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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 14, 2005
(Date of earliest event reported)
EQUITY LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 1-11718 36-3857664
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation or organization) Identification Number)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
(312) 279-1400
(Registrant's telephone number, including area code)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 8.01. OTHER EVENTS
Equity Lifestyle Properties, Inc. ("ELS") is re-issuing in an updated
format certain historical financial statements in connection with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). During the three months ended March
31, 2005, ELS held properties for sale and in compliance with SFAS 144 has
reported revenue, expenses and net gains from the sale of these properties and
provisions for loss on assets held for sale as discontinued operations for each
period presented (including the comparable periods of the prior year). Under
Securities and Exchange Commission ("SEC") requirements, the same
reclassification as discontinued operations required by SFAS 144 following the
sale of a property or a property designated as held for sale is required for
previously issued annual financial statements for each of the three years shown
in ELS' last annual report on Form 10-K, if those financials are incorporated by
reference in subsequent filings with the SEC made under the Securities Act of
1933, as amended, even though those financial statements relate to periods prior
to the date of the sale. This reclassification has no effect on ELS' reported
net income available to common shareholders or funds from operations.
This Report on Form 8-K updates Items 6, 7 and 8 of ELS' 2004 Form 10-K
dated March 29, 2005, as amended by Form 10-K/A dated March 31, 2005 (as so
amended, the "Form 10-K"), to reflect the properties held for sale as of March
31, 2005 as discontinued operations. All other items of the Form 10-K remain
unchanged. No attempt has been made to update matters in the Form 10-K except to
the extent expressly provided above.
This document 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 communities,
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 communities, 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.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits:
The following exhibits required by this item are being filed with this
Current Report on Form 8-K.
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Independent Registered Public Accounting Firm
31.1 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
99.1 Selected Financial Data
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Statements and Supplementary Data
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY LIFESTYLE PROPERTIES, INC.
Date: June 14, 2005 By: /s/ Thomas P. Heneghan
--------------------------------------
Thomas P. Heneghan
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 14, 2005 By: /s/ Michael B. Berman
--------------------------------------
Michael B. Berman
Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
3
EXHIBIT 12.1
EQUITY LIFESTYLE PROPERTIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
For the years ended December 31,
2004 2003 2002 2001 2000
--------- ---------- ---------- ---------- ---------
(restated) (restated) (restated)
Income from continuing operations before
allocation to minority interests............... $ 14,513 $ 28,431 $ 32,674 $ 43,685 $ 46,132
Fixed Charges................................... 102,218 69,458 61,977 62,539 64,532
--------- ---------- ---------- ---------- ---------
Earnings........................................ $ 116,731 $ 97,889 $ 94,651 $ 106,224 $ 110,664
========= ========== ========== ========== =========
Interest incurred............................... 88,801 53,180 49,714 50,179 52,317
Amortization of deferred financing costs........ 2,169 5,026 1,011 1,108 963
Perpetual Preferred OP Unit Distributions....... 11,248 11,252 11,252 11,252 11,252
--------- ---------- ---------- ---------- ---------
Fixed Charges................................... $ 102,218 $ 69,458 $ 61,977 $ 62,539 $ 64,532
========= ========== ========== ========== =========
Earnings/Fixed Charges.......................... 1.14 1.41 1.53 1.70 1.71
--------- ---------- ---------- ---------- ---------
4
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporated by reference in the Registration Statements (Form
S-8 No. 333-68473, No. 333-28469, No. 333-25295, and No. 33-76486, and Form S-3
No. 333-66550, No. 333-90813, No. 333-65515, No. 333-25297, No. 333-1710, No.
33-82902 and No. 33-97288) of Equity Lifestyle Properties, Inc., and in the
related Prospectuses, of our report dated March 24, 2005, except for Notes 4 and
6, as to which the date is June 7, 2005, with respect to the consolidated
financial statements and schedules of Equity Lifestyle Properties, Inc.,
included in this Current Report on Form 8-K.
ERNST & YOUNG LLP
Chicago, Illinois
June 14, 2005
5
EXHIBIT 31.1
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael B. Berman, certify that:
1. I have reviewed this report of Equity Lifestyle Properties, Inc.:
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report.
Dated: June 14, 2005 /s/ Michael B. Berman
-----------------------------------
Michael B. Berman
Vice President, Treasurer and Chief
Financial Officer
6
EXHIBIT 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas P. Heneghan, certify that:
1. I have reviewed this report of Equity Lifestyle Properties, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report.
Date: June 14, 2005 /s/ Thomas P. Heneghan
-------------------------------------
Thomas P. Heneghan
President and Chief Executive Officer
7
EXHIBIT 99.1
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information on a historical basis. The historical operating data for the four
years ended December 31, 2003 have been derived from the historical financial
statements of the Company; however, they have been restated to reflect
adjustments that are further explained in Note 2 of the Notes to Consolidated
Financial Statements. The following information should be read in conjunction
with Item 8.
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands, except for per share and property data)
(1) YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2004 2003 2002 2001 2000
--------- ---------- --------- ---------- --------
(Restated) (Restated) (Restated)
PROPERTY OPERATIONS:
Community base rental income................... $ 204,190 $ 189,915 $187,406 $ 183,580 $177,601
Resort base rental income...................... 54,841 11,779 9,143 5,743 7,404
Utility and other income....................... 24,278 19,411 18,933 19,628 18,820
--------- ---------- --------- ---------- --------
Property operating revenues................. 283,309 221,105 215,482 208,951 203,825
Property operating and maintenance............. 92,121 61,945 59,839 57,780 55,011
Real estate taxes.............................. 22,723 18,011 16,919 16,047 15,535
Property management............................ 12,852 9,373 9,292 8,973 8,690
--------- ---------- --------- ---------- --------
Property operating expenses (exclusive of
depreciation shown separately below)........ 127,696 89,329 86,050 82,800 79,236
--------- ---------- --------- ---------- --------
Income from property operations......... 155,613 131,776 129,432 126,151 124,589
HOME SALES OPERATIONS:
Gross revenues from inventory home sales....... 47,404 36,472 33,262 --- ---
Cost of inventory home sales................... (41,577) (31,615) (26,922) --- ---
--------- ---------- --------- ---------- --------
Gross profit from inventory home sales.. 5,827 4,857 6,340 --- ---
Brokered resale revenues, net.................. 2,176 1,714 1,558 --- ---
Home selling expenses.......................... (8,630) (7,287) (7,570) --- ---
Ancillary services revenues, net............... 2,743 162 448 --- ---
--------- ---------- --------- ---------- --------
Income (loss) from home sales operations &
other.................................... 2,116 (554) 776 --- ---
OTHER INCOME (EXPENSES):
Interest income................................ 1,391 1,695 967 639 1,009
Equity in income of affiliates................. --- --- --- 1,758 2,408
Income from other investments (2).............. 3,475 956 316 383 150
General and administrative..................... (9,243) (8,060) (8,192) (6,687) (6,423)
Rent control initiatives....................... (2,412) (2,352) (5,698) (2,358) ---
Interest and related amortization (3).......... (90,970) (58,206) (50,725) (51,287) (53,280)
Depreciation on corporate assets............... (1,657) (1,240) (1,277) (1,243) (1,139)
Depreciation on real estate assets and other
costs....................................... (47,541) (35,924) (33,160) (32,181) (32,202)
--------- ---------- --------- ---------- --------
Total other income (expenses)........... ( 146,957) (103,131) (97,769) (90,976) (89,477)
Income before minority interests, equity in
income of unconsolidated joint ventures,
loss on extinguishment of debt, gain on
sale of property and discontinued
operations............................... 10,772 28,091 32,439 35,175 35,112
(Income) allocated to Common OP Units.......... (608) (3,431) (4,230) (6,612) (7,311)
(Income) allocated to Perpetual Preferred OP
Units....................................... (11,284) (11,252) (11,252) (11,252) (11,252)
Equity in income of unconsolidated joint
ventures................................. 3,739 340 235 282 8
--------- ---------- --------- ---------- --------
Income before loss on extinguishment of
debt, gain on sale of properties and
other, and discontinued operations....... 2,619 13,748 17,192 17,593 16,557
--------- ---------- --------- ---------- --------
Loss on the extinguishment of debt............. --- --- --- --- (1,041)
Gain on sale of properties and other........... 2 --- --- 8,168 12,053
--------- ---------- --------- ---------- --------
Income from continuing operations........... 2,621 13,748 17,192 25,761 27,569
--------- ---------- --------- ---------- --------
DISCONTINUED OPERATIONS:
Discontinued Operations........................ 2,450 4,607 7,387 7,525 7,225
Depreciation on discontinued operations........ (1,353) (1,476) (2,150) (1,964) (1,697)
Gain on sale of discontinued properties and
other....................................... 636 10,826 13,014 --- ---
Minority interests on discontinued operations.. (328) (2,573) (3,556) (1,125) (1,152)
--------- ---------- --------- ---------- --------
Income from discontinued operations......... 1,405 11,384 14,695 4,436 4,376
--------- ---------- --------- ---------- --------
NET INCOME AVAILABLE FOR COMMON SHARES...... $ 4,026 $ 25,132 $ 31,887 $ 30,197 $ 31,945
========= ========== ========= ========== ========
8
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(Amounts in thousands, except for per share and property data)
(1) AS OF DECEMBER 31,
----------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
(Restated) (Restated) (Restated)
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations.................... $ 0.12 $ 0.62 $ 0.80 $ 1.23 $ 1.29
Income from discontinued operations.................. $ 0.06 $ 0.52 $ 0.68 $ 0.21 $ 0.20
Net income available for Common Shares............... $ 0.18 $ 1.14 $ 1.48 $ 1.44 $ 1.49
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations.................... $ 0.11 $ 0.61 $ 0.78 $ 1.20 $ 1.27
Income from discontinued operations.................. $ 0.06 $ 0.50 $ 0.66 $ 0.20 $ 0.20
Net income available for Common Shares............... $ 0.17 $ 1.11 $ 1.44 $ 1.40 $ 1.47
Distributions declared per Common Share outstanding $ 0.05 $ 9.485 $ 1.90 $ 1.78 $ 1.66
(3)..................................................
Weighted average Common Shares outstanding - basic... 22,849 22,077 21,617 21,036 21,469
Weighted average Common OP Units outstanding......... 6,067 5,342 5,403 5,466 5,592
Weighted average Common Shares outstanding - fully 29,465 28,002 27,632 27,010 27,408
diluted..............................................
BALANCE SHEET DATA:
Real estate, before accumulated depreciation (4)..... $2,035,790 $1,309,705 $1,296,007 $1,238,138 $1,218,176
Total assets......................................... 1,886,289 1,463,507 1,154,794 1,099,447 1,104,304
Total mortgages and loans (3)........................ 1,653,051 1,076,183 760,233 708,857 719,684
Minority interests................................... 134,771 124,634 166,889 170,675 171,271
Stockholders' equity (3)............................. 31,844 (2,528) 171,175 173,264 168,095
OTHER DATA:
Funds from operations (5)............................ $ 54,448 $ 58,479 $ 62,695 $ 64,599 $ 63,807
Net cash flow:
Operating activities.............................. $ 46,733 $ 75,163 $ 80,176 $ 80,708 $ 68,001
Investing activities.............................. $ (366,654) $ (598) $ (72,973) $ (23,067) $ 23,102
Financing activities.............................. $ (514) $ 243,905 $ (1,287) $ (59,134) $ (94,932)
Total Properties (at end of period) ................. 275 142 142 149 154
Total sites (at end of period)....................... 101,231 52,349 51,582 50,663 51,304
(1) See the Consolidated Financial Statements of the Company included
elsewhere herein. Certain 2003, 2002, 2001, and 2000 amounts have been
reclassified to conform to the 2004 financial presentation. Such
reclassifications have no effect on the operations or equity as originally
presented.
Net Income for the years ended December 31, 2003, 2002 and 2001 have been
restated (see Note 2 of the Notes to Consolidated Financial Statements
contained in Item 8) to reflect a change in the Company's accounting
policy with regards to its rent control initiatives. The Company received
a comment letter from the SEC with regard to prior filings. These issues
were outlined in our press release dated March 4, 2005. The issues have
been resolved and resulted in this restatement.
(2) On November 10, 2004, we acquired KTTI Holding Company, Inc., owner of 57
Properties and approximately 3,000 acres of vacant land, for $160 million
("Thousand Trails Transaction"). These Properties are leased to Thousand
Trails, the largest operator of membership-based campgrounds in the United
States. The Company has provided a long-term lease of the real estate
(excluding the vacant land) to Thousand Trails, which will continue to
operate the Properties for the benefit of its approximately 108,000
members nationwide. The Properties are located in 16 states (primarily in
the western and southern United States) and British Columbia, and contain
17,911 sites. The lease will generate $16 million in rental income to the
Company on an absolute triple net basis, subject to annual escalations of
3.25%. As of December 31, 2004, approximately $2.3 million represents
income for November 10, 2004 through December 31, 2004.
9
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(3) On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501
million at a weighted average interest rate of 5.84% and with a weighted
average maturity of approximately 9 years. Approximately $170 million of
the proceeds were used to repay amounts outstanding on the Company's line
of credit and term loan. Approximately $225 million was used to pay a
special distribution of $8.00 per share on January 16, 2004. The remaining
funds were used for investment purposes in 2004. The Recap resulted in
increased interest and amortization expense and the special distribution
resulted in decreased stockholder's equity.
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its
assets to MHC Trust, a newly formed Maryland real estate investment trust,
including the Company's entire partnership interest in the Operating
Partnership. This restructuring resulted in a step-up in the Company's tax
basis in its assets, generating future depreciation deductions, which in
turn will reduce the Company's future distribution requirements. This
provides the Company with greater financial flexibility and greater growth
potential (see Note 5 of the Notes to Consolidated Financial Statements
contained in Item 8).
(4) We believe that the book value of the Properties, which reflects the
historical costs of such real estate assets less accumulated depreciation,
is less than the current market value of the Properties.
(5) Funds from Operations ("FFO") is a non-GAAP financial measure. The Company
believes that FFO, as defined by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT"), to be an
appropriate measure of performance for an equity REIT. While FFO is a
relevant and widely used measure of operating performance for equity
REITs, it does not represent cash flow from operations or net income as
defined by GAAP, and it should not be considered as an alternative to
these indicators in evaluating liquidity or operating performance.
FFO is defined as net income, computed in accordance with GAAP, excluding
gains or losses from sales of Properties, plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect FFO on the same
basis. The Company believes that FFO is helpful to investors as one of
several measures of the performance of an equity REIT. The Company further
believes that by excluding the effect of depreciation, amortization and
gains or losses from sales of real estate, all of which are based on
historical costs and which may be of limited relevance in evaluating
current performance, FFO can facilitate comparisons of operating
performance between periods and among other equity REITs. Investors should
review FFO, along with GAAP net income and cash flow from operating
activities, investing activities and financing activities, when evaluating
an equity REIT's operating performance. The Company computes FFO in
accordance with 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.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K. The following discussion may
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which reflect management's current
views with respect to future events and financial performance. Such
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the effects of future events on the Company's
financial performance; the adverse impact of external factors such as inflation
and consumer confidence; interest rates; and the risks associated with real
estate ownership.
2004 ACCOMPLISHMENTS
- Invested in 135 Properties with approximately 50,000 sites.
- Increased presence in Florida and Arizona markets.
- Increased home sales volumes and profitability.
- Changed our name from Manufactured Home Communities, Inc. to Equity
Lifestyle Properties, Inc., symbolizing our focus on
lifestyle-oriented customers.
- Developed relationships with leading brand names such as Encore and
Thousand Trails, creating a larger customer resource base.
OVERVIEW AND OUTLOOK
Occupancy in our Properties as well as our ability to increase rental
rates directly affect revenues. Our revenue streams are predominantly derived
from customers renting our sites on a long-term basis.
We have approximately 58,200 annual sites with average annual revenue of
approximately $4,400 per site. We have 7,200 seasonal sites, which are leased to
customers generally for 3 to 6 months, for which we expect to collect rent in
the range of $1,700 to $1,800. We also have 6,000 transient sites, occupied by
customers who lease on a short-term basis, for which we expect to collect annual
rent in the range of $2,000 to $2,100. We expect to service 60,000 customers
with these sites. There is significant demand for these sites. However, we
consider this revenue stream to be our most volatile. It is subject to weather
conditions, gas prices, and other factors affecting the marginal RV customer's
vacation and travel preferences. Finally, we have approximately 17,900 Thousand
Trails sites for which we receive ground rent of $16 million annually. This rent
is classified in Other Income in the Consolidated Statements of Operations. We
have interests in Properties owning approximately 11,800 sites for which revenue
is classified as Equity in Income from Unconsolidated Joint Ventures in the
Consolidated Statements of Operations.
11
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties or portfolios acquired, invested
in, or sold since January 1, 2003:
PROPERTY TRANSACTION DATE SITES
-------- ------------------ -------
TOTAL SITES AS OF JANUARY 1, 2003................... 52,349
PROPERTY OR PORTFOLIO (# OF PROPERTIES
IN PARENTHESES):
Toby's......................................... December 3, 2003 379
Araby Acres.................................... December 15, 2003 337
Foothill Village .............................. December 15, 2003 180
O'Connell's ................................... January 15, 2004 668
Spring Gulch................................... January 30, 2004 420
Paradise....................................... February 3, 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
JOINT VENTURES:
Lake Myers..................................... December 18, 2003 425
Pine Haven..................................... January 21, 2004 625
Twin Mills..................................... January 27, 2004 501
Indian Wells................................... February 17, 2004 350
Plymouth Rock.................................. February 10, 2004 609
Mesa Verde..................................... May 18, 2004 345
Winter Garden.................................. May 18, 2004 350
Arrowhead...................................... August 20, 2004 377
Sun Valley..................................... September 10, 2004 265
Appalachian.................................... October 26, 2004 357
Robin Hill..................................... November 5, 2004 270
Round Top...................................... December 22, 2004 319
MEZZANINE INVESTMENTS (11).......................... February 3, 2004 5,054
DISPOSITIONS:
Independence Hill.............................. June 6, 2003 (203)
Brook Gardens.................................. June 6, 2003 (424)
Pheasant Ridge................................. June 30, 2003 (101)
Lake Placid.................................... May 28, 2004 (408)
Manatee (Joint Venture)........................ September 1, 2004 (290)
EXPANSION SITE DEVELOPMENT AND OTHER:
Sites added (reconfigured) in 2003............. (35)
Sites added (reconfigured) in 2004............. 147
-------
TOTAL SITES AS OF DECEMBER 31, 2004................. 101,231
=======
12
RESTATEMENT OF FINANCIAL STATEMENTS
During 2004, the Company changed the way it accounted for costs incurred
in pursuing certain rent control initiatives. As a result, the Company has
restated its Consolidated Financial Statements for the years ended December 31,
2003, 2002 and 2001 to expense the costs of the initiatives in the year in which
they were incurred because the previous method of accounting for the costs was
determined to be incorrect. The Company had historically classified these costs,
primarily legal, in other assets. To the extent the Company's efforts to
effectively change the use and operations of the Properties were successful, the
Company capitalized the costs to land improvements as an increase in the
established value of the revised project and depreciated them over 30 years. To
the extent these efforts were not successful, the costs would have been
expensed.
See Note 2 to the Consolidated Financial Statements of this report for a
summary of the effects of these changes on the Company's consolidated balance
sheets as of December 31, 2003, 2002 and 2001 and consolidated statements of
operations for the years ended December 31, 2003, 2002 and 2001. The
accompanying Management's Discussion and Analysis gives effect to these
corrections. The significance of the increase in expenses due to this change is
not necessarily determinable in future periods and depend on future rulings of
the United States Supreme Court.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
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. However, the useful lives, salvage value, and
customary depreciation method used for land improvements and other significant
assets may significantly and materially overstate the depreciation of the
underlying assets and therefore understate the net income of the Company.
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R")
- - an interpretation of ARB 51. The objective of FIN 46R is to provide guidance
on how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate such
entity if the company absorbs a majority of the entity's expected losses or
receives a majority of the entity's expected residual returns if they occur, or
both (i.e., the primary beneficiary). The Company will apply FIN 46R to all
types of entity ownership (general and limited partnerships and corporate
interests).
The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of such
entities. In addition, the Company will apply the provisions of FIN 46R to all
new entities in the future. The Company also consolidates entities in which it
has a controlling direct or indirect voting interest. The equity method of
accounting is applied to entities in which the Company does not have a
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.
13
In applying the provisions of FIN 46R, the Company determined that its
$29.7 million investment in preferred equity interests (the "Mezzanine
Investment") in six entities controlled by Diversified Investments, Inc.
("Diversified") (see Liquidity and Capital Resources - Investing Activities) is
a VIE; however, the Company concluded that it is not the primary beneficiary. As
such, the adoption of this pronouncement had no effect on the Company's
financial statements.
The valuation of financial instruments under Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS No. 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.
Prior to January 1, 2003 we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees", based
upon the intrinsic value method. This method results in no compensation expense
for options issued with an exercise price equal to or exceeding the market value
of the common stock on the date of grant. Effective January 1, 2003, we elected
to account for our stock-based compensation in accordance with SFAS No. 123 and
its amendment ("SFAS No. 148"), "Accounting for Stock Based Compensation", which
will result in compensation expense being recorded based on the fair value of
the stock options and other equity awards issued. SFAS No. 148 provides three
possible transition methods for changing to the fair value method. We have
elected to use the modified-prospective method. This method requires that we
recognize stock-based employee compensation cost from the beginning of the
fiscal year in which the recognition provisions are first applied as if the fair
value method had been used to account for all employee awards granted, or
settled, in fiscal years beginning after December 15, 1994. The following table
illustrates the effect on net income and earnings per share as if the fair value
method was applied to all outstanding and unvested awards in each period
presented (amounts in thousands, except per share data):
2004 2003 2002
-------- ---------- ----------
(Restated) (Restated)
Net income available for Common
Shares as reported.................... $ 4,026 $ 25,132 $ 31,887
Add: Stock-based compensation
expense included in net income as
reported.............................. 2,899 2,139 2,185
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards..... (2,899) (2,139) (2,086)
-------- ---------- ----------
Pro forma net income available for
Common Shares......................... $ 4,026 $ 25,132 $ 31,986
======== ========== ==========
Pro forma net income per Common
Share - Basic......................... $ 0.18 $ 1.14 $ 1.48
======== ========== ==========
Pro forma net income per Common
Share - Fully Diluted................. $ 0.17 $ 1.11 $ 1.44
======== ========== ==========
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements with any unconsolidated
investments or joint ventures that we believe have or are reasonably likely to
have a material effect on our financial condition, results of operations,
liquidity or capital resources.
14
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO YEAR ENDED DECEMBER 31, 2003
Since December 31, 2002, the gross investment in real estate increased
from $1,296 million to $2,036 million as of December 31, 2004, due primarily to
the aforementioned acquisitions and dispositions of Properties during the
period. The total number of sites owned or controlled increased from 52,349 as
of December 31, 2003 to 101,231 as of December 31, 2004.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio (excludes RV and Resort Cottage
sites, and Properties owned through unconsolidated joint ventures, as well as
the sites of Properties acquired or sold during 2003 and 2004) and the Total
Portfolio for the years ended December 31, 2004 and 2003.
CORE PORTFOLIO TOTAL PORTFOLIO
------------------------------------------ -------------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 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.......... --- --- --- 0.0% 54,841 11,779 43,062 365.6%
Utility and other income........... 18,932 18,550 382 2.1% 24,278 19,411 4,867 25.1%
--------- --------- ---------- ------ --------- --------- ---------- ------
Property operating revenues 215,469 208,719 6,750 3.2% 283,309 221,105 62,204 28.1%
Property operating and
maintenance (1)............... 57,965 55,202 2,763 5.0% 92,121 61,945 30,176 48.7%
Real estate taxes.................. 18,011 17,088 923 5.4% 22,723 18,011 4,712 26.2%
Property management................ 8,974 8,866 108 1.2% 12,852 9,373 3,479 37.1%
--------- --------- ---------- ------ --------- --------- ---------- ------
Property operating expenses 84,950 81,156 3,794 4.7% 127,696 89,329 38,367 43.0%
--------- --------- ---------- ------ --------- --------- ---------- ------
Income from property operations $ 130,519 $ 127,563 $ 2,956 2.3% $ 155,613 $ 131,776 $ 23,837 18.1%
========= ========= ========== ====== ========= ========= ========== ======
Site and Occupancy Information (2):
Average total sites................ 40,645 40,667 (22) (0.1%) 42,087 40,667 1,420 3.5%
Average occupied sites............. 37,009 37,484 (475) (1.3%) 38,422 37,484 938 2.5%
Average Occupancy %................ 91.1% 92.2% (1.1%) (1.1%) 91.3% 92.2% (0.9%) (0.9%)
Monthly base rent per site......... $ 442.55 $ 422.78 $ 19.77 4.7% $ 442.87 $ 422.21 $ 20.65 4.9%
Total sites
As of December 31,............ 40,702 40,676 26 0.1% 42,655 40,676 1,979 4.9%
Total occupied sites
As of December 31,............ 36,847 37,163 (316) (0.9%) 38,748 37,163 1,585 4.3%
(1) The effect of the 3rd quarter 2004, insurance reserve of approximately $1
million relating to the Florida storms has been removed from the Core
Portfolio for comparative purposes.
(2) Site and occupancy information excludes all Resort Cottage and RV sites,
Properties owned through unconsolidated joint ventures as well as the
sites of Properties acquired or sold during 2003 and 2004.
PROPERTY OPERATING REVENUES
The 3.3% increase in Community base rental income for the Core Portfolio
reflects a 4.7% increase in monthly base rent per site combined with a 1.1%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher utility expenses. Total Portfolio operating revenues
increased due to current year acquisitions (see Note 6 of the Notes to
Consolidated Financial Statements contained in Item 8).
15
RESULTS OF OPERATIONS (CONTINUED)
PROPERTY OPERATING EXPENSES
The 5.0% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in payroll expense, administrative
expense, 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 by 1.2% due to increases in payroll costs
and computer expenses, but remains at approximately 4% of revenue. Total
Portfolio operating expenses increased due to our current year acquisitions.
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2004 and 2003.
HOME SALES OPERATIONS
-------------------------------------------------
(dollars in thousands) 2004 2003 VARIANCE % CHANGE
---------- ---------- ------------ --------
Gross revenues from new home sales.................... $ 43,324 $ 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 an increase in gross margin on used home sales and an increase
in volume. Brokered resale revenues reflects increased resale volumes. The 18.4%
increase in home selling expenses primarily reflects increases in insurance cost
and other expenses. The increase in ancillary service revenue relates primarily
to income from property amenities at our newly acquired Properties.
OTHER INCOME AND EXPENSES
The increase in other expenses reflects an increase in interest expense
resulting from the Recap borrowing in October 2003 (see Note 10 of the Notes to
Consolidated Financial Statements contained in this Form 10-K) and additional
debt assumed in the 2004 acquisitions, an increase in depreciation on real
estate assets related to the 2004 acquisitions, and increased general and
administrative 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.
16
RESULTS OF OPERATIONS (CONTINUED)
EQUITY IN INCOME OF UNCONSOLIDATED JOINT VENTURES
During 2004, we invested in preferred equity interests, the Mezzanine
Investment, in six entities containing 11 Properties and 5,054 sites. Our
average return on the Mezzanine Investment accrues at a rate of 10% per annum.
We also invested in 11 separate joint ventures (see Liquidity and Capital
Resources - Investing Activities). These investments contributed to the increase
in equity in income from unconsolidated joint ventures.
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
Since December 31, 2001, the gross investment in real estate increased
from $1,238 million to $1,310 million as of December 31, 2003, due primarily to
the aforementioned acquisitions and dispositions of Properties during the
period. The total number of sites owned or controlled increased from 50,663 as
of December 31, 2001 to 51,715 as of December 31, 2003.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2003 and 2002.
CORE PORTFOLIO TOTAL PORTFOLIO
-------------------------------------------- ------------------------------------------
INCREASE/ % INCREASE/ %
(dollars in thousands) 2003 2002 (DECREASE) CHANGE 2003 2002 (DECREASE) CHANGE
---------- --------- ---------- ------ --------- --------- ---------- ------
Community base rental income....... $ 184,651 $ 178,532 $ 6,119 3.4% $ 189,915 $ 187,406 $ 2,509 1.3%
Resort base rental income.......... 255 151 104 68.9% 11,779 9,143 2,636 28.8%
Utility and other income........... 18,025 17,707 318 1.8% 19,411 18,933 478 2.5%
---------- --------- ---------- ------ --------- --------- ---------- ------
Property operating revenues 202,931 196,390 6,541 3.3% 221,105 215,482 5,623 2.6%
Property operating and
maintenance................... 53,484 51,506 1,978 3.8% 61,945 59,839 2,106 3.5%
Real estate taxes.................. 16,372 15,430 942 6.1% 18,011 16,919 1,092 6.5%
Property management................ 8,629 8,498 131 1.5% 9,373 9,292 81 0.9%
---------- --------- ---------- ------ --------- --------- ---------- ------
Property operating expenses 78,485 75,434 3,051 4.0% 89,329 86,050 3,279 3.8%
---------- --------- ---------- ------ --------- --------- ---------- ------
Income from property operations $ 124,446 $ 120,956 $ 3,490 2.9% $ 131,776 $ 129,432 $ 2,344 1.8%
========== ========= ========== ====== ========= ========= ========== ======
Site and Occupancy Information (1):
Average total sites................ 39,103 39,111 (8) 0.0% 40,667 41,160 (493) (1.2%)
Average occupied sites............. 36,014 36,575 (561) (1.5%) 37,484 38,448 (964) (2.5%)
Occupancy %........................ 92.1% 93.5% (1.4%) (1.4%) 92.2% 93.4% (1.2%) (1.2%)
Monthly base rent per site......... $ 427.27 $ 406.77 $ 20.50 5.0% $ 422.21 $ 406.19 $ 16.03 3.9%
Total sites
As of December 31,............ 39,113 39,123 (10) 0.0% 40,676 40,711 (35) (0.1%)
Total occupied sites
As of December 31,............ 35,696 36,401 (705) (1.9%) 37,163 37,791 (628) (1.7%)
(1) Site and occupancy information excludes Resort Cottage and RV sites,
Properties owned through unconsolidated joint ventures and the sites of
Properties acquired or sold during 2002 and 2003.
PROPERTY OPERATING REVENUES
The 3.4% increase in Community base rental income for the Core Portfolio
reflects a 5.0% increase in monthly base rent per site combined with a 1.5%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher expenses for these items.
17
RESULTS OF OPERATIONS (CONTINUED)
PROPERTY OPERATING EXPENSES
The 3.8% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in insurance and other expenses,
utility expense, and repair and maintenance expense, administrative expenses and
payroll expense. The 6.1% increase in Core Portfolio real estate taxes is
generally due to higher property assessments on certain Properties. Property
management expense for the Core Portfolio, which reflects costs of managing the
Properties and is estimated based on a percentage of Property operating
revenues, increased by 1.5% due to increases in payroll costs and computer
expenses.
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2003 and 2002.
HOME SALES OPERATIONS
--------------------------------------------
INCREASE /
(dollars in thousands) 2003 2002 (DECREASE) % CHANGE
-------- -------- ---------- --------
Gross revenues from new home sales..................... $ 33,512 $ 30,568 $ 2,944 9.6%
Cost of new home sales................................. (29,064) (24,646) (4,418) 17.9%
-------- -------- ---------- --------
Gross profit from new home sales....................... 4,448 5,922 (1,474) (24.9%)
Gross revenues from used home sales.................... 2,960 2,694 266 9.9%
Cost of used home sales................................ (2,551) (2,276) (275) 12.1%
-------- -------- ---------- --------
Gross profit from used home sales...................... 409 418 (9) (2.2%)
Brokered resale revenues, net.......................... 1,714 1,558 156 10.0%
Home selling expenses.................................. (7,287) (7,570) 283 (3.7%)
Ancillary services revenues, net....................... 162 448 (286) (63.8%)
-------- -------- ---------- --------
Income from home sales operations...................... $ (554) $ 776 $ (1,330) (171.4%)
======== ======== ========== ========
HOME SALES VOLUMES:
New home sales....................................... 458 419 39 9.3%
Used home sales...................................... 176 161 15 9.3%
Brokered home resales................................ 1,093 961 132 13.7%
New home sales gross profit reflects a 9.3% increase in sales volume
combined with a 6.1% decrease in the gross margin. The average selling price of
new homes remained steady year over year. Used home sales gross profit reflects
a decrease in gross margin on used home sales, partially offset by an increase
in volume. Brokered resale revenues reflect increased resale volumes. The 3.7%
decrease in home selling expenses primarily reflects reductions in advertising
expenses.
OTHER INCOME AND EXPENSES
In October 2003, we received approximately $501 million from the Recap.
The cash received from the Recap was used to pay down our Line of Credit and pay
off our Term Loan, with the remainder placed in short-term investments to be
used for payment of a special distribution in January 2004 and for future
acquisitions. As a result, interest income increased reflecting additional
interest earned on short-term investments with an average balance of $273
million. The decrease in general and administrative expense is due to decreased
professional fees and public company costs, partially offset by increased
payroll costs and banking expenses. Rent control initiatives decreased by $3.4
million due to lower costs relating to the DeAnza Santa Cruz and Contempo Marin
Properties. Interest and related amortization increased due to the Recap and the
payment of approximately $3 million to unwind the 2001 Swap (hereinafter
defined), partially offset by decreased interest rates during the period. The
weighted average outstanding debt balances for the years ended December 31, 2003
and 2002 were approximately $800 million and $731.8 million, respectively. The
effective interest rate was 6.4% and 6.8% per annum for the years ended December
31, 2003 and 2002, respectively.
18
RESULTS OF OPERATIONS (CONTINUED)
The increase in income from other investments was due to the restructuring
of the Company's investment in Wolverine Property Investment Limited Partnership
(the "College Heights Joint Venture" or the "Venture"), a joint venture with
Wolverine Investors, LLP, effective September 1, 2002. The Venture included 18
Properties with 3,581 sites. The results of operations of the College Heights
Joint Venture prior to restructuring were included with the results of the
Company due to the Company's voting equity interest and control over the
Venture. Pursuant to the restructuring, the Company sold its general partnership
interest, sold all of the Company's voting equity interest and reduced the
Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site Property in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve included in other assets.
Income of approximately $1.0 million and $0.2 million has been recorded in
income from other investments for the years ended December 31, 2003 and 2002
respectively.
LIQUIDITY AND CAPITAL RESOURCES
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide us with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risks of inflation to the Company.
LIQUIDITY
As of December 31, 2004, the Company had $5.3 million in cash and cash
equivalents and $44.2 million available on its line of credit. The Company
expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by
operating activities and availability under the existing line of credit. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities, property acquisitions and capital improvements by
long-term collateralized and uncollateralized borrowings including borrowings
under its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to net cash provided by
operating activities. The table below summarizes cash flow activity for the
twelve months ended December 31, 2004, 2003 and 2002 (dollars in thousands).
FOR THE TWELVE MONTHS ENDED
DECEMBER 31,
------------------------------------
2004 2003 2002
---------- ---------- ----------
(Restated) (Restated)
Cash provided by operating activities $ 46,733 $ 75,163 $ 80,176
Cash (used in) provided by investing activities (366,654) (598) (72,973)
Cash (used in) provided by financing activities (514) 243,905 (1,287)
---------- ---------- ----------
Net (decrease) increase in cash $ (320,435) $ 318,470 $ 5,916
========== ========== ==========
OPERATING ACTIVITIES
Net cash provided by operating activities decreased $28.5 million for the
year ended December 31, 2004. This decrease reflects increased interest expense
as a result of the Recap in October, 2003 and increases in working capital,
partially offset by increases in property operating income as discussed in
"Results of Operations" above. Net cash provided by operating activities
decreased $5 million for the year ended December 31, 2003 from $80.2 million in
2002. This was primarily due to an increase in working capital.
19
INVESTING ACTIVITIES
Net cash used in investing activities reflects the impact of the following
investing activities:
ACQUISITIONS
During the year ended December 31, 2004, we acquired 111 Properties (see
Note 6 of the Notes to Consolidated Financial Statements contained in this Form
10-K). The combined investment in real estate for these 111 Properties was
approximately $703 million and was funded with monies held in short-term
investments, debt assumed of $352 million which includes a mark-to-market
adjustment of $10.4 million, new financing of $124 million, and borrowings from
our Line of Credit. Included in the above as previously described are 57
Properties purchased as part of the Thousand Trails Transaction; the income
related to this transaction is classified as income from other investments on
the Consolidated Statements of Operations.
We assumed inventory of approximately $1.2 million, other assets of $4.9
million, rents received in advance of approximately $13.6 million and other
liabilities of approximately $5.8 million in connection with the 2004
acquisitions. The Company also issued common OP units for value of approximately
$32.2 million.
During 2003, we acquired three Properties at a purchase price of $11.8
million. The acquisitions were funded with monies held in short-term investments
and debt assumed of $4.6 million. The acquisitions included the assumption of
liabilities of approximately $0.7 million. Also during 2003, we acquired a
parcel of land adjacent to one of our Properties for approximately $0.1 million.
During 2002, we acquired eleven Properties at a purchase price of $101.6
million. The acquisitions were funded with borrowings on our Line of Credit and
the assumption of $47.9 million of mortgage debt, which includes a $3.0 million
mark-to-market adjustment. In addition, we purchased adjacent land and land
improvements for several Properties for approximately $0.6 million.
DISPOSITIONS
During the year ended December 31, 2004, we sold one Property located in
Lake Placid, Florida for a selling price of $3.4 million, with net proceeds of
$0.8 million received in July 2004. No gain or loss on disposition was
recognized in the period. The operating results have been reflected in
discontinued operations. In addition, we sold approximately 1.4 acres of land in
Montana for a gain and net proceeds of $0.6 million.
During 2003, we sold three Properties for proceeds of $27.1 million and a
gain of $10.8 million. Proceeds from the sales were used to repay amounts on our
Line of Credit.
During 2002, we effectively sold 17 Properties as part of a restructuring
of the College Heights Venture (hereinafter defined). In addition, we sold
Camelot Acres, a 319 site Property in Burnsville, Minnesota, for approximately
$14.2 million.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity interests (the "Mezzanine Investment") in six entities
controlled by Diversified Investments, Inc. ("Diversified"). These entities own
in the aggregate 11 Properties, containing 5,054 sites. Approximately $11.7
million of the Mezzanine Investment accrues at a per annum average rate of 10%,
with a minimum pay rate of 6.5%, payable quarterly, and approximately $17.9
million of the Mezzanine Investment accrues at a per annum average rate of 11%,
with a minimum pay rate of 7%, payable quarterly. To the extent the minimum pay
rates on the respective Mezzanine Investments are not achieved, the accrual
rates increase to 12% and 13% per annum, respectively. The Company can acquire
these Properties in the future at capitalization rates of between 8% and 8.5%,
beginning in 2006. In addition, the Company has invested approximately $1.4
million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Company's Consolidated
Balance Sheet as of December 31, 2004.
During the year ended December 31, 2004, the Company invested
approximately $4.1 million in 11 joint ventures. The Company can acquire these
Properties in the future at capitalization rates of between 8% and 8.5%,
beginning in 2006.
20
INVESTING ACTIVITIES (CONTINUED)
In addition, the Company recorded approximately $3.7 million, $0.3 million
and $0.2 million of net income from joint ventures (net of depreciation) in the
years ended December 31, 2004, 2003 and 2002 respectively, and received
approximately $5.2 million, $0.8 million and $0.6 million in distributions from
such joint ventures for the year ended December 31, 2004, 2003 and 2002
respectively. Included in such distributions for the year ended December 31,
2004 is $2.5 million return of capital, of which $0.5 million exceeded the
Company's basis and thus was recorded in income from unconsolidated joint
ventures and other.
OTHER INVESTMENTS
Effective September 1, 2002, the Company restructured its investment in
the College Heights Joint Venture. The Venture included 18 Properties with 3,581
sites. The results of operations of the College Heights Joint Venture prior to
restructuring were included with the results of the Company due to the Company's
voting equity interest and control over the Venture. Pursuant to the
restructuring, the Company sold its general partnership interest, sold all of
the Company's voting equity interest and reduced the Company's total investment
in the College Heights Joint Venture. As consideration for the sale, the Company
retained sole ownership of Down Yonder, a 361 site Property in Clearwater,
Florida, received cash of approximately $5.2 million and retained preferred
limited partnership interests of approximately $10.3 million, recorded net of a
$2.4 million reserve included in other assets. Income of approximately $0.9
million, $1.0 million and $0.2 million has been recorded in income from other
investments for the years ended December 31, 2004, 2003 and 2002 respectively.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $13.7 million, $11.9 million
and $13.4 million for the years ended December 31, 2004, 2003 and 2002
respectively. Site development costs were approximately $13.0 million, $9.0
million and $10.4 million for the years ended December 31, 2004, 2003 and 2002
respectively, and represent costs to develop expansion sites at certain of the
Company's Properties and costs for improvements to sites when a smaller used
home is replaced with a larger new home. Corporate costs such as computer
hardware, office furniture and office improvements were $0.4 million, $0.1
million and $0.7 million for the years ended December 31, 2004, 2003 and 2002
respectively.
FINANCING ACTIVITIES
Net cash used in financing activities reflects the impact of the
following:
EQUITY TRANSACTIONS
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 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, 2002.
DISTRIBUTION FOR THE QUARTER STOCKHOLDER RECORD
AMOUNT PER SHARE ENDING DATE PAYMENT DATE
- ---------------- ------------------ ------------------ ----------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$8.00 December 31, 2003 January 8, 2004 January 16, 2004
$0.0125 March 31, 2004 March 26, 2004 April 9, 2004
$0.0125 June 30, 2004 June 25, 2004 July 9, 2004
$0.0125 September 30, 2004 September 24, 2004 October 8, 2004
$0.0125 December 31, 2004 December 31, 2004 January 14, 2005
21
FINANCING ACTIVITIES (CONTINUED)
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million Recap in October 2003 to pay the special distribution on
January 16, 2004. The special cash dividend is reflected on stockholders' 2004
1099-DIV issued in January 2005.
In connection with the $501 million Recap and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in the Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company recognized $180 million of taxable income as a result
of its contribution, as opposed to a nontaxable reduction of the Company's tax
basis in its interest in the Operating Partnership. This restructuring resulted
in a step-up in the Company's tax basis in its assets, generating future
depreciation deductions, which in turn will reduce the Company's future
distribution requirements. This provides the Company with greater financial
flexibility and greater growth potential. The Company intends to continue to
qualify as a REIT under the Code, with its assets consisting of interests in MHC
Trust. MHC Trust, in turn, also intends to qualify as a real estate investment
trust under the Code and will continue to be the general partner of the
Operating Partnership. On May 1, 2004, in connection with the restructuring, MHC
Trust sold cumulative preferred stock to a limited number of unaffiliated
investors.
During the twelve months ended December 31, 2004, in connection with 2004
acquisitions the Company issued 1.2 million common OP Units valued at $36.7
million of which approximately $28.7 million has been classified as paid-in
capital. On December 21, 2004 we redeemed 126,765 common OP Units for
approximately $4.5 million of which approximately $3.5 million has been
classified as paid-in capital.
The Operating Partnership paid distributions of 9.0% per annum on the $125
million of Series D Cumulative Redeemable Perpetual Preferred Units ("Preferred
Units"). Distributions on the Preferred Units were paid quarterly on the last
calendar day of each quarter beginning September 30, 1999. The Company expects
to continue to make regular quarterly distributions and has set its 2005
distribution to common stockholders at $0.10 per share per annum.
MORTGAGES AND CREDIT FACILITIES
We have two unsecured lines of credit of $110 million and $50 million
which bear interest at a per annum rate of London Interbank Offered Rate
("LIBOR") plus 1.65%. Throughout the year ended December 31, 2004, the Company
borrowed $135.8 million and paid down $20 million on its line of credit. On
November 10, 2004, in connection with the Thousand Trails Transaction, we
secured a $120 million three-year term loan at LIBOR plus 1.75%. In December
2004, we fixed $180 million of this variable debt for one year with a weighted
average per annum interest rate of 4.7%.
During the twelve months ended December 31, 2004, the Company assumed
mortgage and other debt of approximately $157 million, which was recorded at
fair market value with the related premium being amortized over the life of the
loan using the effective interest rate. The Company borrowed an additional $194
million of mortgage debt for other acquisitions. The mortgages bear interest at
weighted average rates ranging from 5.14% to 5.81% per annum, and mature at
various dates through November 1, 2027.
In 2003, the Company initiated the Recap as a result of its belief in the
stability of its cash flow from property operations and the attractive financing
terms available to borrowers such as the Company in the secured debt markets. In
conducting its evaluation of the use of proceeds from the Recap, the Company's
Board of Directors believed that to the extent no attractive alternative use was
available, a distribution to stockholders should occur. In late 2003, the
Company identified acquisition targets which would use approximately $100
million of the $325 million in net proceeds resulting from the Recap. In
December 2003, the Company's Board of Directors declared a distribution of
approximately $225 million ($8 per share). During 2004, the Company identified
additional acquisitions and has funded such acquisitions primarily with secured
and unsecured borrowings.
22
FINANCING ACTIVITIES (CONTINUED)
The Recap and subsequent borrowings in connection with acquisitions have
significantly increased the Company's outstanding debt. The interest and
principal payments required under these debt agreements materially increase the
Company's future contractual payment obligations. As of December 31, 2004, the
outstanding debt balance was $1,653 million. In future years, the Company
expects to pay annual interest and principal amortization under current
obligations of approximately $114 million (not including the impact of scheduled
maturities) compared to $57 million in 2003. In light of these increased cash
flow requirements, the Company has reduced its annual dividend to common
stockholders from approximately $44 million in 2003 to approximately $1 million
in 2004. In addition, the Company expects its cash from operations to increase
significantly in 2005 compared to 2003 due to the cash generated by
newly-acquired Properties. To the extent cash flow from the Properties does not
meet the Company's expectations, the Company's Board of Directors increases the
annual dividend significantly, or the Company is required to make significant
unexpected capital improvements or other payments, the Company's financial
flexibility and ability to meet scheduled obligations could be negatively
impacted. With respect to maturing debt, the Company has staggered the
maturities of our long-term mortgage debt over an average of approximately 6
years, with no more than $330 million in principal maturities coming due in any
single year. The Company believes that it will be able to refinance its maturing
debt obligations on a secured or unsecured basis; however, to the extent the
Company is unable to refinance its debt as it matures, it believes that it will
be able to repay such maturing debt from asset sales and/or the proceeds from
equity issuances. With respect to any refinancing of maturing debt, the
Company's future cash flow requirements could be impacted by significant changes
in interest rates or other debt terms, including required amortization payments.
In October 2003, we unwound an interest rate swap ("2001 Swap") agreement
at a cost of approximately $3 million, which is included in interest and related
amortization in 2003 in the accompanying Consolidated Statements of Operations.
The 2001 swap effectively fixed LIBOR on $100 million of 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, we entered into an agreement to refinance and increase
the "Bay Indies Mortgage", a $44.5 million note, from approximately $21.9
million to $45 million. Under the new agreement, the Bay Indies Mortgage bears
interest at 5.69% per annum, amortizes over 25 years and matures April 17, 2013.
The net proceeds were used to pay down the Company's Line of Credit in April
2003. 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.
During the year ended December 31, 2002, as part of the purchase of RSI,
in a non-cash transaction, we assumed a $12.5 million note payable ("Conseco
Financing Note"), collateralized by our home inventory. The Conseco Financing
Note was repaid at a discount during 2002 using proceeds from our Line of
Credit. In addition, we repaid a maturing mortgage note in the amount of $1.1
million and $2.1 million of other unsecured notes payable using proceeds from
our Line of Credit.
Certain of the Company's mortgage and credit agreements contain covenants
and restrictions including restrictions as to the ratio of secured or unsecured
debt versus encumbered or unencumbered assets, the ratio of fixed
charges-to-earnings before interest, taxes, depreciation and amortization
("EBITDA"), limitations on certain holdings and other restrictions.
23
FINANCING ACTIVITIES (CONTINUED)
As of December 31, 2004, we were subject to certain contractual payment
obligations as described in the table below (dollars in thousands):
CONTRACTUAL
OBLIGATIONS TOTAL 2005 2006(2) 2007(3) 2008 2009 THEREAFTER
- ----------- ---------- ------- -------- -------- -------- ------- ----------
Long Term
Borrowings (1) $1,643,672 $18,742 $169,770 $432,350 $203,903 $70,558 $ 748,349
Weighted average
interest rates....... 6.10% - 4.36% 6.43% 5.55% 6.58% 6.20%
(1) Balance excludes net premiums and discounts of $9.4 million.
(2) Includes Line of Credit repayment in 2006 of $115,800. We have an option
to extend this maturity for one year to 2007.
(3) Includes a Term Loan repayment in 2007 of $105,600. We have an option to
extend this maturity for two successive years to 2009.
Included in the above table are certain capital lease obligations totaling
approximately $7.0 million. These agreements expire June 2009 and are paid
semi-annually.
In addition, the Company leases land under non-cancelable operating leases
at certain of the Properties expiring in various years from 2022 to 2032 with
terms which include minimum rent to be paid throughout the year plus additional
rents calculated as a percentage of gross revenues. For the twelve months ended
December 31, 2004 and 2003, ground lease expense was approximately $1.6 million
and $1.6 million respectively. Minimum future rental payments under the ground
leases are approximately $1.6 million for each of the next five years and
approximately $23.5 million thereafter.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") is a non-GAAP financial measure. We believe
FFO, 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.
24
FINANCING ACTIVITIES (CONTINUED)
The following table presents a calculation of FFO for the years ended
December 31, 2004, 2003 and 2002 (amounts in thousands):
2004 2003 2002
--------- --------- ----------
(Restated) (Restated)
COMPUTATION OF FUNDS FROM OPERATIONS:
Net income available for Common Shares....................... $ 4,026 $ 25,132 $ 31,887
Income allocated to Common OP Units.......................... 936 6,004 7,786
Depreciation on real estate assets and other costs........... 47,541 35,924 33,160
Depreciation expense included in discontinued operations..... 1,353 1,476 2,150
Depreciation expense included in equity in income from
joint ventures.............................................. 1,230 769 726
Gain on sale of Properties and other......................... (638) (10,826) (13,014)
--------- --------- ----------
Funds from operations available for Common Shares........ $ 54,448 $ 58,479 $ 62,695
========= ========= ==========
Weighted average Common Shares outstanding - fully diluted... 29,465 28,002 27,632
========= ========= ==========
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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", formerly known as
Manufactured Home Communities, Inc.) as of December 31, 2004 and 2003, and the
related consolidated statements of operations, other comprehensive income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2004. Our audits also included the financial
statement schedules listed in the Index. 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, 2004 and 2003, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the
Company has restated its financial statements as of December 31, 2003 and for
each of the two years in the period then ended relating to expense recognition
for certain legal costs.
As discussed in Note 3 to the consolidated financial statements, in 2003
Equity Lifestyle Properties changed its method of accounting for stock-based
employee compensation.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Equity
Lifestyle Properties, Inc. and subsidiaries' internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 24, 2005
(not included herein) expressed an unqualified opinion on management's
assessment of the effectiveness of internal control over financial reporting and
an adverse opinion on the effectiveness of internal control over financial
reporting.
ERNST & YOUNG LLP
Chicago, Illinois
March 24, 2005
except for Notes 4 and 6
as to which the date is June 7, 2005
26
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
(AMOUNTS IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
(Restated)
ASSETS
Investment in real estate:
Land.................................................................... $ 470,587 $ 282,803
Land improvements....................................................... 1,438,923 905,785
Buildings and other depreciable property................................ 126,280 121,117
------------ ------------
2,035,790 1,309,705
Accumulated depreciation................................................ (322,867) (272,497)
------------ ------------
Net investment in real estate......................................... 1,712,923 1,037,208
Cash and cash equivalents.................................................. 5,305 325,740
Notes receivable........................................................... 13,290 11,551
Investment in joint ventures............................................... 43,583 10,770
Rents receivable, net...................................................... 1,469 2,385
Deferred financing costs, net.............................................. 16,162 14,164
Inventory.................................................................. 50,654 31,604
Prepaid expenses and other assets.......................................... 42,903 30,085
------------ ------------
TOTAL ASSETS............................................................ $ 1,886,289 $ 1,463,507
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................................. $ 1,417,251 $ 1,076,183
Unsecured line of credit................................................ 115,800 --
Unsecured term loan..................................................... 120,000 --
Accounts payable and accrued expenses................................... 36,146 27,928
Accrued interest payable................................................ 8,894 5,978
Rents received in advance and security deposits......................... 21,135 6,616
Distributions payable................................................... 448 224,696
------------ ------------
TOTAL LIABILITIES..................................................... 1,719,674 1,341,401
Commitments and contingencies
Minority interest - Common OP Units and other.............................. 9,771 (366)
Minority interest - Perpetual Preferred OP Units........................... 125,000 125,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued............................. -- --
Common stock, $.01 par value
50,000,000 shares authorized; 22,937,192 and 22,563,348
shares issued and outstanding for 2004 and 2003, respectively......... 224 222
Paid-in capital......................................................... 294,304 263,066
Deferred compensation................................................... (166) (494)
Distributions in excess of accumulated earnings......................... (262,518) (265,322)
------------ ------------
Total stockholders' equity (deficit).................................. 31,844 (2,528)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $ 1,886,289 $ 1,463,507
============ ============
The accompanying notes are an integral part of the financial statements.
27
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2004 2003 2002
--------- --------- ---------
(Restated) (Restated)
PROPERTY OPERATIONS:
Community base rental income................................... $ 204,190 $ 189,915 $ 187,406
Resort base rental income...................................... 54,841 11,779 9,143
Utility and other income....................................... 24,278 19,411 18,933
--------- --------- ---------
Property operating revenues............................ 283,309 221,105 215,482
Property operating and maintenance ........................... 92,121 61,945 59,839
Real estate taxes.............................................. 22,723 18,011 16,919
Property management............................................ 12,852 9,373 9,292
--------- --------- ---------
Property operating expenses (exclusive of
depreciation shown separately below)................. 127,696 89,329 86,050
--------- --------- ---------
Income from property operations......................... 155,613 131,776 129,432
HOME SALES OPERATIONS:
Gross revenues from inventory home sales....................... 47,404 36,472 33,262
Cost of inventory home sales................................... (41,577) (31,615) (26,922)
--------- --------- ---------
Gross profit from inventory home sales................. 5,827 4,857 6,340
Brokered resale revenues, net.................................. 2,176 1,714 1,558
Home selling expenses.......................................... (8,630) (7,287) (7,570)
Ancillary services revenues, net............................... 2,743 162 448
--------- --------- ---------
Income (loss) from home sales operations & other....... 2,116 (554) 776
OTHER INCOME (EXPENSES):
Interest income................................................ 1,391 1,695 967
Income from other investments.................................. 3,475 956 316
General and administrative..................................... (9,243) (8,060) (8,192)
Rent control initiatives....................................... (2,412) (2,352) (5,698)
Interest and related amortization.............................. (90,970) (58,206) (50,725)
Depreciation on corporate assets............................... (1,657) (1,240) (1,277)
Depreciation on real estate assets and other costs............. (47,541) (35,924) (33,160)
--------- --------- ---------
Total other income (expenses).......................... (146,957) (103,131) (97,769)
Income before minority interests, equity in income
of unconsolidated joint ventures, gain on sale of
properties and other and discontinued operations....... 10,772 28,091 32,439
Income allocated to Common OP Units............................ (608) (3,431) (4,230)
Income allocated to Perpetual Preferred OP Units............... (11,284) (11,252) (11,252)
Equity in income of unconsolidated joint ventures.............. 3,739 340 235
--------- --------- ---------
Income before gain on sale of properties and other
and discontinued operations............................ 2,619 13,748 17,192
--------- --------- ---------
Gain on sale of properties and other........................... 2 -- --
--------- --------- ---------
Income from continuing operations...................... 2,621 13,748 17,192
--------- --------- ---------
DISCONTINUED OPERATIONS:
Discontinued operations........................................ 2,450 4,607 7,387
Depreciation on discontinued operations........................ (1,353) (1,476) (2,150)
Gain on sale of properties and other........................... 636 10,826 13,014
Minority interests on discontinued operations.................. (328) (2,573) (3,556)
--------- --------- ---------
Income from discontinued operations.................... 1,405 11,384 14,695
--------- --------- ---------
NET INCOME AVAILABLE FOR COMMON SHARES.............. $ 4,026 $ 25,132 $ 31,887
========= ========= =========
The accompanying notes are an integral part of the financial statements
28
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2004 2003 2002
------ --------- ---------
(Restated) (Restated)
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations................................. $ 0.12 $ 0.62 $ 0.80
====== ========= =========
Income from discontinued operations............................... $ 0.06 $ 0.52 $ 0.68
====== ========= =========
Net income available for Common Shares............................ $ 0.18 $ 1.14 $ 1.48
====== ========= =========
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations................................. $ 0.11 $ 0.61 $ 0.78
====== ========= =========
Income from discontinued operations............................... $ 0.06 $ 0.50 $ 0.66
====== ========= =========
Net income available for Common Shares............................ $ 0.17 $ 1.11 $ 1.44
====== ========= =========
Distributions declared per Common Share outstanding............... $ 0.05 $ 9.485 $ 1.90
====== ========= =========
Tax status of Common Shares distributions paid during the year:
Ordinary income................................................... $ 1.05 $ 0.68 $ 1.50
====== ========= =========
Long-term capital gain............................................ $ 4.82 $ 0.57 $ --
====== ========= =========
Unrecaptured section 1250 gain.................................... $ 2.17 $ 0.16 $ --
====== ========= =========
Return of capital................................................. $ -- $ 0.55 $ 0.37
====== ========= =========
Weighted average Common Shares outstanding - basic................... 22,849 22,077 21,617
====== ========= =========
Weighted average Common Shares outstanding - fully diluted........... 29,465 28,002 27,632
====== ========= =========
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2004 2003 2002
------ --------- ---------
(Restated) (Restated)
Net income available for Common Shares.................................. $4,026 $ 25,132 $ 31,887
Net unrealized holding gains (losses) on derivative instruments.... - 4,498 (4,987)
------ --------- ---------
Net other comprehensive income available for Common Shares......... $4,026 $ 29,630 $ 26,900
====== ========= =========
The accompanying notes are an integral part of the financial statements
29
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2004 2003 2002
--------- ---------- ----------
(Restated) (Restated)
PREFERRED STOCK, $.01 PAR VALUE $ -- $ -- $ --
========= ========== ==========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year................................................. $ 222 $ 218 $ 215
Issuance of Common Stock through restricted stock grants............... -- -- 1
Exercise of options.................................................... 2 4 2
--------- ---------- ----------
Balance, end of year....................................................... $ 224 $ 222 $ 218
========= ========== ==========
PAID - IN CAPITAL
Balance, beginning of year................................................. $ 263,066 $ 256,394 $ 245,827
Issuance of Common Stock for employee notes............................ -- -- --
Conversion of OP Units to Common Stock................................. 155 343 227
Issuance of Common Stock through exercise of options................... 3,058 6,323 5,782
Issuance of Common Stock through restricted stock grants............... -- -- 2,709
Issuance of Common Stock through employee stock purchase plan.......... 2,735 3,254 2,512
Compensation expense related to stock options and restricted stock..... 2,571 611 --
Transition adjustment - FAS 123........................................ -- (1,047) --
Adjustment for Common OP Unitholders
in the Operating Partnership......................................... 22,719 (2,812) (663)
--------- ---------- ----------
Balance, end of year....................................................... $ 294,304 $ 263,066 $ 256,394
========= ========== =========
DEFERRED COMPENSATION
Balance, beginning of year................................................. $ (494) $ (3,069) $ (4,062)
Issuance of Common Stock through restricted stock grants............... -- -- (2,709)
Transition adjustment - FAS 123........................................ -- 1,047 --
Recognition of deferred compensation expense........................... 328 1,528 3,702
--------- ---------- ----------
Balance, end of year....................................................... $ (166) $ (494) $ (3,069)
========= ========== ==========
EMPLOYEE NOTES
Balance, beginning of year................................................. $ -- $ (2,713) $ (3,841)
Principal payments..................................................... -- 2,713 1,128
--------- ---------- ----------
Balance, end of year....................................................... $ -- $ -- $ (2,713)
========= ========== ==========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE EARNINGS
Balance, beginning of year................................................. $(265,322) $ (79,655) $ (64,875)
Net income............................................................. 4,026 25,132 31,887
Other comprehensive income:
Unrealized holding (losses) gains on derivative instruments......... -- 4,498 (4,987)
--------- ---------- ----------
Comprehensive income................................................ 4,026 29,630 26,900
--------- ---------- ----------
Distributions.......................................................... (1,222) (215,297) (41,680)
--------- ---------- ----------
Balance, end of year...................................................... $(262,518) $ (265,322) $ (79,655)
========= ========== ==========
The accompanying notes are an integral part of the financial statements
30
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2004 2003 2002
--------- ---------- ----------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................... $ 4,026 $ 25,132 $ 31,887
Adjustments to reconcile net income to cash provided by operating
activities:
Income allocated to minority interests............................ 12,220 17,256 19,038
Gain on sale of Properties and other.............................. (638) (10,826) (13,014)
Depreciation expense.............................................. 51,703 39,403 37,094
Amortization expense.............................................. 2,203 5,031 963
Debt premium amortization expense................................. (1,317) - -
Equity in income of affiliates and joint ventures................. (4,969) (1,042) (957)
Amortization of deferred compensation and other................... 2,899 2,139 3,930
Increase in provision for uncollectible rents receivable.......... 1,182 821 941
Changes in assets and liabilities:
Change in rents receivable........................................ 281 (1,469) (1,186)
Change in inventory............................................... (17,855) 1,846 1,887
Change in prepaid expenses and other assets....................... (9,772) (43) (2,113)
Change in accounts payable and accrued expenses................... 5,963 (3,055) 1,471
Change in rents received in advance and security deposits......... 807 (30) 235
--------- ---------- ----------
Net cash provided by operating activities............................ 46,733 75,163 80,176
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of rental properties..................................... (310,893) (6,836) (56,531)
Proceeds from dispositions of assets................................. 671 27,170 14,171
Distributions from (investment in) joint ventures and other.......... (27,642) 1,535 (7,149)
Proceeds from restructuring of College Heights joint venture, net.... -- -- 4,647
Purchase of RSI...................................................... -- -- (675)
Cash received in acquisition of RSI.................................. -- -- 839
Collections (funding) of notes receivable............................ (1,708) (1,507) (3,784)
Improvements:
Improvements - corporate.......................................... (444) (72) (681)
Improvements - rental properties.................................. (13,663) (11,912) (13,377)
Site development costs............................................ (12,975) (8,976) (10,433)
--------- ---------- ----------
Net cash (used in) investing activities.............................. (366,654) (598) (72,973)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan .... 6,221 9,581 8,296
Distributions to Common Stockholders, Common OP Unitholders
and Perpetual Preferred OP Unitholders............................ (237,074) (65,687) (58,314)
Collection of principal payments on employee notes................... -- 2,713 1,128
Line of credit:
Proceeds.......................................................... 135,800 53,000 82,000
Repayments........................................................ (20,000) (137,750) (13,500)
Acquisition Financing................................................ 124,300 -- --
Repayment of term loan............................................... -- (100,000) --
Refinancing - net proceeds (repayments).............................. 3,288 501,057 (16,096)
Principal payments................................................... (8,848) (4,844) (4,217)
Debt issuance costs.................................................. (4,201) (14,165) (584)
--------- ---------- ----------
Net cash provided by (used in) financing activities.................. (514) 243,905 (1,287)
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..................... (320,435) 318,470 5,916
Cash and cash equivalents, beginning of year............................. 325,740 7,270 1,354
--------- ---------- ----------
Cash and cash equivalents, end of year................................... $ 5,305 $ 325,740 $ 7,270
========= ========== ==========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest................................... $ 88,883 $ 52,396 $ 46,097
========= ========== ==========
The accompanying notes are an integral part of the financial statements
31
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Equity Lifestyle Properties, Inc. (formerly Manufactured Home Communities,
Inc.), together with MHC Operating Limited Partnership (the "Operating
Partnership") and other consolidated subsidiaries ("Subsidiaries"), are referred
to herein as the "Company", "ELS", "we", "us", and "our". 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 Internal Revenue Service ("IRS") will agree with our analysis. For
example, to qualify as a REIT, at least 95% of our gross income must come from
sources that are itemized in the REIT tax laws. We are also required to
distribute to stockholders at least 90% of our REIT taxable income excluding
capital gains. The fact that we hold our assets through the Operating
Partnership and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or 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 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 5). The financial results of the Operating
Partnership and the Subsidiaries are consolidated in the Company's consolidated
financial statements. In addition, since certain activities, if performed by the
Company, may not be qualifying REIT activities under the Internal Revenue Code
of 1986, as amended (the "Code"), the Company has formed taxable REIT
subsidiaries as defined in the Code to engage in such activities.
Several Properties acquired during 2004 are wholly owned by taxable REIT
subsidiaries of the Company. In addition, Realty Systems, Inc. ("RSI") is a
wholly owned taxable REIT subsidiary of the Company that, doing business as
Carefree Sales, is engaged in the business of purchasing, selling and leasing
homes that are located in Properties owned and managed by the Company. Carefree
Sales also provides brokerage services to customers at such Properties.
Typically, customers move from a Property but do not relocate their homes.
Carefree Sales may provide brokerage services, in competition with other local
brokers, by seeking buyers for the homes. Carefree Sales also leases inventory
homes to prospective customers with the expectation that the tenant eventually
will purchase the home. Subsidiaries of RSI also lease from the Operating
Partnership certain real property within or adjacent to certain Properties
consisting of golf courses, pro shops, stores and restaurants.
The limited partners of the Operating Partnership (the "Common OP
Unitholders") receive an allocation of net income which is based on their
respective ownership percentage of the Operating Partnership which is shown on
the Consolidated Financial Statements as Minority Interests - Common OP Units.
As of December 31, 2004, the Minority Interests - Common OP Units represented
6,340,805 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.
32
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS
During 2004, the Company changed the way it accounted for costs incurred
in pursuing certain rent control initiatives. As a result, the Company has
restated its Consolidated Financial Statements for the years ended December 31,
2003, 2002 and 2001 to expense the costs of the initiatives in the year in which
they were incurred because the previous method of accounting for the costs was
determined to be incorrect. The Company had historically classified these costs,
primarily legal, in other assets. To the extent the Company's efforts to
effectively change the use and operations of the Properties were successful, the
Company capitalized the costs to land improvements as an increase in the
established value of the revised project and depreciated them over 30 years. To
the extent these efforts were not successful, the costs would have been
expensed.
Following is a summary of the effects of these changes on the Company's
Consolidated Balance Sheets as of December 31, 2003, 2002 and 2001 and the
Company's Consolidated Statements of Operations for the years ended December 31,
2003, 2002 and 2001 (amounts in thousands):
Consolidated Balance Sheet
------------------------------------------------
As Previously
Reported Adjustments As Restated
------------- ----------- -----------
As of December 31, 2003
Land improvements................................... $ 911,176 $ (5,391) $ 905,785
Prepaid expenses and other assets................... 35,102 (5,017) 30,085
Minority interest - Common OP Units and other....... 1,716 (2,082) (366)
Total stockholders' equity (deficit) ............... 5,798 (8,326) (2,528)
As of December 31, 2002
------------- ----------- -----------
Land improvements................................... $ 893,839 $ - $ 893,839
Prepaid expenses and other assets................... 35,884 (8,056) 27,828
Minority interest - Common OP Units and other....... 43,501 (1,612) 41,889
Total stockholders' equity (deficit)................ 177,619 (6,444) 171,175
As of December 31, 2001
------------- ----------- -----------
Land improvements................................... $ 855,296 $ - $ 855,296
Prepaid expenses and other assets................... 18,612 (2,358) 16,254
Minority interest - Common OP Units and other....... 46,147 (472) 45,675
Total stockholders' equity (deficit)................ 175,150 (1,886) 173,264
Consolidated Statements of Operations
------------------------------------------------
As Previously
Reported Adjustments As Restated
------------- ----------- -----------
Year ended December 31, 2003
Rent control initiatives............................ $ -- $ (2,352) $ (2,352)
Income allocated to Common OP Units................. (4,330) 470 (3,860)
Net income available for Common Shares.............. 27,014 (1,882) 25,132
Earnings (loss) per Common Share - Basic............ 1.22 (0.08) 1.14
Earnings (loss) per Common Share - Fully Diluted.... 1.20 (0.09) 1.11
Year ended December 31, 2002
------------- ----------- -----------
Rent control initiatives............................ $ -- $ (5,698) $ (5,698)
Income allocated to Common OP Units................. (5,848) 1,140 (4,708)
Net income available for Common Shares.............. 36,445 (4,558) 31,887
Earnings (loss) per Common Share - Basic............ 1.69 (0.21) 1.48
Earnings (loss) per Common Share - Fully Diluted.... 1.64 (0.20) 1.44
Year ended December 31, 2001
------------- ----------- -----------
Rent control initiatives............................ $ - $ (2,358) $ (2,358)
Income allocated to Common OP Units................. (7,688) 472 (7,216)
Net income available for Common Shares.............. 32,083 (1,886) 30,197
Earnings (loss) per Common Share - Basic............ 1.53 (0.09) 1.44
Earnings (loss) per Common Share - Fully Diluted.... 1.49 (0.09) 1.40
33
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - 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.
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").
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R")
- - an interpretation of ARB 51. The objective of FIN 46R is to provide guidance
on how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate such
entity if the company absorbs a majority of the entity's expected losses or
receives a majority of the entity's expected residual returns if they occur, or
both (i.e., the primary beneficiary). The Company will apply FIN 46R to all
types of entity ownership (general and limited partnerships and corporate
interests).
The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of such
entities. In addition, the Company will apply the provisions of FIN 46R to all
new entities in the future. The Company also consolidates entities in which it
has a controlling direct or indirect voting interest. The equity method of
accounting is applied to entities in which the Company does not have a
controlling direct or indirect voting interest, but can exercise influence over
the entity with respect to its operations and major decisions. The cost method
is applied when (i) the investment is minimal (typically less than 5%) and (ii)
the Company's investment is passive.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(c) Segments
We manage all our operations on a property-by-property basis. Since each
Property has similar economic and operational characteristics the Company has
one reportable segment, which is the operation of land lease Properties. The
distribution of the Properties throughout the United States reflects our belief
that geographic diversification helps insulate the portfolio from regional
economic influences. We intend to target new acquisitions in or near markets
where the Properties are located and will also consider acquisitions of
Properties outside such markets. The following table identifies our five largest
markets by number of sites and provides information regarding our Properties
(excludes Properties owned through Joint Ventures).
PERCENT OF TOTAL
NUMBER OF PERCENT OF PROPERTY OPERATING
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES
- ------------ ---------- ----------- ----------- ------------------
Florida 77 32,451 36.3% 43.5%
California 44 12,865 14.4% 18.2%
Arizona 27 10,514 11.8% 10.4%
Texas 15 7,200 8.0% 2.3%
Washington 13 3,076 3.4% 0.6%
Other 71 23,280 26.1% 25.0%
--- ------ ----- -----
Total 247 89,386 100.0% 100.0%
=== ====== ===== =====
34
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Inventory
Inventory consists of new and used Site Set homes, is stated at the lower
of cost or market after consideration of the N.A.D.A. (National Automobile
Dealers Association) Manufactured Housing Appraisal Guide and the current market
value of each home included in the home inventory. Inventory sales revenues and
resale revenues are recognized when the home sale is closed. Resale revenues are
stated net of commissions paid to employees of $1,163,000 and $893,000 for the
years ended December 31, 2004 and 2003, respectively.
(e) Real Estate
In accordance with SFAS No. 141, we allocate the purchase price of
Properties we acquire to net tangible and identified intangible assets acquired
based on their fair values. In making estimates of fair values for purposes of
allocating purchase price, we utilize a number of sources, including independent
appraisals that may be available in connection with the acquisition or financing
of the respective property and other market data. We also consider information
obtained about each property as a result of our due diligence, marketing and
leasing activities in estimating the fair value of the tangible and intangible
assets acquired.
Real estate is recorded at cost less accumulated depreciation.
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 the above and below market leases are
amortized and recorded as either an increase (in the case of below market
leases) or a decrease (in the case of above market leases) to rental income over
the remaining term of the associated lease. The value associated with in-place
leases is amortized over the expected term, which includes an estimated
probability of lease renewal. Expenditures for ordinary maintenance and repairs
are expensed to operations as incurred, and significant renovations and
improvements that improve the asset and extend the useful life of the asset are
capitalized and then expensed over their estimated useful life. However the
useful lives, salvage value, and customary depreciation method used for land
improvements and other significant assets may significantly and materially
overstate the depreciation of the underlying assets and therefore understate the
net income of the Company.
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.
35
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid
principal balances net of any deferred fees or costs on originated loans, or
unamortized discounts or premiums 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.
(h) Investments in Joint Ventures
Investments in joint ventures in which the Company does not have a
controlling direct or indirect voting interest, but can exercise significant
influence over the entity with respect to its operations and major decisions,
are accounted for using the equity method of accounting whereby the cost of an
investment is adjusted for the Company's share of the equity in net income or
loss from the date of acquisition and reduced by distributions received. The
income or loss of each entity is allocated in accordance with the provisions of
the applicable operating agreements. The allocation provisions in these
agreements may differ from the ownership interests held by each investor.
Differences between the carrying amount of the Company's investment in the
respective entities and the Company's share of the underlying equity of such
unconsolidated entities are amortized over the respective lives of the
underlying assets, as applicable.
In applying the provisions of FIN 46R (see Basis of Consolidation, above),
the Company determined that its Mezzanine Investment is a VIE; however, the
Company concluded that it is not the primary beneficiary. As such, the adoption
of this pronouncement had no effect on the Company's financial statements.
(i) Insurance Claims
The Properties are covered against fire, flood, property, earthquake, wind
storm and business interruption by insurance policies containing various
deductible requirements and coverage limits. Recoverable costs are classified in
other assets as incurred. Proceeds are applied against the asset when received.
Costs relating to capital items are treated in accordance with the Company's
capitalization policy. The book value of the original capital item is written
off in the replacement period. Insurance proceeds relating to the capital costs
will be recorded as income in the period they are received.
(j) Fair Value of Financial Instruments
The Company's financial instruments include short-term investments, notes
receivable, accounts receivable, accounts payable, other accrued expenses,
mortgage notes payable and interest rate hedge arrangements. The fair values of
all financial instruments, including notes receivable, were not materially
different from their carrying values at December 31, 2004 and 2003.
(k) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing. The costs are being amortized over the terms of the
respective loans on a level yield basis. Unamortized deferred financing fees are
written-off when debt is retired before the maturity date. Upon amendment of the
Line of Credit, unamortized deferred financing fees are accounted for in
accordance with EITF No. 98-14, "Debtor's Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangements." Accumulated amortization for
such costs was $4.9 million and $2.7 million at December 31, 2004 and 2003,
respectively.
36
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Revenue Recognition
The Company accounts for leases with its customers as operating leases.
Rental income 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 uncollectible rents
receivable was approximately $1.0 million as of December 31, 2004 and $0.8
million as of December 31, 2003. Income from home sales is recognized when the
earnings process is complete. The earnings process is complete when the home has
been delivered, the purchaser has accepted the home and title has transferred.
(m) Minority Interests
Net income is allocated to Common OP Unitholders based on their respective
ownership percentage of the Operating Partnership. An ownership percentage is
represented by dividing the number of Common OP Units held by the Common OP
Unitholders (6,340,805 and 5,312,387 at December 31, 2004 and 2003,
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.
(n) Income Taxes
Due to the structure of the Company as a REIT, the results of operations
contain no provision for Federal income taxes. However, the Company may be
subject to certain state and local income, excise or franchise taxes. We paid
state and local taxes of approximately $88,000, $56,000 and $20,000 during the
years ended December 31, 2004, 2003 and 2002, respectively. In addition, taxable
income from non-REIT activities managed through taxable REIT subsidiaries is
subject to federal, state and local income taxes. As of December 31, 2004, net
investment in real estate and notes receivable had a Federal tax basis of
approximately $1,386 million and $13.3 million, respectively.
(o) Derivative Instruments and Hedging Activities
We recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings.
(p) Reclassifications
Certain 2003 and 2002 amounts have been reclassified to conform to the
2004 financial presentation. Such reclassifications have no effect on the
operations or equity as originally presented.
(q) Stock Compensation
Prior to January 1, 2003, we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees", based
upon the intrinsic value method. This method results in no compensation expense
for options issued with an exercise price equal to or exceeding the market value
of the Common Stock on the date of grant. Effective January 1, 2003, we elected
to account for our stock compensation in accordance with SFAS No. 123 and its
amendment (SFAS No. 148), "Accounting for Stock Based Compensation", which
resulted in compensation expense being recorded based on the fair value of the
stock options and other equity awards issued (see Note 14).
37
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128") defines the calculation
of basic and fully diluted earnings per share. Basic and fully diluted earnings
per share are based on the weighted average shares outstanding during each year
and basic earnings per share excludes any dilutive effects of options, warrants
and convertible securities. The conversion of OP Units has been excluded from
the basic earnings per share calculation. The conversion of an OP Unit to a
share of Common Stock has no material effect on earnings per common share.
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2004, 2003 and 2002 (amounts
in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------------
2004 2003 2002
------- ---------- ----------
(Restated) (Restated)
NUMERATORS:
INCOME FROM CONTINUING OPERATIONS:
Income from continuing operations - basic................. $ 2,621 $ 13,748 $ 17,192
Amounts allocated to dilutive securities.................. 608 3,431 4,230
------- ---------- ----------
Income from continuing operations - fully diluted......... $ 3,229 $ 17,179 $ 21,422
======= ========== ==========
INCOME FROM DISCONTINUED OPERATIONS:
Income from discontinued operations - basic............... $ 1,405 $ 11,384 $ 14,695
Amounts allocated to dilutive securities.................. 328 2,573 3,556
------- ---------- ----------
Income from discontinued operations - fully diluted....... $ 1,733 $ 13,957 $ 18,251
======= ========== ==========
NET INCOME AVAILABLE FOR COMMON SHARES:
Net income available for Common Shares - basic............ $ 4,026 $ 25,132 $ 31,887
Amounts allocated to dilutive securities.................. 936 6,004 7,786
------- ---------- ----------
Net income available for Common Shares - fully diluted.... $ 4,962 $ 31,136 $ 39,673
======= ========== ==========
DENOMINATOR:
Weighted average Common Shares outstanding - basic........... 22,849 22,077 21,617
Effect of dilutive securities:
Redemption of Common OP Units for Common Shares ............. 6,067 5,342 5,403
Employee stock options and restricted shares................. 549 583 612
------- ---------- ----------
Weighted average Common Shares outstanding - fully diluted... 29,465 28,002 27,632
======= ========== ==========
38
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
Common Stock for the years ended December 31, 2004, 2003 and 2002 (excluding OP
Units of 6,340,805, 5,312,387 and 5,359,927 outstanding at December 31, 2004,
2003 and 2002, respectively):
2004 2003 2002
---------- ---------- ----------
Shares outstanding at January 1,................................... 22,563,348 22,093,240 21,562,343
Common Stock issued through conversion of OP Units............ 95,769 47,540 66,447
Common Stock issued through exercise of options............... 196,834 302,526 282,959
Common Stock issued through stock grants...................... -- 35,000 108,341
Common Stock issued through Employee Stock Purchase Plan...... 81,241 85,042 73,150
Common Stock repurchased and retired.......................... -- -- --
---------- ---------- ----------
Shares outstanding at December 31,................................. 22,937,192 22,563,348 22,093,240
========== ========== ==========
As of December 31, 2004 and 2003, the Company's percentage ownership of
the Operating Partnership was approximately 78.5% and 80%, respectively. The
remaining approximately 21.5% and 20%, respectively, is owned by the Common OP
Unitholders.
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") with two institutional investors. The POP Units, which are callable by
the Company after five years, have no stated maturity or mandatory redemption.
The Operating Partnership pays distributions of 9.0% per annum on the $125
million of POP Units. Distributions on the POP Units are paid quarterly on the
last calendar day of each quarter.
The following distributions have been declared and paid to common
stockholders and Minority Interests since January 1, 2002:
DISTRIBUTION
AMOUNT PER FOR THE QUARTER SHAREHOLDER
SHARE ENDING RECORD DATE PAYMENT DATE
- ------------ ------------------ ------------------ -----------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$ 8.00 December 31, 2003 January 8, 2004 January 16, 2004
$0.0125 March 31, 2004 March 26, 2004 April 9, 2004
$0.0125 June 30, 2004 June 25, 2004 July 9, 2004
$0.0125 September 30, 2004 September 24, 2004 October 8, 2004
$0.0125 December 31, 2004 December 31, 2004 January 14, 2005
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October 2003 to pay the special distribution
on January 16, 2004. The special cash dividend was reflected on stockholders'
2004 1099-DIV issued in January 2005.
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company
39
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
recognized $180 million of taxable income as a result of its contribution, as
opposed to a nontaxable reduction of the Company's tax basis in its interest in
the Operating Partnership. This restructuring resulted in a step-up in the
Company's tax basis in its assets, generating future depreciation deductions,
which in turn will reduce the Company's future distribution requirements. The
Company intends to continue to qualify as a REIT under the Code, with its assets
consisting of interests in MHC Trust. MHC Trust, in turn, intends to also
qualify as a real estate investment trust under the Code and will be the general
partner of the Operating Partnership. On May 1, 2004, in connection with the
restructuring, MHC Trust sold cumulative preferred stock to a limited number of
unaffiliated investors.
The Company adopted, effective July 1, 1997, the 1997 Non-Qualified
Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees
and directors of the Company may each annually acquire up to $250,000 of Common
Stock of the Company. The aggregate number of shares of Common Stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the
Company's Board of Directors. The Common Stock may be purchased monthly at a
price equal to 85% of the lesser of: (a) the closing price for a share of Common
Stock on the last day of 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, 2004, 2003 and
2002 were 80,955, 82,943 and 71,107, respectively.
NOTE 6 - INVESTMENT IN REAL ESTATE
Investment in Real Estate is comprised of (amounts in thousands):
Properties Held for Long Term
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Investment in real estate:
Land.................................................................... $ 462,619 $ 274,811
Land improvements....................................................... 1,406,246 874,456
Buildings and other depreciable property................................ 124,357 119,249
------------ ------------
1,993,222 1,268,516
Accumulated depreciation................................................ (309,277) (260,226)
------------ ------------
Net investment in real estate......................................... $ 1,683,945 $ 1,008,290
============ ============
Properties Held for Sale
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Investment in real estate:
Land.................................................................... $ 7,968 $ 7,992
Land improvements....................................................... 32,677 31,329
Buildings and other depreciable property................................ 1,923 1,868
------------ ------------
42,568 41,189
Accumulated depreciation................................................ (13,590) (12,271)
------------ ------------
Net investment in real estate......................................... $ 28,978 $ 28,918
============ ============
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.
40
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - 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. We
acquired all of these Properties from unaffiliated third parties. During the
three years ended December 31, 2004, the Company acquired the following
Properties (amounts in millions, except site information):
1) During the year ended December 31, 2004, we acquired the following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
- ----------------- ---------------------------- ------------------ ----------- ------- ------- ------
ACQUISITIONS:
January 15, 2004 O'Connell's Amboy, IL 668 $ 6.6 $ 5.0 $ 1.6
January 30, 2004 Spring Gulch New Holland, PA 420 6.4 4.8 1.6
February 3, 2004 Paradise Mesa, AZ 950 25.7 20.0 5.7
February 18, 2004 Twin Lakes Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside New Carlisle, IN 95 1.7 -- 1.7
February 5, 2004 Diversified Portfolio Various 2,567 64.0 41.6 20.9
February 17, 2004 NHC Portfolio (a) Various 11,311 235.0 159.0 69.0
May 3, 2004 Viewpoint Mesa, AZ 1,928 81.3 44.0 37.3
May 12, 2004 Cactus Gardens Yuma, AZ 430 7.9 4.9 3.0
May 13, 2004 Monte Vista Mesa, AZ 832 45.8 23.0 22.8
May 14, 2004 GE Portfolio Various 1,155 52.9 37.7 15.2
September 8, 2004 Yukon Trails Lyndon Station, WI 214 2.2 -- 2.2
November 10, 2004 Thousand 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.
Additional equity was funded through our line of credit and funds from
operations.
2) During the year ended December 31, 2003, we acquired the following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
- ----------------- ----------- ----------- ----------- ------- ------- ------
ACQUISITIONS:
December 3, 2003 Toby's Arcadia, FL 379 $ 4.3 $ -- $ 4.3
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2 2.5
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4 0.4
The acquisitions were funded with monies held in short-term investments.
The acquisitions included the assumption of liabilities of approximately
$0.6 million. Also during 2003, we acquired a parcel of land adjacent to
one of our Properties for approximately $0.1 million.
41
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED)
3) During the year ended December 31, 2002, we acquired the following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
- ----------------- ------------------- ------------------- ----------- ------- ------- ------
ACQUISITIONS:
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ -- $ 7.2
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1 7.4
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1 3.2
July 31, 2002 Countryside Apache Junction, AZ 560 7.5 -- 7.5
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1 3.3
July 31, 2002 Breezy Hill Pompano Beach, FL 762 20.5 10.5 10.0
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5 1.4
August 7, 2002 Tropic Winds Harlingen, TX 531 4.9 -- 4.9
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9 2.3
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2 6.6
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5 --
The acquisitions were funded with borrowings on our Line of Credit and the
assumption of $47.9 million of mortgage debt, which includes a $3.0
million discount mark-to-market adjustment. In addition, we purchased
adjacent land and land improvements for several Properties for
approximately $0.6 million.
During the three years ended December 31, 2004 the Company disposed of the
following Properties. The operating results have been reflected in
discontinued operations.
1) During the year ended December 31, 2004, we sold one Property
located in Lake Placid, Florida for a selling price of $3.4 million,
with net proceeds of $0.8 million received in July 2004. No gain or
loss on disposition was recognized in the period. In addition, we
sold approximately 1.4 acres of land in Montana for a gain and net
proceeds of $0.6 million.
2) During the year ended December 31, 2003, we sold the three
Properties listed in the table below. Proceeds from the sales were
used to repay amounts on the Company's Line of Credit.
TOTAL DISPOSITION GAIN ON
DATE DISPOSED PROPERTY LOCATION SITES PRICE SALE
- ------------- ----------------- -------------- ----- ------------ ------------
($ millions) ($ millions)
June 6, 2003 Independence Hill Morgantown, WV 203 $ 3.9 $ 2.8
June 6, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1
June 30, 2003 Pheasant Ridge Mount Airy, MD 101 5.4 3.9
3) Also during 2002, we effectively sold 17 Properties as part of a
restructuring of the College Heights Joint Venture discussed
hereinafter. In addition, we sold Camelot Acres, a 319 site Property
in Burnsville, Minnesota, for approximately $14.2 million.
42
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED)
The following table illustrates the effect on net income and earnings per
share if the Company had consummated the acquisitions during the year ended
December 2004 and 2003 on January 1, 2004 and 2003, respectively (amounts in
thousands, except per share data):
FOR THE YEARS ENDED DECEMBER 31,
Pro Forma Information (unaudited): 2004 2003
------------ -------------
Property operating revenues............................ $ 300,258 $ 290,101
============ =============
Income from continuing operations...................... $ 5,677 $ 18,587
============ =============
Net income available for Common Shares................. $ 7,114 $ 30,166
============ =============
Earnings per Common Share - Basic:
Income from continuing operations................... $ 0.25 $ 0.84
Net income available for Common Shares............... $ 0.31 $ 1.36
Earnings per Common Share - Fully Diluted:
Income from continuing operations.................... $ 0.24 $ 0.84
Net income available for Common Shares............... $ 0.30 $ 1.34
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.
The following table summarizes the results of operations of Properties
held for sale or sold through March 31, 2005 and the required reclassification
of the operating results of all such Properties for the years ended December 31,
2004, 2003 and 2002 (amounts in thousands):
2004 2003 2002
-------- -------- --------
Rental income........................................ $ 6,785 $ 8,670 $ 11,868
Utility and other income............................. 642 760 1,198
-------- -------- --------
Property operating revenues...................... 7,427 9,430 13,066
Property operating expenses.......................... 3,930 4,607 5,693
-------- -------- --------
Income from property operations.................. 3,497 4,823 7,373
(Loss) income from home sales operations and other... (52) (22) 24
Interest............................................. (961) (191) (8)
Amortization......................................... (34) (5) --
Depreciation......................................... (1,353) (1,474) (2,151)
-------- -------- --------
Total other expenses............................. (2,348) (1,670) (2,159)
-------- -------- --------
Gain on sale......................................... 636 10,826 13,014
-------- -------- --------
Income before minority interests from discontinued
operations......................................... $ 1,733 $ 13,957 $ 18,252
======== ======== ========
43
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INVESTMENT IN JOINT VENTURES
On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity interests (the "Mezzanine Investment") in six entities
controlled by Diversified Investments, Inc. ("Diversified"). These entities own
in the aggregate 11 Properties, containing 5,054 sites. Approximately $11.7
million of the Mezzanine Investment accrues at a per annum average rate of 10%,
with a minimum 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. The Company can acquire
these Properties in the future at capitalization rates of between 8% and 8.5%,
beginning in 2006. In addition, the Company has invested approximately $1.4
million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Company's Consolidated
Balance Sheet as of December 31, 2004.
During the year ended December 31, 2004, the Company invested
approximately $4.1 million with Diversified in 11 separate property-owning
entities. The Company can acquire these Properties in the future at
capitalization rates of between 8% and 8.5%, beginning in 2006.
The Company recorded approximately $3.7 million, $0.3 million, and $0.2
million of income from joint ventures, net of $1.2 million, $0.8 million and
$0.7 million depreciation, in the years ended December 31, 2004, 2003 and 2002,
respectively; and received approximately $5.2 million, $0.8 million and $0.6
million in distributions from joint ventures in the years ended December 31,
2004, 2003, and 2002 respectively. Due to the Company's inability to control the
joint ventures, the Company accounts for its investment in the joint ventures
using the equity method of accounting.
The following is a summary of the Company's investments in unconsolidated joint
ventures:
NUMBER ECONOMIC INVESTMENT AS OF INVESTMENT AS OF
PROPERTY LOCATION OF SITES INTEREST (a) DEC. 31, 2004 DEC. 31, 2003
- ----------------------- -------------- -------- ------------ ---------------- ----------------
(in thousands) (in thousands)
Trails West Tucson, AZ 503 50% $ 1,731 $ 1,752
Plantation Calimesa, CA 385 50% 3,032 2,825
Manatee Bradenton, FL -- 90% -- 45
Home Hallandale, FL 136 90% -- 1,082
Villa del Sol Sarasota, FL 207 90% 630 654
Voyager Tucson, AZ 767 25% 3,010 4,412
Mezzanine Investments Various 5,054 -- 31,207 --
Indian Wells Indio, CA 350 30% 271 --
Diversified Investments Various 4,443 25% 3,702 --
-------- ---------------- ----------------
11,845 $ 43,583 $ 10,770
======== ================ ================
(a) The percentages shown approximate the Company's economic interest. The
Company's legal ownership interest may differ.
44
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INVESTMENT IN JOINT VENTURES (CONTINUED)
UNCONSOLIDATED REAL ESTATE JOINT VENTURE FINANCIAL INFORMATION
The following tables represent combined summarized financial information
of the unconsolidated real estate joint ventures.
BALANCE SHEETS AS OF DECEMBER 31,
2004 2003
-------------- --------------
(in thousands) (in thousands)
ASSETS
Real estate, net............. $ 183,480 $ 49,899
Other assets................. 22,646 4,723
-------------- --------------
TOTAL ASSETS..................... 206,126 54,622
============== ==============
LIABILITIES
Mortgage debt & other loans.. $ 152,682 $ 39,253
Other liabilities............ 13,485 8,393
Partner's equity............. 39,959 6,976
-------------- --------------
TOTAL LIABILITIES AND EQUITY..... $ 206,126 $ 54,622
============== ==============
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003
-------------- --------------
(in thousands) (in thousands)
Rentals.......................... $ 27,941 $ 9,632
Other Income..................... 5,390 2,241
-------------- --------------
TOTAL REVENUES................... 33,331 11,873
EXPENSES
Operating expenses............... $ 16,454 $ 6,709
Interest ........................ 7,558 2,852
Other Income & Expenses.......... 2,672 203
Depreciation & Amortization...... 10,165 676
-------------- --------------
TOTAL EXPENSES................... 36,849 10,440
-------------- --------------
NET (LOSS) INCOME................ ($ 3,518) $ 1,433
============== ==============
45
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES RECEIVABLE
At December 31, 2004 and 2003, the Company had approximately $13.3 million
and $11.6 million in notes receivable, respectively. On December 28, 2000, the
Company, in connection with the Voyager Joint Venture, entered into an agreement
to loan $3.0 million to certain principals of Meadows Management Company. The
notes are collateralized with a combination of Common OP Units and partnership
interests in this and other joint ventures. The notes bear interest at prime
plus 0.5% per annum, require quarterly interest only payments and mature on
December 31, 2011. The outstanding balance on these notes as of December 31,
2004 is $0.4 million.
The Company has approximately $12.9 million in Chattel Loans receivable,
which yield interest at a per annum average rate of approximately 9.0%, have an
average term and amortization of 5 to 15 years, require monthly principal and
interest payments and are collateralized by homes at certain of the Properties.
NOTE 9 - EMPLOYEE NOTES RECEIVABLE
As of December 31, 2004 and 2003, the Company had employee notes
receivable of $0 million. During 2003, approximately $2.7 million of notes
receivable were repaid. These notes were collateralized by shares of the
Company's Common Stock and are presented as a reduction of Stockholders' Equity.
NOTE 10 - LONG-TERM BORROWINGS
As of December 31, 2004 and December 31, 2003, the Company had outstanding
mortgage indebtedness for Properties held for the long-term of approximately
$1,402 million and $1,061 million, respectively, and $15 million as of December
31, 2003 and 2004 for Properties held for sale, encumbering 165 and 114 of the
Company's Properties, respectively. As of December 31, 2004 and December 31,
2003, the carrying value of such Properties was approximately $1,653 million and
$1,124 million, respectively.
MORTGAGE DEBT OUTSTANDING
- Approximately $499.2 million of mortgage debt (the Recap) consisting
of 49 loans collateralized by 51 Properties beneficially owned by
separate legal entities that are Subsidiaries of the Company, which
we closed on October 17, 2003. Of this Mortgage Debt, $166.1 million
bears interest at 5.35% per annum and matures November 1, 2008;
$80.6 million bears interest at 5.72% per annum and matures November
1, 2010; $79.1 million bears interest at 6.02% per annum and matures
November 1, 2013; and $173.4 million bears interest at 6.33% per
annum and matures November 1, 2015. The Mortgage Debt amortizes over
30 years.
- A $265.0 million mortgage note (the "$265 Million Mortgage")
collateralized by 28 Properties beneficially owned by MHC Financing
Limited Partnership. The $265 Million Mortgage has a maturity date
of January 2, 2028 and bears interest at 7.015% per annum. There is
no principal amortization until February 1, 2008, after which
principal and interest are to be paid from available cash flow and
the interest rate will be reset at a rate equal to the then 10-year
U.S. Treasury obligations plus 2.0%. The $265 Million Mortgage is
presented net of a settled hedge of $3.0 million (net of accumulated
amortization of $466,969), which is being amortized into interest
expense over the life of the loan.
- A $90.5 million mortgage note (the "DeAnza Mortgage") collateralized
by 6 Properties beneficially owned by MHC-DeAnza Financing Limited
Partnership. The DeAnza Mortgage bears interest at a rate of 7.82%
per annum, amortizes beginning August 1, 2000 over 30 years and
matures July 1, 2010.
- A $48.4 million mortgage note (the "Stagecoach Mortgage")
collateralized by 7 Properties beneficially owned by MHC Stagecoach
L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98% per
annum, amortizes beginning September 1, 2001 over 10 years and
matures September 1, 2011.
46
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM BORROWINGS (CONTINUED)
- A $43.7 million mortgage note (the "Bay Indies Mortgage")
collateralized by one Property beneficially owned by MHC Bay Indies,
L.L.C. The Bay Indies Mortgage bears interest at a rate of 5.69% per
annum, amortizes beginning April 17, 2003 over 25 years and matures
May 1, 2013.
- A $15.2 million mortgage note (the "Date Palm Mortgage")
collateralized by one Property beneficially owned by MHC Date Palm,
L.L.C. The Date Palm Mortgage bears interest at a rate of 7.96% per
annum, amortizes beginning August 1, 2000 over 30 years and matures
July 1, 2010
- Approximately $457.9 million of mortgage debt on 71 other
Properties, which was recorded at fair market value with the related
discount or premium being amortized over the life of the loan using
the effective interest rate method. Scheduled maturities for the
outstanding indebtedness are at various dates through November 1,
2027, and fixed interest rates range from 5.16% to 8.55% per annum.
Included in this debt, the Company has a $2.4 million loan recorded
to account for a direct financing lease entered into in May 1997.
Approximately $157 million of debt was assumed in the acquisition of
28 Properties during the twelve months ended December 31, 2004.
UNSECURED TERM LOAN OUTSTANDING
- The Company entered into a Term Loan agreement, pursuant to which it
borrowed $120 million, on an unsecured basis, at LIBOR plus 1.75%
per annum. The loan will be due and payable on November 10, 2007,
unless this initial maturity date is extended by the borrower for an
additional two years upon satisfaction of certain conditions.
Proceeds from this debt were used to acquire KTTI Holding Company,
Inc. as part of the Thousand Trails transaction.
UNSECURED LINES OF CREDIT OUTSTANDING
- The Company entered into a $110 million facility with a group of
banks in December 2003, bearing interest at LIBOR plus 1.65% per
annum that matures on August 9, 2006, which can be extended for an
additional year to 2007. As of December 31, 2004, $35.7 million was
available under this facility.
- The Company entered into a $50 million facility with Wells Fargo
Bank in May 2004, bearing interest at LIBOR plus 1.65% per annum
that matures on May 4, 2006, which can be extended for an additional
year to 2007. As of December 31, 2004, $8.5 million was available
under this facility.
In December 2004, we fixed $180 million of this floating rate debt for 1
year with a weighted average rate of 4.7% per annum.
Aggregate payments of principal on long-term borrowings for each of the
next five years and thereafter are as follows (amounts in thousands):
YEAR AMOUNT
- -------------------------------------- -----------
2005 $ 18,742
2006 169,770
2007 432,350
2008 203,903
2009 70,558
Thereafter 748,349
Net unamortized premiums and discounts 9,379
-----------
Total $ 1,653,051
===========
47
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - 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 37 of the Properties. Rental rate increases at these
Properties are primarily a function of increases in the Consumer Price Index,
taking into consideration certain floors and ceilings. Additionally, periodic
market rate adjustments are made as deemed appropriate. Future minimum rents are
scheduled to be received under non-cancelable tenant leases at December 31, 2004
as follows (amounts in thousands):
YEAR AMOUNT
- ---------- ---------
2005 $ 50,916
2006 52,062
2007 43,537
2008 31,983
2009 19,106
Thereafter 44,149
---------
Total $ 241,753
=========
NOTE 12 - 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, 2004, 2003 and
2002, ground lease rent was approximately $1.6 million per year. Minimum future
rental payments under the ground leases are approximately $1.6 million for each
of the next five years and approximately $23.5 million thereafter.
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES
Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel
Zell, Chairman of the Company's Board of Directors, and certain of its
affiliates have provided services such as administrative support and investor
relations. Fees paid to EGI and its affiliates amounted to approximately $0,
$300 and $1,000 for the years ended December 31, 2004, 2003 and 2002,
respectively. There were no significant amounts due to these affiliates as of
December 31, 2004 and 2003, respectively.
Certain related entities, affiliated with Mr. Zell, have provided services
to the Company. These entities include, but are not limited to, The Riverside
Agency, Inc. which provided insurance brokerage services and Two North Riverside
Plaza Joint Venture Limited Partnership from which the Company leases office
space. Fees paid to these entities amounted to approximately $412,000, $404,000
and $645,000 for the years December 31, 2004, 2003 and 2002, respectively.
Amounts due to these entities were approximately $0 and $32,000 as of December
31, 2004 and 2003, respectively. During 2003, we paid $25,000 to J. Green & Co.,
L.L.C. for services provided by Mr. Berman, the Company's current Chief
Financial Officer, prior to his employment by the Company.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Company's Board of
Directors.
NOTE 14 - 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
48
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Committee will determine the 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, 2004 to officers, employees
and consultants, generally, one-third are exercisable one year after the initial
grant, one-third are exercisable two years following the date such Options were
granted and the remaining one-third are exercisable three years following the
date such Options were granted. 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. Effective January 1, 2003, we elected to account for
our stock-based compensation in accordance with SFAS No. 123 and its amendment
(SFAS No. 148), "Accounting for Stock Based Compensation", which will result in
compensation expense being recorded based on the fair value of the Options and
other equity awards issued. SFAS No. 148 provides three possible transition
methods for changing to the fair value method. We have elected to use the
modified-prospective method. This method requires that we recognize stock-based
employee compensation cost from the beginning of the fiscal year in which the
recognition provisions are first applied as if the fair value method had been
used to account for all employee awards granted, or settled in fiscal years
beginning after December 15, 1994. The following table illustrates the effect on
net income and earnings per share as if the fair value method was applied to all
outstanding and unvested awards in each period presented (amounts in thousands,
except per share data):
2004 2003 2002
------------ ------------ ------------
(Restated) (Restated)
Net income available for Common Shares
as reported........................... $ 4,026 $ 25,132 $ 31,887
Add: Stock-based compensation expense
included in net income as reported.... 2,899 2,139 2,185
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards..... (2,899) (2,139) (2,086)
------------ ------------ ------------
Pro forma net income available for
Common Shares......................... $ 4,026 $ 25,132 $ 31,986
============ ============ ============
Pro forma net income per Common
Share - Basic......................... $ 0.18 $ 1.14 $ 1.48
============ ============ ============
Pro forma net income per Common
Share - Fully Diluted................. $ 0.17 $ 1.11 $ 1.44
============ ============ ============
49
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Restricted Stock Grants
In 2002, the Company awarded Restricted Stock Grants for 69,750 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 tied to
increases in funds from operations being met. The fair market value of these
Restricted Stock Grants of approximately $2.2 million as of the date of grant
was treated in 2002 as deferred compensation and amortized in accordance with
their vesting.
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 tied to
increases in funds from operations being met. 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 2004, 2003 and 2002, the Company awarded Restricted Stock Grants for
40,000, 35,000 and 16,000 shares of Common Stock, respectively, to directors
with a fair market value of approximately $1,386,000, $733,000 and $376,000 in
2004, 2003 and 2002, respectively.
The Company recognized compensation expense of approximately $2.7, $1.8
and $1.5 million related to Restricted Stock Grants in 2004, 2003 and 2002
respectively. The balance of unamortized deferred compensation as of December
31, 2004 and 2003 was approximately $0.2 and $0.5 million, respectively.
Stock Options
The fair value of each grant is estimated on the grant date using the
Black-Scholes model. The following table includes the assumptions that were made
and the estimated fair values:
ASSUMPTION 2004 2003 2002
--------- -------- ----------
(pro forma)
Dividend yield 5.9% 5.6% 6.3%
Risk-free interest rate 4.7% 3.5% 3.5%
Expected life 10 years 5 years 5 years
Expected volatility 16% 14% 19%
--------- -------- ----------
Estimated Fair Value of Options Granted $ 57,000 $ 40,600 $ 37,432
50
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
In January 2004, approximately 1.2 million options were repriced in
connection with the special dividend paid on January 16, 2004 (see Note 5). A
summary of the Company's stock option activity, and related information for the
years ended December 31, 2004, 2003 and 2002 follows:
WEIGHTED AVERAGE
SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS SHARE
-------------- ------------------
Balance at December 31, 2001 1,828,348 23.44
Options granted 20,000 33.55
Options exercised (282,959) 20.48
Options canceled (49,492) 24.94
---------
Balance at December 31, 2002 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
=========
The following table summarizes information regarding Options outstanding at
December 31, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED
AVERAGE
OUTSTANDING WEIGHTED
CONTRACTUAL WEIGHTED AVERAGE AVERAGE
RANGE OF EXERCISE PRICES OPTIONS LIFE (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------------ ---------- --------------- ----------------- ---------- --------------
$7.62 to $14.00 169,467 1.6 $11.88 169,467 $11.88
$15.69 to $18.99 680,475 4.4 $17.38 680,475 $17.38
$22.65 to $31.53 196,054 7.4 $24.06 176,052 $23.47
--------- --- ------ --------- ------
1,045,996 4.5 $17.74 1,025,994 $17.51
========= === ====== ========= ======
As of December 31, 2004, 2003 and 2002, 1,942,025 shares, 2,119,152
shares, and 2,166,686 shares remained available for grant, respectively; of
these 861,525 shares, 1,038,853 shares, and 1,073,853 shares, respectively,
remained available for Restricted Stock Grants.
NOTE 15 - PREFERRED STOCK
The Company's Board of Directors is authorized under the Company's
charter, without further stockholder approval, to issue, from time to time, in
one or more series, 10,000,000 shares of $.01 par value preferred stock (the
"Preferred Stock"), with specific rights, preferences and other attributes as
the Board may determine, which may include preferences, powers and rights that
are senior to the rights of holders of the Company's Common Stock. However,
under certain circumstances, the issuance of preferred stock may require
stockholder approval pursuant to the rules and regulations of The New York Stock
Exchange. As of December 31, 2004 and 2003, no Preferred Stock was issued by the
Company.
51
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral
feature designed to qualify under Section 401 of the Code (the "401(k) Plan"),
to cover its employees and those of its Subsidiaries, if any. The 401(k) Plan
permits eligible employees of the Company and those of any Subsidiary to defer
up to 19% of their eligible compensation on a pre-tax basis subject to certain
maximum amounts. In addition, the Company will match dollar-for-dollar the
participant's contribution up to 4% of the participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit sharing
component of the 401(k) Plan provides for a contribution to be made annually for
each participant in an amount, if any, as determined by the Company. All
employee contributions are 100% vested. The Company's contribution to the 401(k)
Plan was approximately $545,271, $240,000, and $248,000, for the years ended
December 31, 2004, 2003, and 2002, respectively.
The Company has established a supplemental executive retirement plan (the
"SERP") to provide certain officers and directors an opportunity to defer a
portion of their eligible compensation in order to save for retirement and for
the education of their children. The SERP is restricted to investments in
Company common shares, certain marketable securities that have been specifically
approved, or cash equivalents. In accordance with EITF 97-14 "Accounting for
Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested", the deferred compensation liability represented in the SERP
and the securities issued to fund such deferred compensation liability are
consolidated by the Company on the balance sheet. Assets held in the SERP are
included in other assets and are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings. Company
shares held in the SERP are classified in stockholders equity due to the
inability of the Company to repurchase these shares.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
DEANZA SANTA CRUZ
The customers of DeAnza Santa Cruz Mobile Estates, a Property located in
Santa Cruz, California, brought several actions opposing fees and charges in
connection with water service at the Property. As a result of one action, the
Company rebated approximately $36,000 to the customers. The DeAnza Santa Cruz
Homeowners Association ("HOA") then proceeded to a jury trial alleging these
"overcharges" entitled them to an award of punitive damages. In January 1999, a
jury awarded the HOA $6.0 million in punitive damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damages claim. The HOA's attorney made a motion asking for an award of
attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company appealed this award. On July 13, 2004, the
California Court of Appeal affirmed the award of attorney's fees in favor of the
HOA's attorney.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's stockholders' land, which would otherwise
be reflected in market rents, to tenants
52
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
upon the sales of their homes in the form of an inflated purchase price that
cannot be attributed to the value of the home being sold. As a result, in the
Company's view, the Company loses the value of its asset and the selling tenant
leaves the Property with a windfall premium. The Company has discovered through
the litigation process that certain municipalities considered condemning the
Company's Properties at values well below the value of the underlying land. In
the Company's view, a failure to articulate market rents for sites governed by
restrictive rent control would put the Company at risk for condemnation or
eminent domain proceedings based on artificially reduced rents. Such a physical
taking, should it occur, could represent substantial lost value to stockholders.
The Company is cognizant of the need for affordable housing in the
jurisdictions, but asserts that restrictive rent regulation with vacancy control
does not promote this purpose because the benefits of such regulation are fully
capitalized into the prices of the homes sold. The Company estimates that the
annual rent subsidy to tenants in these jurisdictions is approximately $15
million. In a more well balanced regulatory environment, the Company would
receive market rents that would eliminate the subsidy and homes would trade at
or near their intrinsic value.
In connection with such efforts, the Company announced it has entered into
a settlement agreement with the City of Santa Cruz, California and that,
pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's Property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the CPI. The
settlement agreement benefits the Company's stockholders by allowing them to
receive the value of their investment in this Property through vacancy decontrol
while preserving annual CPI based rent increases in this age restricted
Property.
The Company has filed two lawsuits in 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 has postponed decision on those motions and on the constitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the constitutional claims, then the Company
has pending claims seeking a declaration that it can close the Property and
convert it to another use.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("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 trial court has set a
trial date in the second quarter of 2005 on the CMHOA's remaining claims for
damages. The Company intends to vigorously defend this matter. The Company
believes that such lawsuits will be a consequence of the Company's efforts to
change rent control since tenant groups actively desire to preserve the premium
value of their homes in addition to the discounted rents provided by rent
control. The Company has determined that its efforts to rebalance the regulatory
environment despite the risk of litigation from tenant groups are necessary not
only because of the $15 million annual subsidy to tenants, but also because of
the condemnation risk.
Similarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and other
property owners. However, the Court allowed the City to continue to enforce a
rent control ordinance that predated the two invalid ordinances (the "prior
ordinance"). As a result of the judgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and the prior ordinances and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance been
continually in effect. The City of Santee appealed the
53
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. The Company will petition
the Supreme Court of California for review of certain aspects of this decision.
The Company intends to vigorously defend the two new lawsuits. In addition, the
Company has sued the City of Santee in Federal court alleging all three of the
ordinances are unconstitutional under the Fifth Amendment to the United States
Constitution because they fail to substantially advance a legitimate state
interest. Thus, it is the Company's position that the ordinances are subject to
invalidation as a matter of law in the Federal court action. Separately, the
Federal District Court granted the City's Motion for Summary Judgment in the
Company's Federal Court lawsuit. This decision was based not on the merits, but
on procedural grounds, including that the Company's claims were moot given its
success in the state court case. The Company intends to appeal this ruling and
believes the outcome will be affected by the cases currently before the Ninth
Circuit and United States Supreme Court.
Moreover, in July 2004, the Ninth Circuit Court of Appeal decided the case
of Cashman v. City of Cotati, a Property owner's challenge to the City's rent
control ordinance, and stated that a rent control ordinance that does not on its
face provide for a mechanism to prevent the capture of a premium is
unconstitutional, as a matter of law, absent sufficient externalities rendering
a premium unavailable. This reasoning supports the legal position the Company
has put forth in its opposition to rent control in general and vacancy control
in particular. The City of Cotati has petitioned the Ninth Circuit for rehearing
and that petition is pending. In addition, in October 2004, the United States
Supreme Court granted certiorari in State of Hawaii vs. Chevron USA, Inc., a
Ninth Circuit Court of Appeal case that upholds the standard that a regulation
must substantially advance a legitimate state purpose in order to be
constitutionally viable. The case was argued before the United States Supreme
Court on February 22, 2005. The ultimate outcome of these cases will guide the
Company's continued efforts to realize the value of its Properties which are
subject to rent control and the Company's efforts to achieve a level of
regulatory fairness in rent control jurisdictions.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. 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.
54
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 2004 and 2003 (amounts in
thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2004 3/31 6/30 9/30 12/31
- ----------------------------------------------------------- --------- ---------- ---------- ---------
(Restated) (Restated) (Restated) (Restated)
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 to common stockholders......... $ 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.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2003 3/31 6/30 9/30 12/31
- ----------------------------------------------------------- --------- ---------- ---------- ---------
(Restated) (Restated) (Restated) (Restated)
Total revenues (a)......................................... $ 62,531 $ 64,710 $ 66,783 $ 69,189
Income from continuing operations (a)...................... $ 6,400 $ 3,903 $ 3,834 $ (389)
Income from discontinued operations (a).................... $ 863 $ 10,094 $ 752 $ (325)
Net income (loss) available to common stockholders......... $ 7,263 $ 13,997 $ 4,586 $ (714)
Weighted average Common Shares outstanding - Basic......... 21,918 22,027 22,114 22,247
Weighted average Common Shares outstanding - Diluted....... 27,276 27,371 27,458 27,568
Net income (loss) per Common Share outstanding - Basic..... $ 0.33 $ 0.64 $ 0.21 $ (0.03)
Net income (loss) per Common Share outstanding - Diluted... $ 0.32 $ 0.62 $ 0.20 $ (0.03)
(a) Amounts may differ from previously disclosed amounts due to reclassification
of discontinued operations.
55
SCHEDULE II
EQUITY LIFESTYLE PROPERTIES, INC.
VALUATION AND QUALIFICATION ACCOUNTS
DECEMBER 31, 2004
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, 2002:
Allowance for doubtful accounts......... $ 300,000 $ 940,565 $ -- ($540,565) $ 700,000
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
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/04
------------------ ------------------ -------------------------
Depreciable Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property Land Property Total
- -------------------------- ------------------ ------------ ------ ----------- ---- ----------- ----- ----------- ------
Apollo Village Phoenix AZ 3,997 932 3,219 0 578 932 3,797 4,729
Araby Acres Yuma AZ 3,222 1,440 4,345 0 12 1,440 4,357 5,797
The Highlands at Brentwood Mesa AZ 10,910 1,997 6,024 0 738 1,997 6,762 8,759
Cactus Gardens Yuma AZ 4,849 1,992 5,984 0 12 1,992 5,996 7,988
Carefree Manor Phoenix AZ 3,394 706 3,040 0 222 706 3,262 3,968
Casa del Sol #1 Peoria AZ 10,629 2,215 6,467 0 1,235 2,215 7,702 9,917
Casa del Sol #2 Glendale AZ 9,983 2,103 6,283 0 928 2,103 7,211 9,314
Casa del Sol #3 Glendale AZ 11,015 2,450 7,452 0 375 2,450 7,827 10,277
Central Park Phoenix AZ 5,103 1,612 3,784 0 641 1,612 4,425 6,037
Countryside Phoenix AZ 3,737 2,056 6,241 0 206 2,056 6,447 8,503
Desert Paradise Yuma AZ 1,452 666 2,011 0 4 666 2,015 2,681
Desert Skies Phoenix AZ 5,046 792 3,126 0 296 792 3,422 4,214
Fairview Manor Tucson AZ 5,048 1,674 4,708 0 1,113 1,674 5,821 7,495
Foothill Yuma AZ 1,350 459 1,402 0 16 459 1,418 1,877
Golden Sun Scottsdale AZ 2,976 1,678 5,049 0 48 1,678 5,097 6,775
Hacienda De Valencia Mesa AZ 6,063 833 2,701 0 2,123 833 4,824 5,657
Monte Vista Mesa AZ 22,844 11,402 34,355 0 157 11,402 34,512 45,914
Palm Shadows Glendale AZ 8,471 1,400 4,218 0 391 1,400 4,609 6,009
Paradise Sun City AZ 19,813 6,414 19,263 0 56 6,414 19,319 25,733
Sedona Shadows Sedona AZ 2,465 1,096 3,431 0 538 1,096 3,969 5,065
Suni Sands Yuma AZ 3,172 1,249 3,759 0 7 1,249 3,766 5,015
Sunrise Heights Phoenix AZ 5,636 1,000 3,016 0 413 1,000 3,429 4,429
The Mark Mesa AZ 8,826 1,354 4,660 6 846 1,360 5,506 6,866
The Meadows Tempe AZ 12,436 2,613 7,887 0 1,103 2,613 8,990 11,603
Viewpoint Mesa AZ 43,703 24,890 56,340 0 99 24,890 56,439 81,329
Whispering Palms Phoenix AZ 3,219 670 2,141 0 182 670 2,323 2,993
California Hawaiian San Jose CA 26,968 5,825 17,755 0 1,581 5,825 19,336 25,161
Colony Park Ceres CA 5,826 890 2,837 0 319 890 3,156 4,046
Concord Cascade Pacheco CA 5,411 985 3,016 0 1,047 985 4,063 5,048
Contempo Marin San Rafael CA 25,233 4,787 16,379 0 2,376 4,787 18,755 23,542
Coralwood Modesto CA 6,200 0 5,047 0 276 0 5,323 5,323
Date Palm Country Club Cathedral City CA 15,194 4,138 14,064 -23 3,416 4,115 17,480 21,595
Date Palm Cathedral City CA 0 0 216 0 47 0 263 263
Four Seasons Fresno CA 0 756 2,348 0 245 756 2,593 3,349
Laguna Lake San Luis Obispo CA 4,916 2,845 6,520 0 252 2,845 6,772 9,617
Accumulated Date of
Real Estate Depreciation Acquisition
- -------------------------- ------------ -----------
Apollo Village (1,302) 1994
Araby Acres (158) 2003
The Highlands at Brentwood (2,566) 1993
Cactus Gardens (102) 2004
Carefree Manor (803) 1998
Casa del Sol #1 (1,587) 1996
Casa del Sol #2 (1,458) 1996
Casa del Sol #3 (1,722) 1998
Central Park (2,947) 1983
Countryside (510) 2002
Desert Paradise (63) 2004
Desert Skies (809) 1998
Fairview Manor (1,352) 1998
Foothill (52) 2003
Golden Sun (407) 2002
Hacienda De Valencia (2,475) 1984
Monte Vista (766) 2004
Palm Shadows (1,837) 1993
Paradise (592) 2004
Sedona Shadows (979) 1997
Suni Sands (116) 2004
Sunrise Heights (1,227) 1994
The Mark (1,892) 1994
The Meadows (3,091) 1994
Viewpoint (1,096) 2004
Whispering Palms (580) 1998
California Hawaiian (4,884) 1997
Colony Park (899) 1998
Concord Cascade (2,467) 1983
Contempo Marin (6,419) 1994
Coralwood (1,350) 1997
Date Palm Country Club (5,722) 1994
Date Palm (100) 1994
Four Seasons (665) 1997
Laguna Lake (1,693) 1998
S-2
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/04
------------------- ------------------- --------------------------
Depreciable Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property Land Property Total
- ------------------------ --------------------- ------------ ------ ----------- ------ ----------- ----- ----------- ------
Lamplighter Spring Valley CA 3,761 633 2,201 0 675 633 2,876 3,509
Las Palmas Rialto CA 3,807 1,295 3,866 0 20 1,295 3,886 5,181
Meadowbrook Santee CA 0 4,345 12,528 0 1,522 4,345 14,050 18,395
Monte del Lago Castroville CA 7,673 3,150 9,469 0 1,464 3,150 10,933 14,083
Quail Meadows Riverbank CA 5,280 1,155 3,469 0 293 1,155 3,762 4,917
Nicholson Plaza San Jose CA 0 0 4,512 0 72 0 4,584 4,584
Pacific Dunes Ranch California Central
Coast CA 6,025 1,940 5,632 0 27 1,940 5,659 7,599
Parque La Quinta Rialto CA 5,105 1,799 5,450 0 -45 1,799 5,405 7,204
Rancho Mesa El Cajon CA 9,600 2,130 6,389 0 249 2,130 6,638 8,768
Rancho Valley El Cajon CA 3,624 685 1,902 0 794 685 2,696 3,381
Royal Holiday Hemet CA 0 778 2,643 0 374 778 3,017 3,795
Royal Oaks Visalia CA 0 602 1,921 0 281 602 2,202 2,804
DeAnza Santa Cruz Santa Cruz CA 6,871 2,103 7,201 0 317 2,103 7,518 9,621
Santiago Estates Sylmar CA 16,205 3,562 10,767 0 769 3,562 11,536 15,098
Sea Oaks Los Osos CA 0 871 2,703 0 267 871 2,970 3,841
Sunshadow San Jose CA 0 0 5,707 0 137 0 5,844 5,844
Tahoe Valley Campground Lake Tahoe CA 2,246 1,357 4,071 0 12 1,357 4,083 5,440
Village of Four Seasons San Jose CA 15,332 5,229 15,714 0 18 5,229 15,732 20,961
Westwinds (4 properties) San Jose CA 0 0 17,616 0 5,116 0 22,732 22,732
Bear Creek Sheridan CO 4,880 1,100 3,359 0 248 1,100 3,607 4,707
Cimarron Broomfield CO 4,541 863 2,790 0 584 863 3,374 4,237
Golden Terrace Golden CO 4,246 826 2,415 0 720 826 3,135 3,961
Golden Terrace South Golden CO 2,400 750 2,265 0 617 750 2,882 3,632
Golden Terrace West Golden CO 8,328 1,694 5,065 0 1011 1,694 6,076 7,770
Hillcrest Village Aurora CO 10,504 1,912 5,202 289 2,397 2,201 7,599 9,800
Holiday Hills Denver CO 14,746 2,159 7,780 0 3,819 2,159 11,599 13,758
Holiday Village CO Co. Springs CO 3,471 567 1,759 0 912 567 2,671 3,238
Pueblo Grande Pueblo CO 1,867 241 1,069 0 432 241 1,501 1,742
Woodland Hills Denver CO 7,390 1,928 4,408 0 2,407 1,928 6,815 8,743
Aspen Meadows Rehoboth Beach DE 5,620 1,148 3,460 0 338 1,148 3,798 4,946
Camelot Meadows Rehoboth Beach DE 7,304 527 2,058 1,251 3,719 1,778 5,777 7,555
Mariners Cove Millsboro DE 16,452 990 2,971 0 3,909 990 6,880 7,870
McNicol Rehoboth Beach DE 2,710 563 1,710 0 72 563 1,782 2,345
Sweetbriar Rehoboth Beach DE 3,040 498 1,527 0 377 498 1,904 2,402
Waterford Estates Bear DE 30,954 5,250 16,202 0 614 5,250 16,816 22,066
Whispering Pines Lewes DE 9,871 1,536 4,609 0 1005 1,536 5,614 7,150
Accumulated Date of
Real Estate Depreciation Acquisition
- ------------------------ ------------ -----------
Lamplighter (1,853) 1983
Las Palmas (76) 2004
Meadowbrook (3,073) 1998
Monte del Lago (2,612) 1997
Quail Meadows (844) 1998
Nicholson Plaza (1,126) 1997
Pacific Dunes Ranch
(178) 2004
Parque La Quinta (197) 2004
Rancho Mesa (1,453) 1998
Rancho Valley (1,633) 1983
Royal Holiday (606) 1998
Royal Oaks (554) 1997
DeAnza Santa Cruz (2,553) 1994
Santiago Estates (2,710) 1998
Sea Oaks (720) 1997
Sunshadow (1,464) 1997
Tahoe Valley Campground (124) 2004
Village of Four Seasons (349) 2004
Westwinds (4 properties) (5,844) 1997
Bear Creek (833) 1998
Cimarron (2,227) 1983
Golden Terrace (1,868) 1983
Golden Terrace South (717) 1997
Golden Terrace West (3,399) 1986
Hillcrest Village (4,843) 1983
Holiday Hills (7,158) 1983
Holiday Village CO (1,583) 1983
Pueblo Grande (968) 1983
Woodland Hills (2,522) 1994
Aspen Meadows (894) 1998
Camelot Meadows (1,318) 1998
Mariners Cove (2,868) 1987
McNicol (410) 1998
Sweetbriar (496) 1998
Waterford Estates (3,037) 1996
Whispering Pines (2,844) 1998
S-3
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/04
------------------- ------------------- ---------------------------
Depreciable Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property Land Property Total
- ----------------------- -------------------- ------------ ------ ----------- ------ ----------- ------ ----------- ------
Maralago Cay Lantana FL 21,600 5,325 15,420 0 3,073 5,325 18,493 23,818
Barrington Hills Port Richey FL 3,220 1,145 3,437 0 0 1,145 3,437 4,582
Bay Indies Venice FL 43,662 10,483 31,559 10 3,482 10,493 35,041 45,534
Bay Lake Estates Nokomis FL 3,807 990 3,390 0 951 990 4,341 5,331
Breezy Hill Pompano Beach FL 10,065 5,510 16,555 0 112 5,510 16,667 22,177
Buccaneer N. Ft. Myers FL 14,140 4,207 14,410 0 1,183 4,207 15,593 19,800
Bulow Village Resort Flagler Beach FL 0 0 228 0 56 0 284 284
Bulow Village Flagler Beach FL 10,268 3,637 949 0 5,458 3,637 6,407 10,044
Carefree Cove Fort Lauderdale FL 4,777 1,741 5,170 0 79 1,741 5,249 6,990
Carriage Cove Daytona Beach FL 8,010 2,914 8,682 0 788 2,914 9,470 12,384
Coachwood Leesburg FL 4,238 1,607 4,822 0 19 1,607 4,841 6,448
Coral Cay Margate FL 20,874 5,890 20,211 0 3,129 5,890 23,340 29,230
Coquina St Augustine FL 0 5,286 5,545 0 8,856 5,286 14,401 19,687
Meadows at Countrywood Plant City FL 18,273 4,514 13,175 0 3,869 4,514 17,044 21,558
Country Place New Port Richey FL 8,346 663 0 18 7,106 681 7,106 7,787
Country Side North Vero Beach FL 17,328 3,711 11,133 0 1,663 3,711 12,796 16,507
Crystal Isles Crystal River FL 2,832 926 2,787 0 5 926 2,792 3,718
Down Yonder Largo FL 7,707 2,652 7,981 0 69 2,652 8,050 10,702
East Bay Oaks Largo FL 5,493 1,240 3,322 0 563 1,240 3,885 5,125
Eldorado Village Largo FL 3,946 778 2,341 0 563 778 2,904 3,682
Fort Myers Beach Resort Fort Myers Beach FL 4,428 1,493 4,480 0 1 1,493 4,481 5,974
Glen Ellen Clearwater FL 2,395 627 1,882 0 26 627 1,908 2,535
Grand Island Grand Island FL 0 1,723 5,208 125 2,606 1,848 7,814 9,662
Gulf Air Resort Fort Myers Beach FL 4,021 1,609 4,830 0 13 1,609 4,843 6,452
Gulf View Punta Gorda FL 1,698 717 2,158 0 3 717 2,161 2,878
Hacienda Village New Port Richey FL 9,842 4,362 13,088 0 454 4,362 13,542 17,904
Harbor Lakes Port Charlotte FL 8,997 3,384 10,154 0 17 3,384 10,171 13,555
Harbor View New Port Richey FL 7,932 4,045 12,146 0 54 4,045 12,200 16,245
Heritage Village Vero Beach FL 13,520 2,403 7,259 0 690 2,403 7,949 10,352
Highland Wood Pompano Beach FL 2,358 1,043 3,130 0 10 1,043 3,140 4,183
Hillcrest Clearwater FL 4,236 1,278 3,928 0 750 1,278 4,678 5,956
Holiday Ranch Largo FL 3,785 925 2,866 0 227 925 3,093 4,018
Holiday Village FL Vero Beach FL 0 350 1,374 0 139 350 1,513 1,863
Holiday Village Ormond Beach FL 6,972 2,610 7,837 0 121 2,610 7,958 10,568
Indian Oaks Rockledge FL 4,389 1,089 3,376 0 728 1,089 4,104 5,193
Lake Fairways N. Ft. Myers FL 30,460 6,075 18,134 35 1,443 6,110 19,577 25,687
Accumulated Date of
Real Estate Depreciation Acquisition
- ----------------------- ------------- -----------
Maralago Cay (4,258) 1997
Barrington Hills (105) 2004
Bay Indies (12,148) 1994
Bay Lake Estates (1,455) 1994
Breezy Hill (1,294) 2002
Buccaneer (5,350) 1994
Bulow Village Resort (51) 2001
Bulow Village (1,391) 1994
Carefree Cove (119) 2004
Carriage Cove (2,292) 1998
Coachwood (148) 2004
Coral Cay (7,538) 1994
Coquina (1,571) 1999
Meadows at Countrywood (3,540) 1998
Country Place (2,834) 1986
Country Side North (3,154) 1998
Crystal Isles (85) 2004
Down Yonder (631) 1998
East Bay Oaks (2,579) 1983
Eldorado Village (1,850) 1983
Fort Myers Beach Resort (137) 2004
Glen Ellen (135) 2002
Grand Island (868) 2001
Gulf Air Resort (148) 2004
Gulf View (66) 2004
Hacienda Village (922) 2002
Harbor Lakes (310) 2004
Harbor View (954) 2002
Heritage Village (2,769) 1994
Highland Wood (243) 2002
Hillcrest (1,195) 1998
Holiday Ranch (747) 1998
Holiday Village FL (389) 1998
Holiday Village (621) 2002
Indian Oaks (1,051) 1998
Lake Fairways (6,537) 1994
S-4
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/04
------------------ ----------------- -------------------------
Depreciable Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property Land Property Total
- ------------------------- ----------------------- ------------- ----- ----------- ----- ----------- ----- ----------- -------
Lake Haven Dunedin FL 8,109 1,135 4,047 0 2,384 1,135 6,431 7,566
Lake Magic Orlando FL 2,818 1,595 4,793 0 45 1,595 4,838 6,433
Lakewood Village Melbourne FL 9,818 1,862 5,627 0 716 1,862 6,343 8,205
Lazy Lakes Florida Keys FL 2,048 816 2,449 0 3 816 2,452 3,268
Lighthouse Pointe Port Orange FL 12,535 2,446 7,483 23 894 2,469 8,377 10,846
Manatee Sarasota North FL 5,244 2,300 6,903 0 20 2,300 6,923 9,223
Mid-Florida Lakes Leesburg FL 22,639 5,997 20,635 0 5,070 5,997 25,705 31,702
Oak Bend Ocala FL 5,772 850 2,572 0 866 850 3,438 4,288
Park City West Fort Lauderdale FL 7,613 4,187 12,561 0 11 4,187 12,572 16,759
Pasco Tampa North FL 3,072 1,494 4,484 0 2 1,494 4,486 5,980
Pickwick Port Orange FL 10,280 2,803 8,870 0 490 2,803 9,360 12,163
Pine Lakes N. Ft. Myers FL 31,055 6,306 14,579 21 5,447 6,327 20,026 26,353
Pioneer Village N. Ft. Myers FL 10,379 4,116 12,353 0 39 4,116 12,392 16,508
Royal Coachman Nokomis FL 15,140 5,321 15,978 0 19 5,321 15,997 21,318
Shangri La Largo FL 4,496 1,730 5,200 0 36 1,730 5,236 6,966
Sherwood Forest Kissimmee FL 27,103 4,852 14,596 0 3,775 4,852 18,371 23,223
Sherwood Forest Resort Kissimmee FL 0 2,870 3,621 568 1,409 3,438 5,030 8,468
Silk Oak Clearwater FL 3,771 1,670 5,028 0 65 1,670 5,093 6,763
Silver Dollar Odessa FL 9,171 4,107 12,431 0 67 4,107 12,498 16,605
Sixth Ave. Zephryhills FL 2,260 839 2,518 0 8 839 2,526 3,365
Southernaire Mt. Dora FL 2,092 798 2,395 0 10 798 2,405 3,203
Southern Palms Eustis FL 5,652 2,169 5,884 0 1,531 2,169 7,415 9,584
Spanish Oaks Ocala FL 7,008 2,250 6,922 0 877 2,250 7,799 10,049
Sunshine Key Florida Keys FL 16,522 5,273 15,822 0 23 5,273 15,845 21,118
Sunshine Holiday Daytona Beach FL 6,667 2,001 6,004 0 15 2,001 6,019 8,020
Sunshine Holiday RV & MHP Fort Lauderdale FL 8,509 3,099 9,286 0 18 3,099 9,304 12,403
Sunshine Travel Vero Beach FL 4,404 1,603 4,813 0 31 1,603 4,844 6,447
Oaks at Countrywood Plant City FL 1,300 1,111 2,513 -265 1,475 846 3,988 4,834
Terra Ceia Palmetto FL 2,528 967 2,905 0 15 967 2,920 3,887
The Heritage N. Ft. Myers FL 9,663 1,438 4,371 346 3,317 1,784 7,688 9,472
The Lakes at Countrywood Plant City FL 9,712 2,377 7,085 0 862 2,377 7,947 10,324
The Meadows, FL Palm Beach Gardens FL 6,049 3,229 9,870 0 1,145 3,229 11,015 14,244
Toby's Arcadia FL 3,391 1,093 3,280 0 17 1,093 3,297 4,390
Topics RV Spring Hill FL 2,235 853 2,568 0 2 853 2,570 3,423
Tropical Palms Kissimmee FL 19,595 5,677 17,071 0 127 5,677 17,198 22,875
Vacation Village St. Petersburg FL 2,528 1,315 3,946 0 3 1,315 3,949 5,264
Accumulated Date of
Real Estate Depreciation Acquisition
- ------------------------- ------------ -----------
Lake Haven (3,292) 1983
Lake Magic (146) 2004
Lakewood Village (2,212) 1994
Lazy Lakes (75) 2004
Lighthouse Pointe (2,033) 1998
Manatee (211) 2004
Mid-Florida Lakes (8,117) 1994
Oak Bend (1,243) 1993
Park City West (384) 2004
Pasco (137) 2004
Pickwick (2,160) 1998
Pine Lakes (6,580) 1994
Pioneer Village (377) 2004
Royal Coachman (488) 2004
Shangri La (159) 2004
Sherwood Forest (4,055) 1998
Sherwood Forest Resort (1,101) 1998
Silk Oak (355) 2002
Silver Dollar (376) 2004
Sixth Ave. (91) 2004
Southernaire (74) 2004
Southern Palms (1,690) 1998
Spanish Oaks (2,834) 1993
Sunshine Key (483) 2004
Sunshine Holiday (183) 2004
Sunshine Holiday RV & MHP (180) 2004
Sunshine Travel (147) 2004
Oaks at Countrywood (698) 1998
Terra Ceia (90) 2004
The Heritage (2,475) 1993
The Lakes at Countrywood (1,049) 2001
The Meadows, FL (2,089) 1999
Toby's (120) 2003
Topics RV (79) 2004
Tropical Palms (500) 2004
Vacation Village (121) 2004
S-5
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/04
------------------ ----------------- -------------------------
Depreciable Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property Land Property Total
- ------------------------------ ----------------- ------------ ----- ----------- ---- ----------- ----- ----------- ------
Windmill Manor Bradenton FL 7,958 2,153 6,125 0 1,137 2,153 7,262 9,415
Windmill Village - Ft. Myers N. Ft. Myers FL 8,700 1,417 5,440 0 1,260 1,417 6,700 8,117
Winds of St. Armands North
(fka Windmill North) Sarasota FL 8,842 1,523 5,063 0 1,663 1,523 6,726 8,249
Winds of St. Armands South
(fka Windmill South) Sarasota FL 5,464 1,106 3,162 0 830 1,106 3,992 5,098
Five Seasons Cedar Rapids IA 0 1,053 3,436 0 679 1,053 4,115 5,168
Holiday Village, IA Sioux City IA 0 313 3,744 0 520 313 4,264 4,577
Golf Vistas Monee IL 14,577 2,843 4,719 0 5,948 2,843 10,667 13,510
O'Connell's Amboy IL 4,955 1,658 4,974 0 148 1,658 5,122 6,780
Willow Lake Estates Elgin IL 22,129 6,138 21,033 0 3,816 6,138 24,849 30,987
Forest Oaks (fka Burns Harbor) Chesterton IN 0 916 2,909 0 1,740 916 4,649 5,565
Lakeside New Carlisle IN 0 426 1,281 0 12 426 1,293 1,719
Oak Tree Village Portage IN 4,476 0 0 569 3,607 569 3,607 4,176
Windsong Indianapolis IN 0 1,482 4,480 0 192 1,482 4,672 6,154
Creekside Wyoming MI 3,760 1,109 3,646 0 113 1,109 3,759 4,868
Casa Village Billings MT 11,040 1,011 3,109 157 3,471 1,168 6,580 7,748
Waterway RV Resort Cedar Point NC 6,226 2,392 7,185 0 3 2,392 7,188 9,580
Goose Creek Resort Newport NC 12,491 4,612 13,848 0 814 4,612 14,662 19,274
Twin Lakes Chocowinity NC 3,739 1,719 3,361 0 19 1,719 3,380 5,099
Del Rey Albuquerque NM 0 1,926 5,800 0 727 1,926 6,527 8,453
Bonanza Las Vegas NV 4,861 908 2,643 0 984 908 3,627 4,535
Boulder Cascade Las Vegas NV 8,871 2,995 9,020 0 1,136 2,995 10,156 13,151
Cabana Las Vegas NV 9,245 2,648 7,989 0 301 2,648 8,290 10,938
Flamingo West Las Vegas NV 10,647 1,730 5,266 0 1,273 1,730 6,539 8,269
Villa Borega Las Vegas NV 7,011 2,896 8,774 0 592 2,896 9,366 12,262
Greenwood Village Manorville NY 17,468 3,667 9,414 484 3,542 4,151 12,956 17,107
Falcon Wood Village Eugene OR 5,200 1,112 3,426 0 213 1,112 3,639 4,751
Quail Hollow Fairview OR 0 0 3,249 0 226 0 3,475 3,475
Shadowbrook Clackamas OR 6,320 1,197 3,693 0 165 1,197 3,858 5,055
Mt. Hood Village Welches OR 0 1,817 5,733 0 (302) 1,817 5,431 7,248
Green Acres Breinigsville PA 13,908 2,680 7,479 0 2,817 2,680 10,296 12,976
Spring Gulch New Holland PA 4,819 1,593 4,795 0 6 1,593 4,801 6,394
Country Sunshine Weslaco TX 2,266 627 1,881 0 5 627 1,886 2,513
Fun n Sun San Benito TX 0 2,533 0 417 9,828 2,950 9,828 12,778
Lakewood Harlingen TX 1,227 325 979 0 2 325 981 1,306
Accumulated Date of
Real Estate Depreciation Acquisition
- ----------------------------- ------------ -----------
Windmill Manor (1,603) 1998
Windmill Village - Ft. Myers (4,379) 1983
Winds of St. Armands North
(fka Windmill North) (3,936) 1983
Winds of St. Armands South
(fka Windmill South) (2,443) 1983
Five Seasons (1,222) 1998
Holiday Village, IA (2,553) 1986
Golf Vistas (2,126) 1997
O'Connell's (173) 2004
Willow Lake Estates (8,048) 1994
Forest Oaks (fka Burns Harbor) (1,912) 1993
Lakeside (40) 2004
Oak Tree Village (1,772) 1987
Windsong (1,278) 1998
Creekside (896) 1998
Casa Village (3,130) 1983
Waterway RV Resort (221) 2004
Goose Creek Resort (437) 2004
Twin Lakes (105) 2004
Del Rey (2,602) 1993
Bonanza (2,238) 1983
Boulder Cascade (2,315) 1998
Cabana (2,936) 1994
Flamingo West (2,092) 1994
Villa Borega (2,266) 1997
Greenwood Village (2,609) 1998
Falcon Wood Village (902) 1997
Quail Hollow (861) 1997
Shadowbrook (1,004) 1997
Mt. Hood Village (564) 2002
Green Acres (5,077) 1988
Spring Gulch (163) 2004
Country Sunshine (57) 2004
Fun n Sun (2,123) 1998
Lakewood (30) 2004
S-6
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to Gross Amount Carried
Initial Cost to Acquisition at Close of
Company (Improvements) Period 12/31/04
--------------------- ------------------ --------------------------------
Depreciable Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property Land Property Total
- -------------------- -------------------- ------------ -------- ----------- ------ ----------- -------- ----------- ----------
Paradise Park Rio Grande Valley TX 5,430 1,568 4,705 0 4 1,568 4,709 6,277
Paradise South Mercedes TX 1,619 448 1,345 0 5 448 1,350 1,798
Southern Comfort Weslaco TX 2,590 1,108 3,323 0 2 1,108 3,325 4,433
Sunshine RV Harlingen TX 4,792 1,494 4,484 0 3 1,494 4,487 5,981
Tropic Winds Harlingen TX 0 1,221 3,809 0 101 1,221 3,910 5,131
All Seasons Salt Lake City UT 3,491 510 1,623 0 211 510 1,834 2,344
Westwood Village Farr West UT 7,493 1,346 4,179 0 1,163 1,346 5,342 6,688
Meadows of Chantilly Chantilly VA 27,494 5,430 16,440 0 3,781 5,430 20,221 25,651
Kloshe Illahee Federal Way WA 6,084 2,408 7,286 0 277 2,408 7,563 9,971
Caledonia Caledonia WI 0 376 1,127 0 0 376 1,127 1,503
Freemont Freemont WI 4,300 1,432 4,296 0 0 1,432 4,296 5,728
Yukon Trails Lyndon Station WI 0 547 1,629 0 13 547 1,642 2,189
Thousand Trails 0 48,537 113,253 0 0 48,537 113,253 161,790
Realty Systems, Inc. 0 0 0 0 4,632 0 4,632 4,632
Management Business 0 0 436 0 9,424 0 9,860 9,860
------------ -------- ----------- ------ ----------- -------- ----------- ----------
1,417,251 $466,556 $ 1,361,519 $4,031 $ 203,684 $470,587 $ 1,565,203 $2,035,790
============ ======== =========== ====== =========== ======== =========== ==========
Accumulated Date of
Real Estate Depreciation Acquisition
- -------------------- ------------ -----------
Paradise Park (144) 2004
Paradise South (41) 2004
Southern Comfort (102) 2004
Sunshine RV (137) 2004
Tropic Winds (329) 2002
All Seasons (491) 1997
Westwood Village (1,369) 1997
Meadows of Chantilly (6,764) 1994
Kloshe Illahee (1,846) 1997
Caledonia 0 2004
Freemont 0 2004
Yukon Trails (10) 2004
Thousand Trails (629) 2004
Realty Systems, Inc. (2) 2002
Management Business (10,359) 1990
---------
($322,867)
=========
NOTES:
(1) For depreciable property, the Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen
year estimated life for building upgrades and a three-to-seven year
estimated life for furniture and fixtures.
(2) The schedule excludes 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 $21.3 million as of December 31, 2004.
(4) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $2.0 billion, as of December 31, 2004.
(5) All Properties were acquired, except for Country Place Village, which was
constructed.
S-7
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31, 2004, 2003 and
2002 were as follows:
2004 2003 2002
---------- ---------- ----------
Balance, beginning of year................ $1,309,705 $1,296,007 $1,238,138
Acquisitions (1)...................... 702,538 12,116 107,138
Improvements.......................... 27,082 15,569 24,491
Dispositions and other................ (3,535) (13,987) (73,760)
---------- ---------- ----------
Balance, end of year...................... $2,035,790 $1,309,705 $1,296,007
========== ========== ==========
(1) Acquisitions for the year ended December 31, 2004 include the non-cash
assumption by the Company of $347 million of mortgage debt.
The changes in accumulated depreciation for the years ended December 31, 2004,
2003 and 2002 were as follows:
2004 2003 2002
-------- -------- --------
Balance, beginning of year................ $272,497 $238,098 $211,878
Depreciation expense.................. 51,703 39,409 37,188
Dispositions and other................ (1,333) (5,010) (10,968)
-------- -------- --------
Balance, end of year...................... $322,867 $272,497 $238,098
======== ======== ========
S-8
