e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to_______________
Commission file number: 1-11718
EQUITY LIFESTYLE PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Maryland
(State or Other Jurisdiction of Incorporation or Organization)
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36-3857664
(I.R.S. Employer Identification No.) |
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Two North Riverside Plaza, Suite 800, Chicago, Illinois
(Address of Principal Executive Offices)
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60606
(Zip Code) |
(312) 279-1400
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non- accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date:
31,209,453 shares of Common Stock as of May 3, 2011.
Equity LifeStyle Properties, Inc.
Table of Contents
2
Equity LifeStyle Properties, Inc.
Consolidated Balance Sheets
As of March 31, 2011 and December 31, 2010
(amounts in thousands, except share and per share data)
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March 31, |
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2011 |
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December 31, |
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(unaudited) |
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2010 |
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Assets |
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Investment in real estate: |
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Land |
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$ |
544,464 |
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$ |
544,462 |
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Land improvements |
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1,762,709 |
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1,762,122 |
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Buildings and other depreciable property |
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288,163 |
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278,403 |
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2,595,336 |
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2,584,987 |
|
Accumulated depreciation |
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(718,974 |
) |
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(700,665 |
) |
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Net investment in real estate |
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1,876,362 |
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1,884,322 |
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Cash and cash equivalents |
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43,137 |
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12,659 |
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Short-term investments |
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49,269 |
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52,266 |
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Notes receivable, net |
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24,629 |
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25,726 |
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Investment in joint ventures |
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8,509 |
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8,446 |
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Rent and other customer receivables, net |
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428 |
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419 |
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Deferred financing costs, net |
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10,096 |
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10,688 |
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Inventory |
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3,265 |
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3,177 |
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Deferred commission expense |
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15,898 |
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14,898 |
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Escrow deposits and other assets |
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35,269 |
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35,794 |
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Total Assets |
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$ |
2,066,862 |
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$ |
2,048,395 |
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Liabilities and Equity |
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Liabilities: |
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Mortgage notes payable |
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$ |
1,407,176 |
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$ |
1,412,919 |
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Unsecured lines of credit |
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Accrued payroll and other operating expenses |
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55,631 |
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52,782 |
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Deferred revenue upfront payments from right-to-use contracts |
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46,845 |
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44,349 |
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Deferred revenue right-to-use annual payments |
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18,684 |
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12,642 |
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Accrued interest payable |
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7,189 |
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7,174 |
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Rents and other customer payments received in advance and security deposits |
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48,283 |
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47,738 |
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Distributions payable |
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13,316 |
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10,633 |
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Total Liabilities |
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1,597,124 |
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1,588,237 |
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Commitments and contingencies |
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Non-controlling interests Perpetual Preferred OP Units |
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200,000 |
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8.034% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share, 10,000,000 shares authorized, 8,000,000
issued and outstanding as of March 31, 2011 and none issued and
outstanding as of December 31, 2010, at liquidation value |
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200,000 |
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Equity: |
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Stockholders Equity: |
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Common stock, $.01 par value 100,000,000 shares authorized; 31,196,318 and 30,972,353
shares issued and outstanding for March 31, 2011 and
December 31, 2010, respectively |
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311 |
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|
310 |
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Paid-in capital |
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465,959 |
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463,722 |
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Distributions in excess of accumulated earnings |
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(229,740 |
) |
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(237,002 |
) |
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Total Stockholders Equity |
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236,530 |
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227,030 |
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Non-controlling interests Common OP Units |
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33,208 |
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33,128 |
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Total Equity |
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269,738 |
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260,158 |
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Total Liabilities and Equity |
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$ |
2,066,862 |
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$ |
2,048,395 |
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The accompanying notes are an integral part of the financial statements.
3
Equity LifeStyle Properties, Inc.
Consolidated Statements of Operations
For the Quarters Ended March 31, 2011 and 2010
(amounts in thousands, except share and per share data)
(unaudited)
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Quarters Ended |
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March 31, |
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2011 |
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2010 |
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Revenues: |
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Community base rental income |
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$ |
66,183 |
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$ |
64,422 |
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Resort base rental income |
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36,468 |
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36,945 |
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Right-to-use annual payments |
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12,012 |
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|
12,185 |
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Right-to-use contracts current period, gross |
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3,853 |
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4,937 |
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Right-to-use contracts, deferred, net of prior period amortization |
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(2,496 |
) |
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(3,948 |
) |
Utility and other income |
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13,062 |
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12,889 |
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Gross revenues from home sales |
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1,357 |
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1,047 |
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Brokered resale revenues, net |
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253 |
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239 |
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Ancillary services revenues, net |
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1,025 |
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1,063 |
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Interest income |
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1,039 |
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1,192 |
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Income from other investments, net |
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699 |
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|
1,177 |
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Total revenues |
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133,455 |
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132,148 |
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Expenses: |
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Property operating and maintenance |
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44,311 |
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43,454 |
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Real estate taxes |
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8,057 |
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8,314 |
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Sales and marketing, gross |
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2,256 |
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3,263 |
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Sales and marketing, deferred commissions, net |
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(1,000 |
) |
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(1,412 |
) |
Property management |
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8,463 |
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8,740 |
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Depreciation on real estate and other costs |
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17,227 |
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16,923 |
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Cost of home sales |
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1,419 |
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1,159 |
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Home selling expenses |
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477 |
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477 |
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General and administrative |
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5,647 |
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5,676 |
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Rent control initiatives |
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112 |
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|
714 |
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Depreciation on corporate assets |
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249 |
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210 |
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Interest and related amortization |
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21,389 |
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23,767 |
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Total expenses |
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108,607 |
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111,285 |
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Income before equity in income of unconsolidated joint ventures |
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24,848 |
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20,863 |
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Equity in income of unconsolidated joint ventures |
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784 |
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841 |
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Consolidated income from continuing operations |
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25,632 |
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21,704 |
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Discontinued Operations: |
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Discontinued operations |
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Loss from discontinued real estate |
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(177 |
) |
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Loss from discontinued operations |
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(177 |
) |
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Consolidated net income |
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25,632 |
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21,527 |
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Income allocated to non-controlling interests Common OP Units |
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(2,621 |
) |
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(2,432 |
) |
Income allocated to non-controlling interests Perpetual Preferred OP Units |
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(2,801 |
) |
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(4,031 |
) |
Redeemable Perpetual Preferred Stock Dividends |
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(1,250 |
) |
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Net income available for Common Shares |
|
$ |
18,960 |
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|
$ |
15,064 |
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|
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|
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|
The accompanying notes are an integral part of the financial statements.
4
Equity LifeStyle Properties, Inc.
Consolidated Statements of Operations
(Continued)
For the Quarters Ended March 31, 2011 and 2010
(amounts in thousands, except share and per share data)
(unaudited)
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Quarters Ended |
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March 31, |
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2011 |
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2010 |
|
Earnings per Common Share Basic: |
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Income from continuing operations |
|
$ |
0.61 |
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$ |
0.50 |
|
Loss from discontinued operations |
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Net income available for Common Shares |
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$ |
0.61 |
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$ |
0.50 |
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Earnings per Common Share Fully Diluted: |
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Income from continuing operations |
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$ |
0.61 |
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$ |
0.49 |
|
Loss from discontinued operations |
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|
|
|
|
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|
|
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|
Net income available for Common Shares |
|
$ |
0.61 |
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|
$ |
0.49 |
|
|
|
|
|
|
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|
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|
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Distributions declared per Common Share outstanding |
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$ |
0.375 |
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$ |
0.30 |
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Weighted average Common Shares outstanding basic |
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30,996 |
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|
30,304 |
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|
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|
Weighted average Common Shares outstanding fully diluted |
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|
35,609 |
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|
35,500 |
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|
The accompanying notes are an integral part of the financial statements.
5
Equity LifeStyle Properties, Inc.
Consolidated Statements of Changes in Equity
For the Quarter Ended March 31, 2011
(amounts in thousands)
(unaudited)
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Distributions in |
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Excess of |
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Non-controlling |
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Accumulated |
|
interests - Common |
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Common Stock |
|
Paid-in Capital |
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Earnings |
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OP Units |
|
Total Equity |
Balance, December 31, 2010 |
|
$ |
310 |
|
|
$ |
463,722 |
|
|
$ |
(237,002 |
) |
|
$ |
33,128 |
|
|
$ |
260,158 |
|
Conversion of OP Units to common stock |
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|
1 |
|
|
|
923 |
|
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|
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|
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|
(924 |
) |
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Issuance of common stock through exercise of
options |
|
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|
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|
23 |
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|
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|
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|
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|
23 |
|
Issuance of common stock through employee
stock purchase plan |
|
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|
|
|
204 |
|
|
|
|
|
|
|
|
|
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|
204 |
|
Compensation expenses related to stock options
and restricted stock |
|
|
|
|
|
|
1,244 |
|
|
|
|
|
|
|
|
|
|
|
1,244 |
|
Repurchase of common stock or Common OP
Units |
|
|
|
|
|
|
(157 |
) |
|
|
|
|
|
|
|
|
|
|
(157 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
18,960 |
|
|
|
2,621 |
|
|
|
21,581 |
|
Distributions |
|
|
|
|
|
|
|
|
|
|
(11,698 |
) |
|
|
(1,617 |
) |
|
|
(13,315 |
) |
|
|
|
Balance, March 31, 2011 |
|
$ |
311 |
|
|
$ |
465,959 |
|
|
$ |
(229,740 |
) |
|
$ |
33,208 |
|
|
$ |
269,738 |
|
|
|
|
The accompanying notes are an integral part of the financial statements.
6
Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows
For the Quarters Ended March 31, 2011 and 2010
(amounts in thousands)
(unaudited)
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|
March 31, |
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March 31, |
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|
2011 |
|
|
2010 |
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
25,632 |
|
|
$ |
21,527 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Loss on discontinued real estate and other |
|
|
|
|
|
|
177 |
|
Depreciation expense |
|
|
18,653 |
|
|
|
18,175 |
|
Amortization expense |
|
|
1,077 |
|
|
|
814 |
|
Debt premium amortization |
|
|
8 |
|
|
|
4 |
|
Equity in income of unconsolidated joint ventures |
|
|
(1,090 |
) |
|
|
(1,147 |
) |
Distributions from unconsolidated joint ventures |
|
|
647 |
|
|
|
564 |
|
Amortization of stock-related compensation |
|
|
1,244 |
|
|
|
1,044 |
|
Revenue recognized from right-to-use contract sales |
|
|
(1,357 |
) |
|
|
(989 |
) |
Commission expense recognized related to right-to-use contracts |
|
|
436 |
|
|
|
296 |
|
Accrued long term incentive plan compensation |
|
|
272 |
|
|
|
|
|
Increase in provision for uncollectible rents receivable |
|
|
376 |
|
|
|
61 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Notes receivable activity, net |
|
|
47 |
|
|
|
9 |
|
Rent and other customer receivables, net |
|
|
(384 |
) |
|
|
8 |
|
Inventory |
|
|
648 |
|
|
|
600 |
|
Deferred commission expense |
|
|
(1,436 |
) |
|
|
(1,708 |
) |
Escrow deposits and other assets |
|
|
41 |
|
|
|
(1,141 |
) |
Accrued payroll and other operating expenses |
|
|
2,665 |
|
|
|
2,015 |
|
Deferred revenue upfront payments from right-to-use contracts |
|
|
3,853 |
|
|
|
4,937 |
|
Deferred revenue right-to-use annual payments |
|
|
6,042 |
|
|
|
6,650 |
|
Rents received in advance and security deposits |
|
|
544 |
|
|
|
(80 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
57,918 |
|
|
|
51,816 |
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Net tax-deferred exchange withdrawal |
|
|
|
|
|
|
786 |
|
Proceeds from short-term investments |
|
|
2,997 |
|
|
|
|
|
Net repayment of notes receivable |
|
|
866 |
|
|
|
481 |
|
Capital improvements |
|
|
(10,939 |
) |
|
|
(7,788 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7,076 |
) |
|
|
(6,521 |
) |
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Net proceeds from stock options and employee stock purchase plan |
|
|
227 |
|
|
|
314 |
|
Distributions to Common Stockholders, Common OP Unitholders, Perpetual Preferred
OP Unitholders and Redeemable Perpetual Preferred Stockholders |
|
|
(14,683 |
) |
|
|
(14,632 |
) |
Stock repurchase and Unit redemption |
|
|
(157 |
) |
|
|
(366 |
) |
Acquisition of non-controlling interests |
|
|
|
|
|
|
(1,453 |
) |
Principal payments and mortgage debt payoff |
|
|
(5,751 |
) |
|
|
(13,516 |
) |
New financing proceeds |
|
|
|
|
|
|
11,950 |
|
Debt issuance costs |
|
|
|
|
|
|
(413 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(20,364 |
) |
|
|
(18,116 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
30,478 |
|
|
|
27,179 |
|
Cash and cash equivalents, beginning of period |
|
|
12,659 |
|
|
|
145,128 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
43,137 |
|
|
$ |
172,307 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
7
Equity LifeStyle Properties, Inc.
Consolidated Statements of Cash Flows
(continued)
For the Quarters Ended March 31, 2011 and 2010
(amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Supplemental Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
20,811 |
|
|
$ |
23,184 |
|
Non-cash activities (increase/(decrease)): |
|
|
|
|
|
|
|
|
Manufactured homes acquired with dealer financing |
|
|
|
|
|
|
1,011 |
|
Dealer financing |
|
|
|
|
|
|
(1,011 |
) |
Capital improvements |
|
|
183 |
|
|
|
222 |
|
Net repayment of notes receivable |
|
|
(183 |
) |
|
|
(222 |
) |
|
|
|
|
|
|
|
|
|
Dispositions: |
|
|
|
|
|
|
|
|
Other assets and liabilities, net |
|
|
|
|
|
|
(97 |
) |
Investment in real estate |
|
|
|
|
|
|
(3,531 |
) |
Mortgage notes payable assumed by purchaser |
|
|
|
|
|
|
(3,628 |
) |
The accompanying notes are an integral part of the financial statements.
8
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Definition of Terms:
Equity LifeStyle Properties, Inc., a Maryland corporation, together with MHC Operating Limited
Partnership (the Operating Partnership) and other consolidated subsidiaries (Subsidiaries), are
referred to herein as the Company and ELS. Capitalized terms used but not defined herein are
as defined in the Companys Annual Report on Form 10-K (2010 Form 10-K) for the year ended
December 31, 2010.
Presentation:
These unaudited Consolidated Financial Statements have been prepared pursuant to the
Securities and Exchange Commission (SEC) rules and regulations and should be read in conjunction
with the financial statements and notes thereto included in the 2010 Form 10-K. The following
Notes to Consolidated Financial Statements highlight significant changes to the Notes included in
the 2010 Form 10-K and present interim disclosures as required by the SEC. The accompanying
Consolidated Financial Statements reflect, in the opinion of management, all adjustments necessary
for a fair presentation of the interim financial statements. All such adjustments are of a normal
and recurring nature. Revenues are subject to seasonal fluctuations and as such quarterly interim
results may not be indicative of full year results.
Note 1 Summary of Significant Accounting Policies
The Company follows accounting standards set by the Financial Accounting Standards Board,
commonly referred to as the FASB. The FASB sets generally accepted accounting principles
(GAAP) that the Company follows to ensure that the Company consistently reports its financial
condition, results of operations and cash flows. References to GAAP issued by the FASB in these
footnotes are to the FASB Accounting Standards Codification (the Codification).
(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
it is the primary beneficiary. The Company also consolidates entities in which is has a
controlling direct or indirect voting interest. All inter-company transactions have been
eliminated in consolidation. For business combinations for which the acquisition date is on or
after January 1, 2009, the purchase price of Properties is accounted for in accordance with the
Codification Topic Business Combinations (FASB ASC 805).
The Company has applied the Codification Sub-Topic Variable Interest Entities (FASB ASC
810-10-15). The objective of FASB ASC 810-10-15 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 companys consolidated
financial statements. Prior to January 1, 2010, a company that held a variable interest in an
entity was required to consolidate such entity if the company absorbed a majority of the entitys
expected losses or received a majority of the entitys expected residual returns if they occur, or
both (i.e., the primary beneficiary). The Company also applied the Codification Sub-Topic Control
of Partnerships and Similar Entities (FASB ASC 810-20), which determines whether a general
partner or the general partners as a group controls a limited partnership or similar entity and
therefore should consolidate the entity. Beginning January 1, 2010, the Codification Sub-Topic ASC
810-10-15 adopted amendments to the variable interest consolidation model described above. The
requirement to consolidate a VIE as revised in this amendment is based on the qualitative analysis
considerations for primary beneficiary determination which requires a company consolidate an entity
determined to be a VIE if it has both of the following characteristics: (1) the power to direct the
principal activities of the entity and (2) the obligation to absorb losses of the VIE or the right
to receive benefits from the VIE that could potentially be significant to the VIE. The Company
applies FASB ASC 810-10-15 and FASB ASC 810-20 to all types of entity ownership (general and
limited partnerships and corporate interests).
The Company applies the equity method of accounting to entities in which the Company does not
have a controlling direct or indirect voting interest or is not considered the primary beneficiary,
but can exercise influence over the entity with respect to its operations and major decisions. The
cost method is applied when (i) the investment is minimal (typically less than 5%) and (ii) the
Companys investment is passive.
9
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
(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. All property and site counts
are unaudited.
(c) Markets
The Company manages all of its 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 the Companys belief that geographic diversification helps
insulate the portfolio from regional economic influences. The Company intends to target new
acquisitions in or near markets where the Properties are located and will also consider
acquisitions of Properties outside such markets.
(d) Real Estate
In accordance with FASB ASC 805, which is effective for acquisitions on or after January 1,
2009, the Company recognizes all the assets acquired and all the liabilities assumed in a
transaction at the acquisition-date fair value. The Company also expenses transaction costs as
they are incurred. Certain purchase price adjustments may be made within one year following any
acquisition and applied retroactively to the date of acquisition.
In making estimates of fair values for purposes of allocating purchase price, the Company
utilizes 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. The Company
also considers information obtained about each Property as a result of its 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. The Company generally uses
a 30-year estimated life for buildings acquired and structural and land improvements (including
site development), a ten-year estimated life for building upgrades and a five-year estimated life
for furniture, fixtures and equipment. New rental units are generally depreciated using a 20-year
estimated life from each model year down to a salvage value of 40% of the original costs. Used
rental units are generally depreciated based on the estimated life of the unit with no estimated
salvage value.
The values of above-and below-market leases are amortized and recorded as either an increase
(in the case of below-market leases) or a decrease (in the case of above-market leases) to rental
income over the remaining term of the associated lease. The value associated with in-place leases
is amortized over the expected term, which includes an estimated probability of lease renewal.
Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and
significant renovations and improvements that improve the asset and extend the useful life of the
asset are capitalized over their estimated useful life.
The Company periodically evaluates its long-lived assets, including its investments in real
estate, for impairment indicators. The Companys judgments regarding the existence of impairment
indicators are based on factors such as operational performance, market conditions and legal
factors. Future events could occur which would cause the Company to conclude that impairment
indicators exist and an impairment loss is warranted.
For long-lived assets to be held and used, including the Companys investments in rental
units, if an impairment indicator exists, the Company compares the expected future undiscounted
cash flows for the long-lived asset against the carrying amount of that asset. If the sum of the
estimated undiscounted cash flows is less than the carrying amount of the asset, the Company would
record an impairment loss for the difference between the estimated fair value and the carrying
amount of the asset.
10
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
For Properties to be disposed of, an impairment loss is recognized when the fair value of the
Property, less the estimated cost to sell, is less than the carrying amount of the Property
measured at the time the Company has a commitment to sell the Property and/or is actively marketing
the Property for sale. A Property to be disposed of is reported at the lower of its carrying
amount or its estimated fair value, less costs to sell. Subsequent to the date that a Property is
held for disposition, depreciation expense is not recorded. The Company accounts for its
Properties held for disposition in accordance with the Codification Sub-Topic Impairment or
Disposal of Long Lived Assets (FASB ASC 360-10-35). Accordingly, the results of operations for
all assets sold or held for sale have been classified as discontinued operations in all periods
presented.
(e) Identified Intangibles and Goodwill
The Company records acquired intangible assets at their estimated fair value separate and
apart from goodwill. The Company amortizes identified intangible assets and liabilities that are
determined to have finite lives over the period the assets and liabilities are expected to
contribute directly or indirectly to the future cash flows of the property or business acquired.
Intangible assets subject to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. An impairment loss is
recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount
exceeds its estimated fair value.
The excess of the cost of an acquired entity over the net of the amounts assigned to assets
acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill.
Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a
reporting unit on an annual basis, or more frequently if events or changes in circumstances
indicate that the asset might be impaired.
As of March 31, 2011 and December 31, 2010, the carrying amounts of identified intangible
assets and goodwill, a component of Escrow deposits and other assets on the Companys
consolidated balance sheets, were approximately $15.9 million, comprised of approximately $8.1
million of identified intangible assets and approximately $7.8 million of goodwill. Accumulated
amortization of identified intangible assets was approximately $2.0 million and $1.6 million as of
March 31, 2011 and December 31, 2010, respectively.
Estimated amortization of identified intangible assets for each of the next five years are as
follows (amounts in thousands):
|
|
|
|
|
Year ending December 31, |
|
Amount |
2011 |
|
$ |
1,892 |
|
2012 |
|
$ |
1,792 |
|
2013 |
|
$ |
432 |
|
2014 |
|
$ |
349 |
|
2015 |
|
$ |
349 |
|
(f) Cash and Cash Equivalents
The Company considers all demand and money market accounts and certificates of deposit with a
maturity date, when purchased, of three months or less to be cash equivalents. The cash and cash
equivalents as of March 31, 2011 and December 31, 2010 include approximately $3.0 million of
restricted cash.
(g) Short-term Investments
The Companys short-term investments consist of U.S. Treasury Bills with maturity dates in
excess of three months which are treated as held-to-maturity and are carried at the amortized cost.
All U.S. Treasury Bills will mature on or prior to May 31, 2011.
11
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
(h) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid principal balances net of
any deferred fees or costs on originated loans, unamortized discounts or premiums, and an
allowance. Interest income is accrued on the unpaid principal balance. Discounts or premiums are
amortized to income using the interest method. In certain cases the Company finances the sales of
homes to its customers (referred to as Chattel Loans) which loans are secured by the homes. The
valuation of an allowance for doubtful accounts for the Chattel Loans is calculated based on
delinquency trends and a comparison of the outstanding principal balance of each note compared to
the N.A.D.A. (National Automobile Dealers Association) value and the current estimated market value
of the underlying manufactured home collateral.
The Company also provides financing for nonrefundable upfront payments on entering or upgrades
of right-to-use contracts (Contracts Receivable). Based upon historical collection rates and
current economic trends, when an up-front payment is financed, a reserve is established for a
portion of the Contracts Receivable balance estimated to be uncollectible. The reserve and the
rate at which the Company provides for losses on its Contracts Receivable could be increased or
decreased in the future based on its actual collection experience. (See Note 6 in the Notes to
Consolidated Financial Statements contained in this Form 10-Q.)
On August 14, 2008, the Company purchased Contracts Receivable that were recorded at fair
value at the time of acquisition of approximately $19.6 million under the Codification Topic Loans
and Debt Securities Acquired with Deteriorated Credit Quality (FASB ASC 310-30). The fair value
of these Contracts Receivable includes an estimate of losses that are expected to be incurred over
the estimated remaining lives of the receivables, and therefore no allowance for losses was
recorded for these Contracts Receivable as of the transaction date. Through March 31, 2011, the
credit performance of these Contracts Receivable has generally been consistent with the assumptions
used in determining its initial fair value, and the Companys original expectations regarding the
amounts and timing of future cash flows has not changed. The carrying amount of these Contracts
Receivable as of March 31, 2011 and 2010 was $2.9 million and $7.4 million, respectively. A
probable decrease in managements expectation of future cash collections related to these Contracts
Receivable could result in the need to record an allowance for credit losses in the future. A
significant and probable increase in expected cash flows would generally result in an increase in
interest income recognized over the remaining life of the underlying pool of Contracts Receivable.
(i) Investments in Joint Ventures
Investments in joint ventures in which the Company does not have a controlling direct or
indirect voting interest, but can exercise significant influence over the entity with respect to
its operations and major decisions, are accounted for using the equity method of accounting whereby
the cost of an investment is adjusted for the Companys 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. See Note 5 in the Notes to Consolidated Financial Statements contained in this Form
10-Q.
(j) Insurance Claims
The Properties are covered against losses caused by various events including fire, flood,
property damage, earthquake, windstorm and business interruption by insurance policies containing
various deductible requirements and coverage limits. Recoverable costs are classified in other
assets as incurred. Insurance proceeds are applied against the asset when received. Recoverable
costs relating to capital items are treated in accordance with the Companys capitalization policy.
The book value of the original capital item is written off once the value of the impaired asset
has been determined. Insurance proceeds relating to the capital costs are recorded as income in
the period they are received.
Approximately 70 Florida Properties suffered damage from five hurricanes that struck the state
during 2004 and 2005. The Company estimates its total claim to be approximately $21.0 million and
has made claims for full recovery of these amounts, subject to deductibles.
12
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
The Company has received proceeds from insurance carriers of approximately $11.2 million
through March 31, 2011. The proceeds were accounted for in accordance with the Codification Topic
Contingencies (FASB ASC 450). During the quarter ended March 31, 2010, approximately $0.4
million had been recognized as a gain on insurance recovery, which is net of approximately $0.2
million of contingent legal fees and included in income from other investments, net.
On June 22, 2007, the Company filed a lawsuit related to some of the unpaid claims against
certain insurance carriers and its insurance broker. See Note 12 in the Notes to Consolidated
Financial Statements contained in this Form 10-Q for further discussion of this lawsuit.
(k) Fair Value of Financial Instruments
The Companys financial instruments include short-term investments, notes receivable, accounts
receivable, accounts payable, other accrued expenses, and mortgage notes payable.
Codification Topic Fair Value Measurements and Disclosures (FASB ASC 820) establishes a
three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an asset or liability as of the
measurement date. A financial instruments categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. The three levels
are defined as follows:
Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2 Inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
At March 31, 2011 and December 31, 2010, the Companys investments in U.S. Treasury Bills of,
approximately $49.3 million and $52.3 million, respectively, were classified as held-to-maturity
and were measured using unadjusted quoted market prices (Level 1). The fair values of the
Companys remaining financial instruments approximate their carrying or contract values.
(l) Deferred Financing Costs, net
Deferred financing costs, net include fees and costs incurred to obtain long-term financing.
The costs are being amortized over the terms of the respective loans on a level yield basis, which
approximates straight line. Unamortized deferred financing fees are written-off when debt is
retired before the maturity date. Upon amendment of the line of credit or refinancing of mortgage
debt, unamortized deferred financing fees are accounted for in accordance with, Codification
Sub-Topic Modifications and Extinguishments (FASB ASC 470-50-40). Accumulated amortization for
such costs was $13.2 million and $12.6 million at March 31, 2011 and December 31, 2010,
respectively.
(m) Revenue Recognition
The Company accounts for leases with its customers as operating leases. Rental income is
recognized over the term of the respective lease or the length of a customers stay, the majority
of which are for a term of not greater than one year. The Company will reserve for receivables
when it believes the ultimate collection is less than probable. The Companys provision for
uncollectible rents receivable was approximately $3.4 million and $3.0 million as of March 31, 2011
and December 31, 2010, respectively.
13
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
The Company accounts for the entry of right-to-use contracts in accordance with the
Codification Topic Revenue Recognition (FASB ASC 605). A right-to-use contract gives the
customer the right to a set schedule of usage at a specified group of Properties. Customers may
choose to upgrade their contracts to increase their usage and the number of Properties they may
access. A contract requires the customer to make annual payments during the term of the contract
and may require an upfront nonrefundable payment. The stated term of a right-to-use contract is at
least one year and the customer may renew his contract by continuing to make the annual payments.
The Company will recognize the upfront non-refundable payments over the estimated customer life
which, based on historical attrition rates, the Company has estimated to be from one to 31 years.
For example, the Company has currently estimated that 7.9% of customers who enter a new
right-to-use contract will terminate their contract after five years. Therefore, the upfront
nonrefundable payments from 7.9% of the contracts entered in any particular period are amortized on
a straight-line basis over a period of five years as five years is the estimated customer life for
7.9% of the Companys customers who enter a contract. The historical attrition rates for upgrade
contracts are lower than for new contracts, and therefore, the nonrefundable upfront payments for
upgrade contracts are amortized at a different rate than for new contracts. The decision to
recognize this revenue in accordance with FASB ASC 605 was made after corresponding during
September and October 2008 with the Office of the Chief Accountant at the SEC.
Right-to-use annual payments by customers under the terms of the right-to-use contracts are
recognized ratably over a one-year period.
Income from home sales is recognized when the earnings process is complete. The earnings
process is complete when the home has been delivered, the purchaser has accepted the home and title
has transferred.
(n) Cumulative Redeemable Perpetual Preferred Stock
On March 4, 2011, the Company, on behalf of selling stockholders, closed on a public offering
of 8,000,000 shares of 8.034% Series A Cumulative Redeemable Perpetual Preferred Stock (the
Preferred Stock), par value $0.01 per share, liquidation preference of $25.00 per share, at a
price of $24.75 per share. The selling stockholders received the Preferred Stock in exchange for
$200 million of previously issued series D and series F Perpetual Preferred OP Units. The Company
did not receive any proceeds from the offering.
The Company accounts for the Preferred Stock in accordance with the Codification Topic
Consolidation (FASB ASC 810). The Company has the option to redeem the Preferred Stock at a
redemption price of $25.00 per share, plus accumulated and unpaid dividends. Holders of the
Preferred Stock have preference rights with respect to liquidation and distributions over the
common stock. Based on the Companys analysis, the Preferred Stock has been classified as
redeemable interests outside of permanent equity in the mezzanine section.
(o) Recent Accounting Pronouncements
In December 2010, FASB issued Accounting Standards Update (ASU) No. 2010-29, Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business
Combinations. This ASU specifies that when financial statements are presented, the revenue and
earnings of the combined entity should be disclosed as though the business combination that
occurred during the current year had occurred as of the beginning of the comparable prior annual
reporting period only. ASU 2010-29 is effective for business combinations with acquisition dates
on or after January 1, 2011. The adoption of this update did not have an impact on the Companys
consolidated financial statements.
In December 2010, the FASB issued ASU No. 2010-28, Intangibles-Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero
or Negative Carrying Amounts. This ASU requires that reporting units with zero or negative
carrying amounts perform Step 2 of the goodwill impairment test if it is more likely than not that
a goodwill impairment exists. ASU 2010-28 is effective for the Company beginning with this interim
period. The adoption of this update did not have an impact on the Companys financial condition or
results of operations.
(p) Reclassifications
Certain 2010 amounts have been reclassified to conform to the 2011 presentation. This
reclassification had no material effect on the consolidated balance sheets or statements of
operations of the Company.
14
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 2 Earnings Per Common Share
Earnings per common share are based on the weighted average number of common shares
outstanding during each year. Codification Topic Earnings Per Share (FASB ASC 260) 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 exclude any dilutive effects of options, warrants and convertible securities. The conversion
of OP Units has been excluded from the basic earnings per share calculation. The conversion of an
OP Unit to a share of common stock has no material effect on earnings per common share.
The following table sets forth the computation of basic and diluted earnings per common share
for the quarters ended March 31, 2011 and 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Numerators: |
|
|
|
|
|
|
|
|
Income from Continuing Operations: |
|
|
|
|
|
|
|
|
Income from continuing operations basic |
|
$ |
18,960 |
|
|
$ |
15,216 |
|
Amounts allocated to dilutive securities |
|
|
2,621 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
Income from continuing operations fully diluted |
|
$ |
21,581 |
|
|
$ |
17,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations: |
|
|
|
|
|
|
|
|
Loss from discontinued operations basic |
|
$ |
|
|
|
$ |
(152 |
) |
Amounts allocated to dilutive securities |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
Loss from discontinued operations fully diluted |
|
$ |
|
|
|
$ |
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available for Common Shares Fully Diluted: |
|
|
|
|
|
|
|
|
Net income available for Common Shares basic |
|
$ |
18,960 |
|
|
$ |
15,064 |
|
Amounts allocated to dilutive securities |
|
|
2,621 |
|
|
|
2,432 |
|
|
|
|
|
|
|
|
Net income available for Common Shares fully diluted |
|
$ |
21,581 |
|
|
$ |
17,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average Common Shares outstanding basic |
|
|
30,996 |
|
|
|
30,304 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Redemption of Common OP Units for Common Shares |
|
|
4,334 |
|
|
|
4,912 |
|
Employee stock options and restricted shares |
|
|
279 |
|
|
|
284 |
|
|
|
|
|
|
|
|
Weighted average Common Shares outstanding fully diluted |
|
|
35,609 |
|
|
|
35,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share Basic: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.61 |
|
|
$ |
0.50 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for Common Shares |
|
$ |
0.61 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share Fully Diluted: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.61 |
|
|
$ |
0.49 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for Common Shares |
|
$ |
0.61 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
15
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 3 Common Stock and Other Equity Related Transactions
On March 4, 2011, the Company, on behalf of selling stockholders, closed on a public offering
of 8,000,000 shares of the Preferred Stock, par value $0.01 per share, liquidation preference of
$25.00 per share, at a price of $24.75 per share. The selling stockholders received the Preferred
Stock in exchange for $200 million of previously issued series D and series F Perpetual Preferred
OP Units. Holders of the Preferred Stock have preference rights with respect to liquidation and
distributions over the common stock. The Company has the option to redeem the Preferred Stock at a
redemption price of $25.00 per share, plus accumulated and unpaid dividends. The Company did not
receive any proceeds from the offering.
On April 8, 2011, the Company paid a $0.375 per share distribution for the quarter ended March
31, 2011 to common stockholders of record on March 25, 2011. On March 31, 2011, the Company paid a
$0.156217 per share distribution on the Companys Preferred Stock, to preferred stockholders of
record on March 21, 2011. On March 31, 2011, the Company paid pro-rata distributions of 8.0625%
per annum on the $150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F
7.95% Units which were exchanged on March 4, 2011 for the Preferred Stock.
Note 4 Investment in Real Estate
Investment in real estate is comprised of (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of |
|
Properties Held for Long Term |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Investment in real estate: |
|
|
|
|
|
|
|
|
Land |
|
$ |
544,464 |
|
|
$ |
544,462 |
|
Land improvements |
|
|
1,762,709 |
|
|
|
1,762,122 |
|
Buildings and other depreciable property |
|
|
288,163 |
|
|
|
278,403 |
|
|
|
|
|
|
|
|
|
|
|
2,595,336 |
|
|
|
2,584,987 |
|
Accumulated depreciation |
|
|
(718,974 |
) |
|
|
(700,665 |
) |
|
|
|
|
|
|
|
Net investment in real estate |
|
$ |
1,876,362 |
|
|
$ |
1,884,322 |
|
|
|
|
|
|
|
|
Land improvements consist primarily of improvements such as grading, landscaping and
infrastructure items such as streets, sidewalks or water mains. Buildings and other depreciable
property consist of permanent buildings in the Properties such as clubhouses, laundry facilities,
maintenance storage facilities, rental units 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. Certain purchase price adjustments may be made within
one year following the acquisitions.
The Company actively seeks to acquire additional Properties and currently is engaged in
negotiations relating to the possible acquisition of a number of Properties. At any time these
negotiations are at varying stages, which may include contracts outstanding, to acquire certain
Properties, which are subject to satisfactory completion of the Companys due diligence review.
As of March 31, 2011, the Company had no Properties designated as held for disposition
pursuant to FASB ASC 360-10-35. One property held for disposition as of December 31, 2009,
Creekside, a 165-site all-age manufactured home community located in Wyoming, Michigan was disposed
of in January 2010.
Note 5 Investment in Joint Ventures
The Company recorded approximately $0.8 million of equity in income from unconsolidated joint
ventures, net of approximately $0.3 million of depreciation expense for each of the quarters ended
March 31, 2011 and 2010. The Company received approximately $0.6 million in distributions from
such joint ventures for each of the quarters ended March 31, 2011 and 2010. Approximately $0.6
million of such distributions were classified as a return on capital and were included in operating
activities on the Consolidated Statements of Cash Flows for each of the quarters ended March 31,
2011 and 2010. Approximately $0.1 million of the distributions received in the quarter ended March
31, 2010 exceeded the Companys basis in its joint venture and as such were recorded in income from
unconsolidated joint ventures.
16
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 5 Investment in Joint Ventures (continued)
The following table summarizes the Companys investments in unconsolidated joint ventures
(with the number of Properties shown parenthetically as of March 31, 2011 and December 31, 2010,
respectively with dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JV Income for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment as of |
|
|
Quarters Ended |
|
|
|
|
|
Number of |
|
|
Economic |
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
March 31, |
|
Investment |
|
Location |
|
Sites |
|
|
Interest(1) |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Meadows
|
|
Various (2,2)
|
|
|
1,027 |
|
|
|
50 |
% |
|
$ |
121 |
|
|
$ |
276 |
|
|
$ |
235 |
|
|
$ |
302 |
|
Lakeshore
|
|
Florida (2,2)
|
|
|
342 |
|
|
|
65 |
% |
|
|
124 |
|
|
|
115 |
|
|
|
74 |
|
|
|
46 |
|
Voyager
|
|
Arizona (1,1)
|
|
|
1,706 |
|
|
|
50
|
%(2) |
|
|
8,264 |
|
|
|
8,055 |
|
|
|
475 |
|
|
|
493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,075 |
|
|
|
|
|
|
$ |
8,509 |
|
|
$ |
8,446 |
|
|
$ |
784 |
|
|
$ |
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The percentages shown approximate the Companys economic interest as of March
31, 2011. The Companys legal ownership interest may differ. |
|
(2) |
|
Voyager joint venture primarily consists of a 50% interest in Voyager RV
Resort and a 25% interest in the utility plant servicing the Property. |
Note 6 Notes Receivable
As of March 31, 2011 and December 31, 2010, the Company had approximately $24.6 million and
$25.7 million in notes receivable, respectively. As of March 31, 2011 and December 31, 2010, the
Company had approximately $8.4 million and $8.9 million, respectively, in Chattel Loans receivable,
which yield interest at a per annum average rate of approximately 8.8%, have an average term
remaining of approximately 12 years, require monthly principal and interest payments and are
collateralized by homes at certain of the Properties. These notes are recorded net of allowances
of approximately $0.4 million as of March 31, 2011 and December 31, 2010. During the quarter ended
March 31, 2011 and year ended December 31, 2010, approximately $0.2 million and $0.8 million,
respectively, was repaid and an additional $0.1 million and $0.4 million, respectively, was loaned
to customers.
As of March 31, 2011 and December 31, 2010, the Company had approximately $16.0 million and
$16.7 million, respectively, of Contracts Receivables, including allowances of approximately $0.9
million and $1.4 million, respectively. These Contracts Receivables represent loans to customers
who have entered right-to-use contracts. The Contracts Receivable yield interest at a stated per
annum average rate of 16.2%, have a weighted average term remaining of approximately four years and
require monthly payments of principal and interest. During the quarter ended March 31, 2011 and
year ended December 31, 2010, approximately $2.1 million and $8.6 million, respectively, was repaid
and an additional $1.3 million and $7.9 million, respectively, was loaned to customers.
On April 6, 2011, the Company closed on a $3.8 million note receivable with a stated interest
rate of 15.0% per annum to the owner of Lakeland RV. Lakeland RV is a 700-site RV property located
in Milton, Wisconsin. The note requires interest only payments of 9.0% and matures on May 1, 2016.
The Company also holds a right of first refusal to match any offer received on Lakeland RV during
the time the note is outstanding.
Note 7 Long-Term Borrowings
As of March 31, 2011 and December 31, 2010, the Company had outstanding mortgage indebtedness
on Properties held for long term of approximately $1,407 million and $1,413 million, respectively.
The weighted average interest rate on this mortgage indebtedness for the quarter ended March 31,
2011 was approximately 6.1% per annum. The debt bears interest at rates of 5.0% to 8.5% per annum
and matures on various dates ranging from 2011 to 2020. The debt encumbered a total of 129 of the
Companys Properties as of both March 31, 2011 and December 31, 2010 and the carrying value of such
Properties was approximately $1,484 million and $1,508 million, respectively, as of such dates.
As of March 31, 2011 and December 31, 2010, the Companys unsecured line of credit had an
availability of $100 million of which no amounts were outstanding. The Companys unsecured Line of
Credit (LOC) with a maximum borrowing capacity of $100 million bears interest at a per annum rate
of LIBOR plus a maximum of 1.20% per annum, has a 0.15% facility fee, and matures on June 29, 2011.
17
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 8 Deferred Revenue-entry of right-to-use contracts and Deferred Commission Expense
Upfront payments received upon the entry of right-to-use contracts are recognized in
accordance with FASB ASC 605. The Company will recognize the upfront non-refundable payments over
the estimated customer life, which, based on historical attrition rates, the Company has estimated
to be between one to 31 years. The commissions paid on the entry of right-to-use contracts will be
deferred and amortized over the same period as the related sales revenue.
Components of the change in deferred revenue-entry of right-to-use contracts and deferred
commission expense are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Deferred revenue entry of right-to-use contracts, as of January 1, |
|
$ |
44,349 |
|
|
$ |
29,493 |
|
|
|
|
|
|
|
|
|
|
Deferral of new right-to-use contracts |
|
|
3,853 |
|
|
|
4,937 |
|
Deferred revenue recognized |
|
|
(1,357 |
) |
|
|
(989 |
) |
|
|
|
|
|
|
|
Net increase in deferred revenue |
|
|
2,496 |
|
|
|
3,948 |
|
|
|
|
|
|
|
|
Deferred revenue entry of right-to-use contracts, as of March 31, |
|
$ |
46,845 |
|
|
$ |
33,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred commission expense, as of January 1, |
|
$ |
14,898 |
|
|
$ |
9,373 |
|
|
|
|
|
|
|
|
|
|
Costs deferred |
|
|
1,436 |
|
|
|
1,708 |
|
Commission expense recognized |
|
|
(436 |
) |
|
|
(296 |
) |
|
|
|
|
|
|
|
Net increase in deferred commission expense |
|
|
1,000 |
|
|
|
1,412 |
|
|
|
|
|
|
|
|
Deferred commission expense, March 31, |
|
$ |
15,898 |
|
|
$ |
10,785 |
|
|
|
|
|
|
|
|
Note 9 Stock Option Plan and Stock Grants
The Company accounts for its stock-based compensation in accordance with the Codification
Topic Compensation Stock Compensation (FASB ASC 718).
Stock-based compensation expense, reported in General and administrative on the Consolidated
Statements of Operations, for the quarters ended March 31, 2011 and 2010, was approximately $1.2
million and $1.0 million, respectively.
Pursuant to the Stock Option Plan as discussed in Note 13 to the 2010 Form 10-K, certain
officers, directors, employees and consultants have been offered the opportunity to acquire shares
of common stock of the Company through stock options (Options). During the quarter ended March
31, 2011, Options for 1,000 shares of common stock were exercised for proceeds of approximately
$23,000.
On January 31, 2011, the Company awarded Restricted Stock Grants for 31,000 shares of common
stock at a fair market value of approximately $1.8 million to certain members of the Board of
Directors for services rendered in 2010. One-third of the shares of restricted common stock
covered by these awards vests on each of December 31, 2011, December 31, 2012, and December 31,
2013.
On February 1, 2011, the Company awarded Restricted Stock Grants for 72,665 shares of common
stock to certain members of senior management of the Company. These Restricted Stock Grants will
vest on December 31, 2011. The fair market value of these Restricted Stock Grants was
approximately $4.2 million as of the date of grant and is recorded as a compensation expense and
paid in capital over the vesting period.
Note 10 Long-Term Cash Incentive Plan
On May 11, 2010, the Companys Board of Directors approved a Long-Term Cash Incentive Plan
(the 2010 LTIP) to provide a long-term cash bonus opportunity to certain members of the Companys
management. Such Board approval was
upon recommendation by the Companys Compensation, Nominating and Corporate Governance Committee
(the Committee).
18
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 10 Long-Term Cash Incentive Plan (continued)
The total cumulative payment for all participants (the Eligible Payment) is based upon
certain performance conditions being met.
The Committee has responsibility for administering the 2010 LTIP and may use its reasonable
discretion to adjust the performance criteria or Eligible Payments to take into account the impact
of any major or unforeseen transaction or events. The 2010 LTIP includes 32 participants. The
Companys executive officers are not participants in the 2010 LTIP. The Eligible Payment will be
paid in cash upon completion of the Companys annual audit for the 2012 fiscal year and upon
satisfaction of the vesting conditions as outlined in the 2010 LTIP and, including employer costs,
is currently estimated to be approximately $2.9 million. As of March 31, 2011 and December 31,
2010, the Company had accrued compensation expense of approximately $1.0 million and $0.7 million,
respectively, for the 2010 LTIP including approximately $0.3 million and $0.7 million in the
quarter ended March 31, 2011 and year ended December 31, 2010.
The Company is accounting for the LTIPs in accordance with FASB ASC 718. The amount accrued
for the 2010 LTIP reflects the Committees evaluation of the 2010 LTIP based on forecasts and other
information presented to the Committee and are subject to performance in line with forecasts and
final evaluation and determination by the Committee. There can be no assurances that the Companys
estimates of the probable outcome will be representative of the actual outcome.
Note 11 Transactions with Related Parties
Privileged Access
On August 14, 2008, the Company closed on the PA Transaction by acquiring substantially all of
the assets and assuming certain liabilities of Privileged Access for an unsecured note payable of
$2.0 million which was paid off during the year ended December 31, 2009. Prior to the purchase,
Privileged Access had a 12-year lease with the Company for 82 Properties that terminated upon
closing. At closing, cash was deposited into an escrow account for liabilities that Privileged
Access has retained. The balance in the escrow account as of March 31, 2011 was approximately $0.2
million
Mr. McAdams, the Companys President from January 1, 2008 to January 31, 2011, owns 100% of
Privileged Access. Effective February 1, 2011, Mr. McAdams became president of a subsidiary of
the Company involved in ancillary activities and relinquished his role as President of the Company.
The Company entered into an employment agreement effective as of January 1, 2008 (the Employment
Agreement) with Mr. McAdams which provided for an initial term of three years and the Employment
Agreement expired on December 31, 2010. Mr. McAdams is also subject to a non-compete clause and to
mitigate potential conflicts of interest shall have no authority, on behalf of the Company and its
affiliates, to enter into any agreement with any entity controlling, controlled by or affiliated
with Privileged Access. Prior to forming Privileged Access, Mr. McAdams was a member of the
Companys Board of Directors from January 2004 to October 2005. Simultaneous with his appointment
as president of Equity LifeStyle Properties, Inc., Mr. McAdams resigned as Privileged Accesss
Chairman, President and CEO. However, he was on the board of PATT Holding Company, LLC (PATT), a
subsidiary of Privileged Access, until the entity was dissolved in 2008.
Corporate headquarters
The Company leases office space from Two North Riverside Plaza Joint Venture Limited
Partnership, an entity affiliated with Mr. Zell, the Companys Chairman of the Board. Payments
made in accordance with the lease agreement to this entity amounted to approximately $0.3 million,
$0.0 million, and $0.4 million for the quarters ended March 31, 2011, 2010, and 2009, respectively.
No payments were made during the quarter ended March 31, 2010 as the landlord provided six months
free rent in connection with a new lease for the office space that commenced December 1, 2009.
Other
In January 2009, the Company entered into a consulting agreement with the son of Mr. Howard
Walker, to provide assistance with the Companys internet web marketing strategy. Mr. Walker is
Vice-Chairman of the Companys Board of Directors. The consulting agreement was for a term of six
months at a total cost of no more than $48,000 and expired on June 30, 2009.
19
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 12 Commitments and Contingencies
California Rent Control Litigation
City of San Rafael
The Company sued the City of San Rafael in federal court, challenging its rent control
ordinance (the Ordinance) on constitutional grounds. The Company believes the litigation was
settled by the Citys agreement to amend the ordinance to permit adjustments to market rent upon
turnover. The City subsequently rejected the settlement agreement. The Court refused to enforce
the settlement agreement and submitted to a jury the claim that it had been breached. In October
2002, a jury found no breach of the settlement agreement.
The Companys constitutional claims against the City were tried in a bench trial during April
2007. On April 17, 2009, the Court issued its Order for Entry of Judgment in the Companys favor
(the April 2009 Order). On June 10, 2009, the Court ordered the City to pay the Company net fees
and costs of approximately $2.1 million. On June 30, 2009, as anticipated by the April 2009 Order,
the Court entered final judgment that gradually phased out the Citys site rent regulation scheme
that the Court found unconstitutional. Pursuant to the final judgment, existing residents of the
Companys Property in San Rafael will be able to continue to pay site rent as if the Ordinance were
to remain in effect for a period of ten years, enforcement of the Ordinance was immediately
enjoined with respect to new residents of the Property, and the Ordinance will expire entirely ten
years from the June 30, 2009 date of judgment.
The City and residents association (which intervened in the case) appealed, and the Company
cross-appealed. The briefing schedule for the appeal has been set to conclude on October 24, 2011.
City of Santee
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
rent control ordinances the City of Santee had enforced against the Company and other property
owners. However, the Court allowed the City to continue to enforce a rent control ordinance that
predated the two invalid ordinances (the prior ordinance). As a result of the judgment the
Company was entitled to collect a one-time rent increase based upon the difference in annual
adjustments between the invalid ordinance(s) and the prior ordinance and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance been continually in effect.
The City of Santee appealed the judgment. The City and the tenant association also each sued the
Company in separate actions alleging that the rent adjustments pursuant to the judgment violated
the prior ordinance (Case Nos. GIE 020887 and GIE 020524), sought to rescind the rent adjustments,
and sought refunds of amounts paid, and penalties and damages in these separate actions. As a
result of further proceedings and a series of appeals and remands, the Company was required to and
did release the additional rents to the tenant associations counsel for disbursement to the
tenants, and the Company has ceased collecting the disputed rent amounts.
The tenant association continued to seek damages, penalties and fees in their separate action
based on the same claims the City made on the tenants behalf in the Citys case. The Company
moved for judgment on the pleadings in the tenant associations case on the ground that the tenant
associations case is moot in light of the result in the Citys case. On November 6, 2008, the
Court granted the Companys motion for judgment on the pleadings without leave to amend. The
tenant association appealed. In June 2010, the Court of Appeal remanded the case for further
proceedings, ruling that (i) the mootness finding was not correct when entered but could be
reasserted after the amounts held in escrow have been disbursed to the residents; (ii) there is no
basis for the tenant associations punitive damage claim or its claim under the California Mobile
Home Residency Law; and (3) the trial court should consider certain of the tenant associations
other claims. On remand, at the trial courts suggestion, the parties agreed to a trial of the
remanded issues based on stipulated written facts. A draft of the parties proposed stipulated
written facts was submitted to the trial court on April 22, 2011.
20
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 12 Commitments and Contingencies (continued)
In addition, the Company sued the City of Santee in federal court alleging all three of the
ordinances are unconstitutional under the Fifth and Fourteenth Amendments to the United States
Constitution. On October 13, 2010, the District Court: (1) dismissed the Companys claims without
prejudice on the ground that they were not ripe because the Company had not filed and received from
the City a final decision on a rent increase petition, and (2) found that those claims are not
foreclosed by any of the state court rulings. On November 10, 2010, the Company filed a notice of
appeal from the District Courts ruling dismissing the Companys claims. On April 20, 2011, the
appeal was voluntarily dismissed pursuant to stipulation of the parties. The Company has filed a
rent increase petition with the City in order to ripen its claims, and intends to pursue further
adjudication of its rights in federal court.
Colony Park
On December 1, 2006, a group of tenants at the Companys Colony Park Property in Ceres,
California filed a complaint in the California Superior Court for Stanislaus County alleging that
the Company had failed to properly maintain the Property and had improperly reduced the services
provided to the tenants, among other allegations. The Company answered the complaint by denying
all material allegations and filed a counterclaim for declaratory relief and damages. The case
proceeded in Superior Court because the Companys motion to compel arbitration was denied and the
denial was upheld on appeal. Trial of the case began on July 27, 2010. After just over three
months of trial in which the plaintiffs asked the jury to award a total of approximately $6.8
million in damages, the jury rendered verdicts awarding a total of less than $44,000 to six out of
the 72 plaintiffs, and awarding nothing to the other 66 plaintiffs. The plaintiffs who were
awarded nothing filed a motion for a new trial or alternatively for judgment notwithstanding the
jurys verdict, which the Court denied on February 14, 2011. The Company has filed a memorandum of
costs that seeks a costs award of approximately $0.2 million, and has filed a motion that seeks an
attorneys fees award of approximately $2.1 million. Despite the jurys verdict awarding less than
$44,000 to only 6 plaintiffs, the plaintiffs have filed a memorandum of costs that seeks a costs
award of approximately $56,000, and has filed a motion that seeks an attorneys fees award of
approximately $0.8 million. The Company intends to vigorously oppose any award of costs or
attorneys fees to the plaintiffs. A hearing on the parties respective requests for awards of
costs and attorneys has been set for June 9, 2011.
California Hawaiian
On April 30, 2009, a group of tenants at the Companys California Hawaiian Property in San
Jose, California filed a complaint in the California Superior Court for Santa Clara County alleging
that the Company has failed to properly maintain the Property and has improperly reduced the
services provided to the tenants, among other allegations. The Company moved to compel arbitration
and stay the proceedings, to dismiss the case, and to strike portions of the complaint. By order
dated October 8, 2009, the Court granted the Companys motion to compel arbitration and stayed the
court proceedings pending the outcome of the arbitration. The plaintiffs filed with the Court of
Appeal a petition for a writ seeking to overturn the trial courts arbitration and stay orders
which has been fully briefed and was orally argued on February 22, 2011. The Company believes that
the allegations in the complaint are without merit, and intends to vigorously defend the
litigation.
Hurricane Claim Litigation
On June 22, 2007, the Company filed suit in the Circuit Court of Cook County, Illinois (Case
No. 07CH16548), against its insurance carriers, Hartford Fire Insurance Company, Essex Insurance
Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance Company, regarding a
coverage dispute arising from losses suffered by the Company as a result of hurricanes that
occurred in Florida in 2004 and 2005. The Company also brought claims against Aon Risk Services,
Inc. of Illinois (Aon), the Companys former insurance broker, regarding the procurement of
appropriate insurance coverage for the Company. The Company is seeking declaratory relief
establishing the coverage obligations of its carriers, as well as a judgment for breach of
contract, breach of the covenant of good faith and fair dealing, unfair settlement practices and,
as to Aon, for failure to provide ordinary care in the selling and procuring of insurance. The
claims involved in this action are approximately $11 million.
21
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 12 Commitments and Contingencies (continued)
In response to motions to dismiss, the trial court dismissed: (1) the requests for declaratory
relief as being duplicative of the claims for breach of contract and (2) certain of the breach of
contract claims as being not ripe until the limits of underlying insurance policies have been
exhausted. On or about January 28, 2008, the Company filed its Second Amended Complaint (SAC),
which the insurers have answered. In response to the courts dismissal of the SACs claims against
Aon, the Company ultimately filed, on February 2, 2009, a new Count VIII against Aon alleging a
claim for breach of contract, which
Aon answered. In January 2010, the parties engaged in a settlement mediation, which did not result
in a settlement. In June 2010, the Company filed motions for partial summary judgment against the
insurance companies seeking a finding that our hurricane debris cleanup costs are within the extra
expense coverage of our excess insurance policies. On December 13, 2010, the Court granted the
motion. Discovery is proceeding with respect to various remaining issues, including the amounts of
the debris cleanup costs the Company is entitled to collect pursuant to the Courts order granting
the Company partial summary judgment.
Since filing the lawsuit, as of March 31, 2011, the Company has received additional payments
from Essex Insurance Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance
Company, of approximately $3.7 million. In January 2008 the Company entered a settlement with
Hartford Fire Insurance Company pursuant to which Hartford paid the Company the remaining disputed
limits of Hartfords insurance policy, in the amount of approximately $0.5 million, and the Company
dismissed and released Hartford from additional claims for interest and bad faith claims handling.
California and Washington Wage Claim Class Actions
On October 16, 2008, the Company was served with a class action lawsuit in California state
court filed by a single named plaintiff. The suit alleges that, at the time of the PA Transaction,
the Company and other named defendants willfully failed to pay former California employees of
Privileged Access and its affiliates (PA) who became employees of the Company all of the wages
they earned during their employment with PA, including accrued vacation time. The suit also
alleges that the Company improperly stripped those employees of their seniority. The suit
asserts claims for alleged violation of the California Labor Code; alleged violation of the
California Business & Professions Code and for alleged unfair business practices; alleged breach of
contract; alleged breach of the duty of good faith and fair dealing; and for alleged unjust
enrichment. The original complaint sought, among other relief, compensatory and statutory damages;
restitution; pre-judgment and post-judgment interest; attorneys fees, expenses and costs;
penalties; and exemplary and punitive damages. The complaint did not specify a dollar amount
sought. The Court granted in part without leave to amend and in part with leave to amend the
Companys motions seeking dismissal of the plaintiffs original complaint and various amended
complaints. Discovery is proceeding on the remaining claims in the third amended complaint. On
February 15, 2011, the Court granted plaintiffs motion for class certification. A hearing on the
content of the class notice has been set for June 1, 2011. The Company will vigorously defend the
lawsuit.
On December 16, 2008, the Company was served with a class action lawsuit in Washington state
court filed by a single named plaintiff, represented by the same counsel as the plaintiff in the
California class action. The complaint asserts on behalf of a putative class of Washington
employees of PA who became employees of the Company substantially similar allegations as are
alleged in the California class action. The Company moved to dismiss the complaint. On April 3,
2009, the court dismissed: (1) the first cause of action, which alleged a claim under the
Washington Labor Code for failure to pay accrued vacation time; (2) the second cause of action,
which alleged a claim under the Washington Labor Code for unpaid wages on termination; (3) the
third cause of action, which alleged a claim under the Washington Labor Code for payment of wages
less than entitled; and (4) the fourth cause of action, which alleged a claim under the Washington
Consumer Protection Act. The court did not dismiss the fifth cause of action for breach of
contract, the sixth cause of action of the breach of the duty of good faith and fair dealing; and
the seventh cause of action for unjust enrichment. On May 22, 2009, the Company filed a motion for
summary judgment on the causes of action not previously dismissed, which was denied. With leave of
court, the plaintiff filed an amended complaint, the material allegations of which the Company
denied in an answer filed on September 11, 2009. On July 30, 2010, the named plaintiff died as a
result of an unrelated accident. Plaintiffs counsel may attempt to substitute a new named
plaintiff. The Company will vigorously defend the lawsuit.
22
EQUITY LIFESTYLE PROPERTIES, INC.
Notes to Consolidated Financial Statements
Note 12 Commitments and Contingencies (continued)
Gulf View in Punta Gorda
In 2004, the Company acquired ownership of various property owning entities, including an
entity owning a property called Gulf View, in Punta Gorda, Florida. Gulf View continues to be held
in a special purpose entity. At the time of acquisition of the entity owning Gulf View, it was
financed with a non-recourse loan secured by Gulf View that was cross-collateralized with a
non-recourse loan secured by another property whose ownership entity was not acquired. At the time
of acquisition, the Operating Partnership guaranteed certain obligations relating to exceptions
from the non-recourse nature of the loans. The approximate outstanding amount of the loan secured
by Gulf View is $1.4 million and of the crossed loan secured by the other property is $5.3 million.
Both of the loans mature on June 1, 2011. Should the owner of the cross-collateralized property
default on the $5.3 million loan, the special purpose entity owning Gulf View and the Operating
Partnership may be impacted to the extent of their obligations.
Other
The Company is involved in various other legal proceedings arising in the ordinary course of
business. Such proceedings include, but are not limited to, notices, consent decrees, additional
permit requirements and other similar enforcement actions by governmental agencies relating to the
Companys water and wastewater treatment plants and other waste treatment facilities.
Additionally, in the ordinary course of business, the Companys 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.
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a self-administered, self-managed, real estate investment trust (REIT) with
headquarters in Chicago, Illinois. The Company is a fully integrated owner and operator of
lifestyle-oriented properties (Properties). The Company leases individual developed areas
(sites) with access to utilities for placement of factory built homes, cottages, cabins or
recreational vehicles (RVs). Customers may lease individual sites or purchase right-to-use
contracts providing the customer access to specific Properties for limited stays. The Company was
formed to continue the property operations, business objectives and acquisition strategies of an
entity that had owned and operated Properties since 1969. As of March 31, 2011, the Company owned
or had an ownership interest in a portfolio of 307 Properties located throughout the United States
and Canada containing 111,004 residential sites. These Properties are located in 27 states and
British Columbia, with the number of Properties in each state or province shown parenthetically, as
follows: Florida (86), California (48), Arizona (37), Texas (15), Washington (15), Pennsylvania
(12), Colorado (10), Oregon (9), North Carolina (8), Delaware (7), Nevada (6), New York (6),
Virginia (6), Wisconsin (5), Indiana (5), Maine (5), Illinois (4), Massachusetts (3), New Jersey
(3), South Carolina (3), Utah (3), Michigan (2), New Hampshire (2), Ohio (2), Tennessee (2),
Alabama (1), Kentucky (1) and British Columbia (1).
This report includes certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. When used, words such as anticipate, expect,
believe, project, intend, may be and will be and similar words or phrases, or the
negative thereof, unless the context requires otherwise, are intended to identify forward-looking
statements. These forward-looking statements are subject to numerous assumptions, risks and
uncertainties, including, but not limited to:
|
|
|
the Companys ability to control costs, real estate market conditions, the actual
rate of decline in customers, the actual use of sites by customers and its success in
acquiring new customers at its Properties (including those recently acquired); |
|
|
|
|
the Companys ability to maintain historical rental rates and occupancy with respect
to Properties currently owned or that the Company may acquire; |
|
|
|
|
the Companys assumptions about rental and home sales markets; |
|
|
|
|
in the age-qualified Properties, home sales results could be impacted by the ability
of potential homebuyers to sell their existing residences as well as by financial,
credit and capital markets volatility; |
|
|
|
|
results from home sales and occupancy will continue to be impacted by local economic
conditions, lack of affordable manufactured home financing and competition from
alternative housing options including site-built single-family housing; |
|
|
|
|
impact of government intervention to stabilize site-built single family housing and
not manufactured housing; |
|
|
|
|
the completion of future acquisitions, if any, and timing with respect thereto and
the effective integration of any such acquisition; |
|
|
|
|
ability to obtain financing or refinance existing debt on favorable terms or at all; |
|
|
|
|
the effect of interest rates; |
|
|
|
|
the dilutive effects of issuing additional securities; |
|
|
|
|
the effect of accounting for the entry of contracts with customers representing a
right-to-use the Properties under the Codification Topic Revenue Recognition; and |
|
|
|
|
other risks indicated from time to time in the Companys filings with the Securities
and Exchange Commission. |
These forward-looking statements are based on managements present expectations and beliefs
about future events. As with any projection or forecast, these statements are inherently
susceptible to uncertainty and changes in circumstances. The Company is under no obligation to, and
expressly disclaims any obligation to, update or alter its forward-looking statements whether as a
result of such changes, new information, subsequent events or otherwise.
24
The following chart lists the Properties acquired, invested in, or sold since January 1, 2010.
|
|
|
|
|
|
|
|
|
Property |
|
Transaction Date |
|
Sites |
Total Sites as of January 1, 2010 |
|
|
|
|
|
|
110,575 |
|
Property or Portfolio (# of Properties in parentheses): |
|
|
|
|
|
|
|
|
Acquisitions: |
|
|
|
|
|
|
|
|
Desert Vista (1) |
|
April 21, 2010 |
|
|
125 |
|
St. George (1) |
|
April 21, 2010 |
|
|
123 |
|
Tall Chief (1) |
|
April 21, 2010 |
|
|
180 |
|
Valley Vista (1) |
|
April 21, 2010 |
|
|
145 |
|
|
|
|
|
|
|
|
|
|
Expansion Site Development and other: |
|
|
|
|
|
|
|
|
Sites added (reconfigured) in 2010 |
|
|
|
|
|
|
19 |
|
Sites added (reconfigured) in 2011 |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Dispositions: |
|
|
|
|
|
|
|
|
Creekside (1) |
|
January 10, 2010 |
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
Total Sites as of March 31, 2011 |
|
|
|
|
|
|
111,004 |
|
|
|
|
|
|
|
|
|
|
Since January 1, 2010, the gross investment in real estate has increased from $2,538
million to $2,595 million as of March 31, 2011.
25
Outlook
Occupancy in the Companys Properties as well as its ability to increase rental rates directly
affects revenues. The Companys revenue streams are predominantly derived from customers renting
its sites on a long-term basis. Revenues are subject to seasonal fluctuations and as such
quarterly interim results may not be indicative of full fiscal year results.
The Company has approximately 65,000 annual sites, approximately 8,900 seasonal sites, which
are leased to customers generally for three to six months, and approximately 9,700 transient sites,
occupied by customers who lease sites on a short-term basis. The revenue from seasonal and
transient sites is generally higher during the first and third quarters. The Company expects to
service over 100,000 customers at its transient sites and the Company considers this revenue stream
to be its most volatile. It is subject to weather conditions, gas prices, and other factors
affecting the marginal RV customers vacation and travel preferences. Finally, the Company has
approximately 24,300 sites designated as right-to-use sites which are primarily utilized to service
the approximately 106,000 customers who own right-to-use contracts. The Company also has interests
in Properties containing approximately 3,100 sites for which revenue is classified as Equity in
income from unconsolidated joint ventures in the Consolidated Statements of Operations.
|
|
|
|
|
|
|
Total Sites as of |
|
|
March 31, 2011 |
|
|
(rounded to 000s) |
Community sites |
|
|
44,200 |
|
Resort sites: |
|
|
|
|
Annual |
|
|
20,800 |
|
Seasonal |
|
|
8,900 |
|
Transient |
|
|
9,700 |
|
Right-to-use (1) |
|
|
24,300 |
|
Joint Ventures (2) |
|
|
3,100 |
|
|
|
|
|
|
|
|
|
111,000 |
|
|
|
|
|
|
|
|
|
(1) |
|
Includes approximately 3,100 sites rented on an annual basis. |
|
(2) |
|
Joint Venture income is included in Equity in income of unconsolidated joint
ventures. |
A significant portion of the Companys rental agreements on community sites are directly
or indirectly tied to published CPI statistics that are issued from June through September each
year. The Company currently expects its 2011 Core community base rental income to increase
approximately 2.7% as compared to 2010.
The Company believes that the disruption in the site-built housing market is contributing
to the low new home sales volumes it is experiencing as potential customers are not able to sell
their existing site-built homes. Customers have also become more price sensitive which is
reflected in an increase in used home sale volumes.
In this environment, the Company believes that customer demand for rentals, which do not
require a down payment, is high. The Company is adapting to this by renting its vacant new homes.
This may represent an attractive source of occupancy if the Company can convert renters to new
homebuyers in the future. The Company is also focusing on smaller, more energy efficient and more
affordable homes in its manufactured home Properties.
The Companys manufactured home rental operations have been increasing since 2007. As of
March 31, 2011, occupied manufactured home rentals increased to 2,631 or 190.1%, from 907 for the
year ended December 31, 2007. Net operating income from rental operations increased to
approximately $14.5 million for the year ended December 31, 2010 from approximately $5.9 million
for the year ended December 31, 2007. The Company believes that, unlike the home sales business,
at this time it competes effectively with other types of rentals (i.e. apartments). To address the
capital requirements of the home rental operations, the Company is in discussions with capital
providers and manufacturers on rental home ownership structures that would attract capital.
In the Companys resort Properties, the Company continues to work on extending customer stays.
The Company has had success lengthening customer stays.
In the spring of 2010, the Company introduced low-cost membership products that focus on
the installed base of almost eight million RV owners. Such products may include right-to-use
contracts that entitle the purchaser to use certain
properties. The new products, called a Zone Park Pass (ZPP), can include one to four zones of
the United States and
26
require annual payments of $499. This replaces high cost products that were
typically entered into at Properties after tours and lengthy sales presentations.
A single zone ZPP requires no upfront payment while ZPPs including additional zones require
modest upfront payments. The Company entered into approximately 1,000 ZPPs during the quarter
ended March 31, 2011. The ZPPs are contributing to a reduction in the net attrition of the
customers who enter right-to-use contracts.
The Company also offers upgrades to existing holders of right-to-use contracts. The
upgrade contracts are currently distinguishable from new contracts or ZPPs that a customer would
enter into by (1) increased length of consecutive stay by 50% (i.e. up to 21 days); (2) ability to
make earlier advance reservations; (3) discounts on rental units and (4) access to additional
Properties, which may include discounts at non-membership RV Properties. Each upgrade contract
requires a nonrefundable upfront payment, which may be financed by the Company.
Critical Accounting Policies and Estimates
Refer to the 2010 Form 10-K for a discussion of the Companys critical accounting policies,
which includes impairment of real estate assets and investments, investments in unconsolidated
joint ventures, and accounting for stock compensation. With the exception of the following, there
have been no changes to these policies during the quarter ended March 31, 2011.
Cumulative Redeemable Perpetual Preferred Stock
On March 4, 2011, the Company, on behalf of selling stockholders, closed on a public offering
of 8,000,000 shares of 8.034% Series A Cumulative Redeemable Perpetual Preferred Stock (the
Preferred Stock), par value $0.01 per share, liquidation preference of $25.00 per share, at a
price of $24.75 per share.
The Selling Stockholders received the Preferred Stock in exchange for
$200 million of previously issued series D and series F Perpetual
Preferred OP units.
The Company did not receive any proceeds from the offering.
The Company accounts for the Preferred Stock in accordance with the Codification Topic
Consolidation (FASB ASC 810). The Company has the option to redeem the Preferred Stock at a
redemption price of $25.00 per share, plus accumulated and unpaid dividends. Holders of the
Preferred Stock have preference rights with respect to liquidation and distributions over the
common stock. Based on the Companys analysis, the Preferred Stock has been classified as
redeemable interests outside of permanent equity in the mezzanine section.
27
Results of Operations
The results of operations for the one Property sold during 2010 have been classified as income
from discontinued operations, pursuant to FASB ASC 360-10-35. (See Note 4 in the Notes to the
Consolidated Financial Statements for summarized information for these Properties.)
Comparison of the Quarter Ended March 31, 2011 to the Quarter Ended March 31, 2010
Income from Property Operations
The following table summarizes certain financial and statistical data for the Property
Operations for all Properties owned and operated for the same period in both years (Core
Portfolio) and the Total Portfolio for the quarters ended March 31, 2011 and 2010 (amounts in
thousands). The Core Portfolio may change from time-to-time depending on acquisitions,
dispositions and significant transactions or unique situations. The Core Portfolio in this Form
10-Q includes all Properties acquired prior to December 31, 2009 and which have been owned and
operated by the Company continuously since January 1, 2010. Core growth percentages exclude the
impact of GAAP deferrals of up-front payments from right-to-use contracts entered and related
commissions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Portfolio |
|
|
Total Portfolio |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
% Change |
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
% Change |
|
Community base rental income |
|
$ |
66,171 |
|
|
$ |
64,401 |
|
|
$ |
1,770 |
|
|
|
2.7 |
% |
|
$ |
66,183 |
|
|
$ |
64,422 |
|
|
$ |
1,761 |
|
|
|
2.7 |
% |
Resort base rental income |
|
|
36,353 |
|
|
|
36,945 |
|
|
|
(592 |
) |
|
|
(1.6 |
%) |
|
|
36,468 |
|
|
|
36,945 |
|
|
|
(477 |
) |
|
|
(1.3 |
%) |
Right-to-use annual payments |
|
|
11,940 |
|
|
|
12,185 |
|
|
|
(245 |
) |
|
|
(2.0 |
%) |
|
|
12,012 |
|
|
|
12,185 |
|
|
|
(173 |
) |
|
|
(1.4 |
%) |
Right-to-use contracts current
period, gross |
|
|
3,853 |
|
|
|
4,937 |
|
|
|
(1,084 |
) |
|
|
(22.0 |
%) |
|
|
3,853 |
|
|
|
4,937 |
|
|
|
(1,084 |
) |
|
|
(22.0 |
%) |
Utility and other income |
|
|
13,023 |
|
|
|
12,887 |
|
|
|
136 |
|
|
|
1.1 |
% |
|
|
13,062 |
|
|
|
12,889 |
|
|
|
173 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating revenues,
excluding deferrals |
|
|
131,340 |
|
|
|
131,355 |
|
|
|
(15 |
) |
|
|
0.0 |
% |
|
|
131,578 |
|
|
|
131,378 |
|
|
|
200 |
|
|
|
0.2 |
% |
Property operating and maintenance |
|
|
43,989 |
|
|
|
43,399 |
|
|
|
590 |
|
|
|
1.4 |
% |
|
|
44,311 |
|
|
|
43,454 |
|
|
|
857 |
|
|
|
2.0 |
% |
Real estate taxes |
|
|
8,038 |
|
|
|
8,302 |
|
|
|
(264 |
) |
|
|
(3.2 |
%) |
|
|
8,057 |
|
|
|
8,314 |
|
|
|
(257 |
) |
|
|
(3.1 |
%) |
Sales and marketing, gross |
|
|
2,256 |
|
|
|
3,263 |
|
|
|
(1,007 |
) |
|
|
(30.9 |
%) |
|
|
2,256 |
|
|
|
3,263 |
|
|
|
(1,007 |
) |
|
|
(30.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses,
excluding deferrals and
Property management |
|
|
54,283 |
|
|
|
54,964 |
|
|
|
(681 |
) |
|
|
(1.2 |
%) |
|
|
54,624 |
|
|
|
55,031 |
|
|
|
(407 |
) |
|
|
(0.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from property operations,
excluding deferrals and Property
management |
|
|
77,057 |
|
|
|
76,391 |
|
|
|
666 |
|
|
|
0.9 |
% |
|
|
76,954 |
|
|
|
76,347 |
|
|
|
607 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property management |
|
|
8,447 |
|
|
|
8,738 |
|
|
|
(291 |
) |
|
|
(3.3 |
%) |
|
|
8,463 |
|
|
|
8,740 |
|
|
|
(277 |
) |
|
|
(3.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from property
operations, excluding
deferrals |
|
$ |
68,610 |
|
|
$ |
67,653 |
|
|
$ |
957 |
|
|
|
1.4 |
% |
|
$ |
68,491 |
|
|
$ |
67,607 |
|
|
$ |
884 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Core Portfolio property operating revenues, which were flat to 2010, include the
following changes (i) a 2.3% increase in rates in community base rental income and a 0.4% increase
in occupancy (ii) a 1.6% decrease in revenues in core resort base income comprised of an increase
of 4.5% in annual revenues offset by a 8.2% decrease in seasonal revenues and a 9.2% decrease in
transient resort revenue and (iii) a decrease of 22.0% in right-to-use contracts. The reduction in
entry of right-to-use contracts is due to the Companys introduction of low-cost membership
products in the spring of 2010 and the phase-out of memberships with higher initial upfront
payments. Most of the right-to-use contract revenue in 2011 is from upgrades of existing
memberships.
The 1.2% decrease in property operating expenses in the Core Portfolio, excluding property
management, reflects (i) a 1.4% increase in property operating and maintenance expenses (ii) a 3.2%
decrease in property taxes and (iii) a 30.9% decrease in sales and marketing expenses. Sales and
marketing expenses are all related to the costs incurred for the entry or upgrade of right-to-use
contracts. The decrease in sales and marketing expenses is due to reduced commissions as a result
of reduced high-cost right-to-use contracts activity. Total Portfolio property management expenses
primarily decreased due to one-time costs incurred in 2010 for office moves and system conversion
costs.
28
Home Sales Operations
The following table summarizes certain financial and statistical data for the Home Sales
Operations for the quarters ended March 31, 2011 and 2010 (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Variance |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues from new home sales |
|
$ |
811 |
|
|
$ |
424 |
|
|
$ |
387 |
|
|
|
91.3 |
% |
Cost of new home sales |
|
|
(932 |
) |
|
|
(395 |
) |
|
|
(537 |
) |
|
|
(135.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit from new home sales |
|
|
(121 |
) |
|
|
29 |
|
|
|
(150 |
) |
|
|
(517.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues from used home sales |
|
|
546 |
|
|
|
623 |
|
|
|
(77 |
) |
|
|
(12.4 |
%) |
Cost of used home sales |
|
|
(487 |
) |
|
|
(764 |
) |
|
|
277 |
|
|
|
36.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) from used home sales |
|
|
59 |
|
|
|
(141 |
) |
|
|
200 |
|
|
|
141.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered resale revenues, net |
|
|
253 |
|
|
|
239 |
|
|
|
14 |
|
|
|
5.9 |
% |
Home selling expenses |
|
|
(477 |
) |
|
|
(477 |
) |
|
|
|
|
|
|
0.0 |
% |
Ancillary services revenues, net |
|
|
1,025 |
|
|
|
1,063 |
|
|
|
(38 |
) |
|
|
(3.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from home sales operations and other |
|
$ |
739 |
|
|
$ |
713 |
|
|
$ |
26 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New home sales (1) |
|
|
21 |
|
|
|
18 |
|
|
|
3 |
|
|
|
16.7 |
% |
Used home sales (2) |
|
|
153 |
|
|
|
133 |
|
|
|
20 |
|
|
|
15.0 |
% |
Brokered home resales |
|
|
205 |
|
|
|
187 |
|
|
|
18 |
|
|
|
9.6 |
% |
|
|
|
(1) |
|
Includes seven third party home sales for the quarter ending March 31, 2010. |
|
(2) |
|
Includes one third party home sale for the quarter ending March 31, 2010. |
Income from home sales operations increased primarily as a result of increased profit on
used home sales.
Rental Operations
The following table summarizes certain financial and statistical data for manufactured home
Rental Operations for the quarters ended March 31, 2011 and 2010 (amounts in thousands). Except as
otherwise noted, the amounts below are included in Ancillary services revenue, net in the Home
Sales Operations table in previous section.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Variance |
|
|
% Change |
|
Manufactured homes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Home |
|
$ |
2,590 |
|
|
$ |
1,799 |
|
|
$ |
791 |
|
|
|
44.0 |
% |
Used Home |
|
|
3,535 |
|
|
|
2,751 |
|
|
|
784 |
|
|
|
28.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations revenue (1) |
|
|
6,125 |
|
|
|
4,550 |
|
|
|
1,575 |
|
|
|
34.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance |
|
|
764 |
|
|
|
584 |
|
|
|
180 |
|
|
|
30.8 |
% |
Real estate taxes |
|
|
65 |
|
|
|
36 |
|
|
|
29 |
|
|
|
80.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations expense |
|
|
829 |
|
|
|
620 |
|
|
|
209 |
|
|
|
33.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from rental operations |
|
|
5,296 |
|
|
|
3,930 |
|
|
|
1,366 |
|
|
|
34.8 |
% |
Depreciation |
|
|
859 |
|
|
|
714 |
|
|
|
145 |
|
|
|
20.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from rental operations, net of depreciation |
|
$ |
4,437 |
|
|
$ |
3,216 |
|
|
$ |
1,221 |
|
|
|
38.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in new manufactured home rental units |
|
$ |
65,486 |
|
|
$ |
50,347 |
|
|
$ |
15,139 |
|
|
|
30.1 |
% |
Net investment in used manufactured home rental units |
|
$ |
25,693 |
|
|
$ |
18,011 |
|
|
$ |
7,682 |
|
|
|
42.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of occupied rentals new, end of period |
|
|
925 |
|
|
|
634 |
|
|
|
291 |
|
|
|
45.9 |
% |
Number of occupied rentals used, end of period |
|
|
1,706 |
|
|
|
1,210 |
|
|
|
496 |
|
|
|
41.0 |
% |
|
|
|
(1) |
|
Approximately $4.7 million and $3.4 million for the quarters ended March 31, 2011 and 2010,
respectively, are included in Community base rental income in the Income from Property
Operations table. |
The increase in income from rental operations and depreciation expense is primarily due
to the increase in the number of rental units.
In the ordinary course of business, the Company acquires used homes from customers through
purchase, lien sale or abandonment. In a vibrant new home sale market older homes may be removed
from sites and replaced with new homes. In
29
other cases, due to the nature of tenancy rights
afforded to purchasers, used homes are rented in order to control the site either in the condition
received or after warranted rehabilitation.
Other Income and Expenses
The following table summarizes other income and expenses for the quarters ended March 31, 2011
and 2010 (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Variance |
|
|
% Change |
|
Depreciation on real estate and other costs |
|
$ |
(17,227 |
) |
|
$ |
(16,923 |
) |
|
$ |
(304 |
) |
|
|
(1.8 |
%) |
Interest income |
|
|
1,039 |
|
|
|
1,192 |
|
|
|
(153 |
) |
|
|
(12.8 |
%) |
Income from other investments, net |
|
|
699 |
|
|
|
1,177 |
|
|
|
(478 |
) |
|
|
(40.6 |
%) |
General and administrative |
|
|
(5,647 |
) |
|
|
(5,676 |
) |
|
|
29 |
|
|
|
0.5 |
% |
Rent control initiatives |
|
|
(112 |
) |
|
|
(714 |
) |
|
|
602 |
|
|
|
84.3 |
% |
Depreciation on corporate assets |
|
|
(249 |
) |
|
|
(210 |
) |
|
|
(39 |
) |
|
|
(18.6 |
%) |
Interest and related amortization |
|
|
(21,389 |
) |
|
|
(23,767 |
) |
|
|
2,378 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net |
|
$ |
(42,886 |
) |
|
$ |
(44,921 |
) |
|
$ |
2,035 |
|
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income is lower primarily due to lower notes receivable amounts outstanding.
Income from other investments, net, decreased primarily due to reduced insurance proceeds of $0.4
million. Rent control initiatives are lower due to decreased activity in the San Rafael legal
appeal (see Note 12 in the Notes to Consolidated Financial Statements contained in this Form 10-Q).
Interest expense is lower primarily due to lower mortgage notes payable amounts outstanding.
Equity in Income of Unconsolidated Joint Ventures
During the quarter ended March 31, 2011, equity in income of unconsolidated joint ventures
decreased primarily due to distributions included in income that exceeded the Companys basis in
its joint ventures during the quarter ended March 31, 2010.
Liquidity and Capital Resources
Liquidity
As of March 31, 2011, the Company had approximately $43.1 million in cash and cash
equivalents, $49.3 million in U.S. Treasury Bills, and $100.0 million available on its line of
credit. The Company expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by operating activities and
availability under the existing lines of credit. The Company expects to meet certain long-term
liquidity requirements such as scheduled debt maturities, property acquisitions and capital
improvements by use of its current cash balance, long-term collateralized and uncollateralized
borrowings including borrowings under its existing line of credit and the issuance of debt
securities or additional equity securities in the Company, in addition to net cash provided by
operating activities. From 2008 to 2010, the Company received financing proceeds from Fannie Mae
secured by mortgages on individual manufactured home Properties. The terms of the Fannie Mae
financings were relatively attractive as compared to those available from other potential lenders.
If financing proceeds are no longer available from Fannie Mae for any reason or if Fannie Mae terms
are no longer attractive, it may adversely affect cash flow and the Companys ability to service
debt and make distributions to stockholders. In addition, Fannie Mae will not provide financing on
resort Properties and there is generally more limited availability for resort Property financing
from private lenders. The Company has approximately $52 million of scheduled debt maturities in
2011 (excluding scheduled principal payments on debt maturing in 2013 and beyond) and no debt
maturing in 2012. The Company expects to satisfy its 2011 maturities with its existing cash
balance and the proceeds from the 2011 maturities of its short-term investments.
The table below summarizes cash flow activity for the quarters ended March 31, 2011 and 2010
(amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net cash provided by operating activities |
|
$ |
57,918 |
|
|
$ |
51,816 |
|
Net cash used in investing activities |
|
|
(7,076 |
) |
|
|
(6,521 |
) |
Net cash used in financing activities |
|
|
(20,364 |
) |
|
|
(18,116 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
30,478 |
|
|
$ |
27,179 |
|
|
|
|
|
|
|
|
30
Operating Activities
Net cash provided by operating activities increased $6.1 million for the quarter ended March
31, 2011, as compared to the net cash provided by operating activities for the quarter ended March
31, 2010. The increase in cash provided by operating activities is primarily due to a $3.9 million
increase in consolidated income from continuing operations and a decrease in escrow deposits and
other assets.
Investing Activities
Net cash used in investing activities reflects the impact of the following investing
activities:
Notes Receivable Activity
The notes receivable activity during the quarter ended March 31, 2011 of $0.9 million in cash
inflow reflects net repayments of $0.1 million from the Companys Chattel Loans and net repayments
of $0.8 million from the Companys Contract Receivables.
The notes receivable activity during the quarter ended March 31, 2010 of $0.5 million in cash
inflow primarily reflects net repayments of $0.5 million from the Companys Contract Receivables.
Capital Improvements
The table below summarizes capital improvements activity for the quarters ended March 31, 2011
and 2010 (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Recurring Cap Ex (1) |
|
$ |
2,831 |
|
|
$ |
3,378 |
|
New construction expansion |
|
|
12 |
|
|
|
81 |
|
New construction upgrades (2) |
|
|
240 |
|
|
|
1,825 |
|
Home site development (3) |
|
|
7,581 |
|
|
|
2,065 |
|
|
|
|
|
|
|
|
Total Property |
|
|
10,664 |
|
|
|
7,349 |
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
275 |
|
|
|
439 |
|
|
|
|
|
|
|
|
Total Capital improvements |
|
$ |
10,939 |
|
|
$ |
7,788 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Recurring capital expenditures (Recurring CapEx) are primarily comprised of
common area improvements, furniture, and mechanical improvements. |
|
(2) |
|
New construction upgrades primarily represents costs to improve and
upgrade Property infrastructure or amenities. |
|
(3) |
|
Home site development includes acquisitions of or improvements to
rental units. |
Financing Activities
Financing, Refinancing and Early Debt Retirement
2010 Activity
During the quarter ended March 31, 2010, the Company closed an approximately $12.0 million
financing on one manufactured home community with an interest rate of 5.99% per annum, maturing in
2020. The Company also paid off two maturing mortgages totaling approximately $7.1 million, with a
weighted average interest rate of 8.53% per annum.
Secured Debt
As of March 31, 2011, the Companys secured long-term debt balance was approximately $1.4
billion, with a weighted average interest rate of approximately 6.1% per annum. The debt bears
interest at rates between 5.0% and 8.5% per annum and matures on various dates primarily ranging
from 2011 to 2020. Excluding scheduled principal amortization, as of March 31, 2011, the Company
has approximately $52 million of long-term debt maturing in 2011 and no long-term debt maturing in
2012. The weighted average term to maturity for the long-term debt is approximately 5.2 years.
The Company expects to satisfy its secured debt maturities of approximately $52 million
occurring prior to December 31, 2011 with its existing cash balance and maturing short-term
investments.
31
Unsecured Debt
The Companys unsecured Line of Credit (LOC) has a maximum borrowing capacity of $100
million bears interest at a per annum rate of LIBOR plus a maximum of 1.20% per annum, has a 0.15%
facility fee, and matures on June 29, 2011. The Company is currently negotiating a new line of
credit with an expected availability of $300 million.
As of March 31, 2011 and 2010, there were no amounts outstanding on the line of credit.
Other Loans
During the quarter ended March 31, 2010, the Company borrowed approximately $1.0 million which
was secured by individual manufactured homes. This financing provided by the dealer required
monthly payments, bore interest at 8.5% and matured on the earlier of: 1) the date the home is
sold, or 2) November 20, 2016. All amounts outstanding were paid off prior to December 31, 2010.
Contractual Obligations
As of March 31, 2011, the Company was subject to certain contractual payment obligations as
described in the table below (amounts in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
Thereafter |
|
Long Term
Borrowings (1) |
|
$ |
1,407,946 |
|
|
$ |
68,298 |
|
|
$ |
22,644 |
|
|
$ |
122,594 |
|
|
$ |
200,321 |
|
|
$ |
531,171 |
|
|
$ |
82,231 |
|
|
$ |
380,687 |
|
Interest Expense (2) |
|
|
418,662 |
|
|
|
62,014 |
|
|
|
78,892 |
|
|
|
75,620 |
|
|
|
65,323 |
|
|
|
56,623 |
|
|
|
26,658 |
|
|
|
53,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual
Obligations |
|
$ |
1,826,608 |
|
|
$ |
130,312 |
|
|
$ |
101,536 |
|
|
$ |
198,214 |
|
|
$ |
265,644 |
|
|
$ |
587,794 |
|
|
$ |
108,889 |
|
|
$ |
434,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
interest rates |
|
|
5.89 |
% |
|
|
5.84 |
% |
|
|
5.85 |
% |
|
|
5.87 |
% |
|
|
5.85 |
% |
|
|
5.58 |
% |
|
|
5.70 |
% |
|
|
6.11 |
% |
|
|
|
(1) |
|
Balance excludes net premiums and discounts of $0.8 million. Balances
include debt maturing and scheduled periodic principal payments. |
|
(2) |
|
Amounts include interest expected to be incurred on the Companys
secured debt based on obligations outstanding as of March 31, 2011. For the Companys one
variable interest obligation, it uses the 7.25% interest floor for this obligation, as it
does not believe the LIBOR rate will increase above the floor prior to the loan payment. |
The Company does not include Preferred Stock dividends, insurance, property taxes and
cancelable contracts in the contractual obligations table above.
The Company also leases land under non-cancelable operating leases at certain of the
Properties expiring in various years from 2013 to 2054, with terms which require twelve equal
payments per year plus additional rents calculated as a percentage of gross revenues. Minimum
future rental payments under the ground leases are approximately $1.9 million per year for each of
the next five years and approximately $14.4 million thereafter.
With respect to maturing debt, the Company has staggered the maturities of its long-term
mortgage debt over an average of approximately five years, with no more than approximately $530
million (which is due in 2015) in principal maturities coming due in any single year. The Company
believes that it will be able to refinance its maturing debt obligations on a secured or unsecured
basis; however, to the extent the Company is unable to refinance its debt as it matures, the
Company believes that it will be able to repay such maturing debt from operating cash flow, asset
sales and/or the proceeds from equity issuances. With respect to any refinancing of maturing debt,
the Companys future cash flow requirements could be impacted by significant changes in interest
rates or other debt terms, including required amortization payments.
Equity Transactions
2011 Activity
On April 8, 2011, the Company paid a $0.375 per share distribution for the quarter ended March
31, 2011 to common stockholders of record on March 25, 2011.
On March 31, 2011, the Company paid a $0.156217 per share pro-rata distribution on the
Companys 8.034% Series A Cumulative Redeemable Perpetual Preferred Stock to preferred stockholders
of record on March 21, 2011.
32
On March 31, 2011, the Company paid pro-rata distributions of 8.0625% per annum on the $150
million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units which were
exchanged on March 4, 2011 for the Preferred Stock.
During the quarter ended March 31, 2011, the Company received approximately $0.2 million in
proceeds from the issuance of shares of common stock through stock option exercises and the
Companys Employee Stock Purchase Plan (ESPP).
2010 Activity
On February 23, 2010, the Company acquired the 6% non-controlling interests in The Meadows, a
379-site property, in Palm Beach Gardens, Florida. The gross purchase price was approximately $1.5
million.
On April 9, 2010, the Company paid a $0.30 per share distribution for the quarter ended March
31, 2010 to stockholders of record on March 26, 2010.
On March 31, 2010, the Operating Partnership paid distributions of 8.0625% per annum on the
$150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units.
During the quarter ended March 31, 2010, the Company received approximately $0.3 million in
proceeds from the issuance of shares of common stock through stock option exercises and the
Companys ESPP.
Inflation
Substantially all of the leases at the Properties allow for monthly or annual rent increases
which provide the Company with the opportunity to achieve increases, where justified by the market,
as each lease matures. Such types of leases generally minimize the risks of inflation to the
Company. In addition, the Companys resort Properties are not generally subject to leases and
rents are established for these sites on an annual basis. The Companys right-to-use contracts
generally provide for an annual dues increase, but dues may be frozen under the terms of certain
contracts if the customer is over 61 years old.
33
Funds From Operations
Funds from Operations (FFO) is a non-GAAP financial measure. The Company believes that FFO,
as defined by the Board of Governors of the National Association of Real Estate Investment Trusts
(NAREIT), is generally 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.
The Company defines FFO as net income, computed in accordance with GAAP, excluding gains or
actual or estimated losses from sales of properties, plus real estate related depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the
same basis. The Company receives up-front non-refundable payments from the entry of right-to-use
contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are
deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO
does not address the treatment of nonrefundable right-to-use payments, the Company believes that it
is appropriate to adjust for the impact of the deferral activity in its calculation of FFO. The
Company believes that FFO is helpful to investors as one of several measures of the performance of
an equity REIT. The Company further believes that by excluding the effect of depreciation,
amortization and gains or actual or estimated losses from sales of real estate, all of which are
based on historical costs and which may be of limited relevance in evaluating current performance,
FFO can facilitate comparisons of operating performance between periods and among other equity
REITs. The Company believes that the adjustment to FFO for the net revenue deferral of upfront
non-refundable payments and expense deferral of right-to-use contract commissions also facilitates
the comparison to other equity REITs. Investors should review FFO, along with GAAP net income and
cash flow from operating activities, investing activities and financing activities, when evaluating
an equity REITs operating performance. The Company computes FFO in accordance with its
interpretation of standards established by NAREIT, which may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company does. 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 the Companys financial performance, or to
cash flow from operating activities, determined in accordance with GAAP, as a measure of the
Companys liquidity, nor is it indicative of funds available to fund its cash needs, including its
ability to make cash distributions.
The following table presents a calculation of FFO for the quarters ended March 31, 2011 and
2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Computation of funds from operations: |
|
|
|
|
|
|
|
|
Net income available for common shares |
|
$ |
18,960 |
|
|
$ |
15,064 |
|
Income allocated to common OP units |
|
|
2,621 |
|
|
|
2,432 |
|
Right-to-use contract upfront payments, deferred, net |
|
|
2,496 |
|
|
|
3,948 |
|
Right-to-use contract commissions, deferred, net |
|
|
(1,000 |
) |
|
|
(1,412 |
) |
Depreciation on real estate assets and other |
|
|
17,227 |
|
|
|
16,923 |
|
Depreciation on unconsolidated joint ventures |
|
|
307 |
|
|
|
305 |
|
Loss on real estate |
|
|
|
|
|
|
177 |
|
|
|
|
|
|
|
|
Funds from operations available for common shares |
|
$ |
40,611 |
|
|
$ |
37,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding fully diluted |
|
|
35,609 |
|
|
|
35,500 |
|
|
|
|
|
|
|
|
34
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Market risk is the risk of loss from adverse changes in market prices and interest rates. The
Companys earnings, cash flows and fair values relevant to financial instruments are dependent on
prevailing market interest rates. The primary market risk the Company faces is long-term
indebtedness, which bears interest at fixed and variable rates. The fair value of the Companys
long-term debt obligations is affected by changes in market interest rates. At March 31, 2011,
approximately 100% or approximately $1.4 billion of the Companys outstanding debt had fixed
interest rates, which minimizes the market risk until the debt matures. For each increase in
interest rates of 1% (or 100 basis points), the fair value of the total outstanding debt would
decrease by approximately $70.9 million. For each decrease in interest rates of 1% (or 100 basis
points), the fair value of the total outstanding debt would increase by approximately $74.7
million.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys Chief Executive Officer
(principal executive officer) and Chief Financial Officer (principal accounting and financial
officer), has evaluated the effectiveness of the Companys disclosure controls and procedures as of
March 31, 2011. Based on that evaluation, the Companys Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and procedures were effective to
give reasonable assurances to the timely collection, evaluation and disclosure of information
relating to the Company that would potentially be subject to disclosure under the Securities and
Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder as of March
31, 2011.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that it will detect or uncover failures within the
Company to disclose material information otherwise required to be set forth in the Companys
periodic reports.
Changes in Internal Control Over Financial Reporting
There were no material changes in the Companys internal control over financial reporting
during the quarter ended March 31, 2011.
35
Part II Other Information
Item 1. Legal Proceedings
See Note 12 of the Consolidated Financial Statements contained herein.
Item 1A. Risk Factors
With the exception of the following, there have been no material changes to the risk factors
discussed in Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended
December 31, 2010.
Some Potential Losses Are Not Covered by Insurance. The Company carries comprehensive insurance
coverage for losses resulting from property damage, liability claims and business interruption on
all of its Properties. In addition the Company carries liability coverage for other activities not
specifically related to property operations. These coverages include, but are not limited to,
Directors & Officers liability, Employer Practices liability and Fiduciary liability. The Company
believes that the policy specifications and coverage limits of these policies should be adequate
and appropriate. There are, however, certain types of losses, such as lease and other contract
claims that generally are not insured. Should an uninsured loss or a loss in excess of coverage
limits occur, the Company could lose all or a portion of the capital it has invested in a Property
or the anticipated future revenue from a Property. In such an event, the Company might
nevertheless remain obligated for any mortgage debt or other financial obligations related to the
Property.
The Companys current property and casualty insurance policies, which it plans to renew, expire on
April 1, 2012. The Company has a $100 million loss limit with respect to its all-risk property
insurance program including named windstorms, which include, for example, hurricanes. This loss
limit is subject to additional sub-limits as set forth in the policy form, including among others a
$25 million loss limit for an earthquake in California. Policy deductibles primarily range from a
$100,000 minimum to 5% per unit of insurance for most catastrophic events. A deductible indicates
ELS maximum exposure, subject to policy sub-limits, in the event of a loss.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
Item 6. Exhibits
|
3.2(b) |
|
Articles Supplementary designating Equity Lifestyle Properties, Inc.s 8.034%
Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per
share, par value $0.01 per share. |
|
|
4.1(b) |
|
Form of stock certificate evidencing the 8.034% Series A Cumulative Redeemable
Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per
share. |
|
|
10.47(a) |
|
Exchange Agreement dated March 1, 2011 by and among the Company, the
Operating Partnership and the Selling Stockholders. |
|
|
10.48(c) |
|
8.034% Series G Cumulative Redeemable Perpetual Preference Units Term Sheet
and Joinder to the Second
Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated
March 4, 2011. |
|
|
31.1 |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. |
|
|
32.2 |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. |
|
|
101(d) |
|
The following materials from Equity LifeStyle Properties, Inc.s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2011, formatted in XBRL (Extensible
Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated
Statements of Operations, (iii) the Consolidated Statements of Changes in Equity, (iv) the
Consolidated Statements of Cash Flow, and (iv) the Notes to Consolidated Financial
Statements, furnished herewith. |
36
|
|
|
(a) |
|
Included as an exhibit to the Companys Report on Form 8-K dated March 1, 2011. |
|
(b) |
|
Included as an exhibit to the Companys Registration Statement on Form 8-A filed
on March 4, 2011. |
|
(c) |
|
Included as an exhibit to the Companys Report on Form 8-K dated March 4, 2011. |
|
(d) |
|
Users of this data are advised that pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as
amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act
of 1934, as amended, and otherwise are not subject to liability under those sections. |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
EQUITY LIFESTYLE PROPERTIES, INC.
|
|
Date: May 5, 2011 |
By: |
/s/ Thomas Heneghan
|
|
|
|
Thomas Heneghan |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: May 5, 2011 |
By: |
/s/ Michael Berman
|
|
|
|
Michael Berman |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer) |
|
38