UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-11718
EQUITY LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 36-3857664
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
(312) 279-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:____
Common Stock, $.01 Par Value New York Stock Exchange
(Title of Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non- accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of voting stock held by non-affiliates was
approximately $883.2 million as of June 30, 2005 based upon the closing price of
$39.76 on such date using beneficial ownership of stock rules adopted pursuant
to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock
owned by Directors and Officers, some of whom may not be held to be affiliates
upon judicial determination.
At February 20, 2006, 23,494,218 shares of the Registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference the Registrant's Proxy Statement relating to
the Annual Meeting of Stockholders to be held on May 3, 2006.
EQUITY LIFESTYLE PROPERTIES, INC.
TABLE OF CONTENTS
Page
----
PART I.
Item 1. Business................................................... 3
Item 1A. Risk Factors............................................... 8
Item 1B. Unresolved Staff Comments.................................. 12
Item 2. Properties................................................. 13
Item 3. Legal Proceedings.......................................... 18
Item 4. Submission of Matters to a Vote of Security Holders........ 20
PART II.
Item 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities................................................. 21
Item 6. Selected Financial Data.................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk....................................................... 42
Forward-Looking Statements................................. 43
Item 8. Financial Statements and Supplementary Data................ 44
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 44
Item 9A. Controls and Procedures.................................... 44
Item 9B. Other Information.......................................... 44
PART III.
Item 10. Directors and Executive Officers of the Registrant......... 45
Item 11. Executive Compensation..................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 45
Item 13. Certain Relationships and Related Transactions............. 45
Item 14. Principal Accountant Fees and Services..................... 45
PART IV.
Item 15. Exhibits and Financial Statement Schedules................. 46
2
PART I
ITEM 1. BUSINESS
EQUITY LIFESTYLE PROPERTIES, INC.
GENERAL
Equity LifeStyle Properties, Inc., a Maryland corporation, together with
MHC Operating Limited Partnership (the "Operating Partnership") and other
consolidated subsidiaries ("Subsidiaries"), is referred to herein as the
"Company," "ELS," "we," "us," and "our". The Company is a fully integrated 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"). 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 December 31, 2005, we owned or had an ownership interest in a
portfolio of 285 Properties located throughout the United States and Canada
containing 106,337 residential sites. These Properties are located in 28 states
and British Columbia (with the number of Properties in each state or province
shown parenthetically) - Florida (84), California (47), Arizona (35), Texas
(16), Washington (13), Colorado (10), Oregon (9), Delaware (7), Indiana (7),
Pennsylvania (7), Nevada (6), North Carolina (6), Wisconsin (5), Maine (4), New
York (4), Virginia (4), Illinois (3), Michigan (2), New Jersey (2), Ohio (2),
South Carolina (2), Tennessee (2), Utah (2), Iowa (1), Massachusetts (1),
Montana (1), New Hampshire (1), New Mexico (1), and British Columbia (1).
Properties are designed and improved for several home options of various
sizes and designs that are produced off-site, installed and set on designated
sites ("Site Set") within the Properties. These homes can range from 400 to over
2,000 square feet. The smallest of these are referred to as "Resort Cottages".
Properties may also have sites that can accommodate a variety of RVs. Properties
generally contain centralized entrances, internal road systems and designated
sites. In addition, Properties often provide a clubhouse for social activities
and recreation and other amenities, which may include restaurants, swimming
pools, golf courses, lawn bowling, shuffleboard courts, tennis courts, laundry
facilities and cable television service. In some cases, utilities are provided
or arranged for by us; otherwise, the customer contracts for the utility
directly. Some Properties provide water and sewer service through municipal or
regulated utilities, while others provide these services to customers from
on-site facilities. Properties generally are designed to attract retirees,
empty-nesters, vacationers and second home owners; however, certain of the
Properties focus on affordable housing for families. We focus on owning
properties in or near large metropolitan markets and retirement and vacation
destinations.
EMPLOYEES AND ORGANIZATIONAL STRUCTURE
We have approximately 1,500 full-time, part-time and seasonal employees
dedicated to carrying out our operating philosophy and strategies of value
enhancement and service to our customers. The operations of each Property are
coordinated by an on-site team of employees that typically includes a manager,
clerical and maintenance workers, each of whom works to provide maintenance and
care of the Properties. Direct supervision of on-site management is the
responsibility of our regional vice presidents and regional and district
managers. These individuals have significant experience in addressing the needs
of customers and in finding or creating innovative approaches to maximize value
and increase cash flow from property operations. Complementing this field
management staff are approximately 80 full-time corporate employees who assist
on-site management in all property functions.
FORMATION OF THE COMPANY
We originally incorporated as Manufactured Home Communities, Inc. in
Maryland in December 1992 and completed an initial public offering in March
1993. On November 16, 2004, we changed our name to Equity LifeStyle Properties,
Inc.
The operations of the Company are conducted primarily through the Operating
Partnership. The Company contributed the proceeds from its initial public
offering and subsequent offerings to the Operating Partnership for a general
partnership interest. In 2004, the general partnership interest was contributed
to MHC Trust (see Note 4 of the Notes to Consolidated Financial Statements
contained in this Form 10-K). The financial results of the Operating Partnership
and the Subsidiaries are consolidated in the Company's consolidated financial
statements. In addition, since certain activities, if performed by the Company,
may not be qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has formed taxable REIT subsidiaries as
defined in the Code to engage in such activities.
Several Properties are wholly owned by taxable REIT subsidiaries of the
Company. In addition, Realty Systems, Inc. ("RSI") is a wholly owned taxable
REIT subsidiary of the Company that is engaged in the business of purchasing,
selling and leasing site set homes that are located in Properties owned and
managed by the Company. RSI also provides brokerage services to residents at
such Properties for those residents who move from a Property but do not relocate
their homes. RSI may provide brokerage services, in competition with other local
brokers, by seeking buyers for the site set homes. RSI also
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leases inventory homes to prospective residents with the expectation that the
tenant eventually will purchase the home. Subsidiaries of RSI also lease from
the Operating Partnership certain real property within or adjacent to certain
Properties consisting of golf courses, pro shops, stores and restaurants.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
Our strategy seeks to maximize both current income and long-term growth in
income. We focus on Properties that have strong cash flow and we expect to hold
such Properties for long-term investment and capital appreciation. In
determining cash flow potential, we evaluate our ability to attract and retain
high quality customers in our Properties who take pride in the Property and in
their home. These business objectives and their implementation are determined by
our Board of Directors and may be changed at any time. Our investment, operating
and financing approach includes:
- Providing consistently high levels of services and amenities in
attractive surroundings to foster a strong sense of community and
pride of home ownership;
- Efficiently managing the Properties to increase operating margins by
controlling expenses, increasing occupancy and maintaining competitive
market rents;
- Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
- Utilizing management information systems to evaluate potential
acquisitions, identify and track competing properties and monitor
customer satisfaction;
- Selectively acquiring Properties that have potential for long-term
cash flow growth and to create property concentrations in and around
major metropolitan areas and retirement or vacation destinations to
capitalize on operating synergies and incremental efficiencies; and
- Managing our debt balances such that we maintain financial
flexibility, minimize exposure to interest rate fluctuations, and
maintain an appropriate degree of leverage to maximize return on
capital.
Our strategy is to own and operate the highest quality properties in
sought-after locations near urban areas, retirement and vacation destinations
across the United States. We focus on creating an attractive residential
environment by providing a well-maintained, comfortable Property with a variety
of organized recreational and social activities and superior amenities as well
as offering a multitude of lifestyle housing choices. In addition, we regularly
conduct evaluations of the cost of housing in the marketplaces in which our
Properties are located and survey rental rates of competing properties. From
time to time we also conduct satisfaction surveys of our customers to determine
the factors they consider most important in choosing a property.
ACQUISITIONS AND DISPOSITIONS
Over the last decade our portfolio of Properties has grown significantly
from owning or having an interest in 65 Properties with over 25,000 sites to
owning or having an interest in 285 Properties with over 106,000 sites. We
continually review the Properties in our portfolio to ensure that they fit our
business objectives. Over the last five years we sold 32 Properties, and we
redeployed capital to markets we believe have greater long-term potential. In
that same time period we acquired 162 Properties located in high growth areas
such as Florida, Arizona and California. We believe that opportunities for
property acquisitions are still available. Increasing acceptability of and
demand for a lifestyle that includes Site Set homes and RVs as well as continued
constraints on development of new properties continue to add to their
attractiveness as an investment. We believe we have a competitive advantage in
the acquisition of additional properties due to our experienced management,
significant presence in major real estate markets and substantial capital
resources. We are actively seeking to acquire additional properties and are
engaged in various stages of negotiations relating to the possible acquisition
of a number of properties.
We anticipate that new acquisitions will generally be located in the United
States, although we may consider other geographic locations provided they meet
our acquisition criteria. We utilize market information systems to identify and
evaluate acquisition opportunities, including a market database to review the
primary economic indicators of the various locations in which we expect to
expand our operations. Acquisitions will be financed from the most appropriate
sources of capital, which may include undistributed funds from operations,
issuance of additional equity securities, sales of investments, collateralized
and uncollateralized borrowings and issuance of debt securities. In addition,
the Operating Partnership may issue units of limited partnership interest
("Units") to finance acquisitions. We believe that an ownership structure that
includes the Operating Partnership will permit us to acquire additional
properties in transactions that may defer all or a portion of the sellers' tax
consequences.
4
When evaluating potential acquisitions, we consider such factors as:
- The replacement cost of the property including land values,
entitlements and zoning,
- The geographic area and type of the property,
- The location, construction quality, condition and design of the
property,
- The current and projected cash flow of the property and the ability to
increase cash flow,
- The potential for capital appreciation of the property,
- The terms of tenant leases or usage rights, including the potential
for rent increases,
- The potential for economic growth and the tax and regulatory
environment of the community in which the property is located,
- The potential for expansion of the physical layout of the property and
the number of sites,
- The occupancy and demand by customers for properties of a similar type
in the vicinity and the customers' profile,
- The prospects for liquidity through sale, financing or refinancing of
the property, and
- The competition from existing properties and the potential for the
construction of new properties in the area.
When evaluating potential dispositions, we consider such factors as:
- The ability to sell the Property at a price that we believe will
provide an appropriate return for our stockholders,
- Our desire to exit certain non-core markets and recycle the capital
into core markets, and
- Whether the Property meets our current investment criteria.
When investing capital we consider all potential uses of the capital
including returning capital to our stockholders. As a result, during 1999 and
2000 we implemented a stock repurchase program, and our Board of Directors
continues to review the conditions under which we will repurchase our stock.
These conditions include, but are not limited to, market price, balance sheet
flexibility, other opportunities and capital requirements. On January 16,
2004, we paid a special dividend of $8.00 per share using proceeds from a
recapitalization (see Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financing Activities).
PROPERTY EXPANSIONS
Several of our Properties have available land for expanding the number of
sites available to be utilized by our customers. Development of these sites
("Expansion Sites") is predicated upon local market conditions and zoning and
other applicable laws. When justified, development of Expansion Sites allows us
to leverage existing facilities and amenities to increase the income generated
from the Properties. Where appropriate, facilities and amenities may be upgraded
or added to certain Properties to make those Properties more attractive in their
markets. Our acquisition philosophy has included the desire to own Properties
with potential Expansion Site development. Approximately 80 of our Properties
have expansion potential, including 3,000 acres available for expansion at our
Thousand Trails Properties.
LEASES OR USAGE RIGHTS
At our Properties, a typical lease entered into between the owner of a home
and the Company for the rental of a site is for a month-to-month or year-to-year
term, renewable upon the consent of both parties or, in some instances, as
provided by statute. These leases are cancelable, depending on applicable law,
for non-payment of rent, violation of Property rules and regulations or other
specified defaults. Non-cancelable long-term leases, with remaining terms
ranging up to ten years, are in effect at certain sites within 25 of the
Properties. Some of these leases are subject to rental rate increases based on
the Consumer Price Index ("CPI"), in some instances taking into consideration
certain floors and ceilings and allowing for pass-throughs of certain items such
as real estate taxes, utility expenses and capital expenditures. Generally,
market rate adjustments are made on an annual basis. At resort-oriented
Properties, long-term customers typically enter into right to use agreements and
many typically prepay for their stay. Many resort customers will also leave
deposits to reserve a site for the following year. Generally these customers
cannot live full time on the Property.
REGULATIONS AND INSURANCE
General. Our Properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, clubhouses and other common areas. We believe that each Property
has the necessary permits and approvals to operate.
Rent Control Legislation. At certain of our Properties, state and local
rent control laws, principally in California, limit our ability to increase
rents and to recover increases in operating expenses and the costs of capital
improvements. Enactment of such laws has been considered from time to time in
other jurisdictions. We presently expect to continue to maintain Properties, and
may purchase additional properties, in markets that are either subject to rent
control or in which rent-limiting legislation exists or
5
may be enacted. For example, Florida has enacted a law that generally provides
that rental increases must be reasonable. Also, certain jurisdictions in
California in which we own Properties limit rent increases to changes in the CPI
or some percentage thereof. As part of our effort to realize the value of our
Properties subject to restrictive regulation, we have initiated lawsuits against
several municipalities imposing such regulation in an attempt to balance the
interests of our stockholders with the interests of our customers (see Item 3 -
Legal Proceedings).
Insurance. We believe that the Properties are covered by adequate fire,
flood, property, earthquake and business interruption insurance (where
appropriate) provided by reputable companies and with commercially reasonable
deductibles and limits. Due to the lack of available commercially reasonable
coverage, we are self-insured for terrorism incidents at substantially all of
our Properties. We believe our insurance coverage is adequate based on our
assessment of the risks to be insured, the probability of loss and the relative
cost of available coverage. We have obtained insurance insuring good title to
the Properties in an aggregate amount that we believe to be adequate.
Approximately 70 Florida Properties suffered damage from the four
hurricanes that struck the state during August and September 2004. As of
February 23, 2006, approximately $19.4 million of claims, including business
interruption, have been submitted to our insurance companies for reimbursement.
As of December 31, 2005, we made total expenditures of approximately $11.9
million and expect to incur additional expenditures to complete the work
necessary to restore our Properties to their pre-hurricanes condition. We
received proceeds from insurance carriers of approximately $2.6 million as of
December 31, 2005. We have reserved approximately $2.0 million related to these
expenditures ($0.7 million in 2005 and $1.3 million in 2004). Approximately $3.4
million of these expenditures have been capitalized per our capitalization
policy as of December 31, 2005. Approximately $3.9 million is included in other
assets as a receivable from insurance providers as of December 31, 2005, and
approximately $5.9 million was included in other assets as of December 31, 2004.
In 2005, we reduced the book value of our assets by approximately $1.0
million due to damage caused by the 2004 storms. We received insurance proceeds
of approximately $0.8 million relating to other matters. Both of these items
were recorded in income from other investments, net.
During the fourth quarter of 2005 we spent approximately $1.3 million on
Properties located in South Florida impacted by Hurricane Wilma to get them
operationally ready for the season. This amount has been charged to operations
in 2005. We are still evaluating the total costs we expect to incur and are
preparing our insurance claim.
INDUSTRY
We believe that modern properties similar to ours provide an opportunity
for increased cash flows and appreciation in value. These may be achieved
through increases in occupancy rates and rents, as well as expense controls,
expansion of existing Properties and opportunistic acquisitions, for the
following reasons:
- Barriers to Entry: We believe that the supply of new properties in
locations targeted by the Company will be constrained due to barriers
to entry. The most significant barrier has been the difficulty of
securing zoning from local authorities. This has been the result of
(i) the public's historically poor perception of manufactured housing,
and (ii) the fact that properties generate less tax revenue because
the homes are treated as personal property (a benefit to the
homeowner) rather than real property. Another factor that creates
substantial barriers to entry is the length of time between investment
in a property's development and the attainment of stabilized occupancy
and the generation of revenues. The initial development of the
infrastructure may take up to two or three years. Once a property is
ready for occupancy, it may be difficult to attract customers to an
empty property. Substantial occupancy levels may take several years to
achieve.
- Industry Consolidation: According to various industry reports, there
are approximately 65,000 properties in the United States, and
approximately 10% or approximately 6,000 of the properties have more
than 200 sites and would be considered investment-grade. We believe
that this relatively high degree of fragmentation provides us, as a
national organization with experienced management and substantial
financial resources, the opportunity to purchase additional
properties.
- Customer Base: We believe that properties tend to achieve and maintain
a stable rate of occupancy due to the following factors: (i) customers
typically own their own homes, (ii) properties tend to foster a sense
of community as a result of amenities such as clubhouses and
recreational and social activities, (iii) since moving a Site Set home
from one property to another involves substantial cost and effort,
customers often sell their home in-place (similar to site-built
residential housing) with no interruption of rental payments to us.
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- Lifestyle Choice: According to the Recreational Vehicle Industry
Association, nearly 1 in 12 U.S. vehicle-owning households owns an RV.
The 80 million people born from 1945 to 1964 or "baby boomers" make up
the fastest growing segment of this market. Everyday 11,000 Americans
turn 50 according to U.S. Census figures. We believe that this
population segment, seeking an active lifestyle, will provide
opportunities for future cash flow growth for the Company. Current RV
owners, once finished with the more active RV lifestyle, will often
seek more permanent retirement or vacation establishments. The Site
Set housing choice has become an increasingly popular housing
alternative for retirement, second-home, and "empty-nest" living.
According to a Fannie Mae survey, the baby-boom generation will
constitute 18% of the U.S. population within the next 30 years and
more than 32 million people will reach age 55 within the next ten
years. Among those individuals who are nearing retirement (age 40 to
54), approximately 33% plan on moving upon retirement.
We believe that the housing choices in our Properties are especially
attractive to such individuals throughout this lifestyle cycle. Our
Properties offer an appealing amenity package, close proximity to
local services, social activities, low maintenance and a secure
environment. In fact, many of our Properties allow for this cycle to
occur within a single Property.
- Construction Quality: Since 1976, all factory built housing has been
required to meet stringent federal standards, resulting in significant
increases in quality. The Department of Housing and Urban
Development's ("HUD") standards for Site Set housing construction
quality are the only federally regulated standards governing housing
quality of any type in the United States. Site Set homes produced
since 1976 have received a "red and silver" government seal certifying
that they were built in compliance with the federal code. The code
regulates Site Set home design and construction, strength and
durability, fire resistance and energy efficiency, and the
installation and performance of heating, plumbing, air conditioning,
thermal and electrical systems. In newer homes, top grade lumber and
dry wall materials are common. Also, manufacturers are required to
follow the same fire codes as builders of site-built structures. In
addition, although Resort Cottages do not come under the same
regulation, many of the manufacturers of Site Set homes also produce
Resort Cottages with many of the same quality standards.
- Comparability to Site-Built Homes: The Site Set housing industry has
experienced a trend towards multi-section homes. Many modern Site Set
homes are longer (up to 80 feet, compared to 50 feet in the 1960's)
and wider than earlier models. Many such homes have nine-foot ceilings
or vaulted ceilings, fireplaces and as many as four bedrooms, and
closely resemble single-family ranch style site-built homes.
- Second Home Demographics: According to the 2005 National Association
of Realtors ("NAR") report, sales of second homes in 2004 rose 16.3%
from 2003 to a total of 2.82 million units. Of the 2.82 million second
home units sold in 2004, 1.02 million were vacation home sales, a
19.8% increase from the previous year. There were approximately 6.6
million vacation homes owned in 2003. The typical vacation-home buyer
is 55 years old and earned $71,000 in 2003. Approximately 76% of
vacation home-owners prefer to be near an ocean, river or lake; 38%
close to mountains or other natural attractions, and 37% in a specific
vacation area. In looking ahead, NAR believes that baby boomers are
still in their peak earning years, and the leading edge of their
generation is approaching retirement. As they continue to have the
financial wherewithal to purchase second homes as a vacation property,
investment opportunity, or perhaps as a retirement retreat, those baby
boomers will continue to drive the market for second-homes. It is
likely that over the next decade we will continue to see historically
high levels of second home sales.
AVAILABLE INFORMATION
We file reports electronically with the Securities and Exchange Commission
("SEC"). The public may read and copy any materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy information and statements, and other information
regarding issuers that file electronically with the SEC at http://www.sec.gov.
We maintain an Internet site with information about the Company and hyperlinks
to our filings with the SEC at http://www.equitylifestyle.com. Requests for
copies of our filings with the SEC and other investor inquiries should be
directed to:
Investor Relations Department
Equity LifeStyle Properties, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Phone: 1-800-247-5279
e-mail: investor_relations@mhchomes.com
7
ITEM 1A. RISK FACTORS
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);
- - our ability to collect rent from customers and pay 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; and
- - changes in laws and governmental regulations (including rent control laws
and regulations governing usage, zoning and taxes), which may adversely
affect our financial condition.
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 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
liability, fire, extended coverage and rental loss insurance on all of our
Properties. We believe the policy specifications and insured 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 insured 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.
DEBT FINANCING, FINANCIAL COVENANTS AND DEGREE OF LEVERAGE COULD ADVERSELY
AFFECT OUR ECONOMIC PERFORMANCE.
Scheduled Debt Payments Could Adversely Affect Our Financial Condition. Our
business is subject to risks normally associated with debt financing. The total
principal amount of our outstanding indebtedness was approximately $1.6 billion
as of December 31, 2005. Our substantial indebtedness and the cash flow
associated with serving our indebtedness could have important consequences,
including the risks that:
8
- - our cash flow could be insufficient to pay distributions at expected levels
and meet required payments of principal and interest;
- - we will be required to use a substantial portion of our cash flow from
operations to pay our indebtedness, thereby reducing the availability of
our cash flow to fund the implementation of our business strategy,
acquisitions, capital expenditures and other general corporate purposes;
- - our debt service obligations could limit our flexibility in planning for,
or reacting to, changes in our business and the industry in which we
operate;
- - we may not be able to refinance existing indebtedness (which in virtually
all cases requires substantial principal payments at maturity) and, if we
can, the terms of such refinancing might not be as favorable as the terms
of existing indebtedness;
- - if principal payments due at maturity cannot be refinanced, extended or
paid with proceeds of other capital transactions, such as new equity
capital, our cash flow will not be sufficient in all years to repay all
maturing debt; and
- - if prevailing interest rates or other factors at the time of refinancing
(such as the possible reluctance of lenders to make commercial real estate
loans) result in higher interest rates, increased interest expense would
adversely affect cash flow and our ability to service debt and make
distributions to stockholders.
Financial Covenants Could Adversely Affect Our Financial Condition. If a
Property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the mortgagee could foreclose on the Property, resulting
in loss of income and asset value. The mortgages on our Properties contain
customary negative covenants which, among other things, limit our ability,
without the prior consent of the lender, to further mortgage the Property and to
discontinue insurance coverage. In addition, our credit facilities contain
certain customary restrictions, requirements and other limitations on our
ability to incur indebtedness, including total debt to assets ratios, debt
service coverage ratios and minimum ratios of unencumbered assets to unsecured
debt. Foreclosure on mortgaged Properties or an inability to refinance existing
indebtedness would likely have a negative impact on our financial condition and
results of operations.
Our Degree of Leverage Could Limit Our Ability to Obtain Additional Financing.
Our debt to market capitalization ratio (total debt as a percentage of total
debt plus the market value of the outstanding common stock and Units held by
parties other than the Company) is approximately 56% as of December 31, 2005.
The degree of leverage could have important consequences to stockholders,
including an adverse effect on our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, development or
other general corporate purposes, and makes us more vulnerable to a downturn in
business or the economy generally.
WE DEPEND ON OUR SUBSIDIARIES' DIVIDENDS AND DISTRIBUTIONS.
Substantially all of our assets are indirectly held through the Operating
Partnership. As a result, we have no source of operating cash flow other than
from distributions from the Operating Partnership. Our ability to pay dividends
to holders of common stock depends on the Operating Partnership's ability first
to satisfy its obligations to its creditors and make distributions payable to
third party holders of its preferred Units and then to make distributions to MHC
Trust and common Unit holders. Similarly, MHC Trust must satisfy its obligations
to its creditors and preferred shareholders before making common stock
distributions to us.
STOCKHOLDERS' ABILITY TO EFFECT CHANGES OF CONTROL OF THE COMPANY IS LIMITED.
Provisions of Our Charter and Bylaws Could Inhibit Changes of Control. Certain
provisions of our charter and bylaws may delay or prevent a change of control of
the Company or other transactions that could provide our stockholders with a
premium over the then-prevailing market price of their common stock or which
might otherwise be in the best interest of our stockholders. These include the
Ownership Limit described below. Also, any future series of preferred stock may
have certain voting provisions that could delay or prevent a change of control
or other transaction that might involve a premium price or otherwise be good for
our stockholders.
Maryland Law Imposes Certain Limitations on Changes of Control. Certain
provisions of Maryland law prohibit "business combinations" (including certain
issuances of equity securities) with any person who beneficially owns ten
percent or more of the voting power of outstanding common stock, or with an
affiliate of the Company who, at any time within the two-year period prior to
the date in question, was the owner of ten percent or more of the voting power
of the outstanding voting stock (an "Interested Stockholder"), or with an
affiliate of an Interested Stockholder. These prohibitions last for five years
after the most recent date on which the Interested Stockholder became an
Interested Stockholder. After the five-year period, a business combination with
an Interested Stockholder must be approved by two super-majority stockholder
votes unless, among other
9
conditions, our common stockholders receive a minimum price for their shares and
the consideration is received in cash or in the same form as previously paid by
the Interested Stockholder for its shares of common stock. The Board of
Directors has exempted from these provisions under the Maryland law any business
combination with Samuel Zell, who is the Chairman of the Board of the Company,
certain holders of Units who received them at the time of our initial public
offering, the General Motors Hourly Rate Employees Pension Trust and the General
Motors Salaried Employees Pension Trust, and our officers who acquired common
stock at the time we were formed and each and every affiliate of theirs.
We Have a Stock Ownership Limit for REIT Tax Purposes. To remain qualified as a
REIT for U.S. federal income tax purposes, not more than 50% in value of our
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the federal income tax laws applicable
to REITs) at any time during the last half of any taxable year. To facilitate
maintenance of our REIT qualification, our charter, subject to certain
exceptions, prohibits Beneficial Ownership (as defined in our charter) by any
single stockholder of more than 5% (in value or number of shares, whichever is
more restrictive) of our outstanding capital stock. We refer to this as the
"Ownership Limit." Within certain limits, our charter permits the Board of
Directors to increase the Ownership Limit with respect to any class or series of
stock. The Board of Directors, upon receipt of a ruling from the IRS, opinion of
counsel, or other evidence satisfactory to the Board of Directors and upon
fifteen days prior written notice of a proposed transfer which, if consummated,
would result in the transferee owning shares in excess of the Ownership Limit,
and upon such other conditions as the Board of Directors may direct, may exempt
a stockholder from the Ownership Limit. Absent any such exemption, capital stock
acquired or held in violation of the Ownership Limit will be transferred by
operation of law to us as trustee for the benefit of the person to whom such
capital stock is ultimately transferred, and the stockholder's rights to
distributions and to vote would terminate. Such stockholder would be entitled to
receive, from the proceeds of any subsequent sale of the capital stock
transferred to us as trustee, the lesser of (i) the price paid for the capital
stock or, if the owner did not pay for the capital stock (for example, in the
case of a gift, devise of other such transaction), the market price of the
capital stock on the date of the event causing the capital stock to be
transferred to us as trustee or (ii) the amount realized from such sale. A
transfer of capital stock may be void if it causes a person to violate the
Ownership Limit. The Ownership Limit could delay or prevent a change in control
of the Company and, therefore, could adversely affect our stockholders' ability
to realize a premium over the then-prevailing market price for their common
stock.
CONFLICTS OF INTEREST COULD INFLUENCE THE COMPANY'S DECISIONS.
Certain Stockholders Could Exercise Influence in a Manner Inconsistent With the
Stockholders' Best Interests. As of December 31, 2005, Mr. Zell and certain
affiliated holders beneficially owned approximately 14.2% of our outstanding
common stock (in each case including common stock issuable upon the exercise of
stock options and the exchange of Units). Accordingly, Mr. Zell has significant
influence on our management and operation. Such influence could be exercised in
a manner that is inconsistent with the interests of other stockholders.
Mr. Zell and His Affiliates Continue to be Involved in Other Investment
Activities. Mr. Zell and his affiliates have a broad and varied range of
investment interests, including interests in other real estate investment
companies involved in other forms of housing, including multifamily housing. Mr.
Zell and his affiliates may acquire interests in other companies. Mr. Zell may
not be able to control whether any such company competes with the Company.
Consequently, Mr. Zell's continued involvement in other investment activities
could result in competition to the Company as well as management decisions which
might not reflect the interests of our stockholders.
RISK OF EMINENT DOMAIN AND TENANT LITIGATION.
We own Properties in certain areas of the country where real estate values
have increased faster than rental rates in our Properties either because of
locally imposed rent control or long term leases. In such areas, we have learned
that certain local government entities have investigated the possibility of
seeking to take our Properties by eminent domain at values below the value of
the underlying land. While no such eminent domain proceeding has been commenced,
and we would exercise all of our rights in connection with any such proceeding,
successful condemnation proceedings by municipalities could adversely affect our
financial condition. Moreover, certain of our Properties located in California
are subject to rent control ordinances, some of which not only severely restrict
ongoing rent increases but also prohibit us from increasing rents upon turnover.
Such regulation allows customers to sell their homes for a premium representing
the value of the future discounted rent-controlled rents. As part of our effort
to realize the value of our Properties subject to rent control, we have
initiated lawsuits against several municipalities in California. In response to
our efforts, tenant groups have filed lawsuits against us seeking not only to
limit rent increases, but to be awarded large damage awards. If we are
unsuccessful in our efforts to challenge rent control ordinances, it is likely
that we will not be able to charge rents that reflect the intrinsic value of the
affected Properties. Finally, tenant groups in non-rent controlled markets have
also attempted to use litigation as a means of protecting themselves from rent
increases reflecting the rental value of the affected Properties. An unfavorable
outcome in the tenant group lawsuits could have an adverse impact on our
financial condition.
10
ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY.
Federal, state and local laws and regulations relating to the protection of
the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property. The owner or operator may have to pay a
governmental entity or third parties for property damage and for investigation
and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean-up responsibility and liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants. Even if more than one person may have been responsible for
the contamination, each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred. In addition, third parties
may sue the owner or operator of a site for damages and costs resulting from
environmental contamination emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that owners or operators of property containing
asbestos properly manage and maintain the asbestos, that they notify and train
those who may come into contact with asbestos and that they undertake special
precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on real property owners or operators who fail to comply with
these requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
WE HAVE A SIGNIFICANT CONCENTRATION OF PROPERTIES IN FLORIDA AND CALIFORNIA, AND
NATURAL DISASTERS OR OTHER CATASTROPHIC EVENTS IN THESE OR OTHER STATES COULD
ADVERSELY AFFECT THE VALUE OF OUR PROPERTIES AND OUR CASH FLOW.
As of December 31, 2005, we owned or had an ownership interest in 285
Properties located in 28 states and British Columbia, including 84 Properties
located in Florida and 47 Properties located in California. The occurrence of a
natural disaster or other catastrophic event in any of these areas may cause a
sudden decrease in the value of our Properties. While we have obtained insurance
policies providing certain coverage against damage from fire, flood, property
damage, earthquake, wind storm and business interruption, these insurance
policies contain coverage limits, limits on covered property and various
deductible amounts that the Company must pay before insurance proceeds are
available. Such insurance may therefore be insufficient to restore our economic
position with respect to damage or destruction to our Properties caused by such
occurrences. Moreover, each of these coverages must be renewed every year and
there is the possibility that all or some of the coverages may not be available
at a reasonable cost. In addition, in the event of such natural disaster or
other catastrophic event, the process of obtaining reimbursement for covered
losses, including the lag between expenditures incurred by us and reimbursements
received from the insurance providers, could adversely affect our economic
performance.
MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR COMMON STOCK.
One of the factors that investors consider important in deciding whether to
buy or sell shares of a REIT is the distribution rates with respect to such
shares (as a percentage of the price of such shares) relative to market interest
rates. If market interest rates go up, prospective purchasers of REIT shares may
expect a higher distribution rate. Higher interest rates would not, however,
result in more funds for us to distribute and, in fact, would likely increase
our borrowing costs and potentially decrease funds available for distribution.
Thus, higher market interest rates could cause the market price of our publicly
traded securities to go down.
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL.
To qualify as a REIT, we must distribute to our stockholders each year at
least 90% of our REIT taxable income (determined without regard to the deduction
for dividends paid and excluding any net capital gain). In addition, we intend
to distribute all or substantially all of our net income so that we will
generally not be subject to U.S. federal income tax on our earnings. Because of
these distribution requirements, it is not likely that we will be able to fund
all future capital needs, including for acquisitions, from income from
operations. We therefore will have to rely on third-party sources of debt and
equity capital financing, which may or may not be available on favorable terms
or at all. Our access to third-party sources of capital depends on a number of
things, including conditions in the capital markets generally and the market's
perception of our growth potential and our current and potential future
earnings. Moreover, additional equity offerings may result in substantial
dilution of stockholders' interests, and additional debt financing may
substantially increase our leverage.
OUR QUALIFICATION AS A REIT IS DEPENDENT ON COMPLIANCE WITH U.S. FEDERAL INCOME
TAX REQUIREMENTS.
We believe we have been organized and operated in a manner so as to qualify
for taxation as a REIT, and we intend to continue to operate so as to qualify as
a REIT for U.S. federal income tax purposes. Qualification as a REIT for U.S.
federal income tax purposes, however, is governed by highly technical and
complex provisions of the Code for which there are only limited judicial or
administrative interpretations. Our qualification as a REIT requires analysis of
various facts and circumstances that may not be entirely within our control, and
we cannot provide any assurance that the Internal Revenue
11
Service (the "IRS") will agree with our analysis. These matters can affect our
qualification as a REIT. In addition, legislation, new regulations,
administrative interpretations or court decisions might significantly change the
tax laws with respect to the requirements for qualification as a REIT or the
U.S. federal income tax consequences of qualification as a REIT.
If, with respect to any taxable year, we fail to maintain our qualification
as a REIT (and specified relief provisions under the Code were not applicable to
such disqualification), we could not deduct distributions to stockholders in
computing our net taxable income and we would be subject to U.S. federal income
tax on our net taxable income at regular corporate rates. Any U.S. federal
income tax payable could include applicable alternative minimum tax. If we had
to pay U.S. federal income tax, the amount of money available to distribute to
stockholders and pay indebtedness would be reduced for the year or years
involved, and we would no longer be required to distribute money to
stockholders. In addition, we would also be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification
was lost, unless we were entitled to relief under the relevant statutory
provisions. Although we currently intend to operate in a manner designed to
allow us to qualify as a REIT, future economic, market, legal, tax or other
considerations may cause us to revoke the REIT election.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
12
ITEM 2. PROPERTIES
GENERAL
Our Properties provide attractive amenities and common facilities that
create a comfortable and attractive home for our customers, with most offering a
clubhouse, a swimming pool, laundry facilities and cable television service.
Many also offer additional amenities such as sauna/whirlpool spas, golf courses,
tennis, shuffleboard and basketball courts, exercise rooms and various social
activities such as concerts. Since most of our customers generally rent our
sites on a long-term basis, it is their responsibility to maintain their homes
and the surrounding area. It is our role to ensure that customers comply with
our Property policies and to provide maintenance of the common areas, facilities
and amenities. We hold periodic meetings with our Property management personnel
for training and implementation of our strategies. The Properties historically
have had, and we believe they will continue to have, low turnover and high
occupancy rates.
PROPERTY PORTFOLIO
As of December 31, 2005, we owned or had an ownership interest in a
portfolio of 285 Properties located throughout the United States and British
Columbia containing 106,337 residential sites.
The distribution of our Properties throughout the United States reflects
our belief that geographic diversification helps insulate the portfolio from
regional economic influences. We intend to target new acquisitions in or near
markets where our Properties are located and will also consider acquisitions of
Properties outside such markets. Refer to Note 2(c) of the Notes to Consolidated
Financial Statements contained in this Form 10-K.
Bay Indies located in Venice, Florida and Westwinds located in San Jose,
California each accounted for approximately 2.6% and 2.3% of our total property
operating revenues respectively for the year ended December 31, 2005.
The following table sets forth certain information relating to the
Properties we owned as of December 31, 2005, categorized by our major markets
(excluding the Thousand Trails Properties and Properties owned through joint
ventures).
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/05 12/31/05 12/31/05 12/31/04 12/31/05 12/31/04
- -----------------------------------------------------------------------------------------------------------------------------------
FLORIDA
EAST COAST:
Sunshine Key Big Pine Key FL 409 -- -- -- -- --
Carriage Cove Daytona Beach FL 418 418 92.1% 92.8% $4,949 $4,824
Bulow Plantation Flagler Beach FL 276 276 97.8% (b) 97.8% (b) $4,330 $4,200
Bulow RV Flagler Beach FL 352 122 100.0% 100.0% $3,681 $3,662
Carefree Cove Ft. Lauderdale FL 163 163 91.4% 92.1% $5,693 $5,520
Park City West Ft. Lauderdale FL 363 363 94.8% 99.7% $4,430 $4,260
Sunshine Holiday Ft. Lauderdale FL 269 269 89.6% 100.0% $5,078 $4,908
Sunshine Holiday RV Ft. Lauderdale FL 131 30 100.0% 100.0% $4,964 $4,620
Maralago Cay Lantana FL 602 602 93.9% 93.5% $5,747 $5,520
Coral Cay Margate FL 817 817 88.6% 89.5% $5,750 $5,532
Lakewood Village Melbourne FL 349 349 87.4% 87.7% $4,997 $4,800
Holiday Village Ormond Beach FL 301 301 85.7% 87.4% $4,308 $4,116
Sunshine Holiday - Ormond Beach FL 349 123 100.0% 100.0% $3,500 $3,424
Encore
The Meadows Palm Beach Gardens FL 379 379 84.7% (b) 88.7% (b) $5,090 $4,848
Breezy Hill RV Pompano Beach FL 762 430 100.0% 100.0% $4,937 $4,628
Highland Wood RV Pompano Beach FL 148 69 100.0% 100.0% $4,258 $3,882
Lighthouse Pointe Port Orange FL 433 433 86.4% (b) 88.0% (b) $4,286 $4,188
Pickwick Port Orange FL 432 432 99.3% 99.8% $4,420 $4,260
Indian Oaks Rockledge FL 208 208 100.0% 100.0% $3,615 $3,456
Coquina Crossing St Augustine FL 532 532 85.0% (b) 89.1% (b) $4,629 $4,308
Lazy Lakes - Sunburst Sugar Loaf FL 100 26 100.0% 100.0% $6,342 $5,888
Countryside Vero Beach FL 645 645 90.1% (b) 92.0% (b) $4,579 $4,272
Heritage Plantation Vero Beach FL 436 436 86.2% 88.5% $4,743 $4,608
Holiday Village Vero Beach FL 128 128 43.8% 48.4% $4,073 $3,852
Sunshine Travel - Vero Beach FL 300 170 100.0% 100.0% $3,715 $3,588
Encore
13
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER SITE SITE ANNUAL ANNUAL
OF SITES OF ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/05 12/31/05 12/31/05 12/31/04 12/31/05 12/31/04
- -------------------------------------------------------------------------------------------------------------------------------
CENTRAL:
Lake Magic - Encore Clermont FL 471 59 100.0% 100.0% $3,141 $3,068
Southern Palms Eustis FL 950 406 100.0% 100.0% $2,754 $2,641
Grand Island Grand Island FL 359 359 57.1% (b) 66.1% (b) $4,114 $3,864
Sherwood Forest Kissimmee FL 754 754 93.8% (b) 94.8% (b) $4,645 $4,464
Sherwood Forest RV Kissimmee FL 513 152 100.0% 100.0% $4,353 $4,260
Park
Tropical Palms Kissimmee FL 541 -- -- -- -- --
Coachwood Colony Leesburg FL 202 202 94.6% 96.5% $3,207 $2,976
Mid-Florida Lakes Leesburg FL 1,225 1,225 82.0% (b) 82.5% (b) $4,759 $4,584
Southernaire Mt. Dora FL 108 108 88.0% 94.4% $3,608 $3,420
Oak Bend Ocala FL 262 262 87.8% (b) 87.8% (b) $3,878 $3,768
Villas at Spanish Oaks Ocala FL 459 459 86.7% 87.1% $4,230 $4,104
GULF COAST (TAMPA/NAPLES):
Toby's RV Arcadia FL 379 289 100.0% 100.0% $1,910 $1,810
Manatee - Encore Bradenton FL 415 230 100.0% 100.0% $3,805 $3,622
Windmill Manor Bradenton FL 292 292 94.2% 94.2% $4,812 $4,716
Glen Ellen Clearwater FL 106 106 85.8% 86.8% $4,154 $4,145
Hillcrest Clearwater FL 278 278 77.0% 79.6% $4,773 $4,596
Silk Oak Clearwater FL 181 181 78.5% 85.0% $4,711 $4,596
Crystal Isles - Encore Crystal River FL 260 13 100.0% 100.0% $3,020 $2,618
Lake Haven Dunedin FL 379 379 82.3% 81.5% $5,546 $5,304
Fort Myers Beach Resort Fort Myers FL 306 103 100.0% 100.0% $4,911 $4,566
Gulf Air Resort - Fort Myers FL 246 163 100.0% 100.0% $4,112 $3,866
Sunburst
Barrington Hills - Hudson FL 392 264 100.0% 100.0% $2,378 $2,274
Sunburst
Down Yonder Largo FL 361 361 96.7% 97.0% $5,350 $5,088
East Bay Oaks Largo FL 328 328 94.5% 95.7% $5,101 $4,884
Eldorado Village Largo FL 227 227 95.6% 95.6% $5,046 $4,908
Holiday Ranch Largo FL 150 150 86.0% 88.0% $4,701 $4,536
Shangri La Largo FL 160 160 90.0% 93.1% $4,512 $4,428
Vacation Village - Largo FL 293 192 100.0% 100.0% $3,660 $3,534
Sunburst
Pasco - Encore Lutz FL 255 157 100.0% 100.0% $3,077 $2,949
Buccaneer N. Ft. Myers FL 971 971 97.8% 96.9% $4,767 $4,584
Lake Fairways N. Ft. Myers FL 896 896 99.9% 99.8% $5,004 $4,872
Pine Lakes N. Ft. Myers FL 584 584 99.8% 100.0% $6,079 $5,820
Pioneer Village - N. Ft. Myers FL 733 398 100.0% 100.0% $3,326 $3,168
Sunburst
The Heritage N. Ft. Myers FL 455 455 98.0% (b) 95.4% (b) $4,457 $4,224
Windmill Village N. Ft. Myers FL 491 491 93.7% 93.3% $4,226 $4,056
Country Place New Port Richey FL 515 515 100.0% 99.8% $3,513 $3,408
Hacienda Village New Port Richey FL 505 505 96.6% 96.8% $4,272 $4,080
Harbor View New Port Richey FL 471 471 98.9% 99.6% $2,885 $2,736
Bay Lake Estates Nokomis FL 228 228 94.3% 96.1% $5,456 $5,244
Royal Coachman - Encore Nokomis FL 546 389 100.0% 100.0% $5,126 $4,912
Silver Dollar Odessa FL 385 366 100.0% 100.0% $3,613 $3,329
Terra Ceia Palmetto FL 203 145 100.0% 100.0% $2,849 $2,808
Lakes at Countrywood Plant City FL 424 424 90.3% (b) 91.7% (b) $3,439 $3,264
Meadows at Countrywood Plant City FL 799 799 93.2% (b) 91.5% (b) $4,007 $3,802
Oaks at Countrywood Plant City FL 168 168 74.4% (b) 70.2% (b) $3,462 $3,324
Harbor Lakes - Encore Port Charlotte FL 528 252 100.0% 100.0% $3,713 $3,544
Gulf View - Encore Punta Gorda FL 206 36 100.0% 100.0% $3,749 $3,537
Winds of St. Armands No Sarasota FL 471 471 95.5% 95.5% $4,892 $4,788
Winds of St. Armands So Sarasota FL 306 306 99.7% 99.7% $4,885 $4,728
Topics RV Spring Hill FL 230 159 100.0% 100.0% $2,458 $2,327
Bay Indies Venice FL 1,309 1,309 96.9% 96.7% $5,736 $5,232
Sixth Avenue Zephyrhills FL 134 134 91.8% 93.3% $2,135 $2,112
---------------------------------------------------------------------------
TOTAL FLORIDA MARKET 31,712 26,052 92.9% 93.7% $4,501 $4,304
---------------------------------------------------------------------------
</Table>
14
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER SITE SITE ANNUAL ANNUAL
OF SITES OF ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/05 12/31/05 12/31/05 12/31/04 12/31/05 12/31/04
- ---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA
NORTHERN CALIFORNIA:
Monte del Lago Castroville CA 310 310 94.8% (b) 98.4% (b) $ 9,155 $ 7,608
Colony Park Ceres CA 186 186 89.8% 94.1% $ 5,974 $ 5,112
Four Seasons Fresno CA 242 242 89.3% 84.7% $ 3,680 $ 3,492
Tahoe Valley Campground Lake Tahoe CA 413 -- -- -- -- --
Sea Oaks Los Osos CA 125 125 100.0% 97.6% $ 5,563 $ 5,364
Coralwood Modesto CA 194 194 98.5% 99.5% $ 6,694 $ 6,180
Concord Cascade Pacheco CA 283 283 98.6% 98.2% $ 7,089 $ 6,924
Quail Meadows Riverbank CA 146 146 98.6% 98.6% $ 6,546 $ 5,688
San Francisco RV Resort San Francisco CA (a) 182 -- -- -- -- --
California Hawaiian San Jose CA 418 418 95.2% 97.4% $ 8,920 $ 8,628
Sunshadow San Jose CA 121 121 96.7% 97.5% $ 8,656 $ 8,268
Village of the Four San Jose CA 271 271 91.9% 98.5% $ 8,212 $ 8,148
Seasons
Westwinds (4 Properties) San Jose CA 723 723 88.8% 96.1% $ 9,555 $ 9,420
Laguna Lake San Luis Obispo CA 290 290 99.7% 98.6% $ 4,887 $ 4,848
Contempo Marin San Rafael CA 396 396 98.5% 98.5% $ 7,958 $ 7,884
DeAnza Santa Cruz Santa Cruz CA 198 198 96.0% 96.5% $ 8,263 $ 8,124
Royal Oaks Visalia CA 149 149 87.9% 82.6% $ 3,919 $ 3,816
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 538 96.1% 96.5% $ 9,396 $ 8,916
Date Palm RV Cathedral City CA 140 -- -- -- -- --
Rancho Mesa El Cajon CA 158 158 86.1% 95.6% $ 9,936 $ 8,424
Rancho Valley El Cajon CA 140 140 100.0% 100.0% $10,552 $10,092
Royal Holiday Hemet CA 179 179 58.7% 60.3% $ 4,070 $ 3,876
Pacific Dunes Ranch Oceana CA 215 3 100.0% -- $ 1,800 $ 1,800
Las Palmas Rialto CA 136 136 100.0% 100.0% $ 4,583 $ 4,440
Parque La Quinta Rialto CA 166 166 100.0% 99.4% $ 4,646 $ 4,452
Meadowbrook Santee CA 338 338 98.2% 98.2% $ 8,691 $ 8,412
Lamplighter Spring Valley CA 270 270 98.9% 99.3% $10,940 $10,824
Santiago Estates Sylmar CA 300 300 99.3% 99.0% $ 9,013 $ 8,580
-----------------------------------------------------------------------
TOTAL CALIFORNIA MARKET 7,227 6,280 94.3% 95.8% $ 7,853 $ 7,495
-----------------------------------------------------------------------
ARIZONA
Countryside RV Apache AZ 560 260 100.0% 100.0% $ 2,676 $ 2,613
Golden Sun RV Apache Junction AZ 329 190 100.0% 100.0% $ 2,699 $ 2,642
Casa del Sol #2 Glendale AZ 239 239 72.0% 74.5% $ 6,299 $ 6,204
Casa del Sol #3 Glendale AZ 236 236 75.4% 80.9% $ 6,565 $ 6,336
Palm Shadows Glendale AZ 294 294 67.0% 78.6% $ 4,991 $ 4,860
Hacienda de Valencia Mesa AZ 365 365 78.6% 75.3% $ 5,205 $ 5,040
Monte Vista Mesa AZ 832 752 100.0% 100.0% $ 4,957 $ 4,562
The Highlands at
Brentwood Mesa AZ 273 273 79.5% 89.4% $ 6,291 $ 6,240
The Mark Mesa AZ 410 410 48.3% 55.1% $ 5,046 $ 4,992
Viewpoint Mesa AZ 1,928 1,470 100.0% 100.0% $ 4,050 $ 3,822
Casa del Sol #1 Peoria AZ 245 245 71.0% 78.4% $ 5,989 $ 5,904
Apollo Village Phoenix AZ 236 236 69.5% (b) 78.8% (b) $ 5,243 $ 5,100
Carefree Manor Phoenix AZ 128 128 58.6% 72.7% $ 4,462 $ 4,332
Central Park Phoenix AZ 293 293 79.9% 84.6% $ 5,438 $ 5,124
Desert Skies Phoenix AZ 165 165 91.5% 93.3% $ 4,621 $ 4,464
Sunrise Heights Phoenix AZ 199 199 71.9% 73.4% $ 5,241 $ 5,064
Whispering Palms Phoenix AZ 116 116 87.9% 91.4% $ 4,127 $ 3,792
Sedona Shadows Sedona AZ 197 197 97.0% 97.5% $ 5,696 $ 5,148
Paradise Sun City AZ 950 815 100.0% 100.0% $ 3,385 $ 3,177
The Meadows Tempe AZ 391 391 71.9% 75.4% $ 5,822 $ 5,820
Fairview Manor Tucson AZ 235 235 70.6% 80.0% $ 4,392 $ 4,263
Araby Yuma AZ 337 274 100.0% 100.0% $ 2,604 $ 2,468
Cactus Gardens Yuma AZ 430 269 100.0% 100.0% $ 1,775 $ 1,691
Desert Paradise Yuma AZ 260 85 100.0% 100.0% $ 1,800 $ 1,727
Foothill Yuma AZ 180 72 100.0% 100.0% $ 1,860 $ 1,792
Suni Sands Yuma AZ 336 176 100.0% 100.0% $ 2,193 $ 2,135
------------------------------------------------------------------------
TOTAL ARIZONA MARKET 10,164 8,385 87.0% 89.5% $ 4,449 $ 4,267
------------------------------------------------------------------------
</Table>
15
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER SITE SITE ANNUAL ANNUAL
OF SITES OF ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/05 12/31/05 12/31/05 12/31/04 12/31/05 12/31/04
- -------------------------------------------------------------------------------------------------------------------------------
COLORADO
Hillcrest Village Aurora CO 601 601 69.7% 79.9% $6,247 $6,096
Cimarron Broomfield CO 327 327 82.9% 91.7% $5,945 $5,796
Holiday Village Co. Springs CO 240 240 81.7% 86.3% $6,173 $6,108
Holiday Hills Denver CO 735 735 82.4% 87.8% $6,053 $5,880
Woodland Hills Denver CO 434 434 77.4% 82.7% $5,606 $5,496
Golden Terrace Golden CO 265 265 86.4% 88.7% $6,536 $6,360
Golden Terrace South Golden CO 80 80 76.3% 80.0% $6,322 $6,144
Golden Terrace South RV Golden CO 80 -- -- -- -- --
Golden Terrace West Golden CO 316 316 86.1% 88.3% $6,551 $6,204
Pueblo Grande Pueblo CO 251 251 90.8% 93.6% $3,876 $3,840
Bear Creek Sheridan CO 122 122 90.2% 95.1% $6,110 $5,892
-------------------------------------------------------------------------
TOTAL COLORADO MARKET 3,451 3,371 80.9% 86.6% $5,959 $5,800
-------------------------------------------------------------------------
NORTHEAST
Waterford Bear DE 731 731 94.7% (b) 94.5% (b) $5,433 $5,196
Whispering Pines Lewes DE 392 392 86.7% 87.8% $4,033 $3,816
Mariners Cove Millsboro DE 376 376 94.1% (b) 93.1% (b) $6,270 $5,844
Aspen Meadows Rehoboth DE 200 200 99.5% 99.0% $4,497 $4,284
Camelot Meadows Rehoboth DE 302 302 97.7% 98.3% $4,164 $3,948
McNicol Rehoboth DE 93 93 100.0% 100.0% $3,991 $3,816
Sweetbriar Rehoboth DE 146 146 97.9% 96.6% $4,090 $3,924
Old Chatham Road RV South Dennis MA (a) 312 306 100.0% -- $3,070 --
Pinehurst RV Park Old Orchard Beach ME (a) 550 522 100.0% -- $2,770 --
Waterway RV Resort Cedar Point NC 336 327 100.0% 100.0% $2,602 $2,544
Twin Lakes Chocowinity NC 400 315 100.0% 100.0% $2,215 $2,094
Goose Creek Newport NC 598 553 100.0% 100.0% $2,775 $2,689
Sandy Beach RV Park Contoocook NH (a) 190 174 100.0% -- $2,709 --
Alpine Lake Corinth NY (a) 500 228 100.0% -- $2,489 --
Lake George Escape Lake George NY (a) 576 -- -- -- -- --
Greenwood Village Manorville NY 512 512 100.0% 100.0% $5,789 $5,460
Brennan Beach Pulaski NY (a) 1,377 1,165 100.0% 0.0% $1,726 --
Green Acres Breinigsville PA 595 595 93.1% 93.8% $5,852 $5,616
Spring Gulch New Holland PA 420 60 100.0% 100.0% $3,421 $3,328
Meadows of Chantilly Chantilly VA 500 500 92.2% 88.8% $8,402 $7,836
------------------------------------------------------------------------
TOTAL NORTHEAST MARKET 9,106 7,497 97.3% 95.7% $4,894 $4,646
------------------------------------------------------------------------
MIDWEST
Holiday Village Sioux City IA 519 519 51.3% 57.6% $3,171 $3,108
O'Connell's Amboy IL 668 336 100.0% 100.0% $2,245 $2,144
Willow Lake Estates Elgin IL 617 617 77.6% 83.3% $8,919 $8,604
Golf Vista Estates Monee IL 408 408 98.0% (b) 97.5% (b) $5,981 $5,748
Forest Oaks Chesterton IN 227 227 62.1% 63.9% $4,408 $4,428
Windsong Indianapolis IN 268 268 45.1% 51.5% $4,125 $3,972
Lakeside New Carlisle IN 95 65 100.0% 100.0% $1,714 $1,663
Oak Tree Village Portage IN 361 361 72.0% 80.9% $4,443 $4,296
Creekside Wyoming MI 165 165 75.8% 81.2% $4,920 $4,806
Caledonia Caledonia WI 247 -- -- -- -- --
Fremont Fremont WI 325 45 100.0% -- $2,130 --
Yukon Trails Lyndon Station WI 214 131 100.0% -- -- --
-------------------------------------------------------------------------
TOTAL MIDWEST MARKET 4,114 3,142 75.4% 77.6% $4,797 $4,618
-------------------------------------------------------------------------
</Table>
16
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER SITE SITE ANNUAL ANNUAL
OF SITES OF ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/05 12/31/05 12/31/05 12/31/04 12/31/05 12/31/04
- --------------------------------------------------------------------------------------------------------------------------------
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 407 21.9% 59.2% $4,759 $4,524
Bonanza Las Vegas NV 353 353 62.6% 63.7% $6,293 $6,108
Boulder Cascade Las Vegas NV 299 299 76.9% 76.9% $5,741 $5,556
Cabana Las Vegas NV 263 263 96.6% 95.4% $5,921 $5,520
Flamingo West Las Vegas NV 258 258 99.6% 99.6% $6,381 $6,132
Villa Borega Las Vegas NV 293 293 82.9% 83.3% $5,906 $5,688
Westwood Village Farr West UT 314 314 92.0% (b) 93.6% (b) $3,719 $3,576
All Seasons Salt Lake City UT 121 121 86.8% 89.3% $4,778 $4,620
-------------------------------------------------------------------------
TOTAL NEVADA, UTAH, NEW MEXICO MARKET 2,308 2,308 73.1% 80.1% $5,440 $5,217
-------------------------------------------------------------------------
NORTHWEST
Casa Village Billings MT 490 490 74.1% 85.5% $3,879 $3,648
Mt. Hood Welches OR 436 52 100.0% 100.0% $4,279 $4,124
Shadowbrook Clackamas OR 156 156 96.8% 95.5% $6,321 $6,324
Falcon Wood Village Eugene OR 183 183 86.9% 88.5% $5,129 $4,968
Quail Hollow Fairview OR 137 137 93.4% 92.7% $6,570 $6,300
Kloshe Illahee Federal Way WA 258 258 95.3% 96.1% $7,862 $7,548
-------------------------------------------------------------------------
TOTAL NORTHWEST MARKET 1,660 1,276 86.1% 90.7% $5,468 $5,257
-------------------------------------------------------------------------
TEXAS
Lakewood - Sunburst Harlingen TX 301 112 100.0% 100.0% $1,764 $1,707
Paradise Park RV Resort Harlingen TX 563 331 100.0% 100.0% $2,616 $2,509
Sunshine RV - Encore Harlingen TX 1,027 418 100.0% 100.0% $2,097 $2,000
Paradise South - Encore Mercedes TX 493 174 100.0% 100.0% $1,837 $1,757
Fun n Sun RV Park San Benito TX 1,435 606 100.0% 100.0% $2,568 $2,486
Southern Comfort Weslaco TX 403 340 100.0% 100.0% $2,344 $2,263
Tropic Winds Harlingen TX 531 33 100.0% 100.0% $2,691 $2,591
Country Sunshine - Weslaco TX 390 211 100.0% 100.0% $2,277 $2,203
Sunburst -------------------------------------------------------------------------
TOTAL TEXAS MARKET 5,143 2,225 100.0% 100.0% $2,329 $2,242
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GRAND TOTAL ALL MARKETS 74,885 60,536 90.6% 91.8% $4,966 $4,755
=========================================================================
</Table>
(a) Represents Properties acquired in 2005.
(b) The process of filling Expansion Sites at these Properties is ongoing. A
decrease in occupancy may reflect development of additional Expansion
Sites.
17
ITEM 3. LEGAL PROCEEDINGS
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.
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 favor on that claim, notwithstanding the jury verdict. The
Court postponed decision on those motions and on the constitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the constitutional claims, then the Company
has pending claims seeking a declaration that it can close the Property and
convert it to another use. The United States Supreme Court issued the property
rights rulings in 2005 and the Company awaits the Court's decisions in the San
Rafael matters. On January 27, 2006, the Court 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 has filed a new
complaint challenging the City's ordinance as violating the takings clause and
substantive due process. The Company expects the City to file a responsive
motion to the amended complaint and for further legal proceedings to occur in
2006.
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
believes had been agreed to by the CMHOA in a settlement agreement. On May 23,
2004, the California Court of Appeal affirmed the trial court's order dismissing
the Company's claims against the City of San Rafael. The CMHOA continues to seek
damages from the Company in this matter. The Company has reached a tentative
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 will bring motions
for their respective attorneys' fees following the settlement becoming final.
The Company intends to vigorously defend this matter should the settlement not
18
become final. The Company believes that such lawsuits will be a consequence of
the Company's efforts to change rent control since tenant groups actively desire
to preserve the premium value of their homes in addition to the discounted rents
provided by rent control. The Company has determined that its efforts to
rebalance the regulatory environment despite the risk of litigation from tenant
groups are necessary not only because of the $15 million annual subsidy to
tenants, but also because of the condemnation risk.
Similarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and other
property owners. However, the Court allowed the City to continue to enforce a
rent control ordinance that predated the two invalid ordinances (the "prior
ordinance"). As a result of the judgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and the prior ordinances and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance been
continually in effect. The City of Santee appealed the judgment. The court of
appeal and California Supreme Court refused to stay enforcement of these rent
adjustments pending appeal. After the City was unable to obtain a stay, the City
and the tenant association each sued the Company in separate actions alleging
the rent adjustments pursuant to the judgment violate the prior ordinance (Case
Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments,
refunds of amounts paid, and penalties and damages in these separate actions. On
January 25, 2005, the California Court of Appeal reversed the judgment in part
and affirmed it in part with a remand. The Court of Appeal affirmed that one
ordinance was unlawfully adopted and therefore void and that the second
ordinance contained unconstitutional provisions. However, the Court ruled the
City had the authority to cure the issues with the first ordinance
retroactively. On remand the trial court is directed to decide the issue of
damages to the Company which the Company believes is consistent with the Company
receiving the economic benefit of invalidating one of the ordinances and also
consistent with the Company's position that it is entitled to market rent and
not merely a higher amount of regulated rent. In the remand action, the City of
Santee filed a motion seeking restitution of amounts collected by the Company
following the judgment which motion was denied. The Company intends to
vigorously pursue its damages in the remand action and to vigorously defend the
two new lawsuits.
In addition, the Company has sued the City of Santee in federal court
alleging all three of the ordinances are unconstitutional under the Fifth 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 has appealed the decision.
In October 2004, the United States Supreme Court granted certiorari in
State of Hawaii vs. Chevron USA, Inc., a Ninth Circuit Court of Appeal case that
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 Appeal 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.
DISPUTE WITH LAS GALLINAS VALLEY SANITARY DISTRICT
In November 2004, the Company received a Compliance Order (the "Compliance
Order") from the Las Gallinas Valley Sanitary District (the "District"),
relating to the Company's Contempo Marin Property in San Rafael, California. The
Compliance Order directed the Company to submit and implement a plan to bring
the Property's domestic wastewater discharges into compliance with the
applicable District ordinance (the "Ordinance"), and to ensure continued
compliance with the Ordinance in the future.
Without admitting any violation of the Ordinance, the Company promptly
engaged a consultant to review the Property's sewage collection system and
prepare a compliance plan to be submitted to the District. The District approved
the compliance plan in January 2005, and the Company promptly took all necessary
actions to implement same.
Thereafter, the Company received a letter dated June 2, 2005 from the
District's attorney (the "June 2 Letter"), acknowledging that the Company has
"taken measures to bring the [Property's] private sanitary system into
compliance" with the Ordinance, but claiming that prior discharges from the
Property had damaged the District's sewers and pump stations in the amount of
approximately $368,000. The letter threatened legal action if necessary to
recover the cost of repairing such damage. By letter dated June 23, 2005,
counsel for the Company denied the District's claims set forth in the June 2
Letter.
19
On July 1, 2005, the District filed a Complaint for Enforcement of
Sanitation Ordinance, Damages, Penalties and Injunctive Relief in the California
Superior Court for Marin County, and on August 17, 2005, the District filed its
First Amended Complaint (the "Complaint"). On September 26, 2005, the Company
filed its Answer to the Complaint, denying each and every allegation of the
Complaint and further denying that the District is entitled to any of the relief
requested therein.
The District subsequently issued a Notice of Violation dated December 12,
2005 (the "NOV"), alleging additional violations of the Ordinance. By letter
dated December 23, 2005, the Company denied the allegations in the NOV.
The Company believes that it has complied with the Compliance Order and the
Ordinance. The Company further believes that the allegations in the Complaint
and the NOV are without merit, and will vigorously defend against any such
claims by the District.
COUNTRYSIDE AT VERO BEACH
The Company previously received letters dated June 17, 2002 and August 26,
2002 from Indian River County ("County"), claiming that the Company owed sewer
impact fees in the amount of approximately $518,000 with respect to the Property
known as Countryside at Vero Beach, located in Vero Beach, Florida, purportedly
under the terms of an agreement between the County and a prior owner of the
Property. In response, the Company advised the County that these fees are no
longer due and owing as a result of a 1996 settlement agreement between the
County and the prior owner of the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company paid
this settlement amount (with interest) to the County in connection with the
Company's acquisition of the Property. In February 2006, the Company was served
with a complaint filed by the County in Indian River County Circuit Court,
requesting a judgment declaring a lien against the Property for allegedly unpaid
impact fees, and foreclosing said lien. The Company will vigorously defend the
lawsuit.
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", 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. The Company will vigorously defend the lawsuit.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. In
addition, to the extent any such proceedings or audits relate to newly acquired
Properties, the Company considers any potential indemnification obligations of
sellers in favor of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange ("NYSE") under
the symbol ELS. On February 14, 2006, the reported closing price per share of
ELS common stock on the NYSE was $46.22 and there were approximately 5,267
beneficial holders of record. The high and low sales prices and closing sales
prices on the NYSE and distributions for our common stock during 2005 and 2004
are set forth in the table below:
DISTRIBUTIONS
CLOSE HIGH LOW DECLARED
------ ------ ------ -------------
2005
1st Quarter ... $35.25 $36.26 $32.73 $ 0.025
2nd Quarter ... 39.76 40.15 34.33 0.025
3rd Quarter ... 45.00 48.00 39.82 0.025
4th Quarter ... 44.50 47.53 38.70 0.025
2004
1st Quarter ... $35.30 $37.90 $28.94 $0.0125
2nd Quarter ... 33.19 35.35 28.49 0.0125
3rd Quarter ... 33.24 34.34 31.10 0.0125
4th Quarter ... 35.75 36.52 32.88 0.0125
ISSUER PURCHASES OF EQUITY SECURITIES
TOTAL NUMBER OF SHARES MAXIMUM NUMBER OF SHARES
TOTAL NUMBER OF PURCHASED AS PART OF THAT MAY YET BE
SHARES AVERAGE PRICE PUBLICLY ANNOUNCED PLANS PURCHASED UNDER THE
PERIOD PURCHASED(a) PAID PER SHARE(a) OR PROGRAMS PLANS OR PROGRAMS
------ --------------- ----------------- ------------------------ ------------------------
12/1/05-12/31/05 14,867 $46.56 None None
(a) Of the common stock repurchased on December 9, 2005, 14,867 shares were
repurchased at the open market price and represent common stock surrendered
to the Company to satisfy income tax withholding obligations due as a
result of the Company terminating its Supplemental Retirement Savings Plan
at the end of 2005. The termination of the plan resulted in a taxable
distribution to the participants who received all of the assets held in
their plan account.
21
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
on a historical basis. The historical operating data has been derived from the
historical financial statements of the Company. The following information should
be read in conjunction with all of the financial statements and notes thereto
included elsewhere in this Form 10-K.
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands, except for per share and property data)
(1) YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- -------- --------
PROPERTY OPERATIONS:
Community base rental income ........................ $ 213,280 $ 204,190 $ 189,915 $187,406 $183,580
Resort base rental income ........................... 73,398 54,841 11,779 9,143 5,743
Utility and other income ............................ 27,210 24,278 19,411 18,933 19,628
--------- --------- --------- -------- --------
Property operating revenues ...................... 313,888 283,309 221,105 215,482 208,951
Property operating and maintenance .................. 104,150 92,121 61,945 59,839 57,780
Real estate taxes ................................... 24,688 22,723 18,011 16,919 16,047
Property management ................................. 15,919 12,852 9,373 9,292 8,973
--------- --------- --------- -------- --------
Property operating expenses (exclusive
of depreciation shown separately below) ....... 144,757 127,696 89,329 86,050 82,800
--------- --------- --------- -------- --------
Income from property operations ............ 169,131 155,613 131,776 129,432 126,151
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ............ 66,014 47,404 36,472 33,262 --
Cost of inventory home sales ........................ (57,471) (41,577) (31,615) (26,922) --
--------- --------- --------- -------- --------
Gross profit from inventory home sales ..... 8,543 5,827 4,857 6,340 --
Brokered resale revenues, net ....................... 2,714 2,176 1,714 1,558 --
Home selling expenses ............................... (8,838) (8,630) (7,287) (7,570) --
Ancillary services revenues, net .................... 3,864 2,743 162 448 --
--------- --------- --------- -------- --------
Income (loss) from home sales operations & other.. 6,283 2,116 (554) 776 --
OTHER INCOME (EXPENSES):
Interest income ..................................... 1,406 1,391 1,695 967 639
Equity in income of affiliates ...................... -- -- -- -- 1,758
Income from other investments, net (2) .............. 16,609 3,475 956 316 383
General and administrative .......................... (13,624) (9,243) (8,060) (8,192) (6,687)
Rent control initiatives ............................ (1,081) (2,412) (2,352) (5,698) (2,358)
Interest and related amortization (3) ............... (100,832) (90,970) (58,206) (50,725) (51,287)
Loss on early debt retirement (4) ................... (20,630) -- -- -- --
Depreciation on corporate assets .................... (804) (1,657) (1,240) (1,277) (1,243)
Depreciation on real estate assets and other costs... (55,689) (47,541) (35,924) (33,160) (32,181)
--------- --------- --------- -------- --------
Total other expenses, net .................. (174,645) (146,957) (103,131) (97,769) (90,976)
Income before minority interests,
equity in income of unconsolidated
joint ventures, loss on
extinguishment of debt, gain on
sale of property and discontinued
operations ................................. 769 10,772 28,091 32,439 35,175
Loss (income) allocated to Common OP Units .......... 731 (608) (3,431) (4,230) (6,612)
(Income) allocated to Perpetual Preferred OP
Units (5)......................................... (13,974) (11,284) (11,252) (11,252) (11,252)
Equity in income of unconsolidated joint
ventures ......................................... 6,508 3,739 340 235 282
--------- --------- --------- -------- --------
(Loss) income before gain on sale of properties
and other, and discontinued operations .......... (5,966) 2,619 13,748 17,192 17,593
--------- --------- --------- -------- --------
Gain on sale of properties and other ................ -- 2 -- -- 8,168
--------- --------- --------- -------- --------
(Loss) income from continuing operations ... (5,966) 2,621 13,748 17,192 25,761
--------- --------- --------- -------- --------
DISCONTINUED OPERATIONS:
Discontinued operations ............................. 1,875 2,450 4,607 7,387 7,525
Depreciation on discontinued operations ............. (329) (1,353) (1,476) (2,150) (1,964)
Gain on sale of discontinued properties and other.... 2,279 636 10,826 13,014 --
Minority interests on discontinued operations ....... (192) (328) (2,573) (3,556) (1,125)
--------- --------- --------- -------- --------
Income from discontinued operations ........ 3,633 1,405 11,384 14,695 4,436
--------- --------- --------- -------- --------
NET (LOSS) INCOME AVAILABLE FOR COMMON
SHARES ........................................ $ (2,333) $ 4,026 $ 25,132 $ 31,887 $ 30,197
========= ========= ========= ======== ========
22
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(Amounts in thousands, except for per share and property data)
(1) AS OF DECEMBER 31,
--------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE - BASIC:
(Loss) Income from continuing operations ................. $ (0.26) $ 0.12 $ 0.62 $ 0.80 $ 1.23
Income from discontinued operations ...................... $ 0.16 $ 0.06 $ 0.52 $ 0.68 $ 0.21
Net (loss) income available for Common Shares ............ $ (0.10) $ 0.18 $ 1.14 $ 1.48 $ 1.44
EARNINGS PER COMMON SHARE - FULLY DILUTED:
(Loss) Income from continuing operations ................. $ (0.26) $ 0.11 $ 0.61 $ 0.78 $ 1.20
Income from discontinued operations ...................... $ 0.16 $ 0.06 $ 0.50 $ 0.66 $ 0.20
Net (loss) income available for Common Shares ............ $ (0.10) $ 0.17 $ 1.11 $ 1.44 $ 1.40
Distributions declared per Common Share outstanding (3)... $ 0.10 $ 0.05 $ 9.485 $ 1.90 $ 1.78
Weighted average Common Shares outstanding - basic ....... 23,081 22,849 22,077 21,617 21,036
Weighted average Common OP Units outstanding ............. 6,285 6,067 5,342 5,403 5,466
Weighted average Common Shares outstanding - fully
diluted ............................................... 29,927 29,465 28,002 27,632 27,010
BALANCE SHEET DATA:
Real estate, before accumulated depreciation (6) ......... $2,152,547 $2,035,790 $1,309,705 $1,296,007 $1,238,138
Total assets ............................................. 1,948,874 1,886,289 1,463,507 1,154,794 1,099,447
Total mortgages and loans (3) ............................ 1,638,281 1,653,051 1,076,183 760,233 708,857
Minority interests (5) ................................... 209,379 134,771 124,634 166,889 170,675
Stockholders' equity (3) ................................. 32,516 31,844 (2,528) 171,175 173,264
OTHER DATA:
Funds from operations (7) ................................ $ 52,827 $ 54,448 $ 58,479 $ 62,695 $ 64,599
Total Properties (at end of period) ...................... 285 275 142 142 149
Total sites (at end of period) ........................... 106,337 101,231 52,349 51,582 50,663
(1) See the Consolidated Financial Statements of the Company included elsewhere
herein.
Property operations and home sale operations are discussed in Item 7
contained in this Form 10-K.
(2) On November 10, 2004, we acquired KTTI Holding Company, Inc., owner of 57
Properties and approximately 3,000 acres of vacant land, for $160 million
("Thousand Trails Transaction"). The Company has provided a long-term lease
of the real estate (excluding the vacant land) to Thousand Trails, which
will continue to operate the Properties for the benefit of its
approximately 105,000 members nationwide. The Properties are located in 16
states (primarily in the western and southern United States) and British
Columbia, and contain 17,911 sites. The lease generates $16 million in
rental income to the Company on an absolute triple net basis, subject to
annual escalations of 3.25%. The annual straight-line rent amount is
approximately $20 million; and the Company has deferred recognition of the
non-cash component (see Note 2 contained in the Notes to the Consolidated
Financial Statements contained in this Form 10-K).
23
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(3) On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501
million at a weighted average interest rate of 5.84% per annum and with a
weighted average maturity of approximately 9 years. Approximately $170
million of the proceeds were used to repay amounts outstanding on our lines
of credit and term loan. Approximately $225 million was used to pay a
special distribution of $8.00 per share on January 16, 2004. The remaining
funds were used for investment purposes in 2004. The Recap resulted in
increased interest and amortization expense and the special distribution
resulted in decreased stockholder's equity.
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its
assets to MHC Trust, a newly formed Maryland real estate investment trust,
including the Company's entire partnership interest in the Operating
Partnership. Due to the Company's tax basis in its interest in the
Operating Partnership, the Company recognized $180 million of taxable
income as a result of the contribution. This restructuring resulted in a
step-up in the Company's tax basis in its assets, generating future
depreciation deductions, which in turn will reduce the Company's future
distribution requirements. This provides the Company with greater financial
flexibility and greater growth potential (see Note 4 of the Notes to
Consolidated Financial Statements contained in this Form 10-K).
(4) On December 2, 2005, we refinanced approximately $293 million of secured
debt maturing in 2007 with an effective interest rate of 6.8% per annum.
This debt was secured by two cross-collateralized loan pools consisting of
35 Properties. The transaction generated approximately $337 million in
proceeds from loans secured by individual mortgages on 20 Properties. The
blended interest rate on the refinancing was approximately 5.3% per annum,
and the loans mature in 2015. Transaction costs resulting from early debt
retirement were approximately $20.0 million.
(5) During 2005, we issued $25 million of 8.0625% Series D and $50 million of
7.95% Series F Cumulative Redeemable Perpetual Preference Units to
institutional investors. Proceeds were used to pay down amounts outstanding
under the Company's lines of credit (see Note 4 of the Notes to
Consolidated Financial Statements contained in this Form 10-K).
(6) We believe that the book value of the Properties, which reflects the
historical costs of such real estate assets less accumulated depreciation,
is less than the current market value of the Properties.
(7) Refer to Item 7 contained in this Form 10-K for information regarding why
we present funds from operations and for a reconciliation of this non-GAAP
financial measure to net income.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K.
2005 ACCOMPLISHMENTS
- - Created greater financial flexibility through
- refinancing $293 million of debt secured by 35 Properties in two
cross-collateralized pools maturing in 2007 with an effective
interest rate of 6.8% per annum, with new financing of $337
million of individual mortgage loans on 20 Properties with an
effective interest rate of approximately 5.3% per annum and
- issuing $75 million of Perpetual Preference units using net
proceeds to pay down the Company's lines of credit.
- - Increased presence in the Northeast with acquisitions in New York and
Maine.
- - Increased new home sales by 50%.
- - Continued to develop leading brand names such as Encore and Thousand
Trails, creating a larger customer resource base.
- - Launched customer loyalty program, known as Encore Royalty Club, in an
effort to increase seasonal and annual customer base.
OVERVIEW AND OUTLOOK
Occupancy in our Properties as well as our ability to increase rental rates
directly affect revenues. Our revenue streams are predominantly derived from
customers renting our sites on a long-term basis.
We have approximately 60,400 annual sites with average annual revenue of
approximately $5,100 per site. We have approximately 8,000 seasonal sites, which
are leased to customers generally for 3 to 6 months, for which we expect to
collect annual rent in the range of $1,900 to $2,000 per site. We also have
approximately 6,500 transient sites, occupied by customers who lease on a
short-term basis, for which we expect to collect average annual rent per site in
the range of $2,600 to $2,800. We expect to service 60,000 customers with these
sites. However, we consider this revenue stream to be our most volatile. It is
subject to weather conditions, gas prices, and other factors affecting the
marginal RV customer's vacation and travel preferences. Finally, we have
approximately 17,900 Thousand Trails sites for which we receive ground rent of
$16 million annually with yearly escalations of 3.25%. This rent is classified
in Income from other investments, net in the Consolidated Statements of
Operations. We have interests in Properties owning approximately 13,500 sites
for which revenue is classified as Equity in Income from Unconsolidated Joint
Ventures in the Consolidated Statements of Operations.
TOTAL SITES
AS OF DECEMBER 31 APPROXIMATE ANNUAL
(ROUNDED TO 000S) REVENUE RANGE (1)
----------------- -----------------------------------
2005 2004 2006 2005
------- ------- --------------- ---------------
Community sites (2)........ 44,900 45,200 $5,700 - $5,800(3) $5,400 - $5,500(3)
Resort sites:
Annuals................. 15,500 13,100 $3,000 - $3,200 $3,000 - $3,200
Seasonal................ 8,000 7,200 $1,900 - $2,000 $1,800 - $1,900
Transient............... 6,500 6,000 $2,600 - $2,800 $2,300 - $2,500
Thousand Trails............ 17,900 17,900
Joint Ventures............. 13,500 11,800
------- -------
106,300 101,200
======= =======
(1) All ranges exclude utility and other income.
(2) Includes 2,076 sites from discontinued operations.
(3) Based on occupied sites. Average occupancy as of 12/31/05 was approximately
90%.
25
SERP TERMINATION
As a result of the changes in the law relating to deferred compensation
plans, the Company terminated its Supplemental Retirement Savings Plan ("the
Plan"). Termination of the Plan resulted in a taxable distribution to the
participants, who received all of the assets that were held in their Plan
account, net of applicable withholding taxes. These assets included
approximately 900,000 shares of ELS common stock in the aggregate, including
approximately 825,000 shares of ELS common stock held in the Plan accounts of
ELS' executive officers and directors. All of the shares of ELS common stock
held in Plan accounts that were distributed are freely tradable without
restriction or further registration under the federal securities laws, except
for shares held in the Plan accounts of executive officers and directors, which
are subject to the manner and volume of sale requirements of Rule 144 under the
Securities Act. Termination of the Plan had no effect on results of operations
and no material impact on the Company's balance sheet. Certain executive
officers of the Company may from time to time adopt non-discretionary, written
trading plans that comply with Commission Rule 10b5-1; or otherwise monetize
their equity-based compensation. Commission Rule 10b5-1 provides executives with
a method to monetize their equity-based compensation in an automatic and
non-discretionary manner over time.
PRIVILEGED ACCESS
On October 17, 2005, we announced that Mr. Joe McAdams resigned from the
Company's Board of Directors in order to pursue a new venture called Privileged
Access. The new company is expected to lease sites at certain of ELS' Properties
for the purpose of creating flexible use products. These products may include
the sale of timeshare or fractional interests in resort homes or cottages and
membership and vacation-club products. Leasing our sites to Privileged Access
allows us to participate in these products and activities while achieving
long-term rental of our sites. The Company has yet to determine the impact this
new relationship will have on its financial statements. On November 15, 2005 the
Company entered into an agreement to loan Privileged Access up to $0.5 million.
As of December 31, 2005, approximately $0.3 million has been borrowed by
Privileged Access and is classified as a note receivable on our Consolidated
Balance Sheets. The loan bears interest at prime plus 1.0% per annum and matures
on November 15, 2007.
INSURANCE
Approximately 70 Florida Properties suffered damage from the four
hurricanes that struck the state during August and September 2004. As of
February 23, 2006, approximately $19.4 million of claims, including business
interruption, have been submitted to our insurance companies for reimbursement.
As of December 31, 2005, the Company has made total expenditures of
approximately $11.9 million and expects to incur additional expenditures to
complete the work necessary to restore our Properties to their pre-hurricanes
condition. The Company has received proceeds from insurance carriers of
approximately $2.6 million as of December 31, 2005. The Company has reserved
approximately $2.0 million related to these expenditures ($0.7 million in 2005
and $1.3 million in 2004). Approximately $3.4 million of these expenditures have
been capitalized per the Company's capitalization policy as of December 31,
2005. Approximately $3.9 million is included in other assets as a receivable
from insurance providers as of December 31, 2005, and approximately $5.9 million
was included in other assets as of December 31, 2004.
In 2005, the Company reduced the book value of its assets by approximately
$1.0 million due to damage caused by these 2004 storms. The Company received
insurance proceeds of approximately $0.8 million relating to other matters. Both
of these items were recorded in income from other investments, net.
During the fourth quarter of 2005, the Company spent approximately $1.3
million on Properties located in South Florida impacted by Hurricane Wilma to
get them operationally ready for the season. This amount has been charged to
operations in 2005. The Company is still evaluating the total costs it expects
to incur and is preparing its insurance claim.
26
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties or portfolios acquired, invested
in, or sold since January 1, 2004:
PROPERTY TRANSACTION DATE SITES
-------- ------------------ -------
TOTAL SITES AS OF JANUARY 1, 2004.............. 53,429
PROPERTY OR PORTFOLIO (# OF PROPERTIES IN
PARENTHESES):
O'Connell's................................. January 15, 2004 668
Spring Gulch................................ January 30, 2004 420
Paradise.................................... February 3, 2004 950
Twin Lakes.................................. February 18, 2004 400
Lakeside.................................... February 19, 2004 95
Diversified Portfolio (10).................. February 5, 2004 2,567
NHC Portfolio (28).......................... February 17, 2004 11,311
Viewpoint................................... May 3, 2004 1,928
Cactus Gardens.............................. May 12, 2004 430
Monte Vista................................. May 13, 2004 832
GE Portfolio (5)............................ May 14, 2004 1,155
Yukon Trails................................ September 8, 2004 214
Caledonia................................... November 4, 2004 247
Thousand Trails (57)........................ November 10, 2004 17,911
Fremont..................................... December 30, 2004 325
San Francisco RV............................ June 20, 2005 182
Morgan Portfolio (5)........................ August 12, 2005 2,929
Lake George Escape.......................... September 15, 2005 576
JOINT VENTURES:
Diversified Investments (12)................ Various 4,697
Indian Wells................................ February 17, 2004 350
Maine Portfolio (3)......................... April 7, 2005 495
MEZZANINE INVESTMENTS (11)..................... February 3, 2004 5,054
DISPOSITIONS:
Lake Placid................................. May 28, 2004 (408)
Manatee (Joint Venture)..................... September 1, 2004 (290)
Five Seasons................................ November 10, 2005 (390)
EXPANSION SITE DEVELOPMENT AND OTHER:
Sites added (reconfigured) in 2004.......... 147
Sites added (reconfigured) in 2005.......... 113
-------
TOTAL SITES AS OF DECEMBER 31, 2005............ 106,337
=======
Since December 31, 2003, the gross investment in real estate increased from
$1,310 million to $2,152 million as of December 31, 2005, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 53,429 as of
December 31, 2003 to 106,337 as of December 31, 2005.
27
MARKETS
The following table identifies our five largest markets by number of sites
and provides information regarding our Properties (excludes Properties owned
through Joint Ventures).
PERCENT OF TOTAL
NUMBER OF PERCENT OF PROPERTY OPERATING
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES
- ------------ ---------- ----------- ----------- ------------------
Florida 77 32,562 35.1% 44.3%
California 45 13,047 14.1% 18.5%
Arizona 27 10,516 11.3% 11.6%
Texas 15 7,200 7.8% 2.5%
Washington 13 3,076 3.3% 0.6%
Other 76 26,395 28.4% 22.5%
--- ------ ----- -----
Total 253 92,796 100.0% 100.0%
=== ====== ===== =====
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles ("GAAP"), which require us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and the related disclosures. We believe that the
following critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Long-Lived Assets
In accordance with the Statement of Financial Accounting Standards No. 141
("SFAS No. 141"), we allocate the purchase price of Properties we acquire to net
tangible and identified intangible assets acquired based on their fair values.
In making estimates of fair values for purposes of allocating purchase price, we
utilize a number of sources, including independent appraisals that may be
available in connection with the acquisition or financing of the respective
Property and other market data. We also consider information obtained about each
Property as a result of our due diligence, marketing and leasing activities in
estimating the fair value of the tangible and intangible assets acquired.
We periodically evaluate our long-lived assets, including our investments
in real estate, for impairment indicators. 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.
Real estate is recorded at cost less accumulated depreciation. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
assets. We use a 30-year estimated life for buildings acquired and structural
and land improvements, a ten-to-fifteen-year estimated life for building
upgrades and a three-to-seven-year estimated life for furniture, fixtures and
equipment. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred and significant renovations and improvements that improve
the asset and extend the useful life of the asset are capitalized over their
estimated useful life.
Allowance for Doubtful Accounts
Rental revenue from our tenants is our principal source of revenue and 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. We
monitor the collectibility of accounts receivable from our tenants on an
on-going basis. We will reserve for receivables when we believe the ultimate
collection is less than probable and maintain an allowance for doubtful
accounts. An allowance for doubtful accounts is recorded during each period and
the associated bad debt expense is included in our property operating and
maintenance expense in our consolidated statement of operations. The allowance
for doubtful accounts is netted against tenant and other receivable on our
consolidated balance sheets. Our provision for uncollectible rents receivable
was approximately $1.2 million as of December 31, 2005 and $1.0 million as of
December 31, 2004.
We also finance the sale of homes to our customers (referred to as "Chattel
Loans") through loans. The valuation of an allowance for doubtful accounts for
the Chattel Loans is calculated based on a comparison of the outstanding
principal balance of each note compared to the N.A.D.A. (National Automobile
Dealers Association) value and the current market value of the underlying
manufactured home collateral. A bad debt expense is recorded in home selling
expense in our Consolidated Statement of Operations. The
28
allowance for doubtful accounts is netted against the notes and interest
receivables on our consolidated balance sheets. The allowance for these Chattel
Loans as of December 31, 2005 and December 31, 2004 was $81,000 and $250,000,
respectively.
Inventory
Inventory consists of new and used Site Set homes and is stated at the
lower of cost or market after consideration of the N.A.D.A. 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. Inventory is recorded net of an inventory reserve as of
December 31, 2005 and December 31, 2004 of $580,000 and $600,000, respectively.
The expense for the inventory reserve is included in the cost of home sales in
our consolidated statement of operations.
Variable Interest Entities
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R")
- - an interpretation of ARB 51. The objective of FIN 46R is to provide guidance
on how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate such
entity if the company absorbs a majority of the entity's expected losses or
receives a majority of the entity's expected residual returns if they occur, or
both (i.e., the primary beneficiary). The Company will apply FIN 46R to all
types of entity ownership (general and limited partnerships and corporate
interests).
The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of such
entities. In addition, the Company will apply the provisions of FIN 46R to all
new entities in the future. The Company also consolidates entities in which it
has a controlling direct or indirect voting interest. The equity method of
accounting is applied to entities in which the Company does not have a
controlling direct or indirect voting interest, but can exercise influence over
the entity with respect to its operations and major decisions. The cost method
is applied when (i) the investment is minimal (typically less than 5%) and (ii)
the Company's investment is passive.
In applying the provisions of FIN 46R, the Company determined that its
$29.7 million investment in preferred equity interests (the "Mezzanine
Investment") in six entities controlled by Diversified Investments, Inc.
("Diversified") (see Liquidity and Capital Resources - Investing Activities) is
a VIE; however, the Company concluded that it is not the primary beneficiary. As
such, the adoption of this pronouncement had no effect on the Company's
financial statements.
Stock-based Compensation
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, including our derivative 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.
The Company adopted the fair-value-based method of accounting for
share-based payments effective January 1, 2003 using the modified prospective
method described in FASB Statement No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. The Company adopted Statement of
Financial Accounting Standards No. 123(R), ("SFAS 123(R)") "Share Based Payment"
on July 1, 2005 which did not have a material impact on the Company's results of
operations or its financial position. The Company uses the Black-Scholes-Merton
formula to estimate the value of stock options granted to employees.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements with any unconsolidated
investments or joint ventures that we believe have or are reasonably likely to
have a material effect on our financial condition, results of operations,
liquidity or capital resources.
29
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2005 TO YEAR ENDED DECEMBER 31, 2004
The following table summarizes certain financial and statistical data for
the Property Operations for all Properties owned throughout both periods ("Core
Portfolio") and the Total Portfolio for the years ended December 31, 2005 and
2004 (amounts in thousands).
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE / % INCREASE / %
2005 2004 (DECREASE) CHANGE 2005 2004 (DECREASE) CHANGE
-------- -------- ---------- ----- -------- -------- ---------- ------
Community base rental income ..... $204,150 $196,292 $7,858 4.0% $213,280 $204,190 $ 9,090 4.5%
Resort base rental income ........ 14,957 14,515 442 3.0% 73,398 54,841 18,557 33.8%
Utility and other income ......... 20,711 20,000 711 3.6% 27,210 24,278 2,932 12.1%
-------- -------- ------ --- -------- -------- ------- ----
Property operating revenues ... 239,818 230,807 9,011 3.9% 313,888 283,309 30,579 10.8%
Property operating and
maintenance ................... 70,592 66,483 4,109 6.2% 104,150 92,121 12,029 13.1%
Real estate taxes ................ 19,931 19,085 846 4.4% 24,688 22,723 1,965 8.6%
Property management .............. 9,978 9,358 620 6.6% 15,919 12,852 3,067 23.9%
-------- -------- ------ --- -------- -------- ------- ----
Property operating expenses ... 100,501 94,926 5,575 5.9% 144,757 127,696 17,061 13.4%
-------- -------- ------ --- -------- -------- ------- ----
Income from property operations .. $139,317 $135,881 $3,436 2.5% $169,131 $155,613 $13,518 8.7%
======== ======== ====== === ======== ======== ======= ====
PROPERTY OPERATING REVENUES
The 3.9% increase in the Core Portfolio property operating revenues
reflects (i) a 4.7% increase in rates for our community base rental income
combined with a 0.7% decrease in occupancy, (ii) a 4.1% increase in revenues for
our core resort property operating revenues, and (iii) an increase in utility
income due to higher utility rates. Total Portfolio operating revenues increased
due to current year acquisitions and 2004 acquisitions owned for the full year
in 2005 (see Note 5 of the Notes to Consolidated Financial Statements contained
in this Form 10-K).
PROPERTY OPERATING EXPENSES
The 6.2% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in administrative expense, utility
expense increases greater than CPI, and increased insurance expenses. The 4.4%
increase in Core Portfolio real estate taxes is generally due to higher property
assessments on certain Properties. Property management expense for the Core
Portfolio, which reflects costs of managing the Properties and is estimated
based on a percentage of Property operating revenues, increased due to payroll
costs, but remains at approximately 4% of revenue. Property management expense
for the Total Portfolio increased primarily due to overall Company growth and
new marketing initiatives. Total Portfolio operating expenses increased due to
our current year acquisitions and 2004 acquisitions owned for the full year in
2005.
30
RESULTS OF OPERATIONS (CONTINUED)
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2005 and 2004
(amounts in thousands, except sales volumes).
HOME SALES OPERATIONS
-----------------------------------------
2005 2004 VARIANCE % CHANGE
-------- -------- -------- --------
Gross revenues from new home sales .... $ 62,664 $ 43,324 $ 19,340 44.6%
Cost of new home sales ................ (53,899) (38,067) (15,832) (41.6%)
-------- -------- -------- ------
Gross profit from new home sales ...... 8,765 5,257 3,508 66.7%
Gross revenues from used home sales ... 3,350 4,080 (730) (17.9%)
Cost of used home sales ............... (3,572) (3,510) (62) (1.8%)
-------- -------- -------- ------
Gross profit from used home sales ..... (222) 570 (792) (138.9%)
Brokered resale revenues, net ......... 2,714 2,176 538 24.7%
Home selling expenses ................. (8,838) (8,630) (208) (2.4%)
Ancillary services revenues, net ...... 3,864 2,743 1,121 40.9%
-------- -------- -------- ------
Income from home sales operations ..... $ 6,283 $ 2,116 $ 4,167 196.9%
======== ======== ======== ======
HOME SALES VOLUMES:
New home sales (1) ................. 771 514 257 50.0%
Used home sales .................... 271 341 (70) (20.5%)
Brokered home resales .............. 1,526 1,415 111 7.8%
(1) Includes third party home sales of 84 and 0 for the years ended December
31, 2005 and 2004, respectively.
New home sales gross profit reflects a 50% increase in sales volume
combined with an increase in average selling price of approximately $7,000 per
home or approximately 8%. Used home sales gross profit reflects lower gross
margin per home and lower volumes. Brokered resale revenues reflect increased
resale volumes. Home selling expenses had a modest increase of 2.4%. The
increase in ancillary service revenue relates primarily to income from property
amenities at our 2004 acquisition Properties owned in 2005 for the full year.
OTHER INCOME AND EXPENSES
The following table summarizes other income and expenses for the years
ended December 31, 2005 and 2004 (amounts in thousands).
2005 2004 VARIANCE % CHANGE
--------- --------- -------- --------
Interest income ...................... $ 1,406 $ 1,391 $ 15 1.1%
Income from other investments, net ... 16,609 3,475 13,134 378.0%
General and administrative ........... (13,624) (9,243) (4,381) 47.4%
Rent control initiatives ............. (1,081) (2,412) 1,331 (55.2%)
Interest and related amortization .... (100,832) (90,970) (9,862) 10.8%
Loss on early debt retirement ........ (20,630) -- (20,630) --
Depreciation on corporate assets ..... (804) (1,657) 853 (51.5%)
Depreciation on real estate assets ... (55,689) (47,541) (8,148) 17.1%
--------- --------- -------- -----
Total other expenses, net ......... $(174,645) $(146,957) $(27,688) 18.8%
========= ========= ======== =====
The increase in other expense of approximately $28 million relates to the
following: approximately $20.6 million for transaction costs on early debt
retirement related to refinancings in 2005 (see Note 8 of the Notes to the
Consolidated Financial Statements contained in this Form 10-K); an increase in
interest expense of approximately $10 million related to the full year effect in
2005 of our 2004 acquisition debt and additional 2005 acquisition debt; and
increased general and administrative expense of $4.5 million due to increased
payroll, legal, recruiting and travel costs. Depreciation on real estate
increased $8.1 million relating to the full year effect in 2005 of our 2004
acquisitions. These are partially offset by increased income from other
investments that includes approximately $16.1 million of lease income from the
Thousand Trails ground lease entered into on November 10, 2004.
31
RESULTS OF OPERATIONS (CONTINUED)
EQUITY IN INCOME OF UNCONSOLIDATED JOINT VENTURES
During 2005, we received distributions from three joint ventures relating
to debt refinancings by the venture. Two of these distributions exceeded the
Company's basis and therefore were included in the income from unconsolidated
joint ventures. Our 2005 acquisitions and the full year effect of our 2004
acquisitions also contributed to the increase.
COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO YEAR ENDED DECEMBER 31, 2003
The following table summarizes certain financial and statistical data for
the Property Operations for all Properties owned throughout both periods ("Core
Portfolio") and the Total Portfolio for the years ended December 31, 2004 and
2003 (amounts in thousands).
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE / % INCREASE / %
2004 2003 (DECREASE) CHANGE 2004 2003 (DECREASE) CHANGE
-------- -------- ---------- ----- -------- -------- ---------- ------
Community base rental income ...... $196,537 $190,169 $6,368 3.3% $204,190 $189,915 $14,275 7.5%
Resort base rental income ......... 12,578 11,491 1,087 9.5% 54,841 11,779 43,062 365.6%
Utility and other income .......... 19,845 19,409 436 2.2% 24,278 19,411 4,867 25.1%
-------- -------- ------ --- -------- -------- ------- -----
Property operating revenues .... 228,960 221,069 7,891 3.6% 283,309 221,105 62,204 28.1%
Property operating and
maintenance .................... 64,950 61,933 3,017 4.9% 92,121 61,945 30,176 48.7%
Real estate taxes ................. 18,987 18,009 978 5.4% 22,723 18,011 4,712 26.2%
Property management ............... 9,514 9,372 142 1.5% 12,852 9,373 3,479 37.1%
-------- -------- ------ --- -------- -------- ------- -----
Property operating expenses .... 93,451 89,314 4,137 4.6% 127,696 89,329 38,367 43.0%
-------- -------- ------ --- -------- -------- ------- -----
Income from property operations ... $135,509 $131,755 $3,754 2.8% $155,613 $131,776 $23,837 18.1%
======== ======== ====== === ======== ======== ======= =====
PROPERTY OPERATING REVENUES
The 3.6% increase in the Core Portfolio property operating revenues
reflects a 4.7% increase in rates for our community base rental income combined
with a 1.1% decrease in occupancy. An increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher utility expenses. Total Portfolio operating revenues
increased due to acquisitions (see Note 5 of the Notes to Consolidated Financial
Statements contained in this Form 10-K).
PROPERTY OPERATING EXPENSES
The 4.9% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in payroll expense, administrative
expense, and repair and maintenance expense. The 5.4% increase in Core Portfolio
real estate taxes is generally due to higher property assessments on certain
Properties. Property management expense for the Core Portfolio, which reflects
costs of managing the Properties and is estimated based on a percentage of
Property operating revenues increased mainly due to payroll and computer costs,
but remains at approximately 4% of revenue. Total Portfolio operating expenses
increased due to 2004 acquisitions.
32
RESULTS OF OPERATIONS (CONTINUED)
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2004 and 2003
(amounts in thousands, except sales volumes).
HOME SALES OPERATIONS
------------------------------------------
2004 2003 VARIANCE % CHANGE
-------- -------- -------- ---------
Gross revenues from new home sales ... $ 43,324 $ 33,512 $ 9,812 29.3%
Cost of new home sales ............... (38,067) (29,064) (9,003) 31.0%
-------- -------- -------- -------
Gross profit from new home sales ..... 5,257 4,448 809 18.2%
Gross revenues from used home sales .. 4,080 2,960 1,120 37.8%
Cost of used home sales .............. (3,510) (2,551) (959) 37.6%
-------- -------- -------- -------
Gross profit from used home sales .... 570 409 161 39.4%
Brokered resale revenues, net ........ 2,176 1,714 462 27.0%
Home selling expenses ................ (8,630) (7,287) (1,343) 18.4%
Ancillary services revenues, net ..... 2,743 162 2,581 1,593.2%
-------- -------- -------- -------
Income from home sales operations .... $ 2,116 $ (554) $ 2,670 (481.9%)
======== ======== ======== =======
HOME SALES VOLUMES:
New home sales ....................... 514 458 56 12.2%
Used home sales ...................... 341 176 165 93.8%
Brokered home resales ................ 1,415 1,093 322 29.5%
New home sales gross profit reflects a 12.2% increase in sales volume
combined with an increase in average selling price of approximately $11,000 per
home or approximately 15% due to higher quality of homes. Used home sales gross
profit reflects a decrease in gross margin per home offset by an increase in
volume. Brokered resale revenues reflect increased resale volumes. The 18.4%
increase in home selling expenses primarily reflects increases in insurance
costs. The increase in ancillary service revenue relates primarily to income
from property amenities at Properties acquired in 2004.
OTHER INCOME AND EXPENSES
The following table summarizes other income and expenses for the years
ended December 31, 2004 and 2003 (amounts in thousands).
2004 2003 VARIANCE % CHANGE
--------- --------- -------- --------
Interest income ..................... $ 1,391 $ 1,695 $ (304) (17.9%)
Income from other investments, net .. 3,475 956 2,519 263.5%
General and administrative .......... (9,243) (8,060) (1,183) 14.7%
Rent control initiatives ............ (2,412) (2,352) (60) 2.6%
Interest and related amortization ... (90,970) (58,206) (32,764) 56.3%
Loss on early debt retirement ....... -- -- -- --
Depreciation on corporate assets .... (1,657) (1,240) (417) 33.6%
Depreciation on real estate assets .. (47,541) (35,924) (11,617) 32.3%
--------- --------- -------- -----
Total other expenses, net ........ $(146,957) $(103,131) $(43,826) 42.5%
========= ========= ======== =====
The increase in other expenses of approximately $44 million reflects an
increase in interest expense of $33 million resulting from the Recap borrowing
in October 2003 (see Note 8 of the Notes to Consolidated Financial Statements
contained in this Form 10-K) and additional debt assumed in the 2004
acquisitions, an increase in depreciation on real estate assets of $12 million
related to the 2004 acquisitions, and increased general and administrative
expense due to increased payroll. This is partially offset by income from other
investments that includes $2.3 million of lease income from the Thousand Trails
ground lease entered into on November 10, 2004.
33
RESULTS OF OPERATIONS (CONTINUED)
EQUITY IN INCOME OF UNCONSOLIDATED JOINT VENTURES
During 2004, we invested in preferred equity interests, the Mezzanine
Investment, in six entities owning 11 Properties and 5,054 sites. Our average
return on the Mezzanine Investment accrues at a rate of 10% per annum. We also
invested in 11 separate joint ventures (see "Liquidity and Capital Resources -
Investing Activities"). These investments contributed to the increase in equity
in income from unconsolidated joint ventures.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of December 31, 2005, the Company had $0.6 million in cash and cash
equivalents and $122.3 million available on its lines of credit. The Company
expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by
operating activities and availability under the existing lines of credit. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities, property acquisitions and capital improvements by
long-term collateralized and uncollateralized borrowings including borrowings
under its existing lines of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to net cash provided by
operating activities. The table below summarizes cash flow activity for the
twelve months ended December 31, 2005, 2004 and 2003 (amounts in thousands).
FOR THE TWELVE MONTHS ENDED
DECEMBER 31,
--------------------------------
2005 2004 2003
-------- --------- ---------
Cash provided by operating activities $ 90,326 $ 46,733 $ 75,163
Cash used in investing activities (66,246) (366,654) (598)
Cash (used in) provided by financing activities (28,775) (514) 243,905
-------- --------- ---------
Net (decrease) increase in cash $ (4,695) $(320,435) $ 318,470
======== ========= =========
OPERATING ACTIVITIES
Net cash provided by operating activities increased $43.6 million for the
year ended December 31, 2005. This increase reflects increases in property
operating income as discussed in "Results of Operations" above and a decrease in
working capital. Net cash provided by operating activities decreased $28.4
million for the year ended December 31, 2004 from $75.2 million in 2003. This
decrease reflects increased interest expense as a result of the Recap in October
2003 and increases in working capital, partially offset by increases in property
operating income as discussed in "Results of Operations" above.
INVESTING ACTIVITIES
Net cash used in investing activities reflects the impact of the following
investing activities:
ACQUISITIONS
During the year ended December 31, 2005, we acquired seven Properties (see
Note 5 of the Notes to Consolidated Financial Statements contained in this Form
10-K). The combined real estate investment in these Properties was approximately
$89.9 million and was funded with money drawn from our lines of credit and debt
assumed of $53.5 million. We also assumed approximately $5.4 million in escrow
deposits and $4.0 million of rents received in advance as a result of these
acquisitions. Certain purchase price adjustments may be made within one year
following the acquisitions.
During the year ended December 31, 2004, we acquired 111 Properties. The
combined investment in real estate for these 111 Properties was approximately
$703 million and was funded with monies held in short-term investments, debt
assumed of $352 million which includes a mark-to-market adjustment of $10.4
million, new financing of $124 million, and borrowings from our lines of credit.
Included in the above as previously described are 57 Properties purchased as
part of the Thousand Trails Transaction; the income related to this transaction
is classified as income from other investments on the Consolidated Statements of
Operations.
34
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
We assumed inventory of approximately $1.2 million, other assets of $4.9
million, rents received in advance of approximately $13.6 million and other
liabilities of approximately $5.8 million in connection with the 2004
acquisitions. The Company also issued common OP Units for value of approximately
$32.2 million.
During 2003, we acquired three Properties at a purchase price of $11.8
million. The acquisitions were funded with monies held in short-term investments
and debt assumed of $4.6 million. The acquisitions included the assumption of
liabilities of approximately $0.7 million. Also during 2003, we acquired a
parcel of land adjacent to one of our Properties for approximately $0.1 million.
We continue to look at acquiring additional assets and are at various
stages of negotiations with respect to potential acquisitions. Funding is
expected to be provided by either proceeds from potential dispositions, lines of
credit draws, or other financing.
DISPOSITIONS
During the year ended December 31, 2005, we sold one Property located in
Cedar Rapids, Iowa for a selling price of $6.7 million. Net proceeds of $6.3
million were used to repay amounts on our lines of credit. A gain on sale of
approximately $2.3 million was recorded during the fourth quarter of 2005.
During the year ended December 31, 2004, we sold one Property located in
Lake Placid, Florida for a selling price of $3.4 million, with net proceeds of
$0.8 million received in July 2004. No gain or loss on disposition was
recognized in the period. In addition, we sold approximately 1.4 acres of land
in Montana for a gain and net proceeds of $0.6 million.
During the year ended December 31, 2003, we sold three Properties for
proceeds of $27.1 million and a gain of $10.8 million. Proceeds from the sales
were used to repay amounts on our line of credit.
We currently have six all-age Properties held for disposition and are in
various stages of negotiations for sale. We plan to reinvest the sale proceeds
or reduce outstanding lines of credit.
The operating results of all properties sold or held for disposition have
been reflected in the discontinued operations of the Consolidated Statements of
Operations contained in this Form 10-K.
INVESTMENTS IN AND DISTRIBUTIONS FROM JOINT VENTURES AND OTHER INVESTMENTS
During the year ended December 31, 2005, the Company invested approximately
$7.0 million for a 50% preferred joint venture interest in three Properties
located near Bar Harbor, Maine. The Company also invested approximately $0.6
million for a 40% interest in a Texas Property owned by a joint venture
controlled by Diversified Investments, Inc.
During the year ended December 31, 2004, the Company invested approximately
$29.7 million in preferred equity interests in six entities controlled by
Diversified. These entities own in the aggregate 11 Properties, containing 5,054
sites. Approximately $11.7 million of the Mezzanine Investment accrues at a per
annum average rate of 10%, with a minimum pay rate of 6.5% per annum, payable
quarterly, and approximately $17.9 million of the Mezzanine Investment accrues
at a per annum average rate of 11%, with a minimum pay rate of 7% per annum,
payable quarterly. To the extent the minimum pay rates on the respective
Mezzanine Investments are not achieved, the accrual rates increase to 12% and
13% per annum, respectively. In addition, the Company invested approximately
$1.4 million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Company's Consolidated
Balance Sheet as of December 31, 2005.
During the year ended December 31, 2004, the Company invested approximately
$4.1 million in 11 joint ventures controlled by Diversified. In addition, the
Company recorded approximately $6.5 million, $3.7 million and $0.3 million of
net income from joint ventures, net of $2.0 million, $1.2 million and $0.8
million of depreciation in the years ended December 31, 2005, 2004 and 2003,
respectively. The Company received approximately $11.3 million, $5.2 million and
$0.8 million in distributions from such joint ventures for the years ended
December 31, 2005, 2004 and 2003, respectively. For the years ended December 31,
2005 and 2004, $2.2 million and $0.5 million exceeded the Company's basis and
thus was recorded in income from unconsolidated joint ventures. Due to the
Company's inability to control the joint ventures, the Company accounts for its
investment in the joint ventures using the equity method of accounting.
35
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $15.9 million, $13.7 million
and $11.9 million for the years ended December 31, 2005, 2004 and 2003,
respectively. Included in Recurring CapEx for 2005 is approximately $3.4 million
of costs incurred to replace hurricane damaged assets. Site development costs
were approximately $16.2 million, $13.0 million and $9.0 million for the years
ended December 31, 2005, 2004 and 2003, respectively, and represent costs to
develop expansion sites at certain of the Company's Properties and costs for
improvements to sites when a smaller used home is replaced with a larger new
home. Corporate costs such as computer hardware, office furniture and office
improvements and expansion were $0.8 million, $0.4 million and $0.1 million for
the years ended December 31, 2005, 2004 and 2003, respectively.
FINANCING ACTIVITIES
Net cash used in financing activities reflects the impact of the following:
MORTGAGES AND CREDIT FACILITIES
FINANCING, REFINANCING AND EARLY DEBT RETIREMENT
During the third quarter of 2005, the Company refinanced two mortgage loans
for proceeds of $34 million at an interest rate of 4.95% per annum. Net proceeds
were used to pay down approximately $20 million in other secured financing
maturing in 2006.
On December 2, 2005, the Company refinanced approximately $293 million of
secured debt maturing in 2007 with an effective interest rate of 6.8% per annum.
This debt was secured by two cross-collateralized loan pools consisting of 35
Properties. The transaction generated approximately $337 million in proceeds
from loans secured by individual mortgages on 20 Properties. The blended
interest rate on the refinancing was approximately 5.3% per annum and the loans
mature in 2015. Transaction costs were approximately $20.0 million ($0.67 per
fully diluted share) and are classified as early debt retirement on the
Consolidated Statements of Operations. The remaining excess proceeds were used
to repay outstanding amounts on our lines of credit. This transaction
strengthens the Company's balance sheet by extending its weighted average years
to maturity by approximately two years.
During the third quarter of 2005, in connection with its acquisitions, the
Company assumed mortgages of approximately $53.5 million at a weighted average
interest rate of approximately 5.9% per annum.
In 2004, the Company assumed mortgage and other debt relating to
acquisitions of approximately $157 million, which was recorded at fair market
value with the related premium being amortized over the life of the loan using
the effective interest rate. The Company borrowed an additional $194 million of
mortgage debt for other acquisitions. The mortgages bear interest at weighted
average rates ranging from 5.14% to 5.81% per annum, and mature at various dates
through November 1, 2027. In addition, in connection with the Thousand Trails
Transaction, we secured a $120 million three-year term loan at London Interbank
Offered Rate ("LIBOR") plus 1.75%.
In 2003, the Company initiated the Recap as a result of its belief in the
stability of its cash flow from property operations and the attractive financing
terms available to borrowers such as the Company in the secured debt markets. In
conducting its evaluation of the use of proceeds from the Recap, the Company's
Board of Directors believed that to the extent no attractive alternative use was
available, a distribution to stockholders should occur. In late 2003, the
Company identified acquisition targets which would use approximately $100
million of the $325 million in net proceeds resulting from the Recap. In
December 2003, the Company's Board of Directors declared a distribution of
approximately $225 million ($8 per share). During 2004, the Company identified
additional acquisitions and has funded such acquisitions primarily with secured
and unsecured borrowings.
36
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Recap and subsequent borrowings in connection with acquisitions have
significantly increased the Company's outstanding debt. The interest and
principal payments required under these debt agreements materially increase the
Company's future contractual payment obligations. In light of these increased
cash flow requirements, the Company reduced its annual dividend to common
stockholders from approximately $44 million in 2003 to $1 million in 2004 and to
$2.5 million in 2005. In addition, the Company's cash from operations increased
significantly from 2003 due to the cash generated by newly-acquired Properties.
To the extent cash flow from the Properties does not meet the Company's
expectations, the Company's Board of Directors increases the annual dividend
significantly, or the Company is required to make significant unexpected capital
improvements or other payments, the Company's financial flexibility and ability
to meet scheduled obligations could be negatively impacted.
In October 2003, the Company unwound an interest rate swap ("2001 Swap")
agreement at a cost of approximately $3 million, which is included in interest
and related amortization in 2003 in the accompanying Consolidated Statements of
Operations. The 2001 swap effectively fixed LIBOR on $100 million of our
floating rate debt at approximately 3.7% per annum for the period October 2001
through August 2004. The terms of the 2001 Swap required monthly settlements on
the same dates interest payments were due on the debt. In accordance with SFAS
No. 133, the 2001 Swap was reflected at market value.
On April 17, 2003, the Company entered into an agreement to refinance and
increase the "Bay Indies Mortgage", a $44.5 million note, from approximately
$21.9 million to $45 million. Under the new agreement, the Bay Indies Mortgage
bears interest at 5.69% per annum, amortizes over 25 years and matures April 17,
2013. The net proceeds were used to pay down the Company's line of credit. Also
during the year ended December 31, 2003, mortgage notes payable on four other
Properties were repaid totaling approximately $23.5 million using proceeds from
borrowings on the Company's line of credit.
SECURED DEBT
As of December 31, 2005, our securitized long-term debt balance was
approximately $1.5 billion, with a weighted average interest rate in 2005 of
approximately 6.32% per annum. The debt bears interest at rates between 4.17%
and 7.19% per annum and matures on various dates mainly ranging from 2007 to
2015. Included in our debt balance are three capital leases with an imputed
interest rate of 11.6% per annum. We do not have any significant long-term debt
maturing in 2006 or 2007 with $227 million being the maximum amount maturing in
any of the succeeding 5 years beginning in 2008. The weighted average term to
maturity for the long-term debt is approximately 7.3 years.
UNSECURED DEBT
We have two unsecured lines of credit of $110 million and $50 million which
bear interest at a per annum rate of LIBOR plus 1.65%. Throughout the year ended
December 31, 2005, we borrowed $175.3 million and paid down $253.4 million on
our lines of credit. The weighted average interest rate in 2005 for our
unsecured debt was approximately 5.02% per annum. The balance outstanding as of
December 31, 2005 was $37.7 million. As of February 8, 2006, approximately
$146.4 million is available to be drawn on these combined lines of credit.
We have a $120 million three-year term loan at LIBOR plus 1.75%. Throughout
the year ended December 31, 2005, we paid down $20 million of the term loan. The
weighted average interest rate on this debt in 2005 was approximately 4.94% per
annum. In December 2005, we fixed $100 million of this variable debt for one
year with a weighted average per annum interest rate of 6.58% per annum.
37
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
OTHER LOANS
During 2005, the Company borrowed $2.4 million to finance its insurance
premium payments. As of December 31, 2005, $230,000 remained outstanding. This
loan has currently been paid off.
Certain of the Company's mortgage and credit agreements contain covenants
and restrictions including restrictions as to the ratio of secured or unsecured
debt versus encumbered or unencumbered assets, the ratio of fixed
charges-to-earnings before interest, taxes, depreciation and amortization
("EBITDA"), limitations on certain holdings and other restrictions.
As of December 31, 2005, we were subject to certain contractual payment
obligations as described in the table below (dollars in thousands):
CONTRACTUAL
OBLIGATIONS TOTAL 2006(2) 2007(3) 2008 2009 2010 THEREAFTER
- ----------- ---------- ------- -------- -------- ------- -------- ----------
Long Term
Borrowings (1)....... $1,631,466 $53,622 $135,395 $201,605 $75,049 $227,340 $938,455
Weighted average
interest rates....... 6.07% 6.09% 6.23% 5.65% 6.94% 7.17% 5.81%
(1) Balance excludes net premiums and discounts of $6.9 million.
(2) Includes lines of credit repayments in 2006 of $37.7 million. We have an
option to extend this maturity for one year to 2007.
(3) Includes a Term Loan repayment in 2007 of $100 million. We have an option
to extend this maturity for two additional one-year terms to 2009.
Included in the above table are certain capital lease obligations totaling
approximately $6.5 million. These agreements expire June 2009 and are paid
semi-annually at an imputed interest rate of 11.6% per annum.
In addition, the Company has various contracts with vendors to perform
services in the future for its operations. These contracts include terms for
cancellation and are individually immaterial.
In addition, the Company leases land under non-cancelable operating leases
at certain of the Properties expiring in various years from 2022 to 2032 with
terms which require 12 equal payments per year plus additional rents calculated
as a percentage of gross revenues. For the years ended December 31, 2005, 2004
and 2003, ground lease rent was approximately $1.6 million, $1.6 million and
$1.5 million per year, respectively. Minimum future rental payments under the
ground leases are approximately $1.6 million for each of the next five years and
approximately $21.3 million thereafter.
With respect to maturing debt, the Company has staggered the maturities of
our long-term mortgage debt over an average of approximately 7 years, with no
more than $600 million in principal maturities coming due in any single year.
The Company believes that it will be able to refinance its maturing debt
obligations on a secured or unsecured basis; however, to the extent the Company
is unable to refinance its debt as it matures, it believes that it will be able
to repay such maturing debt from asset sales and/or the proceeds from equity
issuances. With respect to any refinancing of maturing debt, the Company's
future cash flow requirements could be impacted by significant changes in
interest rates or other debt terms, including required amortization payments.
38
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
EQUITY TRANSACTIONS
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 90% or more of its taxable income (excluding capital gains) to
its stockholders. The following distributions have been declared and paid to
common stockholders and minority interests since January 1, 2003.
DISTRIBUTIONS FOR THE QUARTER STOCKHOLDER RECORD
PER SHARE ENDING DATE PAYMENT DATE
- ------------- ------------------ ------------------ -----------------
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$ 8.00 December 31, 2003 January 8, 2004 January 16, 2004
------- ------------------ ------------------ ----------------
$0.0125 March 31, 2004 March 26, 2004 April 9, 2004
$0.0125 June 30, 2004 June 25, 2004 July 9, 2004
$0.0125 September 30, 2004 September 24, 2004 October 8, 2004
$0.0125 December 31, 2004 December 31, 2004 January 14, 2005
------- ------------------ ------------------ ----------------
$0.0250 March 31, 2005 March 25, 2005 April 8, 2005
$0.0250 June 30, 2005 June 24, 2005 July 8, 2005
$0.0250 September 30, 2005 September 30, 2005 October 14, 2005
$0.0250 December 31, 2005 December 30, 2005 January 13, 2006
2005 Activities
On November 1, 2005, the Company announced that in 2006 the annual
distribution per common share will be $0.30 per share up from $0.10 per share in
2005 and $0.05 per share in 2004. This allows the Company to continue to take
advantage of its financial flexibility while recognizing the importance of its
dividend to its stockholders.
On March 24, 2005, the Operating Partnership issued $25 million of 8.0625%
Series D Cumulative Redeemable Perpetual Preference Units (the "Series D 8%
Units"), to institutional investors. The Series D 8% Units are non-callable for
five years. In addition, the Operating Partnership had an existing $125 million
of 9.0% Series D Cumulative Redeemable Perpetual Preference Units (the "Series D
9% Units") outstanding that were callable by the Company as of September 2004.
In connection with the new issue, the Operating Partnership agreed to extend the
non-call provision of the Series D 9% Units to be coterminous with the new
issue, and the institutional investors holding the Series D 9% Units agreed to
lower the rate on such units to 8.0625%. All of the units have no stated
maturity or mandatory redemption. Net proceeds from the offering were used to
pay down amounts outstanding under the Company's lines of credit.
On June 30, 2005, the Operating Partnership issued $50 million of 7.95%
Series F Cumulative Redeemable Perpetual Preference Units (the "Series F
Units"), to institutional investors. The Series F Units are non-callable for
five years and have no stated maturity or mandatory redemption. Net proceeds
from the offering were used to pay down amounts outstanding under the Company's
lines of credit.
On March 24, 2005, the Operating Partnership paid distributions of 9.0% per
annum on the $125 million of Series D 9% Units. For the seven days ended March
31, 2005 and the nine months thereafter, the Operating Partnership paid
distributions of 8.0625% per annum on the $150 million Series D 8% Units. For
the six months ended December 31, 2005 the Operating Partnership paid
distributions of 7.95% per annum on the $50 million of Series F 7.95% Units.
Distributions on the Preferred Units were paid quarterly on the last calendar
day of each quarter.
2004 Activities
During the twelve months ended December 31, 2004, in connection with its
2004 acquisitions the Company issued 1.2 million common OP Units valued at $36.7
million of which approximately $28.7 million has been classified as paid-in
capital. On December 21, 2004 we redeemed 126,765 common OP Units for
approximately $4.5 million of which approximately $3.5 million has been
classified as paid-in capital.
39
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
2003 Activities
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million Recap in October 2003 to pay the special distribution on
January 16, 2004. The special cash dividend was reflected on stockholders' 2004
1099-DIV issued in January 2005.
In connection with the $501 million Recap and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in the Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all of the common and preferred stock
of MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company recognized $180 million of taxable income as a result
of its contribution, as opposed to a nontaxable reduction of the Company's tax
basis in its interest in the Operating Partnership. This restructuring resulted
in a step-up in the Company's tax basis in its assets, generating future
depreciation deductions, which in turn will reduce the Company's future
distribution requirements. This provides the Company with greater financial
flexibility and greater growth potential. The Company intends to continue to
qualify as a REIT under the Code, with its assets consisting of interests in MHC
Trust. MHC Trust, in turn, also intends to qualify as a real estate investment
trust under the Code and will continue to be the general partner of the
Operating Partnership. On May 1, 2004, in connection with the restructuring, MHC
Trust sold cumulative preferred stock to a limited number of unaffiliated
investors.
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide us with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risks of inflation to the Company. In addition,
our resort Properties are not generally subject to leases and rents are
established for these sites on an annual basis.
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. We believe that FFO is helpful
to investors as one of several measures of the performance of an equity REIT. We
further believe that by excluding the effect of depreciation, amortization and
gains or losses from sales of real estate, all of which are based on historical
costs and which may be of limited relevance in evaluating current performance,
FFO can facilitate comparisons of operating performance between periods and
among other equity REITs. Investors should review FFO, along with GAAP net
income and cash flow from operating activities, investing activities and
financing activities, when evaluating an equity REIT's operating performance. We
compute FFO in accordance with standards established by NAREIT, which may not be
comparable to FFO reported by other REITs that do not define the 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.
40
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The following table presents a calculation of FFO for the years ended
December 31, 2005, 2004 and 2003 (amounts in thousands):
2005 2004 2003
------- ------- --------
COMPUTATION OF FUNDS FROM OPERATIONS:
Net (loss) income available for Common Shares ................ $(2,333) $ 4,026 $ 25,132
(Loss) income allocated to Common OP Units ................... (539) 936 6,004
Depreciation on real estate assets ........................... 55,689 47,541 35,924
Depreciation expense included in discontinued operations ..... 329 1,353 1,476
Depreciation expense included in equity in income from
joint ventures ............................................ 1,960 1,230 769
Gain on sale of Properties ................................... (2,279) (638) (10,826)
------- ------- --------
Funds from operations available for Common Shares ...... $52,827 $54,448 $ 58,479
======= ======= ========
Weighted average Common Shares outstanding - fully diluted ... 29,927 29,465 28,002
======= ======= ========
41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our earnings, cash flows and fair values relevant to financial
instruments are dependent on prevailing market interest rates. The 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 December 31, 2005, approximately 98% 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 $105.2 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 $112.7 million.
At December 31, 2005, approximately 2% or approximately $38 million of our
outstanding debt was short-term and at variable rates. Earnings are affected by
increases and decreases in market interest rates on this debt. For each
increase/decrease in interest rates of 1% (or 100 basis points), our earnings
would increase/decrease by approximately $0.4 million annually.
42
FORWARD-LOOKING STATEMENTS
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," "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: in the age-qualified Properties,
home sales results could be impacted by the ability of potential homebuyers to
sell their existing residences as well as by financial markets volatility; in
the all-age 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; 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 acquisitions and
timing with respect thereto; the effect of interest rates as well as other risks
indicated from time to time in our filings with the SEC. 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. ELS 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.
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, maintains a system of disclosure
controls and procedures, designed to provide reasonable assurance that
information the Company is required to disclose in the reports that the Company
files under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms.
The Company's management with the participation of the Chief Executive
Officer and the Chief Financial Officer has evaluated the effectiveness of the
Company's disclosure controls and procedures as of December 31, 2005. 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 at the reasonable assurance level as of the end of the period covered
by this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no material changes to the Company's internal controls over
financial reporting during the fourth quarter.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Based on management's assessment, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2005, using the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
The Company's independent registered public accounting firm has issued an
attestation report on management's assessment of the Company's internal control
over financial reporting. That report appears on page F-2 of the Consolidated
Financial Statements.
ITEM 9B. OTHER INFORMATION
None.
44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein pursuant to Item 401 and
Item 405 of Regulation S-K is contained under the captions "Election of
Directors," "Corporate Governance" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive proxy statement for the
Company's 2006 Annual Meeting of Stockholders to be held on May 3, 2006 (the
"2006 Proxy Statement") and such information is incorporated herein by
reference.
Information about our audit committee financial expert is incorporated
herein by reference to our Proxy Statement for the 2006 Annual Meeting of
Stockholders to be held on May 3, 2006.
In addition, the information required to be set forth herein pursuant to
Item 406 of Regulation S-K is contained under the caption "Corporate Governance"
in the 2006 Proxy Statement regarding the Company's written Guidelines on
Corporate Governance and the Company's Business Ethics and Conduct Policy is
incorporated herein by reference.
ITEMS 11, 12, 13 AND 14.
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required by Item 11, Item 12, Item 13 and Item 14 will be
contained in the 2006 Proxy Statement, and thus this Part has been omitted in
accordance with General Instruction G(3) to Form 10-K.
45
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
1. Financial Statements
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
2. Financial Statement Schedules
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
3. Exhibits:
2(a) Admission Agreement between Equity Financial and
Management Co., Manufactured Home Communities, Inc. and
MHC Operating Partnership
3.1(g) Amended and Restated Articles of Incorporation of
Manufactured Home Communities, Inc. effective May 21,
1999
3.2(n) Articles of Amendment of Articles of Incorporation of
Manufactured Home Communities, Inc., effective May 13,
2003
3.3(m) Articles of Amendment to Articles of Incorporation of
Manufactured Home Communities, Inc., effective November
16, 2004
3.4(n) Amended Bylaws of Manufactured Home Communities, Inc.
dated December 31, 2003
3.5(o) Amended and Restated Articles Supplementary of Equity
LifeStyle Properties, Inc. effective March 16, 2005
3.6(o) Articles Supplementary of Equity LifeStyle Properties,
Inc. effective June 23, 2005
4 Not applicable
9 Not applicable
10.1(a) Agreement of Limited Partnership of MHC Financing
Limited Partnership
10.2(b) Agreement of Limited Partnership of MHC Lending Limited
Partnership
10.3(c) Agreement of Limited Partnership of MHC-De Anza
Financing Limited Partnership
10.4(d) Second Amended and Restated MHC Operating Limited
Partnership Agreement of Limited Partnership, dated
March 15, 1996
10.5(q) Amendment to Second Amended and Restated Agreement of
Limited Partnership for MHC Operating Limited
Partnership, dated February 27, 2004
10.6(f) Agreement of Limited Partnership of MHC Financing
Limited Partnership Two
10.7(a) Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.8(a) Assignment to MHC Operating Limited Partnership of
Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.9(a) Loan and Security Agreement between Realty Systems,
Inc. and MHC Operating Limited Partnership
10.10(e) Form of Manufactured Home Communities, Inc. 1997
Non-Qualified Employee Stock Purchase Plan
10.11(i) Amended and Restated Manufactured Home Communities,
Inc. 1992 Stock Option and Stock Award Plan effective
March 23, 2001
10.12(h) $110,000,000 Amended, Restated and Consolidated
Promissory Note (DeAnza Mortgage) dated June 28, 2000
10.13(h) $15,750,000 Promissory Note Secured by Leasehold Deed
of Trust (Date Palm Mortgage) dated July 13, 2000
10.14(j) $50,000,000 Promissory Note secured by Leasehold Deeds
of Trust (Stagecoach Mortgage) dated December 2, 2001
10.15(k) Loan Agreement dated October 17, 2003 between MHC
Sunrise Heights, L.L.C., as Borrower, and Bank of
America, N.A., as Lender
10.15.1(k) Schedule identifying substantially identical agreements
to Exhibit No. 10.16
10.16(k) Form of Loan Agreement dated October 17, 2003 between
MHC Countryside L.L.C., as Borrower, and Bank of
America, N.A., as Lender
10.16.1(k) Schedule identifying substantially identical agreements
to Exhibit No. 10.17
10.17(k) Form of Loan Agreement dated October 17, 2003 between
MHC Creekside L.L.C., as Borrower, and Bank of America,
N.A., as Lender
10.17.1(k) Schedule identifying substantially identical agreements
to Exhibit No. 10.18
10.18(k) Form of Loan Agreement dated October 17, 2003 between
MHC Golf Vista Estates L.L.C., as Borrowers, and Bank
of America, N.A., as Lender
10.18.1(k) Schedule identifying substantially identical agreements
to Exhibit No. 10.19
10.19(l) Agreement of Plan of Merger (Thousand Trails), dated
August 2, 2004
46
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (CONTINUED)
10.20(l) Amendment No. 1 to Agreement of Plan of Merger
(Thousand Trails), dated September 30, 2004
10.21(l) Amendment No. 2 to Agreement of Plan of Merger
(Thousand Trails), dated November 9, 2004
10.22(l) Thousand Trails Lease Agreement, dated November 10,
2004
10.23(l) $120 million Term Loan Agreement dated November 10,
2004
10.24(l) Fifth Amended and Restated Credit Agreement ($110
million Revolving Facility) dated November 10, 2004
10.25(l) First Amended and Restated Loan Agreement ($50 million
Revolving Facility) dated November 10, 2004
10.26(p) Form of Loan Agreement dated December 1, 2005 between
MHC Eldorado Village, L.L.C., as Borrower, and Bank of
America, N.A., as Lender
10.26.1(p) Form of Guarantee of Recourse Obligations of Borrower,
dated December 1, 2005
10.26.2(p) Schedule identifying substantially identical agreements
to Exhibit 10.26 and 10.26.1
11 Not applicable
12(q) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
14(q) Equity LifeStyle Properties, Inc. Business Ethics and
Conduct Policy, dated July 2005
15 Not applicable
16 Not applicable
17 Not applicable
18 Not applicable
19 Not applicable
20 Not applicable
21(q) Subsidiaries of the registrant
22 Not applicable
23(q) Consent of Independent Registered Public Accounting
Firm
24.1(q) Power of Attorney for Philip C. Calian dated February
17, 2006
24.2(q) Power of Attorney for Howard Walker dated February 23,
2006
24.3(q) Power of Attorney for Thomas E. Dobrowski dated
February 23, 2006
24.4(q) Power of Attorney for Gary Waterman dated February 20,
2006
24.5(q) Power of Attorney for Donald S. Chisholm dated February
17, 2006
24.6(q) Power of Attorney for Sheli Z. Rosenberg dated February
23, 2006
25 Not applicable
26 Not applicable
31.1(q) Certification of Chief Financial Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act Of 2002
31.2(q) Certification of Chief Executive Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act Of 2002
32.1(q) Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
32.2(q) Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
The following documents are incorporated herein by reference.
(a) Included as an exhibit to the Company's Form S-11 Registration
Statement, File No. 33-55994
(b) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 1993
(c) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 1994
(d) Included as an exhibit to the Company's Report on Form 10-Q for
the quarter ended June 30, 1996
(e) Included as Exhibit A to the Company's definitive Proxy
Statement dated March 28, 1997, relating to Annual Meeting of
Stockholders held on May 13, 1997
(f) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 1997
(g) Included as an exhibit to the Company's Form S-3 Registration
Statement, filed November 12, 1999 (SEC File No. 333-90813)
(h) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 2000
(i) Included as Appendix A to the Company's Definitive Proxy
Statement dated March 30, 2001
(j) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 2002
(k) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 2003
(l) Included as an exhibit to the Company's Report on Form 8-K
dated November 16, 2004
(m) Included as an exhibit to the Company's Report on Form 8-K
dated November 22, 2004
(n) Included as an exhibit to the Company's Report on Form 10-K
dated December 31, 2004
(o) Included as an exhibit to the Company's Report on Form 10-Q
dated June 30, 2005
(p) Included as an exhibit to the Company's Report on Form 8-K
dated December 2, 2005
(q) Filed herewith
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EQUITY LIFESTYLE PROPERTIES, INC.,
a Maryland corporation
Date: March 2, 2006 By: /s/ Thomas P. Heneghan
-------------------------------------
Thomas P. Heneghan
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 2, 2006 By: /s/ Michael B. Berman
-------------------------------------
Michael B. Berman
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
48
EQUITY LIFESTYLE PROPERTIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ---------------------------- -----------------
/s/ Thomas P. Heneghan President, Chief Executive March 2, 2006
- --------------------------- Officer and Director
Thomas P. Heneghan *Attorney-in-Fact
/s/ Michael B. Berman Executive Vice President and March 2, 2006
- --------------------------- Chief Financial Officer
Michael B. Berman *Attorney-in-Fact
/s/ Samuel Zell Chairman of the Board March 2, 2006
- ---------------------------
Samuel Zell
*Sheli Z. Rosenberg Director March 2, 2006
- ---------------------------
Sheli Z. Rosenberg
*Donald S. Chisholm Director March 2, 2006
- ---------------------------
Donald S. Chisholm
*Thomas E. Dobrowski Director March 2, 2006
- ---------------------------
Thomas E. Dobrowski
*Howard Walker Vice-Chairman of the Board March 2, 2006
- ---------------------------
Howard Walker
*Philip C. Calian Director March 2, 2006
- ---------------------------
Philip C. Calian
*Gary Waterman Director March 2, 2006
- ---------------------------
Gary Waterman
49
INDEX TO FINANCIAL STATEMENTS
EQUITY LIFESTYLE PROPERTIES, INC.
PAGE
-----------
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting ..................... F-2
Report of Independent Registered Public Accounting Firm .......... F-3
Consolidated Balance Sheets as of December 31, 2005 and 2004...... F-4
Consolidated Statements of Operations for the years ended
December 31, 2005, 2004 and 2003............................... F-5 and F-6
Consolidated Statements of Other Comprehensive (Loss) Income for
the years ended December 31, 2005, 2004 and 2003............... F-6
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 2005, 2004 and 2003................... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003............................... F-8 and F-9
Notes to Consolidated Financial Statements........................ F-10
Schedule II - Valuation and Qualifying Accounts................... S-1
Schedule III - Real Estate and Accumulated Depreciation........... S-2
Certain schedules have been omitted as they are not applicable to the
Company.
F-1
Report of Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting
The Board of Directors and Stockholders of Equity LifeStyle Properties, Inc.
We have audited management's assessment, included in the accompanying
Report of Management on Internal Control over Financial Reporting in Item 9A,
that Equity LifeStyle Properties, Inc. (Equity LifeStyle Properties) maintained
effective internal control over financial reporting as of December 31, 2005
based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). Equity LifeStyle Properties' management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of Equity LifeStyle Properties' internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that Equity LifeStyle Properties
maintained effective internal control over financial reporting as of December
31, 2005, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, Equity LifeStyle Properties maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of Equity LifeStyle Properties as of December 31, 2005 and 2004, and the
related consolidated statements of operations, other comprehensive (loss)
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2005 of Equity LifeStyle Properties and our report
dated February 23, 2006 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Chicago, Illinois
February 23, 2006
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Equity LifeStyle Properties, Inc.
We have audited the accompanying consolidated balance sheets of Equity
LifeStyle Properties, Inc. ("Equity LifeStyle Properties") as of December 31,
2005 and 2004, and the related consolidated statements of operations, other
comprehensive (loss) income, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2005. Our audits also
included the financial statement schedules listed in the Index at Item 15. These
financial statements and the schedules are the responsibility of Equity
LifeStyle Properties' management. Our responsibility is to express an opinion on
these financial statements and the schedules based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Equity
LifeStyle Properties at December 31, 2005 and 2004, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2005, in conformity with United States generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Equity
LifeStyle Properties' internal control over financial reporting as of December
31, 2005, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 23, 2006 expressed an unqualified
opinion there on.
ERNST & YOUNG LLP
Chicago, Illinois
February 23, 2006
F-3
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
ASSETS
Investment in real estate:
Land .............................................................. $ 493,213 $ 470,587
Land improvements ................................................. 1,523,564 1,438,923
Buildings and other depreciable property .......................... 135,790 126,280
---------- ----------
2,152,567 2,035,790
Accumulated depreciation .......................................... (378,325) (322,867)
---------- ----------
Net investment in real estate .................................. 1,774,242 1,712,923
Cash and cash equivalents ............................................ 610 5,305
Notes receivable ..................................................... 11,631 13,290
Investment in joint ventures ......................................... 46,211 43,583
Rents receivable, net ................................................ 1,619 1,469
Deferred financing costs, net ........................................ 15,096 16,162
Inventory ............................................................ 59,412 50,654
Prepaid expenses and other assets .................................... 40,053 42,903
---------- ----------
TOTAL ASSETS ...................................................... $1,948,874 $1,886,289
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ............................................ $1,500,581 $1,417,251
Unsecured lines of credit ......................................... 37,700 115,800
Unsecured term loan ............................................... 100,000 120,000
Accounts payable and accrued expenses ............................. 31,508 36,146
Accrued interest payable .......................................... 8,549 8,894
Rents received in advance and security deposits ................... 27,868 21,135
Distributions payable ............................................. 773 448
---------- ----------
TOTAL LIABILITIES .............................................. 1,706,979 1,719,674
Commitments and contingencies
Minority interests - Common OP Units and other ....................... 9,379 9,771
Minority interests - Perpetual Preferred OP Units .................... 200,000 125,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued ...................... -- --
Common stock, $.01 par value
50,000,000 shares authorized; 23,295,956 and 22,937,192
shares issued and outstanding for 2005 and 2004, respectively .. 226 224
Paid-in capital ................................................... 299,444 294,304
Deferred compensation ............................................. -- (166)
Distributions in excess of accumulated earnings ................... (267,154) (262,518)
---------- ----------
Total stockholders' equity ..................................... 32,516 31,844
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $1,948,874 $1,886,289
========== ==========
The accompanying notes are an integral part of the financial statements.
F-4
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2005 2004 2003
--------- --------- ---------
PROPERTY OPERATIONS:
Community base rental income ............................... $ 213,280 $ 204,190 $ 189,915
Resort base rental income .................................. 73,398 54,841 11,779
Utility and other income ................................... 27,210 24,278 19,411
--------- --------- ---------
Property operating revenues ............................. 313,888 283,309 221,105
Property operating and maintenance ......................... 104,150 92,121 61,945
Real estate taxes .......................................... 24,688 22,723 18,011
Property management ........................................ 15,919 12,852 9,373
--------- --------- ---------
Property operating expenses (exclusive of depreciation
shown separately below) .............................. 144,757 127,696 89,329
--------- --------- ---------
Income from property operations ......................... 169,131 155,613 131,776
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ................... 66,014 47,404 36,472
Cost of inventory home sales ............................... (57,471) (41,577) (31,615)
--------- --------- ---------
Gross profit from inventory home sales .................. 8,543 5,827 4,857
Brokered resale revenues, net .............................. 2,714 2,176 1,714
Home selling expenses ...................................... (8,838) (8,630) (7,287)
Ancillary services revenues, net ........................... 3,864 2,743 162
--------- --------- ---------
Income (loss) from home sales operations & other ........ 6,283 2,116 (554)
OTHER INCOME (EXPENSES):
Interest income ............................................ 1,406 1,391 1,695
Income from other investments, net ......................... 16,609 3,475 956
General and administrative ................................. (13,624) (9,243) (8,060)
Rent control initiatives ................................... (1,081) (2,412) (2,352)
Interest and related amortization .......................... (100,832) (90,970) (58,206)
Loss on early debt retirement .............................. (20,630) -- --
Depreciation on corporate assets ........................... (804) (1,657) (1,240)
Depreciation on real estate assets ......................... (55,689) (47,541) (35,924)
--------- --------- ---------
Total other expenses, net ............................... (174,645) (146,957) (103,131)
Income before minority interests, equity in income of
unconsolidated joint ventures, gain on sale of
properties and discontinued operations ................. 769 10,772 28,091
Income (loss) allocated to Common OP Units ................. 731 (608) (3,431)
Income allocated to Perpetual Preferred OP Units ........... (13,974) (11,284) (11,252)
Equity in income of unconsolidated joint ventures .......... 6,508 3,739 340
--------- --------- ---------
(Loss) income before gain on sale of properties and
discontinued operations .............................. (5,966) 2,619 13,748
--------- --------- ---------
Gain on sale of properties ................................. -- 2 --
--------- --------- ---------
(Loss) income from continuing operations ................ (5,966) 2,621 13,748
--------- --------- ---------
DISCONTINUED OPERATIONS:
Discontinued operations .................................... 1,875 2,450 4,607
Depreciation on discontinued operations .................... (329) (1,353) (1,476)
Gain on sale of discontinued real estate ................... 2,279 636 10,826
Minority interests on discontinued operations .............. (192) (328) (2,573)
--------- --------- ---------
Income from discontinued operations ..................... 3,633 1,405 11,384
--------- --------- ---------
NET (LOSS) INCOME AVAILABLE FOR COMMON SHARES ........ $ (2,333) $ 4,026 $ 25,132
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-5
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2005 2004 2003
------- ------- -------
EARNINGS PER COMMON SHARE - BASIC:
(Loss) income from continuing operations ...................... $ (0.26) $ 0.12 $ 0.62
======= ======= =======
Income from discontinued operations ........................... $ 0.16 $ 0.06 $ 0.52
======= ======= =======
Net (loss) income available for Common Shares ................. $ (0.10) $ 0.18 $ 1.14
======= ======= =======
EARNINGS PER COMMON SHARE - FULLY DILUTED:
(Loss) income from continuing operations ...................... $ (0.26) $ 0.11 $ 0.61
======= ======= =======
Income from discontinued operations ........................... $ 0.16 $ 0.06 $ 0.50
======= ======= =======
Net (loss) income available for Common Shares ................. $ (0.10) $ 0.17 $ 1.11
======= ======= =======
Distributions declared per Common Share outstanding ........... $ 0.10 $ 0.05 $ 9.485
======= ======= =======
Tax status of Common Shares distributions paid during the year:
Ordinary income ............................................... $ 0.10 $ 1.05 $ 0.68
======= ======= =======
Long-term capital gain ........................................ $ -- $ 4.82 $ 0.57
======= ======= =======
Unrecaptured section 1250 gain ................................ $ -- $ 2.17 $ 0.16
======= ======= =======
Return of capital ............................................. $ -- $ -- $ 0.55
======= ======= =======
Weighted average Common Shares outstanding - basic ............... 23,081 22,849 22,077
======= ======= =======
Weighted average Common Shares outstanding - fully diluted ....... 29,927 29,465 28,002
======= ======= =======
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(AMOUNTS IN THOUSANDS)
2005 2004 2003
------- ------ -------
Net (loss) income available for Common Shares..................... $(2,333) $4,026 $25,132
Net unrealized holding gains on derivative instruments......... -- -- 4,498
------- ------ -------
Net other comprehensive (loss) income available for Common
Shares ..................................................... $(2,333) $4,026 $29,630
======= ====== =======
The accompanying notes are an integral part of the financial statements
F-6
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(AMOUNTS IN THOUSANDS)
2005 2004 2003
--------- --------- ---------
PREFERRED STOCK, $01 PAR VALUE .................................. $ -- $ -- $ --
========= ========= =========
COMMON STOCK, $01 PAR VALUE
Balance, beginning of year ...................................... $ 224 $ 222 $ 218
Exercise of options .......................................... 2 2 4
--------- --------- ---------
Balance, end of year ............................................ $ 226 $ 224 $ 222
========= ========= =========
PAID - IN CAPITAL
Balance, beginning of year ...................................... $ 294,304 $ 263,066 $ 256,394
Conversion of OP Units to common stock ....................... 236 155 343
Issuance of common stock through exercise of options ......... 2,785 3,058 6,323
Issuance of common stock through employee stock
purchase plan ............................................. 1,397 2,735 3,254
Compensation expense related to stock options and
restricted stock .......................................... 2,853 2,571 611
Repurchase of common stock ................................... (692) -- --
Issuance costs ............................................... (119) -- --
Transition adjustment - FAS 123 .............................. -- -- (1,047)
Adjustment for Common OP Unitholders
in the Operating Partnership .............................. (1,320) 22,719 (2,812)
--------- --------- ---------
Balance, end of year ............................................ $ 299,444 $ 294,304 $ 263,066
========= ========= =========
DEFERRED COMPENSATION
Balance, beginning of year ...................................... $ (166) $ (494) $ (3,069)
Issuance of common stock through restricted stock grants ..... -- -- --
Transition adjustment - FAS 123 .............................. -- -- 1,047
Recognition of deferred compensation expense ................. 166 328 1,528
--------- --------- ---------
Balance, end of year ............................................ $ (--) $ (166) $ (494)
========= ========= =========
EMPLOYEE NOTES
Balance, beginning of year ...................................... $ -- $ -- $ (2,713)
Principal payments ........................................... -- -- 2,713
--------- --------- ---------
Balance, end of year ............................................ $ -- $ -- $ --
========= ========= =========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE
EARNINGS
Balance, beginning of year ...................................... $(262,518) $(265,322) $ (79,655)
Net (loss) income ............................................ (2,333) 4,026 25,132
Other comprehensive income:
Unrealized holding gains on derivative instruments ........ -- -- 4,498
--------- --------- ---------
Comprehensive (loss) income ............................... (2,333) 4,026 29,630
--------- --------- ---------
Distributions ................................................ (2,303) (1,222) (215,297)
--------- --------- ---------
Balance, end of year ............................................ $(267,154) $(262,518) $(265,322)
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-7
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(AMOUNTS IN THOUSANDS)
2005 2004 2003
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income .................................................... $ (2,333) $ 4,026 $ 25,132
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Income allocated to minority interests ............................ 13,435 12,220 17,256
Early debt retirement ............................................. 20,630 -- --
Gain on sale of Properties ........................................ (2,279) (638) (10,826)
Depreciation expense .............................................. 58,782 51,703 39,403
Amortization expense .............................................. 2,849 2,203 5,031
Debt premium amortization expense ................................. (2,484) (1,317) --
Equity in income of unconsolidated joint ventures ................. (8,468) (4,969) (1,042)
Distributions from unconsolidated joint ventures .................. 5,760 -- --
Amortization of deferred compensation ............................. 3,019 2,899 2,139
Hurricane asset write down ........................................ 968 -- --
Increase in provision for uncollectible rents receivable .......... 149 1,182 821
Decrease in provision for inventory impairment .................... (27) -- --
(Decrease)/increase in provision for notes receivable ............. (169) 250 --
Changes in assets and liabilities:
Rents receivable .................................................. (236) 281 (1,469)
Inventory ......................................................... (8,521) (17,855) 1,846
Prepaid expenses and other assets ................................. 1,610 (9,772) (43)
Accounts payable and accrued expenses ............................. 4,882 5,713 (3,055)
Rents received in advance and security deposits ................... 2,759 807 (30)
--------- --------- ---------
Net cash provided by operating activities ............................ 90,326 46,733 75,163
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of rental properties ..................................... (38,753) (310,893) (6,836)
Dispositions of rental properties .................................... 6,280 671 27,170
Joint Ventures and other:
Investments in .................................................... (7,709) (33,819) --
Distributions from ................................................ 5,557 6,177 1,535
Net repayment (funding) of notes receivable .......................... 1,306 (1,708) (1,507)
Improvements:
Improvements - corporate .......................................... (831) (444) (72)
Improvements - rental properties .................................. (15,901) (13,663) (11,912)
Site development costs ............................................ (16,195) (12,975) (8,976)
--------- --------- ---------
Net cash used in investing activities ................................ (66,246) (366,654) (598)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan ..... 4,183 6,221 9,581
Proceeds from issuance of Perpetual Preferred OP Units ............... 75,000 -- --
Distributions to Common Stockholders, Common OP Unitholders, and
Perpetual Preferred OP Unitholders ................................ (16,632) (237,074) (65,687)
Stock repurchase and Unit redemption ................................. (973) -- --
Issuance costs ....................................................... (119) -- --
Collection of principal payments on employee notes ................... -- -- 2,713
Lines of credit:
Proceeds .......................................................... 175,300 135,800 53,000
Repayments ........................................................ (253,400) (20,000) (137,750)
Acquisition financing ................................................ -- 124,300 --
Term loan repayment .................................................. (20,000) -- (100,000)
Principal payments ................................................... (340,699) (8,848) (50,230)
New financing proceeds ............................................... 370,520 3,288 546,443
Early debt retirement costs .......................................... (18,250) -- --
Debt issuance costs .................................................. (3,705) (4,201) (14,165)
--------- --------- ----------
Net cash (used in) provided by financing activities .................. (28,775) (514) 243,905
--------- --------- ----------
Net (decrease) increase in cash and cash equivalents .................... (4,695) (320,435) 318,470
Cash and cash equivalents, beginning of year ............................ 5,305 325,740 7,270
--------- --------- ----------
Cash and cash equivalents, end of year .................................. $ 610 $ 5,305 $ 325,740
========= ========= ==========
The accompanying notes are an integral part of the financial statements
F-8
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(AMOUNTS IN THOUSANDS)
2005 2004 2003
------- -------- -------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest ............................... $97,638 $ 88,883 $52,396
Non-cash investing and financing activities:
Mortgage debt assumed on acquisition of real estate ................. 53,517 347,300 4,600
Other assets and liabilities, net, acquired on acquisition of real
estate ........................................................... 2,161 13,300 650
Issuance of operating partnership units in connection with the
acquisition of Monte Vista ....................................... -- 32,200 --
Loan to prepay insurance premiums ................................... 2,404 -- --
SERP termination .................................................... 7,108 -- --
The accompanying notes are an integral part of the financial statements
F-9
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Equity LifeStyle Properties, Inc., a Maryland corporation, together with
MHC Operating Limited Partnership (the "Operating Partnership") and other
consolidated subsidiaries ("Subsidiaries"), is referred to herein as the
"Company," "ELS," "we," "us," and "our". The Company is a fully integrated 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"). We
believe that we have qualified for taxation as a real estate investment trust
("REIT") for federal income tax purposes since our taxable year ended December
31, 1993. We plan to continue to meet the requirements for taxation as a REIT.
Many of these requirements, however, are highly technical and complex. We
cannot, therefore, guarantee that we have qualified or will qualify in the
future as a REIT. The determination that we are a REIT requires an analysis of
various factual matters that may not be totally within our control and we cannot
provide any assurance that the IRS will agree with our analysis. For example, to
qualify as a REIT, at least 95% of our gross income must come from sources that
are itemized in the REIT tax laws. We are also required to distribute to
stockholders at least 90% of our REIT taxable income excluding capital gains.
The fact that we hold our assets through the Operating Partnership and its
subsidiaries further complicates the application of the REIT requirements. Even
a technical or inadvertent mistake could jeopardize our REIT status.
Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible, for us to remain qualified as a REIT. We do not believe, however,
that any pending or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain foreign, state and local
taxes on its income and property and federal income and excise taxes on its
undistributed income.
The operations of the Company are conducted primarily through the Operating
Partnership. The Company contributed the proceeds from its initial public
offering and subsequent offerings to the Operating Partnership for a general
partnership interest. In 2004, the general partnership interest was contributed
to MHC Trust (see Note 4). The financial results of the Operating Partnership
and the Subsidiaries are consolidated in the Company's consolidated financial
statements. In addition, since certain activities, if performed by the Company,
may not be qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has formed taxable REIT subsidiaries as
defined in the Code to engage in such activities.
Several Properties acquired are wholly owned by taxable REIT subsidiaries
of the Company. In addition, Realty Systems, Inc. ("RSI") is a wholly owned
taxable REIT subsidiary of the Company that is engaged in the business of
purchasing, selling and leasing homes that are located in Properties owned and
managed by the Company. RSI also provides brokerage services to customers at
such Properties. Typically, customers move from a Property but do not relocate
their homes. RSI may provide brokerage services, in competition with other local
brokers, by seeking buyers for the homes. RSI also leases inventory homes to
prospective customers with the expectation that the tenant eventually will
purchase the home. Subsidiaries of RSI also lease from the Operating Partnership
certain real property within or adjacent to certain Properties consisting of
golf courses, pro shops, stores and restaurants.
The limited partners of the Operating Partnership (the "Common OP
Unitholders") receive an allocation of net income which is based on their
respective ownership percentage of the Operating Partnership which is shown on
the Consolidated Financial Statements as Minority Interests - Common OP Units.
As of December 31, 2005, the Minority Interests - Common OP Units represented
6,207,471 units of limited partnership interest ("OP Units") which are
convertible into an equivalent number of shares of the Company's common stock.
The issuance of additional shares of common stock or common OP Units changes the
respective ownership of the Operating Partnership for both the Minority
Interests and the Company.
F-10
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - 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 were all accounted for as purchases in
accordance with Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141").
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 the investor is the sole general partner and the 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 does not have a controlling direct or indirect voting interest or 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.
(c) Markets
We manage all our operations on a property-by-property basis. Since each
Property has similar economic and operational characteristics, the Company has
one reportable segment, which is the operation of land lease Properties. The
distribution of the Properties throughout the United States reflects our belief
that geographic diversification helps insulate the portfolio from regional
economic influences. We intend to target new acquisitions in or near markets
where the Properties are located and will also consider acquisitions of
Properties outside such markets.
(d) Inventory
Inventory consists primarily of new and used Site Set homes and is stated
at the lower of cost or market after consideration of the N.A.D.A. (National
Automobile Dealers Association) Manufactured Housing Appraisal Guide and the
current market value of each home included in the home inventory. Inventory
sales revenues and resale revenues are recognized when the home sale is closed.
Inventory is recorded net of an inventory reserve as of December 31, 2005 and
December 31, 2004 of $580,000 and $600,000, respectively. Resale revenues are
stated net of commissions paid to employees of $1.4 million and $1.2 million for
the years ended December 31, 2005 and 2004, respectively.
F-11
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Real Estate
In accordance with SFAS No. 141, we allocate the purchase price of
Properties we acquire to net tangible and identified intangible assets acquired
based on their fair values. In making estimates of fair values for purposes of
allocating purchase price, we utilize a number of sources, including independent
appraisals that may be available in connection with the acquisition or financing
of the respective Property and other market data. We also consider information
obtained about each Property as a result of our due diligence, marketing and
leasing activities in estimating the fair value of the tangible and intangible
assets acquired.
Real estate is recorded at cost less accumulated depreciation. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
assets. We use a 30-year estimated life for buildings acquired and structural
and land improvements, a ten-to-fifteen-year estimated life for building
upgrades and a three-to-seven-year estimated life for furniture, fixtures and
equipment. 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 estimated useful life.
We evaluate our Properties for impairment when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a Property over the anticipated holding period is less than
its carrying value. Upon determination that a permanent impairment has occurred,
the applicable Property is reduced to fair value.
For Properties to be disposed of, an impairment loss is recognized when the
fair value of the Property, less the estimated cost to sell, is less than the
carrying amount of the Property measured at the time the Company has a
commitment to sell the Property and/or is actively marketing the Property for
sale. A Property to be disposed of is reported at the lower of its carrying
amount or its estimated fair value, less costs 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
Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets". Accordingly,
the results of operations for all assets sold or held for sale after January 1,
2003 have been classified as discontinued operations in all periods presented.
(f) Cash and Cash Equivalents
We consider all demand and money market accounts and certificates of
deposit with a maturity, when purchased, of three months or less to be cash
equivalents.
(g) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid principal
balances net of any deferred fees or costs on originated loans, or unamortized
discounts or premiums net of a valuation allowance. Interest income is accrued
on the unpaid principal balance. Discounts or premiums are amortized to income
using the interest method. In certain cases we finance the sales of homes to our
customers (referred to as "Chattel Loans") which loans are secured by the homes.
The valuation allowance for the Chattel Loans is calculated based on a
comparison of the outstanding principal balance of each note compared to the
N.A.D.A. value and the current market value of the underlying manufactured home
collateral. These notes are recorded net of allowances of $81,000 and $250,000
as of December 31, 2005 and December 31, 2004, respectively.
F-12
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Investments in Joint Ventures
Investments in joint ventures in which the Company does not have a
controlling direct or indirect voting interest, but can exercise significant
influence over the entity with respect to its operations and major decisions,
are accounted for using the equity method of accounting whereby the cost of an
investment is adjusted for the Company's share of the equity in net income or
loss from the date of acquisition and reduced by distributions received. The
income or loss of each entity is allocated in accordance with the provisions of
the applicable operating agreements. The allocation provisions in these
agreements may differ from the ownership interests held by each investor.
Differences between the carrying amount of the Company's investment in the
respective entities and the Company's share of the underlying equity of such
unconsolidated entities are amortized over the respective lives of the
underlying assets, as applicable.
In applying the provisions of FIN 46R (see Basis of Consolidation, above),
the Company determined that its Mezzanine Investment (as hereinafter defined) is
a VIE; however, the Company concluded that it is not the primary beneficiary.
(i) Income from Other Investments, net
On November 10, 2004, the Company entered into a 15 year operating lease
with Thousand Trails Operations Holding Company, L.P. ("TT") with monthly
payments equating to $16 million per year with annual increases of 3.25%. Under
applicable accounting pronouncements, revenue under the lease is generally
recognized on a straight-line basis taking into account fixed escalations
required under the term of the lease. The annual straight-line revenue is
approximately $20 million. The excess of straight-line revenue over the cash
payment received was approximately $4.0 million for the year ended December 31,
2005. The Company has deferred and not recognized the excess of the
straight-line revenue over the cash payments received under the lease due to the
following: (1) the cash payments under the lease do not exceed straight-line
revenue until the ninth year of the lease term, (2) the current owner of the
operating business may not be a long-term owner of the TT business, and (3)
certain portions of the lessee's business operations are dependent upon sales of
new memberships and upgrades of existing memberships which can be volatile year
to year. To the extent any of the conditions noted herein change, the Company
may recognize previously deferred amounts.
(j) Insurance Claims
The Properties are covered against fire, flood, property damage,
earthquake, wind storm and business interruption by insurance policies
containing various deductible requirements and coverage limits. Recoverable
costs are classified in other assets as incurred. Proceeds are applied against
the asset when received. 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 value of the impaired asset has
been determined. Insurance proceeds relating to the capital costs will be
recorded as income in the period they are received.
Approximately 70 Florida Properties suffered damage from the four
hurricanes that struck the state during August and September 2004. As of
February 23, 2006, approximately $19.4 million of claims, including business
interruption, have been submitted to our insurance companies for reimbursement.
As of December 31, 2005, the Company has made total expenditures of
approximately $11.9 million and expects to incur additional expenditures to
complete the work necessary to restore our Properties to their pre-hurricanes
condition. The Company has received proceeds from insurance carriers of
approximately $2.6 million as of December 31, 2005. The Company has reserved
approximately $2.0 million related to these expenditures ($0.7 million in 2005
and $1.3 million in 2004). Approximately $3.4 million of these expenditures have
been capitalized per the Company's capitalization policy as of December 31,
2005. Approximately $3.9 million is included in other assets as a receivable
from insurance providers as of December 31, 2005, and approximately $5.9 million
was included in other assets as of December 31, 2004.
In 2005, the Company reduced the book value of its assets by approximately
$1.0 million due to damage caused by the 2004 storms. The Company received
insurance proceeds of approximately $0.8 million relating to other matters. Both
of these items were recorded in income from other investments, net.
F-13
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During the fourth quarter of 2005 the Company spent approximately $1.3
million on Properties located in South Florida impacted by Hurricane Wilma to
get them operationally ready for the season. This amount has been charged to
operations in 2005. The Company is still evaluating the total costs it expects
to incur and is preparing its insurance claim.
(k) 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
December 31, 2005 and 2004.
(l) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing. The costs are being amortized over the terms of the
respective loans on a level yield basis. Unamortized deferred financing fees are
written-off when debt is retired before the maturity date. Upon amendment of the
line of credit, unamortized deferred financing fees are accounted for in
accordance with EITF No. 98-14, Debtor's Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangements. Accumulated amortization for such
costs was $6.6 million and $4.9 million at December 31, 2005 and 2004,
respectively.
(m) 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. We will reserve for receivables when we believe the ultimate
collection is less than probable. Our provision for uncollectable rents
receivable was approximately $1.2 million as of December 31, 2005 and $1.0
million as of December 31, 2004. 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.
(n) Minority Interests
Net income is allocated to Common OP Unitholders based on their respective
ownership percentage of the Operating Partnership. An ownership percentage is
represented by dividing the number of common OP Units held by the Common OP
Unitholders (6,207,471 and 6,340,805 at December 31, 2005 and 2004,
respectively) by OP Units and shares of common stock outstanding. Issuance of
additional shares of common stock or common OP Units changes the percentage
ownership of both the Minority Interests and the Company. Due in part to the
exchange rights (which provide for the conversion of common OP Units into shares
of common stock on a one-for-one basis), such transactions and the proceeds
there from are treated as capital transactions and result in an allocation
between stockholders' equity and Minority Interests to account for the change in
the respective percentage ownership of the underlying equity of the Operating
Partnership.
F-14
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Income Taxes
Due to the structure of the Company as a REIT, the results of operations
contain no provision for federal income taxes. However, the Company may be
subject to certain foreign, state and local income, excise or franchise taxes.
The Company paid foreign, state and local taxes of approximately $196,000 and
$88,000 during the years ended December 31, 2005 and 2004, respectively, which
includes taxes payable from non-REIT activities managed through taxable REIT
subsidiaries. As of December 31, 2005, net investment in real estate and notes
receivable had a federal tax basis of approximately $1,403 million and $11.6
million, respectively.
(p) Derivative Instruments and Hedging Activities
The Company recognizes all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings.
(q) Stock Compensation
The Company adopted the fair-value-based method of accounting for
share-based payments effective January 1, 2003 using the modified prospective
method described in FASB Statement No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. The Company adopted Statement of
Financial Accounting Standards No. 123(R), ("SFAS 123(R)") "Share Based Payment"
on July 1, 2005 which did not have a material impact on the Company's results of
operations or its financial position. The Company uses the Black-Scholes-Merton
formula to estimate the value of stock options granted to employees (see Note
12).
F-15
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128") defines the calculation
of basic and fully diluted earnings per share. Basic and fully diluted earnings
per share are based on the weighted average shares outstanding during each year
and basic earnings per share excludes any dilutive effects of options, warrants
and convertible securities. The conversion of OP Units has been excluded from
the basic earnings per share calculation. The conversion of an OP Unit to a
share of common stock has no effect on earnings per common share.
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2005, 2004 and 2003 (amounts
in thousands):
YEARS ENDED DECEMBER 31,
---------------------------
2005 2004 2003
------- ------- -------
NUMERATORS:
(LOSS) INCOME FROM CONTINUING OPERATIONS:
(Loss) income from continuing operations - basic ....... $(5,966) $ 2,621 $13,748
Amounts allocated to dilutive securities ............... (731) 608 3,431
------- ------- -------
(Loss) income from continuing operations
- fully diluted ..................................... $(6,697) $ 3,229 $17,179
======= ======= =======
INCOME FROM DISCONTINUED OPERATIONS:
Income from discontinued operations - basic ............ $ 3,633 $ 1,405 $11,384
Amounts allocated to dilutive securities ............... 192 328 2,573
------- ------- -------
Income from discontinued operations - fully diluted .... $ 3,825 $ 1,733 $13,957
======= ======= =======
NET (LOSS) INCOME AVAILABLE FOR COMMON SHARES:
Net (loss) income available for Common Shares - basic .. $(2,333) $ 4,026 $25,132
Amounts allocated to dilutive securities ............... (539) 936 6,004
------- ------- -------
Net (loss) income available for Common Shares -
fully diluted ....................................... $(2,872) $ 4,962 $31,136
======= ======= =======
DENOMINATOR:
Weighted average Common Shares
outstanding - basic .................................... 23,081 22,849 22,077
Effect of dilutive securities:
Redemption of Common OP Units for Common Shares ........... 6,285 6,067 5,342
Employee stock options and restricted shares .............. -- 549 583
------- ------- -------
Weighted average Common Shares
outstanding - fully diluted ............................ 29,366 29,465 28,002
======= ======= =======
F-16
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
common stock for the years ended December 31, 2005, 2004 and 2003 (excluding OP
Units of 6,207,471, 6,340,805 and 5,312,387 outstanding at December 31, 2005,
2004 and 2003, respectively):
2005 2004 2003
---------- ---------- ----------
Shares outstanding at January 1,.............................. 22,937,192 22,563,348 22,093,240
Common stock issued through conversion of OP Units......... 133,334 95,769 47,540
Common stock issued through exercise of options............ 187,822 196,834 302,526
Common stock issued through stock grants................... -- -- 35,000
Common stock issued through Employee Stock Purchase Plan... 37,608 81,241 85,042
Common stock repurchased and retired....................... -- -- --
---------- ---------- ----------
Shares outstanding at December 31,............................ 23,295,956 22,937,192 22,563,348
========== ========== ==========
As of December 31, 2005 and 2004, the Company's percentage ownership of the
Operating Partnership was approximately 79.1% and 78.5%, respectively. The
remaining approximately 20.9% and 21.5%, respectively, was owned by the Common
OP Unitholders.
On March 24, 2005, the Operating Partnership issued $25 million of 8.0625%
Series D Cumulative Redeemable Perpetual Preference Units (the "Series D 8%
Units"), to institutional investors. The Series D 8% Units are non-callable for
five years. In addition, the Operating Partnership had an existing $125 million
of 9.0% Series D Cumulative Redeemable Perpetual Preference Units (the "Series D
9% Units") outstanding that were callable by the Company as of September 2004.
In connection with the new issue, the Operating Partnership agreed to extend the
non-call provision of the Series D 9% Units to be coterminous with the new
issue, and the institutional investors holding the Series D 9% Units agreed to
lower the rate on such units to 8.0625%. All of the units have no stated
maturity or mandatory redemption. Net proceeds from the offering were used to
pay down amounts outstanding under the Company's lines of credit.
On June 30, 2005, the Operating Partnership issued $50 million of 7.95%
Series F Cumulative Redeemable Perpetual Preference Units (the "Series F
Units"), to institutional investors. The Series F Units are non-callable for
five years and have no stated maturity or mandatory redemption. Net proceeds
from the offering were used to pay down amounts outstanding under the Company's
lines of credit.
The following distributions have been declared and paid to common
stockholders and Minority Interests since January 1, 2003:
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD
AMOUNT PER SHARE ENDING DATE PAYMENT DATE
- ---------------- ------------------ ------------------ ----------------
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$ 8.00 December 31, 2003 January 8, 2004 January 16, 2004
------- ------------------ ------------------ ----------------
$0.0125 March 31, 2004 March 26, 2004 April 9, 2004
$0.0125 June 30, 2004 June 25, 2004 July 9, 2004
$0.0125 September 30, 2004 September 24, 2004 October 8, 2004
$0.0125 December 31, 2004 December 31, 2004 January 14, 2005
------- ------------------ ------------------ ----------------
$0.0250 March 31, 2005 March 25, 2005 April 8, 2005
$0.0250 June 30, 2005 June 24, 2005 July 8, 2005
$0.0250 September 30, 2005 September 30, 2005 October 14, 2005
$0.0250 December 31, 2005 December 30, 2005 January 13, 2006
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October 2003 to pay the special distribution
on January 16, 2004. The special cash dividend was reflected on stockholders'
2004 1099-DIV issued in January 2005.
F-17
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in the Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company recognized $180 million of taxable income as a result
of its contribution, as opposed to a nontaxable reduction of the Company's tax
basis in its interest in the Operating Partnership. This restructuring resulted
in a step-up in the Company's tax basis in its assets, generating future
depreciation deductions, which in turn will reduce the Company's future
distribution requirements. The Company intends to continue to qualify as a REIT
under the Code, with its assets consisting of interests in MHC Trust. MHC Trust,
in turn, intends to also qualify as a real estate investment trust under the
Code and will be the general partner of the Operating Partnership. On May 1,
2004, in connection with the restructuring, MHC Trust sold cumulative preferred
stock to a limited number of unaffiliated investors.
The Company adopted, effective July 1, 1997, the 1997 Non-Qualified
Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees
and directors of the Company may each annually acquire up to $250,000 of common
stock of the Company. The aggregate number of shares of common stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the
Company's Board of Directors. The common stock may be purchased monthly at a
price equal to 85% of the lesser of: (a) the closing price for a share of common
stock on the last day of the offering period; and (b) the closing price for a
share of common stock on the first day of the offering period. Shares of common
stock issued through the ESPP for the years ended December 31, 2005 and 2004
were 37,122 and 80,955, respectively.
NOTE 5- INVESTMENT IN REAL ESTATE
Investment in Real Estate is comprised of (amounts in thousands):
DECEMBER 31, DECEMBER 31,
Properties Held for Long Term 2005 2004
- ----------------------------- ------------ ------------
Investment in real estate:
Land ...................................... $ 486,299 $ 462,619
Land improvements ......................... 1,494,427 1,406,246
Buildings and other depreciable property .. 134,187 124,357
---------- ----------
2,114,913 1,993,222
Accumulated depreciation .................. (365,688) (309,277)
---------- ----------
Net investment in real estate .......... $1,749,225 $1,683,945
========== ==========
DECEMBER 31, DECEMBER 31,
Properties Held for Sale 2005 2004
- ------------------------ ------------ ------------
Investment in real estate:
Land ...................................... $ 6,914 $ 7,968
Land improvements ......................... 29,137 32,677
Buildings and other depreciable property .. 1,603 1,923
-------- --------
37,654 42,568
Accumulated depreciation .................. (12,637) (13,590)
-------- --------
Net investment in real estate .......... $ 25,017 $ 28,978
======== ========
Land improvements consist primarily of improvements such as grading,
landscaping and infrastructure items such as streets, sidewalks or water mains.
Depreciable property consists of permanent buildings in the Properties such as
clubhouses, laundry facilities, maintenance storage facilities, and furniture,
fixtures and equipment.
F-18
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED)
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 made within one year following the
acquisitions. We acquired all of these Properties from unaffiliated third
parties. During the three years ended December 31, 2005, the Company acquired
the following Properties (amounts in millions, except site information):
1) During the year ended December 31, 2005, we acquired the following
Properties:
TOTAL REAL NET
CLOSING DATE PROPERTY LOCATION SITES ESTATE DEBT EQUITY
------------ ------------------ ---------------------- ----- ------ ----- ------
June 20, 2005 San Francisco RV Pacifica, CA 182 $ 6.6 $ -- $ 6.6
August 12, 2005 Morgan Portfolio Various (5 Properties) 2,929 69.1 53.5 15.6
September 15, 2005 Lake George Escape Lake George, NY 576 14.2 -- 14.2
The combined real estate investment in these Properties was approximately
$89.9 million and was funded with money drawn from our lines of credit and debt
assumed of $53.5 million. We also assumed approximately $5.4 million in escrow
deposits and $4.0 million of rents received in advance as a result of these
acquisitions.
2) During the year ended December 31, 2004, we acquired the following
Properties:
TOTAL REAL NET
CLOSING DATE PROPERTY LOCATION SITES ESTATE DEBT EQUITY
------------ ----------------------------- ------------------ ------ ------ ------ ------
January 15, 2004 O'Connell's Amboy, IL 668 $ 6.6 $ 5.0 $ 1.6
January 30, 2004 Spring Gulch New Holland, PA 420 6.4 4.8 1.6
February 3, 2004 Paradise Mesa, AZ 950 25.7 20.0 5.7
February 18, 2004 Twin Lakes Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside New Carlisle, IN 95 1.7 -- 1.7
February 5, 2004 Diversified Portfolio Various 2,567 64.0 41.6 20.9
February 17, 2004 NHC Portfolio (a) Various 11,311 235.0 159.0 69.0
May 3, 2004 Viewpoint Mesa, AZ 1,928 81.3 44.0 37.3
May 12, 2004 Cactus Gardens Yuma, AZ 430 7.9 4.9 3.0
May 13, 2004 Monte Vista Mesa, AZ 832 45.8 23.0 22.8
May 14, 2004 GE Portfolio Various 1,155 52.9 37.7 15.2
September 8, 2004 Yukon Trails Lyndon Station, WI 214 2.2 -- 2.2
November 10, 2004 Thousand Trails Portfolio (b) Various 17,911 161.8 120.0 42.2
November 4, 2004 Caledonia Caledonia, WI 247 1.5 -- 1.5
December 30, 2004 Fremont Fremont, WI 325 5.7 4.3 1.4
(a) On February 17, 2004, the Company acquired 93% of PAMI entities' interests
in 28 Properties. On July 1, 2004, the Company acquired the remaining
minority interest of the PAMI entities for a combination of $1.0 million
in cash and common OP Units. On December 20, 2004, the Company redeemed
the common OP Units for $4.5 million.
(b) On November 10, 2004, the Company provided a long-term lease of the real
estate to Thousand Trails, which will continue to operate the Properties
for its members. The lease will generate $16 million of income to the
Company on an absolute triple net basis subject to annual escalations of
3.25%. The initial term of the lease is 15 years, with two five-year
renewal options.
In connection with the 2004 acquisitions and not reflected in the table above
the Company acquired inventory of approximately $1.2 million, other assets of
$4.9 million, rents received in advance of approximately $13.6 million and other
liabilities of approximately $5.8 million. The Company also issued common OP
Units for value of approximately $32.2 million.
F-19
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED)
3) During the year ended December 31, 2003, we acquired the following
Properties:
TOTAL REAL NET
CLOSING DATE PROPERTY LOCATION SITES ESTATE DEBT EQUITY
------------ ----------- ----------- ----- ------ ---- ------
ACQUISITIONS:
December 3, 2003 Toby's Arcadia, FL 379 $4.3 $ -- $4.3
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2 2.5
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4 0.4
The acquisitions were funded with monies held in short-term investments.
The acquisitions included the assumption of liabilities of approximately
$0.6 million. Also during 2003, we acquired a parcel of land adjacent to
one of our Properties for approximately $0.1 million.
We actively seek to acquire additional Properties and currently are 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 March 31, 2005, the Company designated seven Properties as held for
disposition pursuant to SFAS No. 144. The Company determined that these
Properties no longer met its investment criteria. The Company expects to sell
these Properties within 12 months for proceeds greater than their net book
value. As such, the results from operations of these Properties have been
classified as income from discontinued operations. On November 10, 2005 one
property, Five Seasons in Cedar Rapids, Iowa was sold. The six remaining
Properties classified as held for disposition are listed in the table below.
Property Location Sites
- -------- ---------------- -----
Casa Village.......... Billings, MT 490
Creekside............. Wyoming, MI 165
Del Rey............... Albuquerque, NM 407
Forest Oaks........... Chesterton, IN 227
Holiday Village....... Sioux City, IA 519
Windsong.............. Indianapolis, IN 268
The following table summarizes the combined results of operations of
Properties held for sale or sold during the years ended December 31, 2005, 2004
and 2003 (amounts in thousands):
2005 2004 2003
------- ------- -------
Rental income........................................ $ 5,855 $ 6,785 $ 8,670
Utility and other income............................. 560 642 760
------- ------- -------
Property operating revenues....................... 6,415 7,427 9,430
Property operating expenses.......................... 3,573 3,929 4,607
------- ------- -------
Income from property operations................... 2,842 3,498 4,823
(Loss) income from home sales operations and other... (17) (52) (22)
Interest............................................. (916) (961) (191)
Amortization......................................... (34) (34) (5)
Depreciation......................................... (329) (1,353) (1,474)
------- ------- -------
Total other expenses.............................. (1,279) (2,348) (1,670)
------- ------- -------
Gain on sale......................................... 2,279 636 10,826
Minority interest.................................... (192) (328) (2,573)
------- ------- -------
Net income........................................... $ 3,633 $ 1,405 $11,384
======= ======= =======
F-20
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED)
During the three years ended December 31, 2005 the Company disposed of the
following Properties. The operating results have been reflected in discontinued
operations.
1) During the year ended December 31, 2005, we sold one Property located
in Cedar Rapids, Iowa for a selling price of $6.7 million. Net
proceeds of $6.3 million were used to repay amounts on our lines of
credit. A gain on sale of approximately $2.3 million was recorded
during the fourth quarter of 2005.
2) During the year ended December 31, 2004, we sold one Property located
in Lake Placid, Florida for a selling price of $3.4 million, with net
proceeds of $0.8 million received in July 2004. No gain or loss on
disposition was recognized in the period. In addition, we sold
approximately 1.4 acres of land in Montana for a gain and net proceeds
of $0.6 million.
3) During the year ended December 31, 2003, we sold the three Properties
located in Morgantown, West Virginia, Hamburg, New York and Mount
Airy, Maryland for net proceeds of $27.1 million. A gain of
approximately $10.8 million was recorded in 2003. Proceeds from the
sales were used to repay amounts on the Company's line of credit.
The following table illustrates, for comparative purposes, the effect of
its 2004 acquisitions on net income and earnings per share as if the Company had
consummated the acquisitions on January 1, 2004 and 2003, respectively (amounts
in thousands, except per share data):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
Pro Forma Information (unaudited): 2004 2003
-------- --------
Property operating revenues ................. $307,477 $297,845
======== ========
Income from continuing operations ........... $ 7,088 $ 20,381
======== ========
Net income available for Common Shares ...... $ 7,114 $ 30,166
======== ========
Earnings per Common Share - Basic:
Income from continuing operations ........ $ 0.31 $ 0.92
Net income available for Common Shares ... $ 0.31 $ 1.36
Earnings per Common Share - Fully Diluted:
Income from continuing operations ........ $ 0.30 $ 0.92
Net income available for Common Shares ... $ 0.30 $ 1.34
F-21
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN JOINT VENTURES
During the year ended December 31, 2005, the Company invested approximately
$7 million for a 50% preferred joint venture interest in three Properties
located near Bar Harbor, Maine. The Company also invested approximately $0.6
million for a 40% interest in a Texas Property owned by a joint venture
controlled by Diversified Investments, Inc. ("Diversified").
On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity interests (the "Mezzanine Investment") in six entities
controlled by Diversified. These entities own in the aggregate 11 Properties,
containing 5,054 sites. Approximately $11.7 million of the Mezzanine Investment
accrues at a per annum average rate of 10%, with a minimum per annum pay rate of
6.5%, payable quarterly, and approximately $17.9 million of the Mezzanine
Investment accrues at a per annum average rate of 11%, with a minimum pay rate
of 7%, payable quarterly. To the extent the minimum pay rates on the respective
Mezzanine Investments are not achieved, the accrual rates increase to 12% and
13% per annum, respectively. In addition, the Company has invested approximately
$1.4 million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Company's Consolidated
Balance Sheet as of December 31, 2005.
During the year ended December 31, 2004, the Company invested approximately
$4.1 million with Diversified in 11 separate property-owning entities. In
addition, the Company recorded approximately $6.5 million, $3.7 million and $0.3
million of net income from joint ventures, net of $2.0 million, $1.2 million and
$0.8 million of depreciation in the years ended December 31, 2005, 2004 and 2003
respectively. The Company received approximately $11.3 million, $5.2 million and
$0.8 million in distributions from such joint ventures for the year ended
December 31, 2005, 2004 and 2003 respectively. Included in such distributions
for the year ended December 31, 2005 and 2004 is $2.2 million and $2.5 million
return of capital, respectively of which $2.2 and $0.5 million, respectively,
exceeded the Company's basis and thus was recorded in income from unconsolidated
joint ventures and other. Due to the Company's inability to control the joint
ventures, the Company accounts for its investment in the joint ventures using
the equity method of accounting.
The following is a summary of the Company's investments in unconsolidated
joint ventures:
INVESTMENT INVESTMENT
NUMBER OF ECONOMIC AS OF DEC. 31, AS OF DEC. 31,
PROPERTY LOCATION SITES INTEREST (a) 2005 2004
-------- ------------ --------- ------------ -------------- --------------
(in thousands) (in thousands)
Meadows Investments Various (2) 1,027 50% $ 280 $ 4,763
Lakeshore Investments Florida (2) 343 90% 32 630
Voyager Tucson, AZ 1,575 25% 3,115 3,010
Mezzanine Investments Various (11) 5,054 -- 32,380 31,207
Indian Wells Indio, CA 350 30% 248 271
Diversified Investments Various (12) 4,697 25%(b) 3,258 3,702
Maine Portfolio Maine (3) 495 50% 6,898 --
------ ------- -------
13,541 $46,211 $43,583
====== ======= =======
(a) The percentages shown approximate the Company's economic interest. The
Company's legal ownership interest may differ.
(b) Economic interest in one Diversified Investment is 40%.
F-22
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN JOINT VENTURES (CONTINUED)
UNCONSOLIDATED REAL ESTATE JOINT VENTURE FINANCIAL INFORMATION
The following tables represent combined summarized financial information of
the unconsolidated real estate joint ventures.
BALANCE SHEETS
AS OF DECEMBER 31,
-------------------------------
2005 2004
-------------- --------------
(in thousands) (in thousands)
ASSETS
Real estate, net ............. $194,788 $183,480
Other assets ................. 23,378 22,646
-------- --------
TOTAL ASSETS .................... $218,166 $206,126
======== ========
LIABILITIES
Mortgage debt & other loans .. $171,285 $152,682
Other liabilities ............ 15,169 13,485
Partner's equity ............. 31,712 39,959
-------- --------
TOTAL LIABILITIES AND EQUITY .... $218,166 $206,126
======== ========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
2005 2004
-------------- --------------
(in thousands) (in thousands)
REVENUES
Rentals ...................... $34,345 $27,941
Other income ................. 7,142 5,390
------- -------
TOTAL REVENUES .................. 41,487 33,331
EXPENSES
Operating expenses ........... 19,067 16,454
Interest ..................... 9,315 7,558
Other income & expenses ...... 3,016 2,672
Depreciation & amortization .. 11,305 10,165
------- -------
TOTAL EXPENSES .................. 42,703 36,849
------- -------
NET (LOSS) INCOME ............... $(1,216) $(3,518)
======= =======
F-23
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES RECEIVABLE
As of December 31, 2005 and December 31, 2004, the Company had
approximately $11.6 million and $13.3 million in notes receivable, respectively.
The Company has approximately $10.9 million in Chattel Loans receivable, which
yield interest at a per annum average rate of approximately 9.7%, have an
average term and amortization of 5 to 15 years, require monthly principal and
interest payments and are collateralized by homes at certain of the Properties.
These notes are recorded net of allowances of $81,000 and $250,000 as of
December 31, 2005 and December 31, 2004, respectively. On November 15, 2005, the
Company entered into an agreement to loan Privileged Access (owned by a former
board member) up to $0.5 million. As of December 31, 2005, approximately $0.3
million has been borrowed by Privileged Access. The loan bears interest at prime
plus 1.0% per annum and matures on November 15, 2007. The Company has
approximately $403,000 in notes which bear interest at a per annum rate of prime
plus 0.5% and mature on December 31, 2011. The notes are collateralized with a
combination of common OP Units and partnership interests in certain joint
ventures.
NOTE 8 - LONG-TERM BORROWINGS
FINANCING, REFINANCING AND EARLY DEBT RETIREMENT
During the third quarter of 2005, the Company refinanced two mortgage loans
for proceeds of $34 million at an interest rate of 4.95% per annum. Net proceeds
were used to pay down approximately $20 million in other secured financing
maturing in 2006 and to pay $934,000 in early debt retirement costs offset by
related debt premium balance write-offs.
During the fourth quarter of 2005, the Company refinanced approximately
$293 million of secured debt maturing in 2007 with an effective interest rate of
6.8% per annum. This debt was secured by two cross-collateralized loan pools
consisting of 35 Properties. The transaction generated approximately $337
million in proceeds from loans secured by individual mortgages on 20 Properties.
The blended interest rate on the refinancing was approximately 5.3% per annum,
and the loans mature in 2015. The Company incurred approximately $20.0 million
of early debt retirement cost from the refinancing that were paid with proceeds
from the loans. The remaining excess proceeds were used to repay outstanding
amounts on our lines of credit.
In 2004, the Company assumed mortgage and other debt relating to
acquisition of approximately $157 million, which was recorded at fair market
value with the related premium being amortized over the life of the loan using
the effective interest rate. The Company borrowed an additional $194 million of
mortgage debt for other acquisitions. The mortgages bear interest at weighted
average rates ranging from 5.14% to 5.81% per annum, and mature at various dates
through November 1, 2027. In addition, in connection with the Thousand Trails
Transaction, we secured a $120 million three-year term loan at LIBOR plus 1.75%.
In 2003, the Company closed on 49 loans (see Note 4) collateralized by 51
Properties beneficially owned by separate legal entities that are Subsidiaries
of the Company, providing total proceeds of approximately $501 million. This
mortgage debt matures over seven years from November 1, 2008 to November 1, 2015
bearing interest at rates between 5.35% and 6.33% per annum.
In October 2003, the Company unwound an interest rate swap ("2001 Swap")
agreement at a cost of approximately $3 million, which is included in interest
and related amortization in 2003 in the accompanying Consolidated Statements of
Operations. The 2001 swap effectively fixed LIBOR on $100 million of our
floating rate debt at approximately 3.7% per annum for the period October 2001
through August 2004. The terms of the 2001 Swap required monthly settlements on
the same dates interest payments were due on the debt. In accordance with SFAS
No. 133, the 2001 Swap was reflected at market value.
On April 17, 2003, the Company entered into an agreement to refinance and
increase the "Bay Indies Mortgage", a $44.5 million note, from approximately
$21.9 million to $45 million. Under the new agreement, the Bay Indies Mortgage
bears interest at 5.69% per annum, amortizes over 25 years and matures April 17,
2013. The net proceeds were used to pay down the Company's line of credit. Also
during the year ended December 31, 2003, mortgage notes payable on four other
Properties were repaid totaling approximately $23.5 million using proceeds from
borrowings on the Company's line of credit.
F-24
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM BORROWINGS (CONTINUED)
SECURED DEBT
As of December 31, 2005 and December 31, 2004, the Company had outstanding
mortgage indebtedness on Properties held for long term of approximately $1,485
million and $1,402 million, respectively, and approximately $15 million of
mortgage indebtedness as of December 31, 2005 and December 31, 2004 on
Properties held for sale. The weighted average interest rate on this mortgage
indebtedness for the years ended December 31, 2005 and 2004, respectively, was
approximately 6.25% and 6.26% per annum. The debt bears interest at rates of
4.17% to 7.19% per annum and matures on various dates ranging from 2007 to
2015, with one additional loan maturing in 2027. Included in our debt balance
are three capital leases with an imputed interest rate of 11.6% per annum. The
debt encumbered a total of 150 and 165 of the Company's Properties as of
December 31, 2005 and December 31, 2004, respectively, and the carrying value of
such Properties was approximately $1,603 million and $1,653 million,
respectively, as of such dates.
UNSECURED LOANS
TERM LOAN
The Company has a Term Loan agreement, pursuant to which it borrowed $120
million, on an unsecured basis, at LIBOR plus 1.75% per annum. The Term Loan
will be due and payable on November 10, 2007; however, the borrower has the
option to extend the initial maturity for two additional one-year terms.
Proceeds from this debt were used to acquire KTTI Holding Company, Inc. as part
of the Thousand Trails Transaction. During 2005, the Company made principal
repayments of $20.0 million on this Term Loan and secured a fixed interest rate
at 6.85% per annum for a one-year term.
LINES OF CREDIT
The Company has a $110 million credit facility with a group of banks,
bearing interest at LIBOR plus 1.65% per annum and maturing on August 9, 2006,
which can be extended by the borrower for an additional year to August 9, 2007.
As of December 31, 2005, $80.4 million was available under this facility.
The Company has a $50 million credit facility with Wells Fargo Bank,
bearing interest at LIBOR plus 1.65% per annum and maturing on May 4, 2006,
which can be extended by the borrower for an additional year to May 4, 2007. As
of December 31, 2005, $41.9 million was available under this facility.
OTHER LOANS
During 2005, the Company borrowed $2.4 million to finance its insurance
premium payments. As of December 31, 2005, $230,000 remained outstanding. This
loan is due in January 2006 and bears interest at 4.07% per annum.
Aggregate payments of principal on long-term borrowings for each of the
next five years and thereafter are as follows (amounts in thousands):
YEAR AMOUNT
---- ----------
2006 $ 53,622
2007 135,395
2008 201,605
2009 75,049
2010 227,340
Thereafter 938,342
Net unamortized premiums and discounts 6,928
----------
Total $1,638,281
==========
F-25
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LEASE AGREEMENTS
The leases entered into between the customer and the Company for the rental
of a site are generally month-to-month or for a period of one to ten years,
renewable upon the consent of the parties or, in some instances, as provided by
statute. Non-cancelable long-term leases are in effect at certain sites within
approximately 25 of the Properties. Rental rate increases at these Properties
are primarily a function of increases in the Consumer Price Index, taking into
consideration certain conditions. Additionally, periodic market rate adjustments
are made as deemed appropriate. Future minimum rents are scheduled to be
received under non-cancelable tenant leases at December 31, 2005 as follows
(amounts in thousands):
YEAR AMOUNT
---- --------
2006 $ 44,802
2007 46,124
2008 34,442
2009 21,343
2010 21,135
Thereafter 40,712
--------
Total $208,558
========
NOTE 10 - GROUND LEASES
The Company leases land under non-cancelable operating leases at certain of
the Properties expiring in various years from 2022 to 2032 with terms which
require 12 equal payments per year plus additional rents calculated as a
percentage of gross revenues. For the years ended December 31, 2005, 2004 and
2003, ground lease rent was approximately $1.6, $1.6 and $1.5 million per year,
respectively. Minimum future rental payments under the ground leases are
approximately $1.6 million for each of the next five years and approximately
$21.3 million thereafter.
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
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
$465,000, $412,000 and $404,000 for the years December 31, 2005, 2004 and 2003,
respectively. The Company had no amounts due to this entity as of December 31,
2005 and 2004, respectively. During 2003, we paid $25,000 to J. Green & Co.,
L.L.C. for services provided by Mr. Berman, the Company's current Chief
Financial Officer, prior to his employment by the Company.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Company's Board of
Directors.
NOTE 12 - STOCK OPTION PLAN AND STOCK GRANTS
The Company's Stock Option and Stock Award Plan (the "Plan") was adopted in
December 1992 and amended and restated from time to time, most recently
effective March 23, 2001. Pursuant to the Plan, officers, directors, employees
and consultants of the Company are offered the opportunity (i) to acquire shares
of common stock through the grant of stock options ("Options"), including
non-qualified stock options and, for key employees, incentive stock options
within the meaning of Section 422 of the Internal Revenue Code; and (ii) to be
awarded shares of common stock ("Restricted Stock Grants"), subject to
conditions and restrictions determined by the Compensation, Nominating, and
Corporate Governance Committee of the Company's Board of Directors (the
"Compensation Committee"). The Compensation Committee will determine the
F-26
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
vesting schedule, if any, of each Option and the term, which term shall not
exceed ten years from the date of grant. As to the Options that have been
granted through December 31, 2005 to officers, employees and consultants,
generally, one-third are exercisable one year after the initial grant, one-third
are exercisable two years following the date such Options were granted and the
remaining one-third are exercisable three years following the date such Options
were granted. A maximum of 6,000,000 shares of common stock are available for
grant under the Plan and no more than 250,000 shares may be subject to grants to
any one individual in any calendar year.
Grants under the Plan are made by the Compensation Committee, which
determines the individuals eligible to receive awards, the types of awards, and
the terms, conditions and restrictions applicable to any award. In addition, the
terms of two specific types of awards are contemplated under the Plan:
- The first type of award is a grant of Options or Restricted Stock
Grants of common stock made to each member of the Board at the meeting
held immediately after each annual meeting of the Company's
stockholders. Generally, if the director elects to receive Options,
the grant will cover 10,000 shares of common stock at an exercise
price equal to the fair market value on the date of grant. If the
director elects to receive a Restricted Stock Grant of common stock,
he or she will receive an award of 2,000 shares of common stock.
Exercisability or vesting with respect to either type of award will be
with respect to one-third of the award after six months, two-thirds of
the award after one year, and the full award after two years.
- The second type of award is a grant of common stock in lieu of 50% of
their bonus otherwise payable to individuals with a title of Vice
President or above. A recipient can request that the Compensation
Committee pay a greater or lesser portion of the bonus in shares of
common stock.
Prior to 2003, we accounted for our stock compensation in accordance with
APB No. 25, "Accounting for Stock Issued to Employees", based upon the intrinsic
value method. This method results in no compensation expense for Options issued
with an exercise price equal to or exceeding the market value of the common
stock on the date of grant. On January 1, 2003, we elected to account for our
stock-based compensation in accordance with Statement of Financial Accounting
Standards No. 123 ("SFAS 123")and its amendment (SFAS No. 148), "Accounting for
Stock Based Compensation", which resulted in compensation expense being recorded
based on the fair value of the Options and other equity awards issued. SFAS No.
148 provided three possible transition methods for changing to the fair value
method. We elected to use the modified-prospective method. This method required
that we recognize stock-based employee compensation cost from the beginning of
the fiscal year in which the recognition provisions are first applied as if the
fair value method had been used to account for all employee awards granted, or
settled in fiscal years beginning after December 15, 1994. The Company adopted
SFAS 123(R) on July 1, 2005, which replaced SFAS 123. Since the Company had
chosen to use the modified-prospective method for recognizing stock-based
compensation and uses the Black-Scholes-Merton Model for valuing the options the
result of the adoption had no material impact of the Company's results of
operations or financial position.
F-27
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Restricted Stock Grants
In 2004, the Company awarded Restricted Stock Grants for 135,000 shares of
common stock to certain members of senior management of the Company. These
Restricted Stock Grants vest over three years, but may be restricted for a
period of up to ten years depending upon certain performance benchmarks. The
fair market value of these Restricted Stock Grants was approximately $5.0
million as of the date of grant and is recorded as compensation expense and paid
in capital over the three year vesting period.
In 2005 and 2004, the Company awarded Restricted Stock Grants for 22,500
and 40,000 shares of common stock, respectively, to directors with a fair market
value of approximately $812,000 and $1,386,000 in 2005 and 2004, respectively.
The Company recognized compensation expense of approximately $2.8 million
and $2.7 million related to Restricted Stock Grants in 2005 and 2004,
respectively. The balance of unamortized deferred compensation as of December
31, 2005 and 2004 was approximately $0.0 million and $0.2 million, respectively.
Stock Options
The fair value of each grant is estimated on the grant date using the
Black-Scholes model Black-Scholes-Merton. The following table includes the
assumptions that were made and the estimated fair values:
ASSUMPTION 2005 2004 2003
- ---------- -------- --------- --------
Dividend yield 6.0% 5.9% 5.6%
Risk-free interest rate 4.2% 4.7% 3.5%
Expected life 4 years 10 years 5 years
Expected volatility 16.0% 16.0% 14.0%
-------- --------- --------
Estimated Fair Value of
Options Granted $354,757 $ 57,000 $ 40,600
In January 2004, approximately 1.2 million options were repriced in
connection with the special dividend paid on January 16, 2004 (see Note 4). A
summary of the Company's stock option activity, and related information for the
years ended December 31, 2005, 2004 and 2003 follows:
WEIGHTED AVERAGE
SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS SHARE
-------------- ------------------
Balance at January 1, 2003 1,515,897 $ 24.08
Options granted 20,000 32.67
Options exercised (302,526) 21.06
Options canceled (9,437) 25.60
----------
Balance at December 31, 2003 1,223,934 24.95
Options granted 1,212,367 17.28
Options exercised (195,737) 15.47
Options canceled (1,194,568) 25.04
----------
Balance at December 31, 2004 1,045,996 17.74
Options granted 130,000 35.10
Options exercised (187,755) 41.84
Options canceled (4,450) 17.37
----------
Balance at December 31, 2005 983,791 20.62
==========
F-28
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
The following table summarizes information regarding Options outstanding at
December 31, 2005:
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE -------------------
OUTSTANDING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
LIFE (IN EXERCISE EXERCISE
RANGE OF EXERCISE PRICES OPTIONS YEARS) PRICE OPTIONS PRICE
- ------------------------ ------- ----------- -------- ------- --------
$10.63 to $14.00 94,300 1.0 $13.44 94,300 $13.44
$15.69 to $18.99 565,605 3.4 $17.30 565,605 $17.30
$22.65 to $37.35 323,886 7.5 $28.50 230,551 $25.93
------- --- ------ ------- ------
983,791 4.5 $20.62 890,456 $19.13
======= === ====== ======= ======
As of December 31, 2005, 2004 and 2003, 1,775,975 shares, 1,924,025 shares,
and 2,119,152 shares remained available for grant, respectively; of these
839,025 shares, 861,525 shares, and 1,038,853 shares, respectively, remained
available for Restricted Stock Grants.
NOTE 13 - PREFERRED STOCK
The Company's Board of Directors is authorized under the Company's charter,
without further stockholder approval, to issue, from time to time, in one or
more series, 10,000,000 shares of $.01 par value preferred stock (the "Preferred
Stock"), with specific rights, preferences and other attributes as the Board may
determine, which may include preferences, powers and rights that are senior to
the rights of holders of the Company's common stock. However, under certain
circumstances, the issuance of preferred stock may require stockholder approval
pursuant to the rules and regulations of The New York Stock Exchange. As of
December 31, 2005 and 2004, no Preferred Stock was issued by the Company.
NOTE 14 - SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral feature
designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover
its employees and those of its Subsidiaries, if any. The 401(k) Plan permits
eligible employees of the Company and those of any Subsidiary to defer up to 19%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, the Company will match dollar-for-dollar the participant's
contribution up to 4% of the participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit sharing
component of the 401(k) Plan provides for a contribution to be made annually for
each participant in an amount, if any, as determined by the Company. All
employee contributions are 100% vested. The Company's contribution to the 401(k)
Plan was $355,138, $545,271, and $240,000, for the years ended December 31,
2005, 2004, and 2003, respectively.
As a result of the changes in the law relating to deferred compensation
plans, the Company terminated its Supplemental Retirement Savings Plan ("the
Plan"). Termination of the Plan resulted in a taxable distribution to the
participants, who received all of the assets that were held in their Plan
account, net of applicable withholding taxes. These assets included
approximately 900,000 shares of ELS common stock in the aggregate, including
approximately 825,000 shares of ELS common stock held in the Plan accounts of
ELS' executive officers and directors. All of the shares of ELS common stock
held in Plan accounts that were distributed are freely tradable without
restriction or further registration under the federal securities laws, except
for shares held in the Plan accounts of executive officers and directors, which
are subject to the manner and volume of sale requirements of Rule 144 under the
Securities Act. Termination of the Plan had no effect on results of operations
and no material impact on the Company's balance sheet. Certain executive
officers of the Company may from time to time adopt non-discretionary, written
trading plans that comply with Commission Rule 10b5-1, or otherwise monetize
their equity-based compensation. Commission Rule 10b5-1 provides executives with
a method to monetize their equity-based compensation in an automatic and
non-discretionary manner over time.
F-29
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - 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.
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 favor on that claim, notwithstanding the jury verdict. The
Court postponed decision on those motions and on the constitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the constitutional claims, then the Company
has pending claims seeking a declaration that it can close the Property and
convert it to another use. The United States Supreme Court issued the property
rights rulings in 2005 and the Company awaits the Court's decisions in the San
Rafael matters. On January 27, 2006, the Court 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 has filed a new
complaint challenging the City's ordinance as violating the takings clause and
substantive due process. The Company expects the City to file a responsive
motion to the amended complaint and for further legal proceedings to occur in
2006.
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
believes had been agreed to by the CMHOA in a settlement agreement. On May 23,
2004, the California Court of Appeal affirmed the
F-30
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
trial court's order dismissing the Company's claims against the City of San
Rafael. The CMHOA continues to seek damages from the Company in this matter. The
Company has reached a tentative 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 will bring motions for their respective attorneys' fees following
the settlement becoming final. The Company intends to vigorously defend this
matter should the settlement not become final. The Company believes that such
lawsuits will be a consequence of the Company's efforts to change rent control
since tenant groups actively desire to preserve the premium value of their homes
in addition to the discounted rents provided by rent control. The Company has
determined that its efforts to rebalance the regulatory environment despite the
risk of litigation from tenant groups are necessary not only because of the $15
million annual subsidy to tenants, but also because of the condemnation risk.
Similarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and other
property owners. However, the Court allowed the City to continue to enforce a
rent control ordinance that predated the two invalid ordinances (the "prior
ordinance"). As a result of the judgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and the prior ordinances and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance been
continually in effect. The City of Santee appealed the judgment. The court of
appeal and California Supreme Court refused to stay enforcement of these rent
adjustments pending appeal. After the City was unable to obtain a stay, the City
and the tenant association each sued the Company in separate actions alleging
the rent adjustments pursuant to the judgment violate the prior ordinance (Case
Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments,
refunds of amounts paid, and penalties and damages in these separate actions. On
January 25, 2005, the California Court of Appeal reversed the judgment in part
and affirmed it in part with a remand. The Court of Appeal affirmed that one
ordinance was unlawfully adopted and therefore void and that the second
ordinance contained unconstitutional provisions. However, the Court ruled the
City had the authority to cure the issues with the first ordinance
retroactively. On remand the trial court is directed to decide the issue of
damages to the Company which the Company believes is consistent with the Company
receiving the economic benefit of invalidating one of the ordinances and also
consistent with the Company's position that it is entitled to market rent and
not merely a higher amount of regulated rent. In the remand action, the City of
Santee filed a motion seeking restitution of amounts collected by the Company
following the judgment which motion was denied. The Company intends to
vigorously pursue its damages in the remand action and to vigorously defend the
two new lawsuits.
In addition, the Company has sued the City of Santee in federal court
alleging all three of the ordinances are unconstitutional under the Fifth 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 has appealed the decision.
In October 2004, the United States Supreme Court granted certiorari in
State of Hawaii vs. Chevron USA, Inc., a Ninth Circuit Court of Appeal case that
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 Appeal 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.
F-31
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
DISPUTE WITH LAS GALLINAS VALLEY SANITARY DISTRICT
In November 2004, the Company received a Compliance Order (the "Compliance
Order") from the Las Gallinas Valley Sanitary District (the "District"),
relating to the Company's Contempo Marin Property in San Rafael, California. The
Compliance Order directed the Company to submit and implement a plan to bring
the Property's domestic wastewater discharges into compliance with the
applicable District ordinance (the "Ordinance"), and to ensure continued
compliance with the Ordinance in the future.
Without admitting any violation of the Ordinance, the Company promptly
engaged a consultant to review the Property's sewage collection system and
prepare a compliance plan to be submitted to the District. The District approved
the compliance plan in January 2005, and the Company promptly took all necessary
actions to implement same.
Thereafter, the Company received a letter dated June 2, 2005 from the
District's attorney (the "June 2 Letter"), acknowledging that the Company has
"taken measures to bring the [Property's] private sanitary system into
compliance" with the Ordinance, but claiming that prior discharges from the
Property had damaged the District's sewers and pump stations in the amount of
approximately $368,000. The letter threatened legal action if necessary to
recover the cost of repairing such damage. By letter dated June 23, 2005,
counsel for the Company denied the District's claims set forth in the June 2
Letter.
On July 1, 2005, the District filed a Complaint for Enforcement of
Sanitation Ordinance, Damages, Penalties and Injunctive Relief in the California
Superior Court for Marin County, and on August 17, 2005, the District filed its
First Amended Complaint (the "Complaint"). On September 26, 2005, the Company
filed its Answer to the Complaint, denying each and every allegation of the
Complaint and further denying that the District is entitled to any of the relief
requested therein.
The District subsequently issued a Notice of Violation dated December 12,
2005 (the "NOV"), alleging additional violations of the Ordinance. By letter
dated December 23, 2005, the Company denied the allegations in the NOV.
The Company believes that it has complied with the Compliance Order and the
Ordinance. The Company further believes that the allegations in the Complaint
and the NOV are without merit, and will vigorously defend against any such
claims by the District.
COUNTRYSIDE AT VERO BEACH
The Company previously received letters dated June 17, 2002 and August 26,
2002 from Indian River County ("County"), claiming that the Company owed sewer
impact fees in the amount of approximately $518,000 with respect to the Property
known as Countryside at Vero Beach, located in Vero Beach, Florida, purportedly
under the terms of an agreement between the County and a prior owner of the
Property. In response, the Company advised the County that these fees are no
longer due and owing as a result of a 1996 settlement agreement between the
County and the prior owner of the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company paid
this settlement amount (with interest) to the County in connection with the
Company's acquisition of the Property. In February 2006, the Company was served
with a complaint filed by the County in Indian River County Circuit Court,
requesting a judgment declaring a lien against the Property for allegedly unpaid
impact fees, and foreclosing said lien. The Company will vigorously defend the
lawsuit.
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", 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. The Company will vigorously defend the lawsuit.
F-32
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. In
addition, to the extent any such proceedings or audits relate to newly acquired
Properties, the Company considers any potential indemnification obligations of
sellers in favor of the Company.
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 2005 and 2004 (amounts in
thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2005 3/31 6/30 9/30 12/31
---- -------- -------- -------- --------
Total revenues (a)....................................... $103,577 $101,780 $101,886 $106,930
Income from continuing operations (a).................... $ 8,481 $ 2,049 $ 789 $(17,285)
Income from discontinued operations (a).................. $ 228 $ 438 $ 302 $ 2,665
Net income (loss) available for Common Shares............ $ 8,709 $ 2,487 $ 1,091 $(14,620)
Weighted average Common Shares outstanding - Basic....... 22,974 23,042 23,097 23,208
Weighted average Common Shares outstanding - Diluted..... 29,878 29,974 30,149 29,450
Net income (loss) per Common Share outstanding - Basic... $ 0.38 $ 0.11 $ 0.05 $ (0.63)
Net income (loss) per Common Share outstanding -
Diluted............................................... $ 0.37 $ 0.11 $ 0.05 $ (0.63)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2004 3/31 6/30 9/30 12/31
---- ------- ------- ------- -------
Total revenues (a)....................................... $78,325 $84,932 $87,592 $94,618
Income from continuing operations (a).................... $ 3,786 $ 245 $(1,074) $ (336)
Income from discontinued operations (a).................. $ 724 $ 215 $ 210 $ 256
Net income (loss) available for Common Shares............ $ 4,510 $ 460 $ (864) $ (80)
Weighted average Common Shares outstanding - Basic....... 22,674 22,737 22,829 22,906
Weighted average Common Shares outstanding - Diluted..... 27,986 28,655 29,335 29,360
Net income (loss) per Common Share outstanding - Basic... $ 0.20 $ 0.02 $ (0.04) $ (0.00)
Net income (loss) per Common Share outstanding -
Diluted.............................................. $ 0.19 $ 0.02 $ (0.04) $ (0.00)
(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
F-33
SCHEDULE II
EQUITY LIFESTYLE PROPERTIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2005
ADDITIONS
-----------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
OF PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD
---------- ---------- ---------- ------------- ----------
For the year ended December 31, 2003:
Allowance for doubtful accounts...... $ 700,000 $ 820,822 $ -- ($693,822) $ 827,000
For the year ended December 31, 2004:
Allowance for doubtful accounts...... $ 827,000 $1,182,000 ($145,000) ($834,000) $1,030,000
For the year ended December 31, 2005:
Allowance for doubtful accounts...... $1,030,000 $1,029,000 ($38,000) ($842,000) $1,179,000
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/05
------------------- ----------------- ------------------------
Depreciable Depreciable Depreciable Accumulated Date of
Real Estate Location Encumbrances Land Property Land Property Land Property Total Depreciation Acquisition
----------- ----------- ------------ ------ ----------- ----- ----------- ----- ----------- ------ ------------ -----------
PROPERTIES HELD FOR LONG TERM
Apollo Village.... Phoenix AZ 4,416 932 3,219 -- 610 932 3,829 4,761 (1,439) 1994
Araby Acres....... Yuma AZ 3,169 1,440 4,345 -- 38 1,440 4,383 5,823 (305) 2003
Cactus Gardens.... Yuma AZ 4,784 1,992 5,984 -- 25 1,992 6,009 8,001 (303) 2004
Carefree Manor.... Phoenix AZ 3,352 706 3,040 -- 266 706 3,306 4,012 (922) 1998
Casa del Sol #1... Peoria AZ 10,230 2,215 6,467 -- 1,367 2,215 7,834 10,049 (1,833) 1996
Casa del Sol #2... Glendale AZ -- 2,103 6,283 -- 1,133 2,103 7,416 9,519 (1,683) 1996
Casa del Sol #3... Glendale AZ -- 2,450 7,452 -- 460 2,450 7,912 10,362 (1,994) 1998
Central Park...... Phoenix AZ 12,600 1,612 3,784 -- 772 1,612 4,556 6,168 (3,121) 1983
Countryside....... Phoenix AZ 3,685 2,056 6,241 -- 241 2,056 6,482 8,538 (742) 2002
Desert Paradise... Yuma AZ 1,434 666 2,011 -- 25 666 2,036 2,702 (134) 2004
Desert Skies...... Phoenix AZ 5,046 792 3,126 -- 415 792 3,541 4,333 (929) 1998
Fairview Manor.... Tucson AZ 4,977 1,674 4,708 -- 1,223 1,674 5,931 7,605 (1,584) 1998
Foothill.......... Yuma AZ 1,350 459 1,402 -- 22 459 1,424 1,883 (102) 2003
Golden Sun........ Scottsdale AZ 2,920 1,678 5,049 -- 69 1,678 5,118 6,796 (586) 2002
Hacienda De
Valencia....... Mesa AZ -- 833 2,701 -- 2,775 833 5,476 6,309 (2,729) 1984
Monte Vista....... Mesa AZ 22,519 11,402 34,355 -- 861 11,402 35,216 46,618 (1,939) 2004
Palm Shadows...... Glendale AZ 8,368 1,400 4,218 -- 379 1,400 4,597 5,997 (1,995) 1993
Paradise.......... Sun City AZ 19,547 6,414 19,263 12 365 6,426 19,628 26,054 (1,258) 2004
Sedona Shadows.... Sedona AZ 2,405 1,096 3,431 -- 716 1,096 4,147 5,243 (1,127) 1997
Suni Sands........ Yuma AZ 3,133 1,249 3,759 -- 19 1,249 3,778 5,027 (244) 2004
Sunrise Heights... Phoenix AZ 5,631 1,000 3,016 -- 615 1,000 3,631 4,631 (1,353) 1994
The Highlands at
Brentwood...... Mesa AZ 10,910 1,997 6,024 -- 1,102 1,997 7,126 9,123 (2,827) 1993
The Mark.......... Mesa AZ 8,702 1,354 4,660 6 1,251 1,360 5,911 7,271 (2,107) 1994
The Meadows....... Tempe AZ -- 2,613 7,887 -- 1,670 2,613 9,557 12,170 (3,467) 1994
Viewpoint......... Mesa AZ 43,085 24,890 56,340 14 918 24,904 57,258 82,162 (3,191) 2004
Whispering
Palms.......... Phoenix AZ 3,219 670 2,141 -- 209 670 2,350 3,020 (667) 1998
California
Hawaiian....... San Jose CA -- 5,825 17,755 -- 1,609 5,825 19,364 25,189 (5,562) 1997
Colony Park....... Ceres CA 5,820 890 2,837 -- 331 890 3,168 4,058 (1,022) 1998
Concord Cascade... Pacheco CA -- 985 3,016 -- 1,341 985 4,357 5,342 (2,628) 1983
Contempo Marin.... San Rafael CA -- 4,787 16,379 -- 2,630 4,787 19,009 23,796 (7,129) 1994
Coralwood......... Modesto CA 6,200 -- 5,047 -- 278 -- 5,325 5,325 (1,550) 1997
Date Palm......... Cathedral
City CA -- -- 216 -- 61 -- 277 277 (138) 1994
Date Palm Country
Club........... Cathedral
City CA 15,022 4,138 14,064 (23) 3,715 4,115 17,779 21,894 (6,447) 1994
DeAnza Santa
Cruz........... Santa Cruz CA 6,717 2,103 7,201 -- 470 2,103 7,671 9,774 (2,894) 1994
Four Seasons...... Fresno CA -- 756 2,348 -- 253 756 2,601 3,357 (764) 1997
S-2
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/05
------------------- ----------------- ------------------------
Depreciable Depreciable Depreciable Accumulated Date of
Real Estate Location Encumbrances Land Property Land Property Land Property Total Depreciation Acquisition
----------- ----------- ------------ ------ ----------- ----- ----------- ----- ----------- ------ ------------ -----------
Laguna Lake...... San Luis
Obispo CA -- 2,845 6,520 -- 252 2,845 6,772 9,617 (1,925) 1998
Lamplighter...... Spring
Valley CA -- 633 2,201 -- 695 633 2,896 3,529 (1,968) 1983
Las Palmas....... Rialto CA 3,759 1,295 3,866 -- 95 1,295 3,961 5,256 (218) 2004
Meadowbrook...... Santee CA -- 4,345 12,528 -- 1,591 4,345 14,119 18,464 (3,564) 1998
Monte del Lago... Castroville CA 21,400 3,150 9,469 -- 1,530 3,150 10,999 14,149 (3,028) 1997
Nicholson Plaza.. San Jose CA -- -- 4,512 -- 72 -- 4,584 4,584 (1,285) 1997
Pacific Dunes
Ranch......... California
Central
Coast CA 5,946 1,940 5,632 -- 109 1,940 5,741 7,681 (356) 2004
Parque La
Quinta........ Rialto CA 5,041 1,799 5,450 -- (29) 1,799 5,421 7,220 (378) 2004
Quail Meadows.... Riverbank CA 5,275 1,155 3,469 -- 316 1,155 3,785 4,940 (977) 1998
Rancho Mesa...... El Cajon CA 9,600 2,130 6,389 -- 367 2,130 6,756 8,886 (1,685) 1998
Rancho Valley.... El Cajon CA -- 685 1,902 -- 843 685 2,745 3,430 (1,742) 1983
Royal Holiday.... Hemet CA -- 778 2,643 -- 1,281 778 3,924 4,702 (730) 1998
Royal Oaks....... Visalia CA -- 602 1,921 -- 301 602 2,222 2,824 (637) 1997
San Francisco
RV............ San CA -- 1,656 4,973 -- -- 1,656 4,973 6,629 (83) 2005
Francisco
Santiago
Estates....... Sylmar CA 16,189 3,562 10,767 -- 811 3,562 11,578 15,140 (3,103) 1998
Sea Oaks......... Los Osos CA -- 871 2,703 -- 287 871 2,990 3,861 (823) 1997
Sunshadow........ San Jose CA -- -- 5,707 -- 144 -- 5,851 5,851 (1,668) 1997
Tahoe Valley
Campground.... Lake Tahoe CA -- 1,357 4,071 -- 49 1,357 4,120 5,477 (261) 2004
Village of Four
Seasons....... San Jose CA 15,138 5,229 15,714 -- 63 5,229 15,777 21,006 (876) 2004
Westwinds (4
properties)... San Jose CA -- -- 17,616 -- 5,405 -- 23,021 23,021 (6,746) 1997
Bear Creek....... Sheridan CO 4,880 1,100 3,359 -- 293 1,100 3,652 4,752 (962) 1998
Cimarron......... Broomfield CO 16,000 863 2,790 -- 636 863 3,426 4,289 (2,356) 1983
Golden Terrace... Golden CO 14,400 826 2,415 -- 797 826 3,212 4,038 (1,985) 1983
Golden Terrace
South......... Golden CO 2,400 750 2,265 -- 642 750 2,907 3,657 (822) 1997
Golden Terrace
West.......... Golden CO 16,800 1,694 5,065 -- 1,055 1,694 6,120 7,814 (3,614) 1986
Hillcrest
Village....... Aurora CO 27,200 1,912 5,202 289 2,455 2,201 7,657 9,858 (5,148) 1983
Holiday Hills.... Denver CO 37,600 2,159 7,780 -- 3,968 2,159 11,748 13,907 (7,648) 1983
Holiday Village
CO............ Co. Springs CO 11,600 567 1,759 -- 948 567 2,707 3,274 (1,703) 1983
Pueblo Grande.... Pueblo CO 7,800 241 1,069 -- 476 241 1,545 1,786 (1,030) 1983
Woodland Hills... Denver CO 8,164 1,928 4,408 -- 2,466 1,928 6,874 8,802 (2,769) 1994
Aspen Meadows.... Rehoboth
Beach DE 5,620 1,148 3,460 -- 389 1,148 3,849 4,997 (1,033) 1998
Camelot Meadows.. Rehoboth
Beach DE 7,201 527 2,058 1,251 3,820 1,778 5,878 7,656 (1,519) 1998
Mariners Cove.... Millsboro DE 16,452 990 2,971 -- 4,197 990 7,168 8,158 (3,154) 1987
McNicol.......... Rehoboth
Beach DE 2,710 563 1,710 -- 78 563 1,788 2,351 (471) 1998
Sweetbriar....... Rehoboth
Beach DE 3,040 498 1,527 -- 412 498 1,939 2,437 (567) 1998
Waterford
Estates....... Bear DE 30,954 5,250 16,202 -- 732 5,250 16,934 22,184 (3,404) 1996
S-3
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- -------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- ------------- ------------ ------ ----------- ----- -----------
Whispering
Pines...... Lewes DE 9,871 1,536 4,609 -- 1,035
Barrington
Hills -
Sunburst... Port Richey FL -- 1,145 3,437 -- 66
Bay Indies.... Venice FL 42,740 10,483 31,559 10 4,040
Bay Lake
Estates.... Nokomis FL 3,707 990 3,390 -- 1,014
Breezy Hill... Pompano Beach FL 9,860 5,510 16,555 -- 176
Buccaneer..... N. Ft. Myers FL 13,793 4,207 14,410 -- 1,580
Bulow
Village.... Flagler Beach FL 10,124 3,637 949 -- 5,794
Bulow Village
Resort..... Flagler Beach FL -- -- 228 -- 81
Carefree
Cove....... Fort
Lauderdale FL 4,716 1,741 5,170 -- 134
Carriage
Cove....... Daytona Beach FL 7,927 2,914 8,682 -- 921
Coachwood..... Leesburg FL 4,185 1,607 4,822 -- 69
Coquina....... St Augustine FL -- 5,286 5,545 -- 11,015
Coral Cay..... Margate FL 21,252 5,890 20,211 -- 4,822
Country
Place...... New Port
Richey FL 16,125 663 0 18 7,129
Country Side
North...... Vero Beach FL 17,117 3,711 11,133 -- 2,479
Crystal
Isles
- Encore... Crystal River FL 2,796 926 2,787 -- 27
Down Yonder... Largo FL 7,596 2,652 7,981 -- 136
East Bay
Oaks....... Largo FL 11,900 1,240 3,322 -- 669
Eldorado
Village.... Largo FL 8,190 778 2,341 -- 650
Fort Myers
Beach
Resort..... Fort Myers
Beach FL 4,326 1,493 4,480 -- (120)
Glen Ellen.... Clearwater FL 2,347 627 1,882 -- 30
Grand Island.. Grand Island FL -- 1,723 5,208 125 2,986
Gulf Air
Resort -
Sunburst... Fort Myers
Beach FL -- 1,609 4,830 -- (117)
Gulf View -
Encore..... Punta Gorda FL 1,646 717 2,158 -- 64
Hacienda
Village.... New Port
Richey FL 9,666 4,362 13,088 -- 720
Harbor Lakes
- Encore... Port
Charlotte FL -- 3,384 10,154 -- 68
Harbor View... New Port
Richey FL 7,825 4,045 12,146 -- 77
Heritage
Village.... Vero Beach FL 13,507 2,403 7,259 -- 982
Highland
Wood....... Pompano Beach FL 2,315 1,043 3,130 -- 22
Hillcrest..... Clearwater FL 4,176 1,278 3,928 -- 807
Holiday
Ranch...... Largo FL 3,732 925 2,866 -- 257
Holiday
Village.... Ormond Beach FL 6,890 2,610 7,837 -- 144
Holiday
Village
FL......... Vero Beach FL -- 350 1,374 -- 191
Indian Oaks... Rockledge FL 4,838 1,089 3,376 -- 758
Lake
Fairways... N. Ft. Myers FL 30,460 6,075 18,134 35 1,556
Lake Haven.... Dunedin FL 11,500 1,135 4,047 -- 2,661
Gross Amount Carried
at Close of
Period 12/31/05
-----------------------------
Depreciable Accumulated Date of
Real Estate Land Property Total Depreciation Acquisition
----------- ------ ----------- ------ ------------ -----------
Whispering
Pines...... 1,536 5,644 7,180 (3,047) 1998
Barrington
Hills -
Sunburst... 1,145 3,503 4,648 (203) 2004
Bay Indies.... 10,493 35,599 46,092 (13,365) 1994
Bay Lake
Estates.... 990 4,404 5,394 (1,625) 1994
Breezy Hill... 5,510 16,731 22,241 (1,860) 2002
Buccaneer..... 4,207 15,990 20,197 (5,906) 1994
Bulow
Village.... 3,637 6,743 10,380 (1,630) 1994
Bulow Village
Resort..... -- 309 309 (72) 2001
Carefree
Cove....... 1,741 5,304 7,045 (296) 2004
Carriage
Cove....... 2,914 9,603 12,517 (2,629) 1998
Coachwood..... 1,607 4,891 6,498 (311) 2004
Coquina....... 5,286 16,560 21,846 (2,105) 1999
Coral Cay..... 5,890 25,033 30,923 (8,426) 1994
Country
Place...... 681 7,129 7,810 (3,129) 1986
Country Side
North...... 3,711 13,612 17,323 (3,602) 1998
Crystal
Isles
- Encore... 926 2,814 3,740 (181) 2004
Down Yonder... 2,652 8,117 10,769 (906) 1998
East Bay
Oaks....... 1,240 3,991 5,231 (2,723) 1983
Eldorado
Village.... 778 2,991 3,769 (1,958) 1983
Fort Myers
Beach
Resort.....
1,493 4,360 5,853 (282) 2004
Glen Ellen.... 627 1,912 2,539 (201) 2002
Grand Island.. 1,848 8,194 10,042 (1,157) 2001
Gulf Air
Resort -
Sunburst... 1,609 4,713 6,322 (310) 2004
Gulf View -
Encore..... 717 2,222 2,939 (139) 2004
Hacienda
Village.... 4,362 13,808 18,170 (1,377) 2002
Harbor Lakes
- Encore... 3,384 10,222 13,606 (653) 2004
Harbor View... 4,045 12,223 16,268 (1,366) 2002
Heritage
Village.... 2,403 8,241 10,644 (3,048) 1994
Highland
Wood....... 1,043 3,152 4,195 (349) 2002
Hillcrest..... 1,278 4,735 6,013 (1,370) 1998
Holiday
Ranch...... 925 3,123 4,048 (857) 1998
Holiday
Village.... 2,610 7,981 10,591 (890) 2002
Holiday
Village
FL......... 350 1,565 1,915 (441) 1998
Indian Oaks... 1,089 4,134 5,223 (1,197) 1998
Lake
Fairways... 6,110 19,690 25,800 (7,224) 1994
Lake Haven.... 1,135 6,708 7,843 (3,539) 1983
S-4
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- -------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- ------------- ------------ ------ ----------- ---- -----------
Lake Magic -
Encore....... Orlando FL -- 1,595 4,793 -- (56)
Lakewood
Village...... Melbourne FL 9,818 1,862 5,627 -- 962
Lazy Lakes -
Sunburst..... Florida Keys FL 2,022 816 2,449 -- 21
Lighthouse
Pointe....... Port Orange FL 12,359 2,446 7,483 23 1,082
Manatee -
Encore....... Sarasota
North FL -- 2,300 6,903 -- 181
Maralago Cay.... Lantana FL 21,579 5,325 15,420 -- 3,615
Meadows at
Countrywood.. Plant City FL 18,050 4,514 13,175 -- 4,431
Mid-Florida
Lakes........ Leesburg FL 22,513 5,997 20,635 -- 6,157
Oak Bend........ Ocala FL 5,772 850 2,572 -- 972
Oaks at
Countrywood.. Plant City FL 1,282 1,111 2,513 (265) 1,952
Park City
West......... Fort
Lauderdale FL 7,250 4,187 12,561 -- 64
Pasco -
Encore....... Tampa North FL -- 1,494 4,484 -- 75
Pickwick........ Port Orange FL 11,344 2,803 8,870 -- 748
Pine Lakes...... N. Ft. Myers FL 30,617 6,306 14,579 21 6,129
Pioneer
Village -
Sunburst..... N. Ft. Myers FL 10,245 4,116 12,353 -- 706
Royal
Coachman
- Encore..... Nokomis FL 14,568 5,321 15,978 -- 91
Shangri La...... Largo FL 4,439 1,730 5,200 -- 47
Sherwood
Forest....... Kissimmee FL 22,933 4,852 14,596 -- 4,107
Sherwood
Forest
Resort....... Kissimmee FL 3,789 2,870 3,621 568 1,526
Silk Oak........ Clearwater FL 3,690 1,670 5,028 -- 90
Silver Dollar... Odessa FL 9,027 4,107 12,431 -- 388
Sixth Ave....... Zephryhills FL 2,232 839 2,518 -- 9
Southern
Palms........ Eustis FL 5,572 2,169 5,884 -- 1,790
Southernaire.... Mt. Dora FL 2,066 798 2,395 -- 21
Spanish Oaks.... Ocala FL 12,600 2,250 6,922 -- 930
Sunshine
Holiday -
Encore....... Daytona Beach FL -- 2,001 6,004 -- 83
Sunshine
Holiday RV
& MHP........ Fort
Lauderdale FL 8,401 3,099 9,286 -- 76
Sunshine Key.... Florida Keys FL 16,310 5,273 15,822 -- 93
Sunshine
Travel
- Encore..... Vero Beach FL -- 1,603 4,813 -- (15)
Terra Ceia...... Palmetto FL 2,496 967 2,905 -- 24
The Heritage.... N. Ft. Myers FL 9,527 1,438 4,371 346 3,624
The Lakes at
Country
wood......... Plant City FL 9,593 2,377 7,085 -- 1,169
The Meadows,
FL........... Palm Beach FL 5,987 3,229 9,870 -- 1,720
Gardens
Toby's.......... Arcadia FL 3,378 1,093 3,280 -- (320)
Topics RV....... Spring Hill FL 2,207 853 2,568 -- 19
Tropical
Palms........ Kissimmee FL 19,595 5,677 17,071 -- 415
Gross Amount Carried
at Close of
Period 12/31/05
-----------------------------
Depreciable Accumulated Date of
Real Estate Land Property Total Depreciation Acquisition
----------- ----- ----------- ------ ------------ -----------
Lake Magic -
Encore....... 1,595 4,737 6,332 (287) 2004
Lakewood
Village...... 1,862 6,589 8,451 (2,444) 1994
Lazy Lakes -
Sunburst..... 816 2,470 3,286 (157) 2004
Lighthouse
Pointe....... 2,469 8,565 11,034 (2,336) 1998
Manatee -
Encore....... 2,300 7,084 9,384 (447) 2004
Maralago Cay.... 5,325 19,035 24,360 (4,951) 1997
Meadows at
Countrywood.. 4,514 17,606 22,120 (4,175) 1998
Mid-Florida
Lakes........ 5,997 26,792 32,789 (9,079) 1994
Oak Bend........ 850 3,544 4,394 (1,379) 1993
Oaks at
Country
wood......... 846 4,465 5,311 (856) 1998
Park City
West......... 4,187 12,625 16,812 (804) 2004
Pasco -
Encore....... 1,494 4,559 6,053 (289) 2004
Pickwick........ 2,803 9,618 12,421 (2,489) 1998
Pine Lakes...... 6,327 20,708 27,035 (7,279) 1994
Pioneer
Village -
Sunburst..... 4,116 13,059 17,175 (797) 2004
Royal
Coachman
- Encore..... 5,321 16,069 21,390 (1,024) 2004
Shangri La...... 1,730 5,247 6,977 (334) 2004
Sherwood
Forest....... 4,852 18,703 23,555 (4,711) 1998
Sherwood
Forest
Resort....... 3,438 5,147 8,585 (1,329) 1998
Silk Oak........ 1,670 5,118 6,788 (529) 2002
Silver Dollar... 4,107 12,819 16,926 (818) 2004
Sixth Ave....... 839 2,527 3,366 (176) 2004
Southern
Palms........ 2,169 7,674 9,843 (2,002) 1998
Southernaire.... 798 2,416 3,214 (155) 2004
Spanish Oaks.... 2,250 7,852 10,102 (3,118) 1993
Sunshine
Holiday -
Encore....... 2,001 6,087 8,088 (385) 2004
Sunshine
Holiday RV
& MHP........ 3,099 9,362 12,461 (518) 2004
Sunshine Key.... 5,273 15,915 21,188 (1,018) 2004
Sunshine
Travel
- Encore..... 1,603 4,798 6,401 (310) 2004
Terra Ceia...... 967 2,929 3,896 (189) 2004
The Heritage.... 1,784 7,995 9,779 (2,768) 1993
The Lakes at
Country
wood......... 2,377 8,254 10,631 (1,341) 2001
The Meadows,
FL........... 3,229 11,590 14,819 (2,496) 1999
Toby's.......... 1,093 2,960 4,053 (233) 2003
Topics RV....... 853 2,587 3,440 (166) 2004
Tropical
Palms........ 5,677 17,486 23,163 (1,119) 2004
S-5
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/05
------------------ ---------------- ------------------------
Depreciable Depreciable Depreciable Accumulated Date of
Real Estate Location Encumbrances Land Property Land Property Land Property Total Depreciation Acquisition
- ----------- ------------- ------------ ------ ----------- ---- ----------- ----- ----------- ------ ------------ -----------
Vacation
Village -
Sunburst... St.Petersburg FL 2,433 1,315 3,946 -- 35 1,315 3,981 5,296 (239) 2004
Windmill
Manor...... Bradenton FL 8,798 2,153 6,125 -- 1,214 2,153 7,339 9,492 (1,857) 1998
Windmill
Village -
Ft. Myers.. N. Ft. Myers FL 17,155 1,417 5,440 -- 1,485 1,417 6,925 8,342 (4,653) 1983
Winds of St.
Armands
North
(fka
Windmill
North) .... Sarasota FL 20,200 1,523 5,063 -- 1,924 1,523 6,987 8,510 (4,205) 1983
Winds of St.
Armands
South
(fka
Windmill
South) .... Sarasota FL 13,000 1,106 3,162 -- 911 1,106 4,073 5,179 (2,593) 1983
Golf Vistas... Monee IL 14,399 2,843 4,719 -- 6,259 2,843 10,978 13,821 (2,523) 1997
O'Connell's... Amboy IL 4,891 1,658 4,974 4 266 1,662 5,240 6,902 (367) 2004
Willow Lake
Estates.... Elgin IL 21,521 6,138 21,033 -- 4,143 6,138 25,176 31,314 (8,930) 1994
Lakeside...... New Carlisle IN -- 426 1,281 -- 30 426 1,311 1,737 (86) 2004
Oak Tree
Village.... Portage IN 9,680 -- -- 569 3,638 569 3,638 4,207 (1,930) 1987
Old Chatham... South Dennis MA 5,798 1,760 5,293 -- -- 1,760 5,293 7,053 (73) 2005
Pinehirst
RV......... Old Orchard
Beach ME 6,194 1,942 5,827 -- -- 1,942 5,827 7,769 (81) 2005
Goose Creek
Resort..... Newport NC 12,334 4,612 13,848 756 77 5,368 13,925 19,293 (925) 2004
Twin Lakes.... Chocowinity NC 3,755 1,719 3,361 (11) (5)1,708 3,356 5,064 (221) 2004
Waterway RV
Resort..... Cedar Point NC 6,148 2,392 7,185 -- 24 2,392 7,209 9,601 (464) 2004
Sandy Beach... Contoocook NH 5,300 1,755 5,265 -- -- 1,755 5,265 7,020 (73) 2005
Bonanza....... Las Vegas NV 9,180 908 2,643 -- 1,359 908 4,002 4,910 (2,395) 1983
Boulder
Cascade.... Las Vegas NV 8,762 2,995 9,020 -- 1,956 2,995 10,976 13,971 (2,688) 1998
Cabana........ Las Vegas NV 10,246 2,648 7,989 -- 410 2,648 8,399 11,047 (3,224) 1994
Flamingo
West....... Las Vegas NV 10,498 1,730 5,266 -- 1,293 1,730 6,559 8,289 (2,322) 1994
Villa
Borega..... Las Vegas NV 6,841 2,896 8,774 -- 852 2,896 9,626 12,522 (2,600) 1997
Alpine
Lake....... Corinth NY 14,536 4,783 14,125 -- -- 4,783 14,125 18,908 (196) 2005
Brennan
Beach...... Pulaski NY 21,473 7,325 21,141 -- -- 7,325 21,141 28,466 (294) 2005
Greenwood
Village.... Manorville NY 17,222 3,667 9,414 484 3,722 4,151 13,136 17,287 (3,066) 1998
Lake George
Escape..... Lake George NY -- 3,558 10,708 -- -- 3,558 10,708 14,266 (119) 2005
Falcon Wood
Village.... Eugene OR 5,200 1,112 3,426 -- 262 1,112 3,688 4,800 (1,033) 1997
Mt. Hood
Village.... Welches OR -- 1,817 5,733 -- (268)1,817 5,465 7,282 (744) 2002
Quail
Hollow..... Fairview OR -- -- 3,249 -- 254 -- 3,503 3,503 (986) 1997
Shadowbrook... Clackamas OR 6,320 1,197 3,693 -- 185 1,197 3,878 5,075 (1,143) 1997
Green Acres... Breinigsville PA 30,560 2,680 7,479 -- 2,982 2,680 10,461 13,141 (5,447) 1988
Spring
Gulch...... New Holland PA 4,754 1,593 4,795 -- 47 1,593 4,842 6,435 (327) 2004
Country
Sunshine-
Sunburst... Weslaco TX 2,266 627 1,881 -- 38 627 1,919 2,546 (122) 2004
Fun n Sun..... San Benito TX -- 2,533 -- 417 9,936 2,950 9,936 12,886 (2,557) 1998
Lakewood-
Sunburst... Harlingen TX -- 325 979 -- 65 325 1,044 1,369 (64) 2004
S-6
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/05
-------------------- ------------------ --------------------
Depreciable Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property Land Property Total
- ----------- ------------ ------------ -------- ----------- ------ ----------- -------- ----------- ----------
Paradise
Park......... Rio Grande
Valley TX 5,225 1,568 4,705 -- 23 1,568 4,728 6,296
Paradise
South
- Encore..... Mercedes TX 1,619 448 1,345 -- 35 448 1,380 1,828
Southern
Comfort...... Weslaco TX 2,590 1,108 3,323 -- 36 1,108 3,359 4,467
Sunshine RV
- Encore..... Harlingen TX -- 1,494 4,484 -- 13 1,494 4,497 5,991
Tropic Winds.... Harlingen TX -- 1,221 3,809 -- 122 1,221 3,931 5,152
All Seasons..... Salt Lake
City UT 3,491 510 1,623 -- 221 510 1,844 2,354
Westwood
Village...... Farr West UT 7,387 1,346 4,179 -- 1,214 1,346 5,393 6,739
Meadows of
Chantilly.... Chantilly VA 34,800 5,430 16,440 -- 4,634 5,430 21,074 26,504
Kloshe
Illahee...... Federal
Way WA 5,935 2,408 7,286 -- 318 2,408 7,604 10,012
Caledonia....... Caledonia WI -- 376 1,127 10 31 386 1,158 1,544
Fremont......... Fremont WI 4,252 1,432 4,296 5 62 1,437 4,358 5,795
Yukon
Trails....... Lyndon
Station WI -- 547 1,629 9 82 556 1,711 2,267
Thousand
Trails....... Various -- 48,537 113,253 101 391 48,638 113,644 162,282
---------- -------- ---------- ------ -------- -------- ---------- ----------
Subtotal of Properties
Held for Long Term.. 1,485,562 481,525 1,401,291 4,774 211,905 486,299 1,613,196 2,099,495
PROPERTIES HELD FOR SALE
Holiday
Village,
IA (6)....... Sioux City IA -- 313 3,744 -- 531 313 4,275 4,588
Forest Oaks
(fka
Burns
Harbor)
(6).......... Chesterton IN -- 916 2,909 -- 1,754 916 4,663 5,579
Windsong
(6).......... Indianapolis IN -- 1,482 4,480 -- 212 1,482 4,692 6,174
Creekside
(6).......... Wyoming MI 3,760 1,109 3,646 -- 153 1,109 3,799 4,908
Casa
Village
(6).......... Billings MT 11,029 1,011 3,109 157 3,675 1,168 6,784 7,952
Del Rey (6)..... Albuquerque NM -- 1,926 5,800 -- 727 1,926 6,527 8,453
---------- -------- ---------- ------ -------- -------- ---------- ----------
Subtotal of
Properties
Held for
Sale...... 14,789 6,757 23,688 157 7,052 6,914 30,740 37,654
Realty Systems,
Inc. -- -- -- -- 4,705 -- 4,705 4,705
Management
Business -- -- 436 -- 10,277 -- 10,713 10,713
---------- -------- ---------- ------ -------- -------- ---------- ----------
INVESTMENT IN
REAL
ESTATE..-.... $1,500,351 $488,282 $1,425,415 $4,931 $233,939 $493,213 $1,659,354 $2,152,567
========== ======== ========== ====== ======== ======== ========== ==========
Accumulated Date of
Real Estate Depreciation Acquisition
- ----------- ------------ -----------
Paradise
Park........ (302) 2004
Paradise
South
- Encore.... (87) 2004
Southern
Comfort..... (213) 2004
Sunshine RV
- Encore.... (287) 2004
Tropic Winds... (485) 2002
All Seasons.... (559) 1997
Westwood
Village..... (1,578) 1997
Meadows of
Chantilly... (7,499) 1994
Kloshe
Illahee..... (2,111) 1997
Caledonia...... (44) 2004
Fremont........ (160) 2004
Yukon
Trails...... (71) 2004
Thousand
Trails...... (4,402) 2004
----------
Subtotal of
Held for (354,180)
PROPERTIES HELD FOR SALE
Holiday
Village,
IA (6)...... (2,590) 1986
Forest Oaks
(fka
Burns
Harbor)
(6)......... (1,965) 1993
Windsong
(6)......... (1,318) 1998
Creekside
(6)......... (929) 1998
Casa
Village
(6)......... (3,174) 1983
Del Rey (6).... (2,661) 1993
----------
Subtotal of
Properties
Held for
Sale..... (12,637)
Realty Systems,
Inc. (345) 2002
Management
Business (11,163) 1990
----------
INVESTMENT IN
REAL
ESTATE...... ($378,325)
==========
NOTES:
(1) For depreciable property, the Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen
year estimated life for building upgrades and a three-to-seven year
estimated life for furniture and fixtures.
(2) The schedule excludes Properties in which the Company has a non-controlling
joint venture interest and accounts for using the equity method of
accounting.
(3) The balance of furniture and fixtures included in the total amounts was
approximately $24.8 million as of December 31, 2005.
(4) The aggregate cost of land and depreciable property for federal income tax
purposes was approximately $2.1 billion, as of December 31, 2005.
(5) All Properties were acquired, except for Country Place Village, which was
constructed.
(6) These properties were held for sale as of December 31, 2005, pursuant to
FAS 144.
S-7
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31, 2005, 2004 and
2003 were as follows:
2005 2004 2003
---------- ---------- ----------
Balance, beginning of year .. $2,035,790 $1,309,705 $1,296,007
Acquisitions ............. 90,109 702,538 12,116
Improvements ............. 32,927 27,082 15,569
Dispositions and other ... (6,259) (3,535) (13,987)
---------- ---------- ----------
Balance, end of year ........ $2,152,567 $2,035,790 $1,309,705
========== ========== ==========
The changes in accumulated depreciation for the years ended December 31, 2005,
2004 and 2003 were as follows:
2005 2004 2003
-------- -------- --------
Balance, beginning of year .. $322,867 $272,497 $238,098
Depreciation expense ..... 56,822 50,551 38,640
Dispositions and other ... (1,364) (181) (4,241)
-------- -------- --------
Balance, end of year ........ $378,325 $322,867 $272,497
======== ======== ========
S-8