditures
approximated $7 million. Approximately $1 million has been charged to operations
as non-recoverable. The remaining portion is included in other assets as a
receivable from insurance providers. The Company believesexpects to incur additional
expenditures to complete the work necessary to restore these Properties to their
pre-hurricanes condition. As of February 18, 2005, approximately $6 million of
these claims have been submitted for reimbursement.
INDUSTRY
We believe that modern Communities, such as the Properties,properties similar to ours provide an opportunity
for increased cash flows and appreciation in value. These may be achieved
through increases in occupancy rates and rents, as well as expense controls,
expansion of existing Properties and opportunistic acquisitions, for the
following industry specific reasons:
- Barriers to Entry: The Company believesWe believe that the supply of new Communitiesproperties will
be constrained due to barriers to entry into the
industry.entry. The most significant barrier
has been the difficulty inof securing zoning from local authorities.
This has been the result of (i) the public's historically poor
perception of the industry,manufactured housing, and (ii) the fact that Communitiesproperties
generate less tax revenue because the homes are treated as personal
property (a benefit to the home owner)homeowner) rather than real property.
Another factor that creates substantial barriers to entry is the
length of time between investment in the
Community'sa property's development and the
attainment of stabilized occupancy and the generation of revenues. The
initial development of the infrastructure may take up to two or three
years. Once the Communitya property is ready for occupancy, it may be difficult to
attract residentscustomers to an empty Community.property. Substantial occupancy levels
may take several years to achieve.
- Industry Consolidation: According to anvarious industry analyst's industry
report,reports, there
are approximately 50,000 Communities65,000 properties in the United States, and
approximately 6.5%6.0% or 3,250approximately 4,000 of the Communitiesproperties have more
than 200 sites and would be considered "investment-grade" properties. The five
public REITs that own Communities own approximately 532 or about 16% of
the "investment-grade" Communities. In addition, based on a report
prepared by one analyst, the top 150 owners of Communities own
approximately 69% of the "investment-grade" assets. The Company believesinvestment-grade. We believe
that this relatively high degree of fragmentation in the industry
provides the Company,us, as a
national organization with experienced management and substantial
financial resources, the opportunity to purchase additional
Communities.properties.
- Stable TenantCustomer Base: The Company believesWe believe that Communitiesproperties tend to achieve and maintain
a stable rate of occupancy due to the following factors: (i) residentscustomers
typically own their own homes, (ii) Communitiesproperties tend to foster a sense
of community as a result of amenities such as clubhouses and
recreational and social activities, and (iii) since moving a Site Set home
from one Communityproperty to another involves substantial cost and effort,
residentscustomers often sell their home in-place (similar to site-built
residential housing) with no interruption of rental payments.
6
SITE SET HOUSING
Based on the current growth in the number of individuals living in Site Set
homes, the Company believes that Site Set homes are increasingly viewed by the
public as an attractive and economical form of housing.payments to us.
- Lifestyle Choice: According to the industry's trade association,Recreational Vehicle Industry
Association nearly one1 in four new single family homes sold in
the12 United States today is Site set.vehicle-owning households
owns an RV. The Company believes80 million people born from 1945 to 1964 or "baby
boomers" make up the fastest growing segment of this market. We
believe that this population segment, seeking an active lifestyle,
will provide opportunities for future cash flow growth for the
growing popularity ofCompany. Current RV owners, once finished with the more active RV
lifestyle, will seek more permanent retirement or vacation
establishments. The Site Set housing is
primarily the result of the following factors:
- Importance of Home Ownership. According to the Fannie Mae ("FNMA") 2000
National Housing Survey renters' desire to own a home continues to be a
top priority. According to the report, "A home is more than merely
shelter. Owning a home provides a sense of financial security...Americans
view owning a home as the second most important action a person can take
to achieve financial security, behind stating an IRA [401(k)] or other
type of retirement account.
- Affordability. For a significant number of persons, Site Set housing
represents the only means of achieving home ownership. In addition, the
total cost of housing in a Community (home cost, site rent and related
occupancy costs) is competitive with and often lower than the total cost
of alternative housing, such as apartments and condominiums, and
generally substantially lower than "stick-built" residential
alternatives.
- Lifestyle Choice. As the average age of the United States population has
increased, Site Set housingchoice has become an increasingly
popular housing alternative for retirement, second-home, and
"empty-nest" living. According to FNMA,a Fannie Mae survey, the surviving baby-boom
generation -- the 80 million people born between
1945 and 1964 -- will constitute 18% of the U.S. population within the next
30 years and more than 32 million people will reach age 55 within the
next ten years. Among those peopleindividuals who are nearing retirement
(age 40 to 54), approximately 33% plan on moving upon retirement.
The Company believesWe believe that Site Setthe housing ischoices in our properties are especially
attractive to such individuals when
located within a Community that offersthroughout this lifestyle cycle. Our
Properties offer an appealing amenity package, close proximity to
local services, social activities, low maintenance and a secure
environment. In fact, many of our Properties allow for this cycle to
occur within a single Property.
- Construction Quality.Quality: Since 1976, all Site Setfactory built housing has been
required to meet stringent Federal standards, resulting in significant
increases in the quality of the industry's product.quality. The Department of Housing and Urban
Development's ("HUD") standards for Site Set housing construction
quality are the only Federally regulated standards governing housing
quality of any type in the United States. Site Set homes produced
since 1976 have received a "red and silver" government seal certifying
that they were built in compliance with the Federal code. The code
regulates Site Set home design and construction, strength and
durability, fire resistance and energy
7
efficiency, and the installation and performance of heating, plumbing,
air conditioning, thermal and electrical systems. In newer homes, top
grade lumber and dry wall materials are common. Also, manufacturers
are required to follow the same fire codes as builders of site-built
structures. In addition, although Resort Cottages do not come under
the same regulation, many of the manufacturers of Site Set homes also
produce Resort Cottages with many of the same quality standards.
- Comparability to Site-Built Homes.Homes: The Site Set housing industry has
experienced a recent trend towards multi-section homes. Many modern Site Set
homes are longer (up to 80 feet, compared to 50 feet in the 1960's)
and wider than earlier models. Many such homes have vaulted ceilings,
fireplaces and as many as four bedrooms, and closely resemble
single
familysingle-family ranch style site-built homes.
7- Second Home Demographics: According to the National Association of
Realtors ("NAR"), sales of second homes have risen almost 54.5% since
1989. There were approximately 9.2 million second homes owned in 2003
and approximately 6% of all home sales each year are second homes. The
NAR study found that 48% of people who own a second home own either a
cabin or Site Set home. Approximately 76% of vacation home owners
prefer to be near an ocean, river or lake; 38% close to mountains or
other natural attractions, and 37% in a specific vacation area. In
looking ahead NAR believes that baby boomers are still in their peak
earning years, and the leading edge of their generation is approaching
retirement. As they continue to have the financial wherewithal to
purchase second homes as a vacation property, investment opportunity,
or perhaps as a retirement retreat, those baby boomers will continue
to drive the market for second-homes. It is likely that over the next
decade we will continue to see historically high levels of second home
sales.
AVAILABLE INFORMATION
We file reports electronically with the Securities and Exchange Commission
("SEC"). The public may read and copy any materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy information and statements, and other information
regarding issuers that file electronically with the SEC at http://www.sec.gov.
We maintain an Internet site with information about the Company and hyperlinks
to our filings with the SEC at http://www.mhchomes.com. Requests for copies of
our filings with the SEC and other investor inquiries should be directed to:
Investor Relations Department
Equity Lifestyle Properties, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Phone: 1-800-247-5279
e-mail: investor_relations@mhchomes.com
8
ITEM 2. PROPERTIES
The Company believes that theGENERAL
Our Properties provide attractive amenities and common facilities that
create a comfortable and attractive Communityhome for the
residents,our customers, with most offering a
clubhouse, a swimming pool, laundry facilities and cable television service.
Many also offer additional amenities such as sauna/whirlpool spas, golf courses,
tennis, shuffleboard and basketball courts, exercise rooms and exercise rooms.various social
activities such as concerts. Since residents own their homes,most of our customers generally rent our
sites on a long-term basis, it is their responsibility to maintain their homes
and the surrounding area. It is management'sour role to ensure that residentscustomers comply with
Communityour Property policies and to provide maintenance of the common areas, facilities
and amenities. The Company holdsWe hold periodic meetings of its propertywith our Property management personnel
for training and implementation of the Company'sour strategies. The Properties historically
have had, and the Company
believeswe believe they will continue to have, low turnover and high
occupancy rates.
PROPERTY PORTFOLIO
As of December 31, 2004, we owned or had an ownership interest in a
portfolio of 275 Properties located throughout the United States containing
101,231 residential sites.
The distribution of theour Properties throughout the United States reflects
the Company'sour belief that geographic diversification helps insulate the portfolio from
regional economic influences. The Company intendsWe intend to target new acquisitions in or near
markets where theour Properties are located and will also consider acquisitions of
propertiesProperties outside such markets. The Company's five
largest marketsRefer to Note 3(c) of Properties owned arethe Notes to Consolidated
Financial Statements contained in this Form 10-K.
Bay Indies located in Venice, Florida (49 Properties),and Westwinds located in San Jose,
California (25
Properties), Arizona (17 Properties), Michigan (11 Properties) and Colorado (10
Properties). These marketseach accounted for 36%, 17%, 9%, 3%, and 10%,
respectively,approximately 2.6% of the Company'sour total property operating
revenues for the year ended December 31, 2001. The Company also has Properties located in the following markets:
Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The Company's largest
Property, Bay Indies, located in Venice, Florida, accounted for 3% of the
Company's total revenues for the year ended December 31, 2001.
8
2004.
The following tables settable sets forth certain information relating to the
Properties we owned by the Company as of December 31, 2001,2004, categorized by our major markets
(excluding the Company's major markets. "Core Portfolio" represents an analysis ofThousand Trails Properties and Properties owned throughout both years of comparison. The table excludes the following RV
resort Properties (2,687 sites) at which rents and occupancy vary based on
seasonality: Sherwood Forest RV (Kissimmee, Florida); Southern Palms (Eustis,
Florida); and Fun & Sun (San Benito, Texas). The table excludes five Properties
(1,521 sites) in which the Company has a non-controllingthrough joint
venture interest
and accounts for using the equity method of accounting.ventures).
TOTAL TOTAL ANNUAL ANNUAL
NUMBER MONTHLY MONTHLYNUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/0104 12/31/0104 12/31/0004 12/31/0103(C) 12/31/0004 12/31/03(C)
-------- -------------------------------------------- -------- --------- --------- --------- -------------------- -------- -----------
FLORIDA
NORTHERN, CENTRAL & EASTERN FLORIDA:
Maralago Cay LantanaEAST COAST:
Breezy Hill RV Pompano Beach FL 602 96.3% 95.7% $417 $405
Brittany Estates Tallahassee762 430 100.0% -- $5,031 --
Bulow RV Flagler Beach FL 299 84.6% 93.6% $285 $270352 122 100.0% -- $3,169 --
Bulow Plantation FLaglerFlagler Beach FL 276 99.4%(b)276 97.8%(b) $258 $244 97.8% $4,200 $3,948
Carefree Cove Ft. Lauderdale FL (a) 164 164 92.1% -- $5,520 --
Carriage Cove Daytona Beach FL 418 97.4% 98.3% $399 $370418 92.8% 94.3% $4,824 $4,716
Coquina Crossing St Augustine FL 361 91.1%450 450 89.1% (b) 86.8%97.2% (b) $317 $305$4,308 $4,092
Coral Cay Margate FL 819 93.4% 96.3% $428 $411819 89.5% 89.4% $5,532 $5,460
Countryside North Vero Beach FL 646 95.7%(b) 95.5%(b) $315 $298
Fernwood Deland646 92.0% 98.0% $4,272 $4,092
Heritage Plantation Vero Beach FL 92 94.6% 95.7% $260 $250
Grand Island Grand Island FL(a) 309 76.4% $282
Heritage436 436 88.5% 94.3% $4,608 $4,416
Highland Wood RV Pompano Beach FL 148 69 100.0% -- $3,823 --
Holiday Village Vero Beach FL 436 97.0% 97.2% $346 $308128 128 48.4% 68.8% $3,852 $3,756
Holiday Village FL VeroOrmond Beach FL 128 78.1% 79.7% $286 $281301 301 87.4% 88.0% $4,116 $4,068
Indian Oaks Rockledge FL 211 96.2%(b) 94.8%(b) $243 $234208 208 100.0% 99.5% $3,456 $3,288
Lakewood Village Melbourne FL 349 95.1% 95.7% $359 $345
Mid-Florida349 87.7% 92.8% $4,800 $4,728
Lazy Lakes LeesburgSugar Loaf FL 1,226 91.1%(b) 93.2%(b) $325 $313
Oak Bend Ocala(a) 100 26 100.0% -- $5,871 --
Lighthouse Pointe Port Orange FL 262 87.4%(b) 84.4%(b) $250 $239433 433 88.0% 89.1% $4,188 $3,984
Maralago Cay Lantana FL 602 602 93.5% 92.7% $5,520 $5,292
Park City West Ft. Lauderdale FL (a) 363 363 99.7% -- $4,260 --
Pickwick Port Orange FL 432 97.2% 94.9% $310 $296
Sherwood Forest Kissimmee432 99.8% 99.8% $4,260 $4,176
Sunshine Holiday Ft. Lauderdale FL 769 96.6%(b) 94.7%(b) $334 $319
Spanish Oaks Ocala(a) 269 269 100.0% -- $4,908 --
Sunshine Holiday RV Ft. Lauderdale FL 459 93.9% 93.7% $301 $281(a) 149 123 100.0% -- $4,514 --
Sunshine Holiday Ormond Beach FL (a) 349 30 100.0% -- $3,403 --
Sunshine Key Big Pine Key FL (a) 409 0 -- -- -- --
Sunshine Travel Vero Beach FL (a) 300 170 100.0% -- $3,009 --
The Landings Port Orange FL 433 88.9%(b) 89.4%(b) $308 $293
The Meadows FL Palm Beach Gardens FL 380 82.6%(b) 81.1%(b) $331 $314
TAMPA/NAPLES:
Bay Indies Venice FL 1,309 98.9% 99.9% $323 $314
Bay Lake Estates Nokomis FL 228 96.1% 98.2% $370 $354
Boulevard Estates Clearwater FL 297 89.2% 89.6% $349 $333
Buccaneer N. Ft. Myers FL 971 99.1% 99.3% $331 $317
Chalet Village Tampa FL 60 90.0% 90.0% $327 $309
Country Place New Port Richey FL 515 97.9%(b) 90.9%(b) $237 $230
Down Yonder Largo FL 361 99.4% 98.9% $375 $356
East Bay Oaks Largo FL 328 97.3% 97.0% $367 $351
Eldorado Village Largo FL 227 96.0% 96.9% $370 $356
Friendly Village of Kapok Clearwater FL 236 84.3% 84.7% $349 $341
Hillcrest Clearwater FL 279 84.2% 80.3% $345 $322
Holiday Ranch Largo FL 150 92.7% 94.0% $341 $333
Lake Fairways N. Ft. Myers FL 896 99.1% 99.4% $364 $348
Lake Haven Dunedin FL 379 92.9% 97.6% $382 $376
Lakes at Countrywood Plant City FL(a) 421 96.5% $246
Meadows at Countrywood Plant City FL 736 98.9% 98.8% $285 $277
Oaks at Countrywood Plant City FL 168 67.9%(b) 64.9%(b) $248 $231
Pine Lakes N. Ft. Myers FL 584 99.1% 99.8% $439 $421
Satellite Clearwater FL 87 90.8% 90.8% $302 $292
The Heritage N. Ft. Myers FL 455 83.5%(b) 79.6%(b) $306 $290
Windmill Manor Bradenton FL 292 95.9% 96.2% $357 $340(d)
Windmill Village -- Ft. Myers N. Ft. Myers FL 491 98.0% 98.6% $310 $297
Windmill Village North Sarasota FL 471 98.5% 99.8% $332 $320
Windmill Village South Sarasota FL 306 99.3% 100.0% $332 $321
------- ----- ------ ---- ----
TOTAL FLORIDA MARKET 19,154 94.3% 94.7% $333 $323
------- ----- ------ ---- ----
FLORIDA MARKET -- CORE PORTFOLIO 18,424 94.6% 95.1% $336 $323
------- ----- ------ ---- ----379 88.7% 85.5% $4,848 $4,632
9
TOTAL TOTAL ANNUAL ANNUAL
NUMBER MONTHLY MONTHLYNUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/0104 12/31/0104 12/31/0004 12/31/0103(C) 12/31/0004 12/31/03(C)
-------- --------------------------------------------- -------- --------- --------- --------- -------------------- -------- -----------
CALIFORNIA
NORTHERN CALIFORNIA:
California Hawaiian San Jose CA 419CENTRAL:
Coachwood Colony Leesburg FL (a) 202 202 96.5% -- $2,976 --
Grand Island Grand Island FL 307 307 66.1% 68.7% $3,864 $3,744
Lake Magic - Encore Clermont FL (a) 471 59 100.0% -- $2,933 --
Mid-Florida Lakes Leesburg FL 1,226 1,226 82.5% 84.4% $4,584 $4,548
Oak Bend Ocala FL 262 262 87.8% 87.4% $3,768 $3,672
Sherwood Forest Kissimmee FL 754 754 94.8% 96.0% $4,464 $4,260
Villas at Spanish Oaks Ocala FL 459 459 87.1% 87.1% $4,104 $4,008
Sherwood Forest RV Kissimmee FL 512 152 100.0% -- $4,542 --
Southernaire Mt. Dora FL (a) 108 108 94.4% -- $3,420 --
Southern Palms Eustis FL 950 406 100.0% -- $2,755 --
Tropical Palms Kissimmee FL (a) 541 0 -- -- -- --
GULF COAST (TAMPA/NAPLES):
Barrington Hills Hudson FL (a) 392 264 100.0% -- $2,138 --
Bay Indies Venice FL 1,309 1,309 96.7% 96.3% $5,232 $4,656
Bay Lake Estates Nokomis FL 228 228 96.1% 94.7% $5,244 $5,124
Buccaneer N. Ft. Myers FL 971 971 96.9% 98.1% $4,584 $4,416
Country Place New Port Richey FL 515 515 99.8% 99.6% $3,408 $3,336
Crystal Isles Crystal River FL (a) 260 13 100.0% -- $2,072 --
Down Yonder Largo FL 362 362 97.0% 98.6% $5,088 $4,836
East Bay Oaks Largo FL 328 328 95.7% 94.2% $4,884 $4,740
Eldorado Village Largo FL 227 227 95.6% 91.6% $4,908 $4,824
Fort Myers Beach Resort Fort Myers FL (a) 306 103 100.0% -- $4,344 --
Glen Ellen Clearwater FL 106 106 86.8% 85.8% $4,320 $3,936
Gulf Air Resort Fort Myers FL (a) 246 163 100.0% -- $3,819 --
Gulf View Punta Gorda FL (a) 206 36 100.0% -- $3,500 --
Hacienda Village New Port Richey FL 505 505 96.8% 96.6% $4,080 $3,840
Harbor Lakes Port Charlotte FL (a) 528 252 100.0% -- $3,395 --
Harbor View New Port Richey FL 471 471 99.6% 98.9% $2,736 $2,676
Hillcrest Clearwater FL 279 279 79.6% 79.6% $4,596 $4,296
Holiday Ranch Largo FL 150 150 88.0% 88.7% $4,536 $4,440
Lake Fairways N. Ft. Myers FL 896 896 99.8% 99.6% $4,872 $4,668
Lake Haven Dunedin FL 379 379 81.5% 83.6% $5,304 $4,968
Lakes at Countrywood Plant City FL 424 424 91.7% 93.4% $3,264 $3,156
Manatee Bradenton FL (a) 415 230 100.0% -- $3,332 --
Meadows at Countrywood Plant City FL 799 799 91.5% (b) 98.1%98.4% (b) $636 $600
Colony Park Ceres CA 186 86.0% 76.9% $353 $345
Concord Cascade Pacheco CA 283 98.9% 98.9% $544 $521
Contempo Marin San Rafael CA 396 98.7% 98.7% $644 $631
Coralwood Modesto CA 194 97.4% 92.8% $413 $403
Four Seasons Fresno CA 242 73.6% 71.5% $254 $244
Laguna Lake San Luis Obispo CA 290$3,768 $3,660
Oaks at Countrywood Plant City FL 168 168 70.2% 72.0% $3,324 $3,300
Pasco Lutz FL (a) 255 157 100.0% -- $2,992 --
Pine Lakes N. Ft. Myers FL 584 584 100.0% 100.0% $5,820 $5,580
Pioneer Village N. Ft. Myers FL (a) 733 398 100.0% -- $3,175 --
Royal Coachman Nokomis FL (a) 546 389 100.0% -- $4,677 --
Silk Oak Clearwater FL 180 180 85.0% 87.2% $4,596 $4,404
Silver Dollar Odessa FL (a) 385 366 100.0% -- $3,496 --
Terra Ceia Palmetto FL (a) 203 145 100.0% -- $2,533 --
The Heritage N. Ft. Myers FL 455 455 95.4% 91.2% $4,224 $4,008
Toby's Arcadia FL 379 289 100.0% -- $1,831 --
Topics Spring Hill FL (a) 230 159 100.0% -- $2,259 --
Vacation Village Largo FL (a) 293 192 100.0% -- $3,461 --
Windmill Manor Bradenton FL 292 292 94.2% 93.8% $4,716 $4,584
Windmill Village N. Ft. Myers FL 491 491 93.3% 95.5% $4,056 $3,948
Winds of St. Armands No Sarasota FL 471 471 95.5% 95.8% $4,788 $4,476
Winds of St. Armands So Sarasota FL 306 306 99.7% 99.7% $344 $328
Monte del Lago Castroville CA 314 97.8%(b) 99.4%(b) $513 $485
Quail Meadows Riverbank CA 146 100.0% 98.6% $363 $340
Royal Oaks Visalia CA 149 81.9% 83.2% $273 $258
DeAnza Santa Cruz Santa Cruz CA 198 99.5% 100.0% $526 $514
Sea Oaks Los Osos CA 125 100.0% 100.0% $349 $344
Sunshadow San Jose CA 121 100.0% 100.0% $605 $583
Westwinds (4 Properties) San Jose CA 723 98.9% 99.9% $656 $615
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 95.9% 93.9% $640 $631
Lamplighter Spring Valley CA 270 98.1% 99.6% $565 $535
Meadowbrook Santee CA 332 99.1% 99.4% $603 $590
Rancho Mesa El Cajon CA 158 99.4% 99.4% $535 $510
Rancho Valley El Cajon CA 140 98.6% 99.3% $550 $518
Royal Holiday Hemet CA 179 64.2% 72.6% $277 $259
Santiago Estates Sylmar CA 299 96.0% 94.6% $617 $591
-------$4,728 $4,632
Sixth Avenue Zephyrhills FL (a) 134 134 93.3% -- $2,436 --
Shangri La Largo FL (a) 160 160 93.1% -- $4,428 --
------ ------ ---- ----- ------ ---- ----------
TOTAL CALIFORNIAFLORIDA MARKET 5,702 95.4% 95.2% $538 $516
-------31,601 25,924 93.7% 93.2% $4,297 $4,343
------ ------ ---- ----- ------ ---- ----
CALIFORNIA MARKET -- CORE PORTFOLIO 5,702 95.4% 95.2% $538 $516
------- ----- ------ ---- ----
ARIZONA
Apollo Village Phoenix AZ 237 91.6%(b) 92.8%(b) $371 $356
Brentwood Manor Mesa AZ 274 93.8% 94.9% $456 $431
Carefree Manor Phoenix AZ 128 97.7% 99.2% $322 $303
Casa del Sol #1 Peoria AZ 246 86.6% 94.7% $422 $407
Casa del Sol #2 Glendale AZ 239 94.1% 97.9% $455 $438
Casa del Sol #3 Glendale AZ 238 94.1% 96.2% $439 $420
Central Park Phoenix AZ 293 95.2% 96.9% $386 $373
Desert Skies Phoenix AZ 164 97.6% 97.0% $317 $293
Fairview Manor Tucson AZ 235 91.1% 92.8% $326 $311
Hacienda de Valencia Mesa AZ 365 85.2% 94.2% $377 $361
Palm Shadows Glendale AZ 294 90.8% 94.9% $355 $336
Sedona Shadows Sedona AZ 198 91.4% 88.0% $327 $306
Sunrise Heights Phoenix AZ 199 90.5% 95.5% $358 $347
The Mark Mesa AZ 410 91.7% 95.9% $383 $361
The Meadows Tempe AZ 391 92.3% 98.0% $439 $416
Whispering Palms Phoenix AZ 116 94.8% 99.1% $282 $267
------- ----- ------ ---- ----
TOTAL ARIZONA MARKET 4,027 91.9% 95.4% $385 $367
------- ----- ------ ---- ----
ARIZONA MARKET -- CORE PORTFOLIO 4,027 91.9% 95.4% $385 $367
------- ----- ------ ---- ----
10
TOTAL TOTAL ANNUAL ANNUAL
NUMBER MONTHLY MONTHLYNUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/0104 12/31/0104 12/31/0004 12/31/0103(C) 12/31/0004 12/31/03(C)
-------- --------------------------------------------- -------- --------- --------- --------- -------------------- -------- -----------
CALIFORNIA
MICHIGAN
Americana Estate Kalamazoo MI 162 88.9% 93.2% $306 $294
Appletree Walker MI 239NORTHERN CALIFORNIA:
California Hawaiian San Jose CA 418 418 97.4% 98.1% $ 8,628 $8,376
Colony Park Ceres CA 186 186 94.1% 96.7% $334 $318
Brighton Village Brighton MI 197 98.0%93.0% $ 5,112 $4,632
Concord Cascade Pacheco CA 283 283 98.2% 99.3% $ 6,924 $6,792
Contempo Marin San Rafael CA 396 396 98.5% 98.7% $ 7,884 $7,812
Coralwood Modesto CA 194 194 99.5% 99.0% $384 $369
College Heights Auburn Hills MI 162 98.8% 98.1% $392 $372
Creekside Wyoming MI 165 94.5% 97.6% $374 $356
Groveland Manor Holly MI 186 89.2% 91.4% $358 $346
Hillcrest Acres Kalamazoo MI 150 94.0% 96.0% $319 $307
Metro Romulus MI 227 99.6% 98.7% $364 $384
Riverview Estates Bay City MI 197 78.2% 78.2% $259 $249
South Lyon Woods South Lyon MI 211$ 6,180 $5,484
Four Seasons Fresno CA 242 242 84.7% 76.9% $ 3,492 $3,324
Laguna Lake San Luis Obispo CA 290 290 98.6% 98.1% $455 $439
Timberland Ypsilianti MI 185 91.9% 91.4% $343 $332
------- ----- ------ ---- ----
TOTAL MICHIGAN MARKET 2,081 93.4% 94.4% $359 $344
------- ----- ------ ---- ----
MICHIGAN MARKET -- CORE
PORTFOLIO 2,081 93.4% 94.4% $359 $344
------- ----- ------ ---- ----
COLORADO
Bear Creek Sheridan CO 124 97.6% 100.0% $409 $385
Cimarron Broomfield CO 327 98.2% 99.1% $417 $391
Golden Terrace Golden CO 265 98.6% 99.2% $464 $431
Golden Terrace South Golden CO 80 96.3% 100.0% $441 $407
Golden Terrace West Golden CO 316 98.1% 100.0% $454 $424
Hillcrest Village Aurora CO 602 95.5% 96.3% $445 $422
Holiday Hills Denver CO 737 95.4% 97.1% $437 $412
Holiday Village Co. Springs CO 240 96.7% 96.3% $427 $403
Pueblo Grande Pueblo CO 252 96.8% 96.8% $281 $265
Woodland Hills Denver CO 434 97.9% 98.6% $418 $390
------- ----- ------ ---- ----
TOTAL COLORADO MARKET 3,377 96.8% 97.9% $424 $399
------- ----- ------ ---- ----
COLORADO MARKET -- CORE PORTFOLIO 3,377 96.8% 97.9% $424 $399
------- ----- ------ ---- ----
NORTHEAST
Aspen99.7% $ 4,848 $4,536
Monte del Lago Castroville CA 310 310 98.4% 97.7% $ 7,608 $7,008
Quail Meadows Rehoboth DE 200 99.5% 100.0% $262 $250
Camelot Meadows Rehoboth DE 319 99.9% 100.0% $265 $252
Mariners Cove Millsboro DE 375 89.3%(b) 88.5%(b) $381 $356
McNicol Rehoboth DE 93 98.9% 97.8% $258 $248
Sweetbriar Rehoboth DE 142Riverbank CA 146 146 98.6% 100.0% $199 $187
Waterford$ 5,688 $4,968
Royal Oaks Visalia CA 149 149 82.6% 81.9% $ 3,816 $3,588
DeAnza Santa Cruz Santa Cruz CA 198 198 96.5% 98.5% $ 8,124 $6,864
Sea Oaks Los Osos CA 125 125 97.6% 96.8% $ 5,364 $5,076
Sunshadow San Jose CA 121 121 97.5% 100.0% $ 8,268 $7,944
Tahoe Valley Lake Tahoe CA (a) 413 0 -- -- -- --
Westwinds (4 San Jose CA 723 723 96.1% 98.5% $ 9,420 $9,024
Properties)
Village of the Four San Jose CA (a) 271 271 98.5% -- $ 8,148 --
Seasons
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 538 96.5% 94.2% $ 8,916 $8,640
Date Palm RV Cathedral City CA 140 0 -- -- -- --
Lamplighter Spring Valley CA 270 270 99.3% 98.5% $10,824 $8,556
Meadowbrook Santee CA 338 338 98.2% 97.6% $ 8,412 $7,632
Pacific Dunes Ranch Oceana CA (a) 215 3 -- -- -- --
Rancho Mesa El Cajon CA 158 158 95.6% 99.4% $ 8,424 $7,428
Rancho Valley El Cajon CA 140 140 100.0% 100.0% $10,092 $8,496
Royal Holiday Hemet CA 179 179 60.3% 64.2% $ 3,876 $3,672
Santiago Estates Bear DE 731 97.4%(b) 96.9%(b) $398 $379Sylmar CA 300 300 99.0% 98.7% $ 8,580 $8,136
Las Palmas Rialto CA (a) 136 136 100.0% -- $ 4,440 --
Parque La Quinta Rialto CA (a) 166 166 99.4% -- $ 4,452 --
------ ----- ----- ----- ------- ------
TOTAL CALIFORNIA MARKET 7,045 6,280 95.8% 95.6% $ 7,494 $7,096
------ ----- ----- ----- ------- ------
ARIZONA
Apollo Village Phoenix AZ 236 236 78.8% 80.9% $ 5,100 $4,992
Araby Yuma AZ 337 274 100.0% -- $ 2,446 --
The Highlands Mesa AZ 273 273 89.4% 85.3% $ 6,240 $5,976
Cactus Gardens Yuma AZ (a) 430 269 100.0% -- $ 1,767 --
Carefree Manor Phoenix AZ 128 128 72.7% 76.6% $ 4,332 $4,260
Casa del Sol #1 Peoria AZ 245 245 78.4% 77.6% $ 5,904 $5,748
Casa del Sol #2 Glendale AZ 239 239 74.5% 77.4% $ 6,204 $6,024
Casa del Sol #3 Glendale AZ 236 236 80.9% 85.6% $ 6,336 $6,000
Central Park Phoenix AZ 293 293 84.6% 88.1% $ 5,124 $5,112
Countryside Apache AZ 560 260 100.0% -- $ 2,706 --
Desert Paradise Yuma AZ (a) 260 85 100.0% -- $ 1,789 --
Desert Skies Phoenix AZ 164 164 93.3% 91.5% $ 4,464 $4,236
Fairview Manor Tucson AZ (c) 235 235 80.0% 82.6% $ 4,288 $4,296
Foothill Yuma AZ 180 72 100.0% -- $ 1,956 --
Golden Sun Apache Junction AZ 329 190 100.0% -- $ 2,758 --
Hacienda de Valencia Mesa AZ 364 364 75.3% 74.7% $ 5,040 $4,944
Monte Vista Mesa AZ (a) 832 752 100.0% -- $ 5,144 --
Palm Shadows Glendale AZ 294 294 78.6% 80.6% $ 4,860 $4,716
Paradise Sun City AZ (a) 950 815 100.0% -- $ 3,377 --
Sedona Shadows Sedona AZ 197 197 97.5% 93.4% $ 5,148 $4,692
Suni Sands Yuma AZ (a) 336 176 100.0% -- $ 2,097 --
Sunrise Heights Phoenix AZ 199 199 73.4% 79.9% $ 5,064 $4,908
The Mark Mesa AZ 410 410 55.1% 61.0% $ 4,992 $4,920
The Meadows Tempe AZ (a) 391 391 75.4% 74.4% $ 5,820 $5,568
Viewpoint Mesa AZ 1,928 1,470 100.0% -- $ 4,068 --
Whispering Pines Lewes DE 393 95.2% 96.9% $269 $258
Pheasant Ridge Mt. Airy MD 101 97.0% 99.0% $453 $424
Brook Gardens Lackawanna NY 424 96.5% 97.2% $435 $423
Greenwood Village Manorville NY 486 99.4%(b) 97.3%(b) $389 $366
Green Acres Breinigsville PA 595 96.1% 97.3% $420 $408
Meadows of Chantilly Chantilly VA 500 96.6% 92.0% $512 $493
Independence Hill Morgantown WV 203 88.2% 90.1% $214 $204Palms Phoenix AZ 116 116 91.4% 90.5% $ 3,792 $3,792
------ ----- ----- ----- ------- ------
TOTAL ARIZONA MARKET 10,162 8,383 89.5% 79.6% $ 4,390 $5,110
------ ----- ------ ---- ----
TOTAL NORTHEAST MARKET 4,562 96.3% 96.0% $372 $355----- ----- ------- ----- ------ ---- ----
NORTHEAST MARKET -- CORE PORTFOLIO 4,562 96.3% 96.0% $372 $355
------- ----- ------ ---- ----
11
TOTAL TOTAL ANNUAL ANNUAL
NUMBER MONTHLY MONTHLYNUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/0104 12/31/0104 12/31/0004 12/31/0103(C) 12/31/0004 12/31/03(C)
-------- -------------------------------------------- -------- --------- --------- --------- -------------------- -------- -----------
COLORADO
Bear Creek Sheridan CO 122 122 95.1% 95.1% $5,892 $5,652
Cimarron Broomfield CO 327 327 91.7% 93.9% $5,796 $5,568
Golden Terrace Golden CO 265 265 88.7% 91.7% $6,360 $6,144
Golden Terrace South Golden CO 80 80 80.0% 85.0% $6,144 $6,036
Golden Terrace South RV Golden CO (a) 80 0 -- -- -- --
Golden Terrace West Golden CO 316 316 88.3% 93.4% $6,204 $6,120
Hillcrest Village Aurora CO 601 601 79.9% 88.6% $6,096 $5,880
Holiday Hills Denver CO 735 735 87.8% 92.3% $5,880 $5,808
Holiday Village Co. Springs CO 240 240 86.3% 90.4% $6,108 $5,928
Pueblo Grande Pueblo CO 251 251 93.6% 94.4% $3,840 $3,732
Woodland Hills Denver CO 434 434 82.7% 88.0% $5,496 $5,472
----- ----- ----- ---- ------ ------
TOTAL COLORADO MARKET 3,451 3,371 86.6% 87.7% $5,800 $5,664
----- ----- ----- ---- ------ ------
NORTHEAST
Aspen Meadows Rehoboth DE 200 200 99.0% 99.5% $4,284 $3,456
Camelot Meadows Rehoboth DE 302 302 98.3% 99.0% $3,948 $3,480
Mariners Cove Millsboro DE 376 376 93.1% 91.2% $5,844 $5,088
McNicol Rehoboth DE 93 93 100.0% 98.9% $3,816 $3,516
Sweetbriar Rehoboth DE 146 146 96.6% 94.5% $3,924 $2,952
Waterford Bear DE 731 731 94.5% 95.3% $5,196 $5,076
Whispering Pines Lewes DE 392 392 87.8% 87.2% $3,816 $3,780
Goose Creek Newport NC (a) 598 553 100.0% -- $2,802 --
Twin Lakes Chocowinity NC (a) 400 315 100.0% -- $1,967 --
Waterway Cedar Point NC (a) 336 327 100.0% -- $2,656 --
Greenwood Village Manorville NY 512 512 100.0% 99.2% $5,460 $5,136
Green Acres Breinigsville PA 595 595 93.8% 93.8% $5,616 $5,424
Spring Gulch New Holland PA (a) 420 60 100.0% -- $3,543 --
Meadows of Chantilly Chantilly VA 500 500 88.8% 88.8% $7,836 $7,248
----- ----- ----- ---- ------ ------
TOTAL NORTHEAST MARKET 5,601 5,102 95.7% 94.1% $4,660 $4,961
----- ----- ----- ---- ------ ------
MIDWEST
Five Seasons Cedar Rapids IA 390 79.0%(b) 79.7%(b) $253 $240390 73.1% 73.1% $3,408 $3,312
Holiday Village IA SouxSioux City IA 519 80.5% 87.7% $248 $241519 57.6% 65.7% $3,108 $2,904
Golf Vista Estates Monee IL 371 88.4%(b) 90.6%(b) $387 $344408 408 97.5% 95.9% $5,748 $5,292
O'Connell's Amboy IL (a) 668 336 100.0% -- $2,099 --
Willow Lake Estates Elgin IL 617 96.8% 97.4% $624 $583
Burns Harbor Estates617 83.3% 90.1% $8,604 $8,328
Forest Oaks Chesterton IN 227 83.7% 89.0% $305 $287227 63.9% 71.8% $4,428 $3,960
Lakeside New Carlisle IN (a) 95 65 100.0% -- $2,413 --
Oak Tree Village Portage IN 379 90.0% 93.1% $302 $283361 361 80.9% 86.7% $4,296 $4,104
Windsong Indianapolis IN 268 84.0% 91.4% $292 $277
Camelot Acres Burnsville MN 302 99.8% 99.3% $417 $390
Royal Village Toledo OH 233 90.1% 89.3% $319 $300
-------268 51.5% 57.8% $3,972 $3,840
Creekside Wyoming MI 165 165 81.2% 87.3% $4,957 $4,884
Caledonia Caledonia WI (a) 247 0 -- -- -- --
Fremont Fremont WI (a) 325 0 -- -- -- --
Yukon Trails Lyndon Station WI (a) 214 0 -- -- -- --
----- ----- ----- ---- ------ ---- ----------
TOTAL MIDWEST MARKET 3,306 88.3% 91.9% $377 $350
-------4,504 3,356 77.6% 79.5% $4,730 $4,843
----- ----- ----- ---- ------ ---- ----
MIDWEST MARKET -- CORE PORTFOLIO 3,306 88.3% 91.9% $377 $350
------- ----- ------ ---- ----
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 84.5% 90.9% $328 $328407 59.2% 67.1% $4,524 $4,488
Bonanza Las Vegas NV 353 75.9% 81.6% $465 $465353 63.7% 68.0% $6,108 $5,808
Boulder Cascade Las Vegas NV 298 86.9% 89.3% $417 $394299 299 76.9% 76.9% $5,556 $5,352
Cabana Las Vegas NV 263 97.3% 98.9% $432 $415263 95.4% 93.5% $5,520 $5,364
Flamingo West Las Vegas NV 258 84.1%(b) 80.2%(b) $430 $406258 99.6% 94.6% $6,132 $5,532
Villa Borega Las Vegas NV 293 91.1% 95.9% $421 $402(d)293 83.3% 82.9% $5,688 $5,448
All Seasons Salt Lake City UT 121 98.3% 97.5% $328 $315121 89.3% 93.4% $4,620 $4,440
Westwood Village Farr West UT 314 96.5%(b)314 93.6% 95.2%(b) $237 $232
------- $3,576 $3,360
----- ----- ----- ---- ------ ---- ----------
TOTAL NEVADA, UTAH,
NEW MEXICO MARKET 2,307 88.1% 90.6% $380 $369
-------2,308 2,308 80.1% 81.8% $5,217 $4,984
----- ----- ----- ---- ------ ---- ----
NEVADA, UTAH, NEW MEXICO MARKET --
CORE PORTFOLIO 2,307 88.1% 90.6% $380 $369
------- ----- ------ ---- ----------
12
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/04 12/31/04 12/31/04 12/31/03(C) 12/31/04 12/31/03(C)
-------- ------------------ -------- --------- --------- ----------- -------- -----------
NORTHWEST
Casa Village Billings MT 491 92.3% 98.0% $282 $272490 490 85.5% 85.9% $3,648 $3,648
Falcon Wood Village Eugene OR 183 98.9% 98.4% $363 $345183 88.5% 90.7% $4,968 $4,836
Mt. Hood Welches OR 436 52 100.0% -- $3,858 --
Quail Hollow Fairview OR 137 97.8% 98.6% $442 $426137 92.7% 92.7% $6,300 $6,084
Shadowbrook Clackamas OR 156 98.7% 99.4% $444 $429156 95.5% 94.2% $6,324 $6,156
Kloshe Illahee Federal Way WA 258 99.6% 99.2% $478 $454
-------258 96.1% 97.7% $7,548 $7,188
------ ------ ----- ---- ------ ---- ----------
TOTAL NORTHWEST MARKET 1,225 96.3% 98.5% $376 $359
-------1,660 1,276 90.7% 90.9% $5,246 $5,164
------ ------ ----- ---- ------ ------
TEXAS
Country Sunshine Weslaco TX (a) 390 211 100.0% -- $2,223 --
Fun n Sun RV Park San Benito TX 1,435 606 100.0% -- $2,507 --
Lakewood Harlingen TX (a) 301 112 100.0% -- $1,622 --
Paradise Park RV Resort Harlingen TX (a) 563 331 100.0% -- $2,422 --
Paradise South Mercedes TX (a) 493 174 100.0% -- $1,732 --
Southern Comfort Weslaco TX (a) 403 340 100.0% -- $2,251 --
Sunshine RV Harlingen TX (a) 1,027 418 100.0% -- $3,009 --
Tropic Winds Harlingen TX 531 33 100.0% -- $2,921 --
------ ------ ----- ---- ------ ------
TOTAL TEXAS MARKET 5,143 2,225 100.0% -- $2,424 --
------ ------ ----- ---- NORTHWEST MARKET -- CORE
PORTFOLIO 1,225 96.3% 98.5% $376 $359
------- ----- ------ ---- ----------
GRAND TOTAL ALL MARKETS 45,741 93.6% 94.7% $388 $367
=======71,475 58,225 91.8% 90.5% $4,784 $5,027
====== ====== ===== ==== ====== ==== ====
GRAND TOTAL ALL MARKETS -- CORE
PORTFOLIO 45,011 93.9%(c) 94.9%(c) $384 $367
======= ===== ====== ==== ====
- ---------------
(a) Represents a Property that is not part of the Core Portfolio.Properties acquired in 2004.
(b) The process of filling Expansion Sites at these Properties is ongoing. A
decrease in occupancy may reflect development of additional Expansion
Sites.
(c) Changes in total portfolio occupancy include the impactDecrease due to unbundling of acquisitionsutilities
(d) Annual rent for 2003 Resort Cottage and expansion programs and are therefore not comparable.
(d) During 2001, at certain Properties the amounts charged to residents for
utilities were separated ("Unbundled") from their rent charges and recorded
as utility income. For comparison purposes an adjustment was made to base
rental income for 2000. This adjustment is reflected on this table in the
monthly base rent per site amounts for 2000.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
12RV sites excluded.
13
ITEM 3. LEGAL PROCEEDINGS
DEANZA SANTA CRUZ
MOBILE ESTATES
The residentscustomers of DeAnza Santa Cruz Mobile Estates, a propertyProperty located in
Santa Cruz, California, (the "City") previously brought several actions opposing
certain fees and charges in
connection with water service at the Property. This
summary provides the history and reasoning underlying the Company's defenseAs a result of the residents' claims and explains the Company's decision to continue to defend
its position, whichone action, the
Company believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198-site Community overlooking the
Pacific Ocean. It is subjectrebated approximately $36,000 to the City's rent control ordinance which limits
annual rent increases to 75% of CPI.customers. The Company purchased this Property in
August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the
Company's purchase in 1994, DeAnza made the decision to submeter and separately
bill tenants at the Property for both water and sewer in 1993 in the face of the
City's rapidly rising utility costs.
Under California Civil Code Section 798.41, DeAnza was required to reduce
rent by an amount equal to the average cost of usage over the preceding 12
months. This was done. With respect to water charges, because DeAnza did not
want to be regulated by the California Public Utility Commission ("CPUC"),
DeAnza relied on California Public Utilities Code Section 2705.5 ("CPUC Section
2705.5") to determine what rates would be charged for water on an ongoing basis
without becoming a public utility. DeAnza and the Company interpreted the
statute as providing that in a submetered mobile home park, the property owner
is not subject to regulation and control of the CPUC so long as the users are
charged what they would be charged by the utility company if users received
their water directly from the utility company. In Santa Cruz, customers
receiving their water directly from the City's water utility were charged a
certain lifeline rate for the first 400 ccfs of water and a greater rate for
usage over 400 ccfs of water, a readiness to serve charge of $7.80 per month and
tax on the total. In reliance on CPUC Section 2705.5, DeAnza implemented its
billings on this schedule notwithstanding that it did not receive the discount
for the first 400 ccfs of water because it was a commercial and not a
residential customer.
A dispute with the residents ensued over the readiness to serve charge and
tax thereon. The residents argued that California Civil Code Section 798.41
required that the Property owner could only pass through its actual costs of
water (and that the excess charges over the amount of the rent rollback were an
improper rent increase) and that CPUC Section 2705.5 was not applicable. DeAnza
unbundled the utility charges from rent consistent with California Civil Code
Section 798.41 and it has generally been undisputed that the rent rollback was
accurately calculated.
In August 1994, when the Company acquired the Property, the Company
reviewed the respective legal positions of the Santa Cruz
Homeowners Association ("HOA") and DeAnza and concurred with DeAnza. DeAnza's reliance on CPUC Section
2705.5 made both legal and practical sense in that residents paid only what they
would pay if they lived inthen proceeded to a residential neighborhood within the City and
permitted DeAnzajury trial alleging these
"overcharges" entitled them to recoup partan award of the expenses of operatingpunitive damages. In January 1999, a
submetered system
through the readiness to serve charge.
Over a period of 18 months from 1993 into May of 1995, a series of
complaints were filed byjury awarded the HOA and Herbert Rossman, a resident, against
DeAnza, and later, the Company. DeAnza and the Company demurred to each of these
complaints on the grounds that the CPUC had exclusive jurisdiction over the
setting of water rates and that residents under rent control had to first
exhaust their administrative remedies before proceeding in a civil action. At
one point, the case was dismissed (with leave to amend) on the basis that
jurisdiction was with the CPUC and, at another point, Mr. Rossman was dismissed
from the case because he had not exhausted his administrative remedies.
On June 29, 1995, a hearing was held before a City rent control officer on
billing and submetering issues related to both water and sewer. The Company and
DeAnza prevailed on all issues related to sewer and the rent rollback related to
water, but the hearing officer determined that the Company could only pass
through its actual cost of water, i.e., a prorated readiness to serve charge and
tax thereon. The hearing officer did not deal with the subsidy being given to
residents through the quantity charge and ordered a rebate in a fixed amount per
resident. The Company and DeAnza requested reconsideration on this issue, among
others, which reconsideration was denied by the hearing officer.
13
The Company then took a writ of mandate (an appeal from an administrative
order) to the Superior Court and, pending this appeal, the residents, the
Company and the City agreed to stay the effect of the hearing officer's decision
until the Court rendered judgment.
In July 1996, the Superior Court affirmed the hearing officer's decision
without addressing concerns about the failure to take the subsidy on the
quantity charge into account.
The Company requested that the City and the HOA agree to a further stay
pending appeal to the court of appeal, but they refused and the appeal court
denied the Company's request for a stay in late November 1996. Therefore, on
January 1, 1997, the Company reduced its water charges at this Property to
reflect a pass-through of only the readiness to serve charge and tax at the
master meter (approximately $0.73) and to eliminate the subsidy on the water
charges. On their March 1, 1997 rent billings, residents were credited for
amounts previously "overcharged" for readiness to serve charge and tax. The
amount of the rebate given by the Company and DeAnza was $36,400. In calculating
the rebate, the Company and DeAnza took into account the previous subsidy on
water usage although this issue had not yet been decided by the court of appeal.
The Company and DeAnza felt legally safe in so doing based on language in the
hearing officer's decision that actual costs could be passed through.
On March 12, 1997, the Company also filed an application with the CPUC to
dedicate the water system at this Property to public use and have the CPUC set
cost-based rates for water usage. The Company believed it was obligated to take
this action because of its consistent reliance on CPUC Section 2705.5 as a safe
harbor from CPUC jurisdiction. That is, when the Company could no longer charge
for water as the local serving utility would charge, it was no longer exempt
from the CPUC's jurisdiction and control under CPUC Section 2705.5.
On March 20, 1998, the court of appeal issued the writ of mandate requested
by the Company on the grounds that the hearing officer had improperly calculated
the amount of the rebate (meaning the Company had correctly calculated the rent
credits), but also ruling that the hearing officer was correct when he found
that the readiness to serve charge and tax thereon as charged by DeAnza and the
Company were an inappropriate rent increase. The decision primarily reflected
the court of appeal's view that CPUC Section 2705.5 operated as a ceiling and
that California Civil Code Section 798.41 allowed for a charge based on actual
costs, including costs of administration, operation and maintenance of the
system, but that the Company had not to provide evidence of such costs. The
court of appeal further agreed with the Company that the City's hearing officer
did not have the authority under California Civil Code Section 798.41 to
establish rates that could be charged in the future.
Following this decision, the CPUC granted the Company its certificate of
convenience and necessity on December 17, 1998 and approved cost-based rates and
charges for water that exceed what residents were paying under the Company's
reliance on CPUC Section 2705.5. Concurrently, the CPUC also issued an Order
Instituting Investigation ("OII") confirming its exclusive jurisdiction over the
issue of water rates in a submetered system and commencing an investigation into
the confusion and turmoil over billings in submetered properties. Specifically,
the OII states: "The Commission has exclusive and primary jurisdiction over the
establishment of rates for water and sewer services provided by private
entities."
Specifically, the CPUC ruling regarding the Company's application stated:
"The ultimate question of what fees and charges may or may not be assessed,
beyond external supplier pass-through charges, for in-park facilities when a
mobile home park does not adhere to the provisions of CPUC Section 2705.5, must
be decided by the Commission."
After the court of appeal decision, the HOA brought all of its members back
into the underlying civil action for the purpose of determining damages,
including punitive damages, against the Company. The trial was continued from
July 1998 to January 1999 to give the CPUC time to act on the Company's
application. Notwithstanding the action taken by the CPUC in issuing the OII in
December 1998, the trial court denied the Company's motion to dismiss on
jurisdictional grounds and trial commenced before a jury on January 11, 1999.
Not only did the trial court not consider the Company's motion to dismiss,
the trial court refused to allow evidence of the OII or the Company's CPUC
approval to go before the jury. Notwithstanding the Company's strenuous
objections, the judge also allowed evidence of the Company's and DeAnza's
litigation tactics to be used as evidence of bad faith and oppressive actions
(including evidence of the application to the CPUC requesting a $22.00 readiness
to serve charge). The Company's motion for a mistrial based upon these
evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict
awarding $6.0 million ofin punitive damages against the Company and DeAnza. The
Company had previously agreed to indemnify DeAnza on the matter.
14
On April 19, 1999, the trial court denied all of the Company's and DeAnza's
post-trial motions for judgement notwithstanding the verdict, new trial and
remittur. The trial court also awarded $700,000 of attorneys' fees to
plaintiffs. The Company appealed the jury verdict and attorneys' fees award
(which also accrues interest at the statutory rate of 10.0% per annum). The
Company bonded the judgment pending appeal in accordance with California
procedural rules, which require a bond equal to 150% of the amount of the
judgment. Post-judgment interest will accrue at the statutory rate of 10.0% per
annum.damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgementpost-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the MRL.California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damages claim. The HOAHOA's attorney made a motion asking for an award of
attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company appealed this award. On July 13, 2004, the
California Court of Appeal affirmed the award of attorney's fees in favor of the
HOA's attorney.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's stockholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their homes in the
form of an inflated purchase price that cannot be attributed to the value of the
home being sold. As a result, in the Company's view, the Company loses the value
of its asset and the selling tenant leaves the Property with a windfall premium.
The Company has discovered through the litigation process that certain
municipalities considered condemning the Company's Properties at values well
below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to stockholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
In connection with such efforts, the Company announced it has entered into
a settlement agreement with the City of Santa Cruz, California and that,
pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's Property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the CPI. The
settlement agreement benefits the Company's stockholders by allowing them to
receive the value of their investment in this Property through vacancy decontrol
while preserving annual CPI based rent increases in this age restricted
Property.
The Company has filed two lawsuits in SuperiorFederal court against the City of San
Rafael, challenging its rent control ordinance on constitutional grounds. The
Company believes that one of those lawsuits was settled by the City agreeing to
amend the ordinance to permit adjustments to market rent upon turnover. The City
subsequently rejected the settlement agreement. The Court initially found the
settlement agreement was binding on the City, but then reconsidered and
determined to submit the claim of breach of the settlement agreement to a jury.
In October 2002, the first case against the City went to trial, based on both
breach of the settlement agreement and the constitutional claims. A jury found
no breach of the settlement agreement; the Company then filed motions asking the
Court to rule in its favor on that claim, notwithstanding the jury verdict. The
Court has postponed decision on those motions and on the constitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the
14
constitutional claims, then the Company has pending claims seeking statutory penaltiesa declaration
that it can close the Property and attorneys' fees, which may be
heardconvert it to another use.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("CMHOA"), a 396
site Property in late March, 2002.San Rafael, California, sued the Company in December 2000 over
a prior settlement agreement on a capital expenditure pass-through after the
Company sued the City of San Rafael in October 2000 alleging its rent control
ordinance is unconstitutional. In the Contempo Marin case, the CMHOA prevailed
on a motion for summary judgment on an issue that permits the Company to collect
only $3.72 out of a monthly pass-through amount of $7.50 that the Company
believes had been agreed to by the CMHOA in a settlement agreement. On May 23,
2004, the California Court of Appeal affirmed the trial court's order dismissing
the Company's claims against the City of San Rafael. The trial court has set a
trial date in the second quarter of 2005 on the CMHOA's remaining claims for
damages. The Company intends to vigorously defend itself
against these claims.
In two related appeals, the Company had argued that the trial court's
ability to enter an award of attorneys' fees in favor of the HOA and to take
certain other actions was preempted by the exercise of exclusive jurisdiction by
the CPUC over the issue of how to set rates for water in a submetered mobile
home park. During 2000, the California court of appeal rejected the Company's
preemption argument with respect to these prior rulings in favor of plaintiffs,
one of which had awarded plaintiffs approximately $100,000 of attorneys' fees.
The California Supreme Court declined to accept the case for review and the
Company paid the judgment, including post-judgment interest thereon, and settled
the matter for approximately $200,000 late in 2000.
In a separate matter, in December 2000 the HOA and certain individual
residents of the Property filed a complaint in the Superior Court of California,
County of Santa Cruz (No. CV 139825) against the Company, certain affiliates of
the Company and certain employees of the Company. The new lawsuit seeks damages,
including punitive damages, for intentional infliction of emotional distress,
unfair business practices, and unlawful retaliation purportedly arising from
allegedly retaliatory rent increases which were noticed by the Company to
certain residents in September 2000.this matter. The Company
believes that such lawsuits will be a consequence of the residents who
receivedCompany's efforts to
change rent increase notices with respectcontrol since tenant groups actively desire to preserve the premium
value of their homes in addition to the discounted rents provided by rent
increases above those
permitted bycontrol. The Company has determined that its efforts to rebalance the localregulatory
environment despite the risk of litigation from tenant groups are necessary not
only because of the $15 million annual subsidy to tenants, but also because of
the condemnation risk.
Similarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and other
property owners. However, the Court allowed the City to continue to enforce a
rent control ordinance were not covered bythat predated the two invalid ordinances (the "prior
ordinance"). As a result of the judgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and the prior ordinances and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance either because they did not complybeen
continually in effect. The City of Santee appealed the judgment. The court of
appeal and California Supreme Court refused to stay enforcement of these rent
adjustments pending appeal. After the City was unable to obtain a stay, the City
and the tenant association each sued the Company in separate actions alleging
the rent adjustments pursuant to the judgment violate the prior ordinance (Case
Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments,
refunds of amounts paid, and penalties and damages in these separate actions. On
January 25, 2005, the California Court of Appeal reversed the judgment in part
and affirmed it in part with a remand. The Court of Appeal affirmed that one
ordinance was unlawfully adopted and therefore void and that the second
ordinance contained unconstitutional provisions. However, the Court ruled the
City had the authority to cure the issues with the provisionsfirst ordinance
retroactively. On remand the trial court is directed to decide the issue of
damages to the Company which the Company believes is consistent with the Company
receiving the economic benefit of invalidating one of the ordinance or
because they are exempted by state law. On December 29, 2000,ordinances and also
consistent with the SuperiorCompany's position that it is entitled to market rent and
not merely a higher amount of regulated rent. The Company will petition the
Supreme Court of California Countyfor review of Santa Cruz enjoined such rent increases.certain aspects of this decision. The
Company intends to vigorously defend the matter, which may go to trial in the summer of
2002.
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
("the Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all of the litigation and
appeals involving the Ellenburg Properties, and transactions arising out of the
settlement closed on May 22, 2000 (see Note 5). Only the appeals of the two entities remain, neither of which is expected to materially affect the Company.new lawsuits. In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of its affiliates
alleging causes of action for fraud and other claims in connection with the
Ellenburg acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 has appealed. This appeal was one
not resolved by the Settlement. The Company believes Fund 20's allegations are
without merit and will vigorously defend itself.
In October 2001, Fund 20 sued the Company and certain of its affiliates
again, this time in Almeda County, California making substantially the same
allegations. The Company obtained an injunction preventing the case from
proceeding until the Fund 20 appeal is decided and other related proceedings in
Arizona (from whichaddition, the
Company has already been dismissed with prejudice)sued the City of Santee in Federal court alleging all three of the
ordinances are concluded.
15
CANDLELIGHT PROPERTIES, L.L.C
In 1996, 1997 and 1998,unconstitutional under the Lending Partnership made loansFifth Amendment to Candlelight
Properties, L.L.C. ("Borrower")the United States
Constitution because they fail to substantially advance a legitimate state
interest. Thus, it is the Company's position that the ordinances are subject to
invalidation as a matter of law in the aggregate principal amount of $8,050,000
(collectively,Federal court action. Separately, the
"Loan". The LoanFederal District Court granted the City's Motion for Summary Judgment in the
Company's Federal Court lawsuit. This decision was secured by a mortgagebased not on Candlelight
Village ("Candlelight"), a Propertythe merits, but
on procedural grounds, including that the Company's claims were moot given its
success in Columbus, Indiana, and was guaranteed by
Ronald E. Farren, the 99% owner of Borrower.state court case. The Company accounted forintends to appeal this ruling and
believes the Loan
as an investmentoutcome will be affected by the cases currently before the Ninth
Circuit and United States Supreme Court.
Moreover, in real estate and, accordingly, Candlelight's rental revenues
and operating costs were included withJuly 2004, the Company's rental revenues and
operating costs for financial reporting purposes. Concurrently with the funding
of the Loan, Borrower granted the Operating Partnership the option to acquire
Candlelight upon the maturity of the Loan. The Operating Partnership notified
Borrower that it was exercising its option to acquire Candlelight in March 1999,
and the Loan subsequently matured on May 3, 1999. However, Borrower failed to
repay the Loan and refused to convey Candlelight to the Operating Partnership.
Borrower filed suit in theNinth Circuit Court of Bartholomew County, Indiana
("Court")Appeal decided the case
of Cashman v. City of Cotati, a Property owner's challenge to the City's rent
control ordinance, and stated that a rent control ordinance that does not on May 5, 1999, seeking declaratory judgmentits
face provide for a mechanism to prevent the capture of a premium is
unconstitutional, as a matter of law, absent sufficient externalities rendering
a premium unavailable. This reasoning supports the legal position the Company
has put forth in its opposition to rent control in general and vacancy control
in particular. The City of Cotati has petitioned the Ninth Circuit for rehearing
and that petition is pending. In addition, in October 2004, the United States
Supreme Court granted certiorari in State of Hawaii vs. Chevron USA, Inc., a
Ninth Circuit Court of Appeal case that upholds the standard that a regulation
must substantially advance a legitimate state purpose in order to be
constitutionally viable. The case was argued before the United States Supreme
Court on February 22, 2005. The ultimate outcome of these cases will guide the
validityCompany's continued efforts to realize the value of the
exercise of the option. The Lending Partnership filed suit in the Court the next
day, seekingits Properties which are
subject to foreclose its mortgage,rent control and the suits were consolidated by the
Court.
On September 20, 2001, the parties entered intoCompany's efforts to achieve a settlement agreement
providing for a cash paymentlevel of
$10.8 million to the Lending Partnership and
dismissal with prejudice of all litigation among the parties and their
affiliates, among other terms. The closing under the Settlement Agreement
occurred on October 5, 2001. The Company accounted for the Settlement as a
disposition of the property.
WESTWINDS
The Operating Partnership is the ground lessee ("Lessee") of certain
propertyregulatory fairness in San Jose, California under ground leases ("Leases") from the
Nicholson Family Trust ("Lessor"). On February 13, 2001, Lessor filed a petition
for arbitration of disputes over whether certain items constitute "gross
revenue" under the Leases in which petition Lessor seeks damages and termination
of the Leases. Lessee responded on March 12, 2001 disputing Lessor's
contentions. Lessor claims that "gross revenue" for the purpose of calculating
percentage rent owing to Lessor under the ground leases includes certain amounts
Lessee has recouped from tenants of the Property (who are protected by rent
control) related to ground rent already paid to Lessor. Lessee has successfully
been able to pass-through to tenants at the property increases in ground rent
under the Leases. Lessee contends that this pass-through results in
reimbursement of lease expense, not "gross revenue." Lessor also contends that
the "net income" of RSI. from the Property should be included in the gross
revenue calculation. Lessee disputes this for many reasons, including, but not
limited to, the fact that RSI is not a lessee under the Leases, the sales
activity is not conducted by Lessee, and RSI is a separate company from Lessee.
Lessor's motion for summary judgment on the pass-through issue was denied
by an arbitration panel on November 2, 2001. Lessor and Lessee have agreed to
mediate the dispute prior to arbitration. The Company does not believe that the
amounts in question are material even if resolved against the Lessee and, based
upon advice of counsel, does not believe that the Lessor will be successful in
terminating the Leases.control jurisdictions.
15
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. In
addition, to the extent any such proceedings or audits relate to newly acquired
Properties, the Company considers any potential indemnification obligations of
sellers in favor of the Company.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16We did not submit any matter to a vote of security holders during the three
months ended December 31, 2004.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
The following table sets forth, for the period indicated, the high and low
salessale prices for the Company's common stock as reported by The New York Stock
Exchange under the trading symbol MHC.ELS.
DISTRIBUTIONS RETURN OF CAPITAL
CLOSE HIGH LOW MADEReturn of
Distributions Capital
Close High Low Declared GAAP BASIS(A)
-------- -------- --------Basis(a)
------ ------ ------ ------------- ------------------------------
20012004
1st Quarter $27.0000 $28.7500 $25.8800 $ .4450 $ .00$35.30 $37.90 $28.94 $0.0125 $0.00
2nd Quarter 28.1000 28.2000 26.4800 .4450 .1633.19 35.35 28.49 0.0125 0.00
3rd Quarter 30.4200 30.4200 28.0500 .4450 .1633.24 34.34 31.10 0.0125 0.05
4th Quarter 31.2100 31.6400 30.0000 .4450 .11
200035.75 36.52 32.88 0.0125 0.01
2003
1st Quarter $23.1250 $25.7500 $22.2500 $ .4150 $ .14$29.60 $30.86 $27.40 $0.4950 $0.17
2nd Quarter 23.9375 25.7500 23.0625 .4150 .0035.11 35.80 29.56 0.4950 0.00
3rd Quarter 25.0000 25.2500 23.5000 .4150 .1739.18 39.80 35.11 0.4950 0.29
4th Quarter 29.0000 29.1250 24.3125 .4150 .1237.65 41.92 36.70 8.0000(b) 8.03
(a) Represents distributions per share in excess of net income per share-basic
on a GAAPgenerally accepted accounting principles in the United States ("GAAP")
basis and is not the same as return of capital on a tax basis.
(b) On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used
proceeds from the $501 million borrowing in October 2003 to pay the special
distribution on January 16, 2004. The special cash dividend was reflected
on stockholders' 2004 1099-DIV issued in January 2005.
The number of beneficial holders of the Company's common stock at December 31,
20012004 was approximately 4,400.
175,455.
ISSUER PURCHASES OF EQUITY SECURITIES
None.
18
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND PROPERTY DATA)
ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATIONDATA
The following table sets forth selected financial and operating information
on a historical basisbasis. The historical operating data for the Company.four years ended
December 31, 2003 have been derived from the historical financial statements of
the Company; however, they have been restated to reflect adjustments that are
further explained in Note 2 of the Notes to Consolidated Financial Statements
contained in this Form 10-K. The following information should be read in
conjunction with all of the financial statements and notes thereto included
elsewhere in this Form 10-K.
The historical operating dataEQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands, except for the years ended
December 31, 2001, 2000, 1999, 1998per share and 1997 have been derived from the
historical Financial Statements of the Company audited by Ernst & Young LLP,
independent auditors.property data)
(1) YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
2004 (Restated) (Restated) (Restated) 2000
1999 1998 1997--------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
REVENUES
Base rental income........................................... $195,644 $189,481 $181,672 $165,340 $108,984
RVPROPERTY OPERATIONS:
Community base rental income........................................income ....................... $ 210,790 $ 196,919 $ 194,640 $ 190,982 $185,023
Resort base rental income .......................... 54,845 11,780 9,146 5,748 7,414 9,526 7,153 --
Utility and other income..................................... 22,014 20,366 20,096 18,219 11,785income ........................... 24,893 20,150 19,684 20,381 19,357
--------- --------- --------- --------- --------
Property operating revenues ..................... 290,528 228,849 223,470 217,111 211,794
Property operating and maintenance ................. 94,955 64,996 62,843 60,807 57,973
Real estate taxes .................................. 23,679 18,917 17,827 16,882 16,407
Property management ................................ 12,852 9,373 9,292 8,984 8,690
--------- --------- --------- --------- --------
Property operating expenses (exclusive
of depreciation shown separately below) ...... 131,486 93,286 89,962 86,673 83,070
--------- --------- --------- --------- --------
Income from property operations .............. 159,042 135,563 133,508 130,438 128,724
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ........... 47,636 36,606 33,537 -- --
Cost of inventory home sales ....................... (41,833) (31,767) (27,183) -- --
--------- --------- --------- --------- --------
Gross profit from inventory home sales ....... 5,803 4,839 6,354 -- --
Brokered resale revenues, net ...................... 2,186 1,724 1,592 -- --
Home selling expenses .............................. (8,708) (7,360) (7,664) -- --
Ancillary services revenues, net ................... 2,782 216 522 -- --
--------- --------- --------- --------- --------
Income (loss) from home sales operations &
other ........................................ 2,063 (581) 804 -- --
OTHER INCOME (EXPENSES):
Interest income .................................... 1,391 1,695 967 639 1,009
Equity in income of affiliates...............................affiliates ..................... -- -- -- 1,811 2,408
2,065 1,070 800
Interest income.............................................. 639 1,009 1,669 3,048 1,941
-------- -------- -------- -------- --------
Total revenues............................................. 225,856 220,678 215,028 194,830 123,510
-------- -------- -------- -------- --------
EXPENSES
Property operating and maintenance........................... 62,008 59,199 58,038 53,064 32,343
Real estate taxes............................................ 17,420 16,888 16,460 14,470 8,352
Property management.......................................... 8,984 8,690 8,337 7,108 5,079Income from other investments (2) .................. 3,475 956 316 383 150
General and administrative................................... 6,687 6,423 6,092 5,411 4,559administrative ......................... (9,243) (8,060) (8,192) (6,687) (6,423)
Rent control initiatives ........................... (2,412) (2,352) (5,698) (2,358) --
Interest and related amortization............................ 51,305 53,280 53,775 49,693 21,753amortization (3) .............. (91,922) (58,402) (50,729) (51,305) (53,280)
Depreciation on corporate assets............................. 1,243 1,139 1,005 995 590assets ................... (1,657) (1,240) (1,277) (1,243) (1,139)
Depreciation on real estate assets and other
costs........... 34,833 34,411 34,486 28,426 17,365
-------- -------- -------- --------costs ........................................... (48,862) (37,265) (34,826) (33,540) (33,201)
--------- --------- --------- --------- --------
Total expenses............................................. 182,480 180,030 178,193 159,167 90,041
-------- -------- -------- -------- --------other income (expenses) ................ (149,230) (104,668) (99,439) (92,300) (90,476)
Income from operations....................................... 43,376 40,648 36,835 35,663 33,469
Gainbefore minority interests,
equity in income of unconsolidated joint
ventures, loss on extinguishment of debt,
gain on sale of property and other........................... 8,168 12,053 -- -- --
-------- -------- -------- -------- --------
Income before allocation to minority interests
and extraordinary loss on early extinguishment of debt..... 51,544 52,701 36,835 35,663 33,469discontinued
operations ................................... 11,875 30,314 34,873 38,138 38,248
(Income) allocated to Common OP Units........................ (8,209) (8,463) (6,219) (6,733) (4,373)Units .............. (936) (3,860) (4,708) (7,216) (7,968)
(Income) allocated to Perpetual Preferred OP Units.................. (11,284) (11,252) (11,252) (2,844) -- --
-------- -------- -------- --------(11,252) (11,252)
Units
Equity in income of unconsolidated joint
ventures ........................................ 3,739 340 235 282 8
--------- --------- --------- --------- --------
Income before extraordinary loss on early
extinguishment of debt..................................... 32,083 32,986 27,772 28,930 29,096
Extraordinary loss on early extinguishment of
debt, (netgain on sale of $264properties and $105 allocated to
minority interests)........................................other,
and discontinued operations .................. 3,394 15,542 19,148 19,952 19,036
--------- --------- --------- --------- --------
Loss on the extinguishment of debt ................. -- -- -- -- (1,041)
Gain on sale of properties and other ............... 638 -- -- (451)8,168 12,053
--------- --------- --------- --------- --------
Income from continuing operations ............ 4,032 15,542 19,148 28,120 30,048
--------- --------- --------- --------- --------
DISCONTINUED OPERATIONS:
Discontinued Operations ............................ 26 1,043 3,287 3,203 3,090
Depreciation on discontinued operations ............ (32) (135) (484) (605) (698)
Gain on sale of discontinued properties and other .. -- 10,826 13,014 -- --
Minority interests on discontinued operations ...... -- (2,144) (3,078) (521) (495)
--------- --------- --------- --------- --------
--------Income (loss) from discontinued operations.... (6) 9,590 12,739 2,077 1,897
--------- --------- --------- --------- --------
NET INCOME.................................................INCOME AVAILABLE FOR COMMON SHARES ....... $ 32,0834,026 $ 25,132 $ 31,887 $ 30,197 $ 31,945
$ 27,772 $ 28,930 $ 28,645========= ========= ========= ========= ======== ======== ======== ======== ========
Net income per Common Share before extraordinary
item -- basic.............................................. $ 1.53 $ 1.54 $ 1.10 $ 1.13 $ 1.18
======== ======== ======== ======== ========
Net income per Common Share before extraordinary
item -- diluted............................................ $ 1.49 $ 1.51 $ 1.09 $ 1.12 $ 1.16
======== ======== ======== ======== ========
Net income per Common Share -- basic......................... $ 1.53 $ 1.49 $ 1.10 $ 1.13 $ 1.16
======== ======== ======== ======== ========
Net income per Common Share -- diluted....................... $ 1.49 $ 1.46 $ 1.09 $ 1.12 $ 1.15
======== ======== ======== ======== ========
Dividend declared per Common Share........................... $ 1.78 $ 1.66 $ 1.55 $ 1.45 $ 1.32
======== ======== ======== ======== ========
Weighted average Common Shares outstanding -- basic.......... 21,036 21,469 25,224 25,626 24,689
Weighted average Common OP Units outstanding................. 5,466 5,592 5,704 5,955 3,749
Weighted average Common Shares outstanding -- diluted........ 27,010 27,408 31,252 31,962 28,762
1819
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND PROPERTY DATA)(continued)
(Amounts in thousands, except for per share and property data)
(1) AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
2004 (Restated) (Restated) (Restated) 2000
1999 1998 1997
----------- ----------- ----------- --------------------- ---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ............................ $ 0.18 $ 0.71 $ 0.89 $ 1.34 $ 1.40
Income from discontinued operations .......................... $ 0.00 $ 0.43 $ 0.59 $ 0.10 $ 0.09
Net income available for Common Shares ....................... $ 0.18 $ 1.14 $ 1.48 $ 1.44 $ 1.49
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ............................ $ 0.17 $ 0.69 $ 0.87 $ 1.31 $ 1.37
Income from discontinued operations .......................... $ 0.00 $ 0.42 $ 0.57 $ 0.09 $ 0.10
Net income available for Common Shares ....................... $ 0.17 $ 1.11 $ 1.44 $ 1.40 $ 1.47
Distributions declared per Common Share outstanding (3) ...... $ 0.05 $ 9.485 $ 1.90 $ 1.78 $ 1.66
Weighted average Common Shares outstanding - basic ........... 22,849 22,077 21,617 21,036 21,469
Weighted average Common OP Units outstanding ................. 6,067 5,342 5,403 5,466 5,592
Weighted average Common Shares outstanding - fully diluted ... 29,465 28,002 27,632 27,010 27,408
BALANCE SHEET DATA:
Real estate, before accumulated depreciation(2)...depreciation (4) ............. $2,035,790 $1,309,705 $1,296,007 $1,238,138 $1,218,176
$1,264,343 $1,237,431 $ 936,318
Total assets...................................... 1,099,963assets ................................................. 1,886,289 1,463,507 1,154,794 1,099,447 1,104,304 1,160,338 1,176,841 864,365
Total mortgages and loans.........................loans (3) ................................ 1,653,051 1,076,183 760,233 708,857 719,684
725,264 750,849 495,172
Minority interests................................ 171,147interests ........................................... 134,771 124,634 166,889 170,675 171,271
179,397 70,468 67,453
Stockholders' equity.............................. 175,150equity (3) ..................................... 31,844 (2,528) 171,175 173,264 168,095 211,401 310,441 280,575
OTHER DATA:
Funds from operations(3)..........................operations (5) .................................... $ 66,95754,448 $ 63,80758,479 $ 68,47762,695 $ 64,08964,599 $ 50,83463,807
Net cash flow:
Operating activities...........................activities ...................................... $ 46,733 $ 75,163 $ 80,176 $ 80,708 $ 68,001
Investing activities ...................................... $ 72,580(366,654) $ 71,977(598) $ 54,581
Investing activities...........................(72,973) $ (23,067) $ 23,102
Financing activities ...................................... $ (37,868)(514) $ (262,762) $(239,445)
Financing activities...........................243,905 $ (1,287) $ (59,134) $ (94,932) $ (41,693) $ 203,533 $ 185,449
Total Properties (at end of period)(4)............ 148 .......................... 275 142 142 149 154 157 154 121
Total sites (at end of period).................... 50,761 51,452 54,002 53,009 44,108
Total sites (weighted average)(5)................. 46,243 46,964 46,914 43,932 29,323 ............................... 101,231 52,349 51,582 50,663 51,304
- ---------------
(1) See the Consolidated Financial Statements of the Company included elsewhere
herein. (2)Certain 2003, 2002, 2001, and 2000 amounts have been reclassified
to conform to the 2004 financial presentation. Such reclassifications have
no effect on the operations or equity as originally presented.
Net Income for the years ended December 31, 2003, 2002 and 2001 have been
restated (see Note 2 of the Notes to Consolidated Financial Statements
contained in this Form 10-K) to reflect a change in the Company's
accounting policy with regards to its rent control initiatives. The Company
believesreceived a comment letter from the SEC with regard to prior filings. These
issues were outlined in our press release dated March 4, 2005. The issues
have been resolved and resulted in this restatement.
(2) On November 10, 2004, we acquired KTTI Holding Company, Inc., owner of 57
Properties and approximately 3,000 acres of vacant land, for $160 million
("Thousand Trails Transaction"). These Properties are leased to Thousand
Trails, the largest operator of membership-based campgrounds in the United
States. The Company has provided a long-term lease of the real estate
(excluding the vacant land) to Thousand Trails, which will continue to
operate the Properties for the benefit of its approximately 108,000 members
nationwide. The Properties are located in 16 states (primarily in the
western and southern United States) and British Columbia, and contain
17,911 sites. The lease will generate $16 million in rental income to the
Company on an absolute triple net basis, subject to annual escalations of
3.25%. As of December 31, 2004, approximately $2.3 million represents
income for November 10, 2004 through December 31, 2004.
20
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(3) On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501
million at a weighted average interest rate of 5.84% and with a weighted
average maturity of approximately 9 years. Approximately $170 million of
the proceeds were used to repay amounts outstanding on the Company's line
of credit and term loan. Approximately $225 million was used to pay a
special distribution of $8.00 per share on January 16, 2004. The remaining
funds were used for investment purposes in 2004. The Recap resulted in
increased interest and amortization expense and the special distribution
resulted in decreased stockholder's equity.
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its
assets to MHC Trust, a newly formed Maryland real estate investment trust,
including the Company's entire partnership interest in the Operating
Partnership. This restructuring resulted in a step-up in the Company's tax
basis in its assets, generating future depreciation deductions, which in
turn will reduce the Company's future distribution requirements. This
provides the Company with greater financial flexibility and greater growth
potential (see Note 5 of the Notes to Consolidated Financial Statements
contained in this Form 10-K).
(4) We believe that the book value of the Properties, which reflects the
historical costs of such real estate assets less accumulated depreciation,
is less than the current market value of the Properties.
(3) The Company generally considers(5) Funds Fromfrom Operations ("FFO") to be an
appropriate measureis a non-GAAP financial measure. The Company
believes that FFO, as defined by the Board of the performanceGovernors of an equity Real Estate Investment
Trust ("REIT"). FFO was redefined by the National
Association of Real Estate Investment Trusts ("NAREIT"), to be an
appropriate measure of performance for an equity REIT. While FFO is a
relevant and widely used measure of operating performance for equity REITs,
it does not represent cash flow from operations or net income as defined by
GAAP, and it should not be considered as an alternative to these indicators
in October 1999, effective January 1, 2000,evaluating liquidity or operating performance.
FFO is defined as net income, (computedcomputed in accordance with generally accepted accounting
principles ["GAAP"]), before allocation to minority interests,GAAP, excluding
gains (or losses)or losses from sales of property,Properties, plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. For
purposes of presentingAdjustments for unconsolidated
partnerships and joint ventures are calculated to reflect FFO on the revised definition of FFO has been given
retroactive treatment.same
basis. The Company believes that FFO is helpful to investors as a measureone of
several measures of the performance of an equity REIT because,REIT. The Company further
believes that by excluding the effect of depreciation, amortization and
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. Investors should
review FFO, along with GAAP net income and cash flowsflow from operating
activities, investing activities and financing activities, and investing
activities, it provides investorswhen evaluating
an understanding of the ability of the
Company to incur and service debt and to make capital expenditures.equity REIT's operating performance. The Company computes FFO in
accordance with thestandards established by NAREIT, definition which may
differ from the methodology for calculating FFO utilized by other equity
REITs and, accordingly, may not be
comparable to suchFFO reported by other REITs computations.that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than we do. Investors should review FFO,
inalong with GAAP net income and of itselfcash flow from operating activities,
investing activities and financing activities, when evaluating an equity
REIT's operating performance. FFO does not represent cash generated from
operating activities in accordance with GAAP, nor does it represent cash
available to pay distributions and therefore should not be considered as an
alternative to net income, determined in accordance with GAAP, as an
indication of the Company'sour financial performance, or to net cash flowsflow from operating
activities, as determined byin accordance with GAAP, as a measure of our
liquidity, andnor is not necessarilyit indicative of cashfunds available to fund our cash needs.
(4) During the year ended December 31, 1997, 39 Properties were acquired; net
operating income attributableneeds,
including our ability to such Properties during 1997 was
approximately $3.8 million, which included approximately $1.7 million of
depreciation and amortization expense. During the year ended December 31,
1998, 41 Properties were acquired; net operating income attributable to such
Properties during 1998 was approximately $7.6 million, which included
approximately $3.9 million of depreciation and amortization expense. During
the year ended December 31, 1999, two Properties were acquired; net
operating income attributable to such Properties during 1999 was
approximately $87,000, which included approximately $104,000 of depreciation
expense. During the year ended December 31, 2000, three Properties and a
water and wastewater treatment company were sold; net operating income
attributable to such Properties during 2000 was approximately $1.6 million,
which included approximately $623,000 of depreciation expense. During the
year ended December 31, 2001, two Properties were purchased; net operating
income attributable to such Properties during 2001 was approximately $1.3
million, which included approximately $396,000 of depreciation expense. Also
during the year ended December 31, 2001, eight Properties were sold; net
operating income attributable to such Properties during 2001 was $1.0
million, which included approximately $235,000 of depreciation expense.
(5) Excludes recreational vehicle sites and sites held through unconsolidated
joint ventures.
19make cash distributions.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K. The following discussion may
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which reflect management's current
views with respect to future events and financial performance. Such
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the effects of future events on the Company's
financial performance; the adverse impact of external factors such as inflation
and consumer confidence; interest rates; and the risks associated with real
estate ownership.
RESULTS OF OPERATIONS2004 ACCOMPLISHMENTS
- Invested in 135 Properties with approximately 50,000 sites.
- Increased presence in Florida and Arizona markets.
- Increased home sales volumes and profitability.
- Changed our name from Manufactured Home Communities, Inc. to Equity
Lifestyle Properties, Inc., symbolizing our focus on
lifestyle-oriented customers.
- Developed relationships with leading brand names such as Encore and
Thousand Trails, creating a larger customer resource base.
OVERVIEW AND OUTLOOK
Occupancy in our Properties as well as our ability to increase rental rates
directly affect revenues. Our revenue streams are predominantly derived from
customers renting our sites on a long-term basis.
We have approximately 58,200 annual sites with average annual revenue of
approximately $4,400 per site. We have 7,200 seasonal sites, which are leased to
customers generally for 3 to 6 months, for which we expect to collect rent in
the range of $1,700 to $1,800. We also have 6,000 transient sites, occupied by
customers who lease on a short-term basis, for which we expect to collect annual
rent in the range of $2,000 to $2,100. We expect to service 60,000 customers
with these sites. There is significant demand for these sites. However, we
consider this revenue stream to be our most volatile. It is subject to weather
conditions, gas prices, and other factors affecting the marginal RV customer's
vacation and travel preferences. Finally, we have approximately 17,900 Thousand
Trails sites for which we receive ground rent of $16 million annually. This rent
is classified in Other Income in the Consolidated Statements of Operations. We
have interests in Properties owning approximately 11,800 sites for which revenue
is classified as Equity in Income from Unconsolidated Joint Ventures in the
Consolidated Statements of Operations.
22
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties or portfolios acquired, invested
in, or sold since January 1, 1999. The Company defines its core Community portfolio ("Core Portfolio") as
Properties owned throughout both periods of comparison. Excluded from the Core
Portfolio are any Properties acquired or sold during the period and also any
recreational vehicle ("RV") Properties which, together, are referred to as the
"Non-Core" Properties.2003:
PROPERTY TRANSACTION DATE SITES
- -------- ---------------- ------------------------ -------
TOTAL SITES AS OF JANUARY 1, 1999......................... 53,009
ACQUISITIONS:
The Meadows............................................. April 1, 1999 380
Coquina Crossing........................................ July 23, 1999 270
Grand Island (f.k.a. Golden Lakes)......................2003...................... 52,349
PROPERTY OR PORTFOLIO (# OF PROPERTIES IN PARENTHESES):
Toby's.............................................. December 3, 2003 379
Araby Acres......................................... December 15, 2003 337
Foothill Village ................................... December 15, 2003 180
O'Connell's ........................................ January 15, 2004 668
Spring Gulch........................................ January 30, 2004 420
Paradise............................................ February 3, 2001 421
Lakes at Countrywood (f.k.a. Chain O' Lakes)............ January2004 950
Twin Lakes.......................................... February 18, 2004 400
Lakeside............................................ February 19, 2004 95
Diversified Portfolio (10).......................... February 5, 2004 2,567
NHC Portfolio (28) ................................. February 17, 2004 11,311
Viewpoint .......................................... May 3, 2001 309
Bulow Resort RV......................................... July 1, 2001 352
INVESTMENT IN UNCONSOLIDATED2004 1,928
Cactus Gardens ..................................... May 12, 2004 430
Monte Vista ........................................ May 13, 2004 832
GE Portfolio (5) ................................... May 14, 2004 1,155
Yukon Trails ....................................... September 8, 2004 214
Caledonia .......................................... November 4, 2004 247
Thousand Trails (57) ............................... November 10, 2004 17,911
Fremont ............................................ December 30, 2004 325
JOINT VENTURES:
Lakeshore Communities (2 properties).................... 1999 343Lake Myers.......................................... December 18, 2003 425
Pine Haven.......................................... January 21, 2004 625
Twin Mills.......................................... January 27, 2004 501
Indian Wells........................................ February 17, 2004 350
Plymouth Rock....................................... February 10, 2004 609
Mesa Verde.......................................... May 18, 2004 345
Winter Garden....................................... May 18, 2004 350
Arrowhead........................................... August 20, 2004 377
Sun Valley.......................................... September 10, 2004 265
Appalachian......................................... October 26, 2004 357
Robin Hill.......................................... November 5, 2004 270
Round Top........................................... December 22, 2004 319
MEZZANINE INVESTMENTS (11) ............................ February 3, 2004 5,054
DISPOSITIONS:
Independence Hill................................... June 6, 2003 (203)
Brook Gardens....................................... June 6, 2003 (424)
Pheasant Ridge...................................... June 30, 2003 (101)
Lake Placid......................................... May 28, 2004 (408)
Manatee (Joint Venture)............................. September 1, 2004 (290)
EXPANSION SITE DEVELOPMENT:DEVELOPMENT AND OTHER:
Sites added (reconfigured) in 1999..................................... --2003 ................. (35)
Sites added (reconfigured) in 2000..................................... 108
Sites added in 2001..................................... 143
DISPOSITIONS:
Garden West Office Plaza................................ October 26, 1999 --
FFEC-Six (water and wastewater service company)......... February 29, 2000 --
Mesa Regal RV Resort.................................... May 22, 2000 (2,005)
Naples Estates.......................................... May 22, 2000 (484)
Mon Dak................................................. May 22, 2000 (219)
Dellwood Estates........................................ February 13, 2001 (136)
Briarwood............................................... February 13, 2001 (166)
Bonner Springs.......................................... February 13, 2001 (211)
Carriage Park........................................... February 13, 2001 (143)
North Star.............................................. February 13, 2001 (219)
Quivira Hills........................................... February 13, 2001 (142)
Rockwood................................................ February 13, 2001 (264)
Candlelight............................................. October 5, 2001 (585)
------2004 ................. 147
-------
TOTAL SITES AS OF DECEMBER 31, 2001.......................................... 50,761
======2004 ................... 101,231
=======
2023
TRENDS
OccupancyRESTATEMENT OF FINANCIAL STATEMENTS
During 2004, the Company changed the way it accounted for costs incurred in
pursuing certain rent control initiatives. As a result, the Company has restated
its Consolidated Financial Statements for the years ended December 31, 2003,
2002 and 2001 to expense the costs of the initiatives in the year in which they
were incurred because the previous method of accounting for the costs was
determined to be incorrect. The Company had historically classified these costs,
primarily legal, in other assets. To the extent the Company's efforts to
effectively change the use and operations of the Properties were successful, the
Company capitalized the costs to land improvements as well as the ability toan increase
rental rates directly affects revenues. In 2001, occupancy in the
established value of the revised project and depreciated them over 30 years. To
the extent these efforts were not successful, the costs would have been
expensed.
See Note 2 to the Consolidated Financial Statements of this report for a
summary of the effects of these changes on the Company's Core
Portfolio has remained relatively stable. Also during 2001, average monthly base
rental ratesconsolidated balance
sheets as of December 31, 2003 and consolidated statements of operations for the
Core Portfolio increased approximately 4.5%.years ended December 31, 2003, 2002 and 2001. The Company
believesaccompanying Management's
Discussion and Analysis gives effect to these trends will continue through 2002.corrections. The significance of
the increase in expenses due to this change is not necessarily determinable in
future periods and depend on future rulings of the United States Supreme Court.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company'sOur consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles generally accepted in the United States,("GAAP"), which require the Companyus to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and the related disclosures. The Company believesWe believe that the
following critical accounting policies, among others, affect itsour more
significant judgments and estimates used in the preparation of itsour consolidated
financial statements.
The CompanyIn accordance with the Statement of Financial Accounting Standards No. 141
("SFAS No. 141"), we allocate the purchase price of Properties we acquire to net
tangible and identified intangible assets acquired based on their fair values.
In making estimates of fair values for purposes of allocating purchase price, we
utilize a number of sources, including independent appraisals that may be
available in connection with the acquisition or financing of the respective
property and other market data. We also consider information obtained about each
property as a result of our due diligence, marketing and leasing activities in
estimating the fair value of the tangible and intangible assets acquired.
We periodically evaluates itsevaluate our long-lived assets, including itsour investments
in real estate, for impairment indicators. TheOur judgments regarding the existence
of impairment indicators are based on factors such as operational performance,
market conditions and legal factors. Future events could occur which would cause
us to conclude that impairment indicators exist and an impairment loss is
warranted.
Real estate is recorded at cost less accumulated depreciation. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
assets. We use a 30-year estimated life for buildings acquired and structural
and land improvements, a ten-to-fifteen-year estimated life for building
upgrades and a three-to-seven-year estimated life for furniture, fixtures and
equipment. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred and significant renovations and improvements that improve
the asset and extend the useful life of the asset are capitalized over their
estimated useful life. However, the useful lives, salvage value, and customary
depreciation method used for land improvements and other significant assets may
significantly and materially overstate the depreciation of the underlying assets
and therefore understate the net income of the Company.
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R")
- - an interpretation of ARB 51. The objective of FIN 46R is to provide guidance
on how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate such
entity if the company absorbs a majority of the entity's expected losses or
receives a majority of the entity's expected residual returns if they occur, or
both (i.e., the primary beneficiary). The Company will apply FIN 46R to all
types of entity ownership (general and limited partnerships and corporate
interests).
The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of such
entities. In addition, the Company will apply the provisions of FIN 46R to all
new entities in the future. The Company also consolidates entities in which it
has a controlling direct or indirect voting interest. The equity method of
accounting is applied to entities in which the Company does not have a
24
controlling direct or indirect voting interest, but can exercise influence over
the entity with respect to its operations and major decisions. The cost method
is applied when (i) the investment is minimal (typically less than 5%) and (ii)
the Company's investment is passive.
In applying the provisions of FIN 46R, the Company determined that its
$29.7 million investment in preferred equity interests (the "Mezzanine
Investment") in six entities controlled by Diversified Investments, Inc.
("Diversified") (see Liquidity and Capital Resources - Investing Activities) is
a VIE; however, the Company concluded that it is not the primary beneficiary. As
such, the adoption of this pronouncement had no effect on the Company's
financial statements.
The valuation of financial instruments under Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS No. 107107") and Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133133") requires the Companyus to make estimates and judgments that affect the fair value
of the instruments. The Company, whereWhere possible, baseswe base the fair values of itsour financial
instruments, including itsour derivative instrument,instruments, on listed market prices and
third party quotes. Where these are not available, the Company bases
itswe base our estimates on
other factors relevant to the financial instrument.
21Prior to January 1, 2003 we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees", based
upon the intrinsic value method. This method results in no compensation expense
for options issued with an exercise price equal to or exceeding the market value
of the common stock on the date of grant. Effective January 1, 2003, we elected
to account for our stock-based compensation in accordance with SFAS No. 123 and
its amendment ("SFAS No. 148"), "Accounting for Stock Based Compensation", which
will result in compensation expense being recorded based on the fair value of
the stock options and other equity awards issued. SFAS No. 148 provides three
possible transition methods for changing to the fair value method. We have
elected to use the modified-prospective method. This method requires that we
recognize stock-based employee compensation cost from the beginning of the
fiscal year in which the recognition provisions are first applied as if the fair
value method had been used to account for all employee awards granted, or
settled, in fiscal years beginning after December 15, 1994. The following table
illustrates the effect on net income and earnings per share as if the fair value
method was applied to all outstanding and unvested awards in each period
presented (amounts in thousands, except per share data):
2003 2002
2004 (Restated) (Restated)
------- ---------- ----------
Net income available for Common
Shares as reported ................... $ 4,026 $25,132 $31,887
Add: Stock-based compensation
expense included in net income as
reported ............................. 2,899 2,139 2,185
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards .... (2,899) (2,139) (2,086)
------- ------- -------
Pro forma net income available for
Common Shares ........................ $ 4,026 $25,132 $31,986
======= ======= =======
Pro forma net income per Common
Share - Basic ........................ $ 0.18 $ 1.14 $ 1.48
======= ======= =======
Pro forma net income per Common
Share - Fully Diluted ................ $ 0.17 $ 1.11 $ 1.44
======= ======= =======
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements with any unconsolidated
investments or joint ventures that we believe have or are reasonably likely to
have a material effect on our financial condition, results of operations,
liquidity or capital resources.
25
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 20012004 TO YEAR ENDED DECEMBER 31, 20002003
Since December 31, 1999,2002, the gross investment in real estate increased from
$1,264$1,296 million to $1,238$2,036 million as of December 31, 2001,2004, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled decreasedincreased from 54,00252,349 as of
December 31, 19992003 to 50,761101,231 as of December 31, 2001.2004.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio (excludes RV and Resort Cottage
sites, and Properties owned through unconsolidated joint ventures, as well as
the sites of Properties acquired or sold during 2003 and 2004) and the Total
Portfolio for the years ended December 31, 20012004 and 2000.2003.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE/INCREASE / % INCREASE/INCREASE / %
(dollars in thousands) 2001 20002004 2003 (DECREASE) CHANGE 2001 20002004 2003 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- ------ -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
BaseCommunity base rental income(1)............ $192,160 $183,615 $8,545 4.7% $195,644 $189,064 $ 6,580 3.5%
Utility and other income......... 20,222 18,664 1,558 8.3% 27,762 28,197 (435) (1.5%)
Equity in income of affiliates......... $203,141 $197,174 $5,967 3.0% $210,790 $196,919 $13,871 7.0%
Resort base rental income ......... -- -- -- -- 1,811 2,408 (597) (24.8%)
Interest income.................. -- -- -- -- 639 1,009 (370) (36.7%)54,845 11,780 43,065 365.6%
Utility and other income .......... 19,547 19,289 258 1.3% 24,893 20,150 4,743 23.5%
-------- -------- ------ ---------- -------- -------- ------- ------
Total revenues................. 212,382 202,279 10,103 5.0% 225,856 220,678 5,178 2.3%-----
Property operating revenues .... 222,688 216,463 6,225 2.9% 290,528 228,849 61,679 27.0%
Property operating and
maintenance.................... 57,787 54,150 3,637 6.7% 62,008 59,199 2,809 4.7%maintenance (1) ................ 60,799 58,253 2,546 4.4% 94,955 64,996 29,959 46.1%
Real estate taxes................ 16,773 16,321 452 2.8% 17,420 16,888 532 3.2%taxes ................. 18,967 17,994 973 5.4% 23,679 18,917 4,762 25.2%
Property management.............. 8,594 8,121 473 5.8% 8,984 8,690 294 3.4%
General and administrative....... -- -- -- -- 6,687 6,423 264 4.1%management ............... 8,974 8,866 108 1.2% 12,852 9,373 3,479 37.1%
-------- -------- ------ ---------- -------- -------- ------- ------
Total-----
Property operating expenses....... 83,154 78,592 4,562 5.8% 95,099 91,200 3,899expenses .... 88,740 85,113 3,627 4.3% 131,486 93,286 38,200 40.9%
-------- -------- ------ ---------- -------- -------- ------- -----------
Income from property operations before
interest, depreciation and
amortization expenses.......... 129,228 123,687 5,541 4.5% 130,757 129,478 1,279 1.0%
Interest and related
amortization................... -- -- -- -- 51,305 53,280 (1,975) (3.7%)
Depreciation on corporate
assets......................... -- -- -- -- 1,243 1,139 104 9.1%
Property depreciation and
other.......................... 32,243 30,792 1,451 4.7% 34,833 34,411 422 1.2%
-------- -------- ------ ------ -------- -------- ------- ------
Income from operations(2)...... $ 96,985 $ 92,895 $4,090 4.4% $ 43,376 $ 40,648 $ 2,728 6.7%... $133,948 $131,350 $2,598 2.0% $159,042 $135,563 $23,479 17.3%
======== ======== ====== ========== ======== ======== ======= ===========
Site and Occupancy Information(3)Information (2):
Average total sites.............. 44,966 44,828 138 0.3% 46,243 46,964 (721)sites ............... 43,112 43,134 (22) (0.1%) 44,554 43,134 1,420 3.3%
Average occupied sites ............ 38,730 39,363 (633) (1.6%) 40,143 39,363 780 2.0%
Average Occupancy % ............... 89.8% 91.3% (1.5%) Average occupied sites........... 42,384 42,320 61 0.2% 43,576 44,325 (749) (1.7%(1.5%) Occupancy %...................... 94.3% 94.4% (0.1%90.1% 91.3% (1.2%) (0.1%) 94.2% 94.4% (0.2%) (0.2%(1.2%)
Monthly base rent per site.......site ........ $ 377.82436.65 $ 361.47 $16.35 4.5%416.89 $19.76 4.7% $ 374.15437.58 $ 355.45416.89 $ 18.70 5.3%20.69 5.0%
Total sites
asAs of December 31,... 45,011 44,868 143 0.3% 45,743 46,734 (991) (2.1%) ............. 43,168 43,143 25 0.1% 45,121 43,143 1,978 4.6%
Total occupied sites
asAs of December 31,................... 42,243 42,529 (286) (0.7% ............. 38,508 38,946 (438) (1.1%) 42,887 44,270 (1,383) (3.1%)40,409 38,946 1,463 3.8%
- ---------------
(1) During 2001, at certain PropertiesThe effect of the amounts charged3rd quarter 2004, insurance reserve of approximately $1
million relating to residents for
utilities were separated ("Unbundled")the Florida storms has been removed from their base rent charges and
recorded as utility income. For comparison purposes, a reclassification was
made to base rental income for 2000 on this table. This reclassification is
also reflected in the monthly base rent per site amounts for 2000.
(2) Income from operations for the Core
Portfolio does not include an allocation
of income from affiliates, interest income, corporate general and
administrative expense, interest expense and related amortization or
depreciation on corporate assets.
(3)for comparative purposes.
(2) Site and occupancy information does not include theexcludes all Resort Cottage and RV sites,
Properties owned through unconsolidated joint ventures as well as the sites
of Properties acquired or the RV Properties.
22
Revenuessold during 2003 and 2004.
PROPERTY OPERATING REVENUES
The 4.7%3.0% increase in Community base rental income for the Core Portfolio
reflects a 4.5%4.7% increase in monthly base rent per site coupledcombined with a 0.2% increase1.6%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in pass through items such as utilities
and real estate taxes --utility income, which
resulted from higher expenses for these items.
For theutility expenses. Total Portfolio changes in base rental income and utility and other
income generally reflect thoseoperating revenues
increased due to current year acquisitions (see Note 6 of the Core Portfolio and the effect of
acquisition and disposition of the Non-Core Properties.
EquityNotes to
Consolidated Financial Statements contained in income of affiliates decreased 24.8%, reflecting lower sales
volumes. Combined home sales revenue decreased approximately $4.0 million, of
which $3.3 million is attributable to a decline in new home inventory sales
volume. Sales volumes for new home inventory, used home inventory and brokered
home sales were 485, 250 and 1,114, respectively, for the year ended December
31, 2001, and 535, 290 and 1,271, respectively, for the year ended December 31,
2000.this Form 10-K).
26
RESULTS OF OPERATIONS (CONTINUED)
PROPERTY OPERATING EXPENSES
The decrease in interest income is primarily due to the repayment of
certain notes receivable, fewer short-term investments and lower interest rates.
Short-term investments had average balances for the years ended December 31,
2001 and 2000 of approximately $1.9 million and $1.5 million, respectively,
which earned interest income at an effective rate of 3.8% and 6.0% per annum,
respectively.
Operating Expenses
The4.4% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in utility expenses passed throughpayroll expense, administrative
expense, repair and includedmaintenance expense. The 5.4% increase in utility income. Expenses for the Core Portfolio also reflect
increases in payroll and property insurance expenses. Core Portfolio
real estate taxes increased 2.8% generally due to higher assessed values on certain
Properties. The increase in Total Portfolio property operating and maintenance
expense and real estate taxes is also impacted by acquisition and disposition of
Non-Core Properties. Property management expense allocated to the Core
Portfolio, which reflects costs of managing the Properties and is estimated
based on a percentage of Property revenues, increased 5.8%.
General and administrative expenses ("G&A") increased 4.1% due to increased
public company costs and related expenses and promotional costs. G&A for 2001
includes a charge for additional amortization of deferred compensation offset by
a reversal of legal expenses previously accrued related to the Ellenburg
settlement.
Interest and related amortization decreased due to lower interest rates
during the period. The weighted average outstanding debt balances for the years
ended December 31, 2001 and 2000 were $713.2 million and $707.5 million,
respectively. The effective interest rate was 7.0% and 7.4% per annum for the
years ended December 31, 2001 and 2000, respectively.
Depreciation on corporate assets increased due to fixed asset additions
related to information and communication systems. Depreciation on real estate
assets and other costs increased due primarily to the acquisition and
disposition of Non-Core Properties.
23
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999
Since December 31, 1998, the gross investment in real estate decreased from
$1,237 million to $1,218 million as of December 31, 2000, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled decreased from 53,009 as of
December 31, 1998 to 51,452 as of December 31, 2000.
The following table summarizes certain financial and statistical data for
the Core Portfolio and the Total Portfolio for the years ended December 31, 2000
and 1999.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE
-------- -------- ---------- ------ -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
Base rental income............... $186,148 $178,095 $8,053 4.5% $189,481 $181,672 $ 7,809 4.3%
Utility and other income......... 17,986 17,436 550 3.2% 27,780 29,622 (1,842) (6.2%)
Equity in income of affiliates... -- -- -- -- 2,408 2,065 343 16.6%
Interest income.................. -- -- -- -- 1,009 1,669 (660) (39.5%)
-------- -------- ------ ------ -------- -------- ------- ------
Total revenues................. 204,134 195,531 8,603 4.4% 220,678 215,028 5,650 2.6%
Property operating and
maintenance.................... 54,358 52,096 2,262 4.3% 59,199 58,038 1,161 2.0%
Real estate taxes................ 16,186 15,811 375 2.4% 16,888 16,460 428 2.6%
Property management.............. 8,194 7,725 469 6.1% 8,690 8,337 353 4.2%
General and administrative....... -- -- -- -- 6,423 6,092 331 5.4%
-------- -------- ------ ------ -------- -------- ------- ------
Total operating expenses....... 78,738 75,632 3,106 4.1% 91,200 88,927 2,273 2.6%
-------- -------- ------ ------ -------- -------- ------- ------
Income from operations before
interest, depreciation and
amortization expenses.......... 125,396 119,899 5,497 4.6% 129,478 126,101 3,377 2.7%
Interest and related
amortization................... -- -- -- -- 53,280 53,775 (495) (0.9%)
Depreciation on corporate
assets......................... -- -- -- -- 1,139 1,005 134 13.3%
Property depreciation and
other.......................... 31,366 30,912 454 1.5% 34,411 34,486 (75) (0.2%)
-------- -------- ------ ------ -------- -------- ------- ------
Income from operations(1)...... $ 94,030 $ 88,987 $5,043 5.7% $ 40,648 $ 36,835 $ 3,813 10.4%
======== ======== ====== ====== ======== ======== ======= ======
Site and Occupancy
Information(2):
Average total sites.............. 45,894 45,810 84 0.2% 46,964 46,914 50 0.1%
Average occupied sites........... 43,410 43,138 272 0.6% 44,325 44,110 215 0.5%
Occupancy %...................... 94.6% 94.2% 0.4% 0.4% 94.4% 94.0% 0.4% 0.4%
Monthly base rent per site....... $ 357.35 $ 344.04 $13.31 3.9% $ 356.24 $ 343.22 $ 13.02 3.8%
Total sites as of December 31,... 45,902 45,808 94 0.2% 46,734 47,284 (550) (1.2%)
Total occupied sites as of
December 31,................... 43,595 43,289 306 0.7% 44,270 44,555 (285) (0.6%)
- ---------------
(1) Income from operations for the Core Portfolio does not include an allocation
of income from affiliates, interest income, corporate general and
administrative expense, interest expense and related amortization or
depreciation on corporate assets.
(2) Site and occupancy information does not include the five Properties owned
through joint ventures or the three RV properties.
24
Revenues
The 4.5% increase in base rental income for the Core Portfolio reflects a
3.9% increase in monthly base rent per site coupled with a 0.6% increase in
average occupied sites. The 4.3% increase in base rental income for the Total
Portfolio reflects a 3.8% increase in monthly base rent per site coupled with a
0.5% increase in average occupied sites and also reflects the acquisition and
disposition of Non-Core Properties. The increase in utility and other income for
the Core Portfolio is due primarily to increases in pass through items such as
utilities and real estate taxes -- which resulted from higher expenses for these
items. The decrease in Total Portfolio utility and other income is due primarily
to the sale of Mesa Regal RV resort and other changes in the Non-Core
Properties. Also included in other income is a gain on the sale of the FFEC-Six
water and wastewater treatment company of $719,000, partially offset by an
impairment loss on the DeAnza Santa Cruz water and wastewater service company of
$701,000.
The decrease in interest income is primarily due to the repayment of
certain notes receivable and fewer short-term investments. Short-term
investments had average balances for the years ended December 31, 2000
and 1999 of approximately $1.5 million and $2.8 million, respectively, which
earned interest income at an effective rate of 6.0% and 6.3% per annum,
respectively.
Operating Expenses
The increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in utility expenses passed through and
included in utility income. Expenses for the Core Portfolio also reflect
increases in repairs and maintenance expense, payroll and property general and
administrative expenses partially offset by decreased insurance and other
expenses. Core Portfolio real estate taxes increased 2.4% generally due to higher property assessments on certain Properties. The increase in Total
Portfolio property operating and maintenance expense and real estate taxes is
also impacted by acquisition and disposition of Non-Core
Properties. Property management expense for the Core Portfolio, which reflects
costs of managing the Properties and is estimated based on a percentage of
Property operating revenues, increased 6.1%.
Generalby 1.2% due to increases in payroll costs
and computer expenses, but remains at approximately 4% of revenue. Total
Portfolio operating expenses increased due to our current year acquisitions.
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2004 and 2003.
HOME SALES OPERATIONS
-----------------------------------------
(dollars in thousands) 2004 2003 VARIANCE % CHANGE
-------- -------- -------- --------
Gross revenues from new home sales $ 43,470 $ 33,512 $ 9,958 29.7%
Cost of new home sales .............. (38,216) (29,064) (9,152) 31.5%
-------- -------- ------- -------
Gross profit from new home sales .... 5,254 4,448 806 18.1%
Gross revenues from used home sales 4,166 3,094 1,072 34.6%
Cost of used home sales ............. (3,617) (2,703) (914) 33.8%
-------- -------- ------- -------
Gross profit from used home sales ... 549 391 158 40.4%
Brokered resale revenues, net ....... 2,186 1,724 462 26.8%
Home selling expenses ............... (8,708) (7,360) (1,348) 18.3%
Ancillary services revenues, net .... 2,782 216 2,566 1,188.0%
-------- -------- ------- -------
Income from home sales operations ... $ 2,063 $ (581) $ 2,644 455.1%
======== ======== ======= =======
HOME SALES VOLUMES:
New home sales ................... 517 458 59 12.9%
Used home sales .................. 362 189 173 91.5%
Brokered home resales ............ 1,424 1,102 322 29.2%
New home sales gross profit reflects a 12.9% increase in sales volume
combined with an increase in average selling price of approximately $11,000 per
home or approximately 15% due to higher quality of homes. Used home sales gross
profit reflects an increase in gross margin on used home sales and an increase
in volume. Brokered resale revenues reflects increased resale volumes. The 18.3%
increase in home selling expenses primarily reflects increases in insurance cost
and other expenses. The increase in ancillary service revenue relates primarily
to income from property amenities at our newly acquired Properties.
OTHER INCOME AND EXPENSES
The increase in other expenses reflects an increase in interest expense
resulting from the Recap borrowing in October 2003 (see Note 10 of the Notes to
Consolidated Financial Statements contained in this Form 10-K) and additional
debt assumed in the 2004 acquisitions, an increase in depreciation on real
estate assets related to the 2004 acquisitions, and increased general and
administrative expenses increased primarilyexpense due to increased payroll. This is partially offset by
income from other investments that includes $2.3 million of lease income from
the Thousand Trails ground lease entered into on November 10, 2004.
27
RESULTS OF OPERATIONS (CONTINUED)
EQUITY IN INCOME OF UNCONSOLIDATED JOINT VENTURES
During 2004, we invested in preferred equity interests, the Mezzanine
Investment, in six entities containing 11 Properties and 5,054 sites. Our
average return on the Mezzanine Investment accrues at a rate of 10% per annum.
We also invested in 11 separate joint ventures (see Liquidity and Capital
Resources - Investing Activities). These investments contributed to the increase
in equity in income from unconsolidated joint ventures.
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
Since December 31, 2001, the gross investment in real estate increased from
$1,238 million to $1,310 million as of December 31, 2003, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 50,663 as of
December 31, 2001 to 51,715 as of December 31, 2003.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2003 and 2002.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- ------------------------------------------
INCREASE / % INCREASE / %
(dollars in thousands) 2003 2002 (DECREASE) CHANGE 2003 2002 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- ------ --------- -------- ---------- ------
Community base rental income ......... $191,655 $185,766 $5,889 3.2% $196,919 $194,640 $ 2,279 1.2%
Resort base rental income ............ 256 154 102 66.2% 11,780 9,146 2,634 28.8%
Utility and other income ............. 18,764 18,458 306 1.7% 20,150 19,684 466 2.4%
-------- -------- ------ ---- -------- -------- ------- ----
Property operating revenues ....... 210,675 204,378 6,297 3.1% 228,849 223,470 5,379 2.4%
Property operating and
maintenance ....................... 56,535 54,510 2,025 3.7% 64,996 62,843 2,153 3.4%
Real estate taxes .................... 17,278 16,338 940 5.8% 18,917 17,827 1,090 6.1%
Property management .................. 8,629 8,498 131 1.5% 9,373 9,292 81 0.9%
-------- -------- ------ ---- -------- -------- ------- ----
Property operating expenses ....... 82,442 79,346 3,096 3.9% 93,286 89,962 3,324 3.7%
-------- -------- ------ ---- -------- -------- ------- ----
Income from property operations ...... $128,233 $125,032 $3,201 2.6% $135,563 $133,508 $ 2,055 1.5%
======== ======== ====== ==== ======== ======== ======= ====
Site and Occupancy Information (1):...
Average total sites .................. 41,570 41,578 (8) 0.0% 43,134 43,627 (493) (1.1%)
Average occupied sites ............... 37,893 38,594 (701) (1.8%) 39,363 40,467 (1,104) (2.7%)
Occupancy % .......................... 91.2% 92.8% (1.6%) (1.7%) 91.3% 92.8% (1.5%) (1.6%)
Monthly base rent per site ........... $ 421.49 $ 401.11 $20.38 5.1% $ 416.89 $ 400.82 $ 16.07 4.0%
Total sites
As of December 31, ................ 41,580 41,590 (10) 0.0% 43,143 43,178 (35) (0.1%)
Total occupied sites
As of December 31, ................ 37,479 38,346 (867) (2.3%) 38,946 39,736 (790) (2.0%)
(1) Site and occupancy information excludes Resort Cottage and RV sites,
Properties owned through unconsolidated joint ventures and the sites of
Properties acquired or sold during 2002 and 2003.
PROPERTY OPERATING REVENUES
The 3.2% increase in Community base rental income for the Core Portfolio
reflects a 5.1% increase in monthly base rent per site combined with a 1.9%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher expenses for these items.
28
RESULTS OF OPERATIONS (CONTINUED)
PROPERTY OPERATING EXPENSES
The 3.7% increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in insurance and other expenses, utility
expense, and repair and maintenance expense, administrative expenses and payroll
resultingexpense. The 5.8% increase in Core Portfolio real estate taxes is generally due
to higher property assessments on certain Properties. Property management
expense for the Core Portfolio, which reflects costs of managing the Properties
and is estimated based on a percentage of Property operating revenues, increased
by 1.5% due to increases in payroll costs and computer expenses.
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2003 and 2002.
HOME SALES OPERATIONS
-------------------------------------------
INCREASE /
(dollars in thousands) 2003 2002 (DECREASE) % CHANGE
- ---------------------- -------- -------- ---------- --------
Gross revenues from new home sales .... $ 33,512 $ 30,618 $ 2,894 9.5%
Cost of new home sales ................ (29,064) (24,689) 4,375 17.7%
-------- -------- ------- ------
Gross profit from new home sales ...... 4,448 5,929 (1,481) (25.0%)
Gross revenues from used home sales ... 3,094 2,919 175 6.0%
Cost of used home sales ............... (2,703) (2,494) 209 8.4%
-------- -------- ------- ------
Gross profit from used home sales ..... 391 425 (34) (8.0%)
Brokered resale revenues, net ......... 1,724 1,592 132 8.3%
Home selling expenses ................. (7,360) (7,664) (304) (4.0%)
Ancillary services revenues, net ...... 216 522 (306) (58.6%)
-------- -------- ------- ------
Income from home sales operations ..... $ (581) $ 804 $(1,385) (172.3%)
======== ======== ======= ======
HOME SALES VOLUMES:
New home sales ..................... 458 420 38 9.0%
Used home sales .................... 189 182 7 3.8%
Brokered home resales .............. 1,102 986 116 11.8%
New home sales gross profit reflects a 9.0% increase in sales volume
combined with a 6.1% decrease in the gross margin. The average selling price of
new homes remained steady year over year. Used home sales gross profit reflects
a decrease in gross margin on used home sales, partially offset by an increase
in volume. Brokered resale revenues reflect increased resale volumes. The 4.0%
decrease in home selling expenses primarily reflects reductions in advertising
expenses.
OTHER INCOME AND EXPENSES
In October 2003, we received approximately $501 million from salary increasesthe Recap. The
cash received from the Recap was used to pay down our Line of Credit and pay off
our Term Loan, with the remainder placed in short-term investments to be used
for payment of a special distribution in January 2004 and for future
acquisitions. As a result, interest income increased reflecting additional
interest earned on short-term investments with an average balance of $273
million. The decrease in general and administrative expense is due to decreased
professional fees and public company relatedcosts, partially offset by increased
payroll costs and banking expenses. Rent control initiatives decreased by $3.4
million due to lower costs relating to the DeAnza Santa Cruz and Contempo Marin
Properties. Interest and related amortization decreasedincreased due to lower weighted average
outstanding debt balancesthe Recap and the
payment of approximately $3 million to unwind the 2001 Swap (hereinafter
defined), partially offset by decreased interest rates during the period. The
weighted average outstanding debt balances for the years ended December 31, 20002003
and 19992002 were $707.5approximately $800 million and $738.1$731.8 million, respectively. The
effective interest rate was 7.4%6.4% and 7.2%6.8% per annum for the years ended December
31, 20002003 and 1999,2002, respectively.
Depreciation on corporate assets increased29
RESULTS OF OPERATIONS (CONTINUED)
The increase in income from other investments was due to fixed asset additions
relatedthe restructuring
of the Company's investment in Wolverine Property Investment Limited Partnership
(the "College Heights Joint Venture" or the "Venture"), a joint venture with
Wolverine Investors, LLP, effective September 1, 2002. The Venture included 18
Properties with 3,581 sites. The results of operations of the College Heights
Joint Venture prior to information and communication systems. Depreciation on real estate
assets and other costs decreasedrestructuring were included with the results of the
Company due primarily to the acquisitionCompany's voting equity interest and dispositioncontrol over the
Venture. Pursuant to the restructuring, the Company sold its general partnership
interest, sold all of Non-Core Properties.
25
the Company's voting equity interest and reduced the
Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site Property in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve included in other assets.
Income of approximately $1.0 million and $0.2 million has been recorded in
income from other investments for the years ended December 31, 2003 and 2002
respectively.
LIQUIDITY AND CAPITAL RESOURCES
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide us with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risks of inflation to the Company.
LIQUIDITY
As of December 31, 2001,2004, the Company had $1.4$5.3 million in cash and cash
equivalents and $133.8$44.2 million available on its line of credit. The Company
expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by
operating activities and availability under the existing line of credit. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities, property acquisitions and capital improvements by
long-term collateralized and uncollateralized borrowings including borrowings
under its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to net cash provided by
operating activities. The table below summarizes cash flow activity for the
twelve months ended December 31, 2004, 2003 and 2002 (dollars in thousands).
FOR THE TWELVE MONTHS ENDED
DECEMBER 31,
-----------------------------------
2003 2002
2004 (Restated) (Restated)
--------- ---------- ----------
Cash provided by operating activities $ 46,733 $ 75,163 $ 80,176
Cash (used in) provided by investing activities (366,654) (598) (72,973)
Cash (used in) provided by financing activities (514) 243,905 (1,287)
--------- -------- --------
Net (decrease) increase in cash $(320,435) $318,470 $ 5,916
========= ======== ========
OPERATING ACTIVITIES
Net cash provided by operating activities decreased $28.5 million for the
year ended December 31, 2004. This decrease reflects increased interest expense
as a result of the Recap in October, 2003 and increases in working capital,
partially offset by increases in property operating income as discussed in
"Results of Operations" above. Net cash provided by operating activities
decreased $5 million for the year ended December 31, 2003 from $80.2 million in
2002. This was primarily due to an increase in working capital.
30
INVESTING ACTIVITIES
Net cash used in investing activities reflects the impact of the following
investing activities:
ACQUISITIONS
During the year ended December 31, 2004, we acquired 111 Properties (see
Note 6 of the Notes to Consolidated Financial Statements contained in this Form
10-K). The combined investment in real estate for these 111 Properties was
approximately $703 million and was funded with monies held in short-term
investments, debt assumed of $352 million which includes a mark-to-market
adjustment of $10.4 million, new financing of $124 million, and borrowings from
our Line of Credit. Included in the above as previously described are 57
Properties purchased as part of the Thousand Trails Transaction; the income
related to this transaction is classified as income from other investments on
the Consolidated Statements of Operation.
We assumed inventory of approximately $1.2 million, other assets of $4.9
million, rents received in advance of approximately $13.6 million and other
liabilities of approximately $5.8 million in connection with the 2004
acquisitions. The Company also issued common OP units for value of approximately
$32.2 million.
During 2003, we acquired three Properties at a purchase price of $11.8
million. The acquisitions were funded with monies held in short-term investments
and debt assumed of $4.6 million. The acquisitions included the assumption of
liabilities of approximately $0.7 million. Also during 2003, we acquired a
parcel of land adjacent to one of our Properties for approximately $0.1 million.
During 2002, we acquired eleven Properties at a purchase price of $101.6
million. The acquisitions were funded with borrowings on our Line of Credit and
the assumption of $47.9 million of mortgage debt, which includes a $3.0 million
mark-to-market adjustment. In addition, we purchased adjacent land and land
improvements for several Properties for approximately $0.6 million.
DISPOSITIONS
During the year ended December 31, 2004, we sold one Property located in
Lake Placid, Florida for a selling price of $3.4 million, with net proceeds of
$0.8 million received in July 2004. No gain or loss on disposition was
recognized in the period. The operating results have been reflected in
discontinued operations. In addition, we sold approximately 1.4 acres of land in
Montana for a gain and net proceeds of $0.6 million.
During 2003, we sold three Properties for proceeds of $27.1 million and a
gain of $10.8 million. Proceeds from the sales were used to repay amounts on our
Line of Credit.
During 2002, we effectively sold 17 Properties as part of a restructuring
of the College Heights Venture (hereinafter defined). In addition, we sold
Camelot Acres, a 319 site Property in Burnsville, Minnesota, for approximately
$14.2 million.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity interests (the "Mezzanine Investment") in six entities
controlled by Diversified Investments, Inc. ("Diversified"). These entities own
in the aggregate 11 Properties, containing 5,054 sites. Approximately $11.7
million of the Mezzanine Investment accrues at a per annum average rate of 10%,
with a minimum pay rate of 6.5%, payable quarterly, and approximately $17.9
million of the Mezzanine Investment accrues at a per annum average rate of 11%,
with a minimum pay rate of 7%, payable quarterly. To the extent the minimum pay
rates on the respective Mezzanine Investments are not achieved, the accrual
rates increase to 12% and 13% per annum, respectively. The Company can acquire
these Properties in the future at capitalization rates of between 8% and 8.5%,
beginning in 2006. In addition, the Company has invested approximately $1.4
million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Company's Consolidated
Balance Sheet as of December 31, 2004.
During the year ended December 31, 2004, the Company invested approximately
$4.1 million in 11 joint ventures. The Company can acquire these Properties in
the future at capitalization rates of between 8% and 8.5%, beginning in 2006.
31
INVESTING ACTIVITIES (CONTINUED)
In addition, the Company recorded approximately $3.7 million, $0.3 million
and $0.2 million of net income from joint ventures (net of depreciation) in the
years ended December 31, 2004, 2003 and 2002 respectively, and received
approximately $5.2 million, $0.8 million and $0.6 million in distributions from
such joint ventures for the year ended December 31, 2004, 2003 and 2002
respectively. Included in such distributions for the year ended December 31,
2004 is $2.5 million return of capital, of which $0.5 million exceeded the
Company's basis and thus was recorded in income from unconsolidated joint
ventures and other.
OTHER INVESTMENTS
Effective September 1, 2002, the Company restructured its investment in the
College Heights Joint Venture. The Venture included 18 Properties with 3,581
sites. The results of operations of the College Heights Joint Venture prior to
restructuring were included with the results of the Company due to the Company's
voting equity interest and control over the Venture. Pursuant to the
restructuring, the Company sold its general partnership interest, sold all of
the Company's voting equity interest and reduced the Company's total investment
in the College Heights Joint Venture. As consideration for the sale, the Company
retained sole ownership of Down Yonder, a 361 site Property in Clearwater,
Florida, received cash of approximately $5.2 million and retained preferred
limited partnership interests of approximately $10.3 million, recorded net of a
$2.4 million reserve included in other assets. Income of approximately $0.9
million, $1.0 million and $0.2 million has been recorded in income from other
investments for the years ended December 31, 2004, 2003 and 2002 respectively.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $13.7 million, $11.9 million
and $13.4 million for the years ended December 31, 2004, 2003 and 2002
respectively. Site development costs were approximately $13.0 million, $9.0
million and $10.4 million for the years ended December 31, 2004, 2003 and 2002
respectively, and represent costs to develop expansion sites at certain of the
Company's Properties and costs for improvements to sites when a smaller used
home is replaced with a larger new home. Corporate costs such as computer
hardware, office furniture and office improvements were $0.4 million, $0.1
million and $0.7 million for the years ended December 31, 2004, 2003 and 2002
respectively.
FINANCING ACTIVITIES
Net cash used in financing activities reflects the impact of the following:
EQUITY TRANSACTIONS
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 95%90% or more of its taxable income (excluding capital gains). to
its stockholders. The following distributions have been declared and/orand paid to
common stockholders and minority interests since January 1, 1999.2002.
DISTRIBUTION FOR THE SHAREHOLDERQUARTER STOCKHOLDER RECORD
AMOUNT PER SHARE QUARTER ENDING RECORD DATE PAYMENT DATE
------------------ ---------------- ------------------ ------------------ ----------------
$0.3875$0.4750 March 31, 19992002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$8.00 December 31, 2003 January 8, 2004 January 16, 2004
$0.0125 March 31, 2004 March 26, 19992004 April 9, 1999
$0.38752004
$0.0125 June 30, 19992004 June 25, 19992004 July 9, 1999
$0.38752004
$0.0125 September 30, 19992004 September 24, 19992004 October 8, 1999
$0.38752004
$0.0125 December 31, 19992004 December 31, 19992004 January 14, 2000
- -----------------------------------------------------------------------------------------------
$0.4150 March 31, 2000 March 31, 2000 April 14, 2000
$0.4150 June 30, 2000 June 30, 2000 July 14, 2000
$0.4150 September 30, 2000 September 29, 2000 October 13, 2000
$0.4150 December 31, 2000 December 29, 2000 January 12, 2001
- -----------------------------------------------------------------------------------------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 20022005
32
FINANCING ACTIVITIES (CONTINUED)
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million Recap in October 2003 to pay the special distribution on
January 16, 2004. The special cash dividend is reflected on stockholders' 2004
1099-DIV issued in January 2005.
In connection with the $501 million Recap and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in the Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company recognized $180 million of taxable income as a result
of its contribution, as opposed to a nontaxable reduction of the Company's tax
basis in its interest in the Operating Partnership. This restructuring resulted
in a step-up in the Company's tax basis in its assets, generating future
depreciation deductions, which in turn will reduce the Company's future
distribution requirements. This provides the Company with greater financial
flexibility and greater growth potential. The Company intends to continue to
qualify as a REIT under the Code, with its assets consisting of interests in MHC
Trust. MHC Trust, in turn, also intends to qualify as a real estate investment
trust under the Code and will continue to be the general partner of the
Operating Partnership. On May 1, 2004, in connection with the restructuring, MHC
Trust sold cumulative preferred stock to a limited number of unaffiliated
investors.
During the twelve months ended December 31, 2004, in connection with 2004
acquisitions the Company issued 1.2 million common OP Units valued at $36.7
million of which approximately $28.7 million has been classified as paid-in
capital. On December 21, 2004 we redeemed 126,765 common OP Units for
approximately $4.5 million of which approximately $3.5 million has been
classified as paid-in capital.
The Operating Partnership paid distributions of 9.0% per annum on the $125
million of Series D Cumulative Redeemable Perpetual Preferred Units ("Preferred
Units"). Distributions on the Preferred Units were paid quarterly on the last
calendar day of each quarter beginning December 31,September 30, 1999. The Company expects
to continue to make regular quarterly distributions and has set its 20022005
distribution to common stockholders at $1.90$0.10 per share per annum.
MORTGAGES AND CREDIT FACILITIES
On October 29, 2001, the Company entered into anWe have two unsecured lines of credit of $110 million and $50 million which
bear interest at a per annum rate swap
agreement, fixing theof London Interbank Offered Rate ("LIBOR")
plus 1.65%. Throughout the year ended December 31, 2004, the Company borrowed
$135.8 million and paid down $20 million on its line of credit. On November 10,
2004, in connection with the Thousand Trails Transaction, we secured a $120
million three-year term loan at LIBOR plus 1.75%. In December 2004, we fixed
$180 million of this variable debt for one year with a weighted average per
annum interest rate of 4.7%.
During the twelve months ended December 31, 2004, the Company assumed
mortgage and other debt of approximately $157 million, which was recorded at
fair market value with the related premium being amortized over the life of the
loan using the effective interest rate. The Company borrowed an additional $194
million of mortgage debt for other acquisitions. The mortgages bear interest at
weighted average rates ranging from 5.14% to 5.81% per annum, and mature at
various dates through November 1, 2027.
In 2003, the Company initiated the Recap as a result of its belief in the
stability of its cash flow from property operations and the attractive financing
terms available to borrowers such as the Company in the secured debt markets. In
conducting its evaluation of the use of proceeds from the Recap, the Company's
Board of Directors believed that to the extent no attractive alternative use was
available, a distribution to stockholders should occur. In late 2003, the
Company identified acquisition targets which would use approximately $100
million of the $325 million in net proceeds resulting from the Recap. In
December 2003, the Company's Board of Directors declared a distribution of
approximately $225 million ($8 per share). During 2004, the Company identified
additional acquisitions and has funded such acquisitions primarily with secured
and unsecured borrowings.
33
FINANCING ACTIVITIES (CONTINUED)
The Recap and subsequent borrowings in connection with acquisitions have
significantly increased the Company's outstanding debt. The interest and
principal payments required under these debt agreements materially increase the
Company's future contractual payment obligations. As of December 31, 2004, the
outstanding debt balance was $1,653 million. In future years, the Company
expects to pay annual interest and principal amortization under current
obligations of approximately $114 million (not including the impact of scheduled
maturities) compared to $57 million in 2003. In light of these increased cash
flow requirements, the Company has reduced its annual dividend to common
stockholders from approximately $44 million in 2003 to approximately $1 million
in 2004. In addition, the Company expects its cash from operations to increase
significantly in 2005 compared to 2003 due to the cash generated by
newly-acquired Properties. To the extent cash flow from the Properties does not
meet the Company's expectations, the Company's Board of Directors increases the
annual dividend significantly, or the Company is required to make significant
unexpected capital improvements or other payments, the Company's financial
flexibility and ability to meet scheduled obligations could be negatively
impacted. With respect to maturing debt, the Company has staggered the
maturities of our long-term mortgage debt over an average of approximately 6
years, with no more than $330 million in principal maturities coming due in any
single year. The Company believes that it will be able to refinance its maturing
debt obligations on a secured or unsecured basis; however, to the extent the
Company is unable to refinance its debt as it matures, it believes that it will
be able to repay such maturing debt from asset sales and/or the proceeds from
equity issuances. With respect to any refinancing of maturing debt, the
Company's future cash flow requirements could be impacted by significant changes
in interest rates or other debt terms, including required amortization payments.
In October 2003, we unwound an interest rate swap ("2001 Swap") agreement
at a cost of approximately $3 million, which is included in interest and related
amortization in 2003 in the accompanying Consolidated Statements of Operations.
The 2001 swap effectively fixed LIBOR on $100 million of the Company'sour floating rate debt
at approximately 3.7% per annum for the period October 2001 through August 2004.
The terms of the swap require2001 Swap required monthly settlements on the same dates
interest payments arewere due on the debt. In accordance with SFAS No. 133, as herein defined, the
interest rate swap will be2001 Swap was reflected at market value.
On April 17, 2003, we entered into an agreement to refinance and increase
the "Bay Indies Mortgage", a $44.5 million note, from approximately $21.9
million to $45 million. Under the new agreement, the Bay Indies Mortgage bears
interest at 5.69% per annum, amortizes over 25 years and matures April 17, 2013.
The Company believesnet proceeds were used to pay down the swap is a perfectly
effective cash flow hedge, under SFAS No. 133 and there will be no effectCompany's Line of Credit in April
2003. Also during the year ended December 31, 2003, mortgage notes payable on
net
income as a resultfour other Properties were repaid totaling approximately $23.5 million using
proceeds from borrowings on the Company's Line of the mark-to-market adjustments.Credit.
During the year ended December 31, 2001,2002, as part of the Company borrowed $46.0purchase of RSI, in
a non-cash transaction, we assumed a $12.5 million on its line of credit and paid down $89.7 million on the line of credit.note payable ("Conseco
Financing Note"), collateralized by our home inventory. The line of credit bears interestConseco Financing
Note was repaid at a per annum ratediscount during 2002 using proceeds from our Line of
LIBOR plus 1.125%.Credit. In July of 2001, the Company paid off threeaddition, we repaid a maturing mortgagesmortgage note in the amount of $12.1 million. The payoffs were funded with borrowings on the line of
credit.
26
On August 3, 2001, the Company entered into a $50.0 million mortgage note
(the "Stagecoach Mortgage") collateralized by 7 Properties beneficially owned by
MHC Stagecoach, L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98%
per annum, amortizes beginning September 1, 2001 over 10 years and matures
August 31, 2011. Proceeds from the financing were used to reduce borrowings on
the line of credit by $37.9 million.
On February 24, 2000, the Company entered into mortgage agreements
collateralizing two Properties for a total of $14.6 million. The mortgage notes
mature on March 1, 2010, amortize beginning March 1, 2000 over 30 years and bear
interest at a rate of approximately 8.3% per annum.
On April 3, 2000, the Company extended to April 3, 2002 the maturity of its
$100 million unsecured term loan (the "Term Loan") with a group of banks with
interest only payable monthly at a per annum rate of LIBOR plus 1.0%. On
February 8, 2002, the Company entered into a term loan credit agreement with the
same group of banks, which extended the Term Loan to August 9, 2005.
On June 30, 2000, the Company obtained $110 million in debt financing
consisting of two mortgage notes -- one for $94.3$1.1
million and one for $15.7
million -- secured by seven Properties. The proceeds of the financing were used
to repay $60$2.1 million of mortgage debt secured by the seven Properties, to repay
amounts outstanding under the Company's lineother unsecured notes payable using proceeds from
our Line of credit and for working capital
purposes. The Company recorded a $1.0 million extraordinary loss (net of
$264,000 allocated to Minority Interests) in connection with the early repayment
of the $60 million of mortgage debt.
On August 9, 2000, the Company amended its unsecured line of credit with a
bank (the "Credit Agreement") bearing interest at a per annum rate of LIBOR plus
1.125%. Among other things, the amendment lowered the total facility under the
Credit Agreement to $150 million and extended the maturity to August 9, 2003.
The Company pays a quarterly fee on the average unused amount of such credit
equal to 0.15% of such amount. As of December 31, 2001, $133.8 million was
available under the Credit Agreement.Credit.
Certain of the Company's mortgage and credit agreements contain covenants
and restrictions including restrictions as to the ratio of secured or unsecured
debt versus encumbered or unencumbered assets, the ratio of fixed
charges-to-earnings before interest, taxes, depreciation and amortization
("EBITDA"), limitations on certain holdings and other restrictions.
ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
On September 4, 1997,34
FINANCING ACTIVITIES (CONTINUED)
As of December 31, 2004, we were subject to certain contractual payment
obligations as described in the table below (dollars in thousands):
CONTRACTUAL
OBLIGATIONS TOTAL 2005 2006(2) 2007(3) 2008 2009 THEREAFTER
----------- ---------- ------- -------- -------- -------- ------- ----------
Long Term
Borrowings (1) $1,643,672 $18,742 $169,770 $432,350 $203,903 $70,558 $748,349
Weighted average
interest rates... 6.10% --- 4.36% 6.43% 5.55% 6.58% 6.20%
(1) Balance excludes net premiums and discounts of $9.4 million.
(2) Includes Line of Credit repayment in 2006 of $115,800. We have an option to
extend this maturity for one year to 2007.
(3) Includes a Term Loan repayment in 2007 of $105,600. We have an option to
extend this maturity for two successive years to 2009.
Included in the above table are certain capital lease obligations totaling
approximately $7.0 million. These agreements expire June 2009 and are paid
semi-annually.
In addition, the Company entered into a portfolio purchase
agreement (as amended by a supplemental agreement on December 17, 1997) to
acquire 37 manufactured home communities (the "Ellenburg Communities") from
partnerships having Ellenburg Capital Corporation ("ECC") as the general
partner, for a purchase price in excess of $300 million. During 1997 and 1998,
the Company closed on the acquisition of 31 of the Ellenburg Communities for an
aggregate purchase price of approximately $278 million and gained control of an
additional five Ellenburg Communities with acquisition advances of approximately
$57 million to the partnerships which owned such Ellenburg Communities. All
fundings related to the acquisition were funded by the Company with borrowingsleases land under the Company's line of credit, term bank facilities, assumed debt and the
issuance of Common OP Units.
During 1998, the Company received approximately $14.3 million, including
approximately $365,000 of interest income, which was being held subject to the
completion of due diligence procedures on the Ellenburg Communities. The $14.3
million was initially recorded as a liability until 1999 when a settlement of
certain related issues was substantially complete and accordingly, in a non-cash
transaction, relieved the liability and adjusted the purchase price of the
Ellenburg Communities.
In April 2000, the California Superior Court approved a settlement
agreement (the "Settlement") in connection with the dissolution proceeding of
ECC and its affiliated partnerships. As part of the Settlement, the Company
received $13.5 million previously held in escrow in connection with the purchase
of the Ellenburg Communities and recorded $3.0 million of interest income
related to these funds. In connection with the Settlement, the Company sold
three communities -- Mesa Regal RV Resort, Mon Dak and Naples Estates -- for an
aggregate sales price of $59.0 million, including cash proceeds of $40.0 million
and assumption of debt by the purchaser of $19.0 million. The Company recorded a
$9.1 million gain on the sale of these Properties. Proceeds from the Settlement
and property sales were used to pay down the Company's line of credit.
27
On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows
Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The
Meadows manufactured home community located in Palm Beach Gardens, Florida. On
April 1, 1999, the Company effectively exchanged the Meadows Loan for an equity
and debt interest in the partnership that owns The Meadows. The Company includes
The Meadows in investment in real estate and the related results of operations
in the Statement of Operations.
On July 23, 1999, the Company acquired Coquina Crossing, located in St.
Augustine, Florida, for a purchase price of approximately $10.4 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Coquina Crossing is a 748-site senior community with 274 developed sites and
zoned expansion potential for 479 sites. In addition, Realty Systems, Inc.
("RSI"), an affiliate of the Company, purchased the model home inventory at the
community for approximately $1.1 million.
On February 29, 2000, MHC Systems, Inc., a consolidated subsidiary of the
Company, disposed of the water and wastewater service company and facilities
known as FFEC-Six in a cash sale. Net proceeds from the sale of approximately
$4.2 million were used to pay down the Company's line of credit .
On December 28, 2000, the Company, through its joint venture with Meadows
Management Company, acquired a 50% economic interest in Voyager RV Resort, a
1,576 site RV resort in Tucson, Arizona, for total consideration of $8.0
million. The Company's investment included cash of $3.0 million, its 50%
interest in land held through the joint venture valued at $2.0 million and notes
receivable from the principals of Meadows Management Company totaling $3.0
million.
On January 3, 2001, the Company acquired two Florida Properties, totaling
730 sites, for an aggregate purchase price of approximately $16.3 million. The
Lakes at Countrywood is a 421-site community in Plant City, near Tampa, Florida,
and includes approximately 23 acres for expansion. Grand Island is a 309-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks. The acquisition was funded with a borrowing under the Company's line
of credit.
On February 13, 2001, the Company completed the disposition of seven
Properties, totaling 1,281 sites, in Kansas, Missouri and Oklahoma, for a total
sale price of approximately $17.4 million. A gain of $8.1 million was recorded
on the accompanying consolidated statements of operations. Proceeds from the
sale were used to reduce the amount outstanding on the Company's line of credit.
On October 5, 2001, the Company finalized a settlement agreement between
the Lending Partnership, the Operating Partnership and the limited liability
partnership which owns Candlelight Village in Columbus, Indiana. In 1996, the
Company funded a recourse loan to the owner of Candlelight Village and accounted
for the loan as an investment in real estate. The Company received $10.8 million
in proceeds from the settlement, which was accounted for as a sale of real
estate and recorded a $75,000 gain on the sale. Proceeds from the sale were used
as working capital.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate headquarters costs. Recurring CapEx was approximately $12.7 million
and $7.9 million for the years ended December 31, 2001 and 2000, respectively.
Of these expenditures, the Company believes that approximately $7.1 million or
$142 per site for 2001 and $6.5 million or $130 per site for 2000 are
non-revenue producing improvements which are necessary in order to increase
and/or maintain occupancy levels and maintain competitive market rents for new
and renewing residents. Site development costs were approximately $9.7 million
and $7.9 million for the years ended December 31, 2001 and 2000, respectively,
and represent costs to develop expansion sitesnon-cancelable operating leases
at certain of the Company's
Properties.
EQUITY TRANSACTIONS
On March 26, 1999,Properties expiring in various years from 2022 to 2032 with
terms which include minimum rent to be paid throughout the Operating Partnership repurchased and cancelled
200,000 OP Units fromyear plus additional
rents calculated as a limited partnerpercentage of gross revenues. For the Operating Partnership.
28
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") to two institutional investors. The POP Units, which are callable by the
Company after five years, have no stated maturity or mandatory redemption. Net
proceeds from the offering of $121 million were used to repay amounts
outstanding under the Company's line of credit facility and for other corporate
purposes.
In March 1997, the Company's Board of Directors approved a common stock
repurchase plan whereby the Company was authorized to repurchase and retire
shares of its common stock. No shares of Common Stock were repurchased during
the yeartwelve months ended
December 31, 2001. However,2004 and 2003, ground lease expense was approximately $1.6 million
and $1.6 million respectively. Minimum future rental payments under the plan, the Company
repurchasedground
leases are approximately 2.2$1.6 million shares of Common Stock at an average price
of $24.06 per share during the year ended December 31, 2000 and 4.1 million
shares of Common Stock at an average price of $23.40 per share during the year
ended December 31, 1999, using proceeds from borrowings on the line of credit.
INFLATION
Substantially allfor each of the leases at the Properties allow for monthly or
annual rent increases which provide the Company with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risk of inflation to the Company.next five years and
approximately $23.5 million thereafter.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") is a non-GAAP financial measure. We believe
FFO, was redefinedas defined by NAREITthe Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), to be an appropriate measure of performance
for an equity REIT. While FFO is a relevant and widely used measure of operating
performance for equity REITs, it does not represent cash flow from operations or
net income as defined by GAAP, and it should not be considered as an alternative
to these indicators in October 1999, effective January 1, 2000,evaluating liquidity or operating performance.
FFO is defined as net income, (computedcomputed in accordance with GAAP), before allocation to minority
interests,GAAP, excluding
gains (or losses)or losses from sales of property,Properties, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. The Company computesAdjustments for unconsolidated partnerships and joint ventures
are calculated to reflect FFO in accordance withon the NAREIT definition,
which may differ from the methodology for calculating FFO utilized by other
equity REITs and, accordingly, may not be comparable to such other REIT's
computations. Funds available for distribution ("FAD") is defined as FFO less
non-revenue producing capital expenditures and amortization payments on mortgage
loan principal. The Company believessame basis. We believe that FFO and FAD are usefulis helpful
to investors as a measureone of several measures of the performance of an equity REIT because,REIT. We
further believe that by excluding the effect of depreciation, amortization and
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. Investors should review FFO, along with GAAP net
income and cash flowsflow from operating activities, investing activities and
financing activities, and investing activities, they
provide investorswhen evaluating an understanding ofequity REIT's operating performance. We
compute FFO in accordance with standards established by NAREIT, which may not be
comparable to FFO reported by other REITs that do not define the ability ofterm in
accordance with the Company to incur and
service debt and to make capital expenditures.current NAREIT definition or that interpret the current
NAREIT definition differently than we do. FFO and FAD in and of themselves
dodoes not represent cash generated
from operating activities in accordance with GAAP, nor does it represent cash
available to pay distributions and therefore should not be considered as an alternative to
net income, determined in accordance with GAAP, as an indication of the Company'sour
financial performance, or to net cash flowsflow from operating activities, as determined byin
accordance with GAAP, as a measure of our liquidity, and are not
necessarilynor is it indicative of
cashfunds available to fund our cash needs.needs, including our ability to make cash
distributions.
35
FINANCING ACTIVITIES (CONTINUED)
The following table presents a calculation of FFO and FAD for the years ended
December 31, 2001, 20002004, 2003 and 19992002 (amounts in thousands):
2001 2000 1999
-------- --------2003 2002
2004 (Restated) (Restated)
------- ---------- ----------
COMPUTATION OF FUNDS FROM OPERATIONS:
Income before extraordinary loss on early Extinguishment
of debt................................................Net income available for Common Shares ......................... $ 32,0834,026 $ 32,986 $27,77225,132 $ 31,887
Income allocated to Common OP Units....................... 8,209 8,463 6,219Units ............................ 936 6,004 7,786
Depreciation on real estate assets and other costs........ 34,833 34,411 34,486costs ............. 48,862 37,265 34,826
Depreciation expense included in discontinued operations ....... 32 135 484
Depreciation expense included in equity in income from
joint ventures .............................................. 1,230 769 726
Gain on sale of Properties and other...................... (8,168) (12,053) --other ........................... (638) (10,826) (13,014)
------- -------- --------
-------
Funds from operations..................................operations available for Common Shares ........... $54,448 $ 66,95758,479 $ 63,807 $68,47762,695
======= ======== ======== =======
Weighted average Common StockShares outstanding -- diluted...... 27,010 27,408 31,252
========- fully diluted ..... 29,465 28,002 27,632
======= ======== =======
COMPUTATION OF FUNDS AVAILABLE FOR DISTRIBUTION:
Funds from operations..................................... $ 66,957 $ 63,807 $68,477
Non-revenue producing improvements to real estate......... (12,689) (7,855) (8,656)
-------- -------- -------
Funds available for distribution....................... $ 54,268 $ 55,952 $59,821
======== ======== =======
Weighted average Common Stock outstanding -- diluted...... 27,010 27,408 31,252
======== ======== =======
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OFDISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our earnings, cash flows and fair values relevant to financial
instruments are dependent on prevailing market interest rates. The Company's earnings areprimary
market risk we face is long-term indebtedness, which bears interest at fixed and
variable rates. The fair value of our long-term debt obligations is affected by
changes in market interest rates. At December 31, 2004, approximately 97% or
approximately $1.6 billion of our outstanding debt had fixed interest rates,
as a
portion of the Company's outstanding indebtedness is at variable rates based on
LIBOR. The Company's $150 million line of credit ($16.3 million outstanding at
December 31, 2001) bears interest at LIBOR plus 1.125% per annum and the
Company's $100 million Term Loan bears interest at LIBOR plus 1.0% per annum. If
LIBOR increased/decreased by 1.0% during 2001, interest expense would have
increased/decreased by approximately $1.4 million based on the combined average
balance outstanding under the Company's line of credit and Term Loan for the
year ended December 31, 2001.
In July 1998, the Company entered into an interest rate swap agreement (the
"1998 Swap") fixing LIBOR on $100 million of the Company's floating rate debt at
6.4% for the period 1998 through 2003. The cost of the 1998 Swap consisted only
of legal costs that were deemed immaterial. The value of the 1998 Swap was
impacted by changes inwhich minimizes the market raterisk until the debt matures. For each increase in
interest rates of interest. Had the 1998 Swap been
entered into on December 31, 1999, the applicable LIBOR swap rate would have
been approximately 6.57%. Each 0.01% increase or decrease in the applicable swap
rate for the 1998 Swap increases or decreases the value of the 1998 Swap versus
its current value by approximately $28,000. The Company accounted for the 1998
Swap as a hedge. Payments and receipts under the 1998 Swap were accounted for as
an adjustment to interest expense. On January 10, 2000, the Company unwound the
1998 Swap and received $1.0 million of proceeds which is amortized into interest
expense through March 2003.
On October 29, 2001, the Company entered into an interest rate swap
agreement, fixing LIBOR on $100 million of the Company's floating rate debt at
approximately 3.7% for the period October 2001 through August 2004. The terms of
the swap require monthly settlements on the same dates that interest payments
are due on the debt. In accordance with SFAS No. 133, the interest rate swap is
reflected at market value. The Company believes the swap is a perfectly
effective cash flow hedge per SFAS No. 133 and there will be no effect on net
income as a result of the mark-to-market adjustment. The value of the hedge as
of December 31, 2001 was approximately $489,000 and is recorded as an asset and
included in other assets. Mark-to-market change in the value of the swap are
included in other comprehensive income.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS No. 133")1% (or 100 basis points), "Accounting for Derivative Instruments and
Hedging Activities" and its amendments, Statements 137 and 138 in June 1999 and
June 2000, respectively. SFAS No. 133 permits early adoption as of the beginning
of any fiscal quarter after its issuance. In June 1999, the FASB issued
Statement No. 137 which deferred the effective date of SFAS No. 133 to all
fiscal quarters for fiscal years beginning after June 15, 2000. The Company
adopted SFAS No. 133 effective January 1, 2001. SFAS No. 133 requires the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the changetotal
outstanding debt would decrease by approximately $93.1 million. For each
decrease in interest rates of 1% (or 100 basis points), the fair value of the
hedged assets, liabilitiestotal outstanding debt would decrease by approximately $98.8 million.
At December 31, 2004, approximately 3% or firm commitments throughapproximately $56 million of our
outstanding debt was short-term and at variable rates. Earnings are affected by
increases and decreases in market interest rates on this debt. For each
increase/decrease in interest rates of 1% (or 100 basis points), our earnings
or
recognized in other comprehensive income until the hedged item is recognized in
earnings.and cash flows would increase/decrease by approximately $538,000 annually.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to CombinedConsolidated Financial Statements on page F-1 of this
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, maintain a system of disclosure
controls and procedures, designed to provide reasonable assurance that
information the Company is required to disclose in the reports that the Company
files under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms.
As mentioned in the Form 8-K filed on March 4, 2005, the Company received a
comment letter from the SEC staff raising questions regarding how the Company
accounted for costs incurred in pursuing certain rent control initiatives.
Management discussed this issue with its independent auditors and the Company's
Audit Committee of the Board of Directors ("Audit Committee"). Based on such
discussions management has changed its accounting policy to expense such costs
in the year incurred and restated prior period financial statements as discussed
in Note 2 to the financial statements because the previous method of accounting
for these costs has been determined to be incorrect.
The Company's rent control initiatives date back prior to 2001. During
2001, given a significant expansion of the rent control initiatives, the
accounting for such costs was closely analyzed by management and discussed with
our independent auditors. The initiatives involved efforts of the Company to
realize the value of certain of its Properties subject to rent control, as more
fully discussed in Note 17. The initiatives included efforts to remove the
operations of certain Properties from existing rent regulation or to ultimately
close the Properties if the existing rent regulation remained.
At that time the Company concluded that removal of the existing rent
regulation or Property closures would constitute a "formal plan" and that such
plan represented a "change in use" under Statement of Financial Accounting
Standards No. 67 "Accounting for Costs and Initial Rental Operations of Real
Estate Projects" ("SFAS No. 67") and costs were capitalized on that basis. These
financial statements were audited by our independent auditors and the auditors
provided unqualified opinions in prior periods.
After the discussions among the Company, its Audit Committee and its
independent auditors in March 2005, the term "change in use" was no longer
interpreted to cover a change in regulation. In addition, as part of its
initiative, the Company was not willing to commit to close the Properties and
would accept other outcomes that allowed the Company to realize the value of its
Properties short of park closure (which is a "change in use"). As a result the
Company determined that it was not committed to a "formal plan" that reflected a
"change of use" under SFAS No. 67.
The Company's management with the participation of the Chief Executive
Officer and the Chief Financial Officer has evaluated the effectiveness of the
Company's disclosure controls and procedures as of December 31, 2004 in light of
this restatement. Based on that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were not effective at the reasonable assurance level as
of December 31, 2004. However, based on this evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that, as of such date,
the controls over the accounting policy regarding the capitalization of costs
incurred in pursuing rent control initiatives is the only area in which the
disclosure controls and procedures were not operating effectively at the
reasonable assurance level.
Prior to receipt of SEC comments the issue of the capitalization of costs
incurred in pursuing rent control initiatives was identified by the Company as
an accounting issue. While the Company concluded its disclosure controls and
procedures were not operating effectively as of December 31, 2004, management
believes 1) it closely analyzed the application of SFAS No. 67 to its situation
and this issue was discussed with its Audit Committee and it was considered by
its independent auditors in prior audits, 2) there was no authoritative
literature existing with respect to this issue that was not considered by the
Company or its Audit Committee, and 3) until the comments were received from the
SEC staff and subsequent discussion with its independent auditors, the
application of SFAS No. 67 and the Company's interpretation of "formal plan" and
"change in use" were believed to be appropriate. Lastly, the Company believes
its disclosure regarding these transactions and costs was highlighted in its
disclosure and taken in total during the relevant periods provided users with
meaningful and useful information on which to base investment decisions.
37
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
To remediate the material weakness in the Company's internal control over
financial reporting, subsequent to year end the Company has implemented
additional review procedures over the selection and monitoring of the
application and interpretation of accounting principles affecting the costs
incurred in pursuing rent control initiatives.
There were no material changes to the Company's internal changes over
financial reporting during the fourth quarter.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under Securities Exchange Act of 1934. The Company's internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control
over financial reporting as of December 31, 2004. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
In performing this assessment, management reviewed the Company's accounting for
costs incurred in pursuing rent control initiatives. As a result of this review,
management concluded that the Company's controls over the application and
interpretation of accounting principles affecting the capitalization of these
costs were incorrect, and, as a result, management has determined that expenses
were understated over the last several years. The Audit Committee and the Board
of Directors and management determined to restate certain of the Company's
previously issued financial statements to reflect the correct costs incurred in
pursuing rent control initiatives, as explained in Note 2 to the consolidated
financial statements.
Management evaluated the effects of this restatement on the Company's assessment
of its internal control over financial reporting and concluded that the control
deficiency relating to the implementation and interpretation of GAAP as they
relate to the capitalization of costs in pursuing rent control initiatives
represented a material weakness. As a result of this material weakness,
management has concluded that, as of December 31, 2004, the Company's internal
control over financial reporting was not effective based on the criteria set
forth by COSO in Internal Control-Integrated Framework. A material weakness in
internal control over financial reporting is a control deficiency (within the
meaning of the Public Company Accounting Oversight Board ("PCAOB") Auditing
Standard No. 2), or combination of control deficiencies, that results in there
being more than a remote likelihood that a material misstatement of the annual
or interim financial statements will not be prevented or detected. PCAOB
Auditing Standard No. 2 identifies a number of circumstances that, because of
their likely significant negative effect on internal control over financial
reporting, are to be regarded as at least significant deficiencies as well as
strong indicators that a material weakness exists, including the restatement of
previously issued financial statements to reflect the correction of a
misstatement.
The Company's independent registered public accounting firm has issued an
attestation report on management's assessment of the Company's internal control
over financial reporting. That report appears on page F-2 of the Consolidated
Financial Statements.
ITEM 9B. OTHER INFORMATION
None.
38
PART III
ITEMS 10, 11, 12, 13.ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein pursuant to Item 401 and
Item 405 of Regulation S-K is contained under the captions "Election of
Directors," "Election of Directors - Committees of the Board; Meetings" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for the Company's 2005 Annual Meeting of Stockholders
to be held on May 10, 2005 (the "2005 Proxy Statement") and such information is
incorporated herein by reference.
In addition, the information required to be set forth herein pursuant to
Item 406 of Regulation S-K is contained under the caption "Election of Directors
- - Corporate Governance" in the 2005 Proxy Statement regarding the Company's
written Guidelines on Corporate Governance and the Company's Business Ethics and
Conduct Policy is incorporated herein by reference.
ITEMS 11, 12, 13 AND 14.
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required by Item 10, Item 11, Item 12, Item 13 and Item 1314 will be
contained in a definitive proxy statement which the Registrant anticipates
will be filed no later than April 28, 2002,2005 Proxy Statement, and thus this Part has been omitted in
accordance with General Instruction G(3) to Form 10-K.
3039
PART IV
ITEM 14.15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
AND REPORTS ON FORM 8-K
(a)
(1&2)1. Financial Statements
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
(3)2. Financial Statement Schedules
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
3. Exhibits:
2(a) Admission Agreement between Equity Financial and Management Co.,
Manufactured Home Communities, Inc. and MHC Operating Partnership
3.1(a)Partnership.
3.1(g) Amended and Restated Articles of Incorporation of Manufactured Home
Communities, Inc. 3.2(a)effective May 21, 1999.
3.2(n) Articles of Amendment and Restatementof Articles of Incorporation of Manufactured
Home Communities, Inc.
3.3(g), effective May 13, 2003.
3.3(m) Articles of Amendment to Articles of Incorporation of Manufactured
Home Communities, Inc., effective November 16, 2004.
3.4(n) Amended Bylaws of Manufactured Home Communities, Inc. dated
December 31, 2003.
4 Not applicable
9 Not applicable
10.1(a) Amended and Restated Agreement of Limited Partnership of MHC
Operating Limited Partnership
10.2(a) Agreement of Limited Partnership of MHC Financing Limited
Partnership
10.3(a)10.2(b) Agreement of Limited Partnership of MHC ManagementLending Limited Partnership
10.4(a) Property Management10.3(c) Agreement of Limited Partnership of MHC-Bay Indies Financing
Limited Partnership
10.4(c) Agreement of Limited Partnership of MHC-De Anza Financing Limited
Partnership
10.5(d) Second Amended and LeasingRestated MHC Operating Limited Partnership
Agreement betweenof Limited Partnership, dated March 15, 1996
10.6(f) Agreement of Limited Partnership of MHC Financing Limited
Partnership and MHC Management Limited Partnership
10.5(a) Property Management and Leasing Agreement between MHC Operating
Limited Partnership and MHC Management Limited Partnership
10.6(a) Services Agreement between Realty Systems, Inc. and MHC
Management Limited PartnershipTwo
10.7(a) Rate Protection Agreement
10.8(a) Revolving Credit Note made by Realty Systems, Inc. to Equity
Financial and Management Co.
10.9(a)10.8(a) Assignment to MHC Operating Limited Partnership of Revolving Credit
Note made by Realty Systems, Inc. to Equity Financial and
Management Co.
10.10(a) Stock Option Plan
10.11A(a) Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Rents
10.11B(a) Promissory Note
10.11C(a) Assignment of Loan Documents
10.11D(a) Assignment of Leases, Rents and Security Deposits
10.11E(a) Swap Agreement Pledge and Security Agreement
10.11F(a) Cash Collateral Account Security, Pledge and Assignment
Agreement
10.11G(a) Assignment of Property Management and Leasing Agreement
10.11H(a) Trust Agreement
10.12(a) Form of Noncompetition Agreement
10.13(a) Form of Noncompetition Agreement
10.13A(a) Form of Noncompetition Agreement
10.14(a) General Electric Credit Corporation Commitment Letter
10.15(a) Administrative Services Agreement between Realty Systems, Inc.
and Equity Group Investments, Inc.
10.16(a) Registration Rights and Lock-Up Agreement with the Company (the
Original Owners, EF&M, Directors, Officers and Employees)
10.17(a) Administrative Services Agreement between the Company and Equity
Group Investments, Inc.
10.18(a) Form of Subscription Agreement between the Company and certain
officers and other individuals dated March 3, 1993
10.19(a) Form of Secured Promissory Note payable to the Company by
certain officers dated March 3, 1993
10.20(a) Form of Pledge Agreement between the Company and certain
officers dated March 3, 1993
10.21(a)10.9(a) Loan and Security Agreement between Realty Systems, Inc. and MHC
Operating Limited Partnership
10.22(a) Equity and Registration Rights Agreement with the Company (the
GM Trusts)
10.23(b) Agreement of Limited Partnership of MHC Lending Limited
Partnership
10.23(c) Agreement of Limited Partnership of MHC-Bay Indies Financing
Limited Partnership
10.24(c) Agreement of Limited Partnership of MHC-De Anza Financing
Limited Partnership
10.25(c) Agreement of Limited Partnership of MHC-DAG Management Limited
Partnership
10.26(d) Amendment No. 2 to MHC Operating Limited Partnership Amended and
Restated Partnership Agreement dated February 15, 1996
10.27(d)10.10(e) Form of Subscription Agreement between the CompanyManufactured Home Communities, Inc. 1997 Non-Qualified
Employee Stock Purchase Plan.
10.11(i) Manufactured Home Communities, Inc. 1992 Stock Option and certain
members of management of the Company dated January 2, 1996
31
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
10.28(d) Form of Secured Promissory Note payable to the Company by
certain members of management of the Company dated January 2,
1996
10.29(d) Form of Pledge Agreement between the Company and certain members
of management of the Company dated January 2, 1996
10.30(e) Second Amended and Restated MHC Operating Limited Partnership
Agreement of Limited Partnership, dated as of March 15, 1996
10.31(f) Agreement of Limited Partnership of MHC Financing Limited
Partnership Two
10.32(g)Stock
Award Plan.
10.12(g) $265,000,000 Mortgage Note dated December 12,1997
10.33(g) Second Amended and Restated Credit Agreement (Revolving
Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated April 28,
1998
10.34(g) First Amendment to Second Amended and Restated Credit Agreement
(Revolving Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated December 18,
1998
10.35(h) Second Amendment to Second Amended and Restated Credit Agreement
(Revolving Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated August 9,
2000
10.36(g) Amended and Restated Credit Agreement (Term Loan) between the
Company, MHC Operating Limited Partnership, and certain lenders
and agent, dated April 28, 1998
10.36(h) First Amendment to Amended and Restated Credit Agreement (Term
Loan) between the Company, MHC Operating Limited Partnership,
and certain lenders and agent, dated November 21, 2000
10.36(g) Letter Agreement between the Company and Bank of America
National Trust and Savings Association confirming the $100
million swap transaction, dated July 11, 1995
10.39(h)10.13(h) $110,000,000 Amended, Restated and Consolidated Promissory Note
(DeAnza Mortgage) dated June 28, 2000
10.40(h)10.14(h) $15,750,000 Promissory Note Secured by Leasehold Deed of Trust
(Date Palm Mortgage) dated July 13, 2000
10.41(i) Credit Agreement (Term Loan) between the Company, MHC Operating
Limited Partnership and certain lenders and agents dated
February 9, 2002.
10.42(i) Third Amendment to Second Amended and Restated Credit Agreement
(Revolving Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated February 9,
2002
10.43(i)10.15(j) $50,000,000 Promissory Note secured by Leasehold Deeds of Trust
(Stagecoach Mortgage) dated December 2, 2001.
10.16(k) Loan Agreement dated October 17, 2003 between MHC Sunrise Heights,
L.L.C., as Borrower, and Bank of America, N.A., as Lender.
10.16.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.16.
10.17(k) Form of Loan Agreement dated October 17, 2003 between MHC
Countryside L.L.C., as Borrower, and Bank of America, N.A., as
Lender.
10.17.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.17.
10.18(k) Form of Loan Agreement dated October 17, 2003 between MHC Creekside
L.L.C., as Borrower, and Bank of America, N.A., as Lender.
10.18.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.18.
10.19(k) Form of Loan Agreement dated October 17, 2003 between MHC Golf
Vista Estates L.L.C., as Borrowers, and Bank of America, N.A., as
Lender.
10.19.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.19.
10.20(l) Agreement of Plan of Merger (Thousand Trails), dated August 2, 2004
10.21(l) Amendment No. 1 to Agreement of Plan of Merger (Thousand Trails),
dated September 30, 2004
40
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (CONTINUED)
10.22(l) Amendment No. 2 to Agreement of Plan of Merger (Thousand Trails),
dated November 9, 2004
10.23(l) Thousand Trails Lease Agreement, dated November 10, 2004
10.24(l) $120 million Term Loan Agreement dated November 10, 2004
10.25(l) Fifth Amended and Restated Credit Agreement ($110 million Revolving
Facility) dated November 10, 2004
10.26(l) First Amended and Restated Loan Agreement dated November 10, 2004
11 Not applicable
12(i)12(n) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
14(n) Manufactured Home Communities, Inc. Business Ethics and Conduct
Policy, dated March 2004
15 Not applicable
16 Not applicable
17 Not applicable
18 Not applicable
21(i)19 Not applicable
20 Not applicable
21(n) Subsidiaries of the registrant
22 Not applicable
23(i)23(n) Consent of Independent Auditors
24.1(i)24.1(n) Power of Attorney for John F. Podjasek, Jr.Joseph B. McAdams dated March 27, 2002
24.2(i)1, 2005
24.2(n) Power of Attorney for Michael A. TorresHoward Walker dated March 19, 2002
24.3(i)February 28, 2005
24.3(n) Power of Attorney for Thomas E. Dobrowski dated March 15, 2002
24.4(i)1, 2005
24.4(n) Power of Attorney for Gary Waterman dated March 27, 2002
24.5(i)1, 2005
24.5(n) Power of Attorney for Donald S. Chisholm dated March 19, 2002
24.6(i)1, 2005
24.6(n) Power of Attorney for Louis H. MasottiSheli Z. Rosenberg dated March 15, 2002
271, 2005
25 Not applicable
2826 Not applicable
31.1(n) Certification of Chief Financial Officer Pursuant To Section 302 of
the Sarbanes-Oxley Act Of 2002
31.2(n) Certification of Chief Executive Officer Pursuant To Section 302 of
the Sarbanes-Oxley Act Of 2002
32.1(n) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
32.2(n) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
The following documents are incorporated herein by reference.
(a) Included as an exhibit to the Company's Form S-11 Registration Statement,
File No. 33-55994, and incorporated herein by reference.33-55994.
(b) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1993, and incorporated herein by reference.1993.
(c) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1994, and incorporated herein by reference.1994.
(d) Included as an exhibit to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by reference.
32
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(e) Included as an exhibit to the Company's Report on Form 10-Q for the quarter
ended June 30, 1996, and incorporated herein by reference.1996.
(e) Included as Exhibit A to the Company's definitive Proxy Statement dated
March 28, 1997, relating to Annual Meeting of Stockholders held on May 13,
1997.
(f) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1997, and incorporated herein by reference.1997.
(g) Included as an exhibit to the Company's Form S-3 Registration Statement,
filed November 12, 1999 (SEC File No. 333-90813, and incorporated herein by reference.333-90813).
(h) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 2000, and incorporated herein by reference.2000.
(i) Included as Appendix A to the Company's Definitive Proxy Statement dated
March 30, 2001
(j) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 2002.
(k) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 2003.
(l) Included as an exhibit to the Company's Report on Form 8-K dated November
16, 2004
(m) Included as an exhibit to the Company's Report on Form 8-K dated November
22, 2004
(n) Filed herewith.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
See Item 14(a)(3) above.
(d) Financial Statement Schedules:
See Index to Financial Statements attached hereto on page F-1 of this Form
10-K.
3341
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.,
a Maryland corporation
Date: March 29, 200228, 2005 By: /s/ HOWARD WALKER
-------------- ------------------------------------
Howard WalkerThomas P. Heneghan
-------------------------------------
Thomas P. Heneghan
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 29, 200228, 2005 By: /s/ JOHN ZOELLER
-------------- ------------------------------------
John Zoeller
ExecutiveMichael B. Berman
-------------------------------------
Michael B. Berman
Vice President, Treasurer
and Chief Financial Officer
Date: March 29, 2002 By: /s/ MARK HOWELL
-------------- ------------------------------------
Mark Howell(Principal Financial Officer
and Principal Accounting Officer
34Officer)
42
EQUITY LIFESTYLE PROPERTIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATEName Title Date
---- ----- ----
/s/ HOWARD WALKERThomas P. Heneghan President, Chief Executive March 28, 2005
- ------------------------------ Officer March 29, 2002
------------------------------------------and Director *Attorney-in-Fact
--------------
Howard WalkerThomas P. Heneghan
/s/ JOHN ZOELLERMichael B. Berman Vice President, Treasurer March 29, 2002
------------------------------------------28, 2005
- ------------------------------ and Chief Financial Officer
--------------
John ZoellerMichael B. Berman *Attorney-in-Fact
/s/ SAMUEL ZELLSamuel Zell Chairman of the Board March 29, 2002
------------------------------------------ --------------28, 2005
- ------------------------------
Samuel Zell
/s/ SHELI*Sheli Z. ROSENBERGRosenberg Director March 29, 2002
------------------------------------------ --------------28, 2005
- ------------------------------
Sheli Z. Rosenberg
/s/ DAVID A. HELFAND*Donald S. Chisholm Director March 29, 2002
------------------------------------------ --------------
David A. Helfand
*DONALD S. CHISHOLM Director March 29, 2002
------------------------------------------ --------------28, 2005
- ------------------------------
Donald S. Chisholm
*THOMAS*Thomas E. DOBROWSKIDobrowski Director March 29, 2002
------------------------------------------ --------------28, 2005
- ------------------------------
Thomas E. Dobrowski
*LOUIS H. MASOTTI*Howard Walker Vice-Chairman of the Board March 28, 2005
- ------------------------------
Howard Walker
*Joseph B. McAdams Director March 29, 2002
------------------------------------------ --------------
Louis H. Masotti
*JOHN F. PODJASEK, JR.28, 2005
- ------------------------------
Joseph B. McAdams
*Gary Waterman Director March 29, 2002
------------------------------------------ --------------
John F. Podjasek, Jr.
*MICHAEL A. TORRES Director March 29, 2002
------------------------------------------ --------------
Michael A. Torres
*GARY L. WATERMAN Director March 29, 2002
------------------------------------------ --------------28, 2005
- ------------------------------
Gary L. Waterman
3543
INDEX TO FINANCIAL STATEMENTS
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
PAGE
---------------
Report of Independent Auditors.......................................................................................Registered Public Accounting
Firm on Internal Controls over Financial Reporting ............ F-2
Report of Independent Registered Public Accounting Firm .......... F-3
Consolidated Balance Sheets as of December 31, 20012004 and 2000......................................................... F-32003 ..... F-4
Consolidated Statements of Operations for the years
ended December 31, 2001, 20002004, 2003 and 1999........................... F-42002 ........................ F-5 and F-6
Consolidated Statements of Other Comprehensive Income
for the years ended December 31, 2004, 2003 and 2002 .......... F-6
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 2001, 20002004, 2003 and 1999...... F-52002 ... F-7
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 20002004, 2003 and 1999........................... F-62002 ........................ F-8
Notes to Consolidated Financial Statements........................................................................... F-7Statements ....................... F-9
Schedule II --- Valuation and Qualifying Accounts.....................................................................Accounts .................. S-1
Schedule III --- Real Estate and Accumulated Depreciation.............................................................Depreciation .......... S-2
Certain schedules have been omitted as they are not applicable to the Company.
F-1
REPORT OF INDEPENDENT AUDITORS
To theReport of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting
The Board of Directors and Stockholders of Manufactured Home Communities,Equity Lifestyle Properties, Inc.
We have audited management's assessment, included in the accompanying
consolidated balance sheetsReport of Management on Internal Control over Financial Reporting, that Equity
Lifestyle Properties, Inc. (Equity Lifestyle Properties) did not maintain
effective internal control over financial reporting as of December 31, 2004,
because of the effect of a material weakness due to inadequate controls over the
capitalization of certain costs, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Equity Lifestyle
Properties' management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of Equity Lifestyle
Properties' internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of Equity Lifestyle
Properties; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
Equity Lifestyle Properties are being made only in accordance with
authorizations of management and directors of Equity Lifestyle Properties; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of Equity Lifestyle Properties'
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included in
management's assessment. As described in the notes to the Company's 2004
financial statements, Equity Lifestyle Properties restated previously issued
financial statements to correct for errors related to the improper
capitalization of certain costs associated with changing rent control
restrictions. In connection with its assessment of internal control over
financial reporting as of December 31, 2004, management determined that Equity
Lifestyle Properties' procedures and controls over the interpretation and
implementation of generally accepted accounting principles as they relate to the
capitalization of these costs were inadequate, and concluded that this
deficiency represented a material weakness in internal control over financial
reporting. This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the financial
statements as of December 31, 2004 and 2003 and for each of the three years in
the period ended December 31, 2004, and this report does not affect our report
dated March 24, 2005 on those financial statements.
In our opinion, management's assessment that Equity Lifestyle Properties,
Inc. did not maintain effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on the COSO
control criteria. Also, in our opinion, because of the effect of the material
weakness described above on the achievement of the objectives of the control
criteria, Equity Lifestyle Properties, Inc. has not maintained effective
internal control over financial reporting as of December 31, 2004, based on the
COSO control criteria.
ERNST & YOUNG LLP
Chicago, Illinois
March 24, 2005
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Equity Lifestyle Properties, Inc.
Lifestyle Properties, Inc. ("Equity Lifestyle Properties", formerly known as
Manufactured Home Communities, Inc.) as of December 31, 20012004 and 2000,2003, and the
related consolidated statements of operations, other comprehensive income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. We have2004. Our audits also auditedincluded the related financial
statement schedules listed in the accompanying index.Index at Item 15(1) and (2). These financial
statements and the schedules are the responsibility of the management of Manufactured Home Communities, Inc.Equity Lifestyle
Properties' management. Our responsibility is to express an opinion on these
financial statements and the schedules based on our audits.
We conducted our audits in accordance with auditingthe standards generally
accepted inof the United States.Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the auditsaudit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Manufactured
Home Communities, Inc.Equity
Lifestyle Properties at December 31, 20012004 and 2000,2003, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2001,2004, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, presentpresents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLPAs discussed in Note 2 to the consolidated financial statements, the
Company has restated its financial statements as of December 31, 2003 and for
each of the two years in the period then ended relating to expense recognition
for certain legal costs.
As discussed in Note 3 to the consolidated financial statements, in 2003
Equity Lifestyle Properties changed its method of accounting for stock-based
employee compensation.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Equity
Lifestyle Properties, Inc. and subsidiaries' internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 24, 2005
expressed an unqualified opinion on management's assessment of the effectiveness
of internal control over financial reporting and an adverse opinion on the
effectiveness of internal control over financial reporting.
Chicago, Illinois
January 29, 2002, except for Note 10
as to which the date is February 8, 2002 and
except for Note 18
as to which the date is February 22, 2002
F-224, 2005
F-3
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 and 20002004 AND 2003
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)THOUSANDS)
2001 2000
---------- ----------DECEMBER 31,
DECEMBER 31, 2003
2004 (Restated)
------------ ------------
ASSETS
Investment in real estate:
Land......................................................Land ........................................................... $ 271,871470,587 $ 271,822282,803
Land improvements......................................... 855,296 839,725improvements .............................................. 1,438,923 905,785
Buildings and other depreciable property.................. 110,971 106,629property ....................... 126,280 121,117
---------- ----------
1,238,138 1,218,1762,035,790 1,309,705
Accumulated depreciation.................................. (211,878) (181,580)depreciation ....................................... (322,867) (272,497)
---------- ----------
Net investment in real estate.......................... 1,026,260 1,036,596estate ............................... 1,712,923 1,037,208
Cash and cash equivalents................................... 1,354 2,847equivalents ......................................... 5,305 325,740
Notes receivable............................................ 1,506 4,984
Investment in and advances to affiliates.................... 34,387 21,215receivable .................................................. 13,290 11,551
Investment in joint ventures................................ 11,853 13,267ventures ...................................... 43,583 10,770
Rents receivable............................................ 1,966 1,440receivable, net ............................................. 1,469 2,385
Deferred financing costs, net............................... 5,867 6,344net ..................................... 16,162 14,164
Inventory ......................................................... 50,654 31,604
Prepaid expenses and other assets........................... 16,770 17,611assets ................................. 42,903 30,085
---------- ----------
Total assets.............................................. $1,099,963 $1,104,304TOTAL ASSETS ................................................... $1,886,289 $1,463,507
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................... $ 590,371 $ 556,578
Unsecured term loan....................................... 100,000 100,000payable ......................................... $1,417,251 $1,076,183
Unsecured line of credit.................................. 16,250 59,900
Other notes payable....................................... 2,236 3,206credit ....................................... 115,800 --
Unsecured term loan ............................................ 120,000 --
Accounts payable and accrued expenses..................... 23,000 23,822expenses .......................... 36,146 27,928
Accrued interest payable.................................. 4,582 5,116payable ....................................... 8,894 5,978
Rents received in advance and security deposits........... 5,133 5,184deposits ................ 21,135 6,616
Distributions payable..................................... 12,062 11,100
Due to affiliates......................................... 32 32payable .......................................... 448 224,696
---------- ----------
Total liabilities...................................... 753,666 764,938TOTAL LIABILITIES ........................................... 1,719,674 1,341,401
Commitments and contingencies
Minority Interest --interest - Common OP Units and other.............. 46,147 46,271other ..................... 9,771 (366)
Minority Interest --interest - Perpetual Preferred OP Units...........Units .................. 125,000 125,000
Stockholders' equity:STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued................................issued ................... -- --
Common Stock,stock, $.01 par value
50,000,000 shares authorized; 21,562,34322,937,192 and 21,064,78522,563,348
shares issued and outstanding for 20012004 and 2000, respectively........................ 215 2102003, respectively 224 222
Paid-in capital........................................... 245,827 235,681capital ................................................ 294,304 263,066
Deferred compensation..................................... (4,062) (5,969)
Employee notes............................................ (3,841) (4,205)compensation .......................................... (166) (494)
Distributions in excess of accumulated earnings........... (63,478) (57,622)
Accumulated other comprehensive income.................... 489 --earnings ................ (262,518) (265,322)
---------- ----------
Total stockholders' equity............................. 175,150 168,095
Total liabilities and stockholders' equity................ $1,099,963 $1,104,304equity (deficit) ........................ 31,844 (2,528)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $1,886,289 $1,463,507
========== ==========
The accompanying notes are an integral part of the financial statements
F-3statements.
F-4
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 20002004, 2003 AND 19992002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000 1999
-------- -------- --------2003 2002
2004 (Restated) (Restated)
--------- ---------- ----------
REVENUES
Base rental income............................................ $195,644 $189,481 $181,672
RVPROPERTY OPERATIONS:
Community base rental income......................................... 5,748 7,414 9,526income ............................ $ 210,790 $ 196,919 $194,640
Resort base rental income ............................... 54,845 11,780 9,146
Utility and other income...................................... 22,014 20,366 20,096
Equity in income of affiliates................................ 1,811 2,408 2,065
Interest income............................................... 639 1,009 1,669................................ 24,893 20,150 19,684
--------- --------- --------
-------- --------
Total revenues............................................. 225,856 220,678 215,028
-------- -------- --------
EXPENSESProperty operating revenues .......................... 290,528 228,849 223,470
Property operating and maintenance............................ 62,008 59,199 58,038maintenance ...................... 94,955 64,996 62,843
Real estate taxes............................................. 17,420 16,888 16,460taxes ....................................... 23,679 18,917 17,827
Property management........................................... 8,984 8,690 8,337
General and administrative.................................... 6,231 5,955 5,550management .................................... 12,852 9,373 9,292
--------- --------- --------
Property operating expenses (exclusive of
depreciation shown separately below) ................ 131,486 93,286 89,962
--------- --------- --------
Income from property operations ...................... 159,042 135,563 133,508
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ................ 47,636 36,606 33,537
Cost of inventory home sales ............................ (41,833) (31,767) (27,183)
--------- --------- --------
Gross profit from inventory home sales ............... 5,803 4,839 6,354
Brokered resale revenues, net ........................... 2,186 1,724 1,592
Home selling expenses ................................... (8,708) (7,360) (7,664)
Ancillary services revenues, net ........................ 2,782 216 522
--------- --------- --------
Income (loss) from home sales operations & other ..... 2,063 (581) 804
OTHER INCOME (EXPENSES):
Interest income ......................................... 1,391 1,695 967
Income from other investments ........................... 3,475 956 316
General and administrative -- affiliates...................... 456 468 542.............................. (9,243) (8,060) (8,192)
Rent control initiatives ................................ (2,412) (2,352) (5,698)
Interest and related amortization............................. 51,305 53,280 53,775amortization ....................... (91,922) (58,402) (50,729)
Depreciation on corporate assets.............................. 1,243 1,139 1,005assets ........................ (1,657) (1,240) (1,277)
Depreciation on real estate assets and other costs............ 34,833 34,411 34,486
-------- --------costs ...... (48,862) (37,265) (34,826)
--------- --------- --------
Total expenses............................................. 182,480 180,030 178,193
-------- -------- --------other income (expenses) ........................ (149,230) (104,668) (99,439)
Income from operations........................................ 43,376 40,648 36,835
Gainbefore minority interests, equity in income of
unconsolidated joint ventures, gain on sale of
Propertiesproperties and other.......................... 8,168 12,053 --
-------- -------- --------other and discontinued operations .. 11,875 30,314 34,873
Income before allocation to Minority Interests
and extraordinary loss on early extinguishment of debt... 51,544 52,701 36,835
(Income) allocated to Common OP Units......................... (8,209) (8,463) (6,219)
(Income)Units ..................... (936) (3,860) (4,708)
Income allocated to Perpetual Preferred OP Units............Units ........ (11,284) (11,252) (11,252)
(2,844)
-------- --------Equity in income of unconsolidated joint ventures ....... 3,739 340 235
--------- --------- --------
Income before extraordinary lossgain on early extinguishmentsale of debt.................................................... 32,083 32,986 27,772
Extraordinary lossproperties and other
and discontinued operations ....................... 3,394 15,542 19,148
--------- --------- --------
Gain on early extinguishmentsale of debt
(netproperties and other .................... 638 -- --
--------- --------- --------
Income from continuing operations .................... 4,032 15,542 19,148
--------- --------- --------
DISCONTINUED OPERATIONS:
Discontinued operations ................................. 26 1,043 3,287
Depreciation on discontinued operations ................. (32) (135) (484)
Gain on sale of $264 allocated toproperties and other .................... -- 10,826 13,014
Minority Interests)..............interests on discontinued operations ........... -- 1,041 --(2,144) (3,078)
--------- --------- --------
--------Income (loss) from discontinued operations ........... (6) 9,590 12,739
--------- --------- --------
NET INCOME.................................................INCOME AVAILABLE FOR COMMON SHARES ............ $ 32,0834,026 $ 31,94525,132 $ 27,772
======== ======== ========
Net income per Common Share before extraordinary
item -- basic.............................................. $ 1.53 $ 1.54 $ 1.10
======== ======== ========
Net income per Common Share before extraordinary
item -- diluted............................................ $ 1.49 $ 1.51 $ 1.09
======== ======== ========
Net income per Common Share -- basic.......................... $ 1.53 $ 1.49 $ 1.10
======== ======== ========
Net income per Common Share -- diluted........................ $ 1.49 $ 1.46 $ 1.09
======== ======== ========
Weighted average Common Shares outstanding -- basic........... 21,036 21,469 25,224
======== ======== ========
Weighted average Common Shares outstanding -- diluted
(Note 3)................................................... 27,010 27,408 31,252
======== ======== ========
Distributions declared per Common Share outstanding........... $ 1.78 $ 1.66 $ 1.55
======== ======== ========
Tax status of distributions paid during the year:
Ordinary income............................................ $ 1.31 $ 1.32 $ 1.16
======== ======== ========
Capital gain............................................... $ -- $ -- $ --
======== ======== ========
Return of capital.......................................... $ 0.44 $ 0.31 $ --
======== ======== ========
The accompanying notes are an integral part of the financial statements
F-4
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
2001 2000 1999
--------- --------- ---------
PREFERRED STOCK, $.01 PAR VALUE............................. $ -- $ -- $ --
======== ======== ========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year.................................. $ 210 $ 229 $ 262
Issuance of Common Stock through restricted stock
grants................................................. 1 1 1
Exercise of options....................................... 4 1 1
(Repurchase) issuance of Common Stock..................... -- (21) (35)
-------- -------- --------
Balance, end of year........................................ $ 215 $ 210 $ 229
======== ======== ========
PAID -- IN CAPITAL
Balance, beginning of year.................................. $235,681 $275,664 $364,603
Issuance of Common Stock for employee notes............... -- -- --
Conversion of OP Units to Common Stock.................... 599 494 1,525
Issuance of Common Stock through exercise of options...... 7,743 2,719 2,034
Issuance of Common Stock through restricted stock
grants................................................. 1,627 3,310 1,507
Issuance of Common Stock through employee stock purchase
plan................................................... 2,365 1,435 1,195
Repurchase of Common Stock................................ -- (53,112) (98,160)
Adjustment for Common OP Unitholders in the Operating
Partnership............................................ (2,188) 5,171 2,960
-------- -------- --------
Balance, end of year........................................ $245,827 $235,681 $275,664
======== ======== ========
DEFERRED COMPENSATION
Balance, beginning of year.................................. $ (5,969) $ (6,326) $ (7,442)
Issuance of Common Stock through restricted stock
grants................................................. (1,628) (3,311) (536)
Recognition of deferred compensation expense.............. 3,535 3,668 1,652
-------- -------- --------
Balance, end of year........................................ $ (4,062) $ (5,969) $ (6,326)
======== ======== ========
EMPLOYEE NOTES
Balance, beginning of year.................................. $ (4,205) $ (4,540) $ (4,654)
Notes received for issuance of Common Stock............... -- -- --
Principal payments........................................ 364 335 114
-------- -------- --------
Balance, end of year........................................ $ (3,841) $ (4,205) $ (4,540)
======== ======== ========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED EARNINGS
Balance, beginning of year.................................. $(57,622) $(53,626) $(42,328)
Net income................................................ 32,083 31,945 27,772
Other comprehensive income:
Unrealized holding gains on derivative instruments..... 489 -- --
-------- -------- --------
Comprehensive income................................. 32,572 31,945 27,772
-------- -------- --------
Distributions............................................. (37,939) (35,941) (39,070)
-------- -------- --------
Balance, end of year........................................ $(62,989) $(57,622) $(53,626)
======== ========31,887
========= ========= ========
The accompanying notes are an integral part of the financial statements
F-5
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002
2004 (Restated) (Restated)
------- ---------- ----------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ......................... $ 0.18 $ 0.71 $ 0.89
Income from discontinued operations ....................... $ 0.00 $ 0.43 $ 0.59
======= ======= =======
Net income available for Common Shares .................... $ 0.18 $ 1.14 $ 1.48
======= ======= =======
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ......................... $ 0.17 $ 0.69 $ 0.87
======= ======= =======
Income from discontinued operations ....................... $ 0.00 $ 0.42 $ 0.57
======= ======= =======
Net income available for Common Shares .................... $ 0.17 $ 1.11 $ 1.44
======= ======= =======
Distributions declared per Common Share outstanding ....... $ 0.05 $ 9.485 $ 1.90
======= ======= =======
Tax status of Common Shares distributions paid
during the year:
Ordinary income ........................................... $ 1.05 $ 0.68 $ 1.50
======= ======= =======
Long-term capital gain .................................... $ 4.82 $ 0.57 $ --
======= ======= =======
Unrecaptured section 1250 gain ............................ $ 2.17 $ 0.16 $ --
======= ======= =======
Return of capital ......................................... $ -- $ 0.55 $ 0.37
======= ======= =======
Weighted average Common Shares outstanding - basic ........... 22,849 22,077 21,617
======= ======= =======
Weighted average Common Shares outstanding - fully diluted ... 29,465 28,002 27,632
======= ======= =======
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2003 2002
2004 (Restated) (Restated)
------ ---------- ----------
Net income available for Common Shares........................... $4,026 $25,132 $31,887
Net unrealized holding gains (losses) on derivative
instruments................................................ -- 4,498 (4,987)
------ ------- -------
Net other comprehensive income available for Common Shares.... $4,026 $29,630 $26,900
====== ======= =======
The accompanying notes are an integral part of the financial statements
F-6
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2003 2002
2004 (Restated) (Restated)
--------- ---------- ----------
PREFERRED STOCK, $.01 PAR VALUE $ -- $ -- $ --
========= ========= ========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year .............................................. $ 222 $ 218 $ 215
Issuance of Common Stock through restricted stock grants ............. -- -- 1
Exercise of options .................................................. 2 4 2
--------- --------- --------
Balance, end of year .................................................... $ 224 $ 222 $ 218
========= ========= ========
PAID - IN CAPITAL
Balance, beginning of year .............................................. $ 263,066 $ 256,394 $245,827
Issuance of Common Stock for employee notes .......................... -- -- --
Conversion of OP Units to Common Stock ............................... 155 343 227
Issuance of Common Stock through exercise of options ................. 3,058 6,323 5,782
Issuance of Common Stock through restricted stock grants ............. -- -- 2,709
Issuance of Common Stock through employee stock purchase plan ........ 2,735 3,254 2,512
Compensation expense related to stock options and restricted stock ... 2,571 611 --
Transition adjustment - FAS 123 ...................................... -- (1,047) --
Adjustment for Common OP Unitholders
in the Operating Partnership ...................................... 22,719 (2,812) (663)
--------- --------- --------
Balance, end of year .................................................... $ 294,304 $ 263,066 $256,394
========= ========= ========
DEFERRED COMPENSATION
Balance, beginning of year .............................................. $ (494) $ (3,069) $ (4,062)
Issuance of Common Stock through restricted stock grants ............. -- -- (2,709)
Transition adjustment - FAS 123 ...................................... -- 1,047 --
Recognition of deferred compensation expense ......................... 328 1,528 3,702
--------- --------- --------
Balance, end of year .................................................... $ (166) $ (494) $ (3,069)
========= ========= ========
EMPLOYEE NOTES
Balance, beginning of year .............................................. $ -- $ (2,713) $ (3,841)
Principal payments ................................................... -- 2,713 1,128
--------- --------- --------
Balance, end of year .................................................... $ -- $ -- $ (2,713)
========= ========= ========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE EARNINGS
Balance, beginning of year .............................................. $(265,322) $ (79,655) $(64,875)
Net income ........................................................... 4,026 25,132 31,887
Other comprehensive income:
Unrealized holding (losses) gains on derivative instruments ....... -- 4,498 (4,987)
--------- --------- --------
Comprehensive income ........................................... 4,026 29,630 26,900
--------- --------- --------
Distributions ........................................................ (1,222) 215,297 (41,680)
--------- --------- --------
Balance, end of year .................................................... $(262,518) $(265,322) $(79,655)
========= ========= ========
The accompanying notes are an integral part of the financial statements
F-7
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 20002004, 2003 AND 19992002
(AMOUNTS IN THOUSANDS)
2001 2000 19992003 2002
2004 (Restated) (Restated)
--------- --------- ------------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................income ..................................................................... $ 32,0834,026 $ 31,94525,132 $ 27,77231,887
Adjustments to reconcile net income to cash provided by operating activities:
Income allocated to minority interests................ 19,461 19,451 9,063interests ...................................... 12,220 17,256 19,038
Gain on sale of Properties and other.................. (8,168) (12,053)other ........................................ (638) (10,826) (13,014)
Depreciation expense ........................................................ 51,703 39,403 37,094
Amortization expense ........................................................ 2,203 5,031 963
Debt premium amortization expense ........................................... (1,317) -- Depreciation and amortization expense................. 37,184 36,511 33,871--
Equity in income of affiliates and joint ventures..... (2,782) (2,928) (2,065)ventures ........................... (4,969) (1,042) (957)
Amortization of deferred compensation and other....... 3,535 3,668 2,623other ............................. 2,899 2,139 3,930
Increase in provision for uncollectable rents receivable.......................... (526) (102) (667)
Decrease (increase)receivable .................... 1,182 821 941
Changes in assets and liabilities:
Change in rents receivable .................................................. 281 (1,469) (1,186)
Change in inventory ......................................................... (17,855) 1,846 1,887
Change in prepaid expenses and other assets............................................. 1,330 (9,389) (844)
(Decrease) increaseassets ................................. (9,772) (43) (2,113)
Change in accounts payable and accrued expenses........................................... (1,358) 2,545 2,491
(Decrease) increaseexpenses ............................. 5,963 (3,055) 1,471
Change in rents received in advance and security deposits.................................. (51) (1,647) 336deposits ................... 807 (30) 235
--------- --------- -----------------
Net cash provided by operating activities................. 80,708 68,001 72,580activities ...................................... 46,733 75,163 80,176
--------- --------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Contributions toAcquisition of rental properties ............................................... (310,893) (6,836) (56,531)
Proceeds from dispositions of assets ........................................... 671 27,170 14,171
Distributions from (investment in) joint ventures and distributionsother .................... (27,642) 1,535 (7,149)
Proceeds from Affiliates, net... (11,493) (7,250) (1,959)restructuring of College Heights venture, net .................... -- -- 4,647
Purchase of RSI ................................................................ -- -- (675)
Cash received in acquisition of RSI ............................................ -- -- 839
Collections (funding) of notes receivable................. 3,478 (700) 11,426
Distribution from (investment in) joint ventures.......... 1,697 (3,758) (2,279)
Proceeds from dispositions of assets...................... 24,209 46,490 --
(Funding) return of escrow for acquisition ofreceivable ...................................... (1,708) (1,507) (3,784)
Improvements:
Improvements - corporate .................................................... (444) (72) (681)
Improvements - rental properties -- net....................................... (17,770) 4,581 (30,640)
Improvements:
Improvements -- corporate............................... (840) (498) (878)
Improvements -- rental properties....................... (12,689) (7,855) (8,656)............................................ (13,663) (11,912) (13,377)
Site development costs.................................. (9,659) (7,908) (4,882)costs ...................................................... (12,975) (8,976) (10,433)
--------- --------- -----------------
Net cash (used in) provided by investing activities....... (23,067) 23,102 (37,868)activities ........................................ (366,654) (598) (72,973)
--------- --------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan........................................... 10,112 4,142 3,229
Net proceeds from issuance of Perpetual Preferred OP
Units................................................... -- -- 121,890plan ............... 6,221 9,581 8,296
Distributions to Common Stockholders, Common OP Unitholders
and Perpetual Preferred OP Unitholders...... (58,111) (56,298) (40,445)
Repurchase of Common Stock and OP Units................... (41) (54,595) (99,847)Unitholders ...................................... (237,074) (65,687) (58,314)
Collection of principal payments on employee notes........ 364 335 114notes ............................. -- 2,713 1,128
Line of credit:
Proceeds................................................ 46,000 103,900 113,400
Repayments.............................................. (89,650) (151,900) (150,500)Proceeds .................................................................... 135,800 53,000 82,000
Repayments .................................................................. (20,000) (137,750) (13,500)
Acquisition Financing .......................................................... 124,300 -- --
Repayment of term loan ......................................................... -- (100,000) --
Refinancing --- net proceeds............................... 37,870 65,998 16,248proceeds (repayments) ........................................ 3,288 501,057 (16,096)
Principal payments........................................ (5,047) (4,249) (4,733)payments ............................................................. (8,848) (4,844) (4,217)
Debt issuance costs....................................... (631) (2,265) (1,049)costs ............................................................ (4,201) (14,165) (584)
--------- --------- -----------------
Net cash used inprovided by (used in) financing activities..................... (59,134) (94,932) (41,693)activities ............................ (514) 243,905 (1,287)
--------- --------- -----------------
Net increase (decrease) in cash and cash equivalents................. (1,493) (3,829) (6,981)equivalents .............................. (320,435) 318,470 5,916
Cash and cash equivalents, beginning of year................ 2,847 6,676 13,657year ...................................... 325,740 7,270 1,354
--------- --------- -----------------
Cash and cash equivalents, end of year......................year ............................................ $ 1,3545,305 $ 2,847325,740 $ 6,6767,270
========= ========= =================
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest......................interest ............................................ $ 50,78188,883 $ 52,94752,396 $ 52,32346,097
========= ========= =================
The accompanying notes are an integral part of the financial statements
F-6statements.
F-8
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 --- ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Equity Lifestyle Properties, Inc. (formerly Manufactured Home Communities,
Inc. (together), together with itsMHC Operating Limited Partnership (the "Operating
Partnership") and other consolidated subsidiaries ("Subsidiaries"), are referred
to herein as the "Company"), formed in March 1993, is a Maryland corporation
which has elected to be taxed"ELS", "we", "us", and "our". We believe that we
have qualified for taxation as a real estate investment trust ("REIT"). for
federal income tax purposes since our taxable year ended December 31, 1993. We
plan to continue to meet the requirements for taxation as a REIT. Many of these
requirements, however, are highly technical and complex. We cannot, therefore,
guarantee that we have qualified or will qualify in the future as a REIT. The
Company ownsdetermination that we are a REIT requires an analysis of various factual matters
that may not be totally within our control and we cannot provide any assurance
that the Internal Revenue Service ("IRS") will agree with our analysis. For
example, to qualify as a REIT, at least 95% of our gross income must come from
sources that are itemized in the REIT tax laws. We are also required to
distribute to stockholders at least 90% of our REIT taxable income excluding
capital gains. The fact that we hold our assets through the Operating
Partnership and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or hasinadvertent mistake could jeopardize our REIT
status. Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible, for us to remain qualified as a controlling interest in 148 manufactured home communities
(the "Properties") located in 23 states, consisting of 50,761 sites. The Company
generally willREIT. We do not believe, however,
that any pending or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain state and local taxes on
its income and property and Federal income tax to the extent it distributesand excise taxes on its REIT taxable income to its stockholders.undistributed
income.
The operations of the Company are conducted primarily through certain entities that
are owned or controlled by the Company. MHC Operating
Limited Partnership (the
"Operating Partnership") is the entity through which the Company conducts
substantially all of its operations.Partnership. The Company contributed the proceeds from its initial public
offering and subsequent offerings to the Operating Partnership for a general
partnership interest. In 2004, the general partnership interest was contributed
to MHC Trust (see Note 5). The financial results of the Operating Partnership
and the Subsidiaries are consolidated in the Company's consolidated financial
statements. In addition, since certain activities, if performed by the Company,
may not be qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has formed taxable REIT subsidiaries as
defined in the Code to engage in such activities.
Several Properties acquired during 2004 are wholly owned by taxable REIT
subsidiaries of the Company. In addition, Realty Systems, Inc. ("RSI") is a
wholly owned taxable REIT subsidiary of the Company that, doing business as
Carefree Sales, is engaged in the business of purchasing, selling and leasing
homes that are located in Properties owned and managed by the Company. Carefree
Sales also provides brokerage services to customers at such Properties.
Typically, customers move from a Property but do not relocate their homes.
Carefree Sales may provide brokerage services, in competition with other local
brokers, by seeking buyers for the homes. Carefree Sales also leases inventory
homes to prospective customers with the expectation that the tenant eventually
will purchase the home. Subsidiaries of RSI also lease from the Operating
Partnership certain real property within or adjacent to certain Properties
consisting of golf courses, pro shops, stores and restaurants.
The limited partners of the Operating Partnership (the "Common OP
Unitholders") receive an allocation of net income which is based on their
respective ownership percentage of the Operating Partnership which is shown on
the Consolidated Financial Statements as Minority Interests --- Common OP Units.
As of December 31, 2001,2004, the Minority Interests --- Common OP Units represented
5,426,3746,340,805 units of limited partnership interest ("OP Units") which are
convertible into an equivalent number of shares of the Company's Commoncommon stock.
The issuance of additional shares of common stock or common OP Units changes the
respective ownership of the Operating Partnership for both the Minority
Interests and the Company.
SubsidiariesF-9
EQUITY LIFESTYLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS
During 2004, the Company changed the way it accounted for costs incurred in
pursuing certain rent control initiatives. As a result, the Company has restated
its Consolidated Financial Statements for the years ended December 31, 2003,
2002, and 2001 to expense the costs of the Operating Partnership have been createdinitiatives in the year in which they
were incurred because the previous method of accounting for the costs was
determined to (i)
facilitate mortgage financing (the "Financing Partnerships"); (ii) facilitatebe incorrect. The Company had historically classified these costs,
primarily legal, in other assets. To the extent the Company's abilityefforts to
provide financing to owners of manufactured home
communities ("Lending Partnership"); (iii) owneffectively change the managementuse and operations of the Properties were successful, the
Company ("Management Partnership");capitalized the costs to land improvements as an increase in the
established value of the revised project and (iv) owndepreciated them over 30 years. To
the assets and operationsextent these efforts were not successful, the costs would have been
expensed.
Following is a summary of certain utility companies which servicethe effects of these changes on the Company's
Properties ("MHC
Systems").
The accompanying financial statements represent the consolidated financial
informationConsolidated Balance Sheets as of the CompanyDecember 31, 2003, 2002 and its subsidiaries. Due to2001 and the
Company's ability as
general partner to control either through ownership or by contract the Operating
Partnership, the Financing Partnerships, the Lending Partnership, the Management
Partnership and MHC Systems, each such subsidiary has been consolidated with the
Company for financial reporting purposes.
StatementConsolidated Statements of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") requires
certain disclosures of selected information about operating segments in the
annual financial statements and related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131, in June
1998, did not affect the results of operations or financial position of the
Company. The Company manages operations on a property by property basis. Since
each property has similar economic and operational characteristics, the Company
has one reportable segment, which is the operation of manufactured home
communities. The Company has concentrations of Properties within the following
states: Florida (49 Properties), California (25 Properties), Arizona (17
Properties), Michigan (11 Properties) and Colorado (10 Properties). These
concentrations of Properties accounted for 36%, 19%, 8%, 4% and 8%,
respectively, of the Company's total revenuesOperations for the yearyears ended December 31,
2001. The Company also has Properties located2003, 2002 and 2001 (amounts in the following areas of the
United States: Northeast, Northwest, Midwest, and Nevada/Utah/New Mexico. The
Company's largest Property, Bay Indies, located in Venice, Florida, accounted
for 3% of the Company's total revenues for the year ended December 31, 2001. The
distribution of the Properties throughout the United States reflects the
Company's belief that geographic diversification helps insulate the portfolio
from regional economic influences. The Company intends to target new
acquisitions in or near markets where the Properties are located and will also
consider acquisitions of properties outside such markets.thousands):
Consolidated Balance Sheet
-----------------------------------------
As Previously
As of December 31, 2003 Reported Adjustments As Restated
- ----------------------- ------------- ----------- -----------
Land improvements............................... $911,176 $(5,391) $905,785
Prepaid expenses and other assets............... 35,102 (5,017) 30,085
Minority interest - Common OP Units and other... 1,716 (2,082) (366)
Total stockholders' equity...................... 5,798 (8,326) (2,528)
As of December 31, 2002
- -----------------------
Land improvements............................... $893,839 $ -- $893,839
Prepaid expenses and other assets............... 35,884 (8,056) 27,828
Minority interest - Common OP Units and other... 43,501 (1,612) 41,889
Total stockholders' equity...................... 177,619 (6,444) 171,175
As of December 31, 2001
- -----------------------
Land improvements............................... $855,296 $ -- $855,296
Prepaid expenses and other assets............... 18,612 (2,358) 16,254
Minority interest - Common OP Units and other... 46,147 (472) 45,675
Total stockholders' equity...................... 175,150 (1,886) 173,264
Consolidated Statements of Operations
-----------------------------------------
As Previously
Year ended December 31, 2003 Reported Adjustments As Restated
- ---------------------------- ------------- ----------- -----------
Rent control initiatives.................... $ -- $(2,352) $(2,352)
Income allocated to Common OP Units......... (4,330) 470 (3,860)
Net income available for Common Shares...... 27,014 (1,882) 25,132
Earnings per Common Share - Basic........... 1.22 (.08) 1.14
Earnings per Common Share - Fully Diluted... 1.20 (.09) 1.11
Year ended December 31, 2002
- ----------------------------
Rent control initiatives.................... $ -- $(5,698) $(5,698)
Income allocated to Common OP Units......... (5,848) 1,140 (4,708)
Net income available for Common Shares...... 36,445 (4,558) 31,887
Earnings per Common Share - Basic........... 1.69 (.21) 1.48
Earnings per Common Share - Fully Diluted... 1.64 (.20) 1.44
Year ended December 31, 2001
- ----------------------------
Rent control initiatives.................... $ -- $(2,358) $(2,358)
Income allocated to Common OP Units......... (7,688) 472 (7,216)
Net income available for Common Shares...... 32,083 (1,886) 30,197
Earnings per Common Share - Basic........... 1.53 (.09) 1.44
Earnings per Common Share - Fully Diluted... 1.49 (.09) 1.40
F-10
EQUITY LIFESTYLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 --3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
The Company consolidates all majority owedits majority-owned subsidiaries due to itsin which it
has the ability to control the operations of the subsidiaries.subsidiaries and all
variable interest entities with respect to which the Company is the primary
beneficiary. All inter-company transactions have been eliminated in
consolidation. F-7
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)The Company's acquisitions were all accounted for as
purchases in accordance with Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141").
In December 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46R, Consolidation of Variable Interest Entities
("FIN 46R") - an interpretation of ARB 51. The objective of FIN 46R is to
provide guidance on how to identify a variable interest entity ("VIE") and
determine when the assets, liabilities, non-controlling interests, and
results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interests
in an entity will need to consolidate such entity if the company absorbs a
majority of the entity's expected losses or receives a majority of the
entity's expected residual returns if they occur, or both (i.e., the
primary beneficiary). The Company will apply FIN 46R to all types of entity
ownership (general and limited partnerships and corporate interests).
The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of
such entities. In addition, the Company will apply the provisions of FIN
46R to all new entities in the future. The Company also consolidates
entities in which it has a controlling direct or indirect voting interest.
The equity method of accounting is applied to entities in which the Company
does not have a controlling direct or indirect voting interest, but can
exercise influence over the entity with respect to its operations and major
decisions. The cost method is applied when (i) the investment is minimal
(typically less than 5%) and (ii) the Company's investment is passive.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(c) Segments
We manage all our operations on a property-by-property basis. Since
each Property has similar economic and operational characteristics the
Company has one reportable segment, which is the operation of land lease
Properties. The distribution of the Properties throughout the United States
reflects our belief that geographic diversification helps insulate the
portfolio from regional economic influences. We intend to target new
acquisitions in or near markets where the Properties are located and will
also consider acquisitions of Properties outside such markets. The
following table identifies our five largest markets by number of sites and
provides information regarding our Properties (excludes Properties owned
through Joint Ventures).
PERCENT OF TOTAL
MAJOR NUMBER OF PERCENT OF PROPERTY OPERATING
MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES
- ---------- ---------- ----------- ----------- ------------------
Florida 77 32,451 36.3% 43.5%
California 44 12,865 14.4% 18.2%
Arizona 27 10,514 11.8% 10.4%
Texas 15 7,200 8.0% 2.3%
Washington 13 3,076 3.4% 0.6%
Other 71 23,280 26.1% 25.0%
--- ------ ----- -----
Total 247 89,386 100.0% 100.0%
=== ====== ===== =====
F-11
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Inventory
Inventory consists of new and used Site Set homes, is stated at the
lower of cost or market after consideration of the N.A.D.A. (National
Automobile Dealers Association) Manufactured Housing Appraisal Guide and
the current market value of each home included in the home inventory.
Inventory sales revenues and resale revenues are recognized when the home
sale is closed. Resale revenues are stated net of commissions paid to
employees of $1,163,000 and $893,000 for the years ended December 31, 2004
and 2003, respectively.
(e) Real Estate
In accordance with SFAS No. 141, we allocate the purchase price of
Properties we acquire to net tangible and identified intangible assets
acquired based on their fair values. In making estimates of fair values for
purposes of allocating purchase price, we utilize a number of sources,
including independent appraisals that may be available in connection with
the acquisition or financing of the respective property and other market
data. We also consider information obtained about each property as a result
of our due diligence, marketing and leasing activities in estimating the
fair value of the tangible and intangible assets acquired.
Real estate is recorded at cost less accumulated depreciation. The Company
evaluates rental Properties for impairment when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a Property is less than its carrying value. Upon
determination that a permanent impairment has occurred, rental Properties are
reduced to fair value. For the year ended December 31, 2001, permanent
impairment conditions did not exist at any of the Company's Properties. During
the year ended December 31, 2000, MHC Acquisition One L.L.C., a consolidated
subsidiary of the Company, recorded an impairment loss on the DeAnza Santa Cruz
water and wastewater service company business (see Notes 5 and 17). In August
2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment of Long-Lived
Assets" which is effective for fiscal years beginning after December 15, 2001.
The application of the provisions of this Statement is not expected to affect
the earnings and financial position of the Company.
Certain costs, including legal costs, relative to efforts by the Company to
effectively change the use and operations of several Properties are currently
recorded in other assets. These costs, to the extent these efforts are
successful, are capitalized to the extent of the established value of the
revised project and included in the net investment in real estate for the
appropriate Properties. To the extent these efforts are not successful, these
costs will be expensed.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. The Company usesWe use a 30-year estimated life for buildings
acquired and structural and land improvements, a ten-to-fifteen-year
estimated life for building upgrades and a three-to-seven-year estimated
life for furniture, fixtures and equipment. The values of the above and
below market leases are amortized and recorded as either an increase (in
the case of below market leases) or a decrease (in the case of above market
leases) to rental income over the remaining term of the associated lease.
The value associated with in-place leases is amortized over the expected
term, which includes an estimated probability of lease renewal.
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred, and significant renovations and improvements that
improve the asset and extend the useful life of the asset are capitalized
and then expensed over their estimated useful life. Initial direct leasingHowever the useful
lives, salvage value, and customary depreciation method used for land
improvements and other significant assets may significantly and materially
overstate the depreciation of the underlying assets and therefore
understate the net income of the Company.
We evaluate our Properties for impairment when conditions exist which
may indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a Property over the anticipated holding period is less
than its carrying value. Upon determination that a permanent impairment has
occurred, the applicable Property is reduced to fair value.
For Properties to be disposed of, an impairment loss is recognized
when the fair value of the property, less the estimated cost to sell, is
less than the carrying amount of the property measured at the time the
Company has a commitment to sell the property and/or is actively marketing
the property for sale. A property to be disposed of is reported at the
lower of its carrying amount or its estimated fair value, less costs are expensed as incurred. Totalto
sell. Subsequent to the date that a property is held for disposition,
depreciation expense was $36.1 million, $35.6
million and $35.5 millionis not recorded. The Company accounts for its
Properties held for disposition in accordance with Statement of Financial
Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the
years ended December 31, 2001, 2000 and 1999,
respectively.
(d)Impairment or Disposal of Long-Lived Assets". Accordingly, the results of
operations for all assets sold or held for sale after January 1, 2003 have
been classified as discontinued operations in all periods presented.
(f) Cash and Cash Equivalents
The Company considersWe consider all demand and money market accounts and certificates of
deposit with a maturity, when purchased, of three months or less to be cash
equivalents.
(e)F-12
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid
principal balances net of any deferred fees or costs on originated loans,
or unamortized discounts or premiums.premiums net of a valuation allowance. Interest
income is accrued on the unpaid principal balance. Discounts or premiums
are amortized to income using the interest method. (f)In certain cases we
finance the sales of homes to our customers (referred to as "Chattel
Loans") which loans are secured by the homes. The valuation allowance for
the Chattel Loans is calculated based on a comparison of the outstanding
principal balance of each note compared to the N.A.D.A. value and the
current market value of the underlying manufactured home collateral.
(h) Investments in Joint Ventures
Investments in joint ventures in which the Company does not have a
controlling direct or indirect voting interest, but can exercise
significant influence over the entity with respect to its operations and
major decisions, are accounted for using the equity method of accounting
whereby the cost of an investment is adjusted for the Company's share of
the equity in net income or loss from the date of acquisition and reduced
by distributions received. The income or loss of each entity is allocated
in accordance with the provisions of the applicable operating agreements.
The allocation provisions in these agreements may differ from the ownership
interests held by each investor. Differences between the carrying amount of
the Company's investment in the respective entities and the Company's share
of the underlying equity of such unconsolidated entities are amortized over
the respective lives of the underlying assets, as applicable.
In applying the provisions of FIN 46R (see Basis of Consolidation,
above), the Company determined that its Mezzanine Investment is a VIE;
however, the Company concluded that it is not the primary beneficiary. As
such, the adoption of this pronouncement had no effect on the Company's
financial statements.
(i) Insurance Claims
The Properties are covered against fire, flood, property, earthquake,
wind storm and business interruption by insurance policies containing
various deductible requirements and coverage limits. Recoverable costs are
classified in other assets as incurred. Proceeds are applied against the
asset when received. Costs relating to capital items are treated in
accordance with the Company's capitalization policy. The book value of the
original capital item is written off in the replacement period. Insurance
proceeds relating to the capital costs will be recorded as income in the
period they are received.
(j) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" requires disclosures about the fair value
of financial instruments whether or not such instruments are recognized in the
balance sheet.
The Company's financial instruments include short-term investments,
notes receivable, accounts receivable, accounts payable, other accrued
expenses, mortgage notes payable and interest rate hedge arrangements. The
fair values of all financial instruments, including notes receivable, were
not materially different from their carrying values at December 31, 20012004
and 2000.
F-8
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)2003.
(k) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing. The costs are being amortized over the terms of the
respective loans on a level yield basis. Unamortized deferred financing
fees are written-off when debt is retired before the maturity date. Upon
amendment of the Line of Credit, unamortized deferred financing fees are
accounted for in accordance with EITF No. 98-14, "Debtor's Accounting for
Changes in Line-of-Credit or Revolving-Debt Arrangements." Accumulated
amortization for such costs was $3.0$4.9 million and $1.9$2.7 million at December
31, 20012004 and 2000,2003, respectively.
(h)F-13
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Revenue Recognition
The Company accounts for leases with its customers as operating
leases. Rental income attributable to leases is recorded when earned from tenants.
The Companyrecognized over the term of the respective lease
or the length of a customer's stay, the majority of which are for a term of
not greater than one year. We will reserve for receivables when the Company believeswe believe
the ultimate collection is less than probable. (i)Our provision for
uncollectable rents receivable was approximately $1.0 million as of
December 31, 2004 and $0.8 million as of December 31, 2003. 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.
(m) Minority Interests
Net income is allocated to Common OP Unitholders based on their
respective ownership percentage of the Operating Partnership. An ownership
percentage is represented by dividing the number of Common OP Units held by
the Common OP Unitholders (5,426,374(6,340,805 and 5,514,3305,312,387 at December 31, 20012004 and
2000,2003, respectively) by OP Units and shares of Common Stock outstanding.
Issuance of additional shares of Common Stock or commonCommon OP Units changes
the percentage ownership of both the Minority Interests and the Company.
Due in part to the exchange rights (which provide for the conversion of
Common OP Units into shares of Common Stock on a one-for-one basis), such
transactions and the proceeds therefromthere from are treated as capital
transactions and result in an allocation between stockholders' equity and
Minority Interests to account for the change in the respective percentage
ownership of the underlying equity of the Operating Partnership.
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") with two institutional investors. The POP Units, which are callable by
the Company after five years, have no stated maturity or mandatory redemption,
have no voting rights and are not convertible into OP Units or Common Stock.
Income is allocated to the POP Units at a preferred rate per annum of 9.0% on
the original capital contribution of $125 million. Costs related to the
placement of $3.1 million were recorded as a reduction to additional paid-in
capital.
(j)(n) Income Taxes
Due to the structure of the Company as a REIT, the results of
operations contain no provision for Federal income taxes. However, the
Company may be subject to certain state and local income, excise or
franchise taxes. The
CompanyWe paid state and local taxes of approximately $50,000, $78,000$88,000,
$56,000 and $85,000$20,000 during the years ended December 31, 2001, 20002004, 2003 and
1999,2002, respectively. In addition, taxable income from non-REIT activities
managed through taxable REIT subsidiaries is subject to federal, state and
local income taxes. As of December 31, 2001,2004, net investment in real estate
and notes receivable had a Federal tax basis of approximately $710$1,386
million and $20$13.3 million, respectively.
(k)(o) Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities" and its amendments, Statements 137 and 138 in June of 1999
and June of 2000, respectively. The Company adopted SFAS No. 133 effective
January 1, 2001. SFAS No. 133 requires the Company toWe recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings.
On
October 29, 2001,(p) Reclassifications
Certain 2003 and 2002 amounts have been reclassified to conform to the
Company entered into a swap agreement.2004 financial presentation. Such reclassifications have no effect on the
operations or equity as originally presented.
(q) Stock Compensation
Prior to January 1, 2003, we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees",
based upon the intrinsic value method. This method results in no
compensation expense for options issued with an exercise price equal to or
exceeding the market value of the Common Stock on the date of grant.
Effective January 1, 2003, we elected to account for our stock compensation
in accordance with SFAS No. 123 and its amendment (SFAS No. 148),
"Accounting for Stock Based Compensation", which resulted in compensation
expense being recorded based on the fair value of the stock options and
other equity awards issued (see Note 10)
F-914).
F-14
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 --4 - EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128") defines the calculation
of basic and fully diluted earnings per share. Basic and fully diluted earnings
per share are based on the weighted average shares outstanding during each year
and basic earnings per share excludes any dilutive effects of options, warrants
and convertible securities. The conversion of OP Units has been excluded from
the basic earnings per share calculation. The conversion of an OP Unit to a
share of common stockCommon Stock has no material effect on earnings per common share.
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2001, 2000, 19992004, 2003 and 2002 (amounts
in thousands):
2001 2000 1999YEARS ENDED DECEMBER 31,
---------------------------------
2003 2002
2004 (Restated) (Restated)
------- ------- ----------------- ----------
NUMERATOR:
NumeratorNUMERATORS:
INCOME FROM CONTINUING OPERATIONS:
Income from continuing operations - basic ................ $ 4,032 $15,542 $19,148
Amounts allocated to dilutive securities ................. 936 3,860 4,708
------- ------- -------
Income from continuing operations - fully diluted ........ $ 4,968 $19,402 $23,856
======= ======= =======
INCOME FROM DISCONTINUED OPERATIONS:
Income from discontinued operations - basic .............. $ (6) $ 9,590 $12,739
Amounts allocated to dilutive securities ................. -- 2,144 3,078
------- ------- -------
Income from discontinued operations - fully diluted ...... $ (6) $11,734 $15,817
======= ======= =======
NET INCOME AVAILABLE FOR COMMON SHARES:
Net income available for Common Shares - basic earnings per share --........... $ 4,026 $25,132 $31,887
Amounts allocated to dilutive securities ................. 936 6,004 7,786
------- ------- -------
Net income............................................. $32,083 $31,945 $27,772income available for Common Shares - fully diluted $ 4,962 $31,136 $39,673
======= ======= =======
DENOMINATOR:
Weighted average Common Shares
outstanding - basic ................................... 22,849 22,077 21,617
Effect of dilutive securities:
Income allocated toRedemption of Common OP Units (net of
extraordinary loss on early extinguishment of
debt)............................................ 8,209 8,199 6,219for Common Shares .......... 6,067 5,342 5,403
Employee stock options and restricted shares ............. 549 583 612
------- ------- -------
Numerator for diluted earnings per share --
Income available to Common Stockholders
After assumed conversions........................ $40,292 $40,144 $33,991
======= ======= =======
DENOMINATOR:
Denominator for basic earnings per share -- Weighted average Common Stock outstanding................... 21,036 21,469 25,224
Effect of dilutive securities:
Weighted average Common OP Units................... 5,466 5,592 5,704
Employee stock options............................. 508 347 324
------- ------- -------
Denominator forShares
outstanding - fully diluted earnings per share --
Adjusted weighted average Common Stock Outstanding
after assumed conversions........................ 27,010 27,408 31,252........................... 29,465 28,002 27,632
======= ======= =======
F-15
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 --5 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
Common Stock for the years ended December 31, 2001, 20002004, 2003 and 19992002 (excluding OP
Units of 5,426,374, 5,514,3306,340,805, 5,312,387 and 5,633,1835,359,927 outstanding at December 31, 2001,
20002004,
2003 and 1999,2002, respectively):
2001 2000 19992004 2003 2002
---------- ---------- ----------
Shares outstanding at January 1,.............................. 21,064,785 22,813,357 26,417,02922,563,348 22,093,240 21,562,343
Common Stock issued through conversion of OP Units.......... 87,956 59,190 143,637Units ......... 95,769 47,540 66,447
Common Stock issued through exercise of Options............. 387,115 138,029 126,565options ............ 196,834 302,526 282,959
Common Stock issued through stock grants.................... 57,000 92,070 95,666grants ................... -- 35,000 108,341
Common Stock issued through Employee Stock Purchase Plan.... 98,987 68,739 59,060Plan ... 81,241 85,042 73,150
Common Stock repurchased and retired........................ (133,500) (2,106,600) (4,028,600)retired ....................... -- -- --
---------- ---------- ----------
Shares outstanding at December 31,............................ 21,562,343 21,064,785 22,813,35722,937,192 22,563,348 22,093,240
========== ========== ==========
As of December 31, 2001,2004 and 2003, the Company's percentage ownership of the
Operating Partnership was approximately 78.5% and 80%., respectively. The
remaining approximately 21.5% and 20%, respectively, is owned by the Common OP
Unitholders.
F-10
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
In March 1997, the Company's Board of Directors approved a Common Stock
repurchase plan whereby the Company was authorized to repurchase and retire
shares of its Common Stock. No shares of Common Stock were repurchased during
the year ended December 31, 2001. However, under the plan, the Company
repurchased approximately 2.1 million shares of Common Stock at an average price
of $24.06 per share during the year ended December 31, 2000 and approximately
4.0 million shares of Common Stock at an average price of $23.40 per share
during the year ended December 31, 1999, using proceeds from borrowings on the
line of credit.
During the year ended December 31, 2000, the Operating Partnership
repurchased and cancelled approximately 60,000 OP Units from various holders. On
March 26, 1999, the Operating Partnership repurchased and cancelled 200,000 OP
Units from a limited partner of the Operating Partnership.
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") with two institutional investors. The POP Units, which are callable by
the Company after five years, have no stated maturity or mandatory redemption.
Net proceeds from the offering of $121 million were used to repay amounts
outstanding under the Company's line of credit facility and for other corporate
purposes.
The following distributions have been declared and/or paid to common
stockholders and Minority Interests since January 1, 1999.
DISTRIBUTION FOR THE QUARTER SHAREHOLDER
AMOUNT PER SHARE ENDING RECORD DATE PAYMENT DATE
------------------- ---------------------- ------------------ ----------------
$0.3875 March 31, 1999 March 26, 1999 April 9, 1999
$0.3875 June 30, 1999 June 25, 1999 July 9, 1999
$0.3875 September 30, 1999 September 24, 1999 October 8, 1999
$0.3875 December 31, 1999 December 31, 1999 January 14, 2000
- -----------------------------------------------------------------------------------------------
$0.4150 March 31, 2000 March 31, 2000 April 14, 2000
$0.4150 June 30, 2000 June 30, 2000 July 14, 2000
$0.4150 September 30, 2000 September 29, 2000 October 13, 2000
$0.4150 December 31, 2000 December 29, 2000 January 12, 2001
- -----------------------------------------------------------------------------------------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 2002
- -----------------------------------------------------------------------------------------------
The Operating Partnership pays distributions of 9.0% per annum on the $125
million of POP Units. Distributions on the POP Units wereare paid quarterly on the
last calendar day of each quarter beginningquarter.
The following distributions have been declared and paid to common
stockholders and Minority Interests since January 1, 2002:
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD
AMOUNT PER SHARE ENDING DATE PAYMENT DATE
- ---------------- ------------------ ------------------ ----------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$8.00 December 31, 2003 January 8, 2004 January 16, 2004
$0.0125 March 31, 2004 March 26, 2004 April 9, 2004
$0.0125 June 30, 2004 June 25, 2004 July 9, 2004
$0.0125 September 30, 2004 September 24, 2004 October 8, 2004
$0.0125 December 31, 2004 December 31, 2004 January 14, 2005
On December 31, 1999.12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October 2003 to pay the special distribution
on January 16, 2004. The special cash dividend was reflected on stockholders'
2004 1099-DIV issued in January 2005.
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company
F-16
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
recognized $180 million of taxable income as a result of its contribution, as
opposed to a nontaxable reduction of the Company's tax basis in its interest in
the Operating Partnership. This restructuring resulted in a step-up in the
Company's tax basis in its assets, generating future depreciation deductions,
which in turn will reduce the Company's future distribution requirements. The
Company intends to continue to qualify as a REIT under the Code, with its assets
consisting of interests in MHC Trust. MHC Trust, in turn, intends to also
qualify as a real estate investment trust under the Code and will be the general
partner of the Operating Partnership. On May 1, 2004, in connection with the
restructuring, MHC Trust sold cumulative preferred stock to a limited number of
unaffiliated investors.
The Company adopted, effective July 1, 1997, the 1997 Non-Qualified
Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees
and directors of the Company may each annually acquire up to $250,000 of Common
Stock of the Company. The aggregate number of shares of Common Stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the
Company's Board of Directors. The Common Stock may be purchased monthly at a
price equal to 85% of the lesser of: (a) the closing price for a share of Common
Stock on the last day of such month;the offering period; and (b) the greater of: (i) the closing price for a
share of Common Stock on the first day of such month, and (ii) the average closing price
for a share of Common Stock for all the business days in the month.offering period. Shares of Common
Stock issued through the ESPP for the years ended December 31, 2001, 20002004, 2003 and
19992002 were 96,485, 68,73980,955, 82,943 and 59,060,71,107, respectively.
F-11
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 --6- INVESTMENT IN REAL ESTATE
Land improvements consist primarily of improvements such as grading,
landscaping and infrastructure items such as streets, sidewalks or water mains.
Depreciable property consists of permanent buildings in the Properties such as
clubhouses, laundry facilities, maintenance storage facilities, and furniture,
fixtures and equipment.
On September 4, 1997, the Company entered into a portfolio purchase
agreement (as amended by a supplemental agreement on December 17, 1997) to
acquire 37 manufactured home communities (the "Ellenburg Communities") from
partnerships having Ellenburg Capital Corporation ("ECC") as the general
partner, for a purchase price in excess of $300 million. During 1997 and 1998,
the Company closed on the acquisition of 31 of the Ellenburg Communities for an
aggregate purchase price of approximately $278 million and gained control of an
additional five Ellenburg Communities with acquisition advances of approximately
$57 million to the partnerships which owned such Ellenburg Communities. All
fundings related to the acquisition were funded by the Company with borrowings
under the Company's line of credit, term bank facilities, assumed debt and the
issuance of Common OP Units.
During 1998, the Company received approximately $14.3 million, including
approximately $365,000 of interest income, which was being held subject to the
completion of due diligence procedures on the Ellenburg Communities. The $14.3
million was initially recorded as a liability until 1999 when a settlement of
certain related issues was substantially complete and accordingly, in a non-cash
transaction, relieved the liability and adjusted the purchase price of the
Ellenburg Communities.
In April 2000, the California Superior Court approved a settlement
agreement (the "Settlement") in connection with the dissolution proceeding of
ECC and its affiliated partnerships. As part of the Settlement, the Company
received $13.5 million previously held in escrow in connection with the purchase
of the Ellenburg Communities and recorded $3.0 million of interest income
related to these funds. In connection with the Settlement, the Company sold
three communities -- Mesa Regal RV Resort, Mon Dak and Naples Estates -- for an
aggregate sales price of $59.0 million, including cash proceeds of $40.0 million
and assumption of debt by the purchaser of $19.0 million. The Company recorded a
$9.1 million gain on the sale of these Properties. Proceeds from the Settlement
and property sales were used to pay down the Company's line of credit. See Note
17 for further discussion of the Settlement.
On January 6, 1998, the Company funded a $12.3 million loan (the "Meadows
Loan") to Meadows Preservation, Inc. The Meadows Loan was collateralized by The
Meadows manufactured home community located in Palm Beach Gardens, Florida. On
April 1, 1999, the Company effectively exchanged the Meadows Loan for an equity
and debt interest in the partnership that owns The Meadows. The Company includes
The Meadows in investment in real estate and the related results of operations
in the statement of operations.
On July 23, 1999, the Company acquired Coquina Crossing, located in St.
Augustine, Florida, for a purchase price of approximately $10.4 million. The
acquisition was funded with a borrowing under the Company's line of credit.
Coquina Crossing is a 748-site senior community with 269 developed sites and
zoned expansion potential for 479 sites. In addition, Realty Systems, Inc.
purchased the model home inventory at the community for approximately $1.1
million.
In March 2000, in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of ",
MHC Acquisition One L.L.C., a consolidated subsidiary of the Company, recorded
an impairment loss on the DeAnza Santa Cruz water and wastewater service company
business. Management's estimates indicated that the undiscounted future cash
flows from the business would be less than the carrying value of the business
and its related assets. The Company recorded an asset impairment loss of
$701,000 (or $0.03 per fully diluted share) which is included as a reduction of
other income in the accompanying statement of operations for the year ended
December 31, 2000. This loss represents the difference between the carrying
value of the DeAnza Santa Cruz water and wastewater service company business and
its related assets and their estimated fair market value.
On February 29, 2000, MHC Systems, Inc., a consolidated subsidiary of the
Company, disposed of the water and wastewater service company known as FFEC-Six
in a cash sale. Net proceeds from the sale of approximately $4.2 million were
used to pay down the Company's line of credit and a gain on the sale of $719,000
(or $0.03 per fully diluted share) was recorded in other income on the
accompanying statement of operations for the year ended December 31, 2000.
F-12
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- INVESTMENT IN REAL ESTATE (CONTINUED)
On January 3, 2001, the Company acquired two Florida communities, totaling
730 sites, for an aggregate purchase price of approximately $17.3 million. The
Lakes at Countrywood is a 422-site community in Plant City, near Tampa, Florida
and includes approximately 23 acres for expansion. Grand Island is a 308-site
community in Grand Island, near Orlando, Florida, and includes a marina with 50
boat docks. The acquisition was funded with a borrowing under the Company's line
of credit.
On February 13, 2001, the Company completed the disposition of the
following seven communities, totaling 1,281 sites, in Kansas, Missouri and
Oklahoma, for a total sale price of approximately $17.4 million:
Dellwood Estates........ 136 sites
Briarwood............... 166 sites
Bonner Springs.......... 211 sites
Carriage Park........... 143 sites
North Star.............. 219 sites
Quivira Hills........... 142 sites
Rockwood................ 264 sites
A gain of $8.1 million was recorded on the sale. Proceeds from the sale were
used to reduce the amount outstanding on the Company's line of credit.
Effective June 30, 2001, the Company terminated its lease to a third-party
operator for the campground and RV resort facilities at the Property known as
Bulow Plantation in Flagler Beach, Florida, and assumed operation of these
facilities directly. Beginning July 1, 2001 the Company no longer records lease
income from Bulow RV Resort, however, the results of operations for Bulow RV
Resort are included in the Company's results of operations.
On October 5, 2001, the Company finalized a settlement agreement between
MHC Lending Partnership, the Operating Partnership and the limited liability
company which owns Candlelight in Columbus, Indiana. In 1996, the Company funded
a recourse loan to the owner of Candlelight Village and accounted for the loan
as an investment in real estate. The Company received $10.8 million in proceeds
from the settlement, which was accounted for as a sale of real estate and
recorded a $75,000 gain on the sale. Proceeds from the sale were used as working
capital.
The acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statements of operations from the dates of acquisition. The
CompanyWe
acquired all of thethese Properties from unaffiliated third parties. During the
three years ended December 31, 2004, the Company acquired the following
Properties (amounts in millions, except site information):
1) During the year ended December 31, 2001,2004, we acquired the following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
------------ ---------------------------- ------------------ ----------- ------ ------ ------
ACQUISITIONS:
January 15, 2004 O'Connell's Amboy, IL 668 $ 6.6 $ 5.0 $ 1.6
January 30, 2004 Spring Gulch New Holland, PA 420 6.4 4.8 1.6
February 3, 2004 Paradise Mesa, AZ 950 25.7 20.0 5.7
February 18, 2004 Twin Lakes Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside New Carlisle, IN 95 1.7 -- 1.7
February 5, 2004 Diversified Portfolio Various 2,567 64.0 41.6 20.9
February 17, 2004 NHC Portfolio (a) Various 11,311 235.0 159.0 69.0
May 3, 2004 Viewpoint Mesa, AZ 1,928 81.3 44.0 37.3
May 12, 2004 Cactus Gardens Yuma, AZ 430 7.9 4.9 3.0
May 13, 2004 Monte Vista Mesa, AZ 832 45.8 23.0 22.8
May 14, 2004 GE Portfolio Various 1,155 52.9 37.7 15.2
September 8, 2004 Yukon Trails Lyndon Station, WI 214 2.2 -- 2.2
November 10, 2004 Thousand Trail Portfolio (b) Various 17,911 161.8 120.0 42.2
November 4, 2004 Caledonia Caledonia, WI 247 1.5 -- 1.5
December 30, 2004 Fremont Fremont, WI 325 5.7 4.3 1.4
a) On February 17, 2004, the Company capitalized
approximately $2.4acquired 93% of PAMI entities'
interests in 28 Properties. On July 1, 2004, the Company acquired the
remaining minority interest of the PAMI entities for a combination of
$1.0 million in cash and common OP units. On December 20, 2004, the
Company redeemed the common OP Units for $4.5 million.
F-17
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED)
b) On November 10, 2004 the Company provided a long-term lease of the
real estate to Thousand Trails, which will continue to operate the
Properties for its members. The lease will generate $16 million of
costs, including legal costs, relativeincome to efforts
by the Company on an absolute triple net basis subject to
effectively changeannual escalations of 3.25%. The initial term of the uselease is 15
years, with two five-year renewal options.
In connection with the 2004 acquisitions and operationsnot reflected in the table
above the Company acquired inventory of approximately $1.2 million, other
assets of $4.9 million, rents received in advance of approximately $13.6
million and other liabilities of approximately $5.8 million. The Company
also issued common OP Units for value of approximately $32.2 million.
Additional equity was funded through our line of credit and funds from
operations.
2) During the year ended December 31, 2003, we acquired the following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
------------ ----------- ----------- ----------- ------ ---- ------
ACQUISITIONS:
December 3, 2003 Toby's Arcadia, FL 379 $4.3 $ -- $4.3
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2 2.5
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4 0.4
The acquisitions were funded with monies held in short-term investments.
The acquisitions included the assumption of liabilities of approximately
$0.6 million. Also during 2003, we acquired a parcel of land adjacent to
one of our Properties for approximately $0.1 million.
3) During the year ended December 31, 2002, we acquired the following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
------------ ------------------- ------------------- ----------- ------ ----- ------
ACQUISITIONS:
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ -- $ 7.2
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1 7.4
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1 3.2
July 31, 2002 Countryside Apache Junction, AZ 560 7.5 -- 7.5
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1 3.3
July 31, 2002 Breezy Hill Pompano Beach, FL 762 20.5 10.5 10.0
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5 1.4
August 7, 2002 Tropic Winds Harlingen, TX 531 4.9 -- 4.9
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9 2.3
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2 6.6
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5 --
The acquisitions were funded with borrowings on our Line of Credit and the
assumption of $47.9 million of mortgage debt, which includes a $3.0 million
discount mark-to-market adjustment. In addition, we purchased adjacent land
and land improvements for several Properties which are currently recordedfor approximately $0.6
million.
During the three years ended December 31, 2004 the Company disposed of the
following Properties. The operating results have been reflected in
other assets. These costs will be
expenseddiscontinued operations.
1) During the year ended December 31, 2004, we sold one Property located
in Lake Placid, Florida for a selling price of $3.4 million, with net
proceeds of $0.8 million received in July 2004. No gain or loss on
disposition was recognized in the period. In addition, we sold
approximately 1.4 acres of land in Montana for a gain and net proceeds
of $0.6 million.
F-18
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED)
2) During the year ended December 31, 2003, we sold the three Properties
listed in the table below. Proceeds from the sales were used to repay
amounts on the Company's Line of Credit.
TOTAL DISPOSITION GAIN ON
DATE DISPOSED PROPERTY LOCATION SITES PRICE SALE
- ------------- ----------------- -------------- ----- ------------ ------------
($ millions) ($ millions)
June 6, 2003 Independence Hill Morgantown, WV 203 $ 3.9 $2.8
June 6, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1
June 30, 2003 Pheasant Ridge Mount Airy, MD 101 5.4 3.9
3) Also during 2002, we effectively sold 17 Properties as part of a
restructuring of the College Heights Joint Venture discussed
hereinafter. In addition, we sold Camelot Acres, a 319 site Property
in Burnsville, Minnesota, for approximately $14.2 million.
The following table illustrates the effect on net income and earnings per
share if management determines these efforts will not be successful.
Thethe Company ishad consummated the acquisitions during the year ended
December 2004 and 2003 on January 1, 2004 and 2003, respectively (amounts in
thousands, except per share data):
Pro Forma Information (unaudited): FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003
-------- --------
Property operating revenues ................. $307,477 $297,845
======== ========
Income from continuing operations ........... $ 7,088 $ 20,381
======== ========
Net income available for Common Shares ...... $ 7,114 $ 30,166
======== ========
Earnings per Common Share - Basic:
Income from continuing operations ........ $ 0.31 $ 0.92
Net income available for Common Shares.... $ 0.31 $ 1.36
Earnings per Common Share - Fully Diluted:
Income from continuing operations ........ $ 0.30 $ 0.92
Net income available for Common Shares ... $ 0.30 $ 1.34
We actively seekingseek to acquire additional manufactured home
communitiesProperties and currently isare engaged
in negotiations relating to the possible acquisition of a number of communities.Properties.
At any time these negotiations are at varying stages which may include contracts
outstanding to acquire certain manufactured home communitiesProperties which are subject to satisfactory
completion of the Company'sour due diligence review.
F-13F-19
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 --7 - INVESTMENT IN JOINT VENTUREVENTURES
On March 18, 1998,February 3, 2004, the Company joined Plantation Company, L.L.C.invested approximately $29.7 million in
preferred equity interests (the "Mezzanine Investment") in six entities
controlled by Diversified Investments, Inc. ("Diversified"). These entities own
in the aggregate 11 Properties, containing 5,054 sites. Approximately $11.7
million of the Mezzanine Investment accrues at a per annum average rate of 10%,
with a minimum per annum pay rate of 6.5%, payable quarterly, and Trails
Associates, L.L.C.approximately
$17.9 million of the Mezzanine Investment accrues at a per annum average rate of
11%, two 50% joint venture investments with a minimum pay rate of 7%, payable quarterly. To the principals of
Meadows Management Company, to own two manufactured home communities known as
"Plantationextent the minimum
pay rates on the Lake"respective Mezzanine Investments are not achieved, the accrual
rates increase to 12% and "Trails West"13% per annum, respectively. The Company can acquire
these Properties in the future at capitalization rates of between 8% and 8.5%,
forbeginning in 2006. In addition, the Company has invested approximately $6.5 million.
Plantation$1.4
million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Lake is locatedCompany's Consolidated
Balance Sheet as of December 31, 2004.
During the year ended December 31, 2004, the Company invested approximately
$4.1 million with Diversified in Riverside, California11 separate property-owning entities. The
Company can acquire these Properties in the future at capitalization rates of
between 8% and consists8.5%, beginning in 2006.
The Company recorded approximately $3.7 million, $0.3 million, and $0.2
million of 385
developed sitesincome from joint ventures, net of $1.2 million, $0.8 million and
122 expansion sites. Trails West is located$0.7 million depreciation, in Tucson,
Arizonathe years ended December 31, 2004, 2003 and consists of 488 developed sites. The Company's investments were
funded with a $3.92002,
respectively; and received approximately $5.2 million, borrowing under the Company's line of credit$0.8 million and with
the issuance of approximately $2.6$0.6
million in OP Units.
Ondistributions from joint ventures in the years ended December 28, 2000, the Company, through a joint venture with the
principals of Meadows Management Company (the "Voyager Joint Venture"), acquired
a 25% interest in Voyager RV Resort, a 1,576 site RV resort in Tucson, Arizona,
for total consideration of $4.0 million. Voyager RV Resort is adjacent to Trails
West. The Company's investment included cash of $3.0 million31,
2004, 2003, and its 50%
interest in land held through the Trails West joint venture valued at $2.0
million.2002 respectively. Due to the Company's inability to control the
joint ventures, the Company accounts for its investment in the joint ventures
using the equity method of accounting.
The Company recorded approximately $283,000 and $8,000following is a summary of net income
fromthe Company's investments in unconsolidated joint
ventures in the years ended December 31, 2001 and 2000, respectively;
and received approximately $1.6 million and $400,000 in distributions.
NOTE 7 -- INVESTMENT IN AND ADVANCES TO AFFILIATES
Investment in and advances to affiliates consists principally of preferred
stock of Realty Systems, Inc. ("RSI") and its subsidiaries (collectively
"Affiliates") and advances under a line of credit between the Company and RSI.
The Company accounts for the investment in and advances to Affiliates using the
equity method of accounting.
Following is unaudited financial information for the Affiliates for the
years ended December 31, 2001 and 2000 (amounts in thousands):ventures:
2001 2000NUMBER ECONOMIC INVESTMENT AS OF INVESTMENT AS OF
PROPERTY LOCATION OF SITES INTEREST (A) DEC. 31, 2004 DEC. 31, 2003
-------- -------------- -------- ------------ ---------------- ----------------
(in thousands) (in thousands)
Assets
Trails West Tucson, AZ 503 50% $ 51,6191,731 $ 37,501
Liabilities,1,752
Plantation Calimesa, CA 385 50% 3,032 2,825
Manatee Bradenton, FL -- 90% -- 45
Home Hallandale, FL 136 90% -- 1,082
Villa del Sol Sarasota, FL 207 90% 630 654
Voyager Tucson, AZ 767 25% 3,010 4,412
Mezzanine Investments Various 5,054 -- 31,207 --
Indian Wells Indio, CA 350 30% 271 --
Diversified Investments Various 4,443 25% 3,702 --
------ ------- -------
11,845 $43,583 $10,770
====== ======= =======
(a) The percentages shown approximate the Company's economic interest. The
Company's legal ownership interest may differ.
F-20
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INVESTMENT IN JOINT VENTURES (CONTINUED)
UNCONSOLIDATED REAL ESTATE JOINT VENTURE FINANCIAL INFORMATION
The following tables represent combined summarized financial information of the
unconsolidated real estate joint ventures.
BALANCE SHEETS AS OF DECEMBER 31,
2004 2003
-------------- --------------
(in thousands) (in thousands)
ASSETS
Real estate, net of amounts due
to the Company (17,232) (16,286)$183,480 $49,899
Other assets 22,646 4,723
-------- -------
TOTAL ASSETS 206,126 54,622
======== =======
LIABILITIES
Mortgage debt & other loans $152,682 39,253
Other liabilities 13,485 8,393
Partner's equity 39,959 6,976
-------- Net investment in Affiliates-------
TOTAL LIABILITIES AND EQUITY 206,126 54,622
======== =======
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------
2004 2003
-------------- --------------
(in thousands) (in thousands)
Rentals $ 34,38727,941 $ 21,2159,632
Other Income 5,390 2,241
-------- -------
TOTAL REVENUES 33,331 11,873
EXPENSES
Operating expenses $ 16,454 $ 6,709
Interest 7,558 2,852
Other Income & Expenses 2,672 203
Depreciation & Amortization 10,165 676
-------- -------
TOTAL EXPENSES 36,849 10,440
-------- -------
-------- -------
NET (LOSS) INCOME ($ 3,518) $ 1,433
======== ========
Home sales $ 38,621 $ 39,952
Cost of sales (30,657) (31,837)
Other revenues and expenses, net (6,153) (5,707)
-------- --------
Equity in income of Affiliates $ 1,811 $ 2,408
======== ===============
F-14F-21
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 --- NOTES RECEIVABLE
At December 31, 20012004 and 2000,2003, the Company had approximately $1.5$13.3 million
and $5.0$11.6 million in notes receivable, respectively.
On May 12, 1998, the Company entered into an agreement to loan $5.9 million
to Trails Associates, L.L.C. (the "Trails West Loan") for development of the
Property known as Trails West. Subsequently, the Company funded $3.2 million
under the Trails West Loan. In December 2000, $1.2 million of the Trails West
Loan was repaid and during 2001, the remaining balance on the Trails West Loan
was repaid. On December 28, 2000, the
Company, in connection with the Voyager Joint Venture, entered into an agreement
to loan $3.0 million to certain principals of Meadows Management Company. The
notes are collateralized with a combination of Common OP Units and partnership
interests in this and other joint ventures. The notes bear interest at prime
plus 0.5% per annum, require quarterly interest only payments and mature on
December 31, 2011. The outstanding balance on these notes as of December 31,
20012004 is $1.5$0.4 million.
The Company has approximately $12.9 million in Chattel Loans receivable,
which yield interest at a per annum average rate of approximately 9.0%, have an
average term and amortization of 5 to 15 years, require monthly principal and
interest payments and are collateralized by homes at certain of the Properties.
NOTE 9 --- EMPLOYEE NOTES RECEIVABLE
As of December 31, 20012004 and 2000,2003, the Company had employee notes receivable
of $0 million. During 2003, approximately $3.8$2.7 million and $4.2 million respectively,of notes receivable were
repaid. These notes were collateralized by shares of the Company's Common Stock. These notesStock
and are presented as a reduction of Stockholder'sStockholders' Equity.
In December 1992, certain directors, officers and other individuals each
entered into subscription agreements with the Company to acquire a total of
440,000 shares of the Company's common stock at $7.25 per share. The Company
received from these individuals notes (the "1993 Employee Notes") in exchange
for their shares. The 1993 Employee Notes accrue interest at 6.77% per annum,
mature on March 2, 2003, and are recourse against the employees in the event the
pledged shares are insufficient to repay the obligations.
On January 2, 1996, certain members of management of the Company entered
into subscription agreements with the Company to acquire a total of 270,000
shares of the Company's Common Stock at $17.375 per share, the market price on
that date. The Company received from these individuals notes (the "1996 Employee
Notes") in exchange for their shares. The 1996 Employee Notes accrue interest at
5.91% per annum, mature on January 2, 2005, and are recourse against the
employees in the event the pledged shares are insufficient to repay the
obligations.
F-15
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 --- LONG-TERM BORROWINGS
As of December 31, 20012004 and December 31, 2000,2003, the Company had outstanding
mortgage indebtedness of approximately $590.4$1,417 million and $556.6$1,076 million,
respectively, encumbering 77165 and 73114 of the Company's Properties, respectively.
As of December 31, 20012004 and December 31, 2000,2003, the carrying value of such
Properties was approximately $693$1,653 million and $631$1,124 million, respectively.
On August 3, 2001,MORTGAGE DEBT OUTSTANDING
- Approximately $499.2 million of mortgage debt (the Recap) consisting
of 49 loans collateralized by 51 Properties beneficially owned by
separate legal entities that are Subsidiaries of the Company, entered into a $50.0which we
closed on October 17, 2003. Of this Mortgage Debt, $166.1 million
mortgage note
(the "Stagecoach Mortgage") collateralized by 7 Properties.bears interest at 5.35% per annum and matures November 1, 2008; $80.6
million bears interest at 5.72% per annum and matures November 1,
2010; $79.1 million bears interest at 6.02% per annum and matures
November 1, 2013; and $173.4 million bears interest at 6.33% per annum
and matures November 1, 2015. The proceeds were
used to repay amounts under the Company's line of credit and for working capital
purposes.
The outstanding mortgage indebtedness as of December 31, 2001 consists of:Mortgage Debt amortizes over 30
years.
- A $265.0 million mortgage note (the "$265 Million Mortgage")
collateralized by 2928 Properties beneficially owned by MHC Financing
Limited Partnership. The $265 Million Mortgage has a maturity date of
January 2, 2028 and paysbears interest at 7.015%. per annum. There is no
principal amortization until February 1, 2008, after which principal
and interest are to be paid from available cash flow and the interest
rate will be reset at a rate equal to the then 10-year U.S. Treasury
obligations plus 2.0%. The $265 Million Mortgage is presented net of a
settled hedge of $3.0 million (net of accumulated amortization of
$137,000)$466,969), which is being amortized into interest expense over the
life of the loan.
- A $65.9 million mortgage note (the "College Heights Mortgage")
collateralized by 18 Properties. The College Heights Mortgage bears
interest at a rate of 7.19%, amortizes beginning July 1, 1999 over 30
years and matures July 1, 2008.
- A $93.0$90.5 million mortgage note (the "DeAnza Mortgage") collateralized
by 6 Properties beneficially owned by MHC-DeAnza Financing Limited
Partnership. The DeAnza Mortgage bears interest at a rate of 7.82%, per
annum, amortizes beginning August 1, 2000 over 30 years and matures
July 1, 2010.
- A $49.9$48.4 million mortgage note (the "Stagecoach Mortgage")
collateralized by 7 Properties beneficially owedowned by MHC Stagecoach
L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98%, per
annum, amortizes beginning September 1, 2001 over 10 years and matures
September 1, 2011.
F-22
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM BORROWINGS (CONTINUED)
- A $22.5$43.7 million mortgage note (the "Bay Indies Mortgage")
collateralized by one Property beneficially owned by MHC-BayMHC Bay Indies,
Financing Limited
Partnership.L.L.C. The Bay Indies Mortgage bears interest at a rate of 7.48%,5.69% per
annum, amortizes beginning August 1, 1994April 17, 2003 over 27.525 years and matures
JulyMay 1, 2004.2013.
- A $15.6$15.2 million mortgage note (the "Date Palm Mortgage")
collateralized by one Property beneficially owned by MHC Date Palm,
L.L.C. The Date Palm Mortgage bears interest at a rate of 7.96%, per
annum, amortizes beginning August 1, 2000 over 30 years and matures
July 1, 2010.2010
- Approximately $78.5$457.9 million of mortgage debt on 1571 other various Properties,
which was recorded at fair market value with the related discount or
premium being amortized over the life of the loan using the effective
interest rate.rate method. Scheduled maturities for the outstanding
indebtedness are at various dates through November 30, 2020,1, 2027, and fixed
interest rates range from 7.15%5.16% to 8.75%.8.55% per annum. Included in this
debt, the Company has a $2.4 million loan recorded to account for a
direct financing lease entered into in May 1997. On August 9, 2000,Approximately $157
million of debt was assumed in the acquisition of 28 Properties during
the twelve months ended December 31, 2004.
UNSECURED TERM LOAN OUTSTANDING
- The Company amended itsentered into a Term Loan agreement, pursuant to which it
borrowed $120 million, on an unsecured linebasis, at LIBOR plus 1.75% per
annum. The loan will be due and payable on November 10, 2007, unless
this initial maturity date is extended by the borrower for an
additional two years upon satisfaction of creditcertain conditions. Proceeds
from this debt were used to acquire KTTI Holding Company, Inc. as part
of the Thousand Trails transaction.
UNSECURED LINES OF CREDIT OUTSTANDING
- The Company entered into a $110 million facility with a group of banks
(the "Credit Agreement")in December 2003, bearing interest at the London Interbank
Offered Rate ("LIBOR")LIBOR plus 1.125%. Among other things, the amendment lowered
the total facility under the Credit Agreement to $150 million and extended the
maturity to1.65% per annum that
matures on August 9, 2003. The Company pays a quarterly fee on the average
unused amount of such credit equal2006, which can be extended for an additional
year to 0.15% of such amount.2007. As of December 31, 2001, $133.82004, $35.7 million was available
under the Credit Agreement.
F-16
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- LONG-TERM BORROWINGS (CONTINUED)this facility.
- The Company has a $100 million unsecured term loan (the "Term Loan") with a
group of banks with interest only payable monthly at a rate of LIBOR plus 1.0%.
The Term Loan maturity has been extended to April 3, 2002. On February 8, 2002,
the Company entered into a term loan credit agreement$50 million facility with the same group of
banks, which extended the Term Loan to August 9, 2005.
On October 29, 2001, the Company entered into anWells Fargo Bank
in May 2004, bearing interest rate swap
agreement, fixing at LIBOR plus 1.65% per annum that
matures on $100 million of the Company's floating rate debt
at approximately 3.7%May 4, 2006, which can be extended for the period October 2001 through August 2004. The terms
of the swap require monthly settlements on the same dates interest payments are
due on the debt. In accordance with SFAS No. 133, the interest rate swap will be
reflected at market value. The Company believes the swap is a perfectly
effective cash flow hedge under SFAS No. 133 and there will be no effect on net
income as a result of the mark-to-market adjustment.an additional year
to 2007. As of December 31, 2001 the
swap had a market value of $489,000 which is included in other assets. The
effect of the mark-to-market adjustment, is reflected in other comprehensive
income.2004, $8.5 million was available under
this facility.
In July 1998, the Company entered into an interest rate swap agreement (the
"1998 Swap") fixing LIBOR on $100December 2004, we fixed $180 million of the Company'sthis floating rate debt at
6.4% for the period 1998 through 2003. The value of the 1998 Swap was impacted
by changes in the market1
year with a weighted average rate of interest. The Company accounted for the 1998
Swap as a hedge. Payments and receipts under the 1998 Swap were accounted for as
an adjustment to interest expense. On January 10, 2000, the Company terminated
the 1998 Swap and received $1.0 million of proceeds which is being amortized as
an adjustment to interest expense through March 2003.
The Company has approximately $2.2 million of installment notes payable,
secured by a letter of credit, each with an interest rate of 6.5%, maturing
September 1, 2002. Approximately $900,000 of the notes pay principal annually
and interest quarterly and the remaining $1.3 million of the notes pay interest
only quarterly.4.7% per annum.
Aggregate payments of principal on long-term borrowings for each of the
next five years and thereafter are as follows (amounts in thousands):
YEAR AMOUNT
- -------------------------------------- ---------- --------
20022005 $ 6,190
2003 30,275
2004 33,231
2005 109,01818,742
2006 20,384169,770
2007 432,350
2008 203,903
2009 70,558
Thereafter 509,759
--------748,349
Net unamortized premiums and discounts 9,379
----------
Total $708,857
========$1,653,051
==========
F-17F-23
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 --- LEASE AGREEMENTS
The leases entered into between the tenantcustomer and the Company for the rental
of a site are generally month-to-month or for a period of one to ten years,
renewable upon the consent of the parties or, in some instances, as provided by
statute. NoncancelableNon-cancelable long-term leases are in effect at certain sites within
22approximately 37 of the Properties. Rental rate increases at these Properties
are primarily a function of increases in the Consumer Price Index, taking into
consideration certain floors and ceilings. Additionally, periodic market rate
adjustments are made as deemed necessary.appropriate. Future minimum rents are scheduled
to be received under noncancelablenon-cancelable tenant leases at December 31, 20012004 as
follows (amounts in thousands):
YEAR AMOUNT
-------------- --------
20022005 $ 41,906
2003 29,654
2004 26,574
2005 25,33950,916
2006 17,37252,062
2007 43,537
2008 31,983
2009 19,106
Thereafter 45,12044,149
--------
Total $185,965$241,753
========
NOTE 12 --- GROUND LEASES
The Company leases land under noncancellablenon-cancelable operating leases at certain of
the Properties expiring in various years from 2022 to 20312032 with terms which
require twelve12 equal payments per year plus additional rents calculated as a
percentpercentage of gross revenues. For the years ended December 31, 2001, 20002004, 2003 and
1999,2002, ground lease rent was approximately $1.6 million.million per year. Minimum future
rental payments under the ground leases are approximately $1.6 million for each
of the next five years and $27.9approximately $23.5 million thereafter.
NOTE 13 --- TRANSACTIONS WITH RELATED PARTIES
Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel
Zell, Chairman of the Company's Board of Directors, and certain of its
affiliates have provided services such as administrative support and investor
relations, corporate
secretarial, real estate tax evaluation services, market consulting and research
services.relations. Fees paid to EGI and its affiliates amounted to approximately $2,000,
$26,000$0,
$300 and $74,000$1,000 for the years ended December 31, 2001, 20002004, 2003 and 1999,2002,
respectively. There were no significant amounts due to these affiliates as of
December 31, 20012004 and 2000,2003, respectively.
Certain related entities, owned by persons affiliated with Mr. Zell, have provided services
to the Company. These entities include, but are not limited to, Rosenberg & Liebentritt, P.C. which provided legal services including
property acquisition services in 1999; The Riverside
Agency, Inc. which provided insurance brokerage services. In addition, Equity Office Properties Trust, ofservices and Two North Riverside
Plaza Joint Venture Limited Partnership from which Mr. Zell is the Chairman of the Board, providesCompany leases office
space to the
Company.space. Fees paid to these entities amounted to approximately $454,000,
$442,000$412,000, $404,000
and $473,000$645,000 for the years December 31, 2001, 20002004, 2003 and 1999,2002, respectively.
Amounts due to these affiliatesentities were approximately $0 and $32,000 as of both December
31, 20012004 and 2000,2003, respectively. During 2003, we paid $25,000 to J. Green & Co.,
L.L.C. for services provided by Mr. Berman, the Company's current Chief
Financial Officer, prior to his employment by the Company.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Company's Board of
Directors.
F-18
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 --- STOCK OPTION PLAN AND STOCK GRANTS
AThe Company's Stock Option and Stock Award Plan (the "Plan") was adopted by the Company in
December 1992.1992 and amended and restated from time to time, most recently
effective March 23, 2001. Pursuant to the Plan, certain officers, directors, employees
and consultants of the Company may beare offered the opportunity (i) to acquire shares
of Common Stock through the grant of stock options ("Options"), including
non-qualified stock options and, for key employees, incentive stock options
within the meaning of Section 422 of the Internal Revenue Code.Code; and (ii) to be
awarded shares of Common Stock ("Restricted Stock Grants"), subject to
conditions and restrictions determined by the Compensation, Nominating, and
Corporate Governance Committee of the Company's Board of Directors (the
"Compensation Committee"). The Compensation Committee will determine the
F-24
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
vesting schedule, if any, of each Option and the term, which term shall not
exceed ten years from the date of grant. As to the Options that have been
granted through December 31, 2001,2004 to officers, employees and consultants,
generally, one-third are exercisable one year after the initial grant, one-third
are exercisable two years following the date such Options were granted and the
remaining one-third are exercisable three years following the date such Options
were granted. The
Plan allows for 10,000 Options to be granted annually to each director. The
Common Stock with respect to which the Options may be granted during any
calendar year to any grantee shall not exceed 250,000 shares. In addition, the
Plan provides for the granting of stock appreciation rights ("SARs") and
restricted stock grants ("Stock Grants"). A maximum of 4,000,0006,000,000 shares of Common Stock wereare available for
grant under the Plan asand no more than 250,000 shares may be subject to grants to
any one individual in any calendar year.
Grants under the Plan are made by the Compensation Committee, which
determines the individuals eligible to receive awards, the types of December 31, 2001.awards, and
the terms, conditions and restrictions applicable to any award. In 2001, 2000 and 1999,addition, the
Company issued 0, 19,181 and 14,666 shares
related toterms of two specific types of awards are contemplated under the Plan:
- The first type of award is a grant of Options or Restricted Stock
Grants respectively, which represented a portion of certain
employee bonuses. TheCommon Stock made to each member of the Board at the meeting
held immediately after each annual meeting of the Company's
stockholders. Generally, if the director elects to receive Options,
the grant will cover 10,000 shares of Common Stock at an exercise
price equal to the fair market value of these Stock Grants of approximately
$0, $525,000 and $352,000 aton the date of grant. If the
director elects to receive a Restricted Stock Grant of Common Stock,
he or she will receive an award of 2,000 shares of Common Stock.
Exercisability or vesting with respect to either type of award will be
with respect to one-third of the award after six months, two-thirds of
the award after one year, and the full award after two years.
- The second type of award is a grant was recorded asof Common Stock in lieu of 50% of
their bonus otherwise payable to individuals with a title of Vice
President or above. A recipient can request that the Compensation
Committee pay a greater or lesser portion of the bonus in shares of
Common Stock.
Prior to 2003, we accounted for our stock compensation in accordance with
APB No. 25, "Accounting for Stock Issued to Employees", based upon the intrinsic
value method. This method results in no compensation expense byfor Options issued
with an exercise price equal to or exceeding the Companymarket value of the Common
Stock on the date of grant. Effective January 1, 2003, we elected to account for
our stock-based compensation in 2001, 2000accordance with SFAS No. 123 and 1999, respectively.its amendment
(SFAS No. 148), "Accounting for Stock Based Compensation", which will result in
compensation expense being recorded based on the fair value of the Options and
other equity awards issued. SFAS No. 148 provides three possible transition
methods for changing to the fair value method. We have elected to use the
modified-prospective method. This method requires that we recognize stock-based
employee compensation cost from the beginning of the fiscal year in which the
recognition provisions are first applied as if the fair value method had been
used to account for all employee awards granted, or settled in fiscal years
beginning after December 15, 1994. The following table illustrates the effect on
net income and earnings per share as if the fair value method was applied to all
outstanding and unvested awards in each period presented (amounts in thousands,
except per share data):
2003 2002
2004 (Restated) (Restated)
------- ---------- ----------
Net income available for Common Shares
as reported ............................. $ 4,026 $25,132 $31,887
Add: Stock-based compensation expense
included in net income as reported ...... 2,899 2,139 2,185
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards ....... (2,899) (2,139) (2,086)
------- ------- -------
Pro forma net income available for
Common Shares ........................... $ 4,026 $25,132 $31,986
======= ======= =======
Pro forma net income per Common Share
- Basic ................................. $ 0.18 $ 1.14 $ 1.48
======= ======= =======
Pro forma net income per Common Share
- Fully Diluted ......................... $ 0.17 $ 1.11 $ 1.44
======= ======= =======
F-25
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Restricted Stock Grants
In 1998,2002, the Company awarded 233,500Restricted Stock Grants for 69,750 shares of
Common Stock to certain members of senior management of the Company. These
Restricted Stock Grants vest over fivethree years, but may be restricted for a
period of up to ten years depending upon certain performance benchmarks tied to
increases in funds from operations being met. The fair market value of these
Restricted Stock Grants of approximately $5.7$2.2 million as of the date of grant
was treated in 19982002 as deferred compensation. The Companycompensation and amortized approximately $2.0 million and $593,000 related to these Stock Grants
in 2001 and 2000, respectively. The balance of unamortized deferred compensation
related to these Stock Grants is $2,206,000 as of December 31, 2001.accordance with
their vesting.
In 1999,2004, the Company awarded 65,000Restricted Stock Grants for 135,000 shares of
Common Stock to certain members of senior management of the Company. These
Restricted Stock Grants vest over three years with
one-half vesting in 1999. The fair market value of these Stock Grants of
approximately $1.5 million as of the date of grant was treated in 1999 as
deferred compensation. The Company amortized approximately $386,000 and $385,000
related to these Stock Grants in 2001 and 2000, respectively.
In 2000, the Company awarded 69,750 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over three years with
one-half vesting in 2000. The fair market value of these Stock Grants of
approximately $1.9 million as of the date of grant was treated in 2000 as
deferred compensation. The Company amortized approximately $478,000 and $955,000
related to these Stock Grants in 2001 and 2000 respectively. The balance of
unamortized deferred compensation related to these Stock Grants is $478,000 as
of December 31, 2001.
In 2001, the Company awarded 43,000 Stock Grants to certain members of
senior management of the Company. These Stock Grants vest over five years, but may be restricted for a
period of up to ten years depending upon certain performance benchmarks tied to
increases in funds from operations being met. The fair market value of these
Restricted Stock Grants ofwas approximately $1.2$5.0 million as of the date of grant
was treatedand is recorded as compensation expense and paid in 2001 as deferred compensation.capital over the three year
vesting period.
In 2004, 2003 and 2002, the Company awarded Restricted Stock Grants for
40,000, 35,000 and 16,000 shares of Common Stock, respectively, to directors
with a fair market value of approximately $1,386,000, $733,000 and $376,000 in
2004, 2003 and 2002, respectively.
The Company amortizedrecognized compensation expense of approximately $239,000$2.7, $1.8 and
$1.5 million related to theseRestricted Stock Grants in 2001.2004, 2003 and 2002
respectively. The balance of unamortized deferred compensation related to these Stock Grants is
approximately $957,000 as of December
31, 2001.
In 1999, the Plan2004 and 2003 was amended to provide aapproximately $0.2 and $0.5 million, respectively.
Stock Grant of 2,000 shares
vesting over three years in lieu of the 10,000 Options granted after the
amendment to each director, if the director so elects.
The fair market value of Stock Grants awarded to directors of approximately $386,000, $401,000each grant is estimated on the grant date using the
Black-Scholes model. The following table includes the assumptions that were made
and $432,000 in 1999, 2000 and 2001 respectively, were treated as deferred
compensation. The Company amortized approximately $406,280 related to these
Stock Grants in 2001. The balance of unamortized deferred compensation
related to the 1999, 2000, and 2001 Stock Grants is $0, $134,000 and $288,000
respectively as of December 31, 2001.
F-19estimated fair values:
ASSUMPTION 2004 2003 2002
- ---------- --------- -------- ----------
(pro forma)
Dividend yield ............................ 5.9% 5.6% 6.3%
Risk-free interest rate ................... 4.7% 3.5% 3.5%
Expected life ............................. 10 years 5 years 5 years
Expected volatility ....................... 16% 14% 19%
--------- -------- --------
Estimated Fair Value of Options Granted ... $ 57,000 $ 40,600 $ 37,432
F-26
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 --- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
InterpretationsIn January 2004, approximately 1.2 million options were repriced in
accounting for its Options and Stock Grants because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's Options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Additionally, the amount
recognized as expense for the Stock Grants during any given year of the
performance period is dependent on certain performance benchmarks being met.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its Options and Stock Grants under the fair value method of that
Statement. The fair value for the Options was estimated at the date of grant
using a Black-Scholes option pricing modelconnection with the following weighted-average
assumptions for 2001, 2000 and 1999, respectively: risk-free interest rates of
3.5%, 5.5% and 6.3%;special dividend yields of 6.3%, 6.3% and 6.3%; volatility factors
of the expected market price of the Company's common Stock of .19, .20 and .21;
and a weighted-average expected life of the Options of 5 years. The fair value
of the Stock Grants granted in 2001, 2000 and 1999 has been estimated at
approximately 30% below the calculated fair market valuepaid on the date of grant
because these Stock Grants may remain restricted even after they become fully
vested.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's Options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's Options. In addition, the existing
models are not representative of the effects on reported net income for future
years.
For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period and the
estimated fair value of the Stock Grants is amortized to expense over the same
period. The pro forma effect of SFAS No. 123 on the Company's net income for the
years ended December 31, 2001, 2000 and 1999 was $648,000 ($0.02 per share),
$134,000 ($0.0 per share) and $138,000 ($0.0 per share), respectively.January 16, 2004 (see Note 5). A
summary of the Company's stock option activity, and related information for the
years ended December 31, 2001, 20002004, 2003 and 19992002 follows:
WEIGHTED AVERAGE
SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS PER SHARE
-------------- ----------------------------------
Balance at December 31, 1998 1,899,379 $21.082001 1,828,348 23.44
Options granted 313,400 23.9120,000 33.55
Options exercised (126,565) 19.25(282,959) 20.48
Options canceled (66,767) 24.08
---------(49,492) 24.94
----------
Balance at December 31, 1999 2,019,447 21.722002 1,515,897 24.08
Options granted 440,077 25.9420,000 32.67
Options exercised (250,092) 23.17(302,526) 21.06
Options canceled (101,227) 24.33
---------(9,437) 25.60
----------
Balance at December 31, 2000 2,108,205 22.302003 1,223,934 24.95
Options granted 234,150 29.441,212,367 17.28
Options exercised (387,115) 19.98(195,737) 15.47
Options canceled (69,891) 25.05
---------(1,194,568) 25.04
----------
Balance at December 31, 2001 1,885,349 23.57
=========2004 1,045,996 17.74
==========
F-20
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
On March 23, 2001, the Company's Board of Directors approved resolutions
amending and restating the Plan effective March 23, 2001 (the "Amended Plan") to
increase the number of Common Shares issuable thereunder by 2,000,000 shares of
Common Stock to an aggregate of 6,000,000 shares. On May 8, 2001, the Company's
shareholder's approved the Amended Plan.The following table summarizes information regarding Options outstanding at
December 31, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED
AVERAGE
OUTSTANDING WEIGHTED
RANGE OF EXERCISE CONTRACTUAL WEIGHTED AVERAGE AVERAGE
PRICES OPTIONS LIFE (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ----------------- --------- --------------- ---------------- --------- --------------
$7.62 to $14.00 169,467 1.6 $11.88 169,467 $11.88
$15.69 to $18.99 680,475 4.4 $17.38 680,475 $17.38
$22.65 to $31.53 196,054 7.4 $24.06 176,052 $23.47
--------- --- ------ --------- ------
1,045,996 4.5 $17.74 1,025,994 $17.51
========= === ====== ========= ======
As of December 31, 2001, 20002004, 2003 and 1999, 1,252,3442002, 1,942,025 shares, 416,6032,119,152 shares,
and 747,2582,166,686 shares remained available for grant, respectively, and 1,422,211respectively; of these
861,525 shares, 1,562,0741,038,853 shares, and 1,426,0721,073,853 shares, were exercisable, respectively.
Exercise pricesrespectively, remained
available for Options outstanding as of December 31, 2001 ranged from
$12.88 to $30.65, with the substantial majority of the exercise prices exceeding
$17.25. The remaining weighted-average contractual life of those Options was 6.2
years. The weighted average exercise price of outstanding and exercisable
options was $22.39 as of December 31, 2001.Restricted Stock Grants.
NOTE 15 --- PREFERRED STOCK
The Company's Board of Directors is authorized under the Company's charter,
without further stockholder approval, to issue, from time to time, in one or
more series, 10,000,000 shares of $.01 par value preferred stock (the "Preferred
Stock"), with specific rights, preferences and other attributes as the Board may
determine, which may include preferences, powers and rights that are senior to
the rights of holders of the Company's Common Stock. However, under certain
circumstances, the issuance of preferred stock may require stockholder approval
pursuant to the rules and regulations of The New York Stock Exchange. As of
December 31, 20012004 and 2000,2003, no Preferred Stock was issued by the Company.
F-27
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 --- SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral feature
designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover
its employees and those of its Subsidiaries, if any. The 401(k) Plan permits
eligible employees of the Company and those of any Subsidiary to defer up to 19%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, the Company will match dollar-for-dollar the participant's
contribution up to 4% of the participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit sharing
component of the 401(k) Plan provides for a contribution to be made annually for
each participant in an amount, if any, as determined by the Company. All
employee contributions are 100% vested. The Company's contribution to the 401(k)
Plan was approximately $353,000, $315,000$545,271, $240,000, and $385,000,$248,000, for the years ended
December 31, 2001, 20002004, 2003, and 1999,2002, respectively.
The Company'sCompany has established a supplemental executive retirement plan contribution(the
"SERP") to provide certain officers and directors an opportunity to defer a
portion of their eligible compensation in order to save for retirement and for
the profit sharing componenteducation of their children. The SERP is restricted to investments in
Company common shares, certain marketable securities that have been specifically
approved, or cash equivalents. In accordance with EITF 97-14 "Accounting for
Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested", the deferred compensation liability represented in the SERP
and the securities issued to fund such deferred compensation liability are
consolidated by the Company on the balance sheet. Assets held in the SERP are
included in other assets and are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings. Company
shares held in the SERP are classified in stockholders equity due to the
inability of the 401(k) Plan is $139,000 for the year
ended December 31, 2001.Company to repurchase these shares.
NOTE 17 --- COMMITMENTS AND CONTINGENCIES
DEANZA SANTA CRUZ
MOBILE ESTATES
The residentscustomers of DeAnza Santa Cruz Mobile Estates, a propertyProperty located in
Santa Cruz, California, (the "City") previously brought several actions opposing
certain fees and charges in
connection with water service at the Property. This
summary provides the history and reasoning underlying the Company's defenseAs a result of the residents' claims and explains the Company's decision to continue to defend
its position, whichone action, the
Company believes is fair and accurate.
DeAnza Santa Cruz Mobile Estates is a 198-site Community overlooking the
Pacific Ocean. It is subjectrebated approximately $36,000 to the City's rent control ordinance which limits
annual rent increases to 75% of CPI.customers. The Company purchased this Property in
August 1994 from certain unaffiliated DeAnza entities ("DeAnza"). Prior to the
Company's purchase in 1994, DeAnza made the decision to submeter and separately
bill tenants at the Property for both water and sewer in 1993 in the face of the
City's rapidly rising utility costs.
F-21
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Under California Civil Code Section 798.41, DeAnza was required to reduce
rent by an amount equal to the average cost of usage over the preceding 12
months. This was done. With respect to water charges, because DeAnza did not
want to be regulated by the California Public Utility Commission ("CPUC"),
DeAnza relied on California Public Utilities Code Section 2705.5 ("CPUC Section
2705.5") to determine what rates would be charged for water on an ongoing basis
without becoming a public utility. DeAnza and the Company interpreted the
statute as providing that in a submetered mobile home park, the property owner
is not subject to regulation and control of the CPUC so long as the users are
charged what they would be charged by the utility company if users received
their water directly from the utility company. In Santa Cruz, customers
receiving their water directly from the City's water utility were charged a
certain lifeline rate for the first 400 ccfs of water and a greater rate for
usage over 400 ccfs of water, a readiness to serve charge of $7.80 per month and
tax on the total. In reliance on CPUC Section 2705.5, DeAnza implemented its
billings on this schedule notwithstanding that it did not receive the discount
for the first 400 ccfs of water because it was a commercial and not a
residential customer.
A dispute with the residents ensued over the readiness to serve charge and
tax thereon. The residents argued that California Civil Code Section 798.41
required that the Property owner could only pass through its actual costs of
water (and that the excess charges over the amount of the rent rollback were an
improper rent increase) and that CPUC Section 2705.5 was not applicable. DeAnza
unbundled the utility charges from rent consistent with California Civil Code
Section 798.41 and it has generally been undisputed that the rent rollback was
accurately calculated.
In August 1994, when the Company acquired the Property, the Company
reviewed the respective legal positions of the Santa Cruz
Homeowners Association ("HOA") and DeAnza and concurred with DeAnza. DeAnza's reliance on CPUC Section
2705.5 made both legal and practical sense in that residents paid only what they
would pay if they lived inthen proceeded to a residential neighborhood within the City and
permitted DeAnzajury trial alleging these
"overcharges" entitled them to recoup partan award of the expenses of operatingpunitive damages. In January 1999, a
submetered system
through the readiness to serve charge.
Over a period of 18 months from 1993 into May of 1995, a series of
complaints were filed byjury awarded the HOA and Herbert Rossman, a resident, against
DeAnza, and later, the Company. DeAnza and the Company demurred to each of these
complaints on the grounds that the CPUC had exclusive jurisdiction over the
setting of water rates and that residents under rent control had to first
exhaust their administrative remedies before proceeding in a civil action. At
one point, the case was dismissed (with leave to amend) on the basis that
jurisdiction was with the CPUC and, at another point, Mr. Rossman was dismissed
from the case because he had not exhausted his administrative remedies.
On June 29, 1995, a hearing was held before a City rent control officer on
billing and submetering issues related to both water and sewer. The Company and
DeAnza prevailed on all issues related to sewer and the rent rollback related to
water, but the hearing officer determined that the Company could only pass
through its actual cost of water, i.e., a prorated readiness to serve charge and
tax thereon. The hearing officer did not deal with the subsidy being given to
residents through the quantity charge and ordered a rebate in a fixed amount per
resident. The Company and DeAnza requested reconsideration on this issue, among
others, which reconsideration was denied by the hearing officer.
The Company then took a writ of mandate (an appeal from an administrative
order) to the Superior Court and, pending this appeal, the residents, the
Company and the City agreed to stay the effect of the hearing officer's decision
until the Court rendered judgment.
In July 1996, the Superior Court affirmed the hearing officer's decision
without addressing concerns about the failure to take the subsidy on the
quantity charge into account.
F-22
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company requested that the City and the HOA agree to a further stay
pending appeal to the court of appeal, but they refused and the appeal court
denied the Company's request for a stay in late November 1996. Therefore, on
January 1, 1997, the Company reduced its water charges at this Property to
reflect a pass-through of only the readiness to serve charge and tax at the
master meter (approximately $0.73) and to eliminate the subsidy on the water
charges. On their March 1, 1997 rent billings, residents were credited for
amounts previously "overcharged" for readiness to serve charge and tax. The
amount of the rebate given by the Company and DeAnza was $36,400. In calculating
the rebate, the Company and DeAnza took into account the previous subsidy on
water usage although this issue had not yet been decided by the court of appeal.
The Company and DeAnza felt legally safe in so doing based on language in the
hearing officer's decision that actual costs could be passed through.
On March 12, 1997, the Company also filed an application with the CPUC to
dedicate the water system at this Property to public use and have the CPUC set
cost-based rates for water usage. The Company believed it was obligated to take
this action because of its consistent reliance on CPUC Section 2705.5 as a safe
harbor from CPUC jurisdiction. That is, when the Company could no longer charge
for water as the local serving utility would charge, it was no longer exempt
from the CPUC's jurisdiction and control under CPUC Section 2705.5.
On March 20, 1998, the court of appeal issued the writ of mandate requested
by the Company on the grounds that the hearing officer had improperly calculated
the amount of the rebate (meaning the Company had correctly calculated the rent
credits), but also ruling that the hearing officer was correct when he found
that the readiness to serve charge and tax thereon as charged by DeAnza and the
Company were an inappropriate rent increase. The decision primarily reflected
the court of appeal's view that CPUC Section 2705.5 operated as a ceiling and
that California Civil Code Section 798.41 allowed for a charge based on actual
costs, including costs of administration, operation and maintenance of the
system, but that the Company had not to provide evidence of such costs. The
court of appeal further agreed with the Company that the City's hearing officer
did not have the authority under California Civil Code Section 798.41 to
establish rates that could be charged in the future.
Following this decision, the CPUC granted the Company its certificate of
convenience and necessity on December 17, 1998 and approved cost-based rates and
charges for water that exceed what residents were paying under the Company's
reliance on CPUC Section 2705.5. Concurrently, the CPUC also issued an Order
Instituting Investigation ("OII") confirming its exclusive jurisdiction over the
issue of water rates in a submetered system and commencing an investigation into
the confusion and turmoil over billings in submetered properties. Specifically,
the OII states: "The Commission has exclusive and primary jurisdiction over the
establishment of rates for water and sewer services provided by private
entities."
Specifically, the CPUC ruling regarding the Company's application stated:
"The ultimate question of what fees and charges may or may not be assessed,
beyond external supplier pass-through charges, for in-park facilities when a
mobile home park does not adhere to the provisions of CPUC Section 2705.5, must
be decided by the Commission."
After the court of appeal decision, the HOA brought all of its members back
into the underlying civil action for the purpose of determining damages,
including punitive damages, against the Company. The trial was continued from
July 1998 to January 1999 to give the CPUC time to act on the Company's
application. Notwithstanding the action taken by the CPUC in issuing the OII in
December 1998, the trial court denied the Company's motion to dismiss on
jurisdictional grounds and trial commenced before a jury on January 11, 1999.
Not only did the trial court not consider the Company's motion to dismiss,
the trial court refused to allow evidence of the OII or the Company's CPUC
approval to go before the jury. Notwithstanding the Company's strenuous
objections, the judge also allowed evidence of the Company's and DeAnza's
litigation tactics to be used as evidence of bad faith and oppressive actions
(including evidence of the application to the CPUC requesting a $22.00 readiness
to serve charge). The Company's motion for a mistrial based upon these
evidentiary rulings was denied. On January 22, 1999, the jury returned a verdict
awarding $6.0 million ofin punitive damages against the Company and DeAnza. The
Company had previously agreed to indemnify DeAnza on the matter.
F-23
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company bonded the judgment pending appeal in accordance with
California procedural rules, which require a bond equal to 150% of the amount of
the judgment. Post-judgment interest will accrue at the statutory rate of 10.0%
per annum.
On April 19, 1999, the trial court denied all of the Company's and DeAnza's
post-trial motions for judgement notwithstanding the verdict, new trial and
remittur. The trial court also awarded $700,000 of attorneys' fees to
plaintiffs. The Company appealed the jury verdict and attorneys' fees award
(which also accrues interest at the statutory rate of 10.0% per annum).damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, and the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the MRL.California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. The Company expects the HOAIn order to seek a new trial
during 2002. The Company intends to vigorously defend itself.
In two related appeals,resolve this matter, the Company
had argued thataccrued for and agreed to pay $201,000 to the trial court's
ability to enterHOA. This payment resolved the
punitive damages claim. The HOA's attorney made a motion asking for an award of
attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company appealed this award. On July 13, 2004, the
California Court of Appeal affirmed the award of attorney's fees in favor of the
HOAHOA's attorney.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to take
certain other actions was preempted bymarket upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the exercisevalue of exclusive jurisdiction by
the CPUC overfuture discounted
rent-controlled rents. In the issue of how to set rates for waterCompany's view, such regulation results in a
submetered mobile
home park. During 2000,transfer of the California courtvalue of appeal rejected the Company's preemption argument with respectstockholders' land, which would otherwise
be reflected in market rents, to these prior rulings in favortenants upon the sales of plaintiffs,
one of which had awarded plaintiffs approximately $100,000 of attorneys' fees.
The California Supreme Court declined to accept the case for review and the
Company paid the judgment, including post-judgment interest thereon, and
settled the matter for approximately $200,000 late in 2000.
In a separate matter, in December 2000 the HOA and certain individual
residents of the Property filed a complaint in the Superior Court of California,
County of Santa Cruz (No. CV 139825) against the Company, certain affiliates of
the Company and certain employees of the Company. The new lawsuit seeks damages,
including punitive damages, for intentional infliction of emotional distress,
unfair business practices, and unlawful retaliation purportedly arising from
allegedly retaliatory rent increases which were noticed by the Company to
certain residents in September 2000. The Company believes that the residents who
received rent increase notices with respect to rent increases above those
permitted by the local rent control ordinance were not covered by the ordinance
either because they did not comply with the provisions of the ordinance or
because they are exempted by state law. On December 29, 2000, the Superior Court
of California, County of Santa Cruz enjoined such rent increases. The Company
intends to vigorously defend the matter, which may go to trial in the summer of
2002.
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
("the Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all of the litigation and
appeals involving the Ellenburg Properties, and transactions arising out of the
settlement closed on May 22, 2000 (see Note 5). Only the appeals of the two
entities remain, neither of which is expected to materially affect the Company.
In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of its affiliates
alleging causes of action for fraud and other claims in connection with the
Ellenburg acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 has appealed. This appeal was one
not resolved by the Settlement. The Company believes Fund 20's allegations are
without merit and will vigorously defend itself.
F-24their
F-28
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 --- COMMITMENTS AND CONTINGENCIES (CONTINUED)
In October 2001, Fund 20 suedhomes in the form of an inflated purchase price that cannot be attributed to the
value of the home being sold. As a result, in the Company's view, the Company
and certainloses the value of its affiliates
again, this time in Almeda County, California making substantiallyasset and the same
allegations.selling tenant leaves the Property with a
windfall premium. The Company obtained an injunction preventinghas discovered through the case from
proceeding untillitigation process that
certain municipalities considered condemning the Fund 20 appeal is decided and other related proceedings in
Arizona (from whichCompany's Properties at values
well below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company has already been dismissed with prejudice) are
concluded.
CANDLELIGHT PROPERTIES, L.L.C
In 1996, 1997 and 1998,at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to stockholders. The Company is cognizant of
the Lending Partnership made loans to Candlelight
Properties, L.L.C. ("Borrower")need for affordable housing in the aggregate principal amountjurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of $8,050,000
(collectively,such regulation are fully capitalized into the "Loan". The Loan was secured by a mortgage on Candlelight
Village ("Candlelight"), a Property in Columbus, Indiana, and was guaranteed by
Ronald E. Farren,prices of
the 99% owner of Borrower.homes sold. The Company accounted forestimates that the Loan
as an investmentannual rent subsidy to tenants in
real estatethese jurisdictions is approximately $15 million. In a more well balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and accordingly, Candlelight's rental revenues
and operating costs were includedhomes would trade at or near their intrinsic value.
In connection with such efforts, the Company's rental revenues and
operating costs for financial reporting purposes. Concurrently with the funding
of the Loan, Borrower granted the Operating Partnership the option to acquire
Candlelight upon the maturity of the Loan. The Operating Partnership notified
Borrower thatCompany announced it was exercising its option to acquire Candlelight in March 1999,
and the Loan subsequently matured on May 3, 1999. However, Borrower failed to
repay the Loan and refused to convey Candlelight to the Operating Partnership.
Borrower filed suit in the Circuit Court of Bartholomew County, Indiana
("Court") on May 5, 1999, seeking declaratory judgment on the validity of the
exercise of the option. The Lending Partnership filed suit in the Court the next
day, seeking to foreclose its mortgage, and the suits were consolidated by the
Court.
On September 20, 2001, the partieshas entered into
a settlement agreement providing for a cash paymentwith the City of $10.8 millionSanta Cruz, California and that,
pursuant to the Lending Partnershipsettlement agreement, the City amended its rent control
ordinance to exempt the Company's Property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and dismissal with prejudicebases annual rent increases on the CPI. The
settlement agreement benefits the Company's stockholders by allowing them to
receive the value of all litigation among the parties and their affiliates, among other terms. The closing under the Settlement Agreement
occurred on October 5, 2001.investment in this Property through vacancy decontrol
while preserving annual CPI based rent increases in this age restricted
Property.
The Company accounted forhas filed two lawsuits in Federal court against the Settlement as a
dispositionCity of San
Rafael, challenging its rent control ordinance on constitutional grounds. The
Company believes that one of those lawsuits was settled by the City agreeing to
amend the ordinance to permit adjustments to market rent upon turnover. The City
subsequently rejected the settlement agreement. The Court initially found the
settlement agreement was binding on the City, but then reconsidered and
determined to submit the claim of breach of the property.
WESTWINDSsettlement agreement to a jury.
In October 2002, the first case against the City went to trial, based on both
breach of the settlement agreement and the constitutional claims. A jury found
no breach of the settlement agreement; the Company then filed motions asking the
Court to rule in its favor on that claim, notwithstanding the jury verdict. The
Operating Partnership isCourt has postponed decision on those motions and on the ground lesseeconstitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the constitutional claims, then the Company
has pending claims seeking a declaration that it can close the Property and
convert it to another use.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("Lessee"CMHOA") of certain
property, a 396
site Property in San Jose,Rafael, California, under ground leases ("Leases") fromsued the Nicholson Family Trust ("Lessor"). On February 13, 2001, Lessor filedCompany in December 2000 over
a petition
for arbitrationprior settlement agreement on a capital expenditure pass-through after the
Company sued the City of disputes over whether certain items constitute "gross
revenue" underSan Rafael in October 2000 alleging its rent control
ordinance is unconstitutional. In the Leases in which petition Lessor seeks damages and termination
ofContempo Marin case, the Leases. Lessee respondedCMHOA prevailed
on March 12, 2001 disputing Lessor's
contentions. Lessor claims that "gross revenue" for the purpose of calculating
percentage rent owing to Lessor under the ground leases includes certain amounts
Lessee has recouped from tenants of the Property (who are protected by rent
control) related to ground rent already paid to Lessor. Lessee has successfully
been able to pass-through to tenants at the property increases in ground rent
under the Leases. Lessee contends that this pass-through results in
reimbursement of lease expense, not "gross revenue." Lessor also contends that
the "net income" of RSI from the Property should be included in the gross
revenue calculation. Lessee disputes this for many reasons, including, but not
limited to, the fact that RSI is not a lessee under the Leases, the sales
activity is not conducted by Lessee, and RSI is a separate company from Lessee.
Lessor's motion for summary judgment on an issue that permits the Company to collect
only $3.72 out of a monthly pass-through issue was denied
by an arbitration panel on November 2, 2001. Lessor and Lessee haveamount of $7.50 that the Company
believes had been agreed to mediateby the dispute prior to arbitration.CMHOA in a settlement agreement. On May 23,
2004, the California Court of Appeal affirmed the trial court's order dismissing
the Company's claims against the City of San Rafael. The trial court has set a
trial date in the second quarter of 2005 on the CMHOA's remaining claims for
damages. The Company intends to vigorously defend this matter. The Company
believes that such lawsuits will be a consequence of the Company's efforts to
change rent control since tenant groups actively desire to preserve the premium
value of their homes in addition to the discounted rents provided by rent
control. The Company has determined that its efforts to rebalance the regulatory
environment despite the risk of litigation from tenant groups are necessary not
only because of the $15 million annual subsidy to tenants, but also because of
the condemnation risk.
Similarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and other
property owners. However, the Court allowed the City to continue to enforce a
rent control ordinance that predated the two invalid ordinances (the "prior
ordinance"). As a result of the judgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and the prior ordinances and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance been
continually in effect. The City of Santee appealed the judgment. The court of
appeal and California Supreme Court refused to stay enforcement of these rent
adjustments pending appeal. After the City was unable to obtain a
F-29
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
stay, the City and the tenant association each sued the Company in separate
actions alleging the rent adjustments pursuant to the judgment violate the prior
ordinance (Case Nos. GIE 020887 and GIE 020524). They seek to rescind the rent
adjustments, refunds of amounts paid, and penalties and damages in these
separate actions. On January 25, 2005, the California Court of Appeal reversed
the judgment in part and affirmed it in part with a remand. The Court of Appeal
affirmed that one ordinance was unlawfully adopted and therefore void and that
the second ordinance contained unconstitutional provisions. However, the Court
ruled the City had the authority to cure the issues with the first ordinance
retroactively. On remand the trial court is directed to decide the issue of
damages to the Company which the Company believes is consistent with the Company
receiving the economic benefit of invalidating one of the ordinances and also
consistent with the Company's position that it is entitled to market rent and
not merely a higher amount of regulated rent. The Company will petition the
Supreme Court of California for review of certain aspects of this decision. The
Company intends to vigorously defend the two new lawsuits. In addition, the
Company has sued the City of Santee in Federal court alleging all three of the
ordinances are unconstitutional under the Fifth Amendment to the United States
Constitution because they fail to substantially advance a legitimate state
interest. Thus, it is the Company's position that the ordinances are subject to
invalidation as a matter of law in the Federal court action. Separately, the
Federal District Court granted the City's Motion for Summary Judgment in the
Company's Federal Court lawsuit. This decision was based not on the merits, but
on procedural grounds, including that the Company's claims were moot given its
success in the state court case. The Company intends to appeal this ruling and
believes the outcome will be affected by the cases currently before the Ninth
Circuit and United States Supreme Court.
Moreover, in July 2004, the Ninth Circuit Court of Appeal decided the case
of Cashman v. City of Cotati, a Property owner's challenge to the City's rent
control ordinance, and stated that a rent control ordinance that does not believeon its
face provide for a mechanism to prevent the capture of a premium is
unconstitutional, as a matter of law, absent sufficient externalities rendering
a premium unavailable. This reasoning supports the legal position the Company
has put forth in its opposition to rent control in general and vacancy control
in particular. The City of Cotati has petitioned the Ninth Circuit for rehearing
and that petition is pending. In addition, in October 2004, the amountsUnited States
Supreme Court granted certiorari in questionState of Hawaii vs. Chevron USA, Inc., a
Ninth Circuit Court of Appeal case that upholds the standard that a regulation
must substantially advance a legitimate state purpose in order to be
constitutionally viable. The case was argued before the United States Supreme
Court on February 22, 2005. The ultimate outcome of these cases will guide the
Company's continued efforts to realize the value of its Properties which are
material even if resolved againstsubject to rent control and the Lessee and, based
upon adviceCompany's efforts to achieve a level of
counsel, does not believe that the Lessor will be successfulregulatory fairness in terminating the Leases.rent control jurisdictions.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. F-25In
addition, to the extent any such proceedings or audits relate to newly acquired
Properties, the Company considers any potential indemnification obligations of
sellers in favor of the Company.
F-30
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 -- SUBSEQUENT EVENTS
Effective January 1, 2002, the Company purchased all of the outstanding
Common Stock of RSI from affiliated and non-affiliated owners for approximately
$675,000. As a result, the Company owns and controls RSI and will consolidate
RSI as of January 1, 2002.
F-26
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 --- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 2001, 20002004 and 19992003 (amounts in
thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
20012004 3/31 6/30 9/30 12/31
---- ------- ------- ------- ----------------- ---------- ---------- ----------
(Restated) (Restated) (Restated) (Restated)
Total Revenues......................................... $57,532 $56,218 $55,536 $56,570revenues (a)....................................... $80,320 $86,844 $89,425 $96,378
Income before allocation to Minority Interests and
extraordinary loss on early extinguishment of debt... $18,739 $10,512 $10,468 $11,825from continuing operations (a).................... $ 4,495 $ 481 $ (864) $ (80)
Income from discontinued operations (a).................. $ 15 $ (21) $ -- $ --
Net income (loss) available to common shareholders............ $12,644stockholders....... $ 6,1354,510 $ 6,097460 $ 7,207(864) $ (80)
Weighted average Common Shares outstanding -- Basic.... 20,793 20,969 21,108 21,266- Basic....... 22,674 22,737 22,829 22,906
Weighted average Common Shares outstanding -- Diluted.. 26,771 26,898 27,071 27,293- Diluted..... 27,986 28,655 29,335 29,360
Net income (loss) per Common Share outstanding -- Basic.......- Basic... $ 0.610.20 $ 0.290.02 $ 0.29(0.04) $ 0.34(0.00)
Net income (loss) per Common Share outstanding -- Diluted.....-
Diluted............................................... $ 0.590.19 $ 0.290.02 $ 0.28(0.04) $ 0.33(0.00)
(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
20002003 3/31 6/30 9/30 12/31
---- ------- ------- ------- ----------------- ---------- ---------- ----------
(Restated) (Restated) (Restated) (Restated)
Total Revenues......................................... $57,148 $54,271 $53,875 $55,384revenues (a)....................................... $64,569 $66,760 $68,760 $71,066
Income before allocation to Minority Interests......... $10,743 $21,547from continuing operations (a).................... $ 9,715 $10,6966,969 $ 4,709 $ 4,578 $ (714)
Income from discontinued operations (a).................. $ 294 $ 9,288 $ 8 $ --
Net income (loss) available to common shareholders............stockholders....... $ 6,331 $13,9217,263 $13,997 $ 5,4514,586 $ 6,244(714)
Weighted average Common Shares outstanding -- Basic.... 22,297 21,871 21,166 20,559- Basic....... 21,918 22,027 22,114 22,247
Weighted average Common Shares outstanding -- Diluted.. 28,242 27,809 27,077 26,520- Diluted..... 27,276 27,371 27,458 27,568
Net income (loss) per Common Share outstanding -- Basic.......- Basic... $ 0.280.33 $ 0.64 $ 0.260.21 $ 0.30(0.03)
Net income (loss) per Common Share outstanding -- Diluted.....-
Diluted.............................................. $ 0.280.32 $ 0.630.62 $ 0.250.20 $ 0.30(0.03)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1999 3/31 6/30 9/30 12/31
---- ------- ------- ------- -------
Total Revenues......................................... $54,390 $52,446 $53,537 $54,654
Income before allocation to Minority Interests......... $10,078 $ 8,477 $ 8,417 $ 7,056
Net income available to common shareholders............ $ 8,234 $ 6,968 $ 6,877 $ 5,693
Weighted average Common Shares outstanding -- Basic.... 26,157 25,773 25,613 23,381
Weighted average Common Shares outstanding -- Diluted.. 32,340 31,829 31,586 29,281
Net income per Common Share outstanding -- Basic....... $ 0.31 $ 0.27 $ 0.27 $ 0.24
Net income per Common Share outstanding -- Diluted..... $ 0.31 $ 0.27 $ 0.27 $ 0.24
F-27(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
F-31
SCHEDULE II
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 21, 200131, 2004
ADDITIONS
-------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER AT END OF
OF PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD
---------- ---------- ---------- ------------- -------------------
For the year ended December 31, 1999:2002:
Allowance for doubtful accounts..... $250,000 $413,573accounts...... $300,000 $ 940,565 $ -- ($363,573) $300,000540,565) $ 700,000
For the year ended December 31, 2000:2003:
Allowance for doubtful accounts..... $300,000 $322,574accounts...... $700,000 $ 820,822 $ -- ($322,574) $300,000693,822) $ 827,000
For the year ended December 31, 2001:2004:
Allowance for doubtful accounts..... $300,000 $426,579 $ --accounts...... $827,000 $1,182,000 ($426,579) $300,000145,000) ($834,000) $1,030,000
- ---------------
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
SCHEDULE III
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012004
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
-------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- ------------------------------------- ------------ ------ ----------- ---- ------------ -------- ----------- ------ -----------
Apollo Village Phoenix AZ 5,2843,997 932 3,219 0 446578
Araby Acres Yuma AZ 3,222 1,440 4,345 0 12
The Highlands at Brentwood Manor Mesa AZ 4,575 1,99810,910 1,997 6,024 (1) 2920 738
Cactus Gardens Yuma AZ 4,849 1,992 5,984 0 12
Carefree Manor Phoenix AZ 3,394 706 3,040 0 706 3,307 0 (135)222
Casa del Sol #1 Peoria AZ 6,78610,629 2,215 6,467 0 3291,235
Casa del Sol #2 Glendale AZ 6,920 2,1049,983 2,103 6,283 (1) 2700 928
Casa del Sol #3 Glendale AZ 6,63111,015 2,450 7,452 0 166375
Central Park Phoenix AZ 7,1855,103 1,612 3,784 0 452641
Countryside Phoenix AZ 3,737 2,056 6,241 0 206
Desert Paradise Yuma AZ 1,452 666 2,011 0 4
Desert Skies Phoenix AZ 5,046 792 3,126 0 792 3,629 0 (432)296
Fairview Manor Tucson AZ 05,048 1,674 4,708 0 8751,113
Foothill Yuma AZ 1,350 459 1,402 0 16
Golden Sun Scottsdale AZ 2,976 1,678 5,049 0 48
Hacienda De Valencia Mesa AZ 8,4216,063 833 2,701 0 8502,123
Monte Vista Mesa AZ 22,844 11,402 34,355 0 157
Palm Shadows Glendale AZ 3,1218,471 1,400 4,218 0 356391
Paradise Sun City AZ 19,813 6,414 19,263 0 56
Sedona Shadows Sedona AZ 2,6452,465 1,096 3,431 0 286538
Suni Sands Yuma AZ 3,172 1,249 3,759 0 7
Sunrise Heights Phoenix AZ 05,636 1,000 3,016 0 269413
The Mark Mesa AZ 08,826 1,354 4,660 6 718846
The Meadows Tempe AZ 9,26012,436 2,613 7,887 0 4391,103
Viewpoint Mesa AZ 43,703 24,890 56,340 0 99
Whispering Palms Phoenix AZ 3,219 670 2,141 0 670 2,399 0 (138)182
California Hawaiian San Jose CA 17,97626,968 5,825 17,755 0 8131,581
Colony Park Ceres CA 5,826 890 2,837 0 890 4,513 0 (1,610)319
Concord Cascade Pacheco CA 10,3815,411 985 3,016 0 6821,047
Contempo Marin San Rafael CA 16,149 4,78825,233 4,787 16,379 (1) 1,8510 2,376
Coralwood Modesto CA 06,200 0 5,047 0 148276
Date Palm Country Club Cathedral City CA 15,60815,194 4,138 14,064 (23) 1,796-23 3,416
Date Palm Cathedral City CA 0 0 216 0 47
Four Seasons Fresno CA 0 756 2,348 0 126245
Laguna Lake San Luis Obispo CA 5,5704,916 2,845 7,640 1 (959)6,520 0 252
Gross Amount Carried
at Close of
Period 12/31/04
-------------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- -------------------- ------ ----------- ------ ------------ -----------
Apollo Village Phoenix AZ 932 3,797 4,729 (1,302) 1994
Araby Acres Yuma AZ 1,440 4,357 5,797 (158) 2003
The Highlands at Brentwood Mesa AZ 1,997 6,762 8,759 (2,566) 1993
Cactus Gardens Yuma AZ 1,992 5,996 7,988 (102) 2004
Carefree Manor Phoenix AZ 706 3,262 3,968 (803) 1998
Casa del Sol #1 Peoria AZ 2,215 7,702 9,917 (1,587) 1996
Casa del Sol #2 Glendale AZ 2,103 7,211 9,314 (1,458) 1996
Casa del Sol #3 Glendale AZ 2,450 7,827 10,277 (1,722) 1998
Central Park Phoenix AZ 1,612 4,425 6,037 (2,947) 1983
Countryside Phoenix AZ 2,056 6,447 8,503 (510) 2002
Desert Paradise Yuma AZ 666 2,015 2,681 (63) 2004
Desert Skies Phoenix AZ 792 3,422 4,214 (809) 1998
Fairview Manor Tucson AZ 1,674 5,821 7,495 (1,352) 1998
Foothill Yuma AZ 459 1,418 1,877 (52) 2003
Golden Sun Scottsdale AZ 1,678 5,097 6,775 (407) 2002
Hacienda De Valencia Mesa AZ 833 4,824 5,657 (2,475) 1984
Monte Vista Mesa AZ 11,402 34,512 45,914 (766) 2004
Palm Shadows Glendale AZ 1,400 4,609 6,009 (1,837) 1993
Paradise Sun City AZ 6,414 19,319 25,733 (592) 2004
Sedona Shadows Sedona AZ 1,096 3,969 5,065 (979) 1997
Suni Sands Yuma AZ 1,249 3,766 5,015 (116) 2004
Sunrise Heights Phoenix AZ 1,000 3,429 4,429 (1,227) 1994
The Mark Mesa AZ 1,360 5,506 6,866 (1,892) 1994
The Meadows Tempe AZ 2,613 8,990 11,603 (3,091) 1994
Viewpoint Mesa AZ 24,890 56,439 81,329 (1,096) 2004
Whispering Palms Phoenix AZ 670 2,323 2,993 (580) 1998
California Hawaiian San Jose CA 5,825 19,336 25,161 (4,884) 1997
Colony Park Ceres CA 890 3,156 4,046 (899) 1998
Concord Cascade Pacheco CA 985 4,063 5,048 (2,467) 1983
Contempo Marin San Rafael CA 4,787 18,755 23,542 (6,419) 1994
Coralwood Modesto CA 0 5,323 5,323 (1,350) 1997
Date Palm Country Club Cathedral City CA 4,115 17,480 21,595 (5,722) 1994
Date Palm Cathedral City CA 0 263 263 (100) 1994
Four Seasons Fresno CA 756 2,593 3,349 (665) 1997
Laguna Lake San Luis Obispo CA 2,845 6,772 9,617 (1,693) 1998
S-2
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------- -------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- ------------------------ ----------------- ------------ ----- ------------- ----- -------------
Lamplighter Spring Valley CA 9,3933,761 633 2,201 0 502675
Las Palmas Rialto CA 3,807 1,295 3,866 0 20
Meadowbrook Santee CA 0 4,345 12,528 0 9241,522
Monte del Lago Castroville CA 8,1607,673 3,150 9,469 0 6291,464
Quail Meadows Riverbank CA 05,280 1,155 3,469 0 149293
Nicholson Plaza San Jose CA 0 --0 4,512 0 4472
Pacific Dunes Ranch California CA 6,025 1,940 5,632 0 27
Central Coast
Parque La Quinta Rialto CA 5,105 1,799 5,450 0 -45
Rancho Mesa El Cajon CA 9,600 2,130 6,389 0 2,130 6,616 0 (173)249
Rancho Valley El Cajon CA 4,6453,624 685 1,902 0 469794
Royal Holiday Hemet CA 0 778 2,643 0 2,840374
Royal Oaks Visalia CA 0 602 1,921 0 146281
DeAnza Santa Cruz Santa Cruz CA 5,5816,871 2,103 7,201 0 2,103317
Santiago Estates Sylmar CA 16,205 3,562 10,767 0 3,562 14,205 0 (3,098)769
Sea Oaks Los Osos CA 0 871 2,703 0 128267
Sunshadow San Jose CA 0 0 5,707 0 137
Tahoe Valley Campground Lake Tahoe CA 2,246 1,357 4,071 0 12
Village of Four Seasons San Jose CA 15,332 5,229 15,714 0 18
Westwinds (4 properties) San Jose CA 0 0 17,616 0 5,116
Bear Creek Sheridan CO 4,880 1,100 3,359 0 248
Cimarron Broomfield CO 4,541 863 2,790 0 584
Golden Terrace Golden CO 4,246 826 2,415 0 720
Golden Terrace South Golden CO 2,400 750 2,265 0 617
Golden Terrace West Golden CO 8,328 1,694 5,065 0 1,011
Hillcrest Village Aurora CO 10,504 1,912 5,202 289 2,397
Holiday Hills Denver CO 14,746 2,159 7,780 0 3,819
Holiday Village CO Co. Springs CO 3,471 567 1,759 0 912
Pueblo Grande Pueblo CO 1,867 241 1,069 0 432
Woodland Hills Denver CO 7,390 1,928 4,408 0 2,407
Aspen Meadows Rehoboth Beach DE 5,620 1,148 3,460 0 338
Camelot Meadows Rehoboth Beach DE 7,304 527 2,058 1,251 3,719
Mariners Cove Millsboro DE 16,452 990 2,971 0 3,909
McNicol Rehoboth Beach DE 2,710 563 1,710 0 72
Sweetbriar Rehoboth Beach DE 3,040 498 1,527 0 377
Waterford Estates Bear DE 30,954 5,250 16,202 0 614
Whispering Pines Lewes DE 9,871 1,536 4,609 0 1,005
GROSS AMOUNT CARRIED
AT CLOSE OF PERIODGross Amount Carried
at Close of
Period 12/31/01
-------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION04
----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ------------------------ ----------------- ----- ----------- -------- ----------- ---------------- ------------ -----------
Apollo Village 932 3,665 4,597 (883) 1994
Brentwood Manor 1,997 6,316 8,313 (1,846) 1993
Carefree Manor 706 3,172 3,878 (425) 1998
Casa del Sol #1 2,215 6,796 9,011 (936) 1996
Casa del Sol #2 2,103 6,553 8,656 (875) 1996
Casa del Sol #3 2,450 7,618 10,068 (909) 1998
Central Park 1,612 4,236 5,848 (2,442)
Lamplighter Spring Valley CA 633 2,876 3,509 (1,853) 1983
Desert Skies 792 3,197 3,989 (419) 1998
Fairview Manor 1,674 5,583 7,257 (720) 1998
Hacienda De Valencia 833 3,551 4,384 (1,931) 1984
Palm Shadows 1,400 4,574 5,974 (1,324) 1993
Sedona Shadows 1,096 3,717 4,813 (550) 1997
Sunrise Heights 1,000 3,285 4,285 (861) 1994
The Mark 1,360 5,378 6,738 (1,284) 1994
The Meadows 2,613 8,326 10,939 (2,204) 1994
Whispering Palms 670 2,261 2,931 (300) 1998
California Hawaiian 5,825 18,568 24,393 (2,880) 1997
Colony Park 890 2,903 3,793 (375) 1998
Concord Cascade 985 3,698 4,683 (2,019) 1983
Contempo Marin 4,787 18,230 23,017 (4,319) 1994
Coralwood 0 5,195 5,195 (760) 1997
Date Palm Country Club 4,115 15,860 19,975 (3,774) 1994
Four Seasons 756 2,474 3,230 (370) 1997
Laguna Lake 2,846 6,681 9,527 (1,004) 1998
Lamplighter 633 2,703 3,336 (1,510) 1983Las Palmas Rialto CA 3,886 5,181 (76) 2004
Meadowbrook Santee CA 4,345 13,452 17,797 (1,677)14,050 18,395 (3,073) 1998
Monte del Lago Castroville CA 3,150 10,098 13,248 (1,468)10,933 14,083 (2,612) 1997
Quail Meadows Riverbank CA 1,155 3,618 4,773 (454)3,762 4,917 (844) 1998
Nicholson Plaza San Jose CA 0 4,556 4,556 (658)4,584 4,584 (1,126) 1997
Pacific Dunes Ranch California CA 1,940 5,659 7,599 (178) 2004
Central Coast
Parque La Quinta Rialto CA 1,799 5,405 7,204 (197) 2004
Rancho Mesa El Cajon CA 2,130 6,443 8,573 (821)6,638 8,768 (1,453) 1998
Rancho Valley El Cajon CA 685 2,371 3,056 (1,320)2,696 3,381 (1,633) 1983
Royal Holiday Hemet CA 778 2,840 3,618 (97)3,017 3,795 (606) 1998
Royal Oaks Visalia CA 602 2,067 2,669 (301)2,202 2,804 (554) 1997
DeAnza Santa Cruz Santa Cruz CA 2,103 9,304 11,407 (1,677)7,518 15,012 (2,553) 1994
Santiago Estates Sylmar CA 3,562 11,107 14,669 (1,233)11,536 15,098 (2,710) 1998
Sea Oaks Los Osos CA 871 2,831 3,702 (409)2,970 3,841 (720) 1997
Sunshadow San Jose CA 0 5,844 5,844 (1,464) 1997
Tahoe Valley Campground Lake Tahoe CA 1,357 4,083 5,440 (124) 2004
Village of Four Seasons San Jose CA 5,229 15,732 20,961 (349) 2004
Westwinds (4 properties) San Jose CA 0 22,732 22,732 (5,844) 1997
Bear Creek Sheridan CO 1,100 3,607 4,707 (833) 1998
Cimarron Broomfield CO 863 3,374 4,237 (2,227) 1983
Golden Terrace Golden CO 826 3,135 3,961 (1,868) 1983
Golden Terrace South Golden CO 750 2,882 3,632 (717) 1997
Golden Terrace West Golden CO 1,694 6,076 7,770 (3,399) 1986
Hillcrest Village Aurora CO 2,201 7,599 9,800 (4,843) 1983
Holiday Hills Denver CO 2,159 11,599 13,758 (7,158) 1983
Holiday Village CO Co. Springs CO 567 2,671 3,238 (1,583) 1983
Pueblo Grande Pueblo CO 241 1,501 1,742 (968) 1983
Woodland Hills Denver CO 1,928 6,815 8,743 (2,522) 1994
Aspen Meadows Rehoboth Beach DE 1,148 3,798 4,946 (894) 1998
Camelot Meadows Rehoboth Beach DE 1,778 5,777 7,555 (1,318) 1998
Mariners Cove Millsboro DE 990 6,880 7,870 (2,868) 1987
McNicol Rehoboth Beach DE 563 1,782 2,345 (410) 1998
Sweetbriar Rehoboth Beach DE 498 1,904 2,402 (496) 1998
Waterford Estates Bear DE 5,250 16,816 22,066 (3,037) 1996
Whispering Pines Lewes DE 1,536 5,614 7,150 (2,844) 1998
S-2S-3
SCHEDULE III
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012004
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- ------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------- ------------------- ------------ ------ ----------- ---- -----------
Maralago Cay Lantana FL 21,600 5,325 15,420 0 3,073
Barrington Hills Port Richey FL 3,220 1,145 3,437 0 0
Bay Indies Venice FL 43,662 10,483 31,559 10 3,482
Bay Lake Estates Nokomis FL 3,807 990 3,390 0 951
Breezy Hill Pompano Beach FL 10,065 5,510 16,555 0 112
Buccaneer N. Ft. Myers FL 14,140 4,207 14,410 0 1,183
Bulow Village Resort Flagler Beach FL 0 0 228 0 56
Bulow Village Flagler Beach FL 10,268 3,637 949 0 5,458
Carefree Cove Fort Lauderdale FL 4,777 1,741 5,170 0 79
Carriage Cove Daytona Beach FL 8,010 2,914 8,682 0 788
Coachwood Leesburg FL 4,238 1,607 4,822 0 19
Coral Cay Margate FL 20,874 5,890 20,211 0 3,129
Coquina St Augustine FL 0 5,286 5,545 0 8,856
Meadows at Countrywood Plant City FL 18,273 4,514 13,175 0 3,869
Country Place New Port Richey FL 8,346 663 0 18 7,106
Country Side North Vero Beach FL 17,328 3,711 11,133 0 1,663
Crystal Isles Crystal River FL 2,832 926 2,787 0 5
Down Yonder Largo FL 7,707 2,652 7,981 0 69
East Bay Oaks Largo FL 5,493 1,240 3,322 0 563
Eldorado Village Largo FL 3,946 778 2,341 0 563
Fort Myers Beach Resort Fort Myers Beach FL 4,428 1,493 4,480 0 1
Glen Ellen Clearwater FL 2,395 627 1,882 0 26
Grand Island Grand Island FL 0 1,723 5,208 125 2,606
Gulf Air Resort Fort Myers Beach FL 4,021 1,609 4,830 0 13
Gulf View Punta Gorda FL 1,698 717 2,158 0 3
Hacienda Village New Port Richey FL 9,842 4,362 13,088 0 454
Harbor Lakes Port Charlotte FL 8,997 3,384 10,154 0 17
Harbor View New Port Richey FL 7,932 4,045 12,146 0 54
Heritage Village Vero Beach FL 13,520 2,403 7,259 0 690
Highland Wood Pompano Beach FL 2,358 1,043 3,130 0 10
Hillcrest Clearwater FL 4,236 1,278 3,928 0 750
Holiday Ranch Largo FL 3,785 925 2,866 0 227
Holiday Village FL Vero Beach FL 0 350 1,374 0 139
Holiday Village Ormond Beach FL 6,972 2,610 7,837 0 121
Indian Oaks Rockledge FL 4,389 1,089 3,376 0 728
Lake Fairways N. Ft. Myers FL 30,460 6,075 18,134 35 1,443
Gross Amount Carried
at Close of
Period 12/31/04
-----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- --------------------------- ------------------- ------ ----------- ------ ------------ -----------
Maralago Cay Lantana FL 5,325 18,493 23,818 (4,258) 1997
Barrington Hills - Sunburst Port Richey FL 1,145 3,437 4,582 (105) 2004
Bay Indies Venice FL 10,493 35,041 45,534 (12,148) 1994
Bay Lake Estates Nokomis FL 990 4,341 5,331 (1,455) 1994
Breezy Hill Pompano Beach FL 5,510 16,667 22,177 (1,294) 2002
Buccaneer N. Ft. Myers FL 4,207 15,593 19,800 (5,350) 1994
Bulow Village Resort Flagler Beach FL 0 284 284 (51) 2001
Bulow Village Flagler Beach FL 3,637 6,407 10,044 (1,391) 1994
Carefree Cove Fort Lauderdale FL 1,741 5,249 6,990 (119) 2004
Carriage Cove Daytona Beach FL 2,914 9,470 12,384 (2,292) 1998
Coachwood Leesburg FL 1,607 4,841 6,448 (148) 2004
Coral Cay Margate FL 5,890 23,340 29,230 (7,538) 1994
Coquina St Augustine FL 5,286 14,401 19,687 (1,571) 1999
Meadows at Countrywood Plant City FL 4,514 17,044 21,558 (3,540) 1998
Country Place New Port Richey FL 681 7,106 7,787 (2,834) 1986
Country Side North Vero Beach FL 3,711 12,796 16,507 (3,154) 1998
Crystal Isles - Encore Crystal River FL 926 2,792 3,718 (85) 2004
Down Yonder Largo FL 2,652 8,050 10,702 (631) 1998
East Bay Oaks Largo FL 1,240 3,885 5,125 (2,579) 1983
Eldorado Village Largo FL 778 2,904 3,682 (1,850) 1983
Fort Myers Beach Resort Fort Myers Beach FL 1,493 4,481 5,974 (137) 2004
Glen Ellen Clearwater FL 627 1,908 2,535 (135) 2002
Grand Island Grand Island FL 1,848 7,814 9,662 (868) 2001
Gulf Air Resort - Sunburst Fort Myers Beach FL 1,609 4,843 6,452 (148) 2004
Gulf View - Encore Punta Gorda FL 717 2,161 2,878 (66) 2004
Hacienda Village New Port Richey FL 4,362 13,542 17,904 (922) 2002
Harbor Lakes - Encore Port Charlotte FL 3,384 10,171 13,555 (310) 2004
Harbor View New Port Richey FL 4,045 12,200 16,245 (954) 2002
Heritage Village Vero Beach FL 2,403 7,949 10,352 (2,769) 1994
Highland Wood Pompano Beach FL 1,043 3,140 4,183 (243) 2002
Hillcrest Clearwater FL 1,278 4,678 5,956 (1,195) 1998
Holiday Ranch Largo FL 925 3,093 4,018 (747) 1998
Holiday Village FL Vero Beach FL 350 1,513 1,863 (389) 1998
Holiday Village Ormond Beach FL 2,610 7,958 10,568 (621) 2002
Indian Oaks Rockledge FL 1,089 4,104 5,193 (1,051) 1998
Lake Fairways N. Ft. Myers FL 6,110 19,577 25,687 (6,537) 1994
S-4
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------- ------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------- ------------------ ------------ ----- ----------- ---- -----------
Lake Haven Dunedin FL 8,109 1,135 4,047 0 2,384
Lake Magic Orlando FL 2,818 1,595 4,793 0 45
Lakewood Village Melbourne FL 9,818 1,862 5,627 0 716
Lazy Lakes Florida Keys FL 2,048 816 2,449 0 3
Lighthouse Pointe Port Orange FL 12,535 2,446 7,483 23 894
Manatee Sarasota North FL 5,244 2,300 6,903 0 20
Mid-Florida Lakes Leesburg FL 22,639 5,997 20,635 0 5,070
Oak Bend Ocala FL 5,772 850 2,572 0 866
Park City West Fort Lauderdale FL 7,613 4,187 12,561 0 11
Pasco Tampa North FL 3,072 1,494 4,484 0 2
Pickwick Port Orange FL 10,280 2,803 8,870 0 490
Pine Lakes N. Ft. Myers FL 31,055 6,306 14,579 21 5,447
Pioneer Village N. Ft. Myers FL 10,379 4,116 12,353 0 39
Royal Coachman Nokomis FL 15,140 5,321 15,978 0 19
Shangri La Largo FL 4,496 1,730 5,200 0 36
Sherwood Forest Kissimmee FL 27,103 4,852 14,596 0 3,775
Sherwood Forest Resort Kissimmee FL 0 2,870 3,621 568 1,409
Silk Oak Clearwater FL 3,771 1,670 5,028 0 65
Silver Dollar Odessa FL 9,171 4,107 12,431 0 67
Sixth Ave Zephryhills FL 2,260 839 2,518 0 8
Southernaire Mt. Dora FL 2,092 798 2,395 0 10
Southern Palms Eustis FL 5,652 2,169 5,884 0 1,531
Spanish Oaks Ocala FL 7,008 2,250 6,922 0 877
Sunshine Key Florida Keys FL 16,522 5,273 15,822 0 23
Sunshine Holiday Daytona Beach FL 6,667 2,001 6,004 0 15
Sunshine Holiday RV & MHP Fort Lauderdale FL 8,509 3,099 9,286 0 18
Sunshine Travel Vero Beach FL 4,404 1,603 4,813 0 31
Oaks at Countrywood Plant City FL 1,300 1,111 2,513 -265 1,475
Terra Ceia Palmetto FL 2,528 967 2,905 0 15
The Heritage N. Ft. Myers FL 9,663 1,438 4,371 346 3,317
The Lakes at Countrywood Plant City FL 9,712 2,377 7,085 0 862
The Meadows, FL Palm Beach
Gardens FL 6,049 3,229 9,870 0 1,145
Toby's Arcadia FL 3,391 1,093 3,280 0 17
Topics RV Spring Hill FL 2,235 853 2,568 0 2
Tropical Palms Kissimmee FL 19,595 5,677 17,071 0 127
Vacation Village St. Petersburg FL 2,528 1,315 3,946 0 3
Gross Amount Carried
at Close of
Period 12/31/04
-----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- --------------------------- ------------------ ----- ----------- ------ ------------ -----------
Lake Haven Dunedin FL 1,135 6,431 7,566 (3,292) 1983
Lake Magic Orlando FL 1,595 4,838 6,433 (146) 2004
Lakewood Village Melbourne FL 1,862 6,343 8,205 (2,212) 1994
Lazy Lakes Florida Keys FL 816 2,452 3,268 (75) 2004
Lighthouse Pointe Port Orange FL 2,469 8,377 10,846 (2,033) 1998
Manatee Sarasota North FL 2,300 6,923 9,223 (211) 2004
Mid-Florida Lakes Leesburg FL 5,997 25,705 31,702 (8,117) 1994
Oak Bend Ocala FL 850 3,438 4,288 (1,243) 1993
Park City West Fort Lauderdale FL 4,187 12,572 16,759 (384) 2004
Pasco Tampa North FL 1,494 4,486 5,980 (137) 2004
Pickwick Port Orange FL 2,803 9,360 12,163 (2,160) 1998
Pine Lakes N. Ft. Myers FL 6,327 20,026 26,353 (6,580) 1994
Pioneer Village N. Ft. Myers FL 4,116 12,392 16,508 (377) 2004
Royal Coachman Nokomis FL 5,321 15,997 21,318 (488) 2004
Shangri La Largo FL 1,730 5,236 6,966 (159) 2004
Sherwood Forest Kissimmee FL 4,852 18,371 23,223 (4,055) 1998
Sherwood Forest Resort Kissimmee FL 3,438 5,030 8,468 (1,101) 1998
Silk Oak Clearwater FL 1,670 5,093 6,763 (355) 2002
Silver Dollar Odessa FL 4,107 12,498 16,605 (376) 2004
Sixth Ave Zephryhills FL 839 2,526 3,365 (91) 2004
Southernaire Mt. Dora FL 798 2,405 3,203 (74) 2004
Southern Palms Eustis FL 2,169 7,415 9,584 (1,690) 1998
Spanish Oaks Ocala FL 2,250 7,799 10,049 (2,834) 1993
Sunshine Key Florida Keys FL 5,273 15,845 21,118 (483) 2004
Sunshine Holiday Daytona Beach FL 2,001 6,019 8,020 (183) 2004
Sunshine Holiday RV & MHP Fort Lauderdale FL 3,099 9,304 12,403 (180) 2004
Sunshine Travel Vero Beach FL 1,603 4,844 6,447 (147) 2004
Oaks at Countrywood Plant City FL 846 3,988 4,834 (698) 1998
Terra Ceia Palmetto FL 967 2,920 3,887 (90) 2004
The Heritage N. Ft. Myers FL 1,784 7,688 9,472 (2,475) 1993
The Lakes at Countrywood Plant City FL 2,377 7,947 10,324 (1,049) 2001
The Meadows, FL Palm Beach
Gardens FL 3,229 11,015 14,244 (2,089) 1999
Toby's Arcadia FL 1,093 3,297 4,390 (120) 2003
Topics RV Spring Hill FL 853 2,570 3,423 (79) 2004
Tropical Palms Kissimmee FL 5,677 17,198 22,875 (500) 2004
Vacation Village St. Petersburg FL 1,315 3,949 5,264 (121) 2004
S-5
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------- ------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- ----------------- ------------ ----- ----------- ---- -----------
Windmill Manor Bradenton FL 7,958 2,153 6,125 0 1,137
Windmill Village - Ft. Myers N. Ft. Myers FL 8,700 1,417 5,440 0 1,260
Winds of St. Armands North
(fka Windmill North) Sarasota FL 8,842 1,523 5,063 0 1,663
Winds of St. Armands South
(fka Windmill South) Sarasota FL 5,464 1,106 3,162 0 830
Five Seasons Cedar Rapids IA 0 1,053 3,436 0 679
Holiday Village, IA Sioux City IA 0 313 3,744 0 520
Golf Vistas Monee IL 14,577 2,843 4,719 0 5,948
O'Connell's Amboy IL 4,955 1,658 4,974 0 148
Willow Lake Estates Elgin IL 22,129 6,138 21,033 0 3,816
Forest Oaks
(fka BurnsHarbor) Chesterton IN 0 916 2,909 0 1,740
Lakeside New Carlisle IN 0 426 1,281 0 12
Oak Tree Village Portage IN 4,476 0 0 569 3,607
Windsong Indianapolis IN 0 1,482 4,480 0 192
Creekside Wyoming MI 3,760 1,109 3,646 0 113
Casa Village Billings MT 11,040 1,011 3,109 157 3,471
Waterway RV Resort Cedar Point NC 6,226 2,392 7,185 0 3
Goose Creek Resort Newport NC 12,491 4,612 13,848 0 814
Twin Lakes Chocowinity NC 3,739 1,719 3,361 0 19
Del Rey Albuquerque NM 0 1,926 5,800 0 727
Bonanza Las Vegas NV 4,861 908 2,643 0 984
Boulder Cascade Las Vegas NV 8,871 2,995 9,020 0 1,136
Cabana Las Vegas NV 9,245 2,648 7,989 0 301
Flamingo West Las Vegas NV 10,647 1,730 5,266 0 1,273
Villa Borega Las Vegas NV 7,011 2,896 8,774 0 592
Greenwood Village Manorville NY 17,468 3,667 9,414 484 3,542
Falcon Wood Village Eugene OR 5,200 1,112 3,426 0 213
Quail Hollow Fairview OR 0 0 3,249 0 226
Shadowbrook Clackamas OR 6,320 1,197 3,693 0 165
Mt. Hood Village Welches OR 0 1,817 5,733 0 -302
Green Acres Breinigsville PA 13,908 2,680 7,479 0 2,817
Spring Gulch New Holland PA 4,819 1,593 4,795 0 6
Country Sunshine Weslaco TX 2,266 627 1,881 0 5
Fun n Sun San Benito TX 0 2,533 0 417 9,828
Lakewood Harlingen TX 1,227 325 979 0 2
Gross Amount Carried
at Close of
Period 12/31/04
-----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- ----------------- ----- ----------- ------ ------------ -----------
Windmill Manor Bradenton FL 2,153 7,262 9,415 (1,603) 1998
Windmill Village - Ft. Myers N. Ft. Myers FL 1,417 6,700 8,117 (4,379) 1983
Winds of St. Armands North
(fka Windmill North) Sarasota FL 1,523 6,726 8,249 (3,936) 1983
Winds of St. Armands South
(fka Windmill South) Sarasota FL 1,106 3,992 5,098 (2,443) 1983
Five Seasons Cedar Rapids IA 1,053 4,115 5,168 (1,222) 1998
Holiday Village, IA Sioux City IA 313 4,264 4,577 (2,553) 1986
Golf Vistas Monee IL 2,843 10,667 13,510 (2,126) 1997
O'Connell's Amboy IL 1,658 5,122 6,780 (173) 2004
Willow Lake Estates Elgin IL 6,138 24,849 30,987 (8,048) 1994
Forest Oaks
(fka Burns Harbor) Chesterton IN 916 4,649 5,565 (1,912) 1993
Lakeside New Carlisle IN 426 1,293 1,719 (40) 2004
Oak Tree Village Portage IN 569 3,607 4,176 (1,772) 1987
Windsong Indianapolis IN 1,482 4,672 6,154 (1,278) 1998
Creekside Wyoming MI 1,109 3,759 4,868 (896) 1998
Casa Village Billings MT 1,168 6,580 7,748 (3,130) 1983
Waterway RV Resort Cedar Point NC 2,392 7,188 9,580 (221) 2004
Goose Creek Resort Newport NC 4,612 14,662 19,274 (437) 2004
Twin Lakes Chocowinity NC 1,719 3,380 5,099 (105) 2004
Del Rey Albuquerque NM 1,926 6,527 8,453 (2,602) 1993
Bonanza Las Vegas NV 908 3,627 4,535 (2,238) 1983
Boulder Cascade Las Vegas NV 2,995 10,156 13,151 (2,315) 1998
Cabana Las Vegas NV 2,648 8,290 10,938 (2,936) 1994
Flamingo West Las Vegas NV 1,730 6,539 8,269 (2,092) 1994
Villa Borega Las Vegas NV 2,896 9,366 12,262 (2,266) 1997
Greenwood Village Manorville NY 4,151 12,956 17,107 (2,609) 1998
Falcon Wood Village Eugene OR 1,112 3,639 4,751 (902) 1997
Quail Hollow Fairview OR 0 3,475 3,475 (861) 1997
Shadowbrook Clackamas OR 1,197 3,858 5,055 (1,004) 1997
Mt. Hood Village Welches OR 1,817 5,431 7,248 (564) 2002
Green Acres Breinigsville PA 2,680 10,296 12,976 (5,077) 1988
Spring Gulch New Holland PA 1,593 4,801 6,394 (163) 2004
Country Sunshine Weslaco TX 627 1,886 2,513 (57) 2004
Fun n Sun San Benito TX 2,950 9,828 12,778 (2,123) 1998
Lakewood Harlingen TX 325 981 1,306 (30) 2004
S-6
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
---------------------- DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
---------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- ------------------------------------------ ------------ -------- ----------- ------ -----------
Sunshadow San Jose CAParadise Park Rio Grande Valley TX 5,430 1,568 4,705 0 4
Paradise South Mercedes TX 1,619 448 1,345 0 5
Southern Comfort Weslaco TX 2,590 1,108 3,323 0 2
Sunshine RV Harlingen TX 4,792 1,494 4,484 0 3
Tropic Winds Harlingen TX 0 1,221 3,809 0 101
All Seasons Salt Lake City UT 3,491 510 1,623 0 211
Westwood Village Farr West UT 7,493 1,346 4,179 0 1,163
Meadows of Chantilly Chantilly VA 27,494 5,430 16,440 0 3,781
Kloshe Illahee Federal Way WA 6,084 2,408 7,286 0 277
Caledonia Caledonia WI 0 376 1,127 0 0
5,707 0 89
Westwinds (4 properties) San Jose CAFreemont Freemont WI 4,300 1,432 4,296 0 0
17,616Yukon Trails Lyndon Station WI 0 4,131
Bear Creek Sheridan CO547 1,629 0 1,100 31,55913
Thousand Trails 0 (28,094)
Cimarron Broomfield CO 8,086 863 2,79048,537 113,253 0 464
Golden Terrace Golden CO 8,041 826 2,4150
Realty Systems, Inc. 0 0 0 0 4,632
Management Business 0 0 436 Golden Terrace South Golden CO 2,400 750 2,265 0 477
Golden Terrace West Golden CO 9,737 1,694 5,065 0 750
Hillcrest Village Aurora CO 15,476 1,912 5,202 290 1,967
Holiday Hills Denver CO 19,437 2,159 7,780 1 3,156
Holiday Village CO Co. Springs CO 6,264 567 1,759 0 588
Pueblo Grande Pueblo CO 3,476 241 1,069 0 334
Woodland Hills Denver CO 11,765 1,928 4,408 0 2,192
Aspen Meadows Rehoboth DE 0 1,148 4,543 0 (948)
Camelot Acres Rehoboth DE 7,003 527 2,058 0 574
Mariners Cove Millsboro DE 0 990 2,971 0 2,949
McNicol Rehoboth DE 0 563 2,106 0 (347)
Sweetbriar Rehoboth DE 0 498 3,027 1 (1,337)
Waterford Estates Bear DE 0 5,250 16,202 0 370
Whispering Pines Lewes DE 0 1,536 4,609 0 724
Maralago Cay Lantana FL 0 5,325 15,420 0 1,090
Bay Indies Venice FL 22,525 10,483 3,390 0 29,549
Bay Lake Estates Nokomis FL 4,651 990 3,304 0 495
Buccaneer N. Ft. Myers FL 19,532 4,207 14,410 0 756
Bulow Village Flagler Beach FL 1,110 3,637 949 0 4,186
Carriage Cove Daytona Beach FL 8,221 2,914 10,176 0 (1,168)
Coral Cay Margate FL 16,742 5,890 20,211 0 1,580
Coquina St Augustine FL 0 5,286 5,545 0 2,363
Meadows9,424
--------- -------- ---------- ------ --------
1,417,251 $466,556 $1,361,519 $4,031 $203,684
========= ======== ========== ====== ========
Gross Amount Carried
at Countrywood Plant City FL 0 4,514 13,175 0 1,442
Country Place New Port Richey FL 4,008 663 0 18 6,288
Country Side North Vero Beach FL 0 3,711 14,751 0 (2,646)
East Bay Oaks Largo FL 6,674 1,240 3,322 0 377
Eldorado Village Largo FL 4,576 778 0 0 2,669
Grand Island Grand island FL 0 1,723 5,208 38 629
Heritage Village Vero Beach FL 0 2,403 7,259 0 327
Hillcrest Clearwater FL 0 1,278 5,850 0 (1,624)
Holiday Ranch Largo FL 0 925 3,142 0 (155)
GROSS AMOUNT CARRIED
AT CLOSE OF PERIODClose of
Period 12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION
-04
-----------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- -------------------- -------- ----------- ---------- ------------ -----------
Sunshadow 0 5,796 5,796 (848) 1997
Westwinds (4 properties) 0 21,747 21,747 (3,185) 1997
Bear Creek 1,100 3,465 4,565 (460) 1998
Cimarron 863 3,254 4,117 (1,864) 1983
Golden Terrace 826 2,851 3,677 (1,515) 1983
Golden Terrace
Paradise Park Rio Grande Valley TX 1,568 4,709 6,277 (144) 2004
Paradise South 750 2,742 3,492 (399) 1997
Golden Terrace West 1,694 5,815 7,509 (2,753) 1986
Hillcrest Village 2,202 7,169 9,371 (3,903) 1983
Holiday Hills 2,160 10,936 13,096 (5,705) 1983
Holiday Village CO 567 2,347 2,914 (1,236) 1983
Pueblo Grande 241 1,403 1,644 (780) 1983
Woodland Hills 1,928 6,600 8,528 (1,767) 1994
Aspen Meadows 1,148 3,595 4,743 (495) 1998
Camelot Acres 527 2,632 3,159 (1,449) 1983
Mariners Cove 990 5,920 6,910 (2,071) 1987
McNicol 563 1,759 2,322 (232) 1998
Sweetbriar 499 1,690 2,189 (211) 1998
Waterford Estates 5,250 16,572 21,822 (1,969) 1996
Whispering Pines 1,536 5,333 6,869 (2,232) 1998
Maralago Cay 5,325 16,510 21,835 (2,291) 1997
Bay Indies 10,483 32,939 43,422 (8,621) 1994
Bay Lake Estates 990 3,799 4,789 (965) 1994
Buccaneer 4,207 15,166 19,373 (3,709) 1994
Bulow Village 3,637 5,135 8,772 (768) 1994
Carriage Cove 2,914 9,008 11,922 (1,199) 1998
Coral Cay 5,890 21,791 27,681 (5,185) 1994
Coquina 5,286 7,908 13,194 (404) 1999
Meadows at Countrywood 4,514 14,617 19,131 (1,948) 1998
Country Place 681 6,288 6,969 (1,973) 1986
Country Side North 3,711 12,105 15,816 (1,597) 1998
East Bay Oaks 1,240 3,699 4,939 (2,156) 1983
Eldorado Village 778 2,669 3,447 (1,541) 1983
Grand Island 1,761 5,837 7,598 (170) 2001
Heritage Village 2,403 7,586 9,989 (1,946) 1994
Hillcrest 1,278 4,226 5,504 (537) 1998
Holiday Ranch 925 2,987 3,912 (396) 1998
S-3
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------ ----------------------
DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
- ----------- ------------------------ ------------ -------- ----------- ------ -----------
Holiday Village FL Vero Beach FL 0 350 1,792 0 (313)
Indian Oaks Rockledge FL 3,091 1,089 4,527 0 (518)
Lake Fairways N. Ft. Myers FL 0 6,075 18,134 0 810
Lake Haven Dunedin FL 8,071 1,135 4,047 0 763
Lakewood Village Melbourne FL 0 1,863 5,627 (1) 385
Landings Port Orange FL 0 2,446 8,496 0 (576)
Mid-Florida Lakes Leesburg FL 25,112 5,997 20,635 0 2,683
Oak Bend Ocala FL 0 850 2,572 0 605
Pickwick Port Orange FL 8,375 2,803 8,870 0 46
Pine Lakes N. Ft. Myers FL 0 6,306 14,579 0 4,770
Sherwood Forest Kissimmee FL 9,637 4,852 19,642 0 (2,849)
Sherwood ForestEncore Mercedes TX 448 1,350 1,798 (41) 2004
Southern Comfort Weslaco TX 1,108 3,325 4,433 (102) 2004
Sunshine RV Park Kissimmee FL 0 2,870 3,621 568 636
Southern Palms Eustis FL 0 2,169 5,884 0 1,013
Spanish Oaks Ocala FL 7,445 2,250 6,922 0 509
Oaks at Countrywood Plant City FL 0 1,111 2,513 (340) 188
The Heritage N. Ft. Myers FL 0 1,438 4,371 249 2,046
The Lakes at Countrywood Plant city FL 0 2,377 7,086 37 627
The Meadows, FL Palm Beach Gardens FL 6,202 3,229 9,870 0 220
Windmill Manor Bradenton FL 6,282 2,153 6,125 (1) 874
Windmill Village -- Ft. Myers N. Ft. Myers FL 9,406 1,417 5,440 0 942
Windmill Village North Sarasota FL 9,069 1,523 5,063 0 580
Windmill Village South Sarasota FL 5,563 1,106 3,162 0 311
Five Seasons Cedar Rapids IA 0 1,053 5,361 0 (1,440)
Holiday Village, IA Sioux City IA 0 313 3,744 0 351
Golf Vistas Monee IL 0 2,843 4,719 0 3,529
Willow Lake Estates Elgin IL 21,392 6,138 21,033 0 1,953
Burns Harbor Estates Chesterton IN 0 916 2,909 0 1,469
Oak Tree Village Portage IN 6,092 0 0 569 3,465
Windsong Indianapolis IN 0 1,482 6,509 0 (1,916)
Pheasant Ridge Mt. Airy MD 0 376 1,779 0 356
Creekside Wyoming MI 0 1,109 3,646 0 (19)
Camelot Acres Burnsville MN 0 1,778 6,577 0 (901)
Casa Village Billings MT 8,040 1,011 3,109 181 1,913
Del Rey Albuquerque NM 0 1,926 5,800 0 677
Bonanza Las Vegas NV 9,988 908 2,643 0 613
Boulder Cascade Las Vegas NV 7,878 2,995 12,413 0 (2,756)
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD
12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION
- ----------- -------- ----------- ---------- ------------ -----------
Holiday Village FL 350 1,479 1,829 (176) 1998
Indian Oaks 1,089 4,009 5,098 (518) 1998
Lake Fairways 6,075 18,944 25,019 (4,500) 1994
Lake Haven 1,135 4,810 5,945 (2,645) 1983
Lakewood Village 1,862 6,012 7,874 (1,537) 1994
Landings 2,446 7,920 10,366 (1,068) 1998
Mid-Florida Lakes 5,997 23,318 29,315 (5,489) 1994
Oak Bend 850 3,177 4,027 (853) 1993
Pickwick 2,803 8,916 11,719 (1,161) 1998
Pine Lakes 6,306 19,349 25,655 (4,505) 1994
Sherwood Forest 4,852 16,793 21,645 (2,048) 1998
Sherwood Forest RV Park 3,438 4,257 7,695 (506) 1998
Southern Palms 2,169 6,897 9,066 (654) 1998
Spanish Oaks 2,250 7,431 9,681 (2,003) 1993
Oaks at Countrywood 771 2,701 3,472 (285) 1998
The Heritage 1,687 6,417 8,104 (1,657) 1993
The Lakes at Countrywood 2,414 7,713 10,127 (226) 2001
The Meadows, FL 3,229 10,090 13,319 (824) 1999
Windmill Manor 2,152 6,999 9,151 (939) 1998
Windmill Village -- Ft. Myers 1,417 6,382 7,799 (3,575) 1983
Windmill Village North 1,523 5,643 7,166 (3,230) 1983
Windmill Village South 1,106 3,473 4,579 (2,025) 1983
Five Seasons 1,053 3,921 4,974 (579) 1998
Holiday Village, IA 313 4,095 4,408 (2,074) 1986
Golf Vistas 2,843 8,248 11,091 (1,071) 1997
Willow Lake Estates 6,138 22,986 29,124 (5,432) 1994
Burns Harbor Estates 916 4,378 5,294 (1,236) 1993
Oak Tree Village 569 3,465 4,034 (1,268) 1987
Windsong 1,482 4,593 6,075 (621) 1998
Pheasant Ridge 376 2,135 2,511 (1,198) 1988
Creekside 1,109 3,627 4,736 (481) 1998
Camelot Acres 1,778 5,676 7,454 (761) 1998
Casa Village 1,192 5,022 6,214 (2,398) 1983
Del Rey 1,926 6,477 8,403 (1,883) 1993
Bonanza 908 3,256 4,164 (1,806) 1983
Boulder Cascade 2,995 9,657 12,652 (1,183) 1998
S-4
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO ACQUISITION
COMPANY (IMPROVEMENTS)
------------------------ ----------------------
DEPRECIABLE DEPRECIABLE
REAL ESTATE LOCATION ENCUMBRANCES LAND PROPERTY LAND PROPERTY
- ----------- ------------------------ ------------ -------- ----------- ------ -----------
Cabana Las Vegas NV 8,425 2,648 7,989 0 174
Flamingo West Las Vegas NV 0 1,730 5,266 0 688
Villa Borega Las Vegas NV 7,470 2,896 8,774 0 186
Brook Gardens Lackawanna NY 0 3,828 10,310 0 1,099
Greenwood Village Manorville NY 0 3,667 9,414 485 2,814
Falcon Wood Village Eugene OR 4 1,112 3,426 0 109
Quail Hollow Fairview OR 0 0 3,249 0 102
Shadowbrook Clackamas OR 0 1,197 3,693 0 102
Green Acres Breinigsville PA 16,014 2,680 7,479 0 2,149
Fun n Sun RV Park San BenitoEncore Harlingen TX 0 2,533 0 0 8,4141,494 4,487 5,981 (137) 2004
Tropic Winds Harlingen TX 1,221 3,910 5,131 (329) 2002
All Seasons Salt Lake City UT 0 510 1,623 0 1631,834 2,344 (491) 1997
Westwood Village Farr West UT 0 1,346 4,179 0 1,0305,342 6,688 (1,369) 1997
Meadows of Chantilly Chantilly VA 0 5,430 16,440 0 1,62720,221 25,651 (6,764) 1994
Kloshe Illahee Federal Way WA 6,469 2,408 7,2867,563 9,971 (1,846) 1997
Caledonia Caledonia WI 376 1,127 1,503 0 83
Independence Hill Morgantown WV2004
Freemont Freemont WI 1,432 4,296 5,728 0 299 8982004
Yukon Trails Lyndon Station WI 547 1,642 2,189 (10) 2004
Thousand Trails 48,537 113,253 161,790 (629) 2004
Realty Systems, Inc. 0 259
College Heights Consolidated
(18 properties) Various 65,914 17,045 71,382 0 493
Management Business Chicago IL 0 0 436 0 7,542
-------- -------- -------- ------ -------
$589,954 $269,795 $871,001 $2,076 $95,266
======== ======== ======== ====== =======
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD
12/31/01
------------------------
DEPRECIABLE ACCUMULATED DATE OF
REAL ESTATE LAND PROPERTY TOTAL DEPRECIATION ACQUISITION
- ----------- -------- ----------- ---------- ------------ -----------
Cabana 2,648 8,163 10,811 (2,075) 1994
Flamingo West 1,730 5,954 7,684 (1,416) 1994
Villa Borega 2,896 8,960 11,856 (1,315) 1997
Brook Gardens 3,828 11,409 15,237 (1,575) 1998
Greenwood Village 4,152 12,228 16,380 (1,482) 1998
Falcon Wood Village 1,112 3,535 4,647 (512) 1997
Quail Hollow 0 3,351 3,351 (490) 1997
Shadowbrook 1,197 3,795 4,992 (577) 1997
Green Acres 2,680 9,628 12,308 (4,016) 1988
Fun n Sun RV Park 2,533 8,414 10,947 (1,155) 1998
All Seasons 510 1,786 2,296 (274) 1997
Westwood Village 1,346 5,209 6,555 (745) 1997
Meadows of Chantilly 5,430 18,067 23,497 (4,707) 1994
Kloshe Illahee 2,408 7,369 9,777 (1,072) 1997
Independence Hill 299 1,157 1,456 (450) 1990
College Heights Consolidated
(18 properties) 17,045 71,875 88,920 (8,387) 19984,632 4,632 (2) 2002
Management Business 0 7,978 7,978 (5,700)9,860 9,860 (10,359) 1990
-------- ---------- ---------- --------
---------- ---------
$271,871 $966,267 $1,238,138 $(211,878)
========$470,587 $1,565,203 $2,035,790 ($322,867)
======== ========== =================== ========
- ---------------
NOTES:
(1) For depreciable property, the Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen
year estimated life for building upgrades and a three-to-seven year
estimated life for furniture and fixtures.
(2) The schedule excludes five Properties in which the Company has a non-controlling
joint venture interest and accounts for using the equity method of
accounting.
(3) The balance of furniture and fixtures included in the total amounts was
approximately $12.2$21.3 million as of December 31, 2001.2004.
(4) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $1.1$2.0 billion, as of December 31, 2001.2004.
(5) All Properties were acquired, except for Country Place Village, which was
constructed.
S-5S-7
SCHEDULE III
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20012004
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31, 2001,
20002004, 2003 and
19992002 were as follows:
2001 2000 19992004 2003 2002
---------- ---------- ----------
Balance, beginning of year.... $1,218,176 $1,264,343 $1,237,431
Acquisitions(1)............. 17,770 (4,581) 12,496
Improvements................ 23,140 16,261 16,700
Dispositions(2)year ... $1,309,705 $1,296,007 $1,238,138
Acquisitions (1) .......... 702,538 12,116 107,138
Improvements .............. 27,082 15,569 24,491
Dispositions and other... (20,948) (57,847) (2,284)other..... (3,535) (13,987) (73,760)
---------- ---------- ----------
Balance, end of year.......... $1,238,138 $1,218,176 $1,264,343year ......... $2,035,790 $1,309,705 $1,296,007
========== ========== ==========
- ---------------
(1) Acquisitions for the year ended December 31, 2000 include return of escrow
proceeds.
(2) Dispositions for 20002004 include the non-cash
assumption by the Company of $19.0$347 million of debt by the purchaser of a Property.mortgage debt.
The changes in accumulated depreciation for the years ended December 31, 2001, 20002004,
2003 and 19992002 were as follows:
2001 2000 19992004 2003 2002
-------- -------- --------
Balance, beginning of year.... $181,580 $150,757 $118,021year ... $272,497 $238,098 $211,878
Depreciation expense........ 35,205 35,548 35,020expense ...... 51,703 39,409 37,188
Dispositions and other...... (4,907) (4,725) (2,284)other .... (1,333) (5,010) (10,968)
-------- -------- --------
Balance, end of year.......... $211,878 $181,580 $150,757year ......... $322,867 $272,497 $238,098
======== ======== ========
S-6
S-8