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

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 Identification
incorporation or organization)				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)

     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 (see General Instruction A.2. below):

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02 Results of Operations and Financial Condition

     On July 20, 2009, Equity LifeStyle Properties, Inc. (the “Company”) issued a news release announcing its results of operations for the quarter and six months ended June 30, 2009. The information is furnished as Exhibit 99.1 to this report on Form 8-K. The information contained in this report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by Equity LifeStyle Properties, Inc. under the Securities Act of 1933, as amended.

     The Company preliminarily projects its net income per share (fully diluted) and funds from operations per share (fully diluted) for the year ending December 31, 2009 to be $0.83 — $1.03 and $3.33 — $3.53, respectively. The Company preliminarily projects its net income per share (fully diluted) and funds from operations per share (fully diluted) for the quarter ending September 30, 2009 to be $0.15 — $0.25 and $0.73 — $0.83, respectively.

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

	•		our ability to control costs, real estate market conditions, the actual rate of decline in customers, the actual use of sites by customers and our success in acquiring new customers at our Properties (including those recently acquired);
	•		our ability to maintain historical rental rates and occupancy with respect to Properties currently owned or that we may acquire;
	•		our assumptions about rental and home sales markets;
	•		in the age-qualified Properties, home sales results could be impacted by the ability of potential homebuyers to sell their existing residences as well as by financial, credit and capital markets volatility;
	•		in the all-age Properties, 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;
	•		the completion of future acquisitions, if any, and timing with respect thereto and the effective integration and successful realization of cost savings;
	•		ability to obtain financing or refinance existing debt on favorable terms or at all;
	•		the effect of interest rates;
	•		the dilutive effects of issuing additional common stock;
	•		the effect of accounting for the sale of agreements to customers representing a right-to-use the Properties previously leased by Privileged Access under Staff Accounting Bulletin No. 104, Revenue Recognition in Consolidated Financial Statements, Corrected; and
	•		other risks indicated from time to time in our filings with the Securities and Exchange Commission.

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

Item 9.01 Financial Statements and Exhibits

     (e) Exhibits

     The information contained in the attached exhibit is unaudited and should be read in conjunction with the Registrant’s annual and quarterly reports filed with the Securities and Exchange Commission.

Exhibit 99.1

Equity LifeStyle Properties, Inc. press release dated July 20, 2009, “ELS Reports Second Quarter Results”

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 21, 2009

Exhibit 99.1

News Release

CONTACT: Michael Berman		FOR IMMEDIATE RELEASE
(312) 279-1496		July 20, 2009

ELS REPORTS SECOND QUARTER RESULTS
Stable Core Performance

          CHICAGO, IL — July 20, 2009 — Equity LifeStyle Properties, Inc. (NYSE: ELS) (the “Company”) today announced results for the quarter and six months ended June 30, 2009.

     a) Financial Results

          For the second quarter 2009, Funds From Operations (“FFO”) were $23.7 million, or $0.77 per share on a fully-diluted basis, compared to $21.7 million, or $0.71 per share on a fully-diluted basis for the same period in 2008. For the six months ended June 30, 2009, FFO was $61.6 million, or $2.01 per share on a fully-diluted basis, compared to $54.3 million, or $1.78 per share on a fully-diluted basis for the same period in 2008.

          Net income available to common stockholders totaled $2.9 million, or $0.11 per share on a fully-diluted basis for the quarter ended June 30, 2009. This compares to net income available to common stockholders of $4.1 million, or $0.17 per share on a fully-diluted basis for the same period in 2008. Net income available to common stockholders totaled $16.5 million, or $0.65 per share on a fully-diluted basis for the six months ended June 30, 2009. This compares to net income available to common stockholders of $16.8 million, or $0.68 per share on a fully-diluted basis for the same period in 2008.

          Due to our August 14, 2008 acquisition of Privileged Access, L.P. (“Privileged Access”), the results for the quarter and six months ended June 30, 2009 also include: 1) $5.3 million and $10.4 million, respectively, of net deferrals of non-refundable upfront payments from the sale of right-to-use contracts which are amortized over the estimated customer life and 2) $1.6 million and $3.1 million, respectively, of net deferrals of commissions paid on the sale of right-to use contracts which are also amortized on the same method as the deferred sales revenue. The net deferral for the quarter and six months ended June 30, 2009 is approximately $3.6 million and $7.3 million, respectively or $0.12 and $0.24, respectively of net income per common share on a fully-diluted basis.

          See the attachment to this press release for reconciliation of FFO and FFO per share to net income available to common shares and net income per common share, respectively, the most directly comparable GAAP measure.

     b) Portfolio Performance

          Second quarter 2009 property operating revenues were $116.1 million, compared to $94.3 million in the second quarter of 2008. Our property operating revenues for the six months ended June 30, 2009 were $240.4 million, compared to $200.7 million for the six months ended June 30, 2008.

          For the quarter ended June 30, 2009, our Core property operating revenues increased approximately 3.2 percent and Core property operating expenses decreased approximately 2.4 percent, resulting in an increase of

approximately 8.4 percent to income from Core property operations over the quarter ended June 30, 2008. For the six months ended June 30, 2009, our Core property operating revenues increased approximately 2.7 percent and Core property operating expenses decreased approximately 1.6 percent, resulting in an increase to income from Core property operations of approximately 6.2 percent over the six months ended June 30, 2008.

          For the quarter ended June 30, 2009, the Company had 21 new home sales (including three third-party dealer sales), which represents an 81.3 percent decrease as compared to the quarter ended June 30, 2008. Gross revenues from home sales were $1.7 million for the quarter ended June 30, 2009, compared to $6.8 million for the quarter ended June 30, 2008. Net income from home sales and other was $0.1 million for the quarter ended June 30, 2009, compared to a net loss from home sales and other of ($1.7) million for the same period in 2008. For the six months ended June 30, 2009, the Company had 41 new home sales (including six third-party dealer sales), an 82.6 percent decrease over the same period in 2008. Gross revenues from home sales were $2.9 million for the six months ended June 30, 2009, compared to $13.0 million for the same period in 2008. Net loss from home sales and other was ($0.6) million for the six months ended June 30, 2009 compared to a net loss from home sales and other of ($2.0) million for the six months ended June 30, 2008.

          Property management expenses were $7.7 million for the quarter ended June 30, 2009, compared to $5.2 million for the same period last year. A significant portion of the increase in property management expenses was due to the acquisition and consolidation of Privileged Access and the 82 Company properties that Privileged Access had been leasing and operating prior to the Company’s acquisition of Privileged Access on August 14, 2008.

     c) Asset-related Transactions

          During the quarter ended June 30, 2009, the Company sold the 247-site property known as Caledonia in Caledonia, Wisconsin for approximately $2.2 million. A gain on sale of approximately $0.8 million was recognized and is included in Income from other investments, net.

          The Company currently has two all-age properties held for disposition, which are in various stages of negotiations for sale.

     d) Balance Sheet

          Our average long-term secured debt balance was approximately $1.6 billion in the quarter, with a weighted average interest rate, including amortization, of approximately 6.17 percent per annum. Our unsecured debt balance currently has an availability of $370 million. Interest coverage was approximately 2.2 times in the quarter ended June 30, 2009.

          In July 2009, the Company closed on approximately $10 million of financing on one manufactured home property at a stated interest rate of 6.53 percent per annum, maturing in 2019. The Company also paid off seven maturing mortgages totaling approximately $19 million, with a weighted average interest rate of 9.07 percent per annum.

          The Company has approximately $29 million of secured mortgage debt that matures in the remainder of 2009 and approximately $213 million in 2010.

     e) Guidance

          ELS management projects 2009 FFO per share, on a fully-diluted basis, to be in the range of $3.33 to $3.53 for the year ended December 31, 2009 and in the range of $0.73 to $0.83 for the quarter ending September 30, 2009. The Company estimates 2009 core property operating revenue will grow between 2.5 and

3.0 percent over 2008 and income from Core property operations, excluding property management expenses, is expected to grow from approximately 4.0 to 4.5 percent over 2008.

          Guidance for 2009 net income per common share, on a fully-diluted basis, is projected to be in the range of $0.83 to $1.03 for the year ending December 31, 2009 and in the range of $0.15 to $0.25 for the quarter ending September 30, 2009. The Company’s guidance ranges reflect the issuance of 4.6 million common shares on June 29, 2009 which generated net cash proceeds of approximately $146.9 million. The proceeds are currently held in short-term treasury investments.

          The Company’s guidance range for 2009 acknowledges the existence of volatile economic conditions, which may impact our current guidance assumptions. Factors impacting 2009 guidance include (i) the mix of site usage within the portfolio; (ii) yield management on our short-term resort sites; (iii) scheduled or implemented rate increases on community and resort sites; (iv) scheduled or implemented rate increases of annual payments under right-to-use contracts; (v) occupancy changes; and (vi) our ability to retain and attract customers renewing or purchasing right-to-use contracts. Results for 2009 also may be impacted by, among other things, (i) continued competitive housing options and new home sales initiatives impacting occupancy levels at certain properties; (ii) variability in income from home sales operations, including anticipated expansion projects; (iii) potential effects of uncontrollable factors such as environmental remediation costs and hurricanes; (iv) potential acquisitions, investments and dispositions; (v) mortgage debt maturing during 2009; (vi) changes in interest rates; and (vii) continued initiatives regarding rent control legislation in California and related legal fees. Quarter-to-quarter results during the year are impacted by the seasonality at certain of the properties.

          Equity LifeStyle Properties, Inc. owns or has an interest in 308 quality properties in 28 states and British Columbia consisting of 110,852 sites. The Company is a self-administered, self-managed, real estate investment trust (REIT) with headquarters in Chicago.

          A live webcast of Equity LifeStyle Properties, Inc.’s conference call discussing these results will be available via the Company’s website in the Investor Info section at www.equitylifestyle.com at 10:00 a.m. Central time on July 21, 2009.

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

	•		our ability to control costs, real estate market conditions, the actual rate of decline in customers, the actual use of sites by customers and our success in acquiring new customers at our Properties (including those recently acquired);
	•		our ability to maintain historical rental rates and occupancy with respect to Properties currently owned or that we may acquire;
	•		our assumptions about rental and home sales markets;
	•		in the age-qualified Properties, home sales results could be impacted by the ability of potential homebuyers to sell their existing residences as well as by financial, credit and capital markets volatility;

	•		in the all-age Properties, 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;
	•		the completion of future acquisitions, if any, and timing with respect thereto and the effective integration and successful realization of cost savings;
	•		ability to obtain financing or refinance existing debt on favorable terms or at all;
	•		the effect of interest rates;
	•		the dilutive effects of issuing additional common stock;
	•		the effect of accounting for the sale of agreements to customers representing a right-to-use the Properties previously leased by Privileged Access under Staff Accounting Bulletin No. 104, Revenue Recognition in Consolidated Financial Statements, Corrected; and
	•		other risks indicated from time to time in our filings with the Securities and Exchange Commission.

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

          Tables follow:

Equity LifeStyle Properties, Inc.
Selected Financial Data
(Unaudited)
(Amounts in thousands except for per share data)

		Quarters Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008
Property Operations:
Community base rental income		$	63,318			$	61,430			$	126,502			$	122,464
Resort base rental income			27,747				23,033				63,205				57,630
Right-to-use annual payments			12,702				—				25,597				—
Right-to-use contracts current period, gross			5,869				—				11,446				—
Right-to-use contracts current period, deferred, net of prior period amortization			(5,271	)			—				(10,434	)			—
Utility and other income			11,720				9,859				24,124				20,650
Property operating revenues			116,085				94,322				240,440				200,744
Property operating and maintenance			45,565				33,930				87,569				67,699
Real estate taxes			8,235				7,478				16,691				14,918
Sales and marketing, gross			3,672				—				6,744				—
Sales and marketing, deferred commissions, net			(1,632	)			—				(3,125	)			—
Property management			7,730				5,243				16,434				10,537
Property operating expenses			63,570				46,651				124,313				93,154
Income from property operations			52,515				47,671				116,127				107,590
Home Sales Operations:
Gross revenues from inventory home sales			1,737				6,799				2,948				12,994
Cost of inventory home sales			(1,647	)			(6,859	)			(3,764	)			(13,609	)
Gross profit (loss) from inventory home sales			90				(60	)			(816	)			(615	)
Brokered resale revenues, net			199				301				385				668
Home selling expenses			(640	)			(1,635	)			(1,712	)			(3,148	)
Ancillary services revenues, net			418				(327	)			1,574				1,121
Income (loss) from home sales and other			67				(1,721	)			(569	)			(1,974	)
Other Income and Expenses:
Interest income			1,223				294				2,606				681
Income from other investments, net			1,866				6,705				4,389				13,615
General and administrative			(6,216	)			(4,834	)			(12,373	)			(10,233	)
Rent control initiatives			(169	)			(518	)			(315	)			(1,865	)
Interest and related amortization			(25,026	)			(24,690	)			(49,576	)			(49,674	)
Depreciation on corporate assets			(234	)			(84	)			(402	)			(182	)
Depreciation on real estate and other costs			(17,143	)			(16,258	)			(34,542	)			(32,532	)
Total other expenses, net			(45,699	)			(39,385	)			(90,213	)			(80,190	)
Equity in income of unconsolidated joint ventures			475				2,499				2,378				3,383
Consolidated income from continuing operations			7,358				9,064				27,723				28,809
Discontinued operations:
Discontinued operations			87				88				213				145
Gain (loss) on sale from discontinued real estate			—				(39	)			(20	)			(80	)
Income from discontinued operations			87				49				193				65
Consolidated net income		$	7,445			$	9,113			$	27,916			$	28,874
Income allocated to non-controlling interests:
Common OP Units			(501	)			(964	)			(3,295	)			(3,968	)
Perpetual OP Units			(4,040	)			(4,040	)			(8,073	)			(8,072	)
Net income available for Common Shares		$	2,904			$	4,109			$	16,548			$	16,834
Net income per Common Share — Basic		$	0.12			$	0.17			$	0.66			$	0.69
Net income per Common Share — Fully Diluted		$	0.11			$	0.17			$	0.65			$	0.68
Average Common Shares — Basic			25,163				24,370				25,055				24,285
Average Common Shares and OP Units — Basic			30,327				30,147				30,267				30,087
Average Common Shares and OP Units — Fully Diluted			30,693				30,540				30,609				30,478

Equity LifeStyle Properties, Inc.
(Unaudited)

		Quarters Ended								Six Months Ended
Reconciliation of Net Income to FFO and FAD		June 30,				June 30,				June 30,				June 30,
(amounts in 000s, except for per share data)		2009				2008				2009				2008
Computation of funds from operations:
Net income		$	2,904			$	4,109			$	16,548			$	16,834
Income allocated to common OP Units			501				964				3,295				3,968
Right-to-use contract sales, deferred, net (1)			5,271				—				10,434				—
Right-to-use contract commissions, deferred, net(2)			(1,632	)			—				(3,125	)			—
Depreciation on real estate assets and other			17,143				16,258				34,542				32,532
Depreciation on unconsolidated joint ventures			314				311				640				903
(Gain) loss on the sale of property			(803	)			39				(783	)			80
Funds from operations (FFO)		$	23,698			$	21,681			$	61,551			$	54,317
Non-revenue producing improvements to real estate			(4,861	)			(3,201	)			(8,460	)			(5,288	)
Funds available for distribution (FAD)		$	18,837			$	18,480			$	53,091			$	49,029
FFO per Common Share — Basic		$	0.78			$	0.72			$	2.03			$	1.81
FFO per Common Share — Fully Diluted		$	0.77			$	0.71			$	2.01			$	1.78
FAD per Common Share — Basic		$	0.62			$	0.61			$	1.75			$	1.63
FAD per Common Share — Fully Diluted		$	0.61			$	0.61			$	1.73			$	1.61

Income from Property Operations Detail
(Amounts in thousands)

		Equity LifeStyle								Privileged Access								Consolidated
		Quarters Ended								Quarters Ended								Quarters Ended
		June 30,				June 30,				June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008				2009				2008
Community base rental income		$	63,318			$	61,430			$	—			$	—			$	63,318			$	61,430
Resort base rental income			23,519				23,033				4,228				—				27,747				23,033
Right-to-use annual payments			—				—				12,702				—				12,702				—
Right-to-use contracts current period, gross			—				—				5,869				—				5,869				—
Utility and other income			10,322				9,859				1,398				—				11,720				9,859
Property operating revenues excluding deferrals			97,159				94,322				24,197				—				121,356				94,322
Property operating and maintenance			33,050				33,930				12,515				—				45,565				33,930
Real estate taxes			7,370				7,478				865				—				8,235				7,478
Sales and marketing, gross			—				—				3,672				—				3,672				—
Property operating expenses excluding deferrals			40,420				41,408				17,052				—				57,472				41,408
Income from property operations, excluding deferrals and Property management			56,739				52,914				7,145				—				63,884				52,914
Right-to-use contract sales deferred, net			—				—				(5,271	)			—				(5,271	)			—
Right-to-use contract commissions deferred net			—				—				1,632				—				1,632				—
Income from property operations, excluding Property management			56,739				52,914				3,506				—				60,245				52,914
Property management																			7,730				5,243
Income from property operations																		$	52,515			$	47,671

Equity LifeStyle Properties, Inc.
(Unaudited)

Income from Property Operations Detail
(Amounts in thousands)

		Equity LifeStyle								Privileged Access								Consolidated
		Six Months Ended								Six Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008				2009				2008
Community base rental income		$	126,502			$	122,464			$	—			$	—			$	126,502			$	122,464
Resort base rental income			56,368				57,630				6,837				—				63,205				57,630
Right-to-use annual payments			—				—				25,597				—				25,597				—
Right-to-use contracts current period, gross			—				—				11,446				—				11,446				—
Utility and other income			21,733				20,650				2,391				—				24,124				20,650
Property operating revenues excluding deferrals			204,603				200,744				46,271				—				250,874				200,744
Property operating and maintenance			65,366				67,699				22,203				—				87,569				67,699
Real estate taxes			14,856				14,918				1,835				—				16,691				14,918
Sales and marketing, gross			—				—				6,744				—				6,744				—
Property operating expenses excluding deferrals			80,222				82,617				30,782				—				111,004				82,617
Income from property operations, excluding deferrals and Property management			124,381				118,127				15,489				—				139,870				118,127
Right-to-use contract sales deferred, net			—				—				(10,434	)			—				(10,434	)			—
Right-to-use contract commissions deferred net			—				—				3,125				—				3,125				—
Income from property operations, excluding Property management			124,381				118,127				8,180				—				132,561				118,127
Property management																			16,434				10,537
Income from property operations																		$	116,127			$	107,590

		As of				As of
		June 30,				December 31,
Total Common Shares and OP Units Outstanding:		2009				2008
Total Common Shares Outstanding			29,912,626				25,051,322
Total Common OP Units Outstanding			5,152,131				5,366,741
		June 30,				December 31,
		2009				2008
Selected Balance Sheet Data:		(amounts in 000s)				(amounts in 000s)
Total real estate, net		$	1,933,133			$	1,929,788
Cash and cash equivalents		$	174,151			$	45,312
Total assets		$	2,225,821			$	2,091,647
Mortgage notes payable		$	1,611,021			$	1,569,403
Unsecured debt		$	—			$	93,000
Total liabilities		$	1,775,164			$	1,795,413
Perpetual Preferred OP Units		$	200,000			$	200,000
Total equity		$	250,657			$	96,234

Equity LifeStyle Properties, Inc.
(Unaudited)

Summary of Total Sites as of June 30, 2009:

		Sites
Community sites (1)			44,900
Resort sites:
Annuals			20,700
Seasonal			8,900
Transient			8,900
Membership (2)			24,300
Joint Ventures (3)			3,100
			110,800

		Quarters Ended								Six Months Ended
Manufactured Home Site Figures and		June 30,				June 30,				June 30,				June 30,
Occupancy Averages: (1)		2009				2008				2009				2008
Total Sites			44,231				44,159				44,232				44,159
Occupied Sites			39,939				39,942				39,962				39,957
Occupancy %			90.3	%			90.5	%			90.3	%			90.5	%
Monthly Base Rent Per Site		$	528			$	513			$	528			$	511
Core (2) Monthly Base Rent Per Site		$	528			$	513			$	528			$	511

		Quarters Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
Home Sales: (1) (Dollar amounts in thousands)		2009				2008				2009				2008
New Home Sales Volume (3)			21				112				41				236
New Home Sales Gross Revenues		$	675			$	5,941			$	1,501			$	11,741
Used Home Sales Volume (4)			188				107				255				168
Used Home Sales Gross Revenues		$	1,062			$	858			$	1,447			$	1,253
Brokered Home Resale Volume			163				217				321				457
Brokered Home Resale Revenues, net		$	199			$	301			$	385			$	668

Net Income and FFO per Common Share Guidance		Third Quarter 2009								Full Year 2009
on a fully diluted basis (unaudited):		Low				High				Low				High
Projected net income (1)		$	0.15			$	0.25			$	0.83			$	1.03
Projected depreciation			0.49				0.49				2.12				2.12
Projected gain on sale of property			—				—				(0.02	)			(0.02	)
Projected net deferral of right-to-use sales and commissions			0.09				0.09				0.40				0.40
Projected FFO		$	0.73			$	0.83			$	3.33			$	3.53

Non-GAAP Financial Measures

     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”), is an appropriate measure of performance for an equity REIT. While FFO is a relevant and widely used measure of operating performance for equity REITs, it does not represent cash flow from operations or net income as defined by GAAP, and it should not be considered as an alternative to these indicators in evaluating liquidity or operating performance.

     FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from sales of properties, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. The Company receives up-front non-refundable payments from the sale of right-to-use contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO does not address the treatment of nonrefundable right-to-use payments, the Company believes that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO. The Company believes that FFO is helpful to investors as one of several measures of the performance of an equity REIT. The Company further believes that by excluding the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. The Company believes that the adjustment to FFO for the net revenue deferral of upfront non-refundable payments and expense deferral of right-to-use contract commissions also facilitates the comparison to other equity REITs. Investors should review FFO, along with GAAP net income and cash flow from operating activities, investing activities and financing activities, when evaluating an equity REIT’s operating performance. The Company computes FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. Funds available for distribution (“FAD”) is a non-GAAP financial measure. FAD is defined as FFO less non-revenue producing capital expenditures. Investors should review FFO and FAD, along with GAAP net income and cash flow from operating activities, investing activities and financing activities, when evaluating an equity REIT’s operating performance. FFO and FAD do not represent cash generated from operating activities in accordance with GAAP, nor do they 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.