UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		~~For the quarterly period ended September 30, 2008~~

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		~~For the transition period from ____________ to _______________~~

For the transition period fromto

Commission file number: 1-11718

EQUITY LIFESTYLE PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Maryland (State or Other Jurisdiction of Incorporation or Organization)		36-3857664 (I.R.S. Employer Identification No.)


Two North Riverside Plaza, Suite 800, Chicago, Illinois		60606
(Address of Principal Executive Offices)		~~60606~~ (Zip Code)

(312) 279-1400
(Registrant’s Telephone Number, Including Area Code)

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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a ~~non-accelerated~~non- accelerated filer or a smaller reporting company. See ~~the definitions~~definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filerþ	Accelerated filero	Non-accelerated filero		Smaller reporting companyo
		(Do not check if a smaller reporting company)	~~Smaller reporting company~~ o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

~~24,855,831~~30,315,919 shares of Common Stock as of ~~November 4, 2008.~~August 6, 2009.

Equity LifeStyle Properties, Inc.

Consolidated Balance Sheets

As of ~~September~~June 30, ~~2008~~2009 and December 31, ~~2007~~
2008

(amounts in thousands, except share and per share data)


	September 30,						June 30,
	2008			December 31,			2009			December 31,
	(unaudited)			2007			(unaudited)			2008
Assets
Investment in real estate:
Land	$	541,979		$	541,000		$	546,012		$	541,979
Land improvements		1,720,561			1,700,888			1,742,692			1,725,752
Buildings and other depreciable property		201,519			154,227			241,391			223,290

		2,464,059			2,396,115			2,530,095			2,491,021
Accumulated depreciation		(543,923	)		(494,211	)		(596,962	)		(561,104	)

Net investment in real estate		1,920,136			1,901,904			1,933,133			1,929,917
Cash and cash equivalents		52,745			5,785			174,151			45,312
Notes receivable, net		31,676			10,954			29,078			31,799
Investment in joint ventures		9,705			4,569			9,405			9,676
Rent and other customer receivables, net		1,078			1,156			488			1,040
Deferred financing costs, net		11,735			12,142			12,189			12,408
Inventory		31,092			62,807
Inventory, net								3,981			12,934
Deferred commission expense		1,598			—			6,769			3,644
Escrow deposits and other assets		46,378			33,659			56,627			44,917

Total Assets	$	2,106,143		$	2,032,976		$	2,225,821		$	2,091,647


Liabilities and Stockholders’ Equity
Liabilities and Equity
Liabilities:
Mortgage notes payable	$	1,552,041		$	1,556,392		$	1,611,021		$	1,569,403
Unsecured lines of credit		115,700			103,000			—			93,000
Accrued payroll and other operating expenses		67,464			33,898			83,699			66,656
Deferred revenue — sale of right-to-use contracts		4,940			—			21,045			10,611
Accrued interest payable		8,418			9,164			8,337			8,335
Rents and other customer payments received in advance and security deposits		50,272			37,274			43,405			41,302
Distributions payable		6,097			4,531			7,657			6,106

Total Liabilities		1,804,932			1,744,259			1,775,164			1,795,413


Commitments and contingencies
Non-controlling interests- Perpetual Preferred OP Units								200,000			200,000

Minority interest — Common OP Units and other		19,141			17,776
Minority interest — Perpetual Preferred OP Units		200,000			200,000

Equity:
Stockholders’ Equity:
Preferred stock, $.01 par value 10,000,000 shares authorized; none issued		—			—			—			—
Common stock, $.01 par value 100,000,000 shares authorized; 24,845,630 and 24,348,517 shares issued and outstanding for September 30, 2008 and December 31, 2007, respectively		238			236
Common stock, $.01 par value 100,000,000 shares authorized; 29,912,626 and 25,051,322 shares issued and outstanding for June 30, 2009 and December 31, 2008, respectively								299			238
Paid-in capital		318,415			310,803			450,714			320,084
Distributions in excess of accumulated earnings		(236,583	)		(240,098	)		(237,704	)		(241,609	)

Total Stockholders’ Equity		82,070			70,941			213,309			78,713


Total Liabilities and Stockholders’ Equity	$	2,106,143		$	2,032,976
Non-controlling interests — Common OP Units								37,348			17,521

Total Equity								250,657			96,234

Total Liabilities and Equity							$	2,225,821		$	2,091,647

Equity LifeStyle Properties, Inc.

Consolidated Statements of Operations

For the Quarters and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~
2008

(amounts in thousands, except share and per share data)

(unaudited)


	Quarters Ended						Nine Months Ended						Quarters Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2008			2007			2008			2007			2009			2008		2009			2008
Property Operations:
Community base rental income	$	61,554		$	59,366		$	184,018		$	177,190		$	63,318		$	61,430		$	126,502		$	122,464
Resort base rental income		29,343			25,557			86,973			79,336			27,747			23,033			63,205			57,630
Right-to-use annual payments		6,746			—			6,746			—			12,702			—			25,597			—
Right-to-use contracts current period, gross		5,003			—			5,003			—			5,869			—			11,446			—
Right-to-use contracts, deferred, net of prior period amortization		(4,940	)		—			(4,940	)		—
Right-to-use contracts deferred, net of prior period amortization														(5,271	)		—			(10,434	)		—
Utility and other income		10,572			9,273			31,222			28,551			11,720			9,859			24,124			20,650

Property operating revenues		108,278			94,196			309,022			285,077			116,085			94,322			240,440			200,744


Property operating and maintenance		42,148			33,252			109,847			95,681			45,565			33,930			87,569			67,699
Real estate taxes		7,794			7,037			22,712			21,646			8,235			7,478			16,691			14,918
Sales and marketing, gross		3,098			—			3,098			—			3,672			—			6,744			—
Sales and marketing, deferred commissions, net		(1,598	)		—			(1,598	)		—			(1,632	)		—			(3,125	)		—
Property management		6,446			4,576			16,983			13,940			7,730			5,243			16,434			10,537

Property operating expenses (exclusive of depreciation shown separately below)		57,888			44,865			151,042			131,267			63,570			46,651			124,313			93,154

Income from property operations		50,390			49,331			157,980			153,810			52,515			47,671			116,127			107,590


Home Sales Operations:
Gross revenues from inventory home sales		5,260			8,483			18,254			26,767			1,737			6,799			2,948			12,994
Cost of inventory home sales		(5,365	)		(8,117	)		(18,974	)		(24,364	)		(1,647	)		(6,859	)		(3,764	)		(13,609	)

Gross (Loss) profit from inventory home sales		(105	)		366			(720	)		2,403
Profit (loss) from inventory home sales														90			(60	)		(816	)		(615	)
Brokered resale revenues, net		237			305			905			1,248			199			301			385			668
Home selling expenses		(1,482	)		(1,845	)		(4,630	)		(5,845	)		(640	)		(1,635	)		(1,712	)		(3,148	)
Ancillary services revenues, net		607			799			1,728			2,223			418			(327	)		1,574			1,121

(Loss) Income from home sales operations and other		(743	)		(375	)		(2,717	)		29
Profit (loss) from home sales operations and other														67			(1,721	)		(569	)		(1,974	)

Other Income (Expenses):
Interest income		885			496			1,566			1,458			1,223			294			2,606			681
Income from other investments, net		2,783			5,323			16,398			15,407			1,866			6,705			4,389			13,615
General and administrative		(5,315	)		(3,795	)		(15,548	)		(11,146	)		(6,216	)		(4,834	)		(12,373	)		(10,233	)
Rent control initiatives		(102	)		(722	)		(1,967	)		(2,157	)		(169	)		(518	)		(315	)		(1,865	)
Interest and related amortization		(24,930	)		(25,942	)		(74,604	)		(77,420	)		(25,026	)		(24,690	)		(49,576	)		(49,674	)
Depreciation on corporate assets		(84	)		(116	)		(266	)		(337	)
Depreciation on corporate and other assets														(234	)		(84	)		(402	)		(182	)
Depreciation on real estate assets		(17,132	)		(15,901	)		(49,664	)		(47,232	)		(17,143	)		(16,258	)		(34,542	)		(32,532	)


Total other expenses, net		(43,895	)		(40,657	)		(124,085	)		(121,427	)		(45,699	)		(39,385	)		(90,213	)		(80,190	)


Income before minority interests, equity in income of unconsolidated joint ventures and discontinued operations		5,752			8,299			31,178			32,412

Income allocated to Common OP units		(326	)		(966	)		(4,282	)		(4,333	)
Income allocated to Perpetual OP units		(4,032	)		(4,031	)		(12,104	)		(12,101	)
Equity in income of unconsolidated joint ventures		62			738			3,445			2,048			475			2,499			2,378			3,383

Income from continuing operations		1,456			4,040			18,237			18,026
Consolidated income from continuing operations														7,358			9,064			27,723			28,809


Discontinued Operations:
Discontinued operations		32			96			177			234			87			88			213			145
Gain (Loss) on sale from discontinued real estate		—			6,858			(80	)		11,444
Income allocated to Common OP units from discontinued operations		(6	)		(1,342	)		(18	)		(2,259	)
Loss on sale from discontinued real estate														—			(39	)		(20	)		(80	)

Income from discontinued operations		26			5,612			79			9,419			87			49			193			65

Consolidated net income														7,445			9,113			27,916			28,874
Income allocated to non-controlling interests:
Common OP Units														(501	)		(964	)		(3,295	)		(3,968	)
Perpetual Preferred OP Units														(4,040	)		(4,040	)		(8,073	)		(8,072	)

Net income available for Common Shares	$	1,482		$	9,652		$	18,316		$	27,445		$	2,904		$	4,109		$	16,548		$	16,834

Equity LifeStyle Properties, Inc.
Consolidated Statements of Operations (Continued)
For the Quarters and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008
(amounts in thousands, except share and per share data)
(unaudited)


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2008		2007		2008		2007		2009		2008		2009		2008
Earnings per Common Share — Basic:

Income from continuing operations	$	0.06	$	0.17	$	0.75	$	0.75	$	0.12	$	0.17	$	0.65	$	0.69
Income from discontinued operations		0.00		0.23		0.00		0.39		0.00		0.00		0.01		0.00

Net income available for Common Shares	$	0.06	$	0.40	$	0.75	$	1.14	$	0.12	$	0.17	$	0.66	$	0.69


Earnings per Common Share — Fully Diluted:
Income from continuing operations	$	0.06	$	0.16	$	0.74	$	0.74	$	0.11	$	0.17	$	0.64	$	0.68
Income from discontinued operations		0.00		0.23		0.00		0.38		0.00		0.00		0.01		0.00

Net income available for Common Shares	$	0.06	$	0.39	$	0.74	$	1.12	$	0.11	$	0.17	$	0.65	$	0.68


Distributions declared per Common Share outstanding	$	0.20	$	0.15	$	0.60	$	0.45	$	0.25	$	0.20	$	0.50	$	0.40


Weighted average Common Shares outstanding — basic		24,527		24,148		24,366		24,065		25,163		24,370		25,055		24,285

Weighted average Common Shares outstanding — fully diluted		30,572		30,418		30,504		30,402		30,693		30,540		30,609		30,478

Equity LifeStyle Properties, Inc.

Consolidated Statements of ~~Cash Flows~~Changes in Equity
For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2008 and 2007~~2009
(amounts in thousands)
(unaudited)

September 30, September 30,
2008 2007
Cash Flows From Operating Activities:

Net income $ 18,316 $ 27,445
Adjustments to reconcile net income to Cash provided by operating activities:
Income allocated to minority interests 16,354 18,693
Loss (Gain) on sale of discontinued real estate 79 (11,444 )
Depreciation expense 51,062 48,658
Amortization expense 2,133 2,199
Debt premium amortization (632 ) (1,219 )
Equity in income of unconsolidated joint ventures (4,794 ) (3,137 )
Distributions from unconsolidated joint ventures 3,381 3,800
Amortization of stock-related compensation 3,975 3,195
Revenue from right-to-use contract sales (63 ) —
Commission expense related to right-to-use contract sales 21 —
Accrued long term incentive plan compensation 823 311
Increase in provision for uncollectible rents receivable 283 70
Increase in provision for inventory reserve 63 123
Changes in assets and liabilities:
Rent and other customer receivables, net (204 ) (63 )
Inventory (3,130 ) 2,447
Deferred commissions expense (1,619 ) —
Escrow deposits and other assets (2,833 ) (4,249 )
Accrued payroll and other operating expenses 17,553 11,270
Deferred revenue — sales of right-to-use contracts 5,003 —
Rents and other customer payments received in advance and security deposits (8,328 ) (6,272 )

Net cash provided by operating activities 97,443 91,827

Cash Flows From Investing Activities:

Acquisition of real estate (3,484 ) (19,108 )
Acquisition of Privileged Access 1,267 —
Disposition of real estate — 20,536
Net tax-deferred exchange withdrawal (deposit) 2,124 (6,376 )
Joint Ventures:
Investments in (5,545 ) (3,117 )
Distributions from 524 114
Net repayment (borrowings) of notes receivable (1,152 ) 10,699
Improvements:
Corporate (196 ) (511 )
Rental properties (10,516 ) (12,282 )
Site development costs (9,139 ) (9,093 )

Net cash used in investing activities (26,117 ) (19,138 )

Cash Flows From Financing Activities:

Net proceeds from stock options and employee stock purchase plan 4,157 3,387
Distributions to Common Stockholders, Common OP Unitholders, and Perpetual Preferred OP Unitholders (28,741 ) (23,425 )
Lines of credit:
Proceeds 177,100 81,100
Repayments (164,400 ) (114,400 )
Principal repayments on disposition — (1,992 )
Principal repayments and mortgage debt payoff (151,031 ) (14,951 )
New financing proceeds 140,275 —
Debt issuance costs (1,726 ) (310 )

Net cash used in financing activities (24,366 ) (70,591 )

Net increase in cash and cash equivalents 46,960 2,098
Cash and cash equivalents, beginning of period 5,785 1,605

Cash and cash equivalents, end of period $ 52,745 $ 3,703


						Distributions in
						Excess of			Non-controlling
						Accumulated			interests –
	Common		Paid-in			Comprehensive			Common OP
	Stock		Capital			Earnings			Units			Total Equity

Balance, December 31, 2008	$	238	$	320,084		$	(241,609	)	$	17,521		$	96,234
Conversion of OP Units to common stock		—		758			—			(758	)		—
Issuance of common stock through exercise of options		—		32			—			—			32
Issuance of common stock through employee stock purchase plan		—		929			—			—			929
Issuance of common stock through stock offering		46		146,603			—			—			146,649
Compensation expenses related to stock options and restricted stock		15		2,327			—			—			2,342
Repurchase of common stock		—		(120	)		—			—			(120	)
Adjustment of Common OP Unitholders in the Operating Partnership		—		(19,899	)		—			19,899			—
Net income		—		—			16,548			3,295			19,843
Distributions		—		—			(12,643	)		(2,609	)		(15,252	)

Balance, June 30, 2009	$	299	$	450,714		$	(237,704	)	$	37,348		$	250,657

The accompanying notes are an integral part of the financial statements.

Equity LifeStyle Properties, Inc.

Consolidated Statements of Cash Flows ~~(continued)~~

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~
2008

(amounts in thousands)

(unaudited)

September 30, September 30,
2008 2007
Supplemental Information:

Cash paid during the period for interest $ 72,418 $ 76,134
Non-cash activities:
Real estate acquisition and disposition
Mortgage debt assumed and financed on acquisition of real estate $ — $ 7,437
Mezzanine and joint venture investments applied to real estate acquisition $ — $ 182
Other assets and liabilities, net, acquired on acquisition of real estate $ 36 $ 170

Proceeds from loan to pay insurance premiums $ — $ 4,300

Inventory reclassified to Buildings and other depreciable property $ 36,635 $ —

Acquisition of operations of Privileged Access
Assumption of assets and liabilities:
Inventory $ 2,106 $ —
Escrow deposits and other assets $ 12,050 $ —
Accrued payroll and other operating expenses $ 13,644 $ —
Rents and other customer payments received in advance and security deposits $ 21,304 $ —
Notes receivable $ 19,571 $ —
Investment in real estate $ 6,991
Debt assumed and financed on acquisition $ 7,037 $ —


	June 30,			June 30,
	2009			2008
Cash Flows From Operating Activities:
Consolidated net income	$	27,916		$	28,839
Adjustments to reconcile net income to cash provided by operating activities:
(Gain) loss on sale of properties and other		(783	)		80
Depreciation expense		36,718			33,873
Amortization expense		1,569			1,419
Debt premium amortization		(546	)		(372	)
Equity in income of unconsolidated joint ventures		(3,017	)		(4,286	)
Distributions from unconsolidated joint ventures		2,540			3,148
Amortization of stock-related compensation		2,342			2,716
Revenue recognized from right-to-use contract sales		(1,012	)		—
Amortized commission expense related to right-to-use contract sales		325			—
Accrued long term incentive plan compensation		2,837			546
Increase in provision for uncollectible rents receivable		411			254
Increase in provision for inventory reserve		1,067			329
Changes in assets and liabilities:
Rent and other customer receivables, net		141			494
Inventory		833			(1,221	)
Deferred commissions expense		(3,450	)		—
Escrow deposits and other assets		(11,650	)		(6,406	)
Accrued payroll and other operating expenses		10,352			12,476
Deferred revenue — sales of right-to-use contracts		11,445			—
Rents received in advance and security deposits		4,622			3,119

Net cash provided by operating activities		82,660			75,008

Cash Flows From Investing Activities:
Acquisition of real estate		(5,048	)		(3,984	)
Proceeds from disposition of rental properties		2,192			—
Net tax-deferred exchange withdrawal		—			2,124
Joint Ventures:
Investments in		—			(5,346	)
Distributions from		—			497
Net repayment of notes receivable		2,721			131
Capital improvements		(15,810	)		(11,132	)

Net cash used in investing activities		(15,945	)		(17,710	)

Cash Flows From Financing Activities:
Net proceeds from stock options and employee stock purchase plan		961			3,014
Net proceeds from issuance of Common Stock		146,649			—
Distributions to Common Stockholders, Common OP Unitholders, and Perpetual Preferred OP Unitholders		(21,775	)		(18,645	)
Stock repurchase and Unit redemption		(120	)		—
Lines of credit:
Proceeds		50,900			68,400
Repayments		(143,900	)		(109,900	)
Principal repayments and mortgage debt payoff		(43,999	)		(20,053	)
New financing proceeds		74,313			25,832
Debt issuance costs		(905	)		(546	)

Net cash provided by (used in) financing activities		62,124			(51,898	)

Net increase in cash and cash equivalents		128,839			5,400
Cash and cash equivalents, beginning of period		45,312			5,785

Cash and cash equivalents, end of period	$	174,151		$	11,185

The accompanying notes are an integral part of the financial statements.

Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows (continued)
For the Six Months Ended June 30, 2009 and 2008
(amounts in thousands)
(unaudited)


	June 30,			June 30,
	2009			2008
Supplemental Information:
Cash paid during the period for interest	$	48,631		$	47,859
Non-cash activities:
Real estate acquisition and disposition
Mortgage debt assumed and financed on acquisition of real estate	$	11,851		$	—
Other assets and liabilities, net, acquired on acquisition of real estate	$	941		$	36

Inventory reclassified to Buildings and other depreciable property	$	7,282		$	31,141

Acquisition of operations of Privileged Access
Assumption of assets and liabilities:
Escrow deposits and other assets	$	86		$	—
Accrued payroll and other operating expenses	$	39		$	—
Rents and other customers payments received in advance and security deposits	$	(125	)	$	—

The accompanying notes are an integral part of the financial statements.

Definition of Terms:

Equity LifeStyle Properties, Inc., a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and other consolidated subsidiaries (“Subsidiaries”), are referred to herein as the “Company,” “ELS,” “we,” “us,” and “our.” Capitalized terms used but not defined herein are as defined in the Company’s Annual Report on Form 10-K (“~~2007~~2008 Form 10-K”) for the year ended December 31, ~~2007.~~2008.

Presentation:

These unaudited Consolidated Financial Statements have been prepared pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations and should be read in conjunction with the financial statements and notes thereto included in the ~~2007~~2008 Form 10-K. The following Notes to Consolidated Financial Statements highlight significant changes to the Notes included in the ~~2007~~2008 Form 10-K and present interim disclosures as required by the SEC. The accompanying Consolidated Financial Statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. Revenues are subject to seasonal fluctuations and as such quarterly interim results may not be indicative of full year results.

Note 1 — Summary of Significant Accounting Policies

(a) Basis of Consolidation

The Company consolidates its majority-owned subsidiaries in which it has the ability to control the operations of the subsidiaries and all variable interest entities with respect to which the Company is the primary beneficiary. The Company also consolidates entities in which it has a controlling direct or indirect voting interest. All inter-company transactions have been eliminated in consolidation. The Company’s acquisitions on or prior to December 31, 2008 were all accounted for as purchases in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”). For business combinations for which the acquisition date is on or after January 1, 2009, the purchase price of Properties will be accounted for in accordance with Statement of Financial Accounting Standard No. 141R, “Business Combinations,” (“SFAS No. 141R”).

The Company has applied 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 has also applied Emerging Issues Task Force 04-5, ~~— Accounting for investments in limited partnerships when~~“Determining Whether a General Partner, or the ~~investor is~~General Partners as a Group, Controls a Limited Partnership or Similar Entity When the ~~sole general partner and the limited partners have certain rights~~Limited Partners Have Certain Rights” (“EITF 04-5”), which determines whether a general partner or the general partners as a group controls a limited partnership or similar entity and therefore should consolidate the entity. The Company will apply FIN 46R and EITF 04-5 to all types of entity ownership (general and limited partnerships and corporate interests).

The Company applies the equity method of accounting to entities in which the Company ~~(i)~~ does not have a controlling direct or indirect voting interest or ~~(ii)~~ is not considered the primary beneficiary, 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.

Note 1 — Summary of Significant Accounting Policies (continued)

(c) Markets

~~The Company manages~~We manage all ~~of its~~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. ~~The Company intends~~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.

(d) Inventory

~~Inventory~~As of December 31, 2008, inventory primarily consists of new and used Site Set homes and is stated ~~net of manufacturer rebates,~~ 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. The expense for the inventory reserve is included in the cost of home sales in our Consolidated Statements of Operations. As of June 30, 2009, inventory primarily consists of merchandise inventory as almost all Site Set inventory has been reclassified to buildings and other depreciable property. (See Note 6 in the Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”)).

(e) Real Estate

In accordance with SFAS No. 141R, which is effective for acquisitions on or after January 1, 2009, we recognize all the assets acquired and all the liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. We also recognize transaction costs as they are incurred.

Acquisitions prior to December 31, 2008 were accounted for in accordance with SFAS No. 141, and we ~~allocate~~allocated the purchase price of Properties we ~~acquire~~acquired 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. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. We generally use a 30-year estimated life for buildings acquired and structural and land improvements (including site development), a ~~ten-to-fifteen-year~~ten-year estimated life for building upgrades and a ~~three-to-seven-year~~five-year estimated life for furniture, fixtures and equipment. ~~Used~~New rental ~~homes~~units are ~~depreciated using a 40-year estimated life from its model year with a minimum of 15 years and new rental homes are~~generally depreciated using a 20-year estimated life from ~~its~~each model year down to a salvage value of 40% of the original costs. Used rental units are generally depreciated based on the estimated life of the unit with no estimated salvage value.

The values of 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 ~~the asset’s~~their estimated useful life.

The Company periodically evaluates its long-lived assets, including ~~our~~its investments in real estate, for impairment indicators. ~~Judgments~~Our 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.

Note 1 — Summary of Significant Accounting Policies (continued)

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 to sell. Subsequent to the date that a Property is held for disposition, depreciation expense is not recorded. The Company accounts for its Properties held for disposition in accordance with ~~the~~ Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Accordingly, the results of operations for all assets sold or held for sale have been classified as discontinued operations in all periods presented.

(f) Identified Intangibles and Goodwill

~~Note 1 — Summary~~ We record acquired intangible assets and acquired intangible liabilities at their estimated fair value separate and apart from goodwill. We amortize identified intangible assets and liabilities that are determined to have finite lives over the period the assets and liabilities are expected to contribute directly or indirectly to the future cash flows of ~~Significant Accounting Policies (continued)~~the property or business acquired. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its estimated fair value.

The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a reporting unit on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

As of June 30, 2009 and December 31, 2008, the carrying amounts of identified intangible assets, a component of “Escrow deposits and other assets” on our consolidated balance sheets, were approximately $4.3 million and $4.2 million, respectively. Accumulated amortization of identified intangibles assets was approximately $0.3 million and $0.1 million as of June 30, 2009 and December 31, 2008, respectively.

~~(f)~~(g) Cash and Cash Equivalents

~~The Company considers~~We consider all demand and money market accounts and certificates of deposit with a maturity ~~dates,~~date, when purchased, of three months or less to be cash equivalents. The cash and cash equivalents as of ~~September~~June 30, ~~2008~~2009 and December 31, ~~2007~~2008 include approximately ~~$0.5~~$0.4 million of $0 restricted ~~cash, respectively.~~cash.

~~(g)~~(h) 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, ~~net of a valuation~~and an allowance. Interest income is accrued on the unpaid principal balance. Discounts or premiums are amortized to income using the interest method. 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 review of loan agings and a comparison of the outstanding principal balance of ~~each note~~the Chattel Loans compared to the ~~N.A.D.A. value and the~~ current estimated market value of the underlying manufactured home collateral.

Beginning August 14, 2008, as a result of ~~our acquisition of substantially all of~~ the ~~assts and certain liabilities of Privileged Access, L.P. (“Privileged Access”),~~PA Transaction, the Company also ~~began~~now provides financing ~~the~~for nonrefundable upfront payments on sales of right-to-use contracts (“Contracts Receivable”). Based upon historical collection rates and current economic trends, when a sale is financed, a reserve is established for a portion of the Contracts Receivable balance estimated to be uncollectible. The allowance and the rate at which the Company provides for losses on its Contracts Receivable could be increased or decreased in the future based on the Company’s actual collection experience. (See Note 7 in the Notes to Consolidated Financial Statements contained in this Form 10-Q).

Note 1 — Summary of Significant Accounting Policies (continued)

On August 14, 2008, we purchased Contract Receivables that were recorded at fair value at the time of acquisition of approximately $19.6 million under American Institute of Certified Public Accountants Statement of Position (SOP) 03-3: Accounting for Certain Loans or Debt Securities Acquired in a Transfer. The fair value of these Contracts Receivable includes an estimate of losses that are expected to be incurred over the estimated remaining lives of the receivables, and therefore no allowance for losses was recorded for these receivables as of the transaction date. Through June 30, 2009, the credit performance of these receivables has generally been consistent with the assumptions used in determining the initial fair value of these loans, and our original expectations regarding the amounts and timing of future cash flows has not changed. A probable decrease in management’s expectation of future cash collections related to these receivables could result in the need to record an allowance for credit losses related to these loans in the future. A significant and probable increase in expected cash flows would generally result in an increase in interest income recognized over the remaining life of the underlying pool of receivables.

~~(h)~~(i) 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. (See Note 5 in the Notes to Consolidated Financial Statements contained in this Form 10-Q).

~~(i)~~(j) Income from Other Investments, net

~~Income~~Prior to August 14, 2008, income from other investments, net, primarily ~~includes~~included revenue relating to the Company’s former ground leases with Privileged Access. The ground leases were terminated on August 14, 2008 due to the ~~Company’s acquisition of substantially all of the assets and certain liabilities of Privileged Access (the “PA Transaction”).~~PA Transaction. The ground leases with Privileged Access were for approximately 24,300 sites at 82 of the Company’s Properties and were accounted for in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases. The Company recognized income related to these ground leases of approximately ~~$2.2~~$6.4 and approximately $12.7 million ~~and $5.3 million for the quarters ended September 30, 2008 and 2007, respectively. The income~~ for the quarter and ~~nine~~six months ended ~~September~~June 30, 2008, includes an expense of $0.9 million and $1.0 million, respectively, of a lease restatement bonus paid to Privileged Access in January 2008. Ground lease income for the nine months ended September 30, 2008 and 2007 was $14.9 million and $15.2 million, respectively. ~~See Note 11 in the Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) for further discussion regarding the PA Transaction.~~

~~Note 1 — Summary of Significant Accounting Policies (continued)~~

~~(j)~~(k) Insurance Claims

The Properties are covered against fire, flood, property damage, earthquake, windstorm and business interruption by insurance policies containing various deductible requirements and coverage limits. Recoverable costs are classified in other assets as incurred. Insurance proceeds are applied against the asset when received. Recoverable 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 once the ~~net cost basis~~value of the impaired asset has been determined. Insurance proceeds relating to the capital ~~costs or in excess of any receivable for recoverable~~ costs are recorded as income in the period they are received.

Approximately 70 Florida Properties suffered damage from the five hurricanes that struck the state during 2004 and 2005. ~~As of September 30, 2008, the~~The Company estimates its total ~~claims~~claim to exceed $21.0 ~~million. The Company~~million and has made claims for full recovery of these amounts, subject to deductibles. Through September 30, 2008, the Company has made total expenditures of approximately $18.0 million. Approximately $6.9 million of these expenditures have been capitalized per the Company’s capitalization policy through September 30, 2008.

The Company has received proceeds from insurance carriers of approximately ~~$8.8~~$10.5 million through ~~September~~June 30, ~~2008.~~2009. The proceeds were accounted for in accordance with the Statement of Financial Accounting Standards No.5, “Accounting for Contingencies” (“SFAS No. 5”). During the ~~nine~~six months ended ~~September~~June 30, ~~2008, approximately $0.7~~2009, $1.5 million has been recognized as a gain on insurance recovery, which is net of approximately $0.2 million of contingent legal fees and included in income from other investments, net.

Note 1 — Summary of Significant Accounting Policies (continued)

On June 22, 2007, the Company filed a lawsuit related to some of the unpaid claims against certain insurance carriers and its insurance broker. See Note 13 in the Notes to Consolidated Financial Statements contained in this Form 10-Q for further discussion of this lawsuit.

~~(k)~~(l) Fair Value of Financial Instruments

The Company’s financial instruments include short-term investments, notes receivable, accounts receivable, accounts payable, other accrued expenses, and mortgage notes payable. The fair values of all financial instruments, including notes receivable, were not materially different from their carrying values at June 30, 2009 and December 31, 2008.

The valuation of financial instruments under Statement of Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments” (“SFAS No. 107”) and Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) requires us to make estimates and judgments that affect the fair value of the instruments. Where possible, we base the fair values of our financial instruments on listed market prices and third party quotes. Where these are not available, we base our estimates on other factors relevant to the financial instrument.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities” (“SFAS No. 161”), an amendment of SFAS No. 133. SFAS No. 161 is intended to enhance the disclosure framework in SFAS No. 133 by requiring objectives of using derivatives to be disclosed in terms of underlying risk and accounting designation. The statement requires a new tabular disclosure format as a way of providing a more complete picture of derivative positions and their effect during the reporting period. SFAS No. 161 was effective November 15, 2008 with early adoption recommended. The Company currently does not have any financial instruments that require the application of SFAS No. 133 or SFAS No. 161.

(m) Deferred Financing Costs, net

Deferred financing costs, net 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~~lines of credit, unamortized deferred financing fees are accounted for in accordance with, ~~EITF~~Emerging Issues Task Force No. 98-14, “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements” (“EITF No. 98-14”). Accumulated amortization for such costs was ~~$12.3~~$14.0 million and ~~$10.3~~$13.1 million at ~~September~~June 30, ~~2008~~2009 and December 31, ~~2007,~~2008, respectively.

~~Note 1 — Summary of Significant Accounting Policies (continued)~~

~~(l)~~(n) Revenue Recognition

The Company accounts for leases with its customers as operating leases. Rental income is recognized 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. ~~The Company reserves~~We will reserve for ~~customer~~ receivables when ~~it believes~~we believe the ultimate collection is less than probable. Our provision for uncollectible rents receivable was approximately $1.9 million and $1.5 million as of June 30, 2009 and December 31, 2008, respectively.

Note 1 — Summary of Significant Accounting Policies (continued)

The sales of right-to-use contracts are recognized in accordance with Staff Accounting Bulletin 104,Revenue Recognition in Consolidated Financial Statements, Corrected(“SAB 104”). The Company will recognize the upfront non-refundable payments over the estimated customer life which, based on historical attrition rates, the Company has estimated to be between one to 31 years. The current period sales of upfront non-refundable payments are reported on the Income Statement in the line item titled “Right-to-use contracts current period, gross.” The cumulative deferral of the upfront non-refundable payments are reported on the Balance Sheet in the line item titled “Deferred revenue — sale of right-to use contracts.” The deferral of current period sales, net of amortization of prior period sales, is reported on the Income Statement in the line item titled “Right-to-use contracts, deferred, net of prior period amortization.” The decision to recognize this revenue in accordance with SAB 104 was made after corresponding with the Office of the Chief Accountant at the SEC during September and October of 2008. The commissions paid on the sale of right-to-use contracts will be deferred and amortized over the same period as the related sales revenue. The current period commissions paid are reported on the Income Statement in the line item titled “Sales and marketing, gross.” The cumulative deferrals of commissions paid are reported on the Balance Sheet in the line item titled “Deferred commissions expense.” The deferral of current period commissions, net of amortization of prior period commissions is reported on the Income Statement in the line item titled “Sales and marketing, deferred commissions, net.”

Annual payments paid by customers under the terms of the right-to-use contracts are deferred and recognized ratably over the one-year period in which the services are provided.

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)~~(o) Recent Accounting Pronouncements

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163, “Accounting for Financial Guarantee Insurance Contracts” (“SFAS No. 163”). The Statement defines financial guarantee insurance contracts as contracts issued by insurance enterprises that provide protection to the holder of a financial obligation from a financial loss in the event of a default. The Statement requires that an insurance enterprise recognize a claim for liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement also clarifies how Statement 60,~~Accounting and Reporting by Insurance Enterprises~~, applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. SFAS No. 163 is effective December 15, 2008 with early adoption prohibited. The Company does not believe SFAS No. 163 will have an impact on the consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). The Statement identifies the sources of accounting principles and framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with United States generally accepted accounting principles (“GAAP”). The purpose is to remove the focus of setting the GAAP hierarchy from the auditor and giving the entity the responsibility of setting the GAAP hierarchy. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not believe SFAS No. 162 will have an impact on the consolidated financial statements.

~~Note 1 — Summary of Significant Accounting Policies (continued)~~

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities” (“SFAS No. 161”), an amendment of SFAS No. 133. SFAS No. 161 is intended to enhance the disclosure framework in SFAS No. 133 by requiring objectives of using derivatives to be disclosed in terms of underlying risk and accounting designation. The statement requires a new tabular disclosure format as a way of providing a more complete picture of derivative positions and their effect during the reporting period. SFAS No. 161 is effective November 15, 2008 with early adoption recommended. The Company does not believe SFAS No. 161 will have an impact on the consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS No. 160”), an amendment of Accounting Research Bulletin No. 51. SFAS No. 160 seeks to improve uniformity and transparency in reporting of the net income attributable to non-controlling interests in the consolidated financial statements of the reporting entity. The statement requires, among other provisions, the disclosure, clear labeling and presentation of non-controlling interests in the Consolidated Balance Sheet and Consolidated Income Statement. Per SFAS No. 160, a non-controlling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are non-controlling interests. Under SFAS No. 160, such non-controlling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. However, per FASB Emerging Issues Task Force Topic No. D-98, “Classification and Measurement of Redeemable Securities” (“EITF D-98”), securities that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside of permanent equity. This would result in certain outside ownership interests being included as redeemable non-controlling interests outside of permanent equity in the consolidated balance sheets. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to non-controlling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considered the guidance in EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” to evaluate whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract.

In accordance with SFAS No. 160, effective January 1, 2009, ~~with early adoption prohibited.~~the Company, for all periods presented, has reclassified the non-controlling interest for Common OP Units from the mezzanine section under Total Liabilities to the Equity section of the consolidated balance sheets. The ~~Company~~caption Common OP Units on the consolidated balance sheets also includes $0.5 million of private REIT Subsidiaries preferred stock. Based on the Company’s analysis, Perpetual Preferred OP Units will remain in the mezzanine section. The presentation of income allocated to Common OP Units and Perpetual Preferred OP Units on the consolidated statements of operations has ~~not yet determined~~been moved to the ~~impact, if any, that SFAS No. 160 will have on its consolidated financial statements.~~bottom of the statement prior to Net income available to Common Shares.

Note 1 — Summary of Significant Accounting Policies (continued)

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141R, “Business Combinations,” (“SFAS No. 141R”). SFAS No. 141R replaces FASB Statement No. 141 but retains the fundamental requirements set forth in SFAS No. 141 that the acquisition method of accounting (also known as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R replaces, with limited exceptions as specified in the statement, the cost allocation process in SFAS No. 141 with a fair value based allocation process. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early application is not permitted. The Company has not yet determined the impact, if any, that SFAS No. 141R will have on its consolidated financial statements.

~~In February 2007,~~May 2009, the FASB issued Statement of Financial Accounting Standards No. ~~159, “The Fair Value Option for Financial Assets and Financial Liabilities”~~165, “Subsequent Events” (“SFAS No. ~~159”~~165”). SFAS No. ~~159 permits companies~~165 seeks to ~~choose~~establish general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to ~~measure many~~be issued. The Statement sets forth the period and circumstances after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial ~~instruments~~statements. The Statement introduces the concept of financial statements being available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and ~~certain other items at fair value.~~the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The ~~objective is~~Statement applies to ~~improve~~interim or annual financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginningperiods ending after ~~November~~June 15, ~~2007. Companies are not allowed to adopt SFAS No. 159 on a retrospective basis unless they choose early adoption.~~2009. The adoption of SFAS ~~No. 159 is optional and~~No.165 has had no material effect on the ~~Company has elected not to adopt SFAS No. 159~~Company’s financial statements. Our management evaluated for ~~any~~subsequent events through the time of ~~its financial assets and financial liabilities.~~our filing on August 10, 2009.

In ~~September 2006,~~June 2009, the FASB issued Statement of Financial Accounting Standards No. ~~157, “Fair Value Measurements”~~167, amendments to FASB Interpretation No. 46 (R), (“SFAS No. ~~157”~~167”). SFAS No. 167 seeks to improve financial reporting by enterprises involved with variable interest entities. The Statement addresses the effects on certain provisions of FIN 46R, Consolidation of Variable Interest Entities,as a result of the elimination of the qualifying special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of Financial Assets. It also discusses the application of certain key provisions of FIN 46R, including those in which ~~defines fair value, establishes~~the accounting and disclosures under FIN 46R do not always provide timely and useful information about an enterprise’s involvement in a ~~framework~~variable interest entity. This Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for ~~measuring fair value in~~interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company does not believe the adoption of SFAS No. 167 will have a material effect on its consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162” (“SFAS No. 168”). SFAS No. 168 will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and ~~expands disclosures about fair value measurements.~~interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Statement will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Statement will become nonauthoritative. The Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company does not believe SFAS No. ~~157 does not require any new fair value measurements, but provides guidance~~168 will have an impact on ~~how~~its consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position on Emerging Issues Task Force Issue 03-6, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to ~~measure fair value by providing a fair value hierarchy used~~dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share (“EPS”) pursuant to ~~classify~~ the ~~source of the information. This statement~~two-class method. FSP EITF 03-6-1 was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the ~~Company beginning~~provisions of FSP EITF 03-6-1. Early application was not permitted. Adoption on January 1, ~~2008. The adoption of SFAS No. 157 has had no material effect on the Company’s financial statements.~~2009 did not materially impact our earnings per share calculation.

~~(n)~~(p) Reclassifications

Certain ~~2007~~2008 amounts have been reclassified to conform to the ~~2008~~2009 presentation. This reclassification had no material effect on the consolidated balance sheets or ~~statement~~statements of operations of the Company.

1315

Note 2 — 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 period and basic earnings per share exclude 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 Stock has no material effect on earnings per common share.

The following table sets forth the computation of basic and diluted earnings per common share for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (amounts in thousands):


	Quarters Ended				Nine Months Ended				Quarters Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2008		2007		2008		2007		2009		2008		2009		2008
Numerators:
Income from Continuing Operations:
Income from continuing operations — basic	$	1,456	$	4,040	$	18,237	$	18,026	$	2,830	$	4,069	$	16,386	$	16,781
Amounts allocated to dilutive securities		326		966		4,282		4,333		488		955		3,264		3,956

Income from continuing operations — fully diluted	$	1,782	$	5,006	$	22,519	$	22,359	$	3,318	$	5,024	$	19,650	$	20,737


Income from Discontinued Operations:
Income from discontinued operations — basic	$	26	$	5,612	$	79	$	9,419	$	74	$	40	$	162	$	53
Amounts allocated to dilutive securities		6		1,342		18		2,259		13		9		31		12

Income from discontinued operations — fully diluted	$	32	$	6,954	$	97	$	11,678	$	87	$	49	$	193	$	65


Net Income Available for Common Shares — Fully Diluted:

Net income available for Common Shares — basic	$	1,482	$	9,652	$	18,316	$	27,445	$	2,904	$	4,109	$	16,548	$	16,834
Amounts allocated to dilutive securities		332		2,308		4,300		6,592		501		964		3,295		3,968

Net income available for Common Shares — fully diluted	$	1,814	$	11,960	$	22,616	$	34,037	$	3,405	$	5,073	$	19,843	$	20,802


Denominator:
Weighted average Common Shares outstanding — basic		24,527		24,148		24,366		24,065		25,163		24,370		25,055		24,285
Effect of dilutive securities:
Redemption of Common OP Units for Common Shares		5,654		5,836		5,753		5,881		5,164		5,777		5,212		5,802
Employee stock options and restricted shares		391		434		385		456		366		393		342		391

Weighted average Common Shares outstanding — fully diluted		30,572		30,418		30,504		30,402
Weighted average Common Shares outstanding - fully diluted										30,693		30,540		30,609		30,478

Note 3 — Common Stock and Other Equity Related Transactions

On ~~October~~July 10, ~~2008,~~2009, the Company paid a ~~$0.20 per share distribution for the quarter ended September 30, 2008 to stockholders of record on September 26, 2008. On July 11, 2008, the Company paid a $0.20~~$0.25 per share distribution for the quarter ended June 30, ~~2008~~2009 to stockholders of record on June ~~27, 2008.~~26, 2009. On April ~~11, 2008,~~10, 2009, the Company paid a ~~$0.20~~$0.25 per share distribution for the quarter ended March ~~30, 2008~~31, 2009 to stockholders of record on March ~~28, 2008.~~27, 2009. On ~~September 30, 2008,~~ June 30, ~~2008~~2009 and March 31, ~~2008,~~2009, the Operating Partnership paid distributions of 8.0625% per annum on the $150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units.

On June 29, 2009, the Company issued 4.6 million shares of common stock in an equity offering for approximately $146.6 million in proceeds, net of offering costs.

1416

Note 3 — Common Stock and Other Equity Related Transactions (continued)

Our management and the executive committee of our Board of Directors intend to recommend to the Board of Directors an increase in our quarterly common stock dividend from $0.25 to $0.30 per share of common stock. This expected increase in our quarterly dividend will take effect with the distributions for the quarter ended September 30, 2009. Although we anticipate increasing our regular quarterly dividend as described above, the amount, timing and form of any future dividends to our stockholders will be at the sole discretion of our Board of Directors and will depend upon numerous factors, including, but not limited to, our actual and projected results of operations and funds from operations; our actual and projected financial condition, cash flows and liquidity; our business prospects; our operating expenses; our capital expenditure requirements; our debt service requirements; restrictive covenants in our financing or other contractual arrangements; restrictions under Maryland law; our taxable income; the annual distribution requirements under the REIT provisions of the Internal Revenue Code; and such other factors as our Board of Directors deems relevant.

Note 4 — Investment in Real Estate

Investment in real estate is comprised of (amounts in thousands):

As of

June 30,

December 31,

Properties Held for Long Term

As of
September 30, December 31,
2008 2007
Investment in real estate:
Land $ 539,702 $ 538,723
Land improvements 1,710,447 1,690,784
Buildings and other depreciable property_(a)
200,930 153,671

2,451,079 2,383,178
Accumulated depreciation (539,820 ) (490,108 )

Net investment in real estate $ 1,911,259 $ 1,893,070

		2009		2008
Investment in real estate:
Land	$	543,735	$	539,702
_(a)	~~As of September 30, 2008, balance includes approximately $24.2 million of new rental homes and approximately $12.5 million of used rental homes.~~

~~Properties Held for Sale~~

As of
September 30, December 31,
2008 2007
Investment in real estate:
Land $ 2,277 $ 2,277
Land improvements 10,114 10,104
Buildings and other depreciable property 589 556

12,980 12,937
Accumulated depreciation (4,103 ) (4,103 )

Net investment in real estate $ 8,877 $ 8,834

Land improvements ~~consist primarily of improvements such as grading, landscaping and infrastructure items such as streets, sidewalks or water mains.~~

1,732,633

1,715,627

Buildings and other depreciable property_(a)

240,772

222,699

2,517,140

2,478,028

Accumulated depreciation

(592,850

)

(557,001

)

Net investment in real estate

1,924,290

1,921,027


_(a)		As of June 30, 2009, the balance includes approximately $45.7 million of new rental units and approximately $15.5 million of used rental units. As of December 31, 2008, the balance includes approximately $44.4 million of new manufactured home rental units and $13.4 million of used manufactured home rental units.


	As of
	June 30,			December 31,
Properties Held for Sale	2009			2008
Investment in real estate:
Land	$	2,277		$	2,277
Land improvements		10,059			10,125
Buildings and other depreciable property		619			591

		12,955			12,993
Accumulated depreciation		(4,112	)		(4,103	)

Net investment in real estate	$	8,843		$	8,890

Land improvements consist primarily of improvements such as grading, landscaping and infrastructure items such as streets, sidewalks or water mains. Buildings and other depreciable property consists of permanent buildings in the Properties such as clubhouses, laundry facilities, maintenance storage facilities, as well as rental units, furniture, fixtures and equipment. See Note 6 in the Notes to Consolidated Financial Statements contained in this Form 10-Q for disclosure regarding the reclassification of resort cottage inventory to Building and other depreciable property during the six months ended June 30, 2009.

Note 4 — Investment in Real Estate (continued)

On April 17, 2009, we sold Caledonia, a 247-site Property in Caledonia, Wisconsin, for proceeds of approximately $2.2 million. The Company recognized a gain on sale of approximately $0.8 million and is included in Income from other investments, net. In addition, we received approximately $0.3 million of deferred rent due from the previous tenant.

On February 13, 2009, the Company acquired the remaining 75 percent interests in three Diversified Portfolio joint ventures known as (i) Robin Hill, a 270-site property in Lenhartsville, Pennsylvania, (ii) Sun Valley, a 265-site property in Brownsville, Pennsylvania, and (iii) Plymouth Rock, a 609-site property in Elkhart Lake, Wisconsin. The gross purchase price was approximately $19.2 million, and we assumed mortgage loans of approximately $12.9 million with a value of approximately $11.9 million and a weighted average interest rate of 6.0 percent per annum.

All 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. Certain purchase price adjustments may be recorded within one year following the acquisitions.

The Company actively seeks to acquire additional Properties and currently is engaged in negotiations relating to the possible acquisition of a number of Properties. At any time these negotiations are at varying stages, which may include contracts outstanding, to acquire certain Properties, which are subject to satisfactory completion of our due diligence review.

As of June 30, 2009, the Company had two Properties designated as held for disposition pursuant to SFAS No. 144. The Company determined that these Properties no longer met its investment criteria. As such, the results from operations of these two Properties are classified as income from discontinued operations. The Company expects to sell these Properties for proceeds greater than their net book value. The Properties that were classified as held for disposition as of June 30, 2009 are listed in the table below:


Property	Location	Sites
Casa Village₍₁₎	Billings, MT		490
Creekside.	Wyoming, MI		165


₍₁₎		Casa Village, was sold on July 20, 2009 for proceeds of approximately $12 million.

The following table summarizes the combined results of operations of the two Properties held for sale for the quarters and six months ended June 30, 2009 and 2008, respectively (amounts in thousands).


	Quarters Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Rental income	$	527		$	531		$	1,067		$	1,068
Utility and other income		39			36			77			78

Property operating revenues		566			567			1,144			1,146

Property operating expenses		254			252			496			540

Income from property operations		312			315			648			606

Income from home sales operations		9			4			22			1

Interest and Amortization		(225	)		(231	)		(448	)		(462	)
Depreciation		(9	)		—			(9	)		—

Total other expenses		(234	)		(231	)		(457	)		(462	)

Loss on sale of property		—			(39	)		(20	)		(80	)

Net income from discontinued operations	$	87		$	49		$	193		$	65

Note 5 — Investment in Joint Ventures

The Company recorded approximately $2.4 million and $3.4 million of net income from joint ventures, net of approximately $0.6 million and $0.9 million of depreciation expense for the six months ended June 30, 2009 and 2008, respectively. The Company received approximately $2.5 million and $3.6 million in distributions from such joint ventures for the six months ended June 30, 2009 and 2008, respectively. Approximately $2.5 million and $3.1 million of such distributions were classified as a return on capital and were included in operating activities on the Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008, respectively. The remaining distributions were classified as return of capital and classified as investing activities on the Consolidated Statements of Cash Flows. Approximately $1.1 million and $2.4 million of the distributions received in the six months ended June 30, 2009 and 2008, respectively, exceeded the Company’s basis in its joint venture and as such were recorded in income from unconsolidated joint ventures. Distributions include amounts received from the sale or liquidation of joint venture investments.

On February 13, 2009, the Company sold its 25 percent interest in two Diversified Portfolio joint ventures known as (i) Pine Haven, a 625-site property in Ocean View, New Jersey and (ii) Round Top, a 319-site property in Gettysburg, Pennsylvania. A gain on sale of approximately $1.1 million was recognized and is included in Equity in income of unconsolidated joint ventures.

The following table summarizes the Company’s investments in unconsolidated joint ventures (with the number of Properties shown parenthetically as of June 30, 2009 and December 31, 2008, respectively with dollar amounts in thousands):


									JV Income for
					Investment as of				Six Months Ended
		Number		Economic			December
Investment	Location	of Sites		Interest_(a)	June 30, 2009		31, 2008		June 30, 2009		June 30, 2008
Meadows	Various (2,2)		1,027	50%	$	115	$	406	$	472	$	471
Lakeshore	Florida (2,2)		342	90%		140		110		162		750
Voyager	Arizona (1,1)		1,706	50%_(b)		8,841		8,953		580		789
Other Investments	Various (0,5)_(c)		—	25%		309		207		1,164		1,373

			3,075		$	9,405	$	9,676	$	2,378	$	3,383


_(a)		The percentages shown approximate the Company’s economic interest as of June 30, 2009. The Company’s legal ownership interest may differ.

_(b)		Voyager joint venture primarily consists of ~~permanent buildings~~a 50% interest in Voyager RV Resort. A 25% interest in the ~~Properties such as clubhouses, laundry facilities, maintenance storage facilities, as well as rental units, furniture, fixtures~~utility plant servicing the Property is included in Other Investments.

_(c)		As noted above, the Company sold its interest in two Diversified Portfolio joint ventures and ~~equipment. See Note 6~~purchased the remaining 75% interest in ~~the Notes to the Consolidated Financial Statements contained in this Form 10-Q for disclosure regarding the reclassification of manufactured home inventory to Buildings and other depreciable property~~three Diversified Portfolio joint ventures during the ~~nine~~six months ended ~~September~~June 30, ~~2008.~~ ~~Included in the PA Transaction were approximately $3.9 million of land improvements and $3.1 million of rental units. See~~2009 (see Note 114 in the Notes to Consolidated Financial Statements contained in this Form ~~10-Q for further discussion regarding the PA Transaction.~~10-Q).

Note 6 — Inventory

The following table sets forth Inventory as of June 30, 2009 and December 31, 2008 (amounts in thousands):


	June 30, 2009		December 31, 2008
New homes_(a)	$	466	$	8,436
Used homes_(b)		—		312
Other_(c)		3,515		4,651

Total inventory_(d)		3,981		13,399
Inventory reserve		—		(465	)

Inventory, net of reserves	$	3,981	$	12,934

(a)

Includes 6 and ~~was funded by proceeds from the tax-deferred exchange account established as a result of the November 2007 sale of Holiday Village-Iowa.~~

~~Note 4 — Investment in Real Estate (continued)~~

On January 14, 2008, we acquired a 179-site resort Property known as Grandy Creek located on 63 acres near Concrete, Washington. The purchase price was $1.8 million and the Property was leased to Privileged Access from January 14, 2008 through August 13, 2008.

As of September 30, 2008, the Company had two Properties designated as held for disposition pursuant to SFAS No. 144. The Company determined that these Properties no longer met its investment criteria. As such, the results from operations of these two Properties are classified as income from discontinued operations. The Company expects to sell these Properties for proceeds greater than their net book value. The Properties that were classified as held for disposition261 new units as of ~~September 30, 2008 are listed in the table below:~~


~~Property~~	~~Location~~	~~Sites~~
~~Casa Village~~	~~Billings, MT~~		~~490~~
~~Creekside~~	~~Wyoming, MI~~		~~165~~

The following table summarizes the combined results of operations of the two Properties held for sale and three previously sold Properties for the quarters and nine months ended September 30, 2008 and 2007, respectively (amounts in thousands).

Quarters Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Rental income $ 524 $ 739 $ 1,592 $ 2,355
Utility and other income 38 54 115 191

Property operating revenues 562 793 1,707 2,546

Property operating expenses (298 ) (470 ) (836 ) (1,597 )

Income from property operations 264 323 871 949

Income (loss) from home sales operations 1 8 — (12 )

Interest and Amortization (233 ) (235 ) (694 ) (703 )

(Loss) gain on sale of property — 6,858 (80 ) 11,444
Minority interest (6 ) (1,342 ) (18 ) (2,259 )

Net income from discontinued operations $ 26 $ 5,612 $ 79 $ 9,419

~~Note 5 — Investment in Joint Ventures~~

The Company recorded approximately $3.4 million and $2.0 million of net income from joint ventures, net of approximately $1.4 million and $1.1 million of depreciation expense for the nine months ended September 30, 2008 and 2007, respectively. The Company received approximately $3.9 million in distributions from such joint ventures for each of the nine months ended September 30, 2008 and 2007. Approximately $3.4 million and $3.8 million of such distributions were classified as a return on capital and were included in operating activities on the Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007, respectively. The remaining distributions were classified as return of capital and classified as investing activities on the Consolidated Statements of Cash Flows. Approximately $2.6 million and $2.2 million of the distributions received in the nine months ended September 30, 2008 and 2007, respectively, exceeded the Company’s basis in its joint venture and as such were recorded in income from unconsolidated joint ventures. Of these distributions, $0.6 million relates to the gain on the payoff of our share of seller financing in excess of our joint venture basis on one Lakeshore investment.

As of December 31, 2007, the Bar Harbor joint venture was consolidated with the operations of the Company as the Company determined that as of December 31, 2007 the Company was the primary beneficiary by applying the standards of FIN 46R. During the quarter ended June 30, 2008, the Company exercised its option to acquire the remaining percentage of the Bar Harbor joint venture from its joint venture partner. Under the formula provided for in the call option section of the joint venture agreement, no additional consideration was required to be paid to exercise the option and the Company now owns 100 percent of the three Bar Harbor Properties.

On February 15, 2008, the Company acquired an additional 25% interest in Voyager RV Resort for approximately $5.7 million, increasing the Company’s ownership interest to 50%. The additional investment was determined on a total purchase price of $50.5 million and mortgage debt of $22.5 million.

During the quarter ended June 30, 2008, the Company sold its 25% interest in the four Morgan Portfolio joint ventures known as New Point in New Point, Virginia, Virginia Park in Old Orchard Beach, Maine, Club Naples in Naples, Florida and Gwynn’s Island in Gwynn, Virginia, for a sales price of approximately $2.1 million. The sales price for the four Morgan Portfolio joint ventures was based on a total sales price of approximately $25.7 million net of mortgage debt of approximately $17.2 million. A gain on the sale of approximately $1.6 million was recognized.

The following table summarizes the Company’s investments in unconsolidated joint ventures (with the number of Properties shown parenthetically as of September 30, 2008 and December 31, 2007, respectively with dollar amounts in thousands):

JV Income for
Investment as of Nine Months Ended
Economic September 30, December 31, September 30, September 30,
Investment Location Number of Sites Interest_(a) 2008 2007 2008 2007
Meadows Various (2,2) 1,027 50 % $ 440 $ 138 $ 642 $ 341
Lakeshore Florida (2,2) 342 90 % 85 61 810 183
Voyager Arizona (1,1) 1,706 50 %_(b) 9,039 3,368 555 299
Maine Portfolio Maine (0,0)_(c) — — — — (42 )
Other Investments Various (5,10)_(d) 2,088 25 % 141 1,002 1,438 1,267

5,163 $ 9,705 $ 4,569 $ 3,445 $ 2,048


_(a)		~~The percentages shown approximate the Company’s economic interest as of September 30, 2008. The Company’s legal ownership interest may differ.~~

_(b)		~~Voyager joint venture primarily consists of a 50% interest in Voyager RV Resort. A 25% interest in the utility plant servicing the Property is included in Other Investments.~~

_(c)		~~As of December 31, 2007, the Bar Harbor joint venture was consolidated with the operations of the Company.~~

_(d)		~~The Company received funds held for the initial investment in one of the Morgan Properties and sold its 25% interest in all four remaining Morgan Properties during the six months ended June 30, 2008.~~

~~Note 6 — Inventory~~

~~The following table sets forth Inventory as of September 30, 2008 and December 31, 2007 (amounts in thousands):~~

September 30, 2008 December 31, 2007

New homes_(a)
$ 26,807 $ 51,083
Used homes_(b)
384 10,912
Other_(c)
4,668 1,642

Total inventory_(d)
31,859 63,637
Inventory reserve (767 ) (830 )

Inventory, net of reserves $ 31,092 $ 62,807


_(a)		~~Includes 490 and 860 new units as of September 30, 2008 and December 31, 2007, respectively.~~

_(b)		~~Includes 49 and 978 used units as of September 30, 2008 and December 31, 2007, respectively.~~

_(c)		Other inventory primarily consists of merchandise inventory. The increase in the balance since December 31, 2007 is primarily due to approximately $2.1 million of merchandise and other inventory acquired in connection with the PA Transaction.

_(d)		~~Includes $0.3 million of Properties currently held for sale as of September 30, 2008 and December 31, 2007.~~

During the nine months ended September 30, 2008, $36.6 million of manufactured home inventory, including reserves of approximately $0.4 million, was reclassified to Buildings and other depreciable property. The inventory reclassified is primarily rented to customers on an annual basis.

~~Note 7 — Notes Receivable~~

As of September 30, 2008 and December 31, 2007, the Company had approximately $31.7 million and $11.0 million in notes receivable, respectively. As of September 30, 2008 and December 31, 2007, the Company had approximately $11.5 and $10.6 million, respectively, in Chattel Loans receivable, which yield interest at a per annum average rate of approximately 8.9%, have a weighted average term remaining of approximately nine years, require monthly principal and interest payments and are collateralized by homes at certain of the Properties. The Chattel Loans are recorded net of allowances of approximately $68,000 and $160,000 as of September 30, 2008 and December 31, 2007, respectively. During the nine months ended September 30, 2008, approximately $1.2 million was repaid and an additional $3.3 million was loaned to customers.

In connection with the PA Transaction, we acquired approximately $19.6 million of Contracts Receivable. As of September 30, 2008, the Company had approximately $19.7 million of Contracts Receivables, net of allowances of approximately $0.2 million. These Contracts Receivables represent loans to customers who have purchased right-to-use contracts. The Contracts Receivable yield interest at a per annum average rate of 16.0%, have a weighted average term remaining of approximately four years and require monthly payments of principal and interest. During the quarter ended September 30, 2008, approximately $1.5 million was repaid and an additional $1.8 million was loaned to customers.

As of September 30, 2008 and December 31, 2007, the Company had a $0.4 million note receivable, which bears interest at a per annum rate of prime plus 0.5% and matures on December 31, 2011. The note is collateralized with a combination of Common OP Units and partnership interests in certain joint ventures.

~~Note 8 — Long-Term Borrowings~~

As of September 30, 2008 and December 31, 2007, the Company had outstanding mortgage indebtedness on Properties held for long-term investment of approximately $1,538 million and $1,542 million, respectively, and approximately $14 million of mortgage indebtedness, on Properties held for sale as of September 30, 2008 and December 31, 2007. The weighted average interest rate, including amortization expense, on long-term borrowings for the quarter ending September 30, 2008 and the year ending December 31, 2007, was approximately 6.1% per annum. The debt bears interest at rates of 4.3% to 9.3% per annum and matures on various dates ranging from 2008 to 2018. Included in our debt balance are three capital leases with an imputed interest rate of 13.1% per annum. The debt encumbered a total of 154 and 164 of the Company’s Properties as of September 30, 2008 and December 31, 2007, respectively, and the carrying value of such Properties was approximately $1,705 and $1,784 million as of such dates.

As of September 30, 2008 and December 31, 2007, the $370.0 million bank commitment had $254.3 million and $267.0 million, respectively, available for future borrowings. The weighted average interest rate for the quarter ending September 30, 2008 and the year ending December 31, 2007 was 4.30% and 6.84% per annum, respectively.

~~Note 9 — Stock-Based Compensation~~

The Company accounts for its stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123(R), “Share Based Payment” (“SFAS 123(R)”), which was adopted on July 1, 2005.

Stock-based compensation expense was approximately $1.2 million and $1.1 million for the quarters ended September 30, 2008 and 2007, respectively. For the nine months ended September 30, 2008 and 2007, stock-based compensation expense was approximately $4.0 million and $3.2 million, respectively.

Pursuant to the Stock Option Plan as discussed in Note 13 to the 2007 Form 10-K, certain officers, directors, employees and consultants have been offered the opportunity to acquire shares of common stock of the Company through stock options (“Options”). During the nine months ended September 30, 2008, Options for 168,267 shares of common stock were exercised for gross proceeds of approximately $3.2 million.

On January 4, 2008, the Company awarded restricted stock grants for 30,000 shares of common stock at a fair market value of approximately $1.3 million to Mr. Joe McAdams. One-third of the restricted common stock vested immediately upon issuance, with one-third will vest on each of December 31, 2008 and December 31, 2009.

On January 31, 2008, the Company awarded restricted stock grants for 8,000 shares of common stock at a fair market value of approximately $349,000, and awarded Options to purchase 115,000 shares of common stock with an exercise price of $43.67 per share to certain members of the Board of Directors for services rendered in 2007. One-third of the Options to purchase common stock and the shares of restricted common stock covered by these awards vests on each of December 31, 2008, December 31, 2009 and December 31, ~~2010.~~

~~On May 8,~~ 2008, ~~the Company awarded restricted stock grants for 12,000 shares~~respectively.

(b)

Includes zero and 27 used units as of common stock at a fair market value of approximately $580,000, and awarded Options to purchase 20,000 shares of common stock with an exercise price of $48.33 per share to certain members of the Board of Directors for services rendered in 2007. One-third of each of the Options to purchase common stock and the shares of restricted common stock covered by these awards vests on each of November 8, 2008, May 8,June 30, 2009 and ~~May 8, 2010.~~

~~Note 10 — Long-Term Cash Incentive Plan~~

On May 15, 2007, the Company’s Board of Directors approved a Long-Term Cash Incentive Plan (the “Plan”) to provide a long-term cash bonus opportunity to certain members of the Company’s management and executive officers. The total cumulative payment for all participants (the Eligible Payment) is based upon certain performance conditions being met. Such performance conditions include the Company’s Compounded Annual Funds From Operations Per Share Growth Rate over the three-year period ending December 31, ~~2009, which is further adjusted upward or downward based on the Company’s Total Return compared to a selected peer group. The Company accounts for the Plan in accordance with SFAS 123(R). As~~2008, respectively.

(c)

Other inventory primarily consists of September 30, 2008, the Company had accrued compensation expense of approximately $1.5 million related to the Plan, including approximately $0.8 million in the nine months ended September 30, 2008.

~~Note 11 — Transactions with Related Parties~~

~~Privileged Access~~

On August 14, 2008, the Company acquired substantially all of the assets and certain liabilities of Privileged Access for a note payable of $2.0 million. Prior to the purchase, Privileged Access had a 12-year lease with the Company for 82 Properties that terminated upon closing. The $2.0 million unsecured note payable matures on August 14, 2010 and accrues interest at 10 percent per annum. At closing, approximately $4.8 million of Privileged Access cash was deposited into an escrow account for liabilities that Privileged Access has retained. The balance in the escrow account as of September 30, 2008 was approximately $4.0 million. In approximately two years, the excess cash in the escrow account, if any, will be paid to the Company.

The preliminary purchase price allocation has been recorded as of August 14, 2008. The preliminary allocation does not include a receivable for the contingent cash as the amount and timing of collection is uncertain. Further adjustments to the purchase price allocation may be necessary within the one-year allocation period allowed by FAS 141.

Mr. McAdams, the Company’s President effective January 1, 2008, owns 100 percent of Privileged Access. The Company has entered into an employment agreement effective as of January 1, 2008 (the “Employment Agreement”) with Mr. McAdams which provides for an initial term of three years, but such Employment Agreement can be terminated at any time. The Employment Agreement provides for a minimum annual base salary of $300,000, with the option to receive an annual bonus in an amount up to three times his base salary. Mr. McAdams is also subject to a non-compete clause and to mitigate potential conflicts of interest shall have no authority, on behalf of the Company and its affiliates, to enter into any agreement with any entity controlling, controlled by or affiliated with Privileged Access. Prior to forming Privileged Access, Mr. McAdams was a member of our Board of Directors from January 2004 to October 2005. Simultaneous with his appointment as president of Equity Lifestyle Properties, Inc., Mr. McAdams resigned as Privileged Access’s Chairman, President and CEO. However, he remained on the board of PATT Holding Company, LLC (“PATT”), Thousand Trails’ parent entity and a subsidiary of Privileged Access.

Mr. Heneghan, the Company’s CEO, was a member of the board of PATT, pursuant to the Company’s rights under its resort Property leases with Privileged Access to represent the Company’s interests from April 14, 2006 to August 13, 2008. Mr. Heneghan did not receive compensation in his capacity as a member of such board.

In connection with the PA Transaction, the Company hired most of the property employees and certain property management and corporate employees of Privileged Access. The Company has reimbursed Privileged Access approximatelymerchandise inventory.

(d)

Includes $0.3 million in ~~the quarter ended September~~discontinued operations as of June 30, ~~2008 for services provided by Privileged Access employees retained by Privileged Access, which were necessary for the transition of the former Privileged Access operations to the Company.~~2009 and December 31, 2008.

During the six months ended June 30, 2009, $6.1 million of new and used resort cottage inventory and related reserves were reclassified to fixed assets. The reclassification was made to reflect the current use of these resources.

Note 7 — Notes Receivable

As of June 30, 2009 and December 31, 2008, the Company had approximately $29.1 million and $31.8 million in notes receivable, respectively. As of June 30, 2009 and December 31, 2008, the Company had approximately $11.3 and $12.0 million, respectively, in Chattel Loans receivable, which yield interest at a per annum average rate of approximately 8.8%, have an average term and amortization of approximately of five to 15 years, require monthly principal and interest payments and are collateralized by homes at certain of the Properties. These notes are recorded net of allowances of $0.3 million and $0.2 million as of June 30, 2009 and December 31, 2008, respectively. During the six months ended June 30, 2009, approximately $0.5 million was repaid and an additional $0.2 million was loaned to customers.

In connection with the PA Transaction, we acquired approximately $19.6 million of Contracts Receivable. As of June 30, 2009, the Company had approximately $17.6 million of Contracts Receivables, including allowances of approximately $0.5 million. These Contracts Receivables represent loans to customers who have purchased right-to-use contracts. The Contracts Receivable yield interest at a per annum weighted average rate of 16.3% of the face value, have a weighted average term remaining of approximately four years and require monthly payments of principal and interest. During the six months ended June 30, 2009, approximately $5.3 million was repaid and an additional $3.9 million was loaned to customers.

As of June 30, 2009 and December 31, 2008, the Company had a $0.4 million note receivable, which bears interest at a per annum rate of prime plus 0.5% and matures on December 31, 2011. The note is collateralized with a combination of Common OP Units and partnership interests in certain joint ventures.

Note 8 — Long-Term Borrowings

As of June 30, 2009 and December 31, 2008, the Company had outstanding mortgage indebtedness on Properties held for long-term investment of approximately $1,597 million and $1,555 million, respectively, and approximately $14 million of mortgage indebtedness as of June 30, 2009 and December 31, 2008 on Properties held for sale. The debt encumbered a total of 153 and 151 of the Company’s Properties as of June 30, 2009 and December 31, 2008, respectively, and the carrying value of such Properties was approximately $1,708 million and $1,694 million, respectively as of such dates. The weighted average interest rate on this mortgage indebtedness for the quarter ending June 30, 2009 and the year ending December 31, 2008, was approximately 6.0% and 5.9% per annum, respectively. The debt bears interest at rates of 5.0% to 10.0% per annum and matures on various dates ranging from 2009 to 2019. Included in our debt balance are three capital leases with balances of approximately $6.7 million at June 30, 2009 and December 31, 2008 with imputed interest rates of 13.1% per annum. The outstanding balances on the capital leases were paid off on July 1, 2009.

As of June 30, 2009 and December 31, 2008, the $370.0 million unsecured lines of credit had $370.0 million and $277.0 million, respectively, available for future borrowings. The weighted average interest rate for the six months ending June 30, 2009 and the year ending December 31, 2008 was 5.4% and 3.6% per annum, respectively.

Note 9 — Deferred Revenue-sale of right-to-use contracts and Deferred Commission Expense

The sales of right-to-use contracts are recognized in accordance with SAB 104. The Company will recognize the upfront non-refundable payments over the estimated customer life which, based on historical attrition rates, the Company has estimated to be between one to 31 years. The commissions paid on the sale of right-to-use contracts will be deferred and amortized over the same period as the related sales revenue.

Components of the change in deferred revenue-sale of right-to-use contracts and deferred commission expense are as follows (amounts in thousands):


	Six Months Ended
	June 30, 2009
Deferred revenue-sale of right-to-use contracts-December 31, 2008	$	10,611

Deferral of new right-to-use contracts		11,446
Deferred revenue recognized		(1,012	)

Net increase in deferred revenue		10,434

Deferred revenue-sale of right-to-use contracts-June 30, 2009	$	21,045


Deferred commission expense-December 31, 2008	$	3,644

Costs deferred		3,450
Amortization of deferred costs		(325	)

Net increase in deferred sales and marketing		3,125

Deferred commission expense-June 30, 2009	$	6,769

Note 10 — Stock-Based Compensation

Stock-based compensation expense for the six months ended June 30, 2009 and 2008, was approximately $2.3 million and $2.8 million, respectively.

Pursuant to the Stock Option Plan as discussed in Note 13 to the 2008 Form 10-K, certain officers, directors, employees and consultants have been offered the opportunity to acquire shares of common stock of the Company through stock options (“Options”). During the six months ended June 30, 2009, Options for 2,000 shares of common stock were exercised for gross proceeds of approximately $32,000.

On January 9, 2009, 2,818 shares of common stock were repurchased at the open market price and represent common stock surrendered to the Company to satisfy income tax withholding obligations of approximately $0.1 million due as a result of the vesting of certain Restricted Share Grants.

On February 1, 2009, the Company awarded Options to purchase 2,800 shares of common stock with an exercise price of $37.73 per share to Mr. David J. Contis. One-third of the Options awarded to purchase common stock vests on each of August 1, 2009, February 1, 2010, and February 1, 2011.

On February 2, 2009, the Company awarded restricted stock grants for 11,000 shares of common stock at a fair market value of approximately $0.4 million, and awarded Options to purchase 100,000 shares of common stock with an exercise price of $37.70 per share to certain members of the Board of Directors for services rendered in 2008. One-third of the Options to purchase common stock and the shares of restricted common stock covered by these awards vests on each of December 31, 2009, December 31, 2010, and December 31, 2011.

On May 8, 2009, 310 shares of common stock were repurchased at the open market price and represent common stock surrendered to the Company to satisfy income tax withholding obligations of approximately $11,000 due as a result of the vesting of certain Restricted Share Grants.

On May 12, 2009, the Company awarded restricted stock grants for 16,000 shares of common stock at a fair market value of approximately $0.6 million to certain members of the Board of Directors for services rendered in 2008. One-third of the Options to purchase common stock and the shares of restricted common stock covered by these awards vests on each of November 12, 2009, May 12, 2010, and May 12, 2011.

Note 11 — Long-Term Cash Incentive Plan

On May 15, 2007, the Company’s Board of Directors approved a Long-Term Cash Incentive Plan (the “Plan”) to provide a long-term cash bonus opportunity to certain members of the Company’s management and executive officers. Such Board approval was upon recommendation by the Company’s Compensation, Nominating and Corporate Governance Committee (the “Committee”).

The total cumulative payment for all participants (the “Eligible Payment”) is based upon certain performance conditions being met.

The Committee has responsibility for administering the Plan and may use its reasonable discretion to adjust the performance criteria or Eligible Payments to take into account the impact of any major or unforeseen transaction or events. The Plan includes approximately 20 participants. The Company’s Chief Executive Officer and President are not participants in the Plan. The Eligible Payment will be paid in cash upon completion of the Company’s annual audit for the 2009 fiscal year and upon satisfaction of the vesting conditions as outlined in the Plan.

Note 11 — Long-Term Cash Incentive Plan (continued)

The Company accounts for the Plan in accordance with SFAS 123(R). As of June 30, 2009, the Company had accrued compensation expense of approximately $2.8 million related to the Plan, including approximately $1.1 million in the six months ended June 30, 2009. The amounts accrued reflect the Committee’s evaluation of the Plan based on forecasts and other information presented to the Committee and are subject to performance in line with forecasts and final evaluation and determination by the Committee. There can be no assurances that our estimates of the probable outcome will be representative of the actual outcome.

Note 12 — Transactions with Related Parties

On August 14, 2008, the Company closed on the PA Transaction by acquiring substantially all of the assets and assumed certain liabilities of Privileged Access for an unsecured note payable of $2.0 million. Prior to the purchase, Privileged Access had a 12-year lease with the Company for 82 Properties that terminated upon closing. At closing, approximately $4.8 million of Privileged Access cash was deposited into an escrow account for liabilities that Privileged Access has retained. The balance in the escrow account as of June 30, 2009 was approximately $2.2 million. In approximately two years, the excess cash in the escrow account, if any, will be paid to the Company.

Mr. McAdams, the Company’s President effective January 1, 2008, owns 100 percent of Privileged Access. The Company has entered into an employment agreement effective as of January 1, 2008 (the “Employment Agreement”) with Mr. McAdams which provides for an initial term of three years, but such Employment Agreement can be terminated at any time. The Employment Agreement provides for a minimum annual base salary of $0.3 million, with the option to receive an annual bonus in an amount up to three times his base salary. Mr. McAdams is also subject to a non-compete clause and to mitigate potential conflicts of interest shall have no authority, on behalf of the Company and its affiliates, to enter into any agreement with any entity controlling, controlled by or affiliated with Privileged Access. Prior to forming Privileged Access, Mr. McAdams was a member of our Board of Directors from January 2004 to October 2005. Simultaneous with his appointment as president of Equity LifeStyle Properties, Inc., Mr. McAdams resigned as Privileged Access’s Chairman, President and CEO. However, he was on the board of PATT Holding Company, LLC (“PATT”), Thousand Trails’ parent entity and a subsidiary of Privileged Access, until the entity was dissolved in 2008.

In connection with the PA Transaction, the Company hired most of the property employees and certain property management and corporate employees of Privileged Access. Subsequent to the PA Transaction, the Company reimbursed Privileged Access for services provided in 2008 by Privileged Access employees retained by Privileged Access, which were necessary for the transition of the former Privileged Access operations to the Company.

Privileged Access had the following substantial business relationships with the Company, which were all terminated with the closing of the PA Transaction on August 14, 2008. As of both June 30, 2009 and December 31, 2008, there were no payments owed to the Company or by the Company with respect to the relationships described below.

Note 12 — Transactions with Related Parties (continued)

•

Prior to August 14, 2008, we were leasing approximately 24,300 sites at 82 resort Properties (which includes 60 Properties operated by a subsidiary of Privileged Access ~~had~~known as the “TT Portfolio”) to Privileged Access or its subsidiaries. For the six months ended June 30, 2009, and 2008, we recognized $0.0 million and $12.7 million in rent, respectively, from these leasing arrangements. The lease income is included in Income from other investments, net in the Company’s Consolidated Statement of Operations. During the six months ended June 30, 2009 and 2008, the Company reimbursed zero and $2.3 million to Privileged Access for capital improvements.

Effective January 1, 2008, the leases for these Properties provided for the following ~~substantial business relationships with~~significant terms: a) annual fixed rent of approximately $25.5 million, b) annual rent increases at the higher of Consumer Price Index (“CPI”) or a renegotiated amount based upon the fair market value of the Properties, c) expiration date of January 15, 2020, and d) two five-year extension terms at the option of Privileged Access. The January 1, 2008 lease for the TT Portfolio also included provisions where the Company ~~which were all terminated with~~paid Privileged Access $1 million for entering into the ~~closing~~amended lease. The $1 million payment was being amortized on a pro-rata basis over the remaining term of the lease as an offset to the annual lease payments and the remaining balance at August 14, 2008 of $0.9 million was expensed and is included in Income from other investments, net during the year ended December 31, 2008.

The Company had subordinated its lease payment for the TT Portfolio to a bank that loaned Privileged Access $5 million. The Company acquired this loan as part of the PA Transaction and paid off the loan during the year ended December 31, 2008.

•

From June 12, 2006 through July 14, 2008, Privileged Access had leased 130 cottage sites at Tropical Palms, a resort Property located near Orlando, Florida. For the six months ended June 30, 2009 and 2008, we earned no rent and approximately $0.8 million, respectively, from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations. The Tropical Palms lease expired on July 15, 2008, and the entire property was leased to a new independent operator for 12 years.

•

On April 14, 2006, the Company loaned Privileged Access approximately $12.3 million at a per annum interest rate of prime plus 1.5%, maturing in one year and secured by Thousand Trails membership sales contract receivables the loan was fully paid off during the quarter ended September 30, 2007.

•

The Company previously leased 40 to 160 sites at three resort Properties in Florida, to a subsidiary of Privileged Access from October 1, 2007 until August 14, 2008.

	•		Prior to August 14, 2008, we were leasing approximately 24,300 sites at 82 resort Properties (which includes 60 Properties operated by a subsidiary of Privileged Access known as the “TT Portfolio”) to Privileged Access or its subsidiaries. For the nine months ended September 30, 2008, and 2007, we recognized approximately $15.8 million, and $15.2 million, respectively, in rent from these leasing arrangements. The lease income is included in Income from other investments, net in the Company’s Consolidated Statement of Operations. As of September 30, 2008 and December 31, 2007, no payments and approximately $0.1 million, respectively, were outstanding. During the nine months ended September 30, 2008 the Company reimbursed $2.7 to Privileged Access for capital improvements. In 2007, the Company made no reimbursements to Privileged Access. The sites varied during each month of the lease term due to the seasonality of the resort business in Florida. For the six months ended June 30, 2008, we recognized less than $0.1 million in rent from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations.

	•		The Company previously leased 40 to 160 sites at Lake Magic, a resort Property in Clermont, Florida, to a subsidiary of Privileged Access from December 15, 2006 until September 30, 2007. The sites varied during each month of the lease term due to the seasonality of the resort business in Florida. For the six months ended June 30, 2009 and 2008, we recognized no amounts in rent from this leasing arrangement.

			Effective January 1, 2008, the leases for these Properties provided for the following significant terms: a) annual fixed rent of approximately $25.5 million, b) annual rent increases at the higher of Consumer Price Index (“CPI”) or a renegotiated amount based upon the fair market value of the Properties, c) expiration date of January 15, 2020, and d) two five-year extension terms at the option of Privileged Access. The January 1, 2008 lease for the TT Portfolio also included provisions where the Company paid Privileged Access $1 million for entering into the amended lease. The $1 million payment was being amortized on a pro-rata basis over the term of the lease as an offset to the annual lease payments and the remaining balance at August 14, 2008 of $0.9 million was expensed and is included in Income from other investments, net during the quarter ended September 30, 2008.

			The Company had subordinated its lease payment for the TT Portfolio to a bank that loaned Privileged Access $5 million. The Company acquired this loan as part of the PA Transaction and paid off the loan during the quarter ended September 30, 2008.

	•		From June 12, 2006 through July 14, 2008, Privileged Access leased 130 cottage sites at Tropical Palms, a resort Property located near Orlando, Florida. For the nine months ended September 30, 2008 and 2007, we earned approximately $0.8 million and $1.2 million, respectively, in rent from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations. As of September 30, 2008 and December 31, 2007, no payments and approximately $0.4 million, respectively, in lease payments were outstanding. The Tropical Palms lease expired on July 15, 2008, and the entire property was leased to a new independent operator for 12 years.

	•		The Company previously leased 40 to 160 sites at three resort Properties in Florida, to a subsidiary of Privileged Access from October 1, 2007 until August 14, 2008. The sites varied during each month of the lease term due to the seasonality of the resort business in Florida. For the nine months ended September 30, 2008, we recognized approximately $0.2 million in rent from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations. As of September 30, 2008 and December 31, 2007, no amounts are outstanding under this lease.

	•		The Company previously leased 40 to 160 sites at Lake Magic, a resort Property in Clermont, Florida, to a subsidiary of Privileged Access from December 15, 2006 until September 30, 2007. The sites varied during each month of the lease term due to the seasonality of the resort business in Florida. For the nine months ended September 30, 2007, we recognized approximately $0.1 million in rent from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations. As of September 30, 2008, no amounts are outstanding under this expired lease.

~~Note 11 — Transactions with Related Parties (continued)~~

	•		The Company had an option to purchase the subsidiaries of Privileged Access, including TT, beginning on April 14, 2009, at the then fair market value, subject to the satisfaction of a number of significant contingencies (“ELS Option”). The ELS Option terminated with the closing of the PA Transaction on August 14, 2008. The Company had consented to a fixed price option where the Chairman of PATT could acquire the subsidiaries of Privileged Access anytime before December 31, 2011. The fixed price option also terminated on August 14, 2008.

	•		Privileged Access and the Company previously agreed to certain arrangements in which we utilized each other’s services. Privileged Access assisted the Company with functions such as: call center management, property management, information technology, legal, sales and marketing. During the nine months ended September 30, 2008, the Company incurred expenses of approximately $0.6 million for the use of Privileged Access employees and $0 was payable to Privileged Access as of September 30, 2008 and December 31, 2007. The Company received approximately $0.1 million from Privileged Access for Privileged Access use of certain Company information technology resources during the nine months ended September 30, 2008. The Company and Privileged Access had engaged a third party to evaluate the fair market value of such employee services.

In addition to the arrangements described above, the Company had the following arrangements with Privileged Access. In each arrangement, the amount of income or expense, as applicable, recognized by the Company for the nine months ended September 30, 2008 is less than $0.1 million and there were no amounts due under these arrangements as of September 30, 2008 or December 31, 2007.

Note 12 — Transactions with Related Parties (continued)

Privileged Access and the Company previously agreed to certain arrangements in which we utilized each other’s services. Privileged Access assisted the Company with functions such as: call center management, property management, information technology, legal, sales and marketing. During the six months ended June 30, 2009 and 2008, the Company incurred no expense and approximately $0.4 million, respectively for the use of Privileged Access employees. The Company received approximately $0.1 million from Privileged Access for Privileged Access use of certain Company information technology resources during the year ended December 31, 2008. The Company and Privileged Access engaged a third party to evaluate the fair market value of such employee services.

In addition to the arrangements described above, the Company had the following smaller arrangements with Privileged Access. In each arrangement, the amount of income or expense, as applicable, recognized by the Company for the six months ended June 30, 2009 is zero and were less than $0.1 million for the six months ended June 30, 2008, and there were no amounts due under these arrangements as of June 30, 2009 or December 31, 2008.

	•		Since November 1, 2006, the Company leased 41 to 44 sites at 22 resort Properties to Privileged Access (the “Park Pass Lease”). The Park Pass Lease terminated with the closing of the PA Transaction on August 14, 2008.

	•		The Company and Privileged Access entered into a Site Exchange Agreement beginning September 1, 2007 and ending May 31, 2008. Under the Site Exchange Agreement, the Company allowed Privileged Access to use 20 sites at an Arizona resort Property known as Countryside. In return, Privileged Access allowed the Company to use 20 sites at an Arizona resort Property known as Verde Valley Resort (a property in the TT Portfolio).

	•		The Company and Privileged Access entered into a Site Exchange Agreement for a one-year period beginning June 1, 2008 and ending May 31, 2009. Under the Site Exchange Agreement, the Company allowed Privileged Access to use 90 sites at six resort Properties. In return, Privileged Access allowed the Company to use 90 sites at six resort Properties leased to Privileged Access. The Site Exchange Agreement was terminated with the closing of the PA Transaction on August 14, 2008.

	•		On September 15, 2006, the Company and Privileged Access entered into a Park Model Sales Agreement related to a Texas resort Property in the TT Portfolio known as Lake Conroe. Under the Park Model Sales Agreement, Privileged Access was allowed to sell up to 26 park models at Lake Conroe. Privileged Access was obligated to pay the Company 90% of the site rent collected from the park model buyer. All 26 homes have been sold as of December 31, 2007. The Park Model Sales Agreement terminated with the closing of the PA Transaction on August 14, 2008.

	•		The Company advertises in Trailblazer a magazine that was published by a subsidiary of Privileged Access prior to August 14, 2008. Trailblazer is an award-winning recreational lifestyle magazine for active campers, which is read by more than 65,000 paid subscribers. Beginning on August 14, 2008, the Company began publishing Trailblazer in accordance with the terms of the PA Transaction.

•

On July 1, 2008, the Company and Privileged Access entered into an agreement, where Privileged Access sold the Company’s used resort cottages at certain Properties leased to Privileged Access. The Company paid Privileged Access a commission for selling the inventory and the agreement was terminated on August 14, 2008.

•

On April 1, 2008, the Company entered into a lease for a corporate apartment located in Chicago, Illinois for use by Mr. McAdams and other employees of the Company and Privileged Access. The Company paid monthly rent payments, plus utilities and housekeeping expenses and Mr. McAdams reimbursed the Company for a portion of the rent. Prior to August 14, 2008, Privileged Access reimbursed the Company for a portion of the rent and utilities and housekeeping expenses. Such lease terminated on December 31, 2008.

~~Note 11~~Note 12 — Transactions with Related Parties (continued)

	•		On July 1, 2008, the Company and Privileged Access entered into an agreement, where Privileged Access sold the Company’s used resort cottages at certain Properties leased to Privileged Access. The Company paid Privileged Access a commission for selling the inventory and the agreement was terminated on August 14, 2008.

	•		On April 1, 2008, the Company entered into a six-month lease with has been extended until December 31, 2008 for a corporate apartment located in Chicago, Illinois for use by Mr. McAdams and other employees of the Company and Privileged Access. The Company pays monthly rent payments, plus utilities and housekeeping expenses and Mr. McAdams reimburses the Company for a portion of the rent. Prior to August 14, 2008, Privileged Access reimbursed the Company for a portion of the rent and utilities and housekeeping expenses.

~~Corporate headquarters~~

The Company leases office space from Two North Riverside Plaza Joint Venture Limited Partnership, an entity affiliated with Mr. Zell, the Company’s Chairman of the Board. Fees paid to this entity amounted to approximately $509,000 and $573,000 for the nine months ended September 30, 2008 and 2007, respectively. The Company had no amounts due to this entity as of September 30, 2008 and December 31, 2007, respectively.

~~Note 12 — Subsequent Events~~

In October 2008, the Company paid off six maturing mortgages totaling approximately $38.5 million with a stated interest rate of 5.35 percent per annum. The Company also refinanced a $25.6 million mortgage with a stated interest rate of 5.35 percent per annum on Sherwood Forest, in Kissimmee, Florida with Fannie Mae. The mortgage was refinanced for $31.1 million at a stated interest rate of 6.34 percent per annum, maturing on September 30, 2018.

In October 2008, the Company made the decision to significantly reduce our new home sales operation due to the continued decline in homes sales activity in 2008. As a result, substantially all of the new manufactured home inventory as of September 30, 2008 will be reclassified from Inventory to Buildings and other depreciable property during the quarter ended December 31, 2008 and made available for rental.Corporate headquarters

The Company leases office space from Two North Riverside Plaza Joint Venture Limited Partnership, an entity affiliated with Mr. Zell, the Company’s Chairman of the Board. Payments made in accordance with the lease agreement to this entity amounted to approximately $0.6 million and approximately $0.3 million for the six months ended June 30, 2009 and 2008, respectively. As of June 30, 2009 and December 31, 2008, approximately $1,000 and $62,000, respectively, were accrued with respect to this office lease.

Other

In January 2009, the Company entered into a consulting agreement with the son of Mr. Howard Walker, to provide assistance with the Company’s internet web marketing strategy. Mr. Walker is Vice-Chairman of the Company’s Board of Directors. The consulting agreement was for a term of six months at a total cost of no more than $48,000 and expired on June 30, 2009.

Note 13 — Commitments and Contingencies

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. Regulations in California allow 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 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 may be in excess of $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.

~~Note 13 — Commitments and Contingencies (continued)~~

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 federal 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

Note 13 — Commitments and Contingencies (continued)

favor on that claim, notwithstanding the jury verdict. The Court postponed decision on those motions and on the constitutional claims, pending a ruling on certain property rights issues by the United States Supreme Court.

The Company also had pending a claim seeking a declaration that the Company could close the Property and convert it to another use which claim was not tried in 2002. The United States Supreme Court issued the property rights rulings in 2005 and subsequently on January 27, 2006, the Court hearing the San Rafael cases issued a ruling that granted the Company’s motion for leave to amend to assert alternative takings theories in light of the United States Supreme Court’s decisions. The Court’s ruling also denied the Company’s post trial motions related to the settlement agreement and dismissed the park closure claim without prejudice to the Company’s ability to reassert such claim in the future. As a result, the Company filed a new complaint challenging the City’s ordinance as violating the takings clause and substantive due process. The City of San Rafael filed a motion to dismiss the amended complaint. On December 5, 2006, the Court denied portions of the City’s motion to dismiss that had sought to eliminate certain of the Company’s taking claims and substantive due process claims. The Company’s claims against the City were tried in a bench trial during April 2007. On July 26, 2007, the United States District Court for the Northern District of California issued Preliminary Findings of Facts and Legal Standards, Preliminary Conclusions of Law and Request for Further Briefing (“Preliminary Findings”) in this matter. The Company filed the Preliminary Findings on Form 8-K on August 2, 2007. In August 2007, the Company and the City filed the further briefs requested by the Court. On January 29, 2008, the Court issued its Findings of Facts, Conclusions of Law and Order Thereon (the “Order”). The Company filed the Order on Form 8-K on January 31, 2008. On March 14, 2008, the Company filed a petition for attorneys’ fees incurred in the amount of approximately ~~$6,800,000~~$6.8 million plus costs of approximately ~~$1,274,000.~~$1.3 million. The City also filed a petition for attorneys’ fees incurred in the amount of approximately ~~$763,000~~$0.8 million plus costs of approximately ~~$58,000~~$0.1 million in connection with the jury verdict that found no breach of the settlement agreement (as described above). While the City alleges it is the prevailing party on the settlement agreement issue, the Company asserts that the outcome of the entirety of the case finding the ordinance unconstitutional means that the Company is the prevailing party in the case. The parties ~~have~~ submitted briefs with respect to the petitions for attorneys’ fees and ~~costs, which~~costs.

On April 17, 2009, the United States District Court for the Northern District of California issued its Order for Entry of Judgment (“April 2009 Order”), and its “Order” relating to the parties’ requests for attorneys’ fees (the “Fee Order”). The Company filed the April 2009 Order and the Fee Order on Form 8-K on April 20, 2009. In the April 2009 Order, the Court stated that the judgment to be entered will gradually phase out the City’s site rent regulation scheme that the Court has found unconstitutional. Existing residents of the Company’s property in San Rafael will be able to continue to pay site rentals as if the Ordinance were to remain ~~pending before~~in effect for a period of ten years. Enforcement of the ~~court~~Ordinance will be immediately enjoined with respect to new residents of the property and ~~there can~~expire entirely ten years from the date of judgment. Enforcement of the Ordinance will be ~~no assurances~~enjoined as to site lessees of the property who come into possession after the date of judgment so that all current site lessees at the property shall be allowed to continue their leases at rents regulated by the Ordinance. When a current site lessee at the property transfers his leasehold to a new resident upon the sale of the accompanying mobilehome, the Ordinance shall be enjoined as to the ~~outcome~~next resident and any future resident. The Ordinance shall be enjoined as to all residents ten years from the entry of ~~these petitions.~~judgment. The Court directed the Company to submit a proposed form of judgment, which the Company submitted on April 21, 2009, the form of which was agreed to by all parties. The Fee Order awarded certain amounts of attorneys’ fees to the Company with respect to its constitutional claims, certain amounts to the City with respect to the Company’s contract claims, the net effect of which was that the City must pay the Company approximately $1.8 million for attorneys’ fees. In the Fee Order the Court also directed the parties to confer and agree if they can on an allocation and award of costs in accordance with the court’s determinations on the attorneys’ fees. The parties did so and, on May 5, 2009, submitted a proposed Order on Award of Fees and Costs (the “Fees and Costs Order”) that was agreed to as to form by counsel for the Company and the City. On June 10, 2009, the Court entered the Fees and Costs Order which, in addition to the net attorneys’ fees of approximately $1.8 million the Court previously ordered the City to pay the Company, orders the City to pay to the Company net costs of approximately $0.3 million. On June 30, 2009, the Court entered final judgment as anticipated by the April 2009 Order. The City filed a notice of appeal, and has also filed a motion and posted a bond of approximately $2.1 million seeking to stay pending appeal enforcement of the order awarding attorneys’ fees and costs to the Company. The residensts’ association, which intervened in the case, has filed a motion in the Court of Appeals, which the City has joined, seeking a stay of the injunctions. The Company has filed a notice of cross-appeal, and will oppose any stay.

Note 13 — Commitments and Contingencies (continued)

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 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 believed had been agreed to by the CMHOA in a settlement agreement. The CMHOA continued to seek damages from the Company in this matter. The Company reached a settlement with the CMHOA in this matter which allows the Company to recover $3.72 of the requested monthly pass-through and does not provide for the payment of any damages to the CMHOA. Both the CMHOA and the Company brought motions to recover their

~~Note 13 — Commitments and Contingencies (continued)~~

respective attorneys’ fees in the matter, which motions were heard by the Court in January 2007. On January 12, 2007, the Court granted CMHOA’s motion for attorneys’ fees in the amount of ~~$347,000~~approximately $0.3 million and denied the Company’s motion for attorneys’ fees. ~~These fees have been fully accrued by the Company as of December 31, 2006.~~ The Company appealed both decisions. On September 19, 2008, the Court of Appeal affirmed the attorneys’ fees rulings. The Company filed a Petition for Rehearing of that appellate decision. On October 17, 2008, the Court of Appeal issued an order modifying its original opinion in certain respects without changing its judgment. The Company ~~has~~ petitioned the California Supreme Court for review of the ~~decision.~~decision, which was denied. Accordingly, the Company has paid the CMHOA’s attorneys’ fees as previously ordered by the trial court and, pursuant to an agreement of the parties, incurred on appeal. 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.

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 ordinance 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 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 and that the City could sever the unconstitutional provisions in the second ordinance. On remand, the trial court was directed to decide the issue of damages to the Company from these ordinances, which the Company believes is consistent not only with the Company receiving the economic benefit of invalidating one of the ordinances, but also consistent with the Company’s position that it is entitled to market rent and not merely a higher amount of regulated rent. The remand action was tried to the court in the third quarter of 2007. On January 25, 2008, the trial court issued a preliminary ruling determining that the Company had not incurred any damages from these ordinances and actions primarily on the grounds that the ordinances afforded the Company a fair rate of return. The Company sought clarification of this ruling. On April 9, 2008, the court issued a final statement of decision that included a clarification stating that the constitutional issues were not resolved on the merits and that the court had not determined that the ordinances afforded the Company a fair rate of return outside the remand period. ~~As a result of this decision, the Company accrued $600,000 for rent control initiatives in the quarter ended March 31, 2008 for estimated rent refunds based upon~~The trial court granted a motion for restitution filed by the City in Case No. GIE 020524. ~~The trial court granted the motion for restitution.~~ The Company filed a notice of appeal on July 2, 2008. In order to avoid further trial and the related expenses, the Company agreed to a stipulated judgment, which requires the Company to put into escrow after entry of the judgment, pending appeal, funds sufficient to pay the judgment with prejudgment interest while preserving the Company’s appellate rights. The parties also disputed whether the trial court’s decision to award restitution encompassed an award of prejudgment interest, as to which the parties submitted additional briefs to the trial court for

Note 13 — Commitments and Contingencies (continued)

decision. On October 31, 2008, the court awarded the City some but not all of the prejudgment interest it sought. The stipulated judgment was entered on November 5, 2008, and the Company ~~accrued for that prejudgment interest expense in an amount sufficient~~deposited into the escrow the amounts required by the judgment and continues to ~~cover~~deposit monthly disputed amounts until the ~~amount of prejudgment interest awarded.~~disputes are resolved on appeal. The appeal is proceeding. On June 11, 2009, the Company filed its Opening Brief on appeal. The tenant association ~~has~~ continued to seek damages, penalties and fees in their separate action based on the same claims made on the tenants’ behalf by the City in the City’s case. The Company moved for judgment on the pleadings in the tenant association’s case on the ground that the tenant association’s case is moot in light of the stipulated judgment in the City’s case. On November 6, 2008, the Court granted the Company’s motion for judgment on the pleadings without leave to amend.

~~Note 13 — Commitments and Contingencies (continued)~~ The tenant association sought reconsideration of that ruling, which was denied. The tenant association has filed a notice of appeal. Briefing on that appeal has not yet commenced.

In addition, the Company has sued the City of Santee in federal court alleging all three of the ordinances are unconstitutional under the Fifth and Fourteenth Amendments to the United States Constitution. 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 appealed the decision, and on May 3, 2007 the United States Court of Appeals for the Ninth Circuit affirmed the District Court’s decision on procedural grounds. The Company intends to continue to pursue an adjudication of its rights on the merits in Federal Court through claims that are not subject to such procedural defenses.

In October 2004, the United States Supreme Court granted certiorari inState of Hawaii vs. Chevron USA, Inc., a Ninth Circuit Court of Appeals case that upheld the standard that a regulation must substantially advance a legitimate state purpose in order to be constitutionally viable under the Fifth Amendment. On May 24, 2005 the United States Supreme Court reversed the Ninth Circuit Court of Appeals in an opinion that clarified the standard of review for regulatory takings brought under the Fifth Amendment. The Supreme Court held that the heightened scrutiny applied by the Ninth Circuit is not the applicable standard in a regulatory takings analysis, but is an appropriate factor for determining if a due process violation has occurred. The Court further clarified that regulatory takings would be determined in significant part by an analysis of the economic impact of the regulation. The Company believes that the severity of the economic impact on its Properties caused by rent control will enable it to continue to challenge the rent regulations under the Fifth Amendment and the due process clause.

As a result of the Company’s efforts to achieve a level of regulatory fairness in California, a commercial lending company, 21^st Mortgage Corporation, a Delaware corporation, sued MHC Financing Limited Partnership. Such lawsuit asserts that certain rent increases implemented by the partnership pursuant to the rights afforded to the property owners under the City of San Jose’s rent control ordinance were invalid or unlawful. 21^st Mortgage has asserted that it should benefit from the vacancy control provisions of the City’s ordinance as if 21^st Mortgage were a “homeowner” and contrary to the ordinance’s provision that rents may be increased without restriction upon termination of the homeowners’ tenancy. In each of the disputed cases, the Company believes it had terminated the tenancy of the homeowner (21^st Mortgage’s borrower) through the legal process. The Court, in granting 21^st Mortgage’s motion for summary judgment, has indicated that 21^st Mortgage may be a “homeowner” within the meaning of the ordinance. The Company does not believe that 21^st Mortgage can show that it has ever applied for tenancy, entered into a rental agreement or been accepted as a homeowner in the communities. A bench trial in this matter concluded in January 2008 with the trial court determining that the Company had validly exercised its rights under the rent control ordinance, that the Company had not violated the ordinance and that 21^st Mortgage was not entitled to the benefit of rent control protection in the circumstances presented. In April 2008, the Company filed a petition for attorneys’ fees and costs. On August 22, 2008, the Court granted the Company ~~$400,000~~$0.4 million in attorneys’ fees and ~~$33,471.98 in~~ costs. On October 20, 2008, the Company entered a Post-Judgment Agreement with 21^st Mortgage pursuant to which 21^st Mortgage paid the Company the ~~$433,471.98~~$0.4 million in attorneys’ fees and costs that the court had awarded, and the parties agreed to let the trial court’s judgment stand, to otherwise end the litigation, and exchanged releases.

Note 13 — Commitments and Contingencies (continued)

Countryside at Vero Beach

On January 12, 2006, the Company was served with a complaint filed in Indian River County Circuit Court on behalf of a purported class of homeowners at Countryside at Vero Beach. The complaint includes counts for alleged violations of the Florida Mobile Home Act and the Florida Deceptive and Unfair Trade Practices Act, and claims that the Company required homeowners to pay water and sewer impact fees, either to the Company or to the County, “as a condition of initial or continued occupancy in the ~~Park”,~~Park,” without properly disclosing the fees in advance and notwithstanding the Company’s position that all such fees were fully paid in connection with the settlement agreement described above. On February 8, 2006, the Company served its motion to dismiss the complaint. In May 2007, the Court granted the Company’s motion to dismiss, but also allowed the plaintiff to amend the complaint. The plaintiff filed an amended complaint, which the Company has also moved to dismiss. Before any ruling on the Company’s motion to dismiss the amended complaint, the plaintiff asked for and received leave to file a second amended

~~Note 13 — Commitments and Contingencies (continued)~~

complaint, which the plaintiff filed on April 11, 2008. On May 1, 2008, the Company filed an answer and a motion for summary judgment. The motion for summary judgment ~~which is pending. The~~was denied with leave to resubmit the motion after further discovery. On or about February 4, 2009, the Company ~~will vigorously defend~~accepted the ~~lawsuit.~~Plaintiff’s offer to voluntarily dismiss the case with prejudice in exchange for the Company’s waiver of any claim for attorneys’ fees.

Colony Park

On December 1, 2006, a group of tenants at the Company’s Colony Park Property in Ceres, California filed a complaint in the California Superior Court for Stanislaus County alleging that the Company has failed to properly maintain the Property and has improperly reduced the services provided to the tenants, among other allegations. The Company has answered the complaint by denying all material allegations and filed a counterclaim for declaratory relief and damages. The case will proceed in Superior Court because the Company’s motion to compel arbitration was denied and the denial was upheld on appeal. Discovery has commenced. The Company ~~has~~ filed a motion for summary adjudication of various of the plaintiffs’ claims and allegations, which ~~is scheduled for hearing on November 19, 2008.~~was denied. The Court has set a trial date for ~~August 4, 2009.~~July 20, 2010. The Company believes that the allegations in the first amended complaint are without merit, and intends to vigorously defend the lawsuit.

California’s Department of Housing and Community Development (“HCD”) issued a Notice of Violation dated August 21, 2006 regarding the sewer system at Colony Park. The notice ordered the Company to replace the Property’s sewer system or show justification from a third party explaining why the sewer system does not need to be replaced. The Company has provided such third party report to HCD and believes that the sewer system does not need to be replaced. Based upon information provided by the Company to HCD to date, HCD has indicated that it agrees that the entire system does not need to be replaced.

Rancho Mesa

On December 31, 2003, the tenants’ association at the Company’s Rancho Mesa Property in El Cahon, California filed a complaint in the California Superior Court for San Diego County alleging that the Company had failed to properly maintain the Property and had improperly increased rents, among other allegations. The case was settled in May 2006 pursuant to an agreement to offer favorable long-term leases to residents. The association repudiated the settlement agreement and appealed the trial court’s decision that the case was settled. The California Court of Appeal remanded the case with directions to the trial court to clarify the pleadings and move forward with pretrial and trial proceedings. Discovery has proceeded and the case was previously set for trial on June 5, 2009. The trial did not commence on that date because of the court’s other commitments, and trial date was re-set for July 20, 2009. After mandatory settlement conferences before the court, the case was settled on July 15, 2009. The settlement is not material to the Company’s financial position and results of operations.

Note 13 — Commitments and Contingencies (continued)

California Hawaiian

On April 30, 2009, a group of tenants at the Company’s California Hawaiian Property in San Jose, California filed a complaint in the California Superior Court for Santa Clara County alleging that the Company has failed to properly maintain the Property and has improperly reduced the services provided to the tenants, among other allegations. The Company has moved to compel arbitration and stay the proceedings, to dismiss the case, and to strike portions of the complaint. The Company believes that the allegations in the complaint are without merit, and intends to vigorously defend the lawsuit.

Hurricane Claim Litigation

On June 22, 2007 the Company filed suit, in the Circuit Court of Cook County, Illinois (Case No. 07CH16548), against its insurance carriers, Hartford Fire Insurance Company, Essex Insurance Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance Company, regarding a coverage dispute arising from losses suffered by the Company as a result of hurricanes that occurred in Florida in 2004 and 2005. The Company also brought claims against Aon Risk Services, Inc. of Illinois, the Company’s former insurance broker, regarding the procurement of appropriate insurance coverage for the Company. The Company is seeking declaratory relief establishing the coverage obligations of its carriers, as well as a judgment for breach of contract, breach of the covenant of good faith and fair dealing, unfair settlement practices and, as to Aon, for failure to provide ordinary care in the selling and procuring of insurance. The claims involved in this action exceed $11 million.

In response to motions to dismiss, the trial court dismissed: (1) the requests for declaratory relief as being duplicative of the claims for breach of contract and (2) certain of the breach of contract claims as being not ripe until the limits of underlying insurance policies have been exhausted. On or about January 28, 2008, the Company filed its Second Amended Complaint. Aon filed a motion to dismiss the Second Amended Complaint in its entirety as against Aon, and the insurers moved to dismiss portions of the Second Amended Complaint as against them. The insurers’ motion was denied and they have now answered the Second Amended Complaint. Aon’s motion was granted, with leave granted to the Company to file an amended pleading containing greater factual specificity. The Company did so by adding to the Second Amended Complaint a new Count VII against Aon, which the Company filed on August 15, 2008. Aon then answered the new Count VII in part and moved to strike certain of its allegations. ~~That motion~~The Court left Count VII undisturbed, except for ruling that the Company’s alternative claim that Aon was negligent in carrying out its duty to ~~strike~~give notice to certain of the insurance carriers on the Company’s behalf should be re-pleaded in the form of a breach of contract theory. On February 2, 2009, the Company filed such a claim in the form of a new Count VIII against Aon. Aon has answered Count VIII. Discovery is ~~currently being briefed. Written discovery proceedings have commenced.~~proceeding.

Since filing the lawsuit, the Company has received additional payments from Essex Insurance Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance Company, of approximately $2.6 million. In ~~addition, in~~ January 2008 the Company entered a settlement with Hartford Fire Insurance Company pursuant to which Hartford paid the Company the remaining disputed limits of Hartford’s insurance policy, in the amount of approximately ~~$516,000,~~$0.5 million, and the Company dismissed and released Hartford from additional claims for interest and bad faith claims handling.

~~Note 13 — Commitments and Contingencies (continued)~~

California and Washington Wage Claim Class ~~Action~~Actions

On October 16, 2008, the Company was served with a class action lawsuit in California state court filed by a single named plaintiff. The suit alleges that, at the time of the PA Transaction, the Company and other named defendants willfully failed to pay former California employees of Privileged Access and its affiliates (“PA”) who became employees of the Company all of the wages they earned during their employment with PA, including accrued vacation time. The suit also alleges that the Company improperly “stripped” those employees of their seniority. The suit asserts claims for alleged violation of the California Labor Code; alleged violation of the California Business & Professions Code and for alleged unfair business practices; alleged breach of contract; alleged breach of the duty of good faith and fair dealing; and for alleged unjust enrichment. The complaint seeks, among other relief, compensatory and statutory damages; restitution; pre-judgment and post-judgment interest; attorney’s fees, expenses and costs; penalties; and

Note 13 — Commitments and Contingencies (continued)

exemplary and punitive damages. The complaint does not specify a dollar amount sought. ~~The Company’s response to~~On December 18, 2008, the Company filed a demurrer seeking dismissal of the complaint ~~is not yet due~~in its entirety without leave to amend. On May 14, 2009, the Court granted the Company’s demurrer and ~~accordingly,~~dismissed the complaint, in part without leave to amend and in part with leave to amend. On June 2, 2009, the plaintiff filed an amended complaint. On July 6, 2009, the Company ~~has not yet~~ filed a ~~response.~~demurrer seeking dismissal of the amended complaint in its entirety without leave to amend. The Company will vigorously defend the lawsuit.

On December 16, 2008, the Company was served with a class action lawsuit in Washington state court filed by a single named plaintiff, represented by the same counsel as the plaintiff in the California class action. The complaint asserts on behalf of a putative class of Washington employees of PA who became employees of the Company substantially similar allegations as are alleged in the California class action. The Company moved to dismiss the complaint. On April 3, 2009, the court dismissed: (1) the first cause of action, which alleged a claim under the Washington Labor Code for failure to pay accrued vacation time; (2) the second cause of action, which alleged a claim under the Washington Labor Code for unpaid wages on termination; (3) the third cause of action, which alleged a claim under the Washington Labor Code for payment of wages less than entitled; and (4) the fourth cause of action, which alleged a claim under the Washington Consumer Protection Act. The court did not dismiss the fifth cause of action for breach of contract, the sixth cause of action of the breach of the duty of good faith and fair dealing; and the seventh cause of action for unjust enrichment. On May 22, 2009, the Company filed a motion for summary judgment on the causes of action not previously dismissed, which was denied. The Company will vigorously defend the lawsuit.

Cascade

On December 10, 2008, the King County Hospital District No. 4 (the “Hospital District”) filed suit against the Company seeking a declaratory judgment that it had properly rescinded an agreement to acquire the Company’s Thousand Trails — Cascade property (“Cascade”) located 20 miles east of Seattle, Washington. The agreement was entered into after the Hospital District had passed a resolution authorizing the condemnation of Cascade. Under the agreement, in lieu of a formal condemnation proceeding, the Company agreed to accept from the Hospital District $12.5 million for the property with an earnest money deposit of approximately $0.4 million. The Company has not included in income the earnest money deposit received. The closing of the transaction was originally scheduled in January 2008, and was extended to April 2009. The Company has filed an answer to the Hospital District’s suit and a counterclaim seeking recovery of the amounts owed under the agreement. On February 27, 2009, the Hospital District filed a summary judgment motion arguing that it was entitled to rescind the agreement because the property is zoned residential and the Company did not provide the Hospital District a residential real estate disclosure form. On April 2, 2009, the Court denied the Hospital District’s summary judgment motion, ruling that a real property owner who is compelled to transfer land under the power of eminent domain is not legally required to provide a disclosure form. The Hospital District filed a motion for reconsideration of the summary judgment ruling. On April 22, 2009, the Court reaffirmed its ruling that a real property owner that is compelled to transfer land under eminent domain is not legally required to provide a disclosure form. On May 22, 2009, the Court denied the Hospital District’s motion for reconsideration in its entirety, reaffirmed its ruling that condemnation was the reason for the transaction between the Company and the Hospital District, and ruled that the Hospital District is not entitled to take discovery in an effort to establish otherwise. The Company will vigorously pursue its rights under the agreement. Due to the anticipated transfer of the property, the Company closed Cascade in October 2007.

Brennan Beach

The Law Enforcement Division of the New York Department of Environmental Compliance (“DEC”) has investigated certain allegations relating to the operation of the onsite wastewater treatment plant and the use of adjacent wetlands at Brennan Beach, which is located in Pulaski, New York. The allegations included assertions of unlawful point source discharges, permit discharge exceedances, and placing material in a wetland buffer area without a permit. Representatives of the Company attended meetings with the DEC in November 2007, April 2008, May 2008 and June 2008, at which the alleged violations were discussed, and the Company has cooperated with the DEC investigation. No formal notices have been issued to the Company asserting specific violations, but the DEC has indicated that it believes the Company is responsible for certain of the alleged violations. As a result of discussions with the DEC, the Company

Note 13 — Commitments and Contingencies (continued)

has agreed to enter into a civil consent order pursuant to which the Company will pay a penalty ~~of $50,000~~ and undertake an environmental benefit project at a total cost of ~~$150,000~~approximately $0.2 million in connection with the alleged violations. The consent order is being prepared but has not yet been sent by the DEC pursuant to that agreement and the amounts expected to be paid under the consent order were accrued as property operating expenses during the quarter ended June 30, 2008.

Appalachian RV

The U.S. Environmental Protection Agency (“EPA”) ~~has undertaken~~undertook an investigation of potential lead contamination at Appalachian RV, which is located in Shartlesville, Pennsylvania, reportedly stemming from observations of remnants of old auto battery parts at the Property. In late November and early December 2007, the EPA conducted an assessment by taking samples of surface soil, sediment, surface water, and well water at the Property. ~~The Company is cooperating with the EPA.~~

In March 2008, the EPA issued a report regarding the findings of the sampling (“EPA Report”). The EPA Report found no elevated concentrations of lead in either the sediment samples, surface water samples, or well water samples. However, out of the more than 800 soil samples the EPA took, which were collected from locations throughout the Property, the EPA Report identified elevated levels of lead in 61 samples.

Following issuance of the EPA Report, the EPA sent the Company a Notice of Potential Liability for a cleanup of the elevated lead levels at the Property, and a proposed administrative consent order seeking the Company’s agreement to conduct such a cleanup. On April 9, 2008,the Company submitted a response suggesting that the Company conduct additional soil testing, which the EPA approved, to determine what type of cleanup might be appropriate.

The EPA also advised the Company that, because elevated arsenic levels were detected at six locations at the Property during the EPA’s testing for lead, at the suggestion of the Agency for Toxic Substances and Disease Registry (ATSDR), the EPA further analyzed for potentially elevated arsenic levels the samples it previously collected. As a result of that analysis, the Company engaged a laboratory to analyze those samples for elevated arsenic levels. In light of these results, the additional soil testing the Company ~~is conducting will test~~conducted tested for arsenic as well as lead.

~~Note 13 — Commitments and Contingencies (continued)~~

The additional soil testing commenced in July 2008 and was completed in August 2008. Based on the results of the additional soil testing, the Company ~~has~~ entered a contract with an environmental consulting company to remediate the site and, with the permission of the EPA, ~~has~~ submitted a notice of intent to remediate the site under the supervision of the Pennsylvania Department of Environmental ~~Protection.~~Protection (“PADEP”). The contaminated soil has been excavated and delivered to facilities approved for receiving such contaminated waste, and has been replaced at the property by clean fill. On February 20, 2009, the Company submitted a “Remedial Investigation/Final Report” to PADEP regarding the cleanup of the Property. On April 17, 2009, PADEP issued its “Approval of Final Report, Appalachian RV Resort,” which concluded that “[p]ost excavation sampling of the areas of concern demonstrate attainment of the Residential Statewide Health Standard for lead and arsenic in soils.”

In addition, the local township in which the Property is located issued a notice of violation regarding the operation of the wastewater system with respect to various sites at the Property. The Company has reached agreement with the township regarding connecting portions of the property to the township’s sewer system, pursuant to which the issues raised by the township’s notice of violation have been resolved and the township has agreed to waive any potential penalties associated with the notice of violation.

As a result of these circumstances, the Company decided not to open the Property for the 2008 season until these issues ~~can be~~were resolved. ~~In addition, although~~Because the ~~potential costs of addressing the environmental~~ issues ~~at the Property are uncertain, based upon information to date, a liability of approximately $0.5 million for future estimated costs has~~have now been ~~accrued as of September 30, 2008 and included in property operating expenses. Based on the information currently available to~~resolved, the Company has re-opened the ~~Company expects to be able to re-open the Property in time for the 2009 season.~~Property.

Note 13 — Commitments and Contingencies (continued)

Gulf View in Punta Gorda

In 2004, the Company acquired ownership of various property owning entities, including an entity owning a property called Gulf View, in Punta Gorda, Florida. Gulf View continues to be held in a special purpose entity. At the time of acquisition of the entity owning Gulf View, it was financed with a secured loan that was cross-collateralized and cross-defaulted with a loan on another property whose ownership entity was not acquired. At the time of acquisition, the Operating Partnership guaranteed certain obligations relating to exceptions from the non-recourse nature of the loans. Because of certain penalties associated with repayment of these loans, the loans have not been restructured and the terms and conditions remain the same today. The approximate outstanding amount of the loan secured by Gulf View is $1.4 million and of the crossed loan secured by the other property is $5.5 million. The Company is not aware of any notice of default regarding either of the loans; however, should the owner of the cross-collateralized property default, the special purpose entity owning Gulf View and the Operating Partnership may be impacted to the extent of their obligations.

Florida Utility Operations

The Company received notice from the Florida Department of Environmental Protection (“DEP”) that as a result of a compliance inspection it is alleging violations of Florida law relating to the operation of onsite water plants and wastewater treatment plants at seven properties in Florida. The alleged violations relate to record keeping and reporting requirements, physical and operating deficiencies and permit compliance. The Company has investigated each of the alleged violations, including a review of a third party operator hired to oversee such operations. The Company met with the DEP in November 2007 to respond to the alleged violations and as a follow-up to such meeting provided a written response to the DEP in December 2007. In light of the Company’s written response, in late January 2008 the DEP conducted a follow-up compliance inspection at each of the seven properties. In early March 2008, the DEP provided the Company comments in connection with the follow-up inspection, which made various recommendations and raised certain additional alleged violations similar in character to those alleged after the initial inspection. The Company has investigated and responded to the additional alleged violations. While the outcome of this investigation remains uncertain, the Company expects to resolve the issues raised by the DEP by entering into a consent decree in which the Company will agree to make certain improvements in its facilities and operations to resolve the issues and pay certain costs and penalties associated with the violations. In August 2008, the DEP provided the Company a proposed consent order for resolving the issues raised by the DEP, the details of which the Company ~~is continuing to negotiate~~negotiated with the DEP. ~~While~~On December 2, 2008, a Consent Order was entered resolving the ~~outcome~~issues raised by the DEP. Pursuant to the Consent Order, the Company agreed to pay a penalty of approximately $0.1 million, which is ~~still uncertain,~~subject to reduction in the event the Company elects to perform “in-kind” capital improvement projects that the DEP approves. The Company has proposed two such projects, which are subject to DEP approval. Accordingly, the amount of the ~~costs and penalties~~penalty that the Company will ultimately be required to ~~be paid to the DEP~~pay is not ~~expected to be material.~~yet certain. The Company ~~has~~ also replaced its third party operator hired to oversee onsite water and wastewater operations at each of the seven properties. The Company is evaluating the costs of any improvements to its facilities, which would be capital expenditures depreciated over the estimated useful life of the improvement. During the course of this investigation, one permit for operation of a wastewater treatment plant expired. The Company applied for renewal of the permit and expects the DEP to grant the ~~application.~~

~~Note 13 — Commitments~~application after certain determinations and ~~Contingencies (continued)~~capital improvements are made. In the meantime, the Company is permitted to operate the wastewater treatment plant pursuant to the Consent Order.

Other

The Company is involved in various other legal proceedings arising in the ordinary course of business. Such proceedings include, but are not limited to, notices, consent decrees, additional permit requirements and other similar enforcement actions by governmental agencies relating to the Company’s water and wastewater treatment plants and other waste treatment facilities. 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.

3034

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company is a self-administered, self-managed, real estate investment trust (“REIT”) with headquarters in Chicago, Illinois. The Company is a fully integrated owner and operator of lifestyle-oriented properties (“Properties”). The Company leases individual developed areas (“sites”) with access to utilities for placement of factory built homes, cottages, cabins or recreational vehicles (“RVs”). Customers may lease individual sites or purchase right-to-use contracts providing the customer access to specific Properties for limited stays. The Company was formed to continue the property operations, business objectives and acquisition strategies of an entity that had owned and operated Properties since 1969. As of ~~September~~June 30, ~~2008,~~2009, the Company owned or had an ownership interest in a portfolio of ~~309~~308 Properties located throughout the United States and Canada containing ~~112,045~~110,852 residential sites. These Properties are located in 28 states and British Columbia (with the number of Properties in each state or province shown parenthetically, as follows): Florida (86), California (48), Arizona (35), Texas (15), Washington (14), Pennsylvania (13), Colorado (10), Oregon (9), North Carolina (8), Delaware (7), Nevada (6), New York (6), Virginia (6), Wisconsin ~~(6), New York (6)~~(5), Indiana (5), Maine (5), Illinois (4), New Jersey (4), Massachusetts (4), Michigan (3), South Carolina (3), New Hampshire (2), Ohio (2), Tennessee (2), Utah (2), Alabama (1), Kentucky (1), Montana (1), and British Columbia (1).

This report includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used, words such as “anticipate,” “expect,” “believe,” “project,” “intend,” “may be” and “will be” and similar words or phrases, or the negative thereof, unless the context requires otherwise, are intended to identify forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, but not limited to:

	•		our ability to control costs, real estate market conditions, the actual rate of decline in customers, the actual use of sites by customers and our success in acquiring new customers at our Properties (including those recently acquired);

	•		our ability to maintain historical rental rates and occupancy with respect to Properties currently owned or that we may acquire;

	•		our assumptions about rental and home sales markets;

	•		in the age-qualified ~~properties,~~Properties, home sales results could be impacted by the ability of potential homebuyers to sell their existing residences as well as by financial, credit and capital markets volatility;

	•		in the all-age ~~properties,~~Properties, results from home sales and occupancy will continue to be impacted by local economic conditions, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing;

	•		in the properties we recently started operating as a result of the PA Transaction, our ability to control costs, property market conditions, the actual rate of decline in customers, the actual use of sites by customers and our success in acquiring new customers;

	•		~~our ability to maintain rental rates and occupancy with respect to properties currently owned or pending acquisitions;~~

	•		~~our assumptions about rental and home sales markets;~~

	•		the completion of ~~pending~~future acquisitions, if any, and timing with respect ~~thereto;~~thereto and the effective integration and successful realization of cost savings;

	•		ability to obtain financing or refinance existing ~~debt;~~debt on favorable terms or at all;

	•		the effect of interest rates;

	•		the dilutive effects of issuing additional common stock;

	•		the effect of accounting for the sale of agreements to customers representing a right-to-use the ~~properties~~Properties previously leased by Privileged Access under Staff Accounting Bulletin No. 104,Revenue Recognition in Consolidated Financial Statements, Corrected; and

	•		other risks indicated from time to time in our filings with the Securities and Exchange Commission.

These forward-looking statements are based on management’s present expectations and beliefs about future events. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.

3135

The following chart lists the Properties acquired, invested in, or sold since January 1, ~~2007.~~2008.


~~Property~~	~~Transaction Date~~	~~Sites~~
~~Total Sites as of January 1, 2007~~			~~112,956~~

~~Property or Portfolio (# of Properties in parentheses):~~
~~Pine Island RV Resort (1)~~	~~August 3, 2007~~		~~363~~
~~Santa Cruz RV Ranch (1)~~	~~September 26, 2007~~		~~106~~
~~Tuxbury Resort (1)~~	~~October 11, 2007~~		~~305~~
~~Grandy Creek (1)~~	~~January 14, 2008~~		~~179~~
~~Lake George Schroon Valley Resort (1)~~	~~January 23, 2008~~		~~151~~

~~Expansion Site Development and other:~~
~~Sites added reconfigured in 2007~~			75
~~Sites added reconfigured in 2008~~			70
~~Peter’s Pond — Morgan Portfolio JV(1)~~	~~March 13, 2008~~		~~(270~~	)

~~Dispositions:~~
~~Lazy Lakes (1)~~	~~January 10, 2007~~		~~(100~~	)
~~Del Rey (1)~~	~~July 6, 2007~~		~~(407~~	)
~~Holiday Village, Iowa (1)~~	~~November 30, 2007~~		~~(519~~	)
~~Virginia Park — Morgan Portfolio JV (1)~~	~~April 30, 2008~~		~~(136~~	)
~~New Point — Morgan Portfolio JV (1)~~	~~April 30, 2008~~		~~(300~~	)
~~Club Naples — Morgan Portfolio JV (1)~~	~~June 16, 2008~~		~~(308~~	)
~~Gwynn’s Island — Morgan Portfolio JV (1)~~	~~June 16, 2008~~		~~(120~~	)

~~Total Sites as of September 30, 2008~~			~~112,045~~

Property Transaction Date Sites
Total Sites as of January 1, 2008
112,779

Property or Portfolio (# of Properties in parentheses):

Grandy Creek (1) January 14, 2008 179
Lake George Schroon Valley Resort (1) January 23, 2008 151

Expansion Site Development and other:

Sites added (reconfigured) in 2008 71
Sites added (reconfigured) in 2009 (3 )

Dispositions:

Morgan Portfolio JV (5) 2008 (1,134 )
Round Top JV (1) February 13, 2009 (319 )
Pine Haven JV (1) February 13, 2009 (625 )
Caledonia (1) April 17, 2009 (247 )

Total Sites as of June 30, 2009
110,852

Since December 31, ~~2006,~~2007, the gross investment in real estate has increased from ~~$2,337~~$2,396 million to ~~$2,464~~$2,530 million as of ~~September~~June 30, ~~2008.~~2009.

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Outlook

Occupancy in our Properties as well as our ability to increase rental rates directly affects revenues. Our revenue streams are predominantly derived from customers renting our sites on a long-term basis. Revenues are subject to seasonal fluctuations and as such quarterly interim results may not be indicative of full fiscal year results.

We have approximately ~~64,900~~65,600 annual sites, approximately ~~8,800~~8,900 seasonal sites, which are leased to customers generally for three to six months, and approximately ~~8,800~~8,900 transient sites, occupied by customers who lease sites on a short-term basis. The revenue from seasonal and transient sites is generally higher during the first and third quarters. We expect to service over 100,000 customers ~~with these~~at our transient ~~sites. However,~~sites and 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 24,300 membership sites designated as right-to-use sites which are utilized to service the approximately 115,000 customers who own right-to-use contracts. We also have interests in Properties containing approximately ~~5,200~~3,100 sites for which revenue is classified as Equity in income from unconsolidated joint ventures in the Consolidated Statements of Operations.


	Total Sites as of		Total Sites as of		Total Sites as of		Total Sites as of
	September 30,		December 31,		June 30,		December 31,
	2008		2007		2009		2008
	(rounded to 000s)		(rounded to 000s)		(rounded to 000s)		(rounded to 000s)
Community sites (1)		44,800		44,800		44,900		44,800
Resort sites :
Annual		20,100		20,100		20,700		20,100
Seasonal		8,800		8,700		8,900		8,800
Transient		8,800		8,800		8,900		8,800
Right-to-use		24,300		24,100		24,300		24,300
Joint Ventures (2)		5,200		6,300		3,100		5,200

		112,000		112,800		110,800		112,000


(1)		Total includes 655 sites from discontinued operations.

(2)		Joint Venture income is included in Equity in income of unconsolidated joint ventures.

A significant portion of our rental agreements on community sites are directly or indirectly tied to published CPI statistics that are issued during June through September each year. During June to September 2008, CPI was increasing at an annualized rate in excess of 5%. Due to the disruption we saw in the housing markets, we mitigated some of our 2009 rental increases despite these higher CPI figures. These remaining six months of 2009 will have important implications for 2010 rental rate growth. To the extent the unprecedented monetary and fiscal stimulus creates inflation, the timing of when these measures take hold could significantly impact the published CPI measures and our rent increase notice process. A continued decline in the overall housing markets would likely also impact our 2010 rent increase notice process. To evaluate a “low or no inflation” environment, we have modeled our portfolio assuming CPI statistics reflect zero or even negative price changes. Under these flat to slightly negative index assumptions, we currently expect 2010 rent growth of approximately 1%.

Our home sales volumes and gross profits have been declining since 2005. We believe that the disruption in the site-built housing market may be contributing to the decline in our home sales operations as potential customers are not able to sell their existing site-built homes as well as increased price sensitivity for seasonal and second homebuyers. A number of factors have contributed to this disruption. In the last few years, many site-built home sales were for speculative or investment purposes. Innovative financing techniques, such as loan securitizations, provided increased credit access and resulted in overbuilding and excess site-built home supply. Bad lending practices, like no money down, diminished underwriting, longer amortization periods and aggressive appraisals have contributed to loan defaults, repossessions and capital meltdowns. The disruption has not impacted our manufactured home occupancy, however, the anticipated continuation of the decline in our sales volumes may negatively impact occupancy in the future.

In order to maintain and improve existing occupancy, the Company is focusing on new customer acquisition projects. During 2007, we formed an occupancy task force to review our portfolio for opportunities to increase occupancy. The task force is focused on gaining incremental occupancy in our manufactured home portfolio. We identified a number of options for addressing occupancy, home rental, fractional sales, and locating financing sources for our customers. We believe that ~~in connection with other customer identification strategies that we have embarked upon, these options will introduce quality~~our potential customers ~~to our Properties~~are also having difficulty obtaining financing on resort homes, resort cottages and ~~the lifestyles that we provide.~~RV purchases. The continued decline in homes sales activity in 2008 ~~has~~ resulted in our decision to significantly reduce our new home sales operation ~~beginning in~~during the ~~quarter ended December 31,~~last couple months of 2008 and until such time as new home sales markets improve. We believe that renting our vacant new homes may represent an attractive source of occupancy and potentially convert to a new homebuyer in the ~~future.~~future and are focusing on smaller, more energy efficient and more affordable homes in our manufactured home Properties. We also believe that some customers that are capable of purchasing are opting instead to rent ~~in today’s~~due to the current economic environment.

3337

~~In response~~We have also adjusted our business model with the introduction of low-cost internet and alternate distribution channels that focus on the installed base of almost eight million RV owners. RV manufacturers and dealers experienced the second year of declining volumes in 2008 with current monthly activity reflecting precipitous declines over the prior year. Availability of financing for both floor plan inventory and retail customers has been severely constrained and there is little hope for improvement in 2009. Although industry experts are predicting shipments of approximately 180,000 RV units in 2009, down from the estimated 237,000 in 2008, shipments for the twelve months ended June 2009 were less than 150,000. As with the decline experienced by the manufactured home industry, the remaining participants’ survival depends on their ability to ~~recent market disruptions, legislators and financial regulators implemented a number of mechanisms designed to add stability~~react to the financial markets, including the provision of direct and indirect assistance to distressed financial institutions, assistance by the banking authorities in arranging acquisitions of weakened banks and broker-dealers, implementation of programs by the Federal Reserve to provide liquidity to the commercial paper markets and temporary prohibitions on short sales of certain financial institution securities. On October 3, 2008, the President of the United States signed into law the Emergency Economic Stabilization Act of 2008 (the “EESA”). The EESA provides the U.S. Secretary of Treasury with the authority to establish a Troubled Asset Relief Program (“TARP”), to purchase from financial institutions up to $700 billion of residential or commercial mortgages and any securities, obligations, or other instruments that are based on, or related to, such mortgages, that in each case was originated or issued on or before March 14, 2008, as well as any other financial instrument that the U.S. Secretary of Treasury, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, upon transmittal of such determination, in writing, to the appropriate committees of the U.S. Congress. In addition, the U.S. Secretary of Treasury has the authority to establish a program to guarantee, upon request from a financial institution, the timely payment of principal and interest on these financial assets. The overall effects of these and other legislative and regulatory efforts on the financial markets is uncertain, and they may not have the intended stabilization effects. Should these or other legislative or regulatory initiatives fail to stabilize and add liquidity to the financial markets, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Even if legislative or regulatory initiatives or other efforts successfully stabilize and add liquidity to the financial markets, we may need to modify our strategies, businesses or operations, and we may incur increased capital requirements and constraints or additional costs in order to satisfy new ~~regulatory requirements or to compete in a changed business~~ environment. It is uncertain what effects recently enacted or future legislation or regulatory initiatives will have on us. Given the volatile nature of the current market disruption and the uncertainties underlying efforts to mitigate or reverse the disruption, we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments and trends in new products and services, in the current or future environment. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.

Privileged Access

Privileged Access is owned ~~by Mr. McAdams, the Company’s President since January 1,~~Thousand Trails (“TT”) from April 14, 2006 until August 13, 2008. ~~On August 14, 2008, the Company acquired substantially all of the assets and certain liabilities of Privileged Access for an unsecured note payable of $2.0 million.~~ Prior to the purchase, Privileged Access had a 12-year lease with the Company that terminated upon closing. The $2.0 million unsecured note payable matures on August 14, 2010 and accrues interest at 10 percent per annum. At the closing, Privileged Access put its excess cash of approximately $4.9 million into an escrow account for liabilities that Privileged Access has retained. The balance in the escrow account as of September 30, 2008 was approximately $4.0 million. The excess cash in the escrow account, if any, will be paid to the Company after a period of two years.

The preliminary purchase price allocation has been recorded as of August 14, 2008. The preliminary allocation does not include a receivable for the contingent cash in the escrow as the amount and timing of collection is uncertain. Further adjustments to the purchase price allocation may be necessary within the one-year allocation period allowed by FAS 141.

~~Privileged Access owned Thousand Trails (“TT”) from April 14, 2006 until August 13, 2008. The~~ Company assumed TT’s operations in connection with the PA ~~Transaction,~~Transaction. TT’s primary business consists of selling right-to-use contracts that entitle the purchasers to use certain properties (the “Agreements”), a business that TT has been engaged in for almost 40 years. Our 82 Properties utilized to service the Agreements generally contain designated sites for the placement of recreational vehicles which service the customer base of over 100,000 families. ~~The PA Transaction included all of the existing Agreements that require the customer to make annual payments to maintain the Agreement.~~

Several different Agreements are currently offered to new customers. These front-line Agreements are generally distinguishable from each other by the number of Properties a customer can access. The Agreements generally grant the customer the contractual right-to-use designated space within the Properties on a continuous basis for up to 14 days. The Agreements are generally for three years and require nonrefundable upfront payments as well as annual payments. The Company has reduced the number of traditional front line sales locations to three from almost 20 in 2008 significant sales related overhead. The Company has recently introduced one-year memberships that require smaller upfront and/or annual payments that can be purchased through the internet and other alternate distribution channels. Similar to our efforts at our Core resort Properties we have also been focusing on adding annual customers to the TT Properties.

Existing customers may be offered an upgrade Agreement from time-to-time. The upgrade Agreement is currently distinguishable from the new Agreement by (1) increased length of consecutive stay by 50 percent (i.e. up to 21 days); (2) ability to make earlier advance reservations and (3) access to additional properties. Each upgrade requires an additional nonrefundable upfront payment. The Company may finance the upfront nonrefundable payment under any Agreement.

The PA Transaction also included the purchase of the operations of Resort Parks International (“RPI”) and Thousand Trails Management Services, Inc. (“TTMSI”). Since 1983, RPI has provided a member-only RV reciprocal camping program in North America. The RPI network offers access to 200 private RV resorts, 450 public RV campgrounds, cabins and hundreds of condominiums world wide. TTMSI manages approximately 200 public campgrounds for the U.S. Forest Service.

Refer to Note 1112 — Transactions with Related Parties included in the Notes to Consolidated Financial Statements in this Form 10-Q for a description of all agreements between the Company and Privileged Access.

Supplemental Property Disclosure

We provide the following disclosures with respect to certain assets:

•

Tropical Palms— OnBeginning on July 15, 2008, Tropical Palms, a 541-site Property located in Kissimmee, Florida, was leased to a new operator for 12 years. The lease provides for an initial fixed annual lease payment of $1.6 million, which escalates at the greater of CPI or three percent. Percentage rent payments are provided for beginning in 2010, subject to gross revenue floors. The Company will match the lessee’s capital investment in new rental units at the Property up to a maximum of $1.5 million. The lessee will pay the Company additional rent equal to eight percent per year on the Company’s capital investment. The lease income recognized during the quarter and six months ended June 30, 2009 was approximately $0.5 million and $0.9 million, respectively, and is included in income from other investments, net. During the quarter and six months ended June 30, 2009, the Company spent approximately $0.0 million and $0.6 million, respectively, to match the lessee’s investment in new rental units at the Property.

Government Stimulus

In response to recent market disruptions, legislators and financial regulators implemented a number of mechanisms designed to add stability to the financial markets, including the provision of direct and indirect assistance to distressed financial institutions, assistance by the banking authorities in arranging acquisitions of weakened banks and broker-dealers, implementation of programs by the Federal Reserve to provide liquidity to the commercial paper markets and temporary prohibitions on short sales of certain financial institution securities. Numerous actions have been taken by the Federal Reserve, Congress, U.S. Treasury, the SEC and others to address the current liquidity and credit crisis that has followed the sub-prime crisis that commenced in 2007. These measures include, but are not limited to various legislative and regulatory efforts, homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate, including two 50 basis point decreases in October of 2008; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector. It is not clear at this time what impact these liquidity and funding initiatives of the Federal Reserve and other agencies that have been previously announced, and any additional programs that may be initiated in the future will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies.

The overall effects of the legislative and regulatory efforts on the financial markets is uncertain, and they may not have the intended stabilization effects. Should these legislative or regulatory initiatives fail to stabilize and add liquidity to the financial markets, our business, financial condition, results of operations and prospects could be materially and adversely affected. Even if legislative or regulatory initiatives or other efforts successfully stabilize and add liquidity to the financial markets, we may need to modify our strategies, businesses or operations, and we may incur increased capital requirements and constraints or additional costs in order to satisfy new regulatory requirements or to compete in a changed business environment. It is uncertain what effects recently enacted or future legislation or regulatory initiatives will have on us. Given the volatile nature of the current market disruption and the uncertainties underlying efforts to mitigate or reverse the disruption, we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments and trends in new products and services, in the current or future environment. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.

Critical Accounting Policies and Estimates

Refer to the ~~2007~~2008 Form 10-K for a discussion of our critical accounting policies, which includes impairment of real estate assets and investments, investments in unconsolidated joint ventures, and accounting for stock compensation. During the ~~nine~~six months ended ~~September~~June 30, ~~2008,~~2009, there ~~was a change~~were no changes to the Allowance for Doubtful Accounts, see Note 1(g) — Notes Receivable accounting policy. There was also a change to the Revenue Recognition policy, see Note 1(l), which both are included in the Notes to the Consolidated Financial Statements for the updated policy.these policies.

3539

Results of Operations

The results of operations for the two Properties designated as held for disposition as of ~~September~~June 30, ~~2008~~2009 pursuant to SFAS No. 144 ~~consisting of one Property sold in January of 2007, and one Property sold in July of 2007,~~ have been classified as income from discontinued operations. See Note 4 in the Notes to the Consolidated Financial Statements for summarized information for these Properties.

Comparison of the Quarter Ended ~~September~~June 30, ~~2008~~2009 to the Quarter Ended ~~September~~June 30, ~~2007~~2008

The following table summarizes certain financial and statistical data for the Property Operations for all Properties owned and operated for the same period in both years (“Core Portfolio”) and the Total Portfolio for the quarters ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (amounts in thousands). The Core Portfolio may change from time-to-time depending on acquisitions, dispositions and significant transactions or unique situations. The Core Portfolio in this Form 10-Q includes all Properties acquired prior to December 31, ~~2006~~2007 and which ~~were~~have been owned and operated ~~during~~by the ~~nine months ended September 30,~~Company continuously since January 1, 2008.


	Core Portfolio								Total Portfolio
					Increase /		%							Increase /			%			Core Portfolio										Total Portfolio
	2008		2007		(Decrease)		Change		2008			2007		(Decrease)			Change							Increase /			%								Increase /
																				2009		2008		(Decrease)			Change			2009			2008		(Decrease)			% Change
Community base rental income	$	61,554	$	59,366		2,188		3.7	$	61,554		$	59,366	$	2,188			3.7		$	63,318	$	61,430	$	1,888			3.1	%	$	63,318		$	61,430	$	1,888			3.1	%
Resort base rental income		24,841		24,091		750		3.1		29,343			25,557		3,786			14.8			22,671		22,072		599			2.7	%		27,747			23,033		4,714			20.5	%
Right-to-use annual payments		—		—		—		—		6,746			—		6,746			100.0			—		—		—			—			12,702			—		12,702			100.0	%
Right-to-use contracts current period, gross		—		—		—		—		5,003			—		5,003			100.0			—		—		—			—			5,869			—		5,869			100.0	%
Right-to-use contracts, deferred, net of prior period amortization		—		—		—		—		(4,940	)		—		(4,940	)		(100.0	)		—		—		—			—			(5,271	)		—		(5,271	)		(100.0	%)
Utility and other income		9,478		9,142		336		3.7		10,572			9,273		1,299			14.0			10,188		9,723		465			4.8	%		11,720			9,859		1,861			18.9	%

Property operating revenues		95,873		92,599		3,274		3.5		108,278			94,196		14,082			14.9			96,177		93,225		2,952			3.2	%		116,085			94,322		21,763			23.1	%

Property operating and Maintenance		33,801		32,262		1,539		4.8		42,148			33,252		8,896			26.8			32,440		32,692		(252	)		(0.8	%)		45,565			33,930		11,635			34.3	%
Real estate taxes		7,245		6,925		320		4.6		7,794			7,037		757			10.8			7,328		7,408		(80	)		(1.1	%)		8,235			7,478		757			10.1	%
Sales and marketing, gross		—		—		—		—		3,098			—		3,098			100.0			—		—		—			—			3,672			—		3,672			100.0	%
Sales and marketing, deferred commissions, net		—		—		—		—		(1,598	)		—		(1,598	)		(100.0	)		—		—		—			—			(1,632	)		—		(1,632	)		(100.0	%)
Property management		5,016		4,576		440		9.6		6,446			4,576		1,870			40.9			4,435		5,182		(747	)		(14.4	%)		7,730			5,243		2,487			47.4	%

Property operating expenses		46,062		43,763		2,299		5.3		57,888			44,865		13,023			29.0			44,203		45,282		(1,079	)		(2.4	%)		63,570			46,651		16,919			36.3	%


Income from property operations	$	49,811	$	48,836	$	975		2.0	$	50,390		$	49,331	$	1,059			2.1		$	51,974	$	47,943	$	4,031			8.4	%	$	52,515		$	47,671	$	4,844			10.2	%

Property Operating Expenses

The ~~5.3% increase~~2.4% decrease in property operating expenses in the Core Portfolio reflects a ~~4.8% increase~~0.8% decrease in property operating and maintenance expenses and a ~~9.6% increase~~14.4% decrease in property management expenses. ~~The~~ Core property operating and maintenance ~~expense increase is~~expenses decreased primarily ~~due to payroll~~from decreases in advertising and ~~repairs and maintenance~~administrative expenses. Our Total Portfolio property operating and maintenance expenses increased due to the consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008 as a result of the PA Transaction. Total Portfolio sales and marketing expense are all related to the costs incurred for the sale of right-to-use ~~contracts since the PA Transaction on August 14, 2008. Core Portfolio and~~contracts. Total Portfolio property management expenses primarily increased due to the PA ~~Transaction~~Transaction. Sales and marketing, deferred commissions, net represents commissions on right-to-use contract sales deferred until future periods to match the ~~increase in computer software costs.~~deferral of the right-to-use contract sales, offset by the amortization of prior period commission.

Home Sales Operations

The following table summarizes certain financial and statistical data for the Home Sales Operations for the quarters ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (dollars in thousands).


	2008			2007			Variance			% Change
	2009			2008			Variance			% Change
Gross revenues from new home sales	$	4,207		$	8,019		$	(3,812	)		(47.5	)	$	675		$	5,941		$	(5,266	)	(88.6	%)
Cost of new home sales		(4,457	)		(7,424	)		2,967			40.0			(1,033	)		(5,897	)		4,864		82.5	%

Gross (loss) profit from new home sales		(250	)		595			(845	)		(142.0	)		(358	)		44			(402	)	(913.6	%)

Gross revenues from used home sales		1,053			464			589			126.9			1,062			858			204		23.8	%
Cost of used home sales		(908	)		(693	)		(215	)		(31.0	)		(614	)		(962	)		348		36.2	%

Gross (loss) profit from used home sales		145			(229	)		374			163.3
Gross profit (loss) from used home sales														448			(104	)		552		530.8	%

Brokered resale revenues, net		237			305			(68	)		(22.3	)		199			301			(102	)	(33.9	%)
Home selling expenses		(1,482	)		(1,845	)		363			19.7			(640	)		(1,635	)		995		60.9	%
Ancillary services revenues, net		607			799			(192	)		(24.0	)		418			(327	)		745		227.8	%


(Loss) Income from home sales operations	$	(743	)	$	(375	)	$	(368	)		(98.1	)
Income (loss) from home sales operations													$	67		$	(1,721	)	$	1,788		103.9	%


Home sales volumes
New home sales (1)		87			113			(26	)		(23.0	)		21			112			(91	)	(81.3	%)
Used home sales		134			69			65			94.2
Used home sales (2)														188			107			81		75.7	%
Brokered home resales		178			202			(24	)		(11.9	)		163			217			(54	)	(24.9	%)

Rental Operations

During the quarter ended September 30, 2008, $5.5 million of manufactured home inventory, was reclassified to Buildings and other depreciable property on our Consolidated Balance Sheet. The inventory moved included all new manufactured home inventory, which became occupied rental units during the quarter ended September 30, 2008. The following table summarizes certain financial and statistical data for manufactured home Rental Operations for the quarters ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (dollars in thousands). Except as otherwise noted, the amounts below are included in Ancillary services revenue, net in the Home Sales Operations table in previous section.


	2008			2007		Variance			% Change		2009			2008			Variance			% Change
Manufactured homes:
New Home	$	994		$	345	$	649			188.1	$	1,613		$	851		$	762			89.5	%
Used Home		1,866			1,390		476			34.2		2,238			1,761			477			27.1	%

Rental operations revenue⁽¹⁾		2,860			1,735		1,125			64.8		3,851			2,612			1,239			47.4	%

Property operating and maintenance		601			234		367			156.8		446			500			(54	)		(10.8	%)
Real estate taxes		23			6		17			283.3		12			20			(8	)		(40.0	%)

Rental operations expenses		624			240		384			160.0		458			520			(62	)		(11.9	%)

Income from rental operations		2,236			1,495		741			49.6		3,393			2,092			1,301			62.2	%
Depreciation		(321	)		—		(321	)		100.0		(582	)		(319	)		(263	)		(82.4	%)

Income from rental operations, net of depreciation	$	1,915		$	1,495	$	420			28.1	$	2,811		$	1,773		$	1,038			58.5	%


Number of occupied rentals — new, end of period		346			144		202			140.3		568			291			277			95.2	%
Number of occupied rentals — used, end of period		849			703		146			20.8		1,030			843			187			22.2	%

2008 2007 Variance % Change
Interest income $ 885 $ 496 $ 389 78.4
Income from other investments, net 2,783 5,323 (2,540 ) (47.7 )
General and administrative (5,315 ) (3,795 ) (1,520 ) (40.1 )
Rent control initiatives (102 ) (722 ) 620 85.9
Interest and related amortization (24,930 ) (25,942 ) 1,012 3.9
Depreciation on corporate assets (84 ) (116 ) 32 27.6
Depreciation on real estate assets (17,132 ) (15,901 ) (1,231 ) (7.7 )

Total other expenses, net $ (43,895 ) $ (40,657 ) $ (3,238 ) (8.0 )

control initiatives decreased due to activity regarding the Santee trial during the quarter ended September 30, 2007 as there were no rent control trials during the quarter ended September 30, 2008. (see Note 13 in the Notes to Consolidated Financial Statements contained in this Form 10-Q). Interest and related amortization decreased due to lower rates and amounts outstanding. Depreciation on real estate assets includes $0.8 million of unamortized lease costs expensed related to the termination of the Privileged Access leases.

~~Equity in Income of Unconsolidated Joint Ventures~~

During the quarter ended September 30, 2008, equity in income of unconsolidated joint ventures decreased primarily due to the nine former joint ventures which have been purchased by the Company since the quarter ended September 30, 2007. The Company had no joint venture income for the quarter ended September 30, 2008.

~~Comparison of the Nine Months Ended September 30, 2008 to the Nine Months Ended September 30, 2007~~

The following table summarizes certain financial and statistical data for the Property Operations for the Core Portfolio and the Total Portfolio for the nine months ended September 30, 2008 and 2007 (amounts in thousands).

Core Portfolio Total Portfolio
Increase / Increase /
2008 2007 (Decrease) % Change 2008 2007 (Decrease) % Change

Community base rental income $ 184,018 $ 177,190 $ 6,828 3.9 $ 184,018 $ 177,190 $ 6,828 3.9
Resort base rental income 77,535 74,972 2,563 3.4 86,973 79,336 7,637 9.6
Right-to-use annual payments — — — — 6,746 — 6,746 100.0
Right-to-use contracts current period, gross — — — — 5,003 — 5,003 100.0
Right-to-use contracts, deferred, net of prior period amortization — — — — (4,940 ) — (4,940 ) (100.0 )
Utility and other income 29,583 28,249 1,334 4.7 31,222 28,551 2,671 9.4

Property operating revenues 291,136 280,411 10,725 3.8 309,022 285,077 23,945 8.4

Property operating and maintenance 97,692 93,176 4,516 4.8 109,847 95,681 14,166 14.8
Real estate taxes 21,822 21,382 440 2.1 22,712 21,646 1,066 4.9
Sales and marketing, gross — — — — 3,098 — 3,098 100.0
Sales and marketing, deferred commissions, net — — — — (1,598 ) — (1,598 ) (100.0 )
Property management 15,026 13,703 1,323 9.7 16,983 13,940 3,043 21.8

Property operating expenses 134,540 128,261 6,279 4.9 151,042 131,267 19,775 15.1

Income from property operations $ 156,596 $ 152,150 $ 4,446 2.9 $ 157,980 $ 153,810 $ 4,170 2.7

~~Property Operating Revenues~~

The 3.8% increase in the Core Portfolio property operating revenues reflects (i) a 3.8% increase in rates in our community base rental income combined with a 0.1% increase in occupancy, (ii) a 3.4% increase in revenues for our resort base income comprised of an increase in annual and seasonal resort revenue partially offset by a decrease in transient income and (iii) an increase in utility income due to increased pass-throughs at certain Properties. The Total Portfolio property operating revenues increase of 8.4% is primarily due to the consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008 as a result of the PA Transaction.

~~Property Operating Expenses~~

The 4.8% increase in Core property operating and maintenance expenses is primarily from increases in repairs and maintenance and utility expenses. In addition to the Core increase, our Total Portfolio property operating and maintenance primarily increased $2.3 million due to our 2007 and 2008 acquisitions and $7.0 million due to the consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008. Total Portfolio sales and marketing expenses are all related to the costs incurred for the sale of right-to-use contracts since the PA Transaction on August 14, 2008. Total Portfolio property operating and maintenance expenses increased due to consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008 as a result of the PA Transaction. Core Portfolio and Total Portfolio property management expenses primarily increased due to the PA transaction, increase in payroll and computer software costs.

~~Home Sales Operations~~

~~The following table summarizes certain financial and statistical data for the Home Sales Operations for the nine months ended September 30, 2008 and 2007 (dollars in thousands).~~

2008 2007 Variance % Change

Gross revenues from new home sales $ 15,948 $ 25,045 $ (9,097 ) (36.3 )
Cost of new home sales (16,583 ) (22,301 ) 5,718 25.6

Gross (loss) profit from new home sales (635 ) 2,744 (3,379 ) (123.1 )

Gross revenues from used home sales 2,306 1,722 584 33.9
Cost of used home sales (2,391 ) (2,063 ) (328 ) (15.9 )

Gross (loss) profit from used home sales (85 ) (341 ) 256 75.1

Brokered resale revenues, net 905 1,248 (343 ) (27.5 )
Home selling expenses (4,630 ) (5,845 ) 1,215 20.8
Ancillary services revenues, net 1,728 2,223 (495 ) (22.3 )

(Loss) Income from home sales operations $ (2,717 ) $ 29 $ (2,746 ) (9,469.0 )

Home sales volumes

New home sales (1) 323 346 (23 ) (6.6 )
Used home sales (2) 302 224 78 34.8
Brokered home resales 635 769 (134 ) (17.4 )


~~(1)~~		~~Includes third party home sales of 63 and 37 for the nine months ending September 30, 2008 and 2007, respectively.~~

~~(2)~~		~~Includes third party home sales of one and five for the nine months ending September 30, 2008 and 2007, respectively.~~

Income from home sales operations decreased as a result of reduced new home sales gross profits and lower brokered resale volumes. Home selling expenses decreased due to lower sales volumes and lower advertising expenses. Ancillary services revenues, net decreased by 22.3% primarily due to $0.6 million of depreciation expense on new and used rental homes.

~~Rental Operations~~

During the nine months ended September 30, 2008, $36.6 million of manufactured home inventory, excluding reserves of approximately $0.4 million, was reclassified to Buildings and other depreciable property on our Consolidated Balance Sheet. The inventory moved included all used manufactured home inventory and all occupied new manufactured home inventory. The following table summarizes certain financial and statistical data for the manufactured home Rental Operations for the nine months ended September 30, 2008 and 2007 (dollars in thousands). Except as otherwise noted, the amounts below are included in Ancillary services revenue, net in the Home Sales Operations table in previous section.

2008 2007 Variance % Change
Manufactured homes:
New Home $ 2,345 $ 1,005 $ 1,340 133.3
Used Home 4,672 3,477 1,195 34.4

Rental operations revenue⁽¹⁾
7,017 4,482 2,535 56.6

Property operating and maintenance 1,327 742 585 78.8
Real estate taxes 69 34 35 102.9

Rental operations expenses 1,396 776 620 79.9

Income from rental operations 5,621 3,706 1,915 51.7
Depreciation (640 ) — (640 ) 100.0

Income from rental operations, net of depreciation $ 4,981 $ 3,706 $ 1,275 34.4

Number of occupied rentals — new, end of period 346 144 202 140.3
Number of occupied rentals — used, end of period 849 703 146 20.8


~~(1)~~		~~Approximately $5.4 million and $3.4 million as of September 30, 2008 and 2007, respectively, are included in Community base rental income in the Property Operations table~~

~~The increase in rental operations revenue is primarily due to the~~ increase in the number of ~~occupied rentals. The increase in depreciation is due to the depreciation of the~~ rental ~~units starting during the nine months ended September 30, 2008.~~units.

In the ordinary course of business, the Company acquires used homes from customers through purchase, lien sale or abandonment. In a vibrant new home sale market the older homes may be removed from the site to be replaced by a new home. In other cases because of the nature of tenancy rights afforded a purchaser, the used homes are rented in order to control the site either in the condition received or after warranted rehabilitation.

Other Income and Expenses

The following table summarizes other income and expenses for the ~~nine months~~quarters ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (amounts in thousands).


	2008			2007			Variance			% Change			2009			2008			Variance			% Change
Interest income	$	1,566		$	1,458		$	108			7.4		$	1,223		$	294		$	929			316.0	%
Income from other investments, net		16,398			15,407			991			6.4			1,866			6,705			(4,839	)		(72.2	%)
General and administrative		(15,548	)		(11,146	)		(4,402	)		(39.5	)		(6,216	)		(4,834	)		(1,382	)		(28.6	%)
Rent control initiatives		(1,967	)		(2,157	)		190			8.8			(169	)		(518	)		349			67.4	%
Interest and related amortization		(74,604	)		(77,420	)		2,816			3.6			(25,026	)		(24,690	)		(336	)		(1.4	%)
Depreciation on corporate assets		(266	)		(337	)		71			21.1
Depreciation on corporate and other assets														(234	)		(84	)		(150	)		(178.6	%)
Depreciation on real estate assets		(49,664	)		(47,232	)		(2,432	)		(5.1	)		(17,143	)		(16,258	)		(885	)		(5.4	%)

Total other expenses, net	$	(124,085	)	$	(121,427	)	$	(2,658	)		(2.2	)	$	(45,699	)	$	(39,385	)	$	(6,314	)		(16.0	%)

Interest income is higher primarily due to interest income on Contract Receivables purchased in the PA Transaction. Income from other investments, net ~~increased~~decreased primarily due to ~~$0.6 million of~~lower Privileged Access lease ~~payments, $0.4~~income of $6.4 million and $0.3 million of ~~Tropical Palms ground lease income and $0.7 million in hurricane~~incremental net insurance proceeds ~~(net of related legal fees)~~received during 2008 offset by the ~~write-off~~Caledonia sale of ~~$0.9~~$0.8 million ~~Privileged Access restatement bonus.~~during 2009, incremental Caledonia lease income of $0.3 million, and $0.5 million in Tropical Palms lease payments recognized during 2009. General and administrative ~~expenses~~expense increased due to higher ~~compensation cost increases of $3.5 million~~payroll expense and professional ~~fee increases~~fees. Rent control initiatives decreased due to the 2008 activity regarding the City of ~~$0.9 million.~~San Rafael briefing, the City of Santee decision and 21^st Mortgage trial. (See Note 13 in the Notes to Consolidated Financial Statements contained in this Form 10-Q for a detailed discussion of this legal activity). Interest and related amortization ~~decreased~~increased due to ~~lower rates and~~decreased lines of credit amounts outstanding. ~~Depreciation on real estate assets includes $0.8 million of unamortized lease costs expensed related to the termination of the Privileged Access lease.~~

Equity in Income of Unconsolidated Joint Ventures

During the ~~nine months~~quarter ended ~~September~~June 30, ~~2008,~~2009, equity in income of unconsolidated joint ventures decreased primarily due to approximately a $1.6 million gain on the sale of a 25% interest in four Morgan joint ventures by the Company during the quarter ended June 30, 2008.

Comparison of the Six Months Ended June 30, 2009 to the Six Months Ended June 30, 2008

The following table summarizes certain financial and statistical data for the Property Operations for the Core Portfolio and the Total Portfolio for the six months ended June 30, 2009 and 2008 (amounts in thousands).

Core Portfolio Total Portfolio
Increase / % Increase / %
2009 2008 (Decrease) Change 2009 2008 (Decrease) Change
Community base rental income $ 126,502 $ 122,464 $ 4,038 3.3 % $ 126,502 $ 122,464 $ 4,038 3.3 %
Resort base rental income 55,300 55,266 34 0.1 % 63,205 57,630 5,575 9.7 %
Right-to-use annual payments — — — — 25,597 — 25,597 100.0 %
Right-to-use contracts current period, gross — — — — 11,446 — 11,446 100.0 %
Right-to-use contracts, deferred, net of prior period amortization — — — — (10,434 ) — (10,434 ) (100.0 %)
Utility and other income 21,566 20,385 1,181 5.8 % 24,124 20,650 3,474 16.8 %

Property operating revenues 203,368 198,115 5,253 2.7 % 240,440 200,744 39,696 19.8 %
Property operating and Maintenance 64,585 65,414 (829 ) (1.3 %) 87,569 67,699 19,870 29.4 %
Real estate taxes 14,799 14,778 21 0.1 % 16,691 14,918 1,773 11.9 %
Sales and marketing, gross — — — — 6,744 — 6,744 100.0 %

Sales and marketing, deferred commissions, net — — — — (3,125 ) — (3,125 ) (100.0 %)
Property management 9,757 10,400 (643 ) (6.2 %) 16,434 10,537 5,897 56.0 %

Property operating expenses 89,141 90,592 (1,451 ) (1.6 %) 124,313 93,154 31,159 33.4 %

Income from property operations $ 114,227 $ 107,523 $ 6,704 6.2 % $ 116,127 $ 107,590 $ 8,537 7.9 %

Property Operating Revenues

The 2.7% increase in the Core Portfolio property operating revenues reflects: (i) a 3.6% increase in rates in our community base rental income offset by a 0.3% decrease in occupancy, (ii) a 0.1% increase in revenues for our resort base income comprised of an increase in annual resort revenue offset by a decrease in seasonal and transient resort revenue and (iii) an increase in utility income due to increased pass-throughs at certain Properties. The Total Portfolio property operating revenues increase of 19.8.% is primarily due to the consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008 as a result of the PA Transaction. The right-to-use

annual payments represent the annual payments earned on right-to-use contracts acquired in the PA Transaction or sold since the PA Transaction on August 14, 2008. The right-to-use contracts current period, gross represents all right-to-use contract sales during the quarter ended June 30, 2009. The right-to-use contracts, deferred represents the deferral of current period sales into future periods, offset by the amortization of revenue deferred in prior periods.

Property Operating Expenses

The 1.6% decrease in property operating expenses in the Core Portfolio reflects a 1.3% decrease in property operating and maintenance expenses and a 6.2% decrease in property management expenses. The Core property operating and maintenance expense decrease is primarily due to a decrease in administrative and advertising expenses. Our Total Portfolio property operating and maintenance expenses increased due to the consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008 as a result of the PA Transaction. Total Portfolio sales and marketing expense are all related to the costs incurred for the sale of right-to-use contracts. Core Portfolio and Total Portfolio property management expenses primarily increased due to the PA Transaction. Sales and marketing, deferred commissions, net represents commissions on right-to-use contract sales deferred until future periods to match the deferral of the right-to-use contract sales, offset by the amortization of prior period commission.

Home Sales Operations

The following table summarizes certain financial and statistical data for the Home Sales Operations for the six months ended June 30, 2009 and 2008 (dollars in thousands).

2009 2008 Variance % Change
Gross revenues from new home sales $ 1,501 $ 11,741 $ (10,240 ) (87.2 %)
Cost of new home sales (2,802 ) (12,126 ) 9,324 76.9 %

Gross loss from new home sales (1,301 ) (385 ) (916 ) (237.9 %)

Gross revenues from used home sales 1,447 1,253 194 15.5 %
Cost of used home sales (962 ) (1,483 ) 521 35.1 %

Gross profit (loss) from used home sales 485 (230 ) 715 310.9 %

Brokered resale revenues, net 385 668 (283 ) (42.4 %)
Home selling expenses (1,712 ) (3,148 ) 1,436 45.6 %
Ancillary services revenues, net 1,574 1,121 453 40.4 %

Loss from home sales operations $ (569 ) $ (1,974 ) $ 1,405 71.2 %

Home sales volumes

New home sales (1) 41 236 (195 ) (82.6 %)
Used home sales (2) 255 168 87 51.8 %
Brokered home resales 321 457 (136 ) (29.8 %)


(1)		Includes third party home sales of six and 45 for the six months ending June 30, 2009 and 2008, respectively.

(2)		Includes third party home sales of three and one for the six months ending June 30, 2009 and 2008, respectively.

Income from home sales operations increased as a result of increased used home volume and gross profits offset by decreased new and brokered resale volumes and reduced new home volume and gross profits. Gross loss from new home sales includes an increase in the manufactured home inventory reserve of approximately $1.1 million. Home selling expenses for 2009 have been down as a result of lower sales volumes and decreased advertising costs. Ancillary services revenues, net increased primarily due to the inclusion of the ancillary activities of the Properties leased to Privileged Access prior to August 14, 2008.

Rental Operations

The following table summarizes certain financial and statistical data for the Rental Operations for the six months ended June 30, 2009 and 2008 (dollars in thousands). Except as otherwise noted, the amounts below are included in Ancillary services revenue, net in the Home Sales Operations table in the previous section.

%
2009 2008 Variance Change
Manufactured homes:
New Home $ 3,247 $ 1,666 $ 1,581 94.9 %
Used Home 4,313 3,413 900 26.4 %

Rental operations revenue⁽¹⁾
7,560 5,079 2,481 48.8 %

Property operating and maintenance 945 855 (90 ) (10.5 %)
Real estate taxes 86 53 (33 ) (62.3 %)

Rental operations expenses 1,031 908 (123 ) (13.5 %)

Income from rental operations 6,529 4,171 2,358 56.5 %
Depreciation (1,163 ) (319 ) (844 ) (264.6 %)

Income from rental operations, net of depreciation $ 5,366 $ 3,852 $ 1,514 39.3 %

Number of occupied rentals — new, end of period 568 291 277 95.2 %
Number of occupied rentals — used, end of period 1,030 843 187 22.2 %


(1)		Approximately $5.7 million and $3.8 million for the six months ended June 30, 2009 and 2008, respectively, are included in Community base rental income in the Property Operations table.

The increase in rental operations revenue is primarily due to the increase in the number of occupied rentals. The increase in depreciation is due to the increase of the number of rental units in 2009 as compared to 2008.

Other Income and Expenses

The following table summarizes other income and expenses for the six months ended June 30, 2009 and 2008 (amounts in thousands).

%
2009 2008 Variance Change
Interest income $ 2,606 $ 681 $ 1,925 282.7 %
Income from other investments, net 4,389 13,615 (9,226 ) (67.8 %)
General and administrative (12,373 ) (10,233 ) (2,140 ) (20.9 %)
Rent control initiatives (315 ) (1,865 ) 1,550 83.1 %
Interest and related amortization (49,576 ) (49,674 ) 98 0.2 %
Depreciation on corporate and other assets (402 ) (182 ) (220 ) (120.9 %)
Depreciation on real estate assets (34,542 ) (32,532 ) (2,010 ) (6.2 %)

Total other expenses, net $ (90,213 ) $ (80,190 ) $ (10,023 ) (12.5 %)

Interest income is higher primarily due to interest income on Contracts Receivable purchased in the PA Transaction. Income from other investments, net decreased primarily due to lower Privileged Access lease income of $12.7 million received during 2008 offset by the following items received in 2009: $0.8 million incremental insurance proceeds, $0.9 million in Tropical Palms lease payments, Caledonia gain on sale of $0.8 million and incremental Caledonia lease income of $0.3 million. General and administrative expense increased primarily due to higher payroll, professional fees, and public company costs. General and administrative in 2009 includes

approximately $0.2 million of costs related to transactions required to be expensed in accordance with SFAS No.141R. Prior to 2009, such costs were capitalized in accordance with SFAS No.141.

Rent control initiatives decreased due to the 2008 activity regarding the City of San Rafael briefing, the City of Santee decision and 21^st Mortgage trial. (See Note 13 in the Notes to Consolidated Financial Statements contained in this Form 10-Q for a ~~$0.6~~detailed discussion of this activity). Interest and related amortization decreased due to decreased lines of credit amounts outstanding. The Company has determined that certain depreciable assets acquired during years prior to 2009 were inadvertently omitted from prior year depreciation expense calculations. Since the total amounts involved were immaterial to the Company’s financial position and results of operations, the Company has decided to record additional depreciation expense in 2009 to reflect this adjustment. As a result, the six months ended June 30, 2009 includes approximately $1.1 million of prior period depreciation expense.

Equity in Income of Unconsolidated Joint Ventures

During the six months ended June 30, 2009, equity in income of unconsolidated joint ventures decreased primarily due a $1.1 million gain ~~on the payoff of our share of seller financing in excess of our basis on one Lakeshore investment, a gain of $1.6 million~~ on the sale of our 25% interest in ~~four Morgan properties, and a $0.5 million increase in our Voyager RV Resort investment,~~two Diversified Portfolio joint ventures during the six months ended June 30, 2009, offset by ~~the activity at the nine former joint ventures, which have been purchased by the Company and had no~~a $2.2 million gain from joint venture ~~income in~~dispositions or liquidations during the ~~nine~~six months ended ~~September~~June 30, 2008.

Liquidity and Capital Resources

Liquidity

As of ~~September~~June 30, ~~2008,~~2009, the Company had ~~$52.7~~approximately $174.2 million in cash and cash equivalents primarily held in treasury reserve accounts, and ~~$254.3~~$370.0 million available on its lines of credit. The increase in the cash balance during the six months ended June 30, 2009 is primarily due to $146.6 million of net proceeds generated from the sale of 4.6 million shares of our common stock in a public offering that closed on June 29, 2009. The Company expects to meet its short-term liquidity requirements, including its distributions, generally through its working capital, net cash provided by operating activities, proceeds from the sale of Properties and availability under the existing lines of credit. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities, ~~Property~~property acquisitions and capital improvements by use of its current cash balance, long-term collateralized and uncollateralized borrowings including borrowings under its existing lines of credit and the issuance of debt securities or additional equity securities in the Company, in addition to ~~working capital.~~net cash provided by operating activities. As of June 30, 2009, the Company has approximately $47 million of remaining scheduled debt maturities in 2009 (excluding scheduled principal payments on debt maturing in 2010 and beyond). During 2008 and 2009, we received financing proceeds from Fannie Mae secured by mortgages on individual manufactured home Properties. The terms of the Fannie Mae financings were relatively attractive as compared to other potential lenders. If financing proceeds are no longer available from Fannie Mae for any reason or if Fannie Mae terms are no longer attractive, it may adversely affect cash flow and our ability to service debt and make distributions to stockholders.

The table below summarizes cash flow activity for the ~~nine~~six months ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (amounts in thousands).


	For the nine months ended						For the six months ended
	September 30,						June 30,
	2008			2007			2009			2008
Cash provided by operating activities	$	97,443		$	91,827		$	82,660		$	75,008
Cash used in investing activities		(26,117	)		(19,138	)		(15,945	)		(17,710	)
Cash used in financing activities		(24,366	)		(70,591	)
Cash provided by (used in) financing activities								62,124			(51,898	)

Net increase in cash	$	46,960		$	2,098		$	128,839		$	5,400

Operating Activities

Net cash provided by operating activities increased ~~$5.6~~$7.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2008. The increase reflects higher property operating income and deferred nonrefundable payments from right-to-use sales. The increase is also attributable to the lower working capital requirements.~~2009.

Investing Activities

Net cash used in investing activities reflects the impact of the following investing activities:

Acquisitions

2009 Acquisitions

2008 Acquisitions

On January 14, 2008, we acquired a 179-site Property known as Grandy Creek located on 63 acres near Concrete, Washington. The purchase price was $1.8 million and the Property was leased to Privileged Access from January 14, 2008 through August 14, 2008.

On January 23, 2008, we acquired a 151-site resort Property known as Lake George Schroon Valley Resort on approximately 20 acres in Warrensburg, New York. The purchase price was approximately $2.1 million and was funded by proceeds from the tax-deferred exchange account established as a result of the November 2007 sale of Holiday Village-Iowa.

On August 14, 2008, the Company acquired substantially all of the assets and certain liabilities of Privileged Access for an unsecured note payable of $2.0 million. Prior to the purchase, Privileged Access had a 12-year lease with the Company for 82 Properties that terminated upon closing. The $2.0 million unsecured note payable matures on August 14, 2010 and accrues interest at 10 percent per annum. At closing, approximately $4.9 million of Privileged Access cash was deposited into an escrow account for liabilities that Privileged Access has retained. In approximately two years, the excess cash in the escrow account, if any, will be paid to the Company.

~~2007 Acquisitions~~

On January 29, 2007, the Company acquired the remaining 75% interest in a joint venture Property known as Mesa Verde, which is a 345-site resort Property on approximately 28 acres in Yuma, Arizona. The gross purchase price was approximately $5.9 million. We assumed a first mortgage loan of approximately $3.5 million with an interest rate of 4.94% per annum, maturing in 2008. The remainder of the acquisition price, net of a credit for our existing 25% interest, was funded with a withdrawal from the tax-deferred exchange account established as a result of the disposition of Lazy Lakes discussed below.

On June 27, 2007, the Company purchased the remaining 75% interest in a Diversified Investments joint venture Property known as Winter Garden, which is a 350-site resort Property on approximately 27 acres in Winter Garden, Florida. The gross purchase price was approximately $10.9 million, and we assumed a second mortgage loan of approximately $4.0 million with an interest rate of 4.3% per annum, maturing in September 2008. The remainder of the acquisition price, net of a credit for our existing 25% interest, was funded with proceeds from the Company’s lines of credit and a withdrawal of approximately $3.7 million from the tax-deferred exchange account established as a result of the disposition of Lazy Lakes discussed below.

On August 3, 2007, the Company acquired a 363-site resort Property known as Pine Island that is located near St. James City, Florida. The purchase price of approximately $6.5 million was funded with a withdrawal from the tax-deferred account established as a result of the sale of Del Rey discussed below.

~~On September 26, 2007, the Company acquired a 106-site resort Property known as Santa Cruz RV Ranch that is located near Scotts Valley, California. The purchase price was approximately $5.5 million.~~

Certain purchase price adjustments may be made within one year following the acquisitions.

Dispositions

On April 17, 2009, we sold Caledonia, a 247-site Property in Caledonia, Wisconsin, for proceeds of approximately $2.2 million. The Company recognized a gain on sale of approximately $0.8 million which is included in Income from other investments, net. In addition, we received approximately $0.3 million of deferred rent due from the previous tenant.

On February 13, 2009, the Company sold its 25 percent interest in two Diversified Portfolio joint ventures known as (i) Pine Haven, a 625-site property in Ocean View, New Jersey and (ii) Round Top, a 319-site property in Gettysburg, Pennsylvania. A gain on sale of approximately $1.1 million was recognized during the quarter ended March 31, 2009 and is included in Equity in income of unconsolidated joint ventures.

During the quarter ended June 30, 2008, the Company sold its 25% interest in the following properties, Newpoint in New Point, Virginia, Virginia Park in Old Orchard Beach, Maine, Club Naples, Florida, and Gwynn’s Island in Gwynn, Virginia, four properties held in the Morgan Portfolio, for approximately $2.1 million. A gain on sale of approximately $1.6 million was recognized. The Company also received approximately $0.3 million of ~~escrowed~~ funds ~~related to~~held for the purchase of five Morgan Properties disposed of in ~~2005.~~2006.

~~On January 10, 2007,~~As of June 30, 2009, we sold Lazy Lakes, a 100-site resort Property in the Florida Keys, for proceeds of approximately $7.7 million. The Company recognized a gain of approximately $4.6 million. In order to defer the taxable gain on the sale of Lazy Lakes, the sales proceeds, net of an eligible distribution of $2.4 million, were deposited in a tax-deferred exchange account. The funds in the exchange account were used in the Mesa Verde acquisition and Winter Garden discussed above.

On July 6, 2007, we sold Del Rey, a 407 site Property in Albuquerque, New Mexico, for proceeds of approximately $13 million. The Company recognized a gain of approximately $6.9 million. These proceeds were deposited in a tax-deferred exchange account pending future like-kind exchange acquisitions. The funds in the exchange account were used to acquire Pine Island discussed above and Tuxbury Resort during the fourth quarter of 2007.

~~We currently have~~had two family Properties held for ~~disposition, which are in various stages~~disposition. On July 20, 2009, we sold one of ~~negotiations. We plan to reinvest~~these Properties, Casa Village. The purchase price was approximately $12 million and the ~~proceeds or reduce outstanding lines~~buyer assumed mortgage debt on the Property of ~~credit with the proceeds from these dispositions.~~approximately $11 million.

We continue to look at acquiring additional assets and are at various stages of negotiations with respect to potential acquisitions. Funding is expected to come from either proceeds from potential dispositions, lines of credit draws, or other financing.

Notes Receivable Activity

The notes receivable activity during the ~~nine~~six months ended ~~September~~June 30, ~~2008~~2009 of ~~$3.3~~$2.7 million in cash ~~outflow~~inflow reflects net ~~lending~~repayments of ~~$2.1~~$0.3 million from our Chattel Loans of and net ~~lending~~repayments of ~~$0.3~~$1.4 million from our Contract ~~Receivables. Contracts Receivable purchased in~~Receivables offset by the ~~PA Transaction contributed a net $19.6 million increase in non-cash inflow.~~sale of Caledonia receivable of $0.2 million.

~~During~~The notes receivable activity during the ~~nine~~six months ended ~~September~~June 30, ~~2007, we received principal repayments from Privileged Access~~2008 of ~~approximately $12.3 million in full payment of an outstanding note receivable. The remaining $1.6~~$0.1 million in cash ~~outflow~~inflow reflects net lending ~~activity~~ from our Chattel Loans.

Investments in and distributions from unconsolidated joint ventures

During the ~~nine~~six months ended ~~September~~June 30, 2009, the Company received approximately $2.5 million in distributions from our joint ventures. Approximately $2.5 million of these distributions were classified as return on capital and were included in operating activities. Of these distributions, approximately $1.1 million relates to the gain on sale of the Company’s 25% interest in two Diversified joint ventures.

During the six months ended June 30, 2008, the Company invested approximately $5.7 million in its joint ventures to increase the Company’s ownership interest in Voyager RV Resort to 50%. The Company also received approximately $0.4 million held for the initial investment in one of the Morgan Properties.

During the ~~nine~~six months ended ~~September~~June 30, 2008, the Company received approximately ~~$3.9~~$3.6 million in distributions from our joint ventures. Approximately ~~$3.4~~$3.1 million of these distributions were classified as a return on capital and were included in operating activities. The remaining distributions ~~of approximately $0.5 million~~ were classified as a return of capital and ~~were~~ included in investing activities.

~~During the nine months ended September 30, 2007, the Company invested approximately $3.0 million in its joint ventures primarily to develop Properties in our Maine joint venture.~~

During the nine months ended September 30, 2007, the Company received approximately $3.9 million in distributions from our joint ventures. Approximately $3.8 million of these distributions were classified as return on capital and were included in operating activities. The remaining distributions of approximately $0.1 million were classified as a return of capital and were included in investing activities.

Capital Improvements

The ~~Company identifies~~table below summarizes capital ~~expenditures for~~ improvements ~~as recurring capital expenditures (“Recurring CapEx”), site development costs and corporate costs. Recurring CapEx was approximately $10.5 million and $10.9 million~~activity for the ~~nine~~six months ended ~~September~~June 30, 2009 and 2008 and 2007, respectively. Site development costs were approximately $9.1 for each of the nine months ended September 30, 2008 and 2007, and primarily represents costs to improve and upgrade Property infrastructure or amenities or costs to improve or develop specific sites within a Property. In addition, during the nine months ended September 30, 2008 and 2007, we spent $0.1 million and $1.4 million, respectively, on capitalized hurricane related repairs.(amounts in thousands).

For the six months ended
June 30,
2009 2008
Recurring Cap Ex⁽¹⁾
$ 8,062 $ 5,288
New construction — expansion 694 467
New construction — upgrades⁽²⁾
2,623 2,836
Home site development⁽³⁾
4,204 2,421
Hurricane related — 66

Total Property 15,583 11,078

Corporate 227 54

Total Capital improvements $ 15,810 $ 11,132


(1)		Recurring capital expenditures (“Recurring CapEx”) are primarily comprised of common area improvements, furniture, and mechanical improvements.

(2)		New construction — upgrades primarily represents costs to improve and upgrade Property infrastructure or amenities.

(3)		Home site development includes acquisitions of or improvements to rental units for the six months ended June 30, 2009.

Financing Activities

Financing, Refinancing and Early Debt Retirement

2009 Activity

During 2009, the Company completed the following transactions:

	•		During the quarter ended March 31, 2009, the Company closed on approximately $57 million of financing with Fannie Mae on two manufactured home Properties at a stated interest rate of 6.38 percent per annum.The Company also paid off two maturing mortgages totaling approximately $22 million with a weighted average interested rate of 5.43 percent per annum.

	•		During the quarter ended June 30, 2009, the Company refinanced approximately $5 million of maturing mortgage debt on Kloshe Illahee in Federal Way, Washington with a stated interest rate of 7.15 percent per annum for approximately $18 million with a stated interest rate of 5.79 percent per annum, maturing in 2019.

	•		In July 2009, the Company closed on approximately $10 million of Fannie Mae financing on Villa Borega in Las Vegas, Nevada at a stated interest rate of 6.53 percent per annum, maturing in 2019. In July and August 2009, the Company also paid off ten maturing mortgages totaling approximately $41 million with a weighted average interest rate of 8.15 percent per annum.

2008 Activity

During the ~~nine~~six months ended ~~September~~June 30, 2008, the Company completed the following transactions:

	•		~~During the quarter ended June 30, 2008, the~~The Company repaid $3.4 million of mortgage debt on Mesa Verde in Yuma, Arizona that had a stated interest rate of 4.9% per annum.

	•		The Company closed on two of the nine Fannie Mae loans for total financing proceeds of approximately $25.8 million bearing interest of 5.76% and maturing on May 1, 2018. The proceeds were used to immediately refinance a $6.7 million maturing mortgage on Holiday Village, in Ormond Beach, Florida bearing interest at 5.17% per annum. The proceeds were also used to repay $3.4 million of mortgage debt on Mesa Verde in Yuma, Arizona that had a stated interest rate of 4.94% per annum.

	•		In July 2008, the Company repaid approximately $7.3 million of maturing mortgage debt on Down Yonder in Largo, Florida that had a stated interest rate of 7.19% per annum. In addition, the Company repaid the Tropical Palms mortgage of approximately $12.0 million that had a stated interest rate of 30-day LIBOR plus two percent per annum.

	•		During the quarter ended September 30, 2008, we closed on approximately $114 million of financing, in the aggregate, with Fannie Mae on seven manufactured home properties at a stated interest rate of 5.91% per annum. We used the proceeds from the financing to immediately refinance approximately $79.7 million of maturing mortgage debt with an interest rate of 5.35% per annum. The remaining proceeds were used to pay down amounts outstanding on our lines of credit and to pay off maturing mortgages of approximately $22.4 million on five properties with a weighted average interest rate of 5.54 percent per annum.

~~2007 Activity~~

~~During the nine months ended September 30, 2007, the Company completed the following transactions:~~

	•		~~The Company repaid approximately $1.9 million of mortgage debt in connection with the sale of Lazy Lakes on January 10, 2007.~~

	•		In connection with the ~~acquisition~~closing of ~~Mesa Verde, during~~ the ~~first quarter of 2007,~~two Fannie Mae loans, the Company ~~assumed $3.5~~refinanced a $6.7 million mortgage on Holiday Village, in ~~mortgage debt bearing interest at 4.94% per annum and maturing in May 2008.~~Ormond Beach, Florida.

	•		In connection with the acquisition of Winter Garden, during the second quarter of 2007, the Company assumed $4.0 million in mortgage debt bearing interest at 4.3% per annum and maturing in September 2008.

	•		~~The Company repaid approximately $2.9 million of mortgage debt on Ft. Myers Beach during the quarter ended September 30, 2007.~~

Secured Debt

As of ~~September~~June 30, ~~2008,~~2009, our secured long-term debt balance was approximately $1.6 billion, with a weighted average interest rate ~~including amortization~~ in ~~2008~~2009 of approximately ~~6.1%~~6.0% per annum. The debt bears interest at rates between ~~4.3%~~5.0% and ~~9.3%~~10.0% per annum and matures on various dates primarily ranging from ~~2008~~2009 to ~~2018.~~2019. Included in our debt balance are three capital leases with an imputed interest rate of 13.1% per annum. The Company has ~~$3.0~~approximately $7 million of secured debt currently outstanding that matures in ~~the last quarter of 2008~~2009 and approximately ~~$79.3~~$213 million maturing in ~~2009.~~2010.

The maximum amount of secured debt maturing in any of the succeeding five years beginning in 2009 is approximately $214.2 million. The weighted average term to maturity for the long-term debt is approximately 5.5 years.

~~In October 2008, the~~ Company ~~paid off six maturing mortgages totaling approximately $38.5 million with a stated~~has locked an annual interest rate of ~~5.35% per annum.~~6.925% on approximately $12.0 million of debt and 7.135% on approximately $49.7 million of debt with Fannie Mae related to mortgages on three manufactured home Properties. The loans will have a term of ten years, with principal amortization over 30 years. The net proceeds from the loans will be used to repay secured long-term debt and for general corporate purposes. The closing of these loans is subject to the execution of definitive loan documentation and the fulfillment of certain conditions; accordingly, no assurance can be given that these financings will be consummated on the terms described or at all. The Company ~~also refinanced a $25.6 million mortgage with a stated interest rate of 5.35% per annum on Sherwood Forest, in Kissimmee, Florida~~is seeking to enter into commitments with Fannie ~~Mae. The mortgage was refinanced for $31.1~~Mae to borrow an additional $21.6 million ~~at a stated interest rate of 6.34 percent per annum, maturing~~secured by mortgages on ~~September 30, 2018.~~two additional manufactured home Properties, however no assurance can be given that it will be successful in doing so.

Unsecured Debt

We have two unsecured Lines of Credit (“LOC”) with a maximum borrowing capacity of ~~$400~~$350 million and $20 million, ~~that~~respectively, which bear interest at a per annum rate of LIBOR plus a maximum of 1.20% per annum, have a 0.15% facility fee, mature on June 30, 2010, and have a one-year extension option. ~~Our current group of banks have committed up to $370 million on our $420 million borrowing capacity.~~ The weighted average interest rate for the ~~nine~~six months ended ~~September~~June 30, ~~2008~~2009 for our unsecured debt was approximately ~~4.8%~~5.4% per annum. During the ~~nine~~six months ended ~~September~~June 30, ~~2008,~~2009, we borrowed ~~$177.1~~$50.9 million and paid down ~~$164.4~~$143.9 million on the lines of credit for a net ~~pay-down~~pay down of ~~$12.7 million funded by our operations. The balance~~$93.0 million. As of June 30, 2009 there were no amounts outstanding ason the line of ~~September 30, 2008 was approximately $115.7 million.~~credit.

Contractual Obligations

As of ~~September~~June 30, ~~2008,~~2009, we were subject to certain contractual payment obligations as described in the table below (dollars in thousands).


	Total			2008₍₂₎			2009			2010₍₃₎			2011			2012			Thereafter			Total			2009			2010			2011			2012			2013			Thereafter
Long Term Borrowings₍₁₎	$	1,667,741		$	72,136		$	100,119		$	345,448		$	73,518		$	19,437		$	1,055,246		$	1,611,126		$	58,670		$	231,321		$	75,576		$	21,599		$	131,230		$	1,092,730
Weighted average interest rates		6.03	%		5.95	%		5.88	%		5.74	%		5.59	%		5.53	%		5.39	%		6.19	%		5.99	%		5.93	%		5.81	%		5.77	%		5.77	%		5.87	%

With respect to maturing debt, the Company has staggered the maturities of its long-term mortgage debt over an average of approximately ~~five~~six years, with no more than approximately ~~$582~~$576 million, in 2015, 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, we believe that we will be able to repay such maturing debt from asset sales and/or the proceeds from recent or future 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.

Equity Transactions

~~2008~~2009 Activity

~~The 2008 quarterly distribution per~~On June 29, 2009, the Company issued 4.6 million shares of common ~~share is $0.20 per share, up from $0.15 per share~~stock in ~~2007.~~an equity offering for approximately $146.6 million in proceeds, net of offering costs.

On ~~October~~July 10, ~~2008,~~2009, the Company paid a ~~$0.20~~$0.25 per share distribution for the quarter ended ~~September~~June 30, ~~2008~~2009 to stockholders of record on ~~September~~June 26, ~~2008.~~2009. On April 10, 2009, the Company paid a $0.25 per share distribution for the quarter ended March 31, 2009 to stockholders of record on March 27, 2009.

On June 30, 2009 and March 31, 2009, the Operating Partnership paid distributions of 8.0625% per annum on the $150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units

During the six months ended June 30, 2009, we received approximately $1.0 million in proceeds from the issuance of shares of common stock through stock option exercises and the Company’s Employee Stock Purchase Plan (“ESPP”).

30, 2009. Although we anticipate increasing our regular quarterly dividend as described above, the amount, timing and form of any future dividends to our stockholders will be at the sole discretion of our Board of Directors and will depend upon numerous factors, including, but not limited to, our actual and projected results of operations and funds from operations; our actual and projected financial condition, cash flows and liquidity; our business prospects; our operating expenses; our capital expenditure requirements; our debt service requirements; restrictive covenants in our financing or other contractual arrangements; restrictions under Maryland law; our taxable income; the annual distribution requirements under the REIT provisions of the Internal Revenue Code; and such other factors as our Board of Directors deems relevant.

2008 Activity

On July 11, 2008, the Company paid a $0.20 per share distribution for the quarter ended June 30, 2008 to stockholders of record on June 27, 2008. On April 11, 2008, the Company paid a $0.20 per share distribution for the quarter ended March 31, 2008 to stockholders of record on March 28, 2008.

On ~~September 30, 2008,~~ June 30, 2008 and March 31, 2008, the Operating Partnership paid distributions of 8.0625% per annum on the $150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units

During the ~~nine~~six months ended ~~September~~June 30, 2008, we received approximately ~~$4.1~~$3.0 million in proceeds from the issuance of shares of common stock through stock option exercises and the Company’s ~~Employee Stock Purchase Plan (“ESPP”).~~

~~2007 Activity~~

The 2007 quarterly distribution per common share is $0.15 per share, up from $0.075 per share in 2006. On October 12, 2007, the Company paid a $0.15 per share distribution for the quarter ended September 30, 2007 to stockholders of record on September 28, 2007. On July 13, 2007, the Company paid a $0.15 per share distribution for the quarter ended June 30, 2007 to stockholders of record on June 29, 2007. On April 13, 2007, the Company paid a $0.15 per share distribution for the quarter ended March 31, 2007 to stockholders of record on March 30, 2007.

On September 28, 2007, June 29, 2007 and March 30, 2007, the Operating Partnership paid distributions of 8.0625% per annum on the $150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units.

~~During the nine months ended September 30, 2007, we received approximately $3.4 million in proceeds from the issuance of shares of common stock through stock option exercises and the~~ ESPP.

Inflation

Substantially all of the leases at the Properties allow for monthly or annual rent increases which provide ~~the Company~~us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the ~~risk~~risks of inflation to the Company. In addition, our resort Properties are not generally subject to leases and rents are established for these sites on an annual basis. Our right-to-use contracts generally provide for an annual dues increase, but dues may be frozen under the terms of certain contracts if the customer is over 61 years old.

4751

Funds From Operations

Funds from Operations (“FFO”) is a non-GAAP financial measure. We believe FFO, as defined by the 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 evaluating liquidity or operating performance.

FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from sales of properties, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. The Company receives up-front non-refundable payments from the sale of right-to-use contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO does not address the treatment of nonrefundable right-to-use payments, the Company believes that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO. The Company believes that FFO is helpful to investors as one of several measures of the performance of an equity 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. The Company believes that the adjustment to FFO for the net revenue deferral of upfront non-refundable payments and expense deferral of right-to-use contract commissions also facilitates the comparison to other equity REITs. Investors should review FFO, along with GAAP net income and cash flow from operating activities, investing activities and financing activities, when evaluating an equity REIT’s operating performance. The Company computes FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. FFO does not represent cash generated from operating activities in accordance with GAAP, nor does it represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

The following table presents a calculation of FFO for the quarters ended June 30, 2009 and ~~nine months ended September 30,~~ 2008 ~~and 2007~~ (amounts in thousands):


	Quarters Ended						Nine Months Ended						Quarters Ended					Six Months Ended
	September 30,						September 30,						June 30,					June 30,
	2008			2007			2008			2007			2009			2008		2009			2008
Computation of funds from operations:
Net income available for common shares	$	1,482		$	9,652		$	18,316		$	27,445		$	2,904		$	4,109	$	16,548		$	16,834
Income allocated to common OP Units		332			2,308			4,300			6,592			501			964		3,295			3,968
Right-to-use contract sales, deferred, net		4,940			—			4,940			—			5,271			—		10,434			—
Right-to-use contract commissions, deferred, net		(1,598	)		—			(1,598	)		—			(1,632	)		—		(3,125	)		—
Depreciation on real estate assets		17,132			15,901			49,664			47,232
Depreciation on real estate assets and other														17,143			16,258		34,542			32,532
Depreciation on unconsolidated joint ventures		446			354			1,349			1,088			314			311		640			903
Loss (Gain) on sale of property		—			(6,858	)		80			(11,444	)
(Gain) loss on sale of property														(803	)		39		(783	)		80

Funds from operations available for common shares	$	22,734		$	21,357		$	77,051		$	70,913		$	23,698		$	21,681	$	61,551		$	54,317


Weighted average common shares outstanding — fully diluted		30,572			30,418			30,504			30,402			30,693			30,540		30,609			30,478

~~Item 3. Quantitative and Qualitative Disclosure of Market Risk~~
Item 3. Quantitative and Qualitative Disclosure of 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 primary 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 ~~September~~June 30, ~~2008,~~2009, approximately ~~93%~~100% or approximately $1.6 billion of our outstanding debt had fixed interest rates, which minimizes the market risk until the debt matures. For each increase in interest rates of 1% (or 100 basis points), the fair value of the total outstanding debt would decrease by approximately ~~$82.9~~$88.8 million. For each decrease in interest rates of 1% (or 100 basis points), the fair value of the total outstanding debt would increase by approximately ~~$87.6~~$94.0 million.

At ~~September~~June 30, ~~2008, approximately 7% or approximately $115.7 million~~2009, none 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 and cash flows would increase/decrease by approximately $1.2 million annually.

~~Item 4. Controls and Procedures~~
Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~September~~June 30, ~~2008.~~2009. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder as of ~~September~~June 30, ~~2008.~~2009.

Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Changes in Internal Control Over Financial Reporting

As previously announced and discussed in this Form 10-Q, we acquired substantially all of the assets and certain liabilities of Privileged Access on August 14, 2008 in the PA Transaction. We are in the process of integrating the operations of Privileged Access with those of the Company and incorporating the internal controls and procedures of Privileged Access into our internal control over financial reporting. We do not expect this acquisition to materially affect our internal control over financial reporting. The Company will report on its assessment of the combined operations within the one-year time period provided by the Sarbanes-Oxley Act of 2002 and the applicable SEC rules and regulations concerning business combinations.

Excluding the operations of Privileged Access, there were no material changes in the Company’s internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2008.~~2009.

4953

Part II — Other Information

~~Item 1. Legal Proceedings~~
Item 1. Legal Proceedings

See Note 13 inof the Consolidated Financial Statements contained herein.

Item 1A. ~~Risk Factors~~
     ~~With the exception of the following there have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007.~~
~~Our Performance and Common Stock Value Are Subject to Risks Associated With the Real Estate Industry.~~
~~Adverse Economic Conditions and Other Factors Could Adversely Affect the Value of Our Properties and Our Cash Flow~~~~. Several factors may adversely affect the economic performance and value of our Properties. These factors include:~~
• ~~changes in the national, regional and local economic climate;~~
• local conditions such as an oversupply of lifestyle-oriented properties or a reduction in demand for lifestyle-oriented properties in the area, the attractiveness of our Properties to customers, competition from manufactured home communities and other lifestyle-oriented properties and alternative forms of housing (such as apartment buildings and site-built single family homes);
• the ability of our potential customers to sell their existing site-built residence in order to purchase a resort home or cottage in our properties and heightened price sensitivity for seasonal and second homebuyers.
• ~~availability and price of gasoline, especially for our transient customers.~~
• our ability to collect rent, annual payments and principal and interest from customers and pay or control maintenance, insurance and other operating costs (including real estate taxes), which could increase over time;
• the failure of our assets to generate income sufficient to pay our expenses, service our debt and maintain our Properties, which may adversely affect our ability to make expected distributions to our stockholders;
• ~~our inability to meet mortgage payments on any Property that is mortgaged, in which case the lender could foreclose on the mortgage and take the Property;~~
• ~~interest rate levels and the availability of financing, which may adversely affect our financial condition;~~
• ~~changes in laws and governmental regulations (including rent control laws and regulations governing usage, zoning and taxes), which may adversely affect our financial condition;~~
• ~~poor weather, especially on holiday weekends in the summer, could reduce the economic performance of our Northern resort Properties; and~~
• ~~our ability to sell new or upgraded right-to-use contracts and to retain customers who have previously purchased a right-to-use contract.~~Risk Factors
~~New Acquisitions May Fail to Perform as Expected and Competition for Acquisitions May Result in Increased Prices for Properties~~. We intend to continue to acquire properties. Newly acquired Properties may fail to perform as expected. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management attention. Additionally, we expect that other real estate investors with significant capital will compete with us for attractive investment opportunities. These competitors include publicly traded REITs, private REITs and other types of investors. Such competition increases prices for properties. We expect to acquire properties with cash from secured or unsecured financings, proceeds from offerings of equity or debt, undistributed
50
~~funds from operations and sales of investments. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.~~
~~Because Real Estate Investments Are Illiquid, We May Not be Able to Sell Properties When Appropriate~~. Real estate investments generally cannot be sold quickly. We may not be able to vary our portfolio promptly in response to economic or other conditions, forcing us to accept lower than market value. This inability to respond promptly to changes in the performance of our investments could adversely affect our financial condition and ability to service debt and make distributions to our stockholders.
~~Some Potential Losses Are Not Covered by Insurance.~~We carry comprehensive insurance coverage for losses resulting from property damage, liability claims and business interruption on all of our Properties. We believe the policy specifications and coverage limits of these policies are adequate and appropriate. There are, however, certain types of losses, such as lease and other contract claims that generally are not insured. Should an uninsured loss or a loss in excess of coverage limits occur, we could lose all or a portion of the capital we have invested in a Property, as well as the anticipated future revenue from the Property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the Property.
Our property and casualty insurance policies, which expired on March 31, 2008, were renewed for a one-year term. While the property program maintained an overall $100 million limit, the California Earthquake sublimit was increased from $10 million to $25 million. The policy deductibles range from $100,000 to five percent of insurable values specifically for named storms, Florida wind, and earthquakes. A deductible indicates ELS’ maximum exposure in event of a loss within policy limit.
There can be no assurance that the actions of the U.S. government, Federal Reserve and other governmental and regulatory bodies for the purpose of stabilizing the financial markets, or market response to those actions, will achieve the intended effect, our business may not benefit from and may be adversely impacted by these actions and further government or market developments could adversely impact us. In response to the financial issues affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the Emergency Economic Stabilization Act of 2008 (the “EESA”), was recently enacted. The EESA provides the U.S. Secretary of Treasury with the authority to establish a Troubled Asset Relief Program (“TARP”), to purchase from financial institutions up to $700 billion of residential or commercial mortgages and any securities, obligations, or other instruments that are based on, or related to, such mortgages, that in each case was originated or issued on or before March 14, 2008, as well as any other financial instrument that the U.S. Secretary of Treasury, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, upon transmittal of such determination, in writing, to the appropriate committees of the U.S. Congress. In addition, the U.S. Secretary of Treasury has the authority to establish a program to guarantee, upon request from a financial institution, the timely payment of principal and interest on these financial assets.
These can be no assurance that the EESA will have a beneficial impact on the financial markets, including current extreme levels of volatility. To the extent the market does not respond favorably to the TARP or the TARP does not function as intended, our business may not receive the anticipated positive impact from the legislation. In addition, the U.S. Government, Federal Reserve and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis. We cannot predict whether or when such actions may occur or what impact, if any, such actions could have on our business, results of operations and financial condition.
~~Campground Membership Properties Laws and Regulations Could Adversely Affect the Value of Our Properties and Our Cash Flow.~~
Many of the states in which the Company does business have laws regulating right-to-use or campground membership sales. These laws generally require comprehensive disclosure to prospective purchasers, and give purchasers the right to rescind their purchase for three-to-five days after the date of sale. Some states have laws requiring the Company to register with a state agency and obtain a permit to market. The Company is subject to changes, from time to time, in the application or interpretation of such laws that can affect its business or the rights of its members.
51
In some states, including California, Oregon and Washington, laws place limitations on the ability of the owner of a campground property to close the property unless the customers at the property receive access to a comparable property. The impact of the rights of customers under these laws is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company to realize recoveries from asset sales.
The government authorities regulating the Company’s activities have broad discretionary power to enforce and interpret the statutes and regulations that they administer, including the power to enjoin or suspend sales activities, require or restrict construction of additional facilities and revoke licenses and permits relating to business activities. The Company monitors its sales and marketing programs and debt collection activities to control practices that might violate consumer protection laws and regulations or give rise to consumer complaints.
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction may affect the Company’s portfolio of contracts receivable. Examples of such laws include state and federal consumer credit and truth-in-lending laws requiring the disclosure of finance charges, and usury and retail installment sales laws regulating permissible finance charges.
In certain states, as a result of government regulations and provisions in certain of the right-to-use or campground membership agreements, the Company is prohibited from selling more than ten memberships per site. At the present time, these restrictions do not preclude the Company from selling memberships in any state. However, these restrictions may limit the Company’s ability to utilize properties for public usage and/or the Company’s ability to convert sites to more profitable uses, such as annual rentals.
~~Interpretation of and Changes to Accounting Policies and Standards Could Adversely Affect Our Reported Financial Results.~~
Our Accounting Policies and Methods Are the Basis on Which We Report Our Financial Condition and Results of Operations, and They May Require Management to Make Estimates About Matters that Are Inherently Uncertain.Our accounting policies and methods are fundamental to the manner in which we record and report our financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure that they comply with generally accepted accounting principles and reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in reporting materially different amounts than would have been reported under a different alternative.
One policy critical to the presentation of our financial condition and results of operations in 2008 is our policy related to Privileged Access. From April 14, 2006 through August 13, 2008, Privileged Access was our largest tenant and leased 82 resort Properties from us. Effective January 1, 2008, the previous 100 percent owner of Privileged Access, Mr. Joe McAdams, became our President and we amended and restated the leases for the Properties. Under generally accepted accounting principles, effective January 1, 2008, Mr. McAdams, Privileged Access and the Company are considered related parties. Due to the materiality of the leasing arrangement and the related party nature of the arrangement, the Company analyzed whether the operations of Privileged Access should be consolidated with ours. We determined under FIN 46 that it would not be appropriate to consolidate Privileged Access as we do not control Privileged Access and are not the primary beneficiary of Privileged Access. This conclusion required management to make certain judgments. As a result of the complex nature of the arrangements, on February 15, 2008, we submitted a letter to the Office of the Chief Accountant at the SEC describing the relationship and asking for the SEC’s concurrence with our conclusions that we should not consolidate the operations of Privileged Access. The SEC did not object to the Company’s conclusions as described in the letter.
~~Our Accounting Policies for the Sale of Right-To-Use Contracts Will Result in a Substantial Deferral of Revenue in our Financial Results.~~Beginning August 14, 2008, the Company began selling right-to-use contracts after the PA Transaction. Customers who purchase right-to-use contracts are generally required to make an upfront nonrefundable payment to the Company. The Company incurs significant selling and marketing expenses to originate the right-to-use contracts, and the majority of expenses must be expensed in the period incurred, while the related sales revenues are generally deferred and recognized over the expected life of the contract which is estimated based upon historical attrition rates. The expected life of a right-to-use contract is currently estimated to be between one and 31 years. As a result, the Company may incur a loss from the sale of right-to-use contracts, build up a
52
substantial deferred sales revenue liability balance, and recognize substantial non-cash revenue in years subsequent to the original sale. This accounting may make it difficult for investors to interpret the financial results from the sale of right-to-use contracts. The Company submitted correspondence to the Office of the Chief Accountant at the SEC describing the right-to-use contracts and subsequently discussed the revenue recognition policy with respect to the contracts with the SEC. The SEC does not object to the Company’s application of SAB 104 with respect to the deferral of the upfront nonrefundable payments received from the sale of right-to-use contracts. See Note 1(l) in the Notes to Consolidated Financial Statements contained in this Form 10-Q for the Company’s revenue recognition policy.
~~Changes in Accounting Standards Could Adversely Affect Our Reported Financial Results.~~The bodies that set accounting standards for public companies, including the Financial Accounting Standards Board (“FASB”), the SEC and others, periodically change or revise existing interpretations of the accounting and reporting standards that govern the way that we report our financial condition and results of operations. These changes can be difficult to predict and can materially impact our reported financial results. In some cases, we could be required to apply a new or revised accounting standard, or a revised interpretation of an accounting standard, retroactively, which could have a negative impact on reported results or result in the restatement of our financial statements for prior periods.
~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~
     None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     None~~Item 3. Defaults Upon Senior Securities~~.
Item 3. Defaults Upon Senior Securities
     None.
~~Item 4.~~
Item 4. Submission of Matters to a Vote of Security Holders
     The Company held its Annual Meeting of ~~Matters~~Stockholders on May 12, 2009. Stockholders holding 23,514,352 Common Shares (being the only class of shares entitled to ~~a Vote~~vote at the meeting), or 93.2%, of ~~Security Holders~~the Company’s 25,233,184 outstanding Common Shares as of the record date for the meeting, attended the meeting or were represented by proxy. The Company’s shareholders voted on two matters presented at the meeting, which received the requisite number of votes to pass. The results of the stockholders’ votes were as follows:
Proposal No. 1: Election of eight directors to terms expiring in 2010. A plurality of the votes cast was required for the election of directors.

DIRECTOR FOR WITHHELD
Philip C. Calian 23,423,518 90,835
David J. Contis 23,421,313 93,039
Thomas E. Dobrowski 23,303,297 211,056
Thomas P. Heneghan 23,329,915 184,438
Sheli Z. Rosenberg 23,155,525 358,828
Howard Walker 23,224,802 289,551
Gary L. Waterman 23,340,169 174,184
Samuel Zell 22,463,473 1,050,879
Proposal No. 2: Approval to ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2009. A majority of the votes cast was required for approval.

FOR AGAINST ABSTAIN
Total Shares_(a)
23,249,361 262,759 2,232
% of Voted Shares 98.87 % 1.12 % 0.01 %
% of Outstanding Shares 98.87 % 1.12 % 0.01 %
_(a) Broker non-votes were zero.
Item 5. Other Information
None.
54
~~Item 5. Other Information~~
     ~~None.~~
~~Item 6. Exhibits~~
Item 6. Exhibits

~~10.43(a)~~4.1(a) Amended and Restated 8.065% Series D Cumulative Redeemable Perpetual Preference Units Term Sheet and Joinder to the Second Amended and Restated Agreement of Limited Partnership
4.2(a) 7.95% Series F Cumulative Redeemable Perpetual Preference Units Term Sheet and Joinder to Second Amended and Restated Agreement of Limited Partnership
4.3(a) Form of ~~Trust Agreement Establishing Howard Walker Deferred Compensation Trust, dated December 8, 2000~~specimen stock certificate evidencing the common stock of the Company, par value $.01 per share
31.1 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
~~32.2~~ Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
32.2 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
10.44(b) Underwriting Agreement, dated June 23, 2009

(a) Included as an exhibit to the Company’s Registration Statement on Form S-3 ASR dated May 6, 2009
(b) Included as an exhibit to the Company’s Current Report on Form 8-K dated ~~December 8, 2000 and filed on September 25, 2008.~~June 23, 2009
5355
SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

EQUITY LIFESTYLE PROPERTIES, INC.

Date: ~~November~~August 10, ~~2008~~2009 By:   /s/ Thomas P. Heneghan
Thomas P. Heneghan
Chief Executive Officer
(Principal executive officer)

Date: ~~November~~August 10, ~~2008~~2009 By:   /s/ Michael B. Berman
Michael B. Berman
Executive Vice President and Chief Financial Officer
(Principal financial and accounting officer)
5456


			Page

Consolidated Balance Sheets as of ~~September~~June 30, ~~2008~~2009 (unaudited) and December 31, ~~2007~~2008		3

Consolidated Statements of Operations for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (unaudited)		4

Consolidated Statements of Changes in Equity for the six months ended June 30, 2009 (unaudited)	6

Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2008~~2009 and ~~2007~~2008 (unaudited)		6

Notes to Consolidated Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			31	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			49	53

Item 4.Controls and Procedures	53

~~Item 4.~~			~~Controls and Procedures~~			49

Part II — Other Information

Item 1.Legal Proceedings	54

Item 1.1A.	~~Legal Proceedings~~Risk Factors			50	54

~~Item 1A.~~	~~Risk Factors~~			50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			53	54

Item 3.	Defaults Upon Senior Securities			53	54

Item 4.	Submission of Matters to a Vote of Security Holders			53	54

Item 5.Other Information	54

~~Item 5.~~	~~Other Information~~			53

Item 6.	Exhibits			53	55
EX-31.1
EX-31.2
EX-32.1
EX-32.2


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations


Property	Transaction Date	Sites
Total Sites as of January 1, 2008			112,779

Property or Portfolio (# of Properties in parentheses):
Grandy Creek (1)	January 14, 2008		179
Lake George Schroon Valley Resort (1)	January 23, 2008		151

Expansion Site Development and other:
Sites added (reconfigured) in 2008			71
Sites added (reconfigured) in 2009			(3	)

Dispositions:
Morgan Portfolio JV (5)	2008		(1,134	)
Round Top JV (1)	February 13, 2009		(319	)
Pine Haven JV (1)	February 13, 2009		(625	)
Caledonia (1)	April 17, 2009		(247	)


Total Sites as of June 30, 2009			110,852


(1)		Includes third party home sales of 18three and 1421 for the quarters ending ~~September~~June 30, 2009 and 2008, respectively.

(2)		Includes third party home sales of three and ~~2007,~~one for the quarters ending June 30, 2009 and 2008, respectively.


(1)		Approximately ~~$2.2~~$2.9 million and ~~$1.4~~$2.0 million ~~as of September~~for the quarters ended June 30, ~~2008~~2009 and ~~2007,~~2008, respectively, are included in Community base rental income in the Property Operations table.


₍₁₎		Balance excludes net premiums and discounts of ~~$1.8~~$0.1 million.

₍₂₎		~~As noted above, approximately $64.1 million of these amounts were maturing mortgages paid off in October 2008.~~

₍₃₎		~~Includes lines of credit repayments in 2010 of $115.7 million. We have an option to extend this maturity for one year to 2011.~~


Item 3.		Quantitative and Qualitative Disclosure of Market Risk