UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2004 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-11718 EQUITY LIFESTYLE PROPERTIES, INC. (Exact name of registrant as specified in its charter) MARYLAND 36-3857664 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) TWO NORTH RIVERSIDE PLAZA, SUITE 800, 60606 CHICAGO, ILLINOIS (Zip Code) (Address of principal executive offices) (312) 279-1400 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.01 Par Value The New York Stock Exchange (Title of Class) (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. [ ] The aggregate market value of voting stock held by nonaffiliates was approximately $699.2 million as of March 11, 2005 based upon the closing price of $34.80 on such date using beneficial ownership of stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned by Directors and Officers, some of whom may not be held to be affiliates upon judicial determination. At March 11, 2005, 23,172,094 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference the Registrant's Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 10, 2005.
EQUITY LIFESTYLE PROPERTIES, INC. TABLE OF CONTENTS Page ---- PART II. Item 6. Selected Financial Data ............................................................. 3 Item 8. Financial Statements and Supplementary Data ......................................... 6 PART IV. Item 15. Exhibits and Financial Statement Schedules .......................................... 7 EXPLANATORY NOTE This amendment on Form 10-K/A is being filed with respect to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission on March 29, 2005. This Amendment No. 1 includes a signed audit opinion from our independent auditors and a signed Exhibit 23 -- Consent of Independent Registered Public Accounting Firm required by Item 601 of Regulation S-K. These documents previously appeared in our Form 10-K unsigned. This amendment does not contain updates to reflect any events occurring after the original March 29, 2005 filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. 2
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 contained in this Form 10-K/A. The following information should be read in conjunction with all of the financial statements and notes thereto included elsewhere in this Form 10-K/A. EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED HISTORICAL FINANCIAL INFORMATION (Amounts in thousands, except for per share and property data) (1) YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 2003 2002 2001 2004 (Restated) (Restated) (Restated) 2000 --------- ---------- ---------- ---------- ---------- PROPERTY OPERATIONS: Community base rental income ....................... $ 210,790 $ 196,919 $ 194,640 $ 190,982 $185,023 Resort base rental income .......................... 54,845 11,780 9,146 5,748 7,414 Utility and other income ........................... 24,893 20,150 19,684 20,381 19,357 --------- --------- --------- --------- -------- Property operating revenues ..................... 290,528 228,849 223,470 217,111 211,794 Property operating and maintenance ................. 94,955 64,996 62,843 60,807 57,973 Real estate taxes .................................. 23,679 18,917 17,827 16,882 16,407 Property management ................................ 12,852 9,373 9,292 8,984 8,690 --------- --------- --------- --------- -------- Property operating expenses (exclusive of depreciation shown separately below) ...... 131,486 93,286 89,962 86,673 83,070 --------- --------- --------- --------- -------- Income from property operations .............. 159,042 135,563 133,508 130,438 128,724 HOME SALES OPERATIONS: Gross revenues from inventory home sales ........... 47,636 36,606 33,537 -- -- Cost of inventory home sales ....................... (41,833) (31,767) (27,183) -- -- --------- --------- --------- --------- -------- Gross profit from inventory home sales ....... 5,803 4,839 6,354 -- -- Brokered resale revenues, net ...................... 2,186 1,724 1,592 -- -- Home selling expenses .............................. (8,708) (7,360) (7,664) -- -- Ancillary services revenues, net ................... 2,782 216 522 -- -- --------- --------- --------- --------- -------- Income (loss) from home sales operations & other ........................................ 2,063 (581) 804 -- -- OTHER INCOME (EXPENSES): Interest income .................................... 1,391 1,695 967 639 1,009 Equity in income of affiliates ..................... -- -- -- 1,811 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) .............. (91,922) (58,402) (50,729) (51,305) (53,280) Depreciation on corporate assets ................... (1,657) (1,240) (1,277) (1,243) (1,139) Depreciation on real estate assets and other costs ........................................... (48,862) (37,265) (34,826) (33,540) (33,201) --------- --------- --------- --------- -------- Total other income (expenses) ................ (149,230) (104,668) (99,439) (92,300) (90,476) Income before minority interests, equity in income of unconsolidated joint ventures, loss on extinguishment of debt, gain on sale of property and discontinued operations ................................... 11,875 30,314 34,873 38,138 38,248 (Income) allocated to Common OP Units .............. (936) (3,860) (4,708) (7,216) (7,968) (Income) allocated to Perpetual Preferred OP ....... (11,284) (11,252) (11,252) (11,252) (11,252) Units 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 .................. 3,394 15,542 19,148 19,952 19,036 --------- --------- --------- --------- -------- Loss on the extinguishment of debt ................. -- -- -- -- (1,041) Gain on sale of properties and other ............... 638 -- -- 8,168 12,053 --------- --------- --------- --------- -------- Income from continuing operations ............ 4,032 15,542 19,148 28,120 30,048 --------- --------- --------- --------- -------- DISCONTINUED OPERATIONS: Discontinued Operations ............................ 26 1,043 3,287 3,203 3,090 Depreciation on discontinued operations ............ (32) (135) (484) (605) (698) Gain on sale of discontinued properties and other .. -- 10,826 13,014 -- -- Minority interests on discontinued operations ...... -- (2,144) (3,078) (521) (495) --------- --------- --------- --------- -------- Income (loss) from discontinued operations.... (6) 9,590 12,739 2,077 1,897 --------- --------- --------- --------- -------- NET INCOME AVAILABLE FOR COMMON SHARES ....... $ 4,026 $ 25,132 $ 31,887 $ 30,197 $ 31,945 ========= ========= ========= ========= ======== 3
EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED HISTORICAL FINANCIAL INFORMATION (continued) (Amounts in thousands, except for per share and property data) (1) AS OF DECEMBER 31, -------------------------------------------------------------- 2003 2002 2001 2004 (Restated) (Restated) (Restated) 2000 ---------- ---------- ---------- ---------- ---------- EARNINGS PER COMMON SHARE - BASIC: Income from continuing operations ............................ $ 0.18 $ 0.71 $ 0.89 $ 1.34 $ 1.40 Income from discontinued operations .......................... $ 0.00 $ 0.43 $ 0.59 $ 0.10 $ 0.09 Net income available for Common Shares ....................... $ 0.18 $ 1.14 $ 1.48 $ 1.44 $ 1.49 EARNINGS PER COMMON SHARE - FULLY DILUTED: Income from continuing operations ............................ $ 0.17 $ 0.69 $ 0.87 $ 1.31 $ 1.37 Income from discontinued operations .......................... $ 0.00 $ 0.42 $ 0.57 $ 0.09 $ 0.10 Net income available for Common Shares ....................... $ 0.17 $ 1.11 $ 1.44 $ 1.40 $ 1.47 Distributions declared per Common Share outstanding (3) ...... $ 0.05 $ 9.485 $ 1.90 $ 1.78 $ 1.66 Weighted average Common Shares outstanding - basic ........... 22,849 22,077 21,617 21,036 21,469 Weighted average Common OP Units outstanding ................. 6,067 5,342 5,403 5,466 5,592 Weighted average Common Shares outstanding - fully diluted ... 29,465 28,002 27,632 27,010 27,408 BALANCE SHEET DATA: Real estate, before accumulated depreciation (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 this Form 10-K/A) 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. 4
EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED HISTORICAL FINANCIAL INFORMATION (continued) (3) On October 17, 2003, we closed 49 mortgage loans collateralized by 51 Properties (the "Recap") providing total proceeds of approximately $501 million at a weighted average interest rate of 5.84% and with a weighted average maturity of approximately 9 years. Approximately $170 million of the proceeds were used to repay amounts outstanding on the Company's line of credit and term loan. Approximately $225 million was used to pay a special distribution of $8.00 per share on January 16, 2004. The remaining funds were used for investment purposes in 2004. The Recap resulted in increased interest and amortization expense and the special distribution resulted in decreased stockholder's equity. In connection with the $501 million borrowing and subsequent special distribution, on February 27, 2004, the Company contributed all of its assets to MHC Trust, a newly formed Maryland real estate investment trust, including the Company's entire partnership interest in the Operating Partnership. This restructuring resulted in a step-up in the Company's tax basis in its assets, generating future depreciation deductions, which in turn will reduce the Company's future distribution requirements. This provides the Company with greater financial flexibility and greater growth potential (see Note 5 of the Notes to Consolidated Financial Statements contained in this Form 10-K/A). (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. 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. 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. 5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements on page F-1 of this Form 10-K/A. 6
PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES 1. Financial Statements See Index to Financial Statements and Schedules on page F-1 of this Form 10-K/A. 2. Financial Statement Schedules See Index to Financial Statements and Schedules on page F-1 of this Form 10-K/A. 3. Exhibits: 2(a) Admission Agreement between Equity Financial and Management Co., Manufactured Home Communities, Inc. and MHC Operating Partnership. 3.1(g) Amended and Restated Articles of Incorporation of Manufactured Home Communities, Inc. effective May 21, 1999. 3.2(n) Articles of Amendment of Articles of Incorporation of Manufactured Home Communities, Inc., effective May 13, 2003. 3.3(m) Articles of Amendment to Articles of Incorporation of Manufactured Home Communities, Inc., effective November 16, 2004. 3.4(n) Amended Bylaws of Manufactured Home Communities, Inc. dated December 31, 2003. 4 Not applicable 9 Not applicable 10.1(a) Agreement of Limited Partnership of MHC Financing Limited Partnership 10.2(b) Agreement of Limited Partnership of MHC Lending Limited Partnership 10.3(c) Agreement of Limited Partnership of MHC-Bay Indies Financing Limited Partnership 10.4(c) Agreement of Limited Partnership of MHC-De Anza Financing Limited Partnership 10.5(d) Second Amended and Restated MHC Operating Limited Partnership Agreement of Limited Partnership, dated March 15, 1996 10.6(f) Agreement of Limited Partnership of MHC Financing Limited Partnership Two 10.7(a) Revolving Credit Note made by Realty Systems, Inc. to Equity Financial and Management Co. 10.8(a) Assignment to MHC Operating Limited Partnership of Revolving Credit Note made by Realty Systems, Inc. to Equity Financial and Management Co. 10.9(a) Loan and Security Agreement between Realty Systems, Inc. and MHC Operating Limited Partnership 10.10(e) Form of Manufactured Home Communities, Inc. 1997 Non-Qualified Employee Stock Purchase Plan. 10.11(i) Manufactured Home Communities, Inc. 1992 Stock Option and Stock Award Plan. 10.12(g) $265,000,000 Mortgage Note dated December 12,1997 10.13(h) $110,000,000 Amended, Restated and Consolidated Promissory Note (DeAnza Mortgage) dated June 28, 2000 10.14(h) $15,750,000 Promissory Note Secured by Leasehold Deed of Trust (Date Palm Mortgage) dated July 13, 2000 10.15(j) $50,000,000 Promissory Note secured by Leasehold Deeds of Trust (Stagecoach Mortgage) dated December 2, 2001. 10.16(k) Loan Agreement dated October 17, 2003 between MHC Sunrise Heights, L.L.C., as Borrower, and Bank of America, N.A., as Lender. 10.16.1(k) Schedule identifying substantially identical agreements to Exhibit No. 10.16. 10.17(k) Form of Loan Agreement dated October 17, 2003 between MHC Countryside L.L.C., as Borrower, and Bank of America, N.A., as Lender. 10.17.1(k) Schedule identifying substantially identical agreements to Exhibit No. 10.17. 10.18(k) Form of Loan Agreement dated October 17, 2003 between MHC Creekside L.L.C., as Borrower, and Bank of America, N.A., as Lender. 10.18.1(k) Schedule identifying substantially identical agreements to Exhibit No. 10.18. 10.19(k) Form of Loan Agreement dated October 17, 2003 between MHC Golf Vista Estates L.L.C., as Borrowers, and Bank of America, N.A., as Lender. 10.19.1(k) Schedule identifying substantially identical agreements to Exhibit No. 10.19. 10.20(l) Agreement of Plan of Merger (Thousand Trails), dated August 2, 2004 10.21(l) Amendment No. 1 to Agreement of Plan of Merger (Thousand Trails), dated September 30, 2004 7
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (CONTINUED) 10.22(l) Amendment No. 2 to Agreement of Plan of Merger (Thousand Trails), dated November 9, 2004 10.23(l) Thousand Trails Lease Agreement, dated November 10, 2004 10.24(l) $120 million Term Loan Agreement dated November 10, 2004 10.25(l) Fifth Amended and Restated Credit Agreement ($110 million Revolving Facility) dated November 10, 2004 10.26(l) First Amended and Restated Loan Agreement dated November 10, 2004 11 Not applicable 12(n) Computation of Ratio of Earnings to Fixed Charges 13 Not applicable 14(n) Manufactured Home Communities, Inc. Business Ethics and Conduct Policy, dated March 2004 15 Not applicable 16 Not applicable 17 Not applicable 18 Not applicable 19 Not applicable 20 Not applicable 21(n) Subsidiaries of the registrant 22 Not applicable 23(o) Consent of Independent Auditors 24.1(n) Power of Attorney for Joseph B. McAdams dated March 1, 2005 24.2(n) Power of Attorney for Howard Walker dated February 28, 2005 24.3(n) Power of Attorney for Thomas E. Dobrowski dated March 1, 2005 24.4(n) Power of Attorney for Gary Waterman dated March 1, 2005 24.5(n) Power of Attorney for Donald S. Chisholm dated March 1, 2005 24.6(n) Power of Attorney for Sheli Z. Rosenberg dated March 1, 2005 25 Not applicable 26 Not applicable 31.1(o) Certification of Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act Of 2002 31.2(o) Certification of Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act Of 2002 32.1(o) Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 32.2(o) Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 The following documents are incorporated herein by reference. (a) Included as an exhibit to the Company's Form S-11 Registration Statement, File No. 33-55994. (b) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 1993. (c) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 1994. (d) Included as an exhibit to the Company's Report on Form 10-Q for the quarter ended June 30, 1996. (e) Included as Exhibit A to the Company's definitive Proxy Statement dated March 28, 1997, relating to Annual Meeting of Stockholders held on May 13, 1997. (f) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 1997. (g) Included as an exhibit to the Company's Form S-3 Registration Statement, filed November 12, 1999 (SEC File No. 333-90813). (h) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 2000. (i) Included as Appendix A to the Company's Definitive Proxy Statement dated March 30, 2001 (j) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 2002. (k) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 2003. (l) Included as an exhibit to the Company's Report on Form 8-K dated November 16, 2004 (m) Included as an exhibit to the Company's Report on Form 8-K dated November 22, 2004 (n) Included as an exhibit to the Company's Report on Form 10-K dated December 31, 2004 (o) Filed herewith. 8
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EQUITY LIFESTYLE PROPERTIES, INC., a Maryland corporation Date: March 31, 2005 By: /s/ Thomas P. Heneghan ------------------------------------- Thomas P. Heneghan President and Chief Executive Officer (Principal Executive Officer) Date: March 31, 2005 By: /s/ Michael B. Berman ------------------------------------- Michael B. Berman Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 9
INDEX TO FINANCIAL STATEMENTS EQUITY LIFESTYLE PROPERTIES, INC. PAGE ----------- Report of Independent Registered Public Accounting Firm on Internal Controls over Financial Reporting ............ F-2 Report of Independent Registered Public Accounting Firm .......... F-3 Consolidated Balance Sheets as of December 31, 2004 and 2003 ..... F-4 Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002 ........................ F-5 and F-6 Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2004, 2003 and 2002 .......... F-6 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002 ... F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 ........................ F-8 Notes to Consolidated Financial Statements ....................... F-9 Schedule II - Valuation and Qualifying Accounts .................. S-1 Schedule III - Real Estate and Accumulated Depreciation .......... S-2 Certain schedules have been omitted as they are not applicable to the Company. F-1
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting The Board of Directors and Stockholders of Equity Lifestyle Properties, Inc. We have audited management's assessment, included in the accompanying Report of Management on Internal Control over Financial Reporting, that Equity Lifestyle Properties, Inc. (Equity Lifestyle Properties) did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of a material weakness due to inadequate controls over the capitalization of certain costs, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Equity Lifestyle Properties' management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of Equity Lifestyle Properties' internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Equity Lifestyle Properties; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Equity Lifestyle Properties are being made only in accordance with authorizations of management and directors of Equity Lifestyle Properties; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Equity Lifestyle Properties' assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management's assessment. As described in the notes to the Company's 2004 financial statements, Equity Lifestyle Properties restated previously issued financial statements to correct for errors related to the improper capitalization of certain costs associated with changing rent control restrictions. In connection with its assessment of internal control over financial reporting as of December 31, 2004, management determined that Equity Lifestyle Properties' procedures and controls over the interpretation and implementation of generally accepted accounting principles as they relate to the capitalization of these costs were inadequate, and concluded that this deficiency represented a material weakness in internal control over financial reporting. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the financial statements as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004, and this report does not affect our report dated March 24, 2005 on those financial statements. In our opinion, management's assessment that Equity Lifestyle Properties, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Equity Lifestyle Properties, Inc. has not maintained effective internal control over financial reporting as of December 31, 2004, based on the COSO control criteria. ERNST & YOUNG LLP Chicago, Illinois March 24, 2005 F-2
Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Equity Lifestyle Properties, Inc. 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 at Item 15(1) and (2). 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 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 internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 24, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of internal control over financial reporting and an adverse opinion on the effectiveness of internal control over financial reporting. ERNST & YOUNG LLP Chicago, Illinois March 24, 2005 F-3
EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003 (AMOUNTS IN THOUSANDS) DECEMBER 31, DECEMBER 31, 2003 2004 (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. F-4
EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002 2004 (Restated) (Restated) --------- ---------- ---------- PROPERTY OPERATIONS: Community base rental income ............................ $ 210,790 $ 196,919 $194,640 Resort base rental income ............................... 54,845 11,780 9,146 Utility and other income ................................ 24,893 20,150 19,684 --------- --------- -------- Property operating revenues .......................... 290,528 228,849 223,470 Property operating and maintenance ...................... 94,955 64,996 62,843 Real estate taxes ....................................... 23,679 18,917 17,827 Property management .................................... 12,852 9,373 9,292 --------- --------- -------- Property operating expenses (exclusive of depreciation shown separately below) ................ 131,486 93,286 89,962 --------- --------- -------- Income from property operations ...................... 159,042 135,563 133,508 HOME SALES OPERATIONS: Gross revenues from inventory home sales ................ 47,636 36,606 33,537 Cost of inventory home sales ............................ (41,833) (31,767) (27,183) --------- --------- -------- Gross profit from inventory home sales ............... 5,803 4,839 6,354 Brokered resale revenues, net ........................... 2,186 1,724 1,592 Home selling expenses ................................... (8,708) (7,360) (7,664) Ancillary services revenues, net ........................ 2,782 216 522 --------- --------- -------- Income (loss) from home sales operations & other ..... 2,063 (581) 804 OTHER INCOME (EXPENSES): Interest income ......................................... 1,391 1,695 967 Income from other investments ........................... 3,475 956 316 General and administrative .............................. (9,243) (8,060) (8,192) Rent control initiatives ................................ (2,412) (2,352) (5,698) Interest and related amortization ....................... (91,922) (58,402) (50,729) Depreciation on corporate assets ........................ (1,657) (1,240) (1,277) Depreciation on real estate assets and other costs ...... (48,862) (37,265) (34,826) --------- --------- -------- Total other income (expenses) ........................ (149,230) (104,668) (99,439) Income before minority interests, equity in income of unconsolidated joint ventures, gain on sale of properties and other and discontinued operations .. 11,875 30,314 34,873 Income allocated to Common OP Units ..................... (936) (3,860) (4,708) 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 ....................... 3,394 15,542 19,148 --------- --------- -------- Gain on sale of properties and other .................... 638 -- -- --------- --------- -------- Income from continuing operations .................... 4,032 15,542 19,148 --------- --------- -------- DISCONTINUED OPERATIONS: Discontinued operations ................................. 26 1,043 3,287 Depreciation on discontinued operations ................. (32) (135) (484) Gain on sale of properties and other .................... -- 10,826 13,014 Minority interests on discontinued operations ........... -- (2,144) (3,078) --------- --------- -------- Income (loss) from discontinued operations ........... (6) 9,590 12,739 --------- --------- -------- NET INCOME AVAILABLE FOR COMMON SHARES ............ $ 4,026 $ 25,132 $ 31,887 ========= ========= ======== The accompanying notes are an integral part of the financial statements F-5
EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002 2004 (Restated) (Restated) ------- ---------- ---------- EARNINGS PER COMMON SHARE - BASIC: Income from continuing operations ......................... $ 0.18 $ 0.71 $ 0.89 Income from discontinued operations ....................... $ 0.00 $ 0.43 $ 0.59 ======= ======= ======= Net income available for Common Shares .................... $ 0.18 $ 1.14 $ 1.48 ======= ======= ======= EARNINGS PER COMMON SHARE - FULLY DILUTED: Income from continuing operations ......................... $ 0.17 $ 0.69 $ 0.87 ======= ======= ======= Income from discontinued operations ....................... $ 0.00 $ 0.42 $ 0.57 ======= ======= ======= Net income available for Common Shares .................... $ 0.17 $ 1.11 $ 1.44 ======= ======= ======= Distributions declared per Common Share outstanding ....... $ 0.05 $ 9.485 $ 1.90 ======= ======= ======= Tax status of Common Shares distributions paid during the year: Ordinary income ........................................... $ 1.05 $ 0.68 $ 1.50 ======= ======= ======= Long-term capital gain .................................... $ 4.82 $ 0.57 $ -- ======= ======= ======= Unrecaptured section 1250 gain ............................ $ 2.17 $ 0.16 $ -- ======= ======= ======= Return of capital ......................................... $ -- $ 0.55 $ 0.37 ======= ======= ======= Weighted average Common Shares outstanding - basic ........... 22,849 22,077 21,617 ======= ======= ======= Weighted average Common Shares outstanding - fully diluted ... 29,465 28,002 27,632 ======= ======= ======= EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (AMOUNTS IN THOUSANDS) 2003 2002 2004 (Restated) (Restated) ------ ---------- ---------- Net income available for Common Shares........................... $4,026 $25,132 $31,887 Net unrealized holding gains (losses) on derivative instruments................................................ -- 4,498 (4,987) ------ ------- ------- Net other comprehensive income available for Common Shares.... $4,026 $29,630 $26,900 ====== ======= ======= The accompanying notes are an integral part of the financial statements F-6
EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (AMOUNTS IN THOUSANDS) 2003 2002 2004 (Restated) (Restated) --------- ---------- ---------- PREFERRED STOCK, $.01 PAR VALUE $ -- $ -- $ -- ========= ========= ======== COMMON STOCK, $.01 PAR VALUE Balance, beginning of year .............................................. $ 222 $ 218 $ 215 Issuance of Common Stock through restricted stock grants ............. -- -- 1 Exercise of options .................................................. 2 4 2 --------- --------- -------- Balance, end of year .................................................... $ 224 $ 222 $ 218 ========= ========= ======== PAID - IN CAPITAL Balance, beginning of year .............................................. $ 263,066 $ 256,394 $245,827 Issuance of Common Stock for employee notes .......................... -- -- -- Conversion of OP Units to Common Stock ............................... 155 343 227 Issuance of Common Stock through exercise of options ................. 3,058 6,323 5,782 Issuance of Common Stock through restricted stock grants ............. -- -- 2,709 Issuance of Common Stock through employee stock purchase plan ........ 2,735 3,254 2,512 Compensation expense related to stock options and restricted stock ... 2,571 611 -- Transition adjustment - FAS 123 ...................................... -- (1,047) -- Adjustment for Common OP Unitholders in the Operating Partnership ...................................... 22,719 (2,812) (663) --------- --------- -------- Balance, end of year .................................................... $ 294,304 $ 263,066 $256,394 ========= ========= ======== DEFERRED COMPENSATION Balance, beginning of year .............................................. $ (494) $ (3,069) $ (4,062) Issuance of Common Stock through restricted stock grants ............. -- -- (2,709) Transition adjustment - FAS 123 ...................................... -- 1,047 -- Recognition of deferred compensation expense ......................... 328 1,528 3,702 --------- --------- -------- Balance, end of year .................................................... $ (166) $ (494) $ (3,069) ========= ========= ======== EMPLOYEE NOTES Balance, beginning of year .............................................. $ -- $ (2,713) $ (3,841) Principal payments ................................................... -- 2,713 1,128 --------- --------- -------- Balance, end of year .................................................... $ -- $ -- $ (2,713) ========= ========= ======== DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE EARNINGS Balance, beginning of year .............................................. $(265,322) $ (79,655) $(64,875) Net income ........................................................... 4,026 25,132 31,887 Other comprehensive income: Unrealized holding (losses) gains on derivative instruments ....... -- 4,498 (4,987) --------- --------- -------- Comprehensive income ........................................... 4,026 29,630 26,900 --------- --------- -------- Distributions ........................................................ (1,222) 215,297 (41,680) --------- --------- -------- Balance, end of year .................................................... $(262,518) $(265,322) $(79,655) ========= ========= ======== The accompanying notes are an integral part of the financial statements F-7
EQUITY LIFESTYLE PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (AMOUNTS IN THOUSANDS) 2003 2002 2004 (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 uncollectable 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 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. F-8
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. F-9
EQUITY LIFESTYLE PROPERTIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS During 2004, the Company changed the way it accounted for costs incurred in pursuing certain rent control initiatives. As a result, the Company has restated its Consolidated Financial Statements for the years ended December 31, 2003, 2002, and 2001 to expense the costs of the 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 As of December 31, 2003 Reported Adjustments As Restated - ----------------------- ------------- ----------- ----------- Land improvements............................... $911,176 $(5,391) $905,785 Prepaid expenses and other assets............... 35,102 (5,017) 30,085 Minority interest - Common OP Units and other... 1,716 (2,082) (366) Total stockholders' equity...................... 5,798 (8,326) (2,528)
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 MAJOR NUMBER OF PERCENT OF PROPERTY OPERATING MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES - ---------- ---------- ----------- ----------- ------------------ Florida 77 32,451 36.3% 43.5% California 44 12,865 14.4% 18.2% Arizona 27 10,514 11.8% 10.4% Texas 15 7,200 8.0% 2.3% Washington 13 3,076 3.4% 0.6% Other 71 23,280 26.1% 25.0% --- ------ ----- ----- Total 247 89,386 100.0% 100.0% === ====== ===== ===== F-11
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Inventory Inventory consists of new and used Site Set homes, is stated at the lower of cost or market after consideration of the N.A.D.A. (National Automobile Dealers Association) Manufactured Housing Appraisal Guide and the current market value of each home included in the home inventory. Inventory sales revenues and resale revenues are recognized when the home sale is closed. Resale revenues are stated net of commissions paid to employees of $1,163,000 and $893,000 for the years ended December 31, 2004 and 2003, respectively. (e) Real Estate In accordance with SFAS No. 141, we allocate the purchase price of Properties we acquire to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be available in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. Real estate is recorded at cost less accumulated depreciation. 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. F-12
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Notes Receivable Notes receivable generally are stated at their outstanding unpaid principal balances net of any deferred fees or costs on originated loans, or unamortized discounts or premiums 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. F-13
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Revenue Recognition The Company accounts for leases with its customers as operating leases. Rental income is recognized over the term of the respective lease or the length of a customer's stay, the majority of which are for a term of not greater than one year. We will reserve for receivables when we believe the ultimate collection is less than probable. Our provision for uncollectable rents receivable was approximately $1.0 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). F-14
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, --------------------------------- 2003 2002 2004 (Restated) (Restated) ------- ---------- ---------- NUMERATORS: INCOME FROM CONTINUING OPERATIONS: Income from continuing operations - basic ................ $ 4,032 $15,542 $19,148 Amounts allocated to dilutive securities ................. 936 3,860 4,708 ------- ------- ------- Income from continuing operations - fully diluted ........ $ 4,968 $19,402 $23,856 ======= ======= ======= INCOME FROM DISCONTINUED OPERATIONS: Income from discontinued operations - basic .............. $ (6) $ 9,590 $12,739 Amounts allocated to dilutive securities ................. -- 2,144 3,078 ------- ------- ------- Income from discontinued operations - fully diluted ...... $ (6) $11,734 $15,817 ======= ======= ======= NET INCOME AVAILABLE FOR COMMON SHARES: Net income available for Common Shares - basic ........... $ 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 ======= ======= ======= F-15
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 FOR THE QUARTER SHAREHOLDER RECORD AMOUNT PER SHARE ENDING DATE PAYMENT DATE - ---------------- ------------------ ------------------ ---------------- $0.4750 March 31, 2002 March 29, 2002 April 12, 2002 $0.4750 June 30, 2002 June 28, 2002 July 12, 2002 $0.4750 September 30, 2002 September 27, 2002 October 11, 2002 $0.4750 December 31, 2002 December 27, 2002 January 10, 2003 $0.4950 March 31, 2003 March 28, 2003 April 11, 2003 $0.4950 June 30, 2003 June 27, 2003 July 11, 2003 $0.4950 September 30, 2003 September 26, 2003 October 10, 2003 $8.00 December 31, 2003 January 8, 2004 January 16, 2004 $0.0125 March 31, 2004 March 26, 2004 April 9, 2004 $0.0125 June 30, 2004 June 25, 2004 July 9, 2004 $0.0125 September 30, 2004 September 24, 2004 October 8, 2004 $0.0125 December 31, 2004 December 31, 2004 January 14, 2005 On December 12, 2003, we declared a one-time special distribution of $8.00 per share payable to stockholders of record on January 8, 2004. We used proceeds from the $501 million borrowing in October 2003 to pay the special distribution on January 16, 2004. The special cash dividend was reflected on stockholders' 2004 1099-DIV issued in January 2005. In connection with the $501 million borrowing and subsequent special distribution, on February 27, 2004, the Company contributed all of its assets to MHC Trust, a newly formed Maryland real estate investment trust, including the Company's entire partnership interest in Operating Partnership. The Company determined that a taxable transaction in connection with the special distribution to stockholders would be in the Company's best interests. This was accomplished by the contribution of the Company's interest in the Operating Partnership to MHC Trust in exchange for all the common and preferred stock of MHC Trust. Due to the Company's tax basis in its interest in the Operating Partnership, the Company F-16
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED) recognized $180 million of taxable income as a result of its contribution, as opposed to a nontaxable reduction of the Company's tax basis in its interest in the Operating Partnership. This restructuring resulted in a step-up in the Company's tax basis in its assets, generating future depreciation deductions, which in turn will reduce the Company's future distribution requirements. The Company intends to continue to qualify as a REIT under the Code, with its assets consisting of interests in MHC Trust. MHC Trust, in turn, intends to also qualify as a real estate investment trust under the Code and will be the general partner of the Operating Partnership. On May 1, 2004, in connection with the restructuring, MHC Trust sold cumulative preferred stock to a limited number of unaffiliated investors. The Company adopted, effective July 1, 1997, the 1997 Non-Qualified Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees and directors of the Company may each annually acquire up to $250,000 of Common Stock of the Company. The aggregate number of shares of Common Stock available under the ESPP shall not exceed 1,000,000, subject to adjustment by the Company's Board of Directors. The Common Stock may be purchased monthly at a price equal to 85% of the lesser of: (a) the closing price for a share of Common Stock on the last day of 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 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. 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 Trail Portfolio (b) Various 17,911 161.8 120.0 42.2 November 4, 2004 Caledonia Caledonia, WI 247 1.5 -- 1.5 December 30, 2004 Fremont Fremont, WI 325 5.7 4.3 1.4 a) On February 17, 2004, the Company 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. F-17
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED) b) On November 10, 2004 the Company provided a long-term lease of the real estate to Thousand Trails, which will continue to operate the Properties for its members. The lease will generate $16 million of 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. 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 $0.6 million. F-18
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED) 2) During the year ended December 31, 2003, we sold the three Properties listed in the table below. Proceeds from the sales were used to repay amounts on the Company's Line of Credit. TOTAL DISPOSITION GAIN ON DATE DISPOSED PROPERTY LOCATION SITES PRICE SALE - ------------- ----------------- -------------- ----- ------------ ------------ ($ millions) ($ millions) June 6, 2003 Independence Hill Morgantown, WV 203 $ 3.9 $2.8 June 6, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1 June 30, 2003 Pheasant Ridge Mount Airy, MD 101 5.4 3.9 3) Also during 2002, we effectively sold 17 Properties as part of a restructuring of the College Heights Joint Venture discussed hereinafter. In addition, we sold Camelot Acres, a 319 site Property in Burnsville, Minnesota, for approximately $14.2 million. The following table illustrates the effect on net income and earnings per share if 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): Pro Forma Information (unaudited): FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2004 2003 -------- -------- Property operating revenues ................. $307,477 $297,845 ======== ======== Income from continuing operations ........... $ 7,088 $ 20,381 ======== ======== Net income available for Common Shares ...... $ 7,114 $ 30,166 ======== ======== Earnings per Common Share - Basic: Income from continuing operations ........ $ 0.31 $ 0.92 Net income available for Common Shares.... $ 0.31 $ 1.36 Earnings per Common Share - Fully Diluted: Income from continuing operations ........ $ 0.30 $ 0.92 Net income available for Common Shares ... $ 0.30 $ 1.34 We actively 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. F-19
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. F-20
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - INVESTMENT IN JOINT VENTURES (CONTINUED) UNCONSOLIDATED REAL ESTATE JOINT VENTURE FINANCIAL INFORMATION The following tables represent combined summarized financial information of the unconsolidated real estate joint ventures. BALANCE SHEETS AS OF DECEMBER 31, 2004 2003 -------------- -------------- (in thousands) (in thousands) ASSETS Real estate, net $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 ======== ======= F-21
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 of approximately $1,417 million and $1,076 million, respectively, 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. F-22
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 ========== F-23
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 Committee will determine the F-24
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED) vesting schedule, if any, of each Option and the term, which term shall not exceed ten years from the date of grant. As to the Options that have been granted through December 31, 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): 2003 2002 2004 (Restated) (Restated) ------- ---------- ---------- Net income available for Common Shares as reported ............................. $ 4,026 $25,132 $31,887 Add: Stock-based compensation expense included in net income as reported ...... 2,899 2,139 2,185 Deduct: Stock-based compensation expense determined under the fair value based method for all awards ....... (2,899) (2,139) (2,086) ------- ------- ------- Pro forma net income available for Common Shares ........................... $ 4,026 $25,132 $31,986 ======= ======= ======= Pro forma net income per Common Share - Basic ................................. $ 0.18 $ 1.14 $ 1.48 ======= ======= ======= Pro forma net income per Common Share - Fully Diluted ......................... $ 0.17 $ 1.11 $ 1.44 ======= ======= ======= F-25
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED) Restricted Stock Grants In 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 F-26
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 RANGE OF EXERCISE CONTRACTUAL WEIGHTED AVERAGE AVERAGE PRICES OPTIONS LIFE (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE - ----------------- --------- --------------- ---------------- --------- -------------- $7.62 to $14.00 169,467 1.6 $11.88 169,467 $11.88 $15.69 to $18.99 680,475 4.4 $17.38 680,475 $17.38 $22.65 to $31.53 196,054 7.4 $24.06 176,052 $23.47 --------- --- ------ --------- ------ 1,045,996 4.5 $17.74 1,025,994 $17.51 ========= === ====== ========= ====== As of December 31, 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. F-27
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - SAVINGS PLAN The Company has a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover its employees and those of its Subsidiaries, if any. The 401(k) Plan permits eligible employees of the Company and those of any Subsidiary to defer up to 19% of their eligible compensation on a pre-tax basis subject to certain maximum amounts. In addition, the Company will match dollar-for-dollar the participant's contribution up to 4% of the participant's eligible compensation. In addition, amounts contributed by the Company will vest, on a prorated basis, according to the participant's vesting schedule. After five years of employment with the Company, the participants will be 100% vested for all amounts contributed by the Company. Additionally, a discretionary profit sharing component of the 401(k) Plan provides for a contribution to be made annually for each participant in an amount, if any, as determined by the Company. All employee contributions are 100% vested. The Company's contribution to the 401(k) Plan was approximately $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 upon the sales of their F-28
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 judgment. The court of appeal and California Supreme Court refused to stay enforcement of these rent adjustments pending appeal. After the City was unable to obtain a F-29
EQUITY LIFESTYLE PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED) stay, the City and the tenant association each sued the Company in separate actions alleging the rent adjustments pursuant to the judgment violate the prior ordinance (Case Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments, refunds of amounts paid, and penalties and damages in these separate actions. On January 25, 2005, the California Court of Appeal reversed the judgment in part and affirmed it in part with a remand. The Court of Appeal affirmed that one ordinance was unlawfully adopted and therefore void and that the second ordinance contained unconstitutional provisions. However, the Court ruled the City had the authority to cure the issues with the first ordinance retroactively. On remand the trial court is directed to decide the issue of damages to the Company which the Company believes is consistent with the Company receiving the economic benefit of invalidating one of the ordinances and also consistent with the Company's position that it is entitled to market rent and not merely a higher amount of regulated rent. The Company will petition the Supreme Court of California for review of certain aspects of this decision. The Company intends to vigorously defend the two new lawsuits. In addition, the Company has sued the City of Santee in Federal court alleging all three of the ordinances are unconstitutional under the Fifth Amendment to the United States Constitution because they fail to substantially advance a legitimate state interest. Thus, it is the Company's position that the ordinances are subject to invalidation as a matter of law in the Federal court action. Separately, the Federal District Court granted the City's Motion for Summary Judgment in the Company's Federal Court lawsuit. This decision was based not on the merits, but on procedural grounds, including that the Company's claims were moot given its success in the state court case. The Company intends to appeal this ruling and believes the outcome will be affected by the cases currently before the Ninth Circuit and United States Supreme Court. Moreover, in July 2004, the Ninth Circuit Court of Appeal decided the case of Cashman v. City of Cotati, a Property owner's challenge to the City's rent control ordinance, and stated that a rent control ordinance that does not 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. F-30
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)....................................... $80,320 $86,844 $89,425 $96,378 Income from continuing operations (a).................... $ 4,495 $ 481 $ (864) $ (80) Income from discontinued operations (a).................. $ 15 $ (21) $ -- $ -- 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)....................................... $64,569 $66,760 $68,760 $71,066 Income from continuing operations (a).................... $ 6,969 $ 4,709 $ 4,578 $ (714) Income from discontinued operations (a).................. $ 294 $ 9,288 $ 8 $ -- 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. F-31
SCHEDULE II EQUITY LIFESTYLE PROPERTIES, INC. VALUATION AND QUALIFYING 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 Initial Cost to Acquisition Company (Improvements) -------------------- ------------------ Depreciable Depreciable Real Estate Location Encumbrances Land Property Land Property ----------- -------------------- ------------ ------ ----------- ---- ----------- Apollo Village Phoenix AZ 3,997 932 3,219 0 578 Araby Acres Yuma AZ 3,222 1,440 4,345 0 12 The Highlands at Brentwood Mesa AZ 10,910 1,997 6,024 0 738 Cactus Gardens Yuma AZ 4,849 1,992 5,984 0 12 Carefree Manor Phoenix AZ 3,394 706 3,040 0 222 Casa del Sol #1 Peoria AZ 10,629 2,215 6,467 0 1,235 Casa del Sol #2 Glendale AZ 9,983 2,103 6,283 0 928 Casa del Sol #3 Glendale AZ 11,015 2,450 7,452 0 375 Central Park Phoenix AZ 5,103 1,612 3,784 0 641 Countryside Phoenix AZ 3,737 2,056 6,241 0 206 Desert Paradise Yuma AZ 1,452 666 2,011 0 4 Desert Skies Phoenix AZ 5,046 792 3,126 0 296 Fairview Manor Tucson AZ 5,048 1,674 4,708 0 1,113 Foothill Yuma AZ 1,350 459 1,402 0 16 Golden Sun Scottsdale AZ 2,976 1,678 5,049 0 48 Hacienda De Valencia Mesa AZ 6,063 833 2,701 0 2,123 Monte Vista Mesa AZ 22,844 11,402 34,355 0 157 Palm Shadows Glendale AZ 8,471 1,400 4,218 0 391 Paradise Sun City AZ 19,813 6,414 19,263 0 56 Sedona Shadows Sedona AZ 2,465 1,096 3,431 0 538 Suni Sands Yuma AZ 3,172 1,249 3,759 0 7 Sunrise Heights Phoenix AZ 5,636 1,000 3,016 0 413 The Mark Mesa AZ 8,826 1,354 4,660 6 846 The Meadows Tempe AZ 12,436 2,613 7,887 0 1,103 Viewpoint Mesa AZ 43,703 24,890 56,340 0 99 Whispering Palms Phoenix AZ 3,219 670 2,141 0 182 California Hawaiian San Jose CA 26,968 5,825 17,755 0 1,581 Colony Park Ceres CA 5,826 890 2,837 0 319 Concord Cascade Pacheco CA 5,411 985 3,016 0 1,047 Contempo Marin San Rafael CA 25,233 4,787 16,379 0 2,376 Coralwood Modesto CA 6,200 0 5,047 0 276 Date Palm Country Club Cathedral City CA 15,194 4,138 14,064 -23 3,416 Date Palm Cathedral City CA 0 0 216 0 47 Four Seasons Fresno CA 0 756 2,348 0 245 Laguna Lake San Luis Obispo CA 4,916 2,845 6,520 0 252 Gross Amount Carried at Close of Period 12/31/04 ------------------------------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition ----------- -------------------- ------ ----------- ------ ------------ ----------- Apollo Village Phoenix AZ 932 3,797 4,729 (1,302) 1994 Araby Acres Yuma AZ 1,440 4,357 5,797 (158) 2003 The Highlands at Brentwood Mesa AZ 1,997 6,762 8,759 (2,566) 1993 Cactus Gardens Yuma AZ 1,992 5,996 7,988 (102) 2004 Carefree Manor Phoenix AZ 706 3,262 3,968 (803) 1998 Casa del Sol #1 Peoria AZ 2,215 7,702 9,917 (1,587) 1996 Casa del Sol #2 Glendale AZ 2,103 7,211 9,314 (1,458) 1996 Casa del Sol #3 Glendale AZ 2,450 7,827 10,277 (1,722) 1998 Central Park Phoenix AZ 1,612 4,425 6,037 (2,947) 1983 Countryside Phoenix AZ 2,056 6,447 8,503 (510) 2002 Desert Paradise Yuma AZ 666 2,015 2,681 (63) 2004 Desert Skies Phoenix AZ 792 3,422 4,214 (809) 1998 Fairview Manor Tucson AZ 1,674 5,821 7,495 (1,352) 1998 Foothill Yuma AZ 459 1,418 1,877 (52) 2003 Golden Sun Scottsdale AZ 1,678 5,097 6,775 (407) 2002 Hacienda De Valencia Mesa AZ 833 4,824 5,657 (2,475) 1984 Monte Vista Mesa AZ 11,402 34,512 45,914 (766) 2004 Palm Shadows Glendale AZ 1,400 4,609 6,009 (1,837) 1993 Paradise Sun City AZ 6,414 19,319 25,733 (592) 2004 Sedona Shadows Sedona AZ 1,096 3,969 5,065 (979) 1997 Suni Sands Yuma AZ 1,249 3,766 5,015 (116) 2004 Sunrise Heights Phoenix AZ 1,000 3,429 4,429 (1,227) 1994 The Mark Mesa AZ 1,360 5,506 6,866 (1,892) 1994 The Meadows Tempe AZ 2,613 8,990 11,603 (3,091) 1994 Viewpoint Mesa AZ 24,890 56,439 81,329 (1,096) 2004 Whispering Palms Phoenix AZ 670 2,323 2,993 (580) 1998 California Hawaiian San Jose CA 5,825 19,336 25,161 (4,884) 1997 Colony Park Ceres CA 890 3,156 4,046 (899) 1998 Concord Cascade Pacheco CA 985 4,063 5,048 (2,467) 1983 Contempo Marin San Rafael CA 4,787 18,755 23,542 (6,419) 1994 Coralwood Modesto CA 0 5,323 5,323 (1,350) 1997 Date Palm Country Club Cathedral City CA 4,115 17,480 21,595 (5,722) 1994 Date Palm Cathedral City CA 0 263 263 (100) 1994 Four Seasons Fresno CA 756 2,593 3,349 (665) 1997 Laguna Lake San Luis Obispo CA 2,845 6,772 9,617 (1,693) 1998 S-2
SCHEDULE III EQUITY LIFESTYLE PROPERTIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2004 (AMOUNTS IN THOUSANDS) Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ------------------- ------------------- Depreciable Depreciable Real Estate Location Encumbrances Land Property Land Property - ------------------------ ----------------- ------------ ----- ------------- ----- ------------- Lamplighter Spring Valley CA 3,761 633 2,201 0 675 Las Palmas Rialto CA 3,807 1,295 3,866 0 20 Meadowbrook Santee CA 0 4,345 12,528 0 1,522 Monte del Lago Castroville CA 7,673 3,150 9,469 0 1,464 Quail Meadows Riverbank CA 5,280 1,155 3,469 0 293 Nicholson Plaza San Jose CA 0 0 4,512 0 72 Pacific Dunes Ranch California CA 6,025 1,940 5,632 0 27 Central Coast Parque La Quinta Rialto CA 5,105 1,799 5,450 0 -45 Rancho Mesa El Cajon CA 9,600 2,130 6,389 0 249 Rancho Valley El Cajon CA 3,624 685 1,902 0 794 Royal Holiday Hemet CA 0 778 2,643 0 374 Royal Oaks Visalia CA 0 602 1,921 0 281 DeAnza Santa Cruz Santa Cruz CA 6,871 2,103 7,201 0 317 Santiago Estates Sylmar CA 16,205 3,562 10,767 0 769 Sea Oaks Los Osos CA 0 871 2,703 0 267 Sunshadow San Jose CA 0 0 5,707 0 137 Tahoe Valley Campground Lake Tahoe CA 2,246 1,357 4,071 0 12 Village of Four Seasons San Jose CA 15,332 5,229 15,714 0 18 Westwinds (4 properties) San Jose CA 0 0 17,616 0 5,116 Bear Creek Sheridan CO 4,880 1,100 3,359 0 248 Cimarron Broomfield CO 4,541 863 2,790 0 584 Golden Terrace Golden CO 4,246 826 2,415 0 720 Golden Terrace South Golden CO 2,400 750 2,265 0 617 Golden Terrace West Golden CO 8,328 1,694 5,065 0 1,011 Hillcrest Village Aurora CO 10,504 1,912 5,202 289 2,397 Holiday Hills Denver CO 14,746 2,159 7,780 0 3,819 Holiday Village CO Co. Springs CO 3,471 567 1,759 0 912 Pueblo Grande Pueblo CO 1,867 241 1,069 0 432 Woodland Hills Denver CO 7,390 1,928 4,408 0 2,407 Aspen Meadows Rehoboth Beach DE 5,620 1,148 3,460 0 338 Camelot Meadows Rehoboth Beach DE 7,304 527 2,058 1,251 3,719 Mariners Cove Millsboro DE 16,452 990 2,971 0 3,909 McNicol Rehoboth Beach DE 2,710 563 1,710 0 72 Sweetbriar Rehoboth Beach DE 3,040 498 1,527 0 377 Waterford Estates Bear DE 30,954 5,250 16,202 0 614 Whispering Pines Lewes DE 9,871 1,536 4,609 0 1,005 Gross Amount Carried at Close of Period 12/31/04 ---------------------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition - ------------------------ ----------------- ----- ----------- ------ ------------ ----------- Lamplighter Spring Valley CA 633 2,876 3,509 (1,853) 1983 Las Palmas Rialto CA 3,886 5,181 (76) 2004 Meadowbrook Santee CA 4,345 14,050 18,395 (3,073) 1998 Monte del Lago Castroville CA 3,150 10,933 14,083 (2,612) 1997 Quail Meadows Riverbank CA 1,155 3,762 4,917 (844) 1998 Nicholson Plaza San Jose CA 0 4,584 4,584 (1,126) 1997 Pacific Dunes Ranch California CA 1,940 5,659 7,599 (178) 2004 Central Coast Parque La Quinta Rialto CA 1,799 5,405 7,204 (197) 2004 Rancho Mesa El Cajon CA 2,130 6,638 8,768 (1,453) 1998 Rancho Valley El Cajon CA 685 2,696 3,381 (1,633) 1983 Royal Holiday Hemet CA 778 3,017 3,795 (606) 1998 Royal Oaks Visalia CA 602 2,202 2,804 (554) 1997 DeAnza Santa Cruz Santa Cruz CA 2,103 7,518 15,012 (2,553) 1994 Santiago Estates Sylmar CA 3,562 11,536 15,098 (2,710) 1998 Sea Oaks Los Osos CA 871 2,970 3,841 (720) 1997 Sunshadow San Jose CA 0 5,844 5,844 (1,464) 1997 Tahoe Valley Campground Lake Tahoe CA 1,357 4,083 5,440 (124) 2004 Village of Four Seasons San Jose CA 5,229 15,732 20,961 (349) 2004 Westwinds (4 properties) San Jose CA 0 22,732 22,732 (5,844) 1997 Bear Creek Sheridan CO 1,100 3,607 4,707 (833) 1998 Cimarron Broomfield CO 863 3,374 4,237 (2,227) 1983 Golden Terrace Golden CO 826 3,135 3,961 (1,868) 1983 Golden Terrace South Golden CO 750 2,882 3,632 (717) 1997 Golden Terrace West Golden CO 1,694 6,076 7,770 (3,399) 1986 Hillcrest Village Aurora CO 2,201 7,599 9,800 (4,843) 1983 Holiday Hills Denver CO 2,159 11,599 13,758 (7,158) 1983 Holiday Village CO Co. Springs CO 567 2,671 3,238 (1,583) 1983 Pueblo Grande Pueblo CO 241 1,501 1,742 (968) 1983 Woodland Hills Denver CO 1,928 6,815 8,743 (2,522) 1994 Aspen Meadows Rehoboth Beach DE 1,148 3,798 4,946 (894) 1998 Camelot Meadows Rehoboth Beach DE 1,778 5,777 7,555 (1,318) 1998 Mariners Cove Millsboro DE 990 6,880 7,870 (2,868) 1987 McNicol Rehoboth Beach DE 563 1,782 2,345 (410) 1998 Sweetbriar Rehoboth Beach DE 498 1,904 2,402 (496) 1998 Waterford Estates Bear DE 5,250 16,816 22,066 (3,037) 1996 Whispering Pines Lewes DE 1,536 5,614 7,150 (2,844) 1998 S-3
SCHEDULE III EQUITY LIFESTYLE PROPERTIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2004 (AMOUNTS IN THOUSANDS) Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) -------------------- ------------------ Depreciable Depreciable Real Estate Location Encumbrances Land Property Land Property - --------------------------- ------------------- ------------ ------ ----------- ---- ----------- Maralago Cay Lantana FL 21,600 5,325 15,420 0 3,073 Barrington Hills Port Richey FL 3,220 1,145 3,437 0 0 Bay Indies Venice FL 43,662 10,483 31,559 10 3,482 Bay Lake Estates Nokomis FL 3,807 990 3,390 0 951 Breezy Hill Pompano Beach FL 10,065 5,510 16,555 0 112 Buccaneer N. Ft. Myers FL 14,140 4,207 14,410 0 1,183 Bulow Village Resort Flagler Beach FL 0 0 228 0 56 Bulow Village Flagler Beach FL 10,268 3,637 949 0 5,458 Carefree Cove Fort Lauderdale FL 4,777 1,741 5,170 0 79 Carriage Cove Daytona Beach FL 8,010 2,914 8,682 0 788 Coachwood Leesburg FL 4,238 1,607 4,822 0 19 Coral Cay Margate FL 20,874 5,890 20,211 0 3,129 Coquina St Augustine FL 0 5,286 5,545 0 8,856 Meadows at Countrywood Plant City FL 18,273 4,514 13,175 0 3,869 Country Place New Port Richey FL 8,346 663 0 18 7,106 Country Side North Vero Beach FL 17,328 3,711 11,133 0 1,663 Crystal Isles Crystal River FL 2,832 926 2,787 0 5 Down Yonder Largo FL 7,707 2,652 7,981 0 69 East Bay Oaks Largo FL 5,493 1,240 3,322 0 563 Eldorado Village Largo FL 3,946 778 2,341 0 563 Fort Myers Beach Resort Fort Myers Beach FL 4,428 1,493 4,480 0 1 Glen Ellen Clearwater FL 2,395 627 1,882 0 26 Grand Island Grand Island FL 0 1,723 5,208 125 2,606 Gulf Air Resort Fort Myers Beach FL 4,021 1,609 4,830 0 13 Gulf View Punta Gorda FL 1,698 717 2,158 0 3 Hacienda Village New Port Richey FL 9,842 4,362 13,088 0 454 Harbor Lakes Port Charlotte FL 8,997 3,384 10,154 0 17 Harbor View New Port Richey FL 7,932 4,045 12,146 0 54 Heritage Village Vero Beach FL 13,520 2,403 7,259 0 690 Highland Wood Pompano Beach FL 2,358 1,043 3,130 0 10 Hillcrest Clearwater FL 4,236 1,278 3,928 0 750 Holiday Ranch Largo FL 3,785 925 2,866 0 227 Holiday Village FL Vero Beach FL 0 350 1,374 0 139 Holiday Village Ormond Beach FL 6,972 2,610 7,837 0 121 Indian Oaks Rockledge FL 4,389 1,089 3,376 0 728 Lake Fairways N. Ft. Myers FL 30,460 6,075 18,134 35 1,443 Gross Amount Carried at Close of Period 12/31/04 ----------------------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition - --------------------------- ------------------- ------ ----------- ------ ------------ ----------- Maralago Cay Lantana FL 5,325 18,493 23,818 (4,258) 1997 Barrington Hills - Sunburst Port Richey FL 1,145 3,437 4,582 (105) 2004 Bay Indies Venice FL 10,493 35,041 45,534 (12,148) 1994 Bay Lake Estates Nokomis FL 990 4,341 5,331 (1,455) 1994 Breezy Hill Pompano Beach FL 5,510 16,667 22,177 (1,294) 2002 Buccaneer N. Ft. Myers FL 4,207 15,593 19,800 (5,350) 1994 Bulow Village Resort Flagler Beach FL 0 284 284 (51) 2001 Bulow Village Flagler Beach FL 3,637 6,407 10,044 (1,391) 1994 Carefree Cove Fort Lauderdale FL 1,741 5,249 6,990 (119) 2004 Carriage Cove Daytona Beach FL 2,914 9,470 12,384 (2,292) 1998 Coachwood Leesburg FL 1,607 4,841 6,448 (148) 2004 Coral Cay Margate FL 5,890 23,340 29,230 (7,538) 1994 Coquina St Augustine FL 5,286 14,401 19,687 (1,571) 1999 Meadows at Countrywood Plant City FL 4,514 17,044 21,558 (3,540) 1998 Country Place New Port Richey FL 681 7,106 7,787 (2,834) 1986 Country Side North Vero Beach FL 3,711 12,796 16,507 (3,154) 1998 Crystal Isles - Encore Crystal River FL 926 2,792 3,718 (85) 2004 Down Yonder Largo FL 2,652 8,050 10,702 (631) 1998 East Bay Oaks Largo FL 1,240 3,885 5,125 (2,579) 1983 Eldorado Village Largo FL 778 2,904 3,682 (1,850) 1983 Fort Myers Beach Resort Fort Myers Beach FL 1,493 4,481 5,974 (137) 2004 Glen Ellen Clearwater FL 627 1,908 2,535 (135) 2002 Grand Island Grand Island FL 1,848 7,814 9,662 (868) 2001 Gulf Air Resort - Sunburst Fort Myers Beach FL 1,609 4,843 6,452 (148) 2004 Gulf View - Encore Punta Gorda FL 717 2,161 2,878 (66) 2004 Hacienda Village New Port Richey FL 4,362 13,542 17,904 (922) 2002 Harbor Lakes - Encore Port Charlotte FL 3,384 10,171 13,555 (310) 2004 Harbor View New Port Richey FL 4,045 12,200 16,245 (954) 2002 Heritage Village Vero Beach FL 2,403 7,949 10,352 (2,769) 1994 Highland Wood Pompano Beach FL 1,043 3,140 4,183 (243) 2002 Hillcrest Clearwater FL 1,278 4,678 5,956 (1,195) 1998 Holiday Ranch Largo FL 925 3,093 4,018 (747) 1998 Holiday Village FL Vero Beach FL 350 1,513 1,863 (389) 1998 Holiday Village Ormond Beach FL 2,610 7,958 10,568 (621) 2002 Indian Oaks Rockledge FL 1,089 4,104 5,193 (1,051) 1998 Lake Fairways N. Ft. Myers FL 6,110 19,577 25,687 (6,537) 1994 S-4
SCHEDULE III EQUITY LIFESTYLE PROPERTIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2004 (AMOUNTS IN THOUSANDS) Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ------------------- ------------------ Depreciable Depreciable Real Estate Location Encumbrances Land Property Land Property - --------------------------- ------------------ ------------ ----- ----------- ---- ----------- Lake Haven Dunedin FL 8,109 1,135 4,047 0 2,384 Lake Magic Orlando FL 2,818 1,595 4,793 0 45 Lakewood Village Melbourne FL 9,818 1,862 5,627 0 716 Lazy Lakes Florida Keys FL 2,048 816 2,449 0 3 Lighthouse Pointe Port Orange FL 12,535 2,446 7,483 23 894 Manatee Sarasota North FL 5,244 2,300 6,903 0 20 Mid-Florida Lakes Leesburg FL 22,639 5,997 20,635 0 5,070 Oak Bend Ocala FL 5,772 850 2,572 0 866 Park City West Fort Lauderdale FL 7,613 4,187 12,561 0 11 Pasco Tampa North FL 3,072 1,494 4,484 0 2 Pickwick Port Orange FL 10,280 2,803 8,870 0 490 Pine Lakes N. Ft. Myers FL 31,055 6,306 14,579 21 5,447 Pioneer Village N. Ft. Myers FL 10,379 4,116 12,353 0 39 Royal Coachman Nokomis FL 15,140 5,321 15,978 0 19 Shangri La Largo FL 4,496 1,730 5,200 0 36 Sherwood Forest Kissimmee FL 27,103 4,852 14,596 0 3,775 Sherwood Forest Resort Kissimmee FL 0 2,870 3,621 568 1,409 Silk Oak Clearwater FL 3,771 1,670 5,028 0 65 Silver Dollar Odessa FL 9,171 4,107 12,431 0 67 Sixth Ave Zephryhills FL 2,260 839 2,518 0 8 Southernaire Mt. Dora FL 2,092 798 2,395 0 10 Southern Palms Eustis FL 5,652 2,169 5,884 0 1,531 Spanish Oaks Ocala FL 7,008 2,250 6,922 0 877 Sunshine Key Florida Keys FL 16,522 5,273 15,822 0 23 Sunshine Holiday Daytona Beach FL 6,667 2,001 6,004 0 15 Sunshine Holiday RV & MHP Fort Lauderdale FL 8,509 3,099 9,286 0 18 Sunshine Travel Vero Beach FL 4,404 1,603 4,813 0 31 Oaks at Countrywood Plant City FL 1,300 1,111 2,513 -265 1,475 Terra Ceia Palmetto FL 2,528 967 2,905 0 15 The Heritage N. Ft. Myers FL 9,663 1,438 4,371 346 3,317 The Lakes at Countrywood Plant City FL 9,712 2,377 7,085 0 862 The Meadows, FL Palm Beach Gardens FL 6,049 3,229 9,870 0 1,145 Toby's Arcadia FL 3,391 1,093 3,280 0 17 Topics RV Spring Hill FL 2,235 853 2,568 0 2 Tropical Palms Kissimmee FL 19,595 5,677 17,071 0 127 Vacation Village St. Petersburg FL 2,528 1,315 3,946 0 3 Gross Amount Carried at Close of Period 12/31/04 ----------------------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition - --------------------------- ------------------ ----- ----------- ------ ------------ ----------- Lake Haven Dunedin FL 1,135 6,431 7,566 (3,292) 1983 Lake Magic Orlando FL 1,595 4,838 6,433 (146) 2004 Lakewood Village Melbourne FL 1,862 6,343 8,205 (2,212) 1994 Lazy Lakes Florida Keys FL 816 2,452 3,268 (75) 2004 Lighthouse Pointe Port Orange FL 2,469 8,377 10,846 (2,033) 1998 Manatee Sarasota North FL 2,300 6,923 9,223 (211) 2004 Mid-Florida Lakes Leesburg FL 5,997 25,705 31,702 (8,117) 1994 Oak Bend Ocala FL 850 3,438 4,288 (1,243) 1993 Park City West Fort Lauderdale FL 4,187 12,572 16,759 (384) 2004 Pasco Tampa North FL 1,494 4,486 5,980 (137) 2004 Pickwick Port Orange FL 2,803 9,360 12,163 (2,160) 1998 Pine Lakes N. Ft. Myers FL 6,327 20,026 26,353 (6,580) 1994 Pioneer Village N. Ft. Myers FL 4,116 12,392 16,508 (377) 2004 Royal Coachman Nokomis FL 5,321 15,997 21,318 (488) 2004 Shangri La Largo FL 1,730 5,236 6,966 (159) 2004 Sherwood Forest Kissimmee FL 4,852 18,371 23,223 (4,055) 1998 Sherwood Forest Resort Kissimmee FL 3,438 5,030 8,468 (1,101) 1998 Silk Oak Clearwater FL 1,670 5,093 6,763 (355) 2002 Silver Dollar Odessa FL 4,107 12,498 16,605 (376) 2004 Sixth Ave Zephryhills FL 839 2,526 3,365 (91) 2004 Southernaire Mt. Dora FL 798 2,405 3,203 (74) 2004 Southern Palms Eustis FL 2,169 7,415 9,584 (1,690) 1998 Spanish Oaks Ocala FL 2,250 7,799 10,049 (2,834) 1993 Sunshine Key Florida Keys FL 5,273 15,845 21,118 (483) 2004 Sunshine Holiday Daytona Beach FL 2,001 6,019 8,020 (183) 2004 Sunshine Holiday RV & MHP Fort Lauderdale FL 3,099 9,304 12,403 (180) 2004 Sunshine Travel Vero Beach FL 1,603 4,844 6,447 (147) 2004 Oaks at Countrywood Plant City FL 846 3,988 4,834 (698) 1998 Terra Ceia Palmetto FL 967 2,920 3,887 (90) 2004 The Heritage N. Ft. Myers FL 1,784 7,688 9,472 (2,475) 1993 The Lakes at Countrywood Plant City FL 2,377 7,947 10,324 (1,049) 2001 The Meadows, FL Palm Beach Gardens FL 3,229 11,015 14,244 (2,089) 1999 Toby's Arcadia FL 1,093 3,297 4,390 (120) 2003 Topics RV Spring Hill FL 853 2,570 3,423 (79) 2004 Tropical Palms Kissimmee FL 5,677 17,198 22,875 (500) 2004 Vacation Village St. Petersburg FL 1,315 3,949 5,264 (121) 2004 S-5
SCHEDULE III EQUITY LIFESTYLE PROPERTIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2004 (AMOUNTS IN THOUSANDS) Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ------------------- ------------------ Depreciable Depreciable Real Estate Location Encumbrances Land Property Land Property ----------- ----------------- ------------ ----- ----------- ---- ----------- Windmill Manor Bradenton FL 7,958 2,153 6,125 0 1,137 Windmill Village - Ft. Myers N. Ft. Myers FL 8,700 1,417 5,440 0 1,260 Winds of St. Armands North (fka Windmill North) Sarasota FL 8,842 1,523 5,063 0 1,663 Winds of St. Armands South (fka Windmill South) Sarasota FL 5,464 1,106 3,162 0 830 Five Seasons Cedar Rapids IA 0 1,053 3,436 0 679 Holiday Village, IA Sioux City IA 0 313 3,744 0 520 Golf Vistas Monee IL 14,577 2,843 4,719 0 5,948 O'Connell's Amboy IL 4,955 1,658 4,974 0 148 Willow Lake Estates Elgin IL 22,129 6,138 21,033 0 3,816 Forest Oaks (fka BurnsHarbor) Chesterton IN 0 916 2,909 0 1,740 Lakeside New Carlisle IN 0 426 1,281 0 12 Oak Tree Village Portage IN 4,476 0 0 569 3,607 Windsong Indianapolis IN 0 1,482 4,480 0 192 Creekside Wyoming MI 3,760 1,109 3,646 0 113 Casa Village Billings MT 11,040 1,011 3,109 157 3,471 Waterway RV Resort Cedar Point NC 6,226 2,392 7,185 0 3 Goose Creek Resort Newport NC 12,491 4,612 13,848 0 814 Twin Lakes Chocowinity NC 3,739 1,719 3,361 0 19 Del Rey Albuquerque NM 0 1,926 5,800 0 727 Bonanza Las Vegas NV 4,861 908 2,643 0 984 Boulder Cascade Las Vegas NV 8,871 2,995 9,020 0 1,136 Cabana Las Vegas NV 9,245 2,648 7,989 0 301 Flamingo West Las Vegas NV 10,647 1,730 5,266 0 1,273 Villa Borega Las Vegas NV 7,011 2,896 8,774 0 592 Greenwood Village Manorville NY 17,468 3,667 9,414 484 3,542 Falcon Wood Village Eugene OR 5,200 1,112 3,426 0 213 Quail Hollow Fairview OR 0 0 3,249 0 226 Shadowbrook Clackamas OR 6,320 1,197 3,693 0 165 Mt. Hood Village Welches OR 0 1,817 5,733 0 -302 Green Acres Breinigsville PA 13,908 2,680 7,479 0 2,817 Spring Gulch New Holland PA 4,819 1,593 4,795 0 6 Country Sunshine Weslaco TX 2,266 627 1,881 0 5 Fun n Sun San Benito TX 0 2,533 0 417 9,828 Lakewood Harlingen TX 1,227 325 979 0 2 Gross Amount Carried at Close of Period 12/31/04 ----------------------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition ----------- ----------------- ----- ----------- ------ ------------ ----------- Windmill Manor Bradenton FL 2,153 7,262 9,415 (1,603) 1998 Windmill Village - Ft. Myers N. Ft. Myers FL 1,417 6,700 8,117 (4,379) 1983 Winds of St. Armands North (fka Windmill North) Sarasota FL 1,523 6,726 8,249 (3,936) 1983 Winds of St. Armands South (fka Windmill South) Sarasota FL 1,106 3,992 5,098 (2,443) 1983 Five Seasons Cedar Rapids IA 1,053 4,115 5,168 (1,222) 1998 Holiday Village, IA Sioux City IA 313 4,264 4,577 (2,553) 1986 Golf Vistas Monee IL 2,843 10,667 13,510 (2,126) 1997 O'Connell's Amboy IL 1,658 5,122 6,780 (173) 2004 Willow Lake Estates Elgin IL 6,138 24,849 30,987 (8,048) 1994 Forest Oaks (fka Burns Harbor) Chesterton IN 916 4,649 5,565 (1,912) 1993 Lakeside New Carlisle IN 426 1,293 1,719 (40) 2004 Oak Tree Village Portage IN 569 3,607 4,176 (1,772) 1987 Windsong Indianapolis IN 1,482 4,672 6,154 (1,278) 1998 Creekside Wyoming MI 1,109 3,759 4,868 (896) 1998 Casa Village Billings MT 1,168 6,580 7,748 (3,130) 1983 Waterway RV Resort Cedar Point NC 2,392 7,188 9,580 (221) 2004 Goose Creek Resort Newport NC 4,612 14,662 19,274 (437) 2004 Twin Lakes Chocowinity NC 1,719 3,380 5,099 (105) 2004 Del Rey Albuquerque NM 1,926 6,527 8,453 (2,602) 1993 Bonanza Las Vegas NV 908 3,627 4,535 (2,238) 1983 Boulder Cascade Las Vegas NV 2,995 10,156 13,151 (2,315) 1998 Cabana Las Vegas NV 2,648 8,290 10,938 (2,936) 1994 Flamingo West Las Vegas NV 1,730 6,539 8,269 (2,092) 1994 Villa Borega Las Vegas NV 2,896 9,366 12,262 (2,266) 1997 Greenwood Village Manorville NY 4,151 12,956 17,107 (2,609) 1998 Falcon Wood Village Eugene OR 1,112 3,639 4,751 (902) 1997 Quail Hollow Fairview OR 0 3,475 3,475 (861) 1997 Shadowbrook Clackamas OR 1,197 3,858 5,055 (1,004) 1997 Mt. Hood Village Welches OR 1,817 5,431 7,248 (564) 2002 Green Acres Breinigsville PA 2,680 10,296 12,976 (5,077) 1988 Spring Gulch New Holland PA 1,593 4,801 6,394 (163) 2004 Country Sunshine Weslaco TX 627 1,886 2,513 (57) 2004 Fun n Sun San Benito TX 2,950 9,828 12,778 (2,123) 1998 Lakewood Harlingen TX 325 981 1,306 (30) 2004 S-6
SCHEDULE III EQUITY LIFESTYLE PROPERTIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2004 (AMOUNTS IN THOUSANDS) Costs Capitalized Subsequent to Initial Cost to Acquisition Company (Improvements) ---------------------- -------------------- Depreciable Depreciable Real Estate Location Encumbrances Land Property Land Property ----------- -------------------- ------------ -------- ----------- ------ ----------- Paradise Park Rio Grande Valley TX 5,430 1,568 4,705 0 4 Paradise South Mercedes TX 1,619 448 1,345 0 5 Southern Comfort Weslaco TX 2,590 1,108 3,323 0 2 Sunshine RV Harlingen TX 4,792 1,494 4,484 0 3 Tropic Winds Harlingen TX 0 1,221 3,809 0 101 All Seasons Salt Lake City UT 3,491 510 1,623 0 211 Westwood Village Farr West UT 7,493 1,346 4,179 0 1,163 Meadows of Chantilly Chantilly VA 27,494 5,430 16,440 0 3,781 Kloshe Illahee Federal Way WA 6,084 2,408 7,286 0 277 Caledonia Caledonia WI 0 376 1,127 0 0 Freemont Freemont WI 4,300 1,432 4,296 0 0 Yukon Trails Lyndon Station WI 0 547 1,629 0 13 Thousand Trails 0 48,537 113,253 0 0 Realty Systems, Inc. 0 0 0 0 4,632 Management Business 0 0 436 0 9,424 --------- -------- ---------- ------ -------- 1,417,251 $466,556 $1,361,519 $4,031 $203,684 ========= ======== ========== ====== ======== Gross Amount Carried at Close of Period 12/31/04 ----------------------------------- Depreciable Accumulated Date of Real Estate Location Land Property Total Depreciation Acquisition ----------- -------------------- -------- ----------- ---------- ------------ ----------- Paradise Park Rio Grande Valley TX 1,568 4,709 6,277 (144) 2004 Paradise South - Encore Mercedes TX 448 1,350 1,798 (41) 2004 Southern Comfort Weslaco TX 1,108 3,325 4,433 (102) 2004 Sunshine RV - Encore Harlingen TX 1,494 4,487 5,981 (137) 2004 Tropic Winds Harlingen TX 1,221 3,910 5,131 (329) 2002 All Seasons Salt Lake City UT 510 1,834 2,344 (491) 1997 Westwood Village Farr West UT 1,346 5,342 6,688 (1,369) 1997 Meadows of Chantilly Chantilly VA 5,430 20,221 25,651 (6,764) 1994 Kloshe Illahee Federal Way WA 2,408 7,563 9,971 (1,846) 1997 Caledonia Caledonia WI 376 1,127 1,503 0 2004 Freemont Freemont WI 1,432 4,296 5,728 0 2004 Yukon Trails Lyndon Station WI 547 1,642 2,189 (10) 2004 Thousand Trails 48,537 113,253 161,790 (629) 2004 Realty Systems, Inc. 0 4,632 4,632 (2) 2002 Management Business 0 9,860 9,860 (10,359) 1990 -------- ---------- ---------- -------- $470,587 $1,565,203 $2,035,790 ($322,867) ======== ========== ========== ======== NOTES: (1) For depreciable property, the Company uses a 30-year estimated life for buildings acquired and structural and land improvements, a ten-to-fifteen year estimated life for building upgrades and a three-to-seven year estimated life for furniture and fixtures. (2) The schedule excludes 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
EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation 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 reports dated March 24, 2005 with respect to the consolidated financial statements and schedules of Equity Lifestyle Properties, Inc., Equity Lifestyle Properties, Inc.'s management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financing reporting of Equity Lifestyle Properties, Inc., included in this Annual Report (Form 10-K/A) for the year ended December 31, 2004. ERNST & YOUNG, LLP Chicago, Illinois March 24, 2005
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 annual report on Form 10-K/A 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; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2005 By: /s/ Michael B. Berman ---------------------------------- Michael B. Berman Vice President, Treasurer and Chief Financial Officer
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 annual report on Form 10-K/A 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; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2005 By: /s/ Thomas P. Heneghan ------------------------------------- Thomas P. Heneghan President and Chief Executive Officer
EXHIBIT 32.1 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Annual Report on Form 10-K/A of Equity Lifestyle Properties, Inc. for the year ended December 31, 2004 (the "Annual Report"), I, Michael B. Berman, Vice President, Treasurer and Chief Financial Officer of Equity Lifestyle Properties, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. the Annual Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Equity Lifestyle Properties, Inc. Date: March 31, 2005 By: /s/ Michael B. Berman ------------------------------------ Michael B. Berman Vice President, Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO EQUITY LIFESTYLE PROPERTIES, INC. AND WILL BE RETAINED BY EQUITY LIFESTYLE PROPERTIES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.
EXHIBIT 32.2 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Annual Report on Form 10-K/A of Equity Lifestyle Properties, Inc. for the year ended December 31, 2004 (the "Annual Report"), I, Thomas P. Heneghan, President and Chief Executive Officer of Equity Lifestyle Properties, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. the Annual Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Equity Lifestyle Properties, Inc. Date: March 31, 2005 By: /s/ Thomas P. Heneghan ------------------------------------ Thomas P. Heneghan President and Chief Executive Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO EQUITY LIFESTYLE PROPERTIES, INC. AND WILL BE RETAINED BY EQUITY LIFESTYLE PROPERTIES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.