UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 20032004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-11718
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 36-3857664
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (I.R.S. Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, SUITE 800, 60606
CHICAGO, ILLINOIS 60606(Zip Code)
(Address of principal executive offices) (Zip Code)
(312) 279-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 Par Value The New York Stock Exchange
(Title of Class) (Name of exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates was
approximately $665.2$699.2 million as of February 27, 2004March 11, 2005 based upon the closing price
of $33.31$34.80 on such date using beneficial ownership of stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting
stock owned by Directors and Officers, some of whom may not be held to be
affiliates upon judicial determination.
At March 5, 2004, 22,869,60311, 2005, 23,172,094 shares of the Registrant's
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference the Registrant's Proxy Statement relating to
the Annual Meeting of Stockholders to be held on May 4, 2004.10, 2005.
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
TABLE OF CONTENTS
Page
----
PART I.
Item 1. Business................................................................................................3Business ............................................................................ 3
Item 2. Properties..............................................................................................9Properties .......................................................................... 9
Item 3. Legal Proceedings......................................................................................14Proceedings ................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders....................................................17Holders ................................. 17
PART II.
Item 5. Market for the Registrant's Common Equity, and Related Stockholder Matters..............................18Matters and Issuer
Purchases of Equity Securities ................................................... 18
Item 6. Selected Financial Data................................................................................19Data ............................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................22Operations ....................................................................... 22
Item 7A. Quantitative and Qualitative DisclosureDisclosures About Market Risk..............................................33Risk .......................... 36
Item 8. Financial Statements and Supplementary Data............................................................33Data ......................................... 36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................33Disclosure ....................................................................... 36
Item 9A. Controls and Procedures................................................................................33Procedures ............................................................. 37
Item 9B. Other Information ................................................................... 38
PART III.
Item 10. Directors and Executive Officers of the Registrant.....................................................34Registrant .................................. 39
Item 11. Executive Compensation.................................................................................34Compensation .............................................................. 39
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................34Management ...................... 39
Item 13. Certain Relationships and Related Transactions.........................................................34Transactions ...................................... 39
Item 14. Principal Accountant Fees and Services.................................................................34Services .............................................. 39
PART IV.
Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K........................................35.......................................... 40
2
PART I
ITEM 1. BUSINESS
THE COMPANYEQUITY LIFESTYLE PROPERTIES, INC.
GENERAL
Manufactured Home Communities,Equity Lifestyle Properties, Inc., a Maryland corporation, together with
MHC Operating Limited Partnership (the "Operating Partnership") and other
consolidated subsidiaries ("Subsidiaries"), areis referred to herein as the
"Company", "MHC""ELS", "we", "us", and "our". The Company is a fully integrated company that ownsowner
and operates
manufactured home communitiesoperator of resort and retirement oriented properties ("Communities"Properties"). The
Company leases individual developed areas ("sites" or "pads") and park model communities
("Resorts") (collectively known as "Properties").with access to
utilities for placement of factory built homes or recreational vehicles. The
Company was formed to continue the property operations, business objectives and
acquisition strategies of an entity that had owned and operated CommunitiesProperties since
1969. As of December 31, 2003,2004, we owned or had an ownership interest in a
portfolio of 142
Communities and Resorts275 Properties located throughout the United States containing
51,715101,231 residential sites. These Properties are located in 1925 states and British
Columbia (with the number of Properties in each state shown parenthetically) -
Florida (52)(84), California (25)(46), Arizona (21)(35), Texas (15), Washington (13),
Colorado (10), Oregon (9), Delaware (7), Indiana (7), Pennsylvania (7), Nevada
(6), North Carolina (6), Wisconsin (5), OregonVirginia (4), IndianaIllinois (3),
Illinois (2), Iowa (2),
Michigan (2), New York (1)Jersey (2), TexasOhio (2), South Carolina (2), Tennessee (2), Utah
(2), Pennsylvania (1), Montana (1), New Mexico (1), Michigan (1), VirginiaNew York (1), and WashingtonBritish Columbia (1).
CommunitiesProperties are residential developments designed and improved for the
placementseveral home options of detached, single-family manufactured homesvarious
sizes and designs that are produced off-site, and installed and set on residential sites ("Site Set") within the
Community..
These homes can range from 400 to over 2,000 square feet. The ownersmallest of each home leases the site on which it is located. Modern
Communitiesthese
are similarreferred to typical residential subdivisions, containingas "Resort Cottages". Properties may also have pads that can
accommodate a variety of recreational vehicles ("RVs"). Properties generally
contain centralized entrances, paved streets, curbs and gutters and parkways. In
addition, these CommunitiesProperties often provide a clubhouse for social activities and
recreation and other amenities, which may include restaurants, swimming pools,
golf courses, lawn bowling, shuffleboard courts, tennis courts, laundry
facilities and cable television service. In some cases, utilities are provided
or arranged for by the owner of the Community;us; otherwise, the residentcustomer contracts for the utility
directly. Some CommunitiesProperties provide water and sewer service through municipal or
regulated utilities, while others provide these services to residentscustomers from
on-site facilities. Each
Community isProperties generally are designed to attract retirees,
empty-nesters, vacationers and is marketed to, onesecond home owners; however, certain of two types
of residents - 1) retirees and empty-nesters or 2) families and first-time
homeowners.the
Properties focus on affordable housing for families. We believe both types of Communities are attractive investments and focus on owning
CommunitiesProperties in or near large metropolitan markets and retirement and vacation
destinations.
ResortsOn November 10, 2004, we acquired KTTI Holding Company, Inc., owner of 57
Properties and approximately 3,000 acres of vacant land, for $160 million. These
Properties are similarleased to CommunitiesThousand Trails Operations Holding Company, L.P.
("Thousand Trails"), the largest operator of membership-based campgrounds in their overall design and the
amenities they provide. Our Resorts typically include sites designed to
accommodate Site Set homes, park model homes, luxury motor-coaches and a variety
of recreational vehicles. A park model, sometimes referred to as a vacation
cottage, is a factory built detached single-family structure generally with
approximately 400 square feet. Owners often add sunrooms, porches and/or decks
after the home is placed on site. Our Resorts are marketed to attract residents
seeking a second home or vacation home as well as those seekingUnited States. The Company has provided a long-term or
full season recreational vehicle site. A majoritylease of our Resort residents own
homesthe real estate
(excluding the vacant land) to Thousand Trails, which will continue to operate
the Properties for the benefit of over 100,000 members nationwide. These
Properties are located in 16 states (primarily in the Resort and/orwestern and southern
United States) and British Columbia, and contain 17,911 sites. The lease will
generate $16 million in annual rental income to the site annually or for a full season.Company on an absolute
triple net basis, subject to annual escalations of 3.25%.
EMPLOYEE AND ORGANIZATIONAL STRUCTURE
We have approximately 1,0001,500 full-time, part-time and seasonal employees
dedicated to carrying out our operating philosophy and strategies of value
enhancement and service to residents.our customers. The operations of each Property are
coordinated by an on-site team of employees that typically includes a manager or
two-person management team, clerical and maintenance workers, each of whom workworks
to provide maintenance and care of the Properties. Direct supervision of on-site
management is the responsibility of our regional vice presidents and regional
and district managers. These individuals have significant experience in
addressing the needs of residentscustomers and in finding or creating innovative
approaches to maximize value and increase cash flow from property operations.
Complementing this field management staff are approximately 6070 corporate
employees who assist on-site management in all property functions.
FORMATION OF THE COMPANY
We originally incorporated as Manufactured Home Communities, Inc. in
Maryland in December 1992 and completed an initial public offering in March
1993. On November 16, 2004, we changed our name to Equity Lifestyle Properties,
Inc.
We believe that we have qualified for taxation as a real estate investment
trust ("REIT") for federal income tax purposes since our taxable year ended
December 31, 1993. We plan to continue to meet the requirements for taxation as
a REIT. Many of these requirements, however, are highly technical and complex.
We cannot, therefore,
guarantee that we have qualified or will qualify in the
future as a REIT. The determination that we are a REIT requires an analysis of
various factual matters that may not be totally within our control and we cannot
provide any assurance that the Internal Revenue Service ("IRS") will agree with
our analysis. For example, to qualify as a REIT, at least 95% of our gross
income must come from sources that are itemized in the REIT tax laws. We are
also required to distribute to stockholders at least 90% of our REIT taxable
income excluding capital gains. The fact that we hold our assets through MHC
Operating Limited Partnership and its subsidiaries further complicates the
application of the REIT requirements. Even a technical or inadvertent mistake
could jeopardize our REIT status. Furthermore, Congress and the IRS might make
changes to the tax laws and regulations, and the
3
courts might issue new rulings that make it more difficult, or impossible, for
us to remain qualified as a REIT. We do not believe, however, that any pending
or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain state and local taxes on
its income and property and Federal income and excise taxes on its undistributed
income.
The operations of the Company are conducted primarily through the Operating
Partnership. The Company contributed the proceeds from its initial public
offering and subsequent offerings to the Operating Partnership for a general
partnership interest. The financial results of the Operating Partnership and the
Subsidiaries are consolidated in the Company's consolidated financial
statements. In addition, since certain activities, if performed by the Company,
may not be qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has formed taxable REIT subsidiaries as
defined in the Code to engage in such activities. Realty Systems, Inc. ("RSI")
is a wholly owned subsidiary of the Company that, doing business as Carefree
Sales, is engaged in the business of purchasing, selling and leasing
manufactured homes that are located or will be located in Properties owned and
managed by the Company. Carefree Sales also provides brokerage services to
residents at such Properties. Typically, residents move from a Community but do
not relocate their homes. Carefree Sales may provide brokerage services, in
competition with other local brokers, by seeking buyers for the homes. Carefree
Sales also leases inventory homes to prospective residents with the expectation
that the tenant eventually will purchase the home. Subsidiaries of RSI lease
from the Operating Partnership certain real property within or adjacent to
certain Properties consisting of golf courses, pro shops, stores and
restaurants.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
Our strategy seeks to maximize both current income and long-term growth in
income. We focus on Properties that have strong cash flow and we expect to hold
such Properties for long-term investment and capital appreciation. In
determining cash flow potential, we evaluate our ability to attract and retain
high quality residents in our Properties who take pride in their Property and in
their home. These business objectives and their implementation are determined by
our Board of Directors and may be changed at any time. Our investment and
operating approach includes:
o Providing consistently high levels of services and amenities in
attractive surroundings to foster a strong sense of community and
pride of home ownership;
o Efficiently managing the Properties to increase operating margins by
controlling expenses, increasing occupancy and maintaining competitive
market rents;
o Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
o Utilizing management information systems to evaluate potential
acquisitions, identify and track competing properties and monitor
resident satisfaction; and
o Selectively acquiring Properties that have potential for long-term
cash flow growth and to create property concentrations in and around
major metropolitan areas and retirement destinations to capitalize on
operating synergies and incremental efficiencies.
We are committed to enhancing our reputation as the most respected brand
name in the industry. Our strategy is to own and operate the highest quality
Properties in sought-after locations near both urban areas and retirement
destinations across the United States. The focus is on creating an attractive
residential environment for homeowners by providing a well-maintained,
comfortable Property with a variety of organized recreational and social
activities and superior amenities. In addition, we regularly conduct evaluations
of the cost of housing in the marketplaces in which our Properties are located
and survey rental rates of competing Communities and Resorts. From time to time
we also conduct satisfaction surveys of our residents to determine the factors
they consider most important in choosing a Property.
4
FUTURE ACQUISITIONS
Over the last eight years our portfolio of Properties has grown by 73
Properties. We continually review the Properties in our portfolio to ensure that
they fit our business objectives. Over the last four years, through the
acquisition or sale of 50 Properties, we have redeployed capital to markets we
believe have greater long-term potential. We believe that opportunities for
Property acquisitions are still available and in general consolidation within
the industry will continue (see - The Industry - Industry Consolidation).
Increasing acceptability of and demand for Site Set homes and vacation cottages
and continued constraints on development of new Properties continue to add to
their attractiveness as an investment. We believe we have a competitive
advantage in the acquisition of additional Properties due to our experienced
management, significant presence in major real estate markets and substantial
capital resources. We are actively seeking to acquire additional Communities and
Resorts and are engaged in various stages of negotiations relating to the
possible acquisition of a number of Properties.
We anticipate that newly acquired Properties will be located in the United
States. We utilize market information systems to identify and evaluate
acquisition opportunities, including a market database to review the primary
economic indicators of the various locations in which we expect to expand our
operations. Acquisitions will be financed from the most appropriate sources of
capital, which may include undistributed funds from operations, issuance of
additional equity securities, sales of investments, collateralized and
uncollateralized borrowings and issuance of debt securities. In addition, the
Operating Partnership may issue units of limited partnership interest ("OP
Units") to finance acquisitions. We believe that an ownership structure which
includes the Operating Partnership will permit us to acquire additional
Communities and Resorts in transactions that may defer all or a portion of the
sellers' tax consequences.
When evaluating potential acquisitions, we will consider such factors as:
o the replacement cost of the Property,
o the geographic area and type of Property,
o the location, construction quality, condition and design of the
Property,
o the current and projected cash flow of the Property and the ability to
increase cash flow,
o the potential for capital appreciation of the Property,
o the terms of tenant leases, including the potential for rent
increases,
o the potential for economic growth and the tax and regulatory
environment of the community in which the Property is located,
o the potential for expansion of the physical layout of the Property and
the number of sites,
o the occupancy and demand by residents for Properties of a similar type
in the vicinity and the residents' profile,
o the prospects for liquidity through sale, financing or refinancing of
the Property, and
o the competition from existing Properties and the potential for the
construction of new Properties in the area.
We expect to purchase Properties with physical and market characteristics
similar to the Properties in our current portfolio. When investing capital we
consider all potential uses of the capital including returning capital to our
stockholders. As a result, during 1999 and 2000 we implemented our stock
repurchase program, and our Board of Directors continues to review the
conditions under which we will repurchase our stock. These conditions include,
but are not limited to, market price, balance sheet flexibility, other
opportunities and capital requirements.
PROPERTY EXPANSIONS
Several of our Properties have available land for expanding the number of
sites available to be leased to residents. Development of these sites
("Expansion Sites") is predicated by local market conditions and permitted by
zoning and other applicable laws. When justified, development of Expansion Sites
allows us to leverage existing facilities and amenities to increase the income
generated from the Properties. Where appropriate, facilities and amenities may
be upgraded or added to certain Properties to make those Properties more
attractive in their markets. Our acquisition philosophy has included the desire
to own Properties with potential Expansion Site development, and we have been
successful in acquiring a number of such Properties. Several examples of these
Properties include the 1993 acquisition of The Heritage with potential
development of approximately 288 Expansion Sites, the 1994 acquisition of Bulow
Plantation with potential development of approximately 725 Expansion Sites, the
1997 acquisition of Golf Vista Estates with potential development of
approximately 88 Expansion Sites, the 1999 acquisition of Coquina Crossing with
potential development of approximately 393 Expansion Sites, and the 2001
acquisitions of Grand Island and The Lakes at Countrywood with combined
potential development of 224 Expansion Sites.
Of our 142 Properties, ten may be expanded consistent with existing zoning
regulations. In 2004, we expect to develop an additional 205 Expansion Sites
within three of these Properties. As of December 31, 2003, we had approximately
713 Expansion Sites available for occupancy in 22 of the Properties. We filled
136 Expansion Sites in 2003 and expect to fill an additional 150 to 200
Expansion Sites in 2004.
5
LEASES
At our Communities, a typical lease entered into between the resident and
the Company for the rental of a site is for a month-to-month or year-to-year
term, renewable upon the consent of both parties or, in some instances, as
provided by statute. These leases are cancelable, depending on applicable law,
for non-payment of rent, violation of Community rules and regulations or other
specified defaults. Non-cancelable long-term leases, with remaining terms
ranging up to ten years, are in effect at certain sites within 25 of the
Communities. Some of these leases are subject to rental rate increases based on
the Consumer Price Index ("CPI"), in some instances taking into consideration
certain floors and ceilings and allowing for pass-throughs of certain items such
as real estate taxes, utility expenses and capital expenditures. Generally,
market rate adjustments are made on an annual basis.
REGULATIONS AND INSURANCE
General. Our Properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, clubhouses and other common areas. We believe that each Property
has the necessary permits and approvals to operate.
Rent Control Legislation. At certain of our Communities, state and local
rent control laws, principally in California, limit our ability to increase
rents and to recover increases in operating expenses and the costs of capital
improvements. Enactment of such laws has been considered from time to time in
other jurisdictions. We presently expect to continue to maintain Communities,
and may purchase additional Communities, in markets that are either subject to
rent control or in which rent-limiting legislation exists or may be enacted. For
example, Florida has enacted a law that generally provides that rental increases
must be reasonable. Also, certain jurisdictions in California in which we own
Communities limit rent increases to changes in the CPI or some percentage
thereof. As part of our effort to realize the value of our Properties subject to
restrictive regulation, we have initiated lawsuits against several
municipalities imposing such regulation in an attempt to balance the interests
of our shareholders with the interests of our residents
Insurance. We believe that the Properties are covered by adequate fire,
flood, property, earthquake and business interruption insurance (where
appropriate) provided by reputable companies and with commercially reasonable
deductibles and limits. Due to the lack of available commercially reasonable
coverage, we are self-insured for terrorist incidents, except at certain
Properties where terrorist insurance coverage is required by debt covenants. We
believe our insurance coverage is adequate based on our assessment of the risks
to be insured, the probability of loss and the relative cost of available
coverage. We have obtained title insurance insuring title to the Properties in
an aggregate amount which we believe to be adequate.
INDUSTRY
THE INDUSTRY
We believe that modern Properties similar to ours provide an opportunity
for increased cash flows and appreciation in value. These may be achieved
through increases in occupancy rates and rents, as well as expense controls,
expansion of existing Properties and opportunistic acquisitions, for the
following industry-specific reasons:
o Barriers to Entry: We believe that the supply of new Properties will
be constrained due to barriers to entry into the industry. The most
significant barrier has been the difficulty in securing zoning from
local authorities. This has been the result of (i) the public's
historically poor perception of the industry, and (ii) the fact that
Properties generate less tax revenue because the homes are treated as
personal property (a benefit to the home owner) rather than real
property. Another factor that creates substantial barriers to entry is
the length of time between investment in a Property's development and
the attainment of stabilized occupancy and the generation of revenues.
The initial development of the infrastructure may take up to two or
three years. Once the Property is ready for occupancy, it may be
difficult to attract customers to an empty Property. Substantial
occupancy levels may take several years to achieve.
o Industry Consolidation: According to an industry analyst's industry
report, there are approximately 50,000 Communities in the United
States, and approximately 6.5% or 3,250 of the Communities have more
than 200 sites and would be considered "investment-grade" properties.
The four public REITs that own Communities own approximately 328 or
about 10% of the "investment-grade" Communities. In addition, based on
a report prepared by one analyst, the top 150 owners of Communities
own approximately 69% of the "investment-grade" assets. We believe
that this relatively high degree of fragmentation in the industry
provides us, as a national organization with experienced management
and substantial financial resources, the opportunity to purchase
additional Communities.
6
o Stable Tenant Base: We believe that Properties tend to achieve and
maintain a stable rate of occupancy due to the following factors: (i)
residents own their own homes, (ii) Properties tend to foster a sense
of community as a result of amenities such as clubhouses, recreational
and social activities and (iii) since moving a Site Set home or
vacation cottage from one Property to another involves substantial
cost and effort, residents often sell their home in-place (similar to
site-built residential housing) with no interruption of rental
payments.
SITE SET HOUSING AND VACATION COTTAGES
Based on the current growth in the number of individuals living in Site Set
homes and vacation cottages, we believe that these homes are increasingly viewed
by the public as an attractive and economical form of housing.
We believe that the growing popularity of these homes is primarily the
result of the following factors:
o Importance of Home Ownership. According to the Fannie Mae 2001
National Housing Survey ("FNMA Survey"), renters' desire to own a home
continues to be a top priority.
o Affordability. For a significant number of people, these homes
represent the only means of achieving home ownership. In addition, the
total cost of housing in a Property (home cost, site rent and related
occupancy costs) is competitive with and often lower than the total
cost of alternative housing, such as apartments and condominiums, and
generally substantially lower than "stick-built" residential
alternatives.
o Lifestyle Choice. As the average age of the United States population
has increased, this housing choice has become an increasingly popular
housing alternative for retirement and "empty-nest" living. According
to the FNMA Survey, the baby-boom generation - the 80 million people
born between 1945 and 1964 - will constitute 18% of the U.S.
population within the next 30 years and more than 32 million people
will reach age 55 within the next ten years. Among those individuals
who are nearing retirement (age 40 to 54), approximately 33% plan on
moving upon retirement. We believe that this housing choice is
especially attractive to such individuals when located within a
Property that offers an appealing amenity package, close proximity to
local services, social activities, low maintenance and a secure
environment.
o Construction Quality. Since 1976, all Site Set housing has been
required to meet stringent Federal standards, resulting in significant
increases in the quality of the industry's product. The Department of
Housing and Urban Development's standards for Site Set housing
construction quality are the only Federally regulated standards
governing housing quality of any type in the United States. Site Set
homes produced since 1976 have received a "red and silver" government
seal certifying that they were built in compliance with the Federal
code. The code regulates Site Set home design and construction,
strength and durability, fire resistance and energy efficiency, and
the installation and performance of heating, plumbing, air
conditioning, thermal and electrical systems. In newer homes, top
grade lumber and dry wall materials are common. Also, manufacturers
are required to follow the same fire codes as builders of site-built
structures. In addition, although vacation cottages do not come under
the same regulation, many of the manufacturers of Site Set homes also
produce vacation cottages with many of the same quality standards.
o Comparability to Site-Built Homes. The Site Set housing industry has
experienced a trend towards multi-section homes. Many modern Site Set
homes are longer (up to 80 feet, compared to 50 feet in the 1960's)
and wider than earlier models. Many such homes have vaulted ceilings,
fireplaces and as many as four bedrooms, and closely resemble single
family ranch style site-built homes.
o Second home demographics. Over the past ten years there has been a
significant increase in the second home market. According to a
November 2002 study by the National Association of Realtors ("NAR"),
sales of second homes have risen almost 36% in ten years. Six percent
of all home sales each year are second homes. The NAR study found that
48% of people who own a second home own either a cabin, cottage or
manufactured home. According to the US Census Bureau, there were 9.2
million homes held by owners in addition to their primary residence.
7
AVAILABLE INFORMATION
We file reports electronically with the Securities and Exchange Commission.
The public may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, NW., Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy information and statements, and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov. We maintain
an Internet site with information about the Company and hyperlinks to our
filings with the SEC at http://www.mhchomes.com. Requests for copies of our
filings with the SEC and other investor inquiries should be directed to:
Investor Relations Department
Manufactured Home Communities, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Phone: 1-800-247-5279
e-mail: investor_relations@mhchomes.com
8
ITEM 2. PROPERTIES
Our Properties provide attractive amenities and common facilities that
create a comfortable and attractive home for our residents, with most offering a
clubhouse, a swimming pool, laundry facilities and cable television service.
Many also offer additional amenities such as sauna/whirlpool spas, golf courses,
tennis, shuffleboard and basketball courts and exercise rooms. Since residents
in our Properties own their homes, it is their responsibility to maintain their
homes and the surrounding area. It is our role to ensure that residents comply
with our Property policies and to provide maintenance of the common areas,
facilities and amenities. We hold periodic meetings with our Property management
personnel for training and implementation of our strategies. The Properties
historically have had, and we believe they will continue to have, low turnover
and high occupancy rates.
The distribution of our Properties throughout the United States reflects
our belief that geographic diversification helps insulate the portfolio from
regional economic influences. We intend to target new acquisitions in or near
markets where our Properties are located and will also consider acquisitions of
Properties outside such markets. The following table identifies our five largest
markets and provides information regarding our Properties, including Communities
owned in joint ventures.
PERCENT OF TOTAL
NUMBER OF PERCENT OF PROPERTY OPERATING
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES
- ------------ ---------- ----------- ----------- ------------------
Florida 52 23,366 45.3% 40.8%
California 25 6,229 12.0% 20.1%
Arizona 21 5,930 11.5% 8.5%
Colorado 10 3,452 6.7% 8.2%
Delaware 7 2,238 4.3% 4.1%
Other 27 10,500 20.2% 18.3%
- ------------ ---------- ----------- ----------- ------------------
Total 142 51,715 100.0% 100.0%
============ ========== =========== =========== ==================
Our largest Property, Bay Indies, located in Venice, Florida, accounted for
approximately 3.0% of our total revenues for the year ended December 31, 2003.
The following table lists our Resort Properties and those Communities in
which we have a non-controlling joint venture interest:
NUMBER
OF SITES
LOCATION AS OF
PROPERTY CITY, STATE 12/31/03
- ----------------- -------------------- --------
RESORT PROPERTIES
Mt Hood Welches OR 436
Fun & Sun San Benito TX 1,435
Southern Palms Eustis FL 950
Sherwood Forest Kissimmee FL 512
Bulow Flagler Beach FL 352
Tropic Winds Harlingen TX 531
Countryside Apache Junction AZ 560
Golden Sun Apache Junction AZ 329
Breezy Hill Pompano Beach FL 762
Highland Wood Pompano Beach FL 148
Date Palm Cathedral City CA 140
Toby's Arcadia FL 379
Araby Acres Yuma AZ 337
Foothill Yuma AZ 180
-----
TOTAL RESORT PROPERTY SITES 7,051
-----
COMMUNITIES OWNED IN JOINT VENTURES
Trails West Tucson AZ 503
Plantation Calimesa CA 385
Manatee Bradenton FL 290
Home Hallandale FL 136
Villa del Sol Sarasota FL 207
Voyager Tuscon AZ ---
Preferred Interests in College Heights ---
-----
TOTAL SITES OWNED IN JOINT VENTURES 1,521
-----
9
The following table sets forth certain information relating to the
Communities we owned as of December 31, 2003, categorized by our major markets.
We define our core Community portfolio ("Core Portfolio") as Communities owned
throughout both periods of comparison. Excluded from the Core Portfolio are any
Communities acquired or sold during the period, any Resort Properties and any
Communities owned through joint ventures which, together, are referred to as the
"Non-Core" Properties. The following table excludes Resort Properties and any
Communities owned through Joint Ventures.
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- ---------------------- ------------------------ -------- --------- --------- --------- ---------
FLORIDA
EAST COAST:
Bulow Plantation Flagler Beach FL 276 97.8%(b) 97.5%(b) $329 $322
Carriage Cove Daytona Beach FL 418 94.3% 95.7% $393 $387
Coquina Crossing St Augustine FL 361 97.2%(b) 84.5%(b) $341 $324
Coral Cay Margate FL 819 89.4% 91.5% $455 $435
Countryside Vero Beach FL 646 98.0%(b) 96.6%(b) $341 $324
Heritage Village Vero Beach FL 436 94.3% 96.1% $368 $354
Holiday Village Vero Beach FL 128 68.8% 72.7% $313 $307
Holiday Village Ormond Beach FL(a) 301 88.0% 87.4% $339 $313
Indian Oaks Rockledge FL 208 99.5%(b) 98.1%(b) $274 $260
Lakewood Village Melbourne FL 349 92.8% 92.8% $394 $387
Lighthouse Pointe Port Orange FL 433 89.1%(b) 89.1%(b) $332 $324
Maralago Cay Lantana FL 602 92.7% 94.5% $441 $437
Pickwick Port Orange FL 432 99.8% 98.6% $348 $335
The Meadows Palm Beach Gardens FL 380 85.5%(b) 85.3%(b) $386 $373
CENTRAL:
Grand Island Grand Island FL 307 68.7%(b) 71.7%(b) $312 $291
Mid-Florida Lakes Leesburg FL 1,226 84.4%(b) 88.6%(b) $379 $339
Oak Bend Ocala FL 262 87.4%(b) 88.2%(b) $306 $292
Sherwood Forest Kissimmee FL 754 96.0%(b) 96.9%(b) $355 $345
Villas at Spanish Oaks Ocala FL 459 87.1% 91.5% $334 $317
GULF COAST (TAMPA/NAPLES):
Bay Indies Venice FL 1,309 96.3% 98.2% $388 $345
Bay Lake Estates Nokomis FL 228 94.7% 95.6% $427 $416
Buccaneer N. Ft. Myers FL 971 98.1% 98.5% $368 $348
Country Place New Port Richey FL 515 99.6%(b) 99.4%(b) $278 $272
Down Yonder Largo FL 362 98.6% 99.2% $403 $388
East Bay Oaks Largo FL 328 94.2% 96.0% $395 $391
Eldorado Village Largo FL 227 91.6% 94.3% $402 $391
Glen Ellen Clearwater FL(a) 106 85.8% 76.9% $328 $322
Hacienda Village New Port Richey FL(a) 505 96.6% 95.0% $320 $305
Harbor View New Port Richey FL(a) 471 98.9% 98.9% $223 $220
Hillcrest Clearwater FL 279 79.6% 83.9% $358 $346
Holiday Ranch Largo FL 150 88.7% 92.7% $370 $353
Lake Fairways N. Ft. Myers FL 896 99.6% 99.2% $389 $376
Lake Haven Dunedin FL 379 83.6% 89.7% $414 $399
Lakes at Countrywood Plant City FL 423 93.4%(b) 94.8%(b) $263 $256
Meadows at Countrywood Plant City FL 737 98.4% 99.1% $305 $293
Oaks at Countrywood Plant City FL 168 72.0%(b) 70.8%(b) $275 $266
Pine Lakes N. Ft. Myers FL 584 100.0% 99.3% $465 $458
Silk Oak Clearwater FL(a) 180 87.2% 93.3% $367 $358
The Heritage N. Ft. Myers FL 455 91.2%(b) 87.3%(b) $334 $319
Windmill Manor Bradenton FL 292 93.8% 94.9% $382 $370
Windmill Village N. Ft. Myers FL 491 95.5% 96.3% $329 $323
Winds of St. Armands No Sarasota FL 471 95.8% 98.1% $373 $346
Winds of St. Armands So Sarasota FL 306 99.7% 99.7% $386 $364
------ ------ ----- ----- ----
TOTAL FLORIDA MARKET 19,630 93.2% 93.9% $362 $346
------ ------ ----- ----- ----
FLORIDA MARKET - CORE PORTFOLIO 18,067 93.1% 94.0% $368 $352
------ ------ ----- ---- ----
10
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- ---------------------- ------------------------ -------- --------- --------- --------- ---------
CALIFORNIA
NORTHERN CALIFORNIA:
California Hawaiian San Jose CA 418 98.1% 97.6% $698 $675
Colony Park Ceres CA 186 93.0% 89.8% $386 $375
Concord Cascade Pacheco CA 283 99.3% 98.9% $566 $560
Contempo Marin San Rafael CA 396 98.7% 98.7% $651 $646
Coralwood Modesto CA 194 99.0% 99.0% $457 $438
Four Seasons Fresno CA 242 76.9% 75.6% $277 $267
Laguna Lake San Luis Obispo CA 290 99.7% 99.7% $378 $368
Monte del Lago Castroville CA 310 97.7%(b) 97.7%(b) $584 $560
Quail Meadows Riverbank CA 146 100.0% 100.0% $414 $390
Royal Oaks Visalia CA 149 81.9% 81.9% $299 $290
DeAnza Santa Cruz Santa Cruz CA 198 98.5% 99.0% $572 $558
Sea Oaks Los Osos CA 125 96.8% 97.6% $423 $418
Sunshadow San Jose CA 121 100.0% 100.0% $662 $651
Westwinds (4 Properties) San Jose CA 723 98.5% 99.2% $752 $719
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 94.2% 94.1% $720 $679
Lamplighter Spring Valley CA 270 98.5% 99.3% $713 $642
Meadowbrook Santee CA 338 97.6% 100.0% $636 $627
Rancho Mesa El Cajon CA 158 99.4% 99.4% $619 $567
Rancho Valley El Cajon CA 140 100.0% 100.0% $708 $627
Royal Holiday Hemet CA 179 64.2% 67.0% $306 $285
Santiago Estates Sylmar CA 300 98.7% 96.3% $678 $646
----- ------ ------ ---- ----
TOTAL CALIFORNIA MARKET 5,704 95.6% 95.8% $598 $574
----- ------ ------ ---- ----
CALIFORNIA MARKET - CORE PORTFOLIO 5,704 95.6% 95.6% $598 $574
----- ------ ------ ---- ----
ARIZONA
Apollo Village Phoenix AZ 236 80.9%(b) 83.9%(b) $416 $401
The Highlands at Mesa AZ 273 85.3% 89.0% $498 $475
Brentwood
Carefree Manor Phoenix AZ 128 76.6% 92.2% $355 $342
Casa del Sol #1 Peoria AZ 245 77.6% 81.2% $479 $460
Casa del Sol #2 Glendale AZ 239 77.4% 86.6% $502 $472
Casa del Sol #3 Glendale AZ 236 85.6% 89.8% $500 $471
Central Park Phoenix AZ 293 88.1% 92.5% $426 $409
Desert Skies Phoenix AZ 164 91.5% 93.9% $353 $338
Fairview Manor Tucson AZ 235 82.6% 85.1% $358 $342
Hacienda de Valencia Mesa AZ 364 74.7% 79.4% $412 $395
Palm Shadows Glendale AZ 294 80.6% 87.1% $393 $372
Sedona Shadows Sedona AZ 198 93.4% 93.4% $391 $355
Sunrise Heights Phoenix AZ 199 79.9% 88.4% $409 $386
The Mark Mesa AZ 410 61.0% 74.9% $410 $392
The Meadows Tempe AZ 391 74.4% 85.2% $464 $455
Whispering Palms Phoenix AZ 116 90.5% 93.1% $316 $295
----- ------ ------ ---- ----
TOTAL ARIZONA MARKET 4,021 79.6% 85.9% $425 $406
----- ------ ------ ---- ----
ARIZONA MARKET - CORE PORTFOLIO 4,021 79.6% 85.9% $425 $406
----- ------ ------ ---- ----
11
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- --------------------- ----------------------- -------- --------- ---------- --------- ---------
COLORADO
Bear Creek Sheridan CO 122 95.1% 97.6% $471 $446
Cimarron Broomfield CO 327 93.9% 97.6% $464 $445
Golden Terrace Golden CO 265 91.7% 96.6% $512 $492
Golden Terrace South Golden CO 160 85.0% 95.0% $503 $483
Golden Terrace West Golden CO 316 93.4% 96.5% $510 $490
Hillcrest Village Aurora CO 601 88.6% 91.7% $490 $472
Holiday Hills Denver CO 736 92.3% 92.3% $484 $466
Holiday Village Co. Springs CO 240 90.4% 92.9% $494 $446
Pueblo Grande Pueblo CO 251 94.4% 96.4% $311 $296
Woodland Hills Denver CO 434 88.0% 93.8% $456 $439
----- ----- ----- ---- ----
TOTAL COLORADO MARKET 3,452 87.7% 94.2% $472 $452
----- ----- ----- ---- ----
COLORADO MARKET - CORE PORTFOLIO 3,452 91.1% 94.2% $472 $452
----- ----- ----- ---- ----
NORTHEAST
Aspen Meadows Rehoboth DE 200 99.5% 100.0% $288 $277
Camelot Meadows Rehoboth DE 302 99.0% 100.0% $290 $272
Mariners Cove Millsboro DE 374 91.2%(b) 90.1%(b) $424 $399
McNicol Rehoboth DE 93 98.9% 100.0% $293 $278
Sweetbriar Rehoboth DE 146 94.5% 95.9% $246 $228
Waterford Bear DE 731 95.3%(b) 96.4%(b) $423 $410
Whispering Pines Lewes DE 392 87.2% 95.2% $315 $274
Pheasant Ridge Mt. Airy MD(a) --- --- 98.0%(d) --- $468(d)
Brook Gardens Lackawanna NY(a) --- --- 93.9%(d) --- $446(d)
Greenwood Village Manorville NY 512 99.2% 98.8% $428 $406
Green Acres Breinigsville PA 595 93.8% 94.8% $452 $438
Meadows of Chantilly Chantilly VA 500 88.8% 94.8% $604 $544
Independence Hill Morgantown WV(a) --- --- 87.2%(d) --- $221(d)
----- ----- ----- ---- ----
TOTAL NORTHEAST MARKET 3,845 94.1% 95.6% $412 $387
----- ----- ----- ---- ----
NORTHEAST MARKET - CORE PORTFOLIO 3,845 94.1% 96.1% $412 $387
----- ----- ----- ---- ----
12
NUMBER MONTHLY MONTHLY
OF SITES OCCUPANCY OCCUPANCY BASE RENT BASE RENT
LOCATION AS OF AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/03 12/31/03 12/31/02 12/31/03 12/31/02
- -------------------- --------------------- -------- --------- --------- --------- ---------
MIDWEST
Five Seasons Cedar Rapids IA 390 73.1%(b) 76.4%(b) $276 $264
Holiday Village Sioux City IA 519 65.7% 73.8% $252 $252
Golf Vista Estates Monee IL 411 95.9%(b) 88.1%(b) $441 $393
Willow Lake Estates Elgin IL 617 90.1% 94.2% $694 $660
Forest Oaks Chesterton IN 227 71.8% 76.2% $332 $330
Oak Tree Village Portage IN 361 86.7% 88.9% $342 $332
Windsong Indianapolis IN 268 57.8% 72.0% $320 $309
Creekside Wyoming MI 165 87.3% 93.3% $407 $382
------ ----- ----- ---- ----
TOTAL MIDWEST MARKET 2,958 79.5% 83.3% $423 $399
------ ----- ----- ---- ----
MIDWEST MARKET - CORE PORTFOLIO 2,958 79.5% 83.3% $423 $399
------ ----- ----- ---- ----
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 67.1% 76.7% $374 $341
Bonanza Las Vegas NV 353 68.0% 72.8% $484 $473
Boulder Cascade Las Vegas NV 299 76.9% 81.9% $446 $436
Cabana Las Vegas NV 263 93.5% 95.4% $447 $442
Flamingo West Las Vegas NV 258 94.6%(b) 88.8%(b) $461 $449
Villa Borega Las Vegas NV 293 82.9% 87.0% $454 $433
All Seasons Salt Lake City UT 121 93.4% 96.7% $370 $352
Westwood Village Farr West UT 314 95.2%(b) 95.2%(b) $280 $259
------ ----- ----- ---- ----
TOTAL NEVADA, UTAH, NEW MEXICO MARKET 2,308 81.8% 85.2% $413 $398
------ ----- ----- ---- ----
NEVADA, UTAH, NEW MEXICO MARKET - CORE PORTFOLIO 2,308 81.8% 85.2% $413 $396
------ ----- ----- ---- ----
NORTHWEST
Casa Village Billings MT 491 85.9% 88.0% $304 $294
Falcon Wood Village Eugene OR 183 90.7% 92.9% $403 $351
Quail Hollow Fairview OR 137 92.7% 93.4% $507 $500
Shadowbrook Clackamas OR 156 94.2% 96.8% $513 $494
Kloshe Illahee Federal Way WA 258 97.7% 99.6% $599 $513
------ ----- ----- ---- ----
TOTAL NORTHWEST MARKET 1,225 90.9% 92.9% $436 $402
------ ----- ----- ---- ----
NORTHWEST MARKET - CORE PORTFOLIO 1,225 90.9% 92.9% $436 $402
------ ----- ----- ---- ----
GRAND TOTAL ALL MARKETS 43,143 90.5% 92.4% $422 $403
====== ===== ===== ==== ====
GRAND TOTAL ALL MARKETS - CORE PORTFOLIO 41,580 90.4%(c) 92.4%(c) $427 $407
====== ===== ===== ==== ====
(a) Represents a Property that is not part of the Core Portfolio.
(b) The process of filling Expansion Sites at these Properties is ongoing. A
decrease in occupancy may reflect development of additional Expansion
Sites.
(c) Changes in total portfolio occupancy include the impact of acquisitions and
expansion programs and are therefore not comparable.
(d) Property sold in 2003.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
13
ITEM 3. LEGAL PROCEEDINGS
DEANZA SANTA CRUZ
The residents of DeAnza Santa Cruz Mobile Estates, a Property located in
Santa Cruz, California, brought several actions opposing fees and charges in
connection with water service at the Property. As a result of one action, the
Company rebated approximately $36,000 to the residents. The DeAnza Santa Cruz
Homeowners Association ("HOA") then proceeded to a jury trial alleging these
"overcharges" entitled them to an award of punitive damages. In January 1999, a
jury awarded the HOA $6.0 million in punitive damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damage claim. The HOA's attorney has made a motion asking for an award
of attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company has appealed this award and has not
accrued for the amount in its consolidated financial statements.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's shareholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their homes in the
form of an inflated purchase price that cannot be attributed to the value of the
home being sold. As a result, in the Company's view, the Company loses the value
of its asset and the selling tenant leaves the Community with a windfall
premium. The Company has discovered through the litigation process that certain
municipalities considered condemning the Company's Communities at values well
below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to shareholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well-balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
In connection with such efforts, the Company recently announced it has
entered into a settlement agreement with the City of Santa Cruz, California and
that, pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the CPI. The
settlement agreement benefits the Company's shareholders by allowing them to
receive the value of their investment in this Community through vacancy
decontrol while preserving annual CPI based rent increases in this age
restricted Property.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("CMHOA"), a 396
site Property in San Rafael, California, sued the Company in December 2000 over
a prior settlement agreement on a capital pass-through after the Company sued
the City of San Rafael in October 2000 alleging its rent control ordinance is
unconstitutional. In the Contempo Marin case, the CMHOA prevailed on a motion
for summary judgment on an issue that permits the Company to collect only $3.72
out of a monthly pass-through amount of $7.50 that the Company believes had been
agreed to by the CMHOA in a settlement agreement. The Company intends to
vigorously defend this matter, which has been stayed pending a related state
court appeal by the Company of an order dismissing its claims against the City
of San Rafael. The Company believes that such lawsuits will be a consequence of
the Company's efforts to change rent control since tenant groups actively desire
to preserve the premium value of their homes in addition to the discounted rents
provided by rent control. The Company has determined that its efforts to
rebalance the regulatory environment despite the risk of litigation from tenant
groups are necessary not only because of the $15 million annual subsidy to
tenants, but also because of the condemnation risk.
14
ELLENBURG COMMUNITIES
The Company and certain other parties entered into a settlement agreement
(the "Settlement"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all of the litigation and
appeals involving the Ellenburg Properties, and transactions arising out of the
Settlement closed on May 22, 2000. Only the appeal of one entity remained, the
outcome of which was not expected to materially affect the Company.
In connection with the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint in the Ellenburg
dissolution proceeding against the Company and certain of its affiliates
alleging causes of action for fraud and other claims in connection with the
Ellenburg Acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 appealed. Although this appeal was
one not resolved by the Settlement, the California Court of Appeal dismissed
Fund 20's substantive appeals on March 13, 2003 as moot. Fund 20 petitioned the
California Supreme Court to review this decision which review was denied.
In October 2001, Fund 20 sued the Company and certain of its affiliates
again, this time in Alameda County, California making substantially the same
allegations. The Company obtained an injunction preventing the case from
proceeding until the Fund 20 appeal is decided and other related proceedings in
Arizona (from which the Company has already been dismissed with prejudice) are
concluded. The Company obtained a court order enjoining Fund 20 from proceeding
with its Alameda County action.
In February, 2004, the Company entered into a settlement agreement with
Fund 20 resolving all remaining matters at no cost to the Company and with
mutual releases.
COUNTRYSIDE AT VERO BEACH
The Company has received letters dated June 17, 2002 and August 26, 2002
from Indian River County ("County"), claiming that the Company currently owes
sewer impact fees in the amount of approximately $518,000 with respect to the
Property known as Countryside at Vero Beach, located in Vero Beach, Florida,
purportedly under the terms of an agreement between the County and a prior owner
of the Property. In response, the Company has advised the County that these fees
are no longer due and owing as a result of a 1996 settlement agreement between
the County and the prior owner of the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company paid
this settlement amount (with interest) to the County in connection with the
Company's acquisition of the Property. Accordingly, the Company believes that
the County's claims are without merit.
DELAWARE DECLARATORY JUDGMENT ACTION
In April 2002, the Company entered into a Stipulation and Consent Order to
Cease and Desist (the "Consent Order") with the State of Delaware (the "State").
The Consent Order resolved various issues raised by the State concerning the
terms of a new lease form used or proposed for use by the Company at certain of
its Properties in Delaware. Among other provisions, the Consent Order
contemplated that the Company would work with the State to develop and implement
a new lease form for use in Delaware. The Consent Order expressly provided that
nothing contained therein would preclude the Company from seeking declaratory
relief from a court as to the legality or enforceability of any provisions which
the Company might wish to incorporate in future leases.
Throughout the summer of 2002, the Company's Delaware legal counsel engaged
in dialogue with representatives of the State concerning various matters,
including the lease provisions to which the State had objected but which the
Company wished to incorporate in future leases. Through this process, it became
apparent that the parties could not reach agreement as to the legality or
enforceability of the proposed lease provisions, and that the Company would need
to seek declaratory relief from a court in order to resolve the matter, as
contemplated by the Consent Order. Accordingly, on August 29, 2002, the Company
filed a Petition for Declaratory Judgment and Other Relief (as amended, the
"Petition") in Sussex County, Delaware Superior Court (the "Court").
In response to the filing of the Petition, on October 1, 2002, the State
filed its Answer to Petition for Declaratory and Other Relief, and Counterclaims
for Civil Enforcement and Contempt (as amended, "Answer and Counterclaim") with
the Court. In the Answer and Counterclaim, the State sought, inter alia,
restitution, statutory penalties, investigative costs and attorneys' fees under
the Delaware Mobile Home Lots and Leases Act, the Consumer Fraud Act, the
Uniform Deceptive
15
Trade Practices Act and the Delaware Consumer Contracts law, and separately
sought a finding of contempt and related contempt penalties for alleged
violations of the Consent Order.
The Company filed a Motion to Dismiss Respondents' Counterclaims with the
Court on October 29, 2002, and the State filed a Motion for Summary Judgment
with the Court on November 15, 2002. On December 30, 2002, the Company filed a
First Amended Petition for Declaratory Judgment and Other Relief with the Court,
and on January 31, 2003, the State filed an Amended Answer and Counterclaim with
the Court.
On August 29, 2003, the Court issued its decision disposing of all pending
claims in the litigation except one. Specifically, the Court held, inter alia,
that (i) the Company may eliminate the rent cap formula from existing leases at
certain of its Delaware Properties as the leases come up for renewal, (ii)
certain lease provisions proposed by the Company may not be implemented or
enforced under applicable state law, (iii) the change in water supplier at one
of the Properties did not violate the leases at such Property, (iv) the Company
did not violate the Consent Order by filing the Petition, and (v) the Company
did not violate any state statutes as alleged by the State.
The August 29, 2003 decision left open the issue of whether the Company had
violated the Consent Order by continuing to use the disputed lease form (but not
enforce the provisions at issue) at one of its Properties following entry of the
Consent Order (the Company believed that it had no choice but to continue to use
this lease form until the State had approved a new form for use at the Property
as contemplated by the Consent Order). On October 3, 2003, the Court issued its
final order, finding that continued use of the disputed lease form, as to new
tenants but not as to renewal tenants, following entry of the Consent Order
constituted a violation thereof, and assessing a civil penalty in the amount of
$5,000.
On November 3, 2003, the State filed a Notice of Appeal with the Supreme
Court of the State of Delaware, appealing a portion of the Court's order denying
the State's Motion for Summary Judgment. The State's appeal is limited to the
single issue of whether the Company has the right to eliminate "rent cap"
provisions contained in certain existing leases upon automatic renewal of the
leases in accordance with Delaware law. The appeal has been fully briefed, and
oral argument in the matter is scheduled for March 16, 2004.
On November 14, 2003, the State filed a motion for Stay Pending Appeal with
the Court, and on December 3, 2003, the Company filed its response opposing the
motion. On December 16, 2003, the Court issued its order on the motion, holding
that the Company may proceed to issue notices of default to tenants who fail to
pay the full amount of their current rental obligations, but may not initiate
eviction proceedings against such tenants until April 1, 2004, and may not
enforce any such eviction order until the Supreme Court rules on the appeal.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Management believes that all proceedings herein
described or referred to, taken together, are not expected to have a material
adverse impact on the Company.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 13, 2003.
Stockholders holding 17,534,693 Common Shares (being the only class of shares
entitled to vote at the meeting), or 78.8% of the Company's issued and
outstanding Common Shares as of the record date for the meeting, attended the
meeting or were represented by proxy. The Company's shareholders voted on two
matters presented at the meeting and both received the requisite number of votes
to pass. The results of the stockholders' vote on each of the two matters were
as follows:
PROPOSAL 1 - Election of three directors to terms expiring in 2006.
TOTAL VOTE FOR TOTAL VOTE WITHHELD
EACH DIRECTOR* FROM EACH DIRECTOR*
Howard Walker 92.40% 7.60%
Donald S. Chisholm 99.73% .27%
Thomas E. Dobrowski 99.16% .84%
* This percentage represents the number of shares voting in this matter out
of the total number of shares voted at the meeting, not out of the total
shares outstanding. This matter required a plurality of votes cast for
approval.
PROPOSAL 2 - Approval of an amendment to the Company's Charter to eliminate the
current classification of the board (this matter required the affirmative vote
of two-thirds of all votes entitled to be cast on the proposal).
For 16,878,607 96.3%
Against 627,753 3.5%
Abstain 28,332 0.2%
Non-vote 1 0%
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the period indicated, the high and low
sale prices for the Company's common stock as reported by The New York Stock
Exchange under the trading symbol MHC.
Return of
Distributions Capital
Close High Low Declared GAAP Basis(a)
------ ------ ------ ------------- -------------
2003
1st Quarter $29.60 $30.86 $27.40 $ .4950 $.15
2nd Quarter 35.11 35.80 29.56 .4950 .16
3rd Quarter 39.18 39.80 35.11 .4950 .00
4th Quarter 37.65 41.92 36.70 8.0000(b) .00
2002
1st Quarter $33.00 $33.63 $30.65 $ .4750 $.15
2nd Quarter 35.10 35.66 32.50 .4750 .18
3rd Quarter 31.88 35.14 30.05 .4750 .17
4th Quarter 29.63 31.92 27.50 .4750 .00
(a) Represents distributions per share in excess of net income per share-basic
on a GAAP basis and is not the same as return of capital on a tax basis.
(b) On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October, 2003 to pay the special distribution
on January 16, 2004. The special cash dividend will be reflected on
shareholders' 2004 1099-DIV to be issued in January 2005.
The number of beneficial holders of the Company's common stock at December 31,
2003 was approximately 5,049.
18
ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and operating information
on a historical basis for the Company. The following information should be read
in conjunction with all of the financial statements and notes thereto included
elsewhere in this Form 10-K. The historical operating data for the years ended
December 31, 2003, 2002, 2001, 2000, and 1999 have been derived from the
historical Financial Statements of the Company.
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands, except for per share and property data)
(1)YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
--------- -------- -------- -------- --------
PROPERTY OPERATIONS:
Community base rental income .......................... $ 196,919 $194,640 $190,982 $185,023 $177,411
Resort base rental income ............................. 11,780 9,146 5,748 7,414 9,526
Utility and other income .............................. 20,150 19,684 20,381 19,357 19,549
--------- -------- -------- -------- --------
Property operating revenues ........................ 228,849 223,470 217,111 211,794 206,486
Property operating and maintenance .................... 64,996 62,843 60,807 57,973 56,895
Real estate taxes ..................................... 18,917 17,827 16,882 16,407 15,924
Property management ................................... 9,373 9,292 8,984 8,690 8,337
--------- -------- -------- -------- --------
Property operating expenses ........................ 93,286 89,962 86,673 83,070 81,156
--------- -------- -------- -------- --------
Income from property operations .................. 135,563 133,508 130,438 128,724 125,330
HOME SALES OPERATIONS:
Gross revenues from inventory home sales .............. 36,606 33,537 --- --- ---
Cost of inventory home sales .......................... (31,767) (27,183) --- --- ---
--------- -------- -------- -------- --------
Gross profit from inventory home sales ........... 4,839 6,354 --- --- ---
Brokered resale revenues, net ......................... 1,724 1,592 --- --- ---
Home selling expenses ................................. (7,360) (7,664) --- --- ---
Ancillary services revenues, net ...................... 216 522 --- --- ---
--------- -------- -------- -------- --------
Income from home sales operations ................ (581) 804 --- --- ---
OTHER INCOME AND EXPENSES:
Interest income ....................................... 1,695 967 639 1,009 1,669
Equity in income of affiliates ........................ --- --- 1,811 2,408 2,065
Other corporate income ................................ 2,065 1,277 1,353 670 280
General and administrative ............................ (8,060) (8,192) (6,687) (6,423) (6,092)
Interest and related amortization(2) .................. (58,402) (50,729) (51,305) (53,280) (53,775)
Loss on the extinguishment of debt .................... -- -- -- (1,041) --
Depreciation on corporate assets ...................... (1,240) (1,277) (1,243) (1,139) (1,005)
Depreciation on real estate assets and other costs .... (38,034) (35,552) (34,228) (33,713) (33,955)
Gain on sale of properties and other .................. --- --- 8,168 12,053
--------- -------- -------- -------- --------
Total other income and expenses .................. (101,976) (93,506) (81,492) (79,456) (90,813)
--------- -------- -------- -------- --------
MINORITY INTERESTS:
(Income) allocated to Common OP Units ................. (4,330) (5,848) (7,688) (7,968) (5,761)
(Income) allocated to Perpetual Preferred OP Units..... (11,252) (11,252) (11,252) (11,252) (2,844)
--------- --------- -------- -------- --------
Income from continuing operations ................ 17,424 23,706 30,006 30,048 25,912
DISCONTINUED OPERATIONS:
Discontinued Operations ............................... 908 2,803 2,598 2,392 2,318
Gain on sale of properties and other .................. 10,826 13,014 --- --- ---
Minority interests on discontinued operations ......... (2,144) (3,078) (521) (495) (458)
--------- -------- -------- -------- --------
Income from discontinued operations .............. 9,590 12,739 2,077 1,897 1,860
--------- -------- -------- -------- --------
NET INCOME AVAILABLE FOR COMMON SHARES ........... $ 27,014 $ 36,445 $ 32,083 $ 31,945 $ 27,772
========= ======== ======== ======== ========
19
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(Amounts in thousands, except for per share and property data)
(1)AS OF DECEMBER 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ..................... $ .79 $ 1.10 $ 1.43 $ 1.40 $ 1.03
Income from discontinued operations ................... $ .43 $ .59 $ .10 $ .09 $ .07
Net income available for Common Shares ................ $ 1.22 $ 1.69 $ 1.53 $ 1.49 $ 1.10
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ..................... $ .78 $ 1.07 $ 1.40 $ 1.37 $ 1.01
Income from discontinued operations ................... $ .42 $ .57 $ .09 $ .09 $ .08
Net income available for Common Shares ................ $ 1.20 $ 1.64 $ 1.49 $ 1.46 $ 1.09
Distributions declared per Common Shares
outstanding(2) ....................................... $ 9.485 $ 1.90 $ 1.78 $ 1.66 $ 1.55
Weighted average Common Shares outstanding - basic .... 22,077 21,617 21,036 21,469 25,224
Weighted average Common OP Units outstanding .......... 5,342 5,403 5,466 5,592 5,704
Weighted average Common Shares outstanding - fully
diluted .............................................. 28,002 27,632 27,010 27,408 31,252
BALANCE SHEET DATA:
Real estate, before accumulated depreciation(3) ....... $1,315,096 $1,296,007 $1,238,138 $1,218,176 $1,264,343
Total assets .......................................... 1,473,915 1,162,850 1,101,805 1,104,304 1,160,338
Total mortgages and loans(2) .......................... 1,076,296 760,233 708,857 719,684 725,264
Minority interests .................................... 126,716 168,501 171,147 171,271 179,397
Stockholders' equity(2) ............................... 5,798 177,619 175,150 168,095 211,401
OTHER DATA:
Funds from operations(4) .............................. $ 60,831 $ 68,393 $ 66,957 $ 63,807 $ 68,477
Net cash flow:
Operating activities ................................ $ 75,163 $ 80,176 $ 80,708 $ 68,001 $ 72,580
Investing activities ................................ $ (598) $ (72,973) $ (23,067) $ 23,102 $ (37,868)
Financing activities ................................ $ 243,905 $ (1,287) $ (59,134) $ (94,932) $ (41,693)
Total Properties (at end of period)(5) ................ 142 142 149 154 157
Total sites (at end of period) ........................ 51,715 51,582 50,663 51,304 53,846
Total sites (weighted average for the year)(6) ........ 43,134 42,962 46,243 46,964 46,914
(1) See the Consolidated Financial Statements of the Company included elsewhere
herein. Certain 2002, 2001, 2000, and 1999 amounts have been reclassified
to conform to the 2003 financial presentation. Such reclassifications have
no effect on the operations or equity as originally presented.
(2) On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501
million at a weighted average interest rate of 5.84% and with a weighted
average maturity of approximately 9 years. Approximately $170 million of
the proceeds were used to repay amounts outstanding on the Company's line
of credit and term loan. Approximately $225 million was used to pay a
special distribution of $8.00 per share on January 16, 2004. The remaining
funds are being held in short-term investments and will be used for
investment purposes in 2004. The Recap resulted in increased interest and
amortization expense and the special distribution resulted in decreased
stockholder's equity.
(3) We believe that the book value of the Properties, which reflects the
historical costs of such real estate assets less accumulated depreciation,
is less than the current market value of the Properties.
(4) We generally consider Funds From Operations ("FFO") to be an appropriate
measure of the non-GAAP performance of an equity Real Estate Investment
Trust ("REIT"). FFO was redefined by the National Association of Real
Estate Investment Trusts ("NAREIT") in April 2002, as net income (computed
in accordance with generally accepted accounting principles ["GAAP"]),
before allocation to minority interests, excluding gains (or losses) from
sales of property, plus real estate depreciation and after adjustments for
unconsolidated partnerships and joint ventures. For purposes of presenting
FFO, the revised definition of FFO has been given retroactive treatment. We
believe that FFO is helpful to investors as a measure of the performance of
an equity REIT because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors an
understanding of our ability to incur and service debt and to make capital
expenditures. We compute FFO in accordance with the NAREIT definition which
may differ from the methodology for calculating FFO utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs'
computations. FFO in and of itself does not represent cash generated from
operating activities in accordance with GAAP and therefore should not be
considered an alternative to net income as an indication of our performance
or to net cash flows from operating activities as determined by GAAP as a
measure of liquidity and is not necessarily indicative of cash available to
fund cash needs.
20
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(5) During the year ended December 31, 1999, three Properties were acquired;
net operating income attributable to such Properties during 1999 was
approximately $87,000, which included approximately $104,000 of
depreciation expense. During the year ended December 31, 2000, three
Properties and a water and wastewater treatment company were sold; net
operating income attributable to such Properties during 2000 was
approximately $1.6 million, which included approximately $623,000 of
depreciation expense. During the year ended December 31, 2001, three
Properties were acquired, including one through the termination of a lease;
net operating income attributable to such Properties during 2001 was
approximately $1.3 million, which included approximately $396,000 of
depreciation expense. Also during the year ended December 31, 2001, eight
Properties were sold; net operating income attributable to such Properties
during 2001 was $1.0 million, which included approximately $235,000 of
depreciation expense. During the year ended December 31, 2002, eleven
Properties were acquired; net operating income attributable to such
Properties during 2002 was approximately $2.0 million, which included
approximately $809,000 of depreciation expense. Also during the year ended
December 31, 2002, eighteen Properties were sold; net operating income
attributable to such Properties during 2002 was $5.4 million, which
included approximately $1.2 million of depreciation expense. During the
year ended December 31, 2003, three Properties were acquired; net operating
loss attributable to such Properties during 2003 was approximately $25,000,
which included approximately $25,000 of depreciation expense. Also during
the year ended December 31, 2003, three Properties were sold; net operating
income attributable to such Properties during 2003 was $908,000, which
included approximately $135,000 of depreciation expense.
(6) Excludes Resort sites and sites in Properties owned through unconsolidated
joint ventures.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K. The following discussion may
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which reflect management's current
views with respect to future events and financial performance. Such
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the effects of future events on the Company's
financial performance; the adverse impact of external factors such as inflation
and consumer confidence; and the risks associated with real estate ownership.
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties acquired and sold since January 1,
2002:
PROPERTY TRANSACTION DATE SITES
-------- ---------------- -----
TOTAL SITES AS OF JANUARY 1, 2002........................................... 50,663
ACQUISITIONS:
Mt. Hood Village...............................March 12, 2002 450
Harbor View Village............................July 10, 2002 471
Countryside....................................July 31, 2002 560
Golden Sun.....................................July 31, 2002 329
Breezy Hill....................................July 31, 2002 762
Highland Woods.................................August 14, 2002 148
Holiday Village................................July 31, 2002 301
Tropic Winds...................................August 7, 2002 531
Silk Oak Lodge.................................October 1, 2002 180
Hacienda Village...............................December 18, 2002 519
Glen Ellen.....................................December 31, 2002 117
Toby's.........................................December 3, 2003 379
Araby Acres....................................December 15, 2003 337
Foothill ......................................December 15, 2003 180
EXPANSION SITE DEVELOPMENT AND OTHER:
Sites added (reconfigured) in 2002............. 90
Sites added (reconfigured) in 2003............. (35)
DISPOSITIONS:
College Heights (17 Properties)................September 1, 2002 (3,220)
Camelot Acres..................................November 13, 2002 (319)
Independence Hill..............................June 6, 2003 (203)
Brook Gardens..................................June 6, 2003 (424)
Pheasant Ridge.................................June 30, 2003 (101)
------
TOTAL SITES AS OF DECEMBER 31, 2003......................................... 51,715
======
22
TRENDS
Occupancy in our Properties as well as our ability to increase rental rates
directly affect revenues. In 2003, occupancy in our Core Portfolio decreased
1.9%. Also during 2003, average monthly base rental rates for the Core Portfolio
increased approximately 5.1%. We project continued growth during 2004 in our
Core Portfolio performance. Core Portfolio base rental-rate growth is expected
to be approximately 4%. These projections would result in growth of
approximately 2.5% in Core Portfolio income from operations (also referred to as
net operating income or "NOI").
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, which require us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and the related disclosures. We believe that
the following critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
We periodically evaluate our long-lived assets, including our investments
in real estate, for impairment indicators. Our judgments regarding the existence
of impairment indicators are based on factors such as operational performance,
market conditions and legal factors. Future events could occur which would cause
us to conclude that impairment indicators exist and an impairment loss is
warranted.
Real estate is recorded at cost less accumulated depreciation. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
assets. We use a 30-year estimated life for buildings acquired and structural
and land improvements, a ten-to-fifteen-year estimated life for building
upgrades and a three-to-seven-year estimated life for furniture, fixtures and
equipment. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred and significant renovations and improvements that improve
the asset and extend the useful life of the asset are capitalized over their
estimated useful life. However, the useful lives, salvage value, and customary
depreciation method used for land improvements and other significant assets may
significantly and materially overstate the depreciation of the underlying assets
and therefore understate the net income of the Company. In addition, the
Financial Accounting Standards Board ("FASB") is currently reviewing the methods
of depreciation and cost capitalization for all industries and in June 2001
issued FASB Exposure Draft, "Accounting in Interim and Annual Financial
Statements for Certain Costs and Activities Related to Property, Plant and
Equipment", the implementation of which, if issued, could also have a material
effect on the Company's results of operations.
The valuation of financial instruments under Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS No. 107") and Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133") requires us to make estimates and judgments that affect the fair value
of the instruments. Where possible, we base the fair values of our financial
instruments, including our derivative instruments, on listed market prices and
third party quotes. Where these are not available, we base our estimates on
other factors relevant to the financial instrument.
Certain costs, primarily legal costs, relative to our efforts to
effectively change the use and operations of several Properties subject to rent
control (see Note 17) are currently classified in other assets. These costs, to
the extent these efforts are successful, are capitalized to the extent of the
established value of the revised project and included in the net investment in
real estate for the appropriate Properties (see Note 5). To the extent these
efforts are not successful, these costs will be expensed. In addition, we
capitalize certain costs, primarily legal costs, related to entering into lease
agreements which govern the terms under which we may enter into leases with
individual tenants and which are expensed over the term of the lease agreement.
In 2003, due to the successful settlement of litigation related to one Property,
DeAnza Santa Cruz, we reclassified approximately $5.3 million of these costs to
land improvements and will depreciate these costs over 30 years
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). The objective of FIN 46 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 the company's consolidated financial
statements. A company that holds variable interests in an entity will need to
consolidate such entity if the company absorbs a majority of the VIE's expected
losses or receive a majority of the entity's expected residual returns if they
occur, or both.
23
The provisions of FIN 46 apply to the Company upon initial involvement with
the respective entity for transactions created after January 31, 2003. The
adoption of FIN 46 in 2003 had no effect on the Company in 2003. The provisions
of FIN 46 and related revised interpretations apply no later than the end of the
first interim reporting period ending March 15, 2004 (March 31, 2004) for
entities created before February 1, 2003. The Company is currently evaluating
and assessing the impact of FIN 46 and the related revised interpretations on
entities created before February 1, 2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Prior to January 1, 2003 we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees", based
upon the intrinsic value method. This method results in no compensation expense
for options issued with an exercise price equal to or exceeding the market value
of the Common Shares on the date of grant. Effective January 1, 2003, we elected
to account for our stock-based compensation in accordance with SFAS No. 123 and
its amendment (SFAS No. 148), "Accounting for Stock Based Compensation", which
will result in compensation expense being recorded based on the fair value of
the stock options and other equity awards issued. SFAS 148 provides three
possible transition methods for changing to the fair value method. We have
elected to use the modified-prospective method. This method requires that we
recognize stock-based employee compensation cost from the beginning of the
fiscal year in which the recognition provisions are first applied as if the fair
value method had been used to account for all employee awards granted, or
settled, in fiscal years beginning after December 15, 1994. The following table
illustrates the effect on net income and earnings per share as if the fair value
method was applied to all outstanding and unvested awards in each period
presented (amounts in thousands, except per share data):
2003 2002 2001
------- ------- -------
Net income available for Common
Shares as reported ................. $27,014 $36,445 $32,083
Add: Stock-based compensation
expense included in net income as
reported ........................... 2,139 2,185 2,549
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards .. (2,139) (2,086) (2,203)
------- ------- -------
Pro forma net income available for
Common Shares ...................... $27,014 $36,544 $32,429
======= ======= =======
Pro forma net income per Common
Share - Basic ...................... $ 1.22 $ 1.69 $ 1.54
======= ======= =======
Pro forma net income per Common
Share - Fully Diluted .............. $ 1.20 $ 1.65 $ 1.50
======= ======= =======
24
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
Since December 31, 2001, the gross investment in real estate increased from
$1,238 million to $1,315 million as of December 31, 2003, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 50,663 as of
December 31, 2001 to 51,715 as of December 31, 2003.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2003 and 2002.
CORE PORTFOLIO TOTAL PORTFOLIO
------------------------------------------- ----------------------------------------
INCREASE/ INCREASE/ %
(dollars in thousands) 2003 2002 (DECREASE) % CHANGE 2003 2002 (DECREASE) CHANGE
-------- -------- ---------- -------- -------- -------- ---------- ------
Community base rental income ...... $191,655 $185,766 $ 5,889 3.2% $196,919 $194,640 $ 2,279 1.2%
Resort base rental income ......... 256 154 102 66.2% 11,780 9,146 2,634 28.8%
Utility and other income .......... 18,764 18,458 306 7.5% 20,150 19,684 466 2.4%
-------- -------- ------- ---- -------- -------- ------- ----
Property operating revenues ..... 210,675 204,378 6,297 3.1% 228,849 223,470 5,379 2.4%
Property operating and
maintenance ...................... 56,535 54,510 2,025 3.7% 64,996 62,843 2,153 3.4%
Real estate taxes ................. 17,278 16,338 940 5.8% 18,917 17,827 1,090 6.1%
Property management ............... 8,629 8,498 131 1.5% 9,373 9,292 81 0.9%
-------- -------- ------- ---- -------- -------- ------- ----
Property operating expenses ..... 82,442 79,346 3,096 4.5% 93,286 89,962 3,324 3.7%
-------- -------- ------- ---- -------- -------- ------- ----
Income from property operations ... $128,233 $125,032 $ 3,201 2.6% $135,563 $133,508 $ 2,055 1.5%
======== ======== ======= ==== ======== ======== ======= ====
Site and Occupancy Information(1):
Average total sites ............... 41,570 41,578 (8) 0.0% 43,134 43,627 (493) (1.1%)
Average occupied sites ............ 37,893 38,594 (701) (1.9%) 39,363 40,467 (1,104) (2.7%)
Occupancy % ....................... 91.2% 92.8% (1.7%) (1.7%) 91.3% 92.8% (1.5%) (1.5%)
Monthly base rent per site ........ $ 421.49 $ 401.11 $ 20.38 5.1% $ 416.89 $ 400.82 $ 16.07 4.0%
Total sites
As of December 31, .............. 41,580 41,590 (10) 0.0% 43,143 43,178 (35) (0.0%)
Total occupied sites
As of December 31, .............. 37,479 38,346 (867) (2.3%) 38,946 39,736 (790) (2.0%)
(1) Site and occupancy information excludes Resort sites and Properties owned
through unconsolidated joint ventures as well as the sites of Properties
acquired or sold during 2002 and 2003.
Property Operating Revenues
The 3.2% increase in Community base rental income for the Core Portfolio
reflects a 5.1% increase in monthly base rent per site coupled with a 1.9%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher expenses for these items.
Property Operating Expenses
The 3.7% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in insurance and other expenses,
utility expense, repair and maintenance expense, administrative expense and
payroll expense. The 5.8% increase in Core Portfolio real estate taxes is
generally due to higher property assessments on certain Properties. Property
management expense for the Core Portfolio, which reflects costs of managing the
Properties and is estimated based on a percentage of Property operating
revenues, increased by 1.5% due to increases in payroll costs and computer
expenses.
25
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
(CONTINUED)
Home Sales Operations
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2003 and 2002.
HOME SALES OPERATIONS
---------------------------------------------
INCREASE/
(dollars in thousands) 2003 2002 (DECREASE) % CHANGE
-------- -------- ---------- --------
Gross revenues from new home sales... $ 33,512 $ 30,618 2,894 9.5%
Cost of new home sales .............. (29,064) (24,689) 4,375 17.7%
-------- -------- ------ ------
Gross profit from new home sales .... 4,448 5,929 (1,481) (25.0%)
Gross revenues from used home sales 3,094 2,919 175 6.0%
Cost of used home sales ............. (2,703) (2,494) 209 8.4%
-------- -------- ------ ------
Gross profit from used home sales ... 391 425 (34) (8.0%)
Brokered resale revenues, net ....... 1,724 1,592 132 8.3%
Home selling expenses ............... (7,360) (7,664) (304) (4.0%)
Ancillary services revenues, net .... 216 522 (306) (58.6%)
-------- -------- ------ ------
Income from home sales operations ... $ (581) $ 804 (1,385) (172.3%)
======== ======== ====== ======
HOME SALES VOLUMES:
New home sales .................... 458 420 38 9.0%
Used home sales ................... 189 182 7 3.8%
Brokered home resales ............. 1,102 986 116 11.8%
New home sales gross profit reflects a 9.0% increase in sales volume
coupled with a 6.1% decrease in the gross margin. The average selling price of
new homes remained steady year over year. Used home sales gross profit reflects
a decrease in gross margin on used home sales, partially offset by an increase
in volume. Brokered resale revenues reflects increased resale volumes. The 4.0%
decrease in home selling expenses primarily reflects reductions in advertising
expenses.
Other Income and Expenses
In October, 2003, we received approximately $501 million from the Recap.
The cash received from the Recap was used to pay down our Line of Credit and pay
off our Term Loan, with the remainder placed in short-term investments to be
used for payment of a special distribution in January, 2004 and for future
acquisitions. As a result, interest income increased reflecting additional
interest earned on short-term investments with an average balance of $273
million. The increase in other corporate income reflects increased income from
unconsolidated joint ventures. The decrease in general and administrative
expense is due to decreased professional fees and public company costs,
partially offset by increased payroll costs and banking expenses. Interest and
related amortization increased due to the Recap and the payment of approximately
$3 million to unwind the 2001 Swap, partially offset by decreased interest rates
during the period. The weighted average outstanding debt balances for the years
ended December 31, 2003 and 2002 were approximately $800 million and $731.8
million, respectively. The effective interest rate was 6.4% and 6.8% per annum
for the years ended December 31, 2003 and 2002, respectively.
26
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF YEAR ENDED DECEMBER 31, 2002 TO YEAR ENDED DECEMBER 31, 2001
Since December 31, 2000, the gross investment in real estate increased from
$1,218 million to $1,296 million as of December 31, 2002, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 51,304 as of
December 31, 2000 to 51,582 as of December 31, 2002.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2002 and 2001.
CORE PORTFOLIO TOTAL PORTFOLIO
------------------------------------------ -----------------------------------------------
INCREASE/ INCREASE/ %
(dollars in thousands) 2002 2001 (DECREASE) % CHANGE 2002 2001 (DECREASE) CHANGE
-------- -------- ---------- -------- -------- -------- ---------- ------
Community base rental income ...... $186,889 $179,579 $7,310 4.1% $194,640 $190,982 $ 3,658 1.9%
Resort base rental income ......... 494 439 55 12.5% 9,146 5,748 3,398 59.1%
Utility and other income .......... 18,244 18,786 (542) (2.9%) 19,684 20,381 (697) (3.4%)
-------- -------- ------ ---- -------- -------- ------- ----
Property operating revenues ..... 205,627 198,804 6,823 3.4% 223,470 217,111 6,359 2.9%
Property operating and
maintenance ...................... 54,240 53,024 1,216 2.3% 62,843 60,807 2,036 3.3%
Real estate taxes ................. 16,443 15,271 1,172 7.7% 17,827 16,882 945 5.6%
Property management ............... 8,430 8,120 310 3.8% 9,292 8,984 308 3.4%
-------- -------- ------ ---- -------- -------- ------- ----
Property operating expenses ..... 79,113 76,415 2,698 3.5% 89,962 86,673 3,289 3.8%
-------- -------- ------ ---- -------- -------- ------- ----
Income from property operations ... $126,514 $122,389 $4,125 3.4% $133,508 $130,438 $ 3,070 2.4%
======== ======== ====== ==== ======== ======== ======= ====
Site and Occupancy Information(1):
Average total sites ............... 41,489 41,428 61 0.1% 44,552 46,243 (1,691) (3.7%)
Average occupied sites ............ 38,642 39,108 (466) (1.2%) 41,435 43,576 (2,141) (4.9%)
Occupancy % ....................... 93.1% 94.4% (1.3%) (1.3%) 93.0% 94.2% (1.2%) (1.2%)
Monthly base rent per site ........ $ 403.04 $ 382.65 $20.39 5.3% $ 397.80 $ 371.20 $ 26.61 7.1%
Total sites
As of December 31, .............. 41,588 41,472 116 0.3% 43,906 45,743 (1,837) (4.0%)
Total occupied sites
As of December 31, .............. 38,399 38,991 (592) (1.5%) 40,410 42,887 (2,477) (5.8%)
(1) Site and occupancy information excludes Resort sites and Properties owned
through unconsolidated joint ventures as well as the sites of Properties
sold during 2002.
Property Operating Revenues
The 4.1% increase in Community base rental income for the Core Portfolio
reflects a 5.3% increase in monthly base rent per site coupled with a 1.2%
decrease in average occupied sites. The decrease in utility and other income for
the Core Portfolio is due primarily to decreases in utility income, which
resulted from lower expenses for these items.
Property Operating Expenses
The increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in property payroll, insurance and other
expenses, repair and maintenance and administrative expenses, partially offset
by decreased utility expense. The increase in Core Portfolio real estate taxes
is generally due to higher property assessments on certain Properties. Property
management expense for the Core Portfolio, which reflects costs of managing the
Properties and is estimated based on a percentage of Property operating
revenues, increased by 3.8% due to increases in payroll costs and office
expenses.
27
RESULTS OF OPERATIONS (CONTINUED)
Home Sales Operations
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2002 and 2001.
HOME SALES OPERATIONS
--------------------------------------------------
INCREASE/
(dollars in thousands) 2002 2001 (DECREASE) % CHANGE
-------- ----------- ---------- --------
(Pro forma)
Gross revenues from new home sales . $ 30,618 $ 32,608 (1,990) (6.1%)
Cost of new home sales ............. (24,689) (25,925) 1,236 4.8%
-------- -------- ------ -----
Gross profit from new home sales ... 5,929 6,683 (754) (11.3%)
Gross revenues from used home sales 2,919 3,631 (712) (19.6%)
Cost of used home sales ............ (2,494) (2,561) 67 2.6%
-------- -------- ------ -----
Gross profit from used home sales .. 425 1,070 (645) (60.3%)
Brokered resale revenues, net ...... 1,592 1,723 (131) (7.6%)
Home selling expenses .............. (7,664) (8,240) 576 67.0%
Ancillary services revenues, net ... 522 1,092 (570) (52.2%)
-------- -------- ------ -----
Income from home sales operations .. $ 804 $ 2,328 (1,524) (65.5%)
======== ======== ====== =====
HOME SALES VOLUMES:
New home sales ................... 420 485 (65) (13.4%)
Used home sales .................. 182 250 (68) (27.2%)
Brokered home resales ............ 986 1,114 (128) (11.5%)
Prior to January 1, 2002, the results of operations of RSI were accounted
for using the equity method and reported on a single line item called Equity in
Income of Affiliates. As a result of the acquisition of RSI (see Note 7), the
Company owns and controls RSI and consolidates the financial results of RSI with
those of the Company. The pro forma presentation of detailed 2001 amounts is for
comparison purposes and has no effect on previously reported net income. For the
year ended December 31, 2001, equity in income of affiliates was approximately
$1.8 million and included the $2.3 million of income from home sales operations
presented above as well as $539,000 of interest income, $15,000 of corporate
expenses and $1.0 million of interest expense.
New home sales gross profit reflects a 13.4% decrease in sales volume
coupled with a 1.1% decrease in the gross margin. The average selling price of
new homes increased $6,000 or 8.7% compared to 2001. Used home sales gross
profit reflects a decrease in both volume and gross margin on used home sales.
Brokered resale revenues reflects decreased resale volumes. The 6.9% decrease in
home selling expenses primarily reflects reductions in payroll and advertising
expenses.
Other Income and Expenses
The increase in interest income reflects a decrease in notes receivable
offset by an increase in chattel notes receivable acquired through the
acquisition of RSI. The decrease in other corporate income primarily reflects
decreased income from unconsolidated joint ventures. The increase in general and
administrative expense is due to increases in costs related to operating a
public company, increased payroll costs and increased consulting and legal
costs. Interest and related amortization decreased due to lower interest rates
during the period. The weighted average outstanding debt balances for the years
ended December 31, 2002 and 2001 were $731.8 million and $713.2 million,
respectively. The effective interest rate was 6.8% and 7.0% per annum for the
years ended December 31, 2002 and 2001, respectively.
28
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of December 31, 2003, we had $325.7 million in cash and cash equivalents
and $110.0 million available on our Line of Credit. We expect to meet our
short-term liquidity requirements, including distributions, generally through
our working capital, net cash provided by operating activities and availability
under the Line of Credit. We expect to meet certain long-term liquidity
requirements such as scheduled debt maturities, property acquisitions and
capital improvements by long-term collateralized and uncollateralized borrowings
including borrowings under our Line of Credit and the issuance of debt
securities or additional equity securities in the Company, in addition to
working capital.
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide us with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize our risks of inflation.
FUNDS FROM OPERATIONS
Funds From Operations ("FFO"), a non-GAAP financial performance measure,
was redefined by the National Association of Real Estate Investment Trusts
("NAREIT") in April 2002, as net income (computed in accordance with GAAP),
before allocation to minority interests, excluding gains (or losses) from sales
of property, plus real estate depreciation and after adjustments for
unconsolidated partnerships and joint ventures. The Company computes FFO in
accordance with the NAREIT definition, which may differ from the methodology for
calculating FFO utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs' computations. The Company believes that FFO is
useful to investors as a measure of the performance of an equity REIT because,
along with cash flows from operating activities, financing activities and
investing activities, FFO provides investors an understanding of the ability of
the Company to incur and service debt and to make capital expenditures. FFO does
not represent cash generated from operating activities in accordance with GAAP
and therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and is not
necessarily indicative of cash available to fund cash needs.
The following table presents a calculation of FFO for the years ended
December 31, 2003, 2002 and 2001 (amounts in thousands):
2003 2002 2001
-------- -------- --------
COMPUTATION OF FUNDS FROM OPERATIONS:
Net income available for Common Shares ................... $ 27,014 $ 36,445 $ 32,083
Income allocated to Common OP Units ...................... 6,474 8,926 8,209
Depreciation on real estate assets and other costs ....... 38,034 35,552 34,228
Depreciation expense included in discontinued operations.. 135 484 605
Gain on sale of Properties and other ..................... (10,826) (13,014) (8,168)
-------- -------- --------
Funds from operations .................................. $ 60,831 $ 68,393 $ 66,957
======== ======== ========
Weighted average Common Shares outstanding - diluted ..... 28,002 27,632 27,010
======== ======== ========
29
ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 2001, we acquired two Florida Properties
for an aggregate purchase price of approximately $17.3 million and completed the
sale of seven properties in Kansas, Missouri and Oklahoma, for a total sale
price of approximately $17.4 million. Also during 2001, we finalized a
settlement agreement whereby we received $10.8 million in proceeds related to
the sale of a Property in Indiana.
During the year ended December 31, 2002, we acquired the eleven Properties
listed in the table below. The acquisitions were funded with borrowings on our
Line of Credit and the assumption of $47.9 million of mortgage debt, which
includes a $3.0 million mark-to-market adjustment. In addition, we purchased
adjacent land and land improvements for several Properties for approximately
$559,000.
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ----------------- ------------------- ------------------- ----- -------- -----------
($ millions) ($ millions)
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ ---
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1
July 31, 2002 Countryside Apache Junction, AZ 560 7.5 ---
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1
July 31, 2002 Breezy Hill Pompano Beach, FL 762 20.5 10.5
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5
August 7, 2002 Tropic Winds Harlingen, TX 531 4.9 ---
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5
----- ------ -----
TOTALS 4,368 $101.6 $47.9
===== ====== =====
During the year ended 2002, we effectively sold 17 Properties as part of a
restructuring of the College Heights Joint Venture discussed hereinafter. In
addition, we sold Camelot Acres, a 319 site Property in Burnsville, Minnesota,
for approximately $14.2 million.
During the year ended December 31, 2003, we sold the three Properties
listed in the table below. Proceeds from the sales were used to repay amounts on
the Company's Line of Credit. Also during the same period, we acquired a parcel
of land adjacent to one of our Properties for approximately $97,000.
TOTAL DISPOSITION GAIN ON
DATE SOLD PROPERTY LOCATION SITES PRICE SALE
- ------------- ----------------- -------------- ----- ------------ ------------
($ millions) ($ millions)
June 6, 2003 Independence Hill Morgantown, WV 203 $ 3.9 $ 2.8
June 6, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1
June 30, 2003 Pheasant Ridge Mount Airy, MD 101 5.4 3.9
--- ----- -----
728 $27.1 $10.8
=== ===== =====
In December, 2003, we acquired three Resort Properties listed in the table
below. The acquisitions were funded with monies held in short-term investments.
The acquisitions included the assumption of liabilities of approximately
$650,000. Also during 2003, we acquired a parcel of land adjacent to one of our
Properties for approximately $97,000.
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ----------------- ----------- ----------- ----- ------------ ------------
($ millions) ($ millions)
December 3, 2003 Toby's Arcadia, FL 379 $4.3 $---
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4
30
INVESTMENTS IN JOINT VENTURES
Effective September 1, 2002, the Company restructured its investment in
Wolverine Property Investment Limited Partnership (the "College Heights Joint
Venture" or the "Venture"), a joint venture with Wolverine Investors, LLP. The
Venture included 18 Properties with 3,581 sites. The results of operations of
the College Heights Joint Venture prior to restructuring were included with the
results of the Company due to the Company's voting equity interest and control
over the Venture. Pursuant to the restructuring, the Company sold its general
partnership interest, sold all of the Company's voting equity interest and
reduced the Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site community in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve. The continuing preferred
limited partnership interests are accounted for using the equity method and
reported as an investment in a joint venture.
ACQUISITION OF REALTY SYSTEMS, INC.
On January 1, 2002, the Company purchased all of the common stock of Realty
Systems, Inc. ("RSI"). The Company previously owned the non-voting preferred
stock of RSI and had notes receivable from RSI which were recorded as an
investment in affiliate. The Company purchased the common stock of RSI from
Equity Group Investments, Inc., controlled by Samuel Zell, Chairman of the Board
of Directors of the Company, for approximately $675,000. As a result of this
acquisition, the Company owns and controls RSI and consolidates the financial
results of RSI with those of the Company including $839,000 of cash from the
acquisition on January 1, 2002.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $11.9 million and $13.4
million for the years ended December 31, 2003 and 2002, respectively. Of these
expenditures, the Company believes that approximately $8.0 million or $155 per
site for 2003 and $7.6 million or $147 per site for 2002 are non-revenue
producing improvements which are necessary in order to increase and/or maintain
occupancy levels and maintain competitive market rents for new and renewing
residents. Site development costs were approximately $9.0 million and $10.4
million for the years ended December 31, 2003 and 2002, respectively, and
represent costs to develop expansion sites at certain of the Company's
Properties and costs for improvements to sites when a smaller used home is
replaced with a larger new home.
EQUITY TRANSACTIONS
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 90% or more of its taxable income (excluding capital gains) to
its stockholders. The following distributions have been declared and/or paid to
common stockholders and minority interests since January 1, 2001.
DISTRIBUTION
AMOUNT PER FOR THE QUARTER STOCKHOLDER
SHARE ENDING RECORD DATE PAYMENT DATE
- ------------ ------------------ ------------------ ----------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 2002
- -------------------------------------------------------------------------------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
- -------------------------------------------------------------------------------------
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October, 2003 to pay the special distribution
on January 16, 2004. The special cash dividend will be reflected on
stockholders' 2004 1099-DIV to be issued in January 2005.
31
EQUITY TRANSACTIONS (CONTINUED)
The Operating Partnership paid distributions of 9.0% per annum on the $125
million of Series D Cumulative Redeemable Perpetual Preferred Units ("Preferred
Units"). Distributions on the Preferred Units were paid annually on the last
calendar day of each quarter beginning December 31, 1999. The Company expects to
continue to make regular annual distributions and has set its 2004 distribution
to common stockholders at $0.05 per share per annum.
MORTGAGES AND CREDIT FACILITIES
On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501 million
at a weighted average interest rate of 5.84% and with a weighted average
maturity of approximately 9 years. Approximately $170 million of the proceeds
were used to repay amounts outstanding on the Company's Line of Credit and Term
Loan. Approximately $225 million was used to pay a special dividend of $8.00 per
share on January 16, 2004. The remaining funds are being held in short-term
investments and will be used primarily for investments in 2004.
We have an unsecured Line of Credit with a group of banks (the "Line of
Credit") with a total facility of $110 million, bearing interest at the London
Interbank Offered Rate ("LIBOR") plus 1.65% that matures on August 9, 2006. We
pay a quarterly fee on the average unused amount of the total facility equal to
0.15% of such amount. In October, 2003, all amounts outstanding on the Line of
Credit were repaid with proceeds from the Recap. As of December 31, 2003, $110
million was available under the Line of Credit. The Line of Credit had a total
facility of $150 million prior to amendment in December, 2003.
We had a $100 million unsecured term loan (the "Term Loan") with a group of
banks with interest only payable monthly at LIBOR plus 1.375%. In October, 2003,
we paid off the Term Loan with proceeds from the Recap.
On October 29, 2001, we entered into an interest rate swap agreement (the
"2001 Swap"), effectively fixing LIBOR on $100 million of our floating rate debt
at approximately 3.7% per annum for the period October 2001 through August 2004.
The terms of the 2001 Swap required monthly settlements on the same dates
interest payments were due on the debt. In accordance with SFAS No. 133, the
2001 Swap was reflected at market value. In October, 2003, we unwound the 2001
Swap at a cost of approximately $3 million, which is included in interest and
related amortization in 2003 in the accompanying Consolidated Statements of
Operations.
On April 17, 2003, we entered into an agreement to refinance and increase
the Bay Indies Mortgage from approximately $21.9 million to $45 million. Under
the new agreement, the Bay Indies Mortgage bears interest at 5.69% per annum,
amortizes over 25 years and matures April 17, 2013. The net proceeds were used
to pay down the Company's Line of Credit in April, 2003. Also during the year
ended December 31, 2003, mortgage notes payable on four other Properties were
repaid totaling approximately $23.5 million using proceeds from borrowings on
the Company's Line of Credit.
During the year ended December 31, 2002, as part of the purchase of RSI, in
a non-cash transaction, we assumed a $12.5 million note payable ("Conseco
Financing Note"), collateralized by manufactured home inventory. The Conseco
Financing Note was repaid at a discount during 2002 using proceeds from our Line
of Credit. In addition, we repaid a maturing mortgage note in the amount of $1.1
million and $2.1 million of other unsecured notes payable using proceeds from
our Line of Credit.
During the year ended December 31, 2001, we repaid three maturing mortgages
in the aggregate amount of $12.1 million using proceeds from our Line of Credit.
In addition, we entered into a $50.0 million mortgage note (the "Stagecoach
Mortgage") collateralized by 7 Properties beneficially owned by MHC Stagecoach,
L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98% per annum,
amortizes beginning September 1, 2001 over 10 years and matures August 31, 2011.
Proceeds from the financing were used to reduce borrowings on the Line of Credit
by $37.9 million.
Certain of our mortgage and credit agreements contain covenants and
restrictions including restrictions as to the ratio of secured or unsecured debt
versus encumbered or unencumbered assets, the ratio of fixed charges-to-earnings
before interest, taxes, depreciation and amortization ("EBITDA"), limitations on
certain holdings and other restrictions.
32
MORTGAGES AND CREDIT FACILITIES (CONTINUED)
As of December 31, 2003, we were subject to certain contractual payment
obligations as described in the table below (dollars in thousands). We are not
subject to capital lease obligations or unconditional purchase obligations as of
December 31, 2003.
Contractual Obligations Total 2004 2005 2006 2007 2008 Thereafter
- ----------------------- ----- ---- ---- ---- ---- ---- ----------
Long Term Debt(1)................... $1,076,279 --- $6,478 $17,409 $265,113 $200,908 $586,371
Weighted average interest rates..... 6.4% --- 7.8% 7.4% 7.0% 5.6% 6.6%
(1) Balance excludes net premiums and discounts of $17.
In addition, the Company leases land under non-cancelable operating leases
at certain of the Properties expiring in various years from 2022 to 2031 with
terms which require twelve equal payments per year plus additional rents
calculated as a percentage of gross revenues. For the years ended December 31,
2003, 2002 and 2001, ground lease rent was approximately $1.6 million per year.
Minimum future rental payments under the ground leases are approximately $1.6
million for each of the next five years and approximately $26.3 million
thereafter.
SUBSEQUENT EVENTS
Since December 31, 2003, we invested in 30 Properties as listed in the
table below. The combined investment in these 30 properties was approximately
$137.6 million and was funded with monies held in short-term investments and
additional debt. (amounts in millions, except for total sites)
PURCHASE NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES PRICE DEBT EQUITY
------------ -------- -------- ----------- -------- ----- ------
ACQUISITIONS:
January 15, 2004 O'Connell's(a) Amboy, IL 668 $ 6.6 $ 5.0 $1.6
January 30, 2004 Spring Gulch(b) New Holland, PA 420 6.0 4.8 1.2
February 3, 2004 Paradise(c) Mesa, AZ 950 25.0 20.0 5.0
February 18, 2004 Twin Lakes(d) Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside(e) New Carlisle, IN 95 1.7 --- 1.7
February 5, 2004 Shangri La Largo, FL 160 (f) 4.5 (f)
February 5, 2004 Terra Ceia Palmetto, FL 203 (f) 2.6 (f)
February 5, 2004 Southernaire Mt. Dora, FL 134 (f) 2.1 (f)
February 5, 2004 Sixth Avenue Zephryhills, FL 140 (f) 2.3 (f)
February 5, 2004 Suni Sands Yuma, AZ 336 (f) 3.2 (f)
February 5, 2004 Topic's Spring Hill, FL 230 (f) 2.2 (f)
February 5, 2004 Coachwood Colony Leesburg, FL 200 (f) 4.3 (f)
February 5, 2004 Waterway Cedar Point, NC 336 (f) 6.3 (f)
February 5, 2004 Desert Paradise Yuma, AZ 260 (f) 1.5 (f)
February 5, 2004 Goose Creek Newport, NC 598 (f) 12.6 (f)
MEZZANINE INVESTMENTS(g):
February 3, 2004 Fiesta Grande I & II Casa Grande, AZ 767 --- --- 3.7
February 3, 2004 Tropical Palms North Ft. Myers, FL 297 --- --- 1.9
February 3, 2004 Island Vista Estates North Ft. Myers, FL 617 --- --- 4.6
February 3, 2004 Foothills West Casa Grande, AZ 188 --- --- 1.5
February 3, 2004 Capri Yuma, AZ 300 --- --- 2.1
February 3, 2004 Casita Verde Casa Grande, AZ 192 --- --- 1.2
February 3, 2004 Rambler's Rest Venice, FL 647 --- --- 6.2
February 3, 2004 Venture In Show Low, AZ 389 --- --- 2.4
February 3, 2004 Scenic Asheville, NC 224 --- --- 1.2
February 3, 2004 Clerbrook Clermont, FL 1,255 --- --- 3.9
February 3, 2004 Inlet Oaks Murrells Inlet, SC 178 --- --- 1.0
JOINT VENTURES(h):
December 18, 2003 Lake Myers Mocksville, NC 425 --- --- 0.4
January 21, 2004 Pine Haven Ocean View, NJ 625 --- --- 0.4
January 27, 2004 Twin Mills Howe, IN 501 --- --- 0.2
February 10, 2004 Plymouth Rock Elkhart Lake, WI 609 --- --- 0.4
(a) Property was purchased from O'Connell's Holding Corp. and O'Connell's, Inc.
(b) Property was purchased from Spring Gulch, Inc.
(c) Property was purchased from PRVR Limited Partnership.
(d) Property was purchased from Twin Lakes Land, LLC and Twin Lakes Camping
Resort, LLC.
(e) Property was purchased from Don-Bar Family Limited Partnership.
(f) The portfolio was acquired for a total purchase price of $62 million and
$20.4 million of net equity. The transaction was funded partially through
loans obtained on the individual properties as shown in the table.
(g) On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity in six entities controlled by Diversified Investments,
Inc. ("Diversified"). In addition, the Company has invested approximately
$1.4 million in the Diversified entities managing these properties.
(h) The Company invested approximately $1.4 million with Diversified in four
separate entities, each controlling a Property.
In addition, on February 17, 2004, we tendered payment of $69 million cash
to acquire a 93% equity interest in entities that own and operate 28 vacation
resort properties, containing 11,357 sites. Twenty of the properties are located
in Florida, six in Texas, and two in California. The acquisition was funded with
monies held in short-term investments and $50 million drawn from the Company's
line of credit.
Beginning in 1996, a series of partnerships were formed between "NHC"
entities and "PAMI" entities. The PAMI entities have sued for specific
performance in Chancery Court in Delaware seeking to acquire the NHC entities'
interests. The NHC entities have filed a counter-suit, and have asked the judge
to schedule a hearing to address the matter within thirty days. Under the terms
and conditions of the partnership agreements, $69 million was paid to acquire
the PAMI entities' interests. Principals of the NHC entities will continue to
operate the properties and maintain an equity position in the new entity. The
existing dispute is related to the PAMI entities' desire to liquidate their
investments. While the possibility of additional litigation and its attendant
risks remain, we believe that providing liquidity to the NHC entities to acquire
the PAMI interests may assist in resolving the dispute.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Our earnings are affected by changes in interest rates, since a portion of
our outstanding indebtedness is at variable rates based on LIBOR. Our Line of
Credit ($110 million outstanding at December 31, 2003) bears interest at LIBOR
plus 1.65%, per annum. If LIBOR increased/decreased by 1.0% during the year
ended December 31, 2003, interest expense would have increased/decreased by
approximately $1.3 million based on the average balance outstanding under the
Company's Line of Credit during the period.
On October 29, 2001, we entered into the 2001 Swap, effectively fixing the
LIBOR rate on $100 million of our floating rate debt at approximately 3.7% per
annum for the period October 2001 through August 2004. The terms of the 2001
Swap required monthly settlements on the same dates interest payments were due
on the debt. In the fourth quarter of 2003, we unwound the 2001 Swap for a cost
of approximately $3 million. Effective January 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") and its amendments, SFAS
No. 137 and SFAS No. 138. In accordance with SFAS No. 133, the interest rate
swap was reflected at market value. We believed the 2001 Swap was a perfectly
effective cash flow hedge, under SFAS No. 133, and there would be no effect on
net income as a result of the mark-to-market adjustment. Mark-to-market changes
in the value of the 2001 Swap prior to its payoff were included in other
comprehensive income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Combined Financial Statements on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of December 31, 2003.
Based on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2003. There were no material
changes in the Company's internal control over financial reporting during the
fourth quarter 2003.
33
PART III
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein pursuant to Item 401 and
Item 405 of Regulation S-K is contained under the captions "Election of
Directors," "Election of Directors - Committees of the Board; Meetings" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for the Company's 2004 Annual Meeting of Shareholders
to be held on May 4, 2004 (the "2004 Proxy Statement) and such information is
incorporated herein by reference.
In addition, the information that is included under the caption "Election
of Directors - Corporate Governance" in the 2004 Proxy Statement regarding the
Company's written Guidelines on Corporate Governance and the Company's Business
Ethics and Conduct Policy is incorporated herein by reference.
ITEMS 11, 12, 13 AND 14.
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required by Item 11, Item 12, Item 13 and Item 14 will be
contained in the 2004 Proxy Statement, and thus this Part has been omitted in
accordance with General Instruction G(3) to Form 10-K.
34
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)
(1&2) See Index to Financial Statements and Schedules on page F-1 of
this Form 10-K.
(3) Exhibits:
2(a) Admission Agreement between Equity Financial and
Management Co., Manufactured Home Communities, Inc. and
MHC Operating Partnership
3.1(a) Articles of Incorporation of Manufactured Home
Communities, Inc.
3.2(a) Articles of Amendment and Restatement of Manufactured Home
Communities, Inc.
3.3(g) Amended Bylaws of Manufactured Home Communities, Inc.
4 Not applicable
9 Not applicable
10.1(a) Amended and Restated Agreement of Limited Partnership of
MHC Operating Limited Partnership
10.2(a) Agreement of Limited Partnership of MHC Financing Limited
Partnership
10.3(a) Agreement of Limited Partnership of MHC Management Limited
Partnership
10.4(a) Property Management and Leasing Agreement between MHC
Financing Limited Partnership and MHC Management
Limited Partnership
10.5(a) Property Management and Leasing Agreement between MHC
Operating Limited Partnership and MHC Management
Limited Partnership
10.6(a) Services Agreement between Realty Systems, Inc. and MHC
Management Limited Partnership
10.7(a) Rate Protection Agreement
10.8(a) Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.9(a) Assignment to MHC Operating Limited Partnership of
Revolving Credit Note made by Realty Systems, Inc. to
Equity Financial and Management Co.
10.10(a) Stock Option Plan
10.11A(a) Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of
Rents
10.11B(a) Promissory Note
10.11C(a) Assignment of Loan Documents
10.11D(a) Assignment of Leases, Rents and Security Deposits
10.11E(a) Swap Agreement Pledge and Security Agreement
10.11F(a) Cash Collateral Account Security, Pledge and Assignment
Agreement
10.11G(a) Assignment of Property Management and Leasing Agreement
10.11H(a) Trust Agreement
10.12(a) Form of Noncompetition Agreement
10.13(a) Form of Noncompetition Agreement
10.13A(a) Form of Noncompetition Agreement
10.14(a) General Electric Credit Corporation Commitment Letter
10.15(a) Administrative Services Agreement between Realty Systems,
Inc. and Equity Group Investments, Inc.
10.16(a) Registration Rights and Lock-Up Agreement with the Company
(the Original Owners, EF&M, Directors,
Officers and Employees)
10.17(a) Administrative Services Agreement between the Company and
Equity Group Investments, Inc.
10.18(a) Form of Subscription Agreement between the Company and
certain officers and other individuals dated March 3, 1993
10.19(a) Form of Secured Promissory Note payable to the Company by
certain officers dated March 3, 1993
10.20(a) Form of Pledge Agreement between the Company and certain
officers dated March 3, 1993
10.21(a) Loan and Security Agreement between Realty Systems, Inc.
and MHC Operating Limited Partnership
10.22(a) Equity and Registration Rights Agreement with the Company
(the GM Trusts)
10.23(b) Agreement of Limited Partnership of MHC Lending Limited
Partnership
10.23(c) Agreement of Limited Partnership of MHC-Bay Indies
Financing Limited Partnership
10.24(c) Agreement of Limited Partnership of MHC-De Anza Financing
Limited Partnership
10.25(c) Agreement of Limited Partnership of MHC-DAG Management
Limited Partnership
10.26(d) Amendment No. 2 to MHC Operating Limited Partnership
Amended and Restated Partnership Agreement dated
February 15, 1996
10.27(d) Form of Subscription Agreement between the Company and
certain members of management of the Company
dated January 2, 1996
10.28(d) Form of Secured Promissory Note payable to the Company by
certain members of management of the Company dated
January 2, 1996
35
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
10.29(d) Form of Pledge Agreement between the Company and certain
members of management of the Company dated January 2, 1996
10.30(e) Second Amended and Restated MHC Operating Limited
Partnership Agreement of Limited Partnership, dated as of
March 15, 1996
10.31(f) Agreement of Limited Partnership of MHC Financing Limited
Partnership Two
10.32(g) $265,000,000 Mortgage Note dated December 12,1997
10.33(g) Second Amended and Restated Credit Agreement (Revolving
Facility) between the Company, MHC Operating Limited
Partnership, and certain lenders and agents, dated
April 28, 1998
10.34(g) First Amendment to Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated December 18, 1998
10.35(h) Second Amendment to Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated August 9, 2000
10.36(g) Amended and Restated Credit Agreement (Term Loan) between
the Company, MHC Operating Limited Partnership, and certain
lenders and agent, dated April 28, 1998
10.36(h) First Amendment to Amended and Restated Credit Agreement
(Term Loan) between the Company, MHC Operating Limited
Partnership, and certain lenders and agent, dated
November 21, 2000
10.36(g) Letter Agreement between the Company and Bank of America
National Trust and Savings Association confirming the $100
million swap transaction, dated July 11, 1995
10.39(h) $110,000,000 Amended, Restated and Consolidated Promissory
Note dated June 28, 2000
10.40(h) $15,750,000 Promissory Note Secured by Leasehold Deed of
Trust dated July 13, 2000
10.41(i) Credit Agreement (Term Loan) between the Company, MHC
Operating Limited Partnership and certain lenders and
agents dated February 9, 2002.
10.42(i) Third Amendment to Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated February 9, 2002
10.43(i) $50,000,000 Promissory Note secured by Leasehold Deeds of
Trust (Stagecoach Mortgage) dated December 2, 2001.
10.44(j) Fourth Amendment to the Second Amended and Restated Credit
Agreement (Revolving Facility) between the Company, MHC
Operating Limited Partnership, and certain lenders and
agents, dated December 11, 2003.
10.45(j) Loan Agreement dated October 17, 2003 between MHC Sunrise
Heights, L.L.C., as Borrower, and Bank of America, N.A.,
as Lender.
10.45.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.45.
10.46(j) Form of Loan Agreement dated October 17, 2003 between MHC
Countryside L.L.C., as Borrower, and Bank of America, N.A.,
as Lender.
10.46.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.46.
10.47(j) Form of Loan Agreement dated October 17, 2003 between MHC
Creekside L.L.C., as Borrower, and Bank of America, N.A.,
as Lender.
10.47.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.47.
10.48(j) Form of Loan Agreement dated October 17, 2003 between MHC
Golf Vista Estates L.L.C., as Borrowers, and Bank of
America, N.A., as Lender.
10.48.1(j) Schedule identifying substantially identical agreements to
Exhibit No. 10.48.
11 Not applicable
12(j) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
14 Not applicable
15 Not applicable
16 Not applicable
17 Not applicable
18 Not applicable
21(j) Subsidiaries of the registrant
22 Not applicable
23(j) Consent of Independent Auditors
24.1(j) Power of Attorney for Joseph B. McAdams dated March 2, 2004
24.2(j) Power of Attorney for Howard Walker dated March 2, 2004
24.3(j) Power of Attorney for Thomas E. Dobrowski dated March 1,
2004
24.4(j) Power of Attorney for Gary Waterman dated March 2, 2004
24.5(j) Power of Attorney for Donald S. Chisholm dated March 2,
2004
24.6(j) Power of Attorney for David A. Helfand dated March 2, 2004
36
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
31.1(j) Certification of Chief Financial Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act Of 2002
31.2(j) Certification of Chief Executive Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act Of 2002
32.1(j) Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
32.2(j) Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
(a) Included as an exhibit to the Company's Form S-11 Registration
Statement, File No. 33-55994, and incorporated herein by reference.
(b) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 1993, and incorporated herein by reference.
(c) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 1994, and incorporated herein by reference.
(d) Included as an exhibit to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by reference.
(e) Included as an exhibit to the Company's Report on Form 10-Q for the
quarter ended June 30, 1996, and incorporated herein by reference.
(f) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 1997, and incorporated herein by reference.
(g) Included as an exhibit to the Company's Form S-3 Registration
Statement, File No. 333-90813, and incorporated herein by
reference.
(h) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 2000, and incorporated herein by reference.
(i) Included as an exhibit to the Company's Report on Form 10-K dated
December 31, 2002, and incorporated herein by reference.
(j) Filed herewith.
(b) Reports on Form 8-K:
Form 8-K dated and filed October 21, 2003, relating to Item 7 -
"Financial Statements and Exhibits" and Item 12 - "Disclosure of
Results of Operations and Financial Condition" regarding release of
3rd Quarter 2003 results of operations and financial condition.
Form 8-K dated and filed December 12, 2003, relating to Item 5 -
"Other Events and Regulation FD Disclosure" regarding declaration of
a special dividend.
Form 8-K dated and filed December 16, 2003, relating to Item 5 -
"Other Events and Regulation FD Disclosure" regarding the tax
treatment of special dividend.
(c) Exhibits:
See Item 14 (a)(3) above.
(d) Financial Statement Schedules:
See Index to Financial Statements attached hereto on page F-1 of this
Form 10-K.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MANUFACTURED HOME COMMUNITIES, INC.,
a Maryland corporation
Date: March 10, 2004 By: /s/ Thomas P. Heneghan
-------------------- --------------------------------------
Thomas P. Heneghan
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 10, 2004 By: /s/ Michael B. Berman
-------------------- --------------------------------------
Michael B. Berman
Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
38
MANUFACTURED HOME COMMUNITIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Thomas P. Heneghan President and Chief Executive Officer
- ------------------------------
Thomas P. Heneghan *Attorney-in-Fact March 10, 2004
-----------------------
Vice President, Treasurer
/s/ Michael B. Berman and Chief Financial Officer
- ------------------------------
Michael B. Berman *Attorney-in-Fact March 10, 2004
-----------------------
/s/ Samuel Zell Chairman of the Board
- ------------------------------
Samuel Zell March 10, 2004
-----------------------
/s/ Sheli Z. Rosenberg Director
- ------------------------------
Sheli Z. Rosenberg March 10, 2004
-----------------------
*David A. Helfand Director
- ------------------------------
David A. Helfand March 10, 2004
-----------------------
*Donald S. Chisholm Director
- ------------------------------
Donald S. Chisholm March 10, 2004
-----------------------
*Thomas E. Dobrowski Director
- ------------------------------
Thomas E. Dobrowski March 10, 2004
-----------------------
*Howard Walker Director
- ------------------------------
Howard Walker March 10, 2004
-----------------------
*Joseph B. McAdams Director
- ------------------------------
Joseph B. McAdams March 10, 2004
-----------------------
*Gary Waterman Director
- ------------------------------
Gary Waterman March 10, 2004
-----------------------
39
INDEX TO FINANCIAL STATEMENTS
MANUFACTURED HOME COMMUNITIES, INC.
PAGE
----
Report of Independent Auditors ............................................................................... F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001..................... F-4 and F-5
Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2003, 2002, and 2001.... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2003, 2002 and 2001........................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001..................... F-7
Notes to Consolidated Financial Statements..................................................................... F-8
Schedule II - Valuation and Qualifying Accounts................................................................ S-1
Schedule III - Real Estate and Accumulated Depreciation........................................................ S-2
Certain schedules have been omitted as they are not applicable to the Company.
F-1
Report of Independent Auditors
To the Board of Directors of
Manufactured Home Communities, Inc.
We have audited the accompanying consolidated balance sheets of
Manufactured Home Communities, Inc. as of December 31, 2003 and 2002, and the
related consolidated statements of operations, other comprehensive income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2003. We have also audited the related financial
statement schedules listed in the index at Item 15(a). These financial
statements and schedules are the responsibility of the management of
Manufactured Home Communities, Inc. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Manufactured
Home Communities, Inc. at December 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2003
Manufactured Home Communities, Inc. changed its method of accounting for
stock-based employee compensation. In addition, in 2002 Manufactured Home
Communities, Inc. changed its method of accounting for discontinued operations.
ERNST & YOUNG LLP
Chicago, Illinois
January 27, 2004, except for Note 18
as to which the date is February 19, 2004 and
Note 17 as to which the date is February 24, 2004
F-2
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
ASSETS
Investment in real estate:
Land ............................................................. $ 282,803 $ 284,219
Land improvements ................................................ 911,176 893,839
Buildings and other depreciable property ......................... 121,117 117,949
---------- ----------
..................................................................... 1,315,096 1,296,007
Accumulated depreciation ......................................... (272,497) (238,098)
---------- ----------
Net investment in real estate .................................. 1,042,599 1,057,909
Cash and cash equivalents .......................................... 325,740 7,270
Notes receivable ................................................... 11,551 10,044
Investment in joint ventures ....................................... 18,828 19,634
Rents receivable, net .............................................. 2,385 1,735
Deferred financing costs, net ...................................... 14,164 5,030
Inventory .......................................................... 31,604 33,638
Prepaid expenses and other assets .................................. 27,044 27,590
---------- ----------
Total assets ..................................................... $1,473,915 $1,162,850
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ........................................... $1,076,183 $ 575,370
Unsecured term loan .............................................. -- 100,000
Unsecured line of credit ......................................... -- 84,750
Other notes payable .............................................. 113 113
Accounts payable and accrued expenses ............................ 27,815 31,010
Accrued interest payable ......................................... 5,978 6,415
Rents received in advance and security deposits .................. 6,616 5,966
Distributions payable ............................................ 224,696 13,106
---------- ----------
Total liabilities .............................................. 1,341,401 816,730
Commitments and contingencies
Minority interest - Common OP Units and other ...................... 1,716 43,501
Minority interest - Perpetual Preferred OP Units ................... 125,000 125,000
Stockholders' equity:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued ...................... --- ---
Common stock, $.01 par value
50,000,000 shares authorized; 22,563,348 and 22,093,240
shares issued and outstanding for 2003 and 2002, respectively... 222 218
Paid-in capital .................................................. 263,066 256,394
Deferred compensation ............................................ (494) (3,069)
Employee notes ................................................... -- (2,713)
Distributions in excess of accumulated earnings .................. (256,996) (68,713)
Accumulated other comprehensive (loss) income .................... -- (4,498)
---------- ----------
Total stockholders' equity ..................................... 5,798 177,619
---------- ----------
Total liabilities and stockholders' equity ....................... $1,473,915 $1,162,850
========== ==========
The accompanying notes are an integral part of the financial statements
F-3
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
2003 2002 2001
--------- -------- --------
PROPERTY OPERATIONS:
Community base rental income ..................... $ 196,919 $194,640 $190,982
Resort base rental income ........................ 11,780 9,146 5,748
Utility and other income ......................... 20,150 19,684 20,381
--------- -------- --------
Property operating revenues .................... 228,849 223,470 217,111
Property operating and maintenance ............... 64,996 62,843 60,807
Real estate taxes ................................ 18,917 17,827 16,882
Property management .............................. 9,373 9,292 8,984
--------- -------- --------
Property operating expenses ...................... 93,286 89,962 86,673
--------- -------- --------
Income from property operations ................ 135,563 133,508 130,438
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ......... 36,606 33,537 ---
Cost of inventory home sales ..................... (31,767) (27,183) ---
--------- -------- --------
Gross profit from inventory home sales ......... 4,839 6,354 ---
Brokered resale revenues, net .................... 1,724 1,592 ---
Home selling expenses ............................ (7,360) (7,664) ---
Ancillary services revenues, net ................. 216 522 ---
--------- -------- --------
Income (loss) from home sales operations ....... (581) 804 ---
OTHER INCOME AND EXPENSES:
Interest income .................................. 1,695 967 639
Equity in income of affiliates ................... --- --- 1,811
Equity in income of unconsolidated joint ventures 2,065 1,277 1,353
General and administrative ....................... (8,060) (8,192) (6,687)
Interest and related amortization ................ (58,402) (50,729) (51,305)
Depreciation on corporate assets ................. (1,240) (1,277) (1,243)
Depreciation on real estate assets and other costs (38,034) (35,552) (34,228)
Gain on sale of properties and other ............. --- --- 8,168
--------- -------- --------
Total other income and expenses ................ (101,976) (93,506) (81,492)
MINORITY INTERESTS:
(Income) allocated to Common OP Units ............ (4,330) (5,848) (7,688)
(Income) allocated to Perpetual Preferred OP Units (11,252) (11,252) (11,252)
--------- -------- --------
Income from continuing operations .............. 17,424 23,706 30,006
DISCONTINUED OPERATIONS:
Discontinued operations .......................... 1,043 3,287 3,203
Depreciation on discontinued operations .......... (135) (484) (605)
Gain on sale of properties and other ............. 10,826 13,014 ---
Minority interests on discontinued operations .... (2,144) (3,078) (521)
--------- -------- --------
Income from discontinued operations ............ 9,590 12,739 2,077
--------- -------- --------
NET INCOME AVAILABLE FOR COMMON SHARES ....... $ 27,014 $ 36,445 $ 32,083
========= ======== ========
The accompanying notes are an integral part of the financial statements
F-4
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002 2001
------- ------- -------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ...................... $ .79 $ 1.10 $ 1.43
======= ======= =======
Income from discontinued operations .................... $ .43 $ .59 $ .10
======= ======= =======
Net income available for Common Shares ................. $ 1.22 $ 1.69 $ 1.53
======= ======= =======
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ...................... $ .78 $ 1.07 $ 1.40
======= ======= =======
Income from discontinued operations .................... $ .42 $ .57 $ .09
======= ======= =======
Net income available for Common Shares ................. $ 1.20 $ 1.64 $ 1.49
======= ======= =======
Distributions declared per Common Shares outstanding ... $ 9.485 $ 1.90 $ 1.78
======= ======= =======
Tax status of Common Shares distributions paid during the
year:
Ordinary income ........................................ $ .68 $ 1.50 $ 1.31
======= ======= =======
Long-term capital gain ................................. $ .57 $--- $---
======= ======= =======
Unrecaptured section 1250 gain ......................... $ .16 $--- $---
======= ======= =======
Return of capital ...................................... $ .55 $ 0.37 $ 0.44
======= ======= =======
Weighted average Common Shares outstanding - basic ....... 22,077 21,617 21,036
======= ======= =======
Weighted average Common Shares outstanding - fully diluted 28,002 27,632 27,010
======= ======= =======
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
------- -------- -------
Net income available for Common Shares ..................... $27,014 $ 36,445 $32,083
Net unrealized holding gains (losses) on derivative
instruments ............................................. 4,498 (4,987) 489
------- -------- -------
Net other comprehensive income available for Common Shares $31,512 $ 31,458 $32,572
======= ======== =======
The accompanying notes are an integral part of the financial statements
F-5
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
--------- --------- ---------
PREFERRED STOCK, $.01 PAR VALUE .................................... $ --- $ --- $ ---
========= ========= =========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year ......................................... $ 218 $ 215 $ 210
Issuance of Common Stock through restricted stock grants ......... --- 1 1
Exercise of options .............................................. 4 2 4
--------- --------- ---------
Balance, end of year ............................................... $ 222 $ 218 $ 215
========= ========= =========
PAID - IN CAPITAL
Balance, beginning of year ......................................... $ 256,394 $ 245,827 $ 235,681
Issuance of Common Stock for employee notes ...................... --- --- ---
Conversion of OP Units to Common Stock ........................... 343 227 599
Issuance of Common Stock through exercise of options ............. 6,323 5,782 7,743
Issuance of Common Stock through restricted stock grants ......... --- 2,709 1,627
Issuance of Common Stock through employee stock purchase plan .... 3,254 2,512 2,365
Compensation expense related to stock options and restricted stock 611 --- ---
Transition adjustment - FAS 123 .................................. (1,047) --- ---
Adjustment for Common OP Unitholders
in the Operating Partnership .................................... (2,812) (663) (2,188)
--------- --------- ---------
Balance, end of year ............................................... $ 263,066 $ 256,394 $ 245,827
========= ========= =========
DEFERRED COMPENSATION
Balance, beginning of year ......................................... $ (3,069) $ (4,062) $ (5,969)
Issuance of Common Stock through restricted stock grants ......... --- (2,709) (1,628)
Transition adjustment - FAS 123 .................................. 1,047 -- --
Recognition of deferred compensation expense ..................... 1,528 3,702 3,535
--------- --------- ---------
Balance, end of year ............................................... $ (494) $ (3,069) $ (4,062)
========= ========= =========
EMPLOYEE NOTES
Balance, beginning of year ......................................... $ (2,713) $ (3,841) $ (4,205)
Principal payments ............................................... 2,713 1,128 364
--------- --------- ---------
Balance, end of year ............................................... $ -- $ (2,713) $ (3,841)
========= ========= =========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE EARNINGS
Balance, beginning of year ......................................... $ (73,211) $ (62,989) $ (57,622)
Net income ....................................................... 27,014 36,445 32,083
Other comprehensive income:
Unrealized holding (losses) gains on derivative instruments .... 4,498 (4,987) 489
--------- --------- ---------
Comprehensive income ......................................... 31,512 31,458 32,572
--------- --------- ---------
Distributions .................................................... (215,296) (41,680) (37,939)
--------- --------- ---------
Balance, end of year ............................................... $(256,995) $ (73,211) $ (62,989)
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-6
MANUFACTURED HOME COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
2003 2002 2001
--------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 27,014 $ 36,445 $ 32,083
Adjustments to reconcile net income to cash provided by operating
activities:
Income allocated to minority interests .................................. 17,726 20,178 19,461
Gain on sale of Properties and other ................................. (10,826) (13,014) (8,168)
Depreciation expense ................................................. 39,403 37,094 36,076
Amortization expense ................................................. 5,031 963 1,108
Equity in income of affiliates and joint ventures .................... (1,998) (1,158) (2,782)
Amortization of deferred compensation and other ...................... 2,139 3,930 3,535
Increase in provision for uncollectable rents receivable ............. 126 941 427
Changes in assets and liabilities:
Increase in rents receivable ......................................... (774) (1,186) (953)
Decrease in inventory ................................................ 1,846 1,887 ---
(Increase) decrease in prepaid expenses and other assets ............. (1,439) (7,610) 1,330
Increase (decrease) in accounts payable and accrued expenses ......... (3,055) 1,471 (1,358)
Increase (decrease) in rents received in advance and security deposits (30) 235 (51)
--------- -------- --------
Net cash provided by operating activities ............................... 75,163 80,176 80,708
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of rental properties .......................................... (6,836) (56,531) (17,770)
Proceeds from dispositions of assets ...................................... 27,170 14,171 24,209
Distributions from (investment in) joint ventures ......................... 1,535 (7,149) 1,697
Proceeds from restructuring of College Heights joint venture, net ......... --- 4,647 ---
Contributions to and distributions from Affiliates, net ................... --- --- (11,493)
Purchase of RSI ........................................................... --- (675) ---
Cash received in acquisition of RSI ....................................... --- 839 ---
Collections (funding) of notes receivable ................................. (1,507) (3,784) 3,478
Improvements:
Improvements-corporate .................................................. (72) (681) (840)
Improvements-rental properties .......................................... (11,912) (13,377) (12,689)
Site development costs .................................................. (8,976) (10,433) (9,659)
--------- -------- --------
Net cash (used in) investing activities ................................... (598) (72,973) (23,067)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan .......... 9,581 8,296 10,112
Distributions to Common Stockholders, Common OP Unitholders
and Perpetual Preferred OP Unitholders ................................... (65,687) (58,314) (58,111)
Repurchase of Common Stock and OP Units ................................... --- --- (41)
Collection of principal payments on employee notes ........................ 2,713 1,128 364
Line of credit:
Proceeds ................................................................ 53,000 82,000 46,000
Repayments .............................................................. (137,750) (13,500) (89,650)
Repayment of term loan .................................................... (100,000) --- ---
Refinancing - net proceeds (repayments) ................................... 501,057 (16,096) 37,870
Principal payments ........................................................ (4,844) (4,217) (5,047)
Debt issuance costs ....................................................... (14,165) (584) (631)
--------- -------- --------
Net cash provided by (used in) financing activities ....................... 243,905 (1,287) (59,134)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................ 318,470 5,916 (1,493)
Cash and cash equivalents, beginning of year ................................ 7,270 1,354 2,847
--------- -------- --------
Cash and cash equivalents, end of year ...................................... $ 325,740 $ 7,270 $ 1,354
========= ======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest ...................................... $ 52,396 $ 46,097 $ 52,947
========= ======== ========
The accompanying notes are an integral part of the financial statements
F-7
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Manufactured Home Communities, Inc., together with MHC Operating Limited
Partnership (the "Operating Partnership") and other consolidated subsidiaries
("Subsidiaries"), are referred to herein as the "Company", "MHC", "we", "us",
and "our". We believe that we have qualified for taxation as a real estate
investment trust ("REIT") for federal income tax purposes since our taxable year
ended December 31, 1993. We plan to continue to meet the requirements for
taxation as a REIT. Many of these requirements, however, are highly technical
and complex. We cannot, therefore,
guarantee that we have qualified or will qualify in the future as a REIT. The
determination that we are a REIT requires an analysis of various factual matters
that may not be totally within our control and we cannot provide any assurance
that the Internal Revenue Service ("IRS") will agree with our analysis. For
example, to qualify as a REIT, at least 95% of our gross income must come from
sources that are itemized in the REIT tax laws. We are also required to
distribute to stockholders at least 90% of our REIT taxable income excluding
capital gains. The fact that we hold our assets through MHC Operating Limited
Partnership and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or inadvertent mistake could jeopardize our REIT
status. Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible, for us to remain qualified as a REIT. We do not believe, however,
that any pending or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain state and local taxes on
its income and property and Federal income and excise taxes on its undistributed
income.
We are a fully integrated company that owns and operates manufactured home
communities ("Communities") and park model communities ("Resorts"). The Company
was formed to continue the property operations, business objectives and
acquisition strategies of an entity that had owned and operated Communities
since 1969. As of December 31, 2003, we owned or had an ownership interest in a
portfolio of 142 Communities and Resorts (the "Properties") located throughout
the United States containing 51,715 residential sites.
The operations of the Company are conducted primarily through the Operating
Partnership. The Company contributed the proceeds from its initial public
offering and subsequent offerings to the Operating Partnership for a general
partnership interest. In 2004, the general partnership interest was contributed
to MHC Trust (see Note 5 of the Notes to Consolidated Financial Statements
contained in this Form 10-K). The financial results of the Operating Partnership
and the Subsidiaries are consolidated in the Company's consolidated financial
statements. In addition, since certain activities, if performed by the Company,
may not have beenbe qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has formed certain taxable REIT subsidiaries as
defined in the Code to engage in such activities.
Several Properties acquired during 2004 are wholly owned by taxable REIT
subsidiaries of the Company. In addition, Realty Systems, Inc. ("RSI") is a
wholly owned taxable REIT subsidiary of the Company that, doing business as
Carefree Sales, is engaged in the business of purchasing, selling and leasing
manufacturedsite set homes that are located or will be located in Properties owned and managed by the Company.
Carefree Sales also provides brokerage services to residents at such Properties.
Typically, residents move from a CommunityProperty but do not relocate their homes.
Carefree Sales may provide brokerage services, in competition with other local
brokers, by seeking buyers for the site set homes. Carefree Sales also leases
inventory homes to prospective residents with the expectation that the tenant
eventually will purchase the home. Subsidiaries of RSI also lease from the
Operating Partnership certain real property within or adjacent to certain
of the
Properties consisting of golf courses, pro shops, stores and restaurants.
F-8BUSINESS OBJECTIVES AND OPERATING STRATEGIES
Our strategy seeks to maximize both current income and long-term growth in
income. We focus on Properties that have strong cash flow and we expect to hold
such Properties for long-term investment and capital appreciation. In
determining cash flow potential, we evaluate our ability to attract and retain
high quality customers in our Properties who take pride in the Property and in
their home. These business objectives and their implementation are determined by
our Board of Directors and may be changed at any time. Our investment, operating
and financing approach includes:
- Providing consistently high levels of services and amenities in
attractive surroundings to foster a strong sense of community and
pride of home ownership;
- Efficiently managing the Properties to increase operating margins by
controlling expenses, increasing occupancy and maintaining competitive
market rents;
- Increasing income and property values by continuing the strategic
expansion and, where appropriate, renovation of the Properties;
- Utilizing management information systems to evaluate potential
acquisitions, identify and track competing Properties and monitor
customer satisfaction;
- Selectively acquiring Properties that have potential for long-term
cash flow growth and to create property concentrations in and around
major metropolitan areas and retirement or vacation destinations to
capitalize on operating synergies and incremental efficiencies; and
4
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANYManaging our debt balances such that we maintain financial
flexibility, minimize exposure to interest rate fluctuations, and
maintain an appropriate degree of leverage to maximize return on
capital.
Our strategy is to own and operate the highest quality Properties in
sought-after locations near urban areas, retirement and vacation destinations
across the United States. We focus on creating an attractive residential
environment by providing a well-maintained, comfortable Property with a variety
of organized recreational and social activities and superior amenities as well
as offering a multitude of lifestyle housing choices. In addition, we regularly
conduct evaluations of the cost of housing in the marketplaces in which our
Properties are located and survey rental rates of competing Properties. From
time to time we also conduct satisfaction surveys of our customers to determine
the factors they consider most important in choosing a Property.
ACQUISITIONS AND BASIS OF PRESENTATION (CONTINUED)
The limited partnersDISPOSITIONS
Over the last nine years our portfolio of Properties has grown
significantly. We owned or had an interest in 40 Properties with approximately
12,000 sites in 1996. Today we have 275 Properties with over 100,000 sites. We
continually review the Properties in our portfolio to ensure that they fit our
business objectives. Between 1999 and 2003, we sold 26 Properties, and we
redeployed capital to markets we believe had greater long-term potential. In
2004, we purchased or acquired interests in 135 Properties containing
approximately 50,000 sites. We believe that opportunities for Property
acquisitions are still available. Increasing acceptability of and demand for a
lifestyle that includes Site Set homes and RVs as well as continued constraints
on development of new Properties continue to add to their attractiveness as an
investment. We believe we have a competitive advantage in the acquisition of
additional Properties due to our experienced management, significant presence in
major real estate markets and substantial capital resources. We are actively
seeking to acquire additional Properties and are engaged in various stages of
negotiations relating to the possible acquisition of a number of Properties.
We anticipate that newly acquired Properties will be located in the United
States, although we may consider other geographic locations provided they meet
our acquisition criteria. We utilize market information systems to identify and
evaluate acquisition opportunities, including a market database to review the
primary economic indicators of the various locations in which we expect to
expand our operations. Acquisitions will be financed from the most appropriate
sources of capital, which may include undistributed funds from operations,
issuance of additional equity securities, sales of investments, collateralized
and uncollateralized borrowings and issuance of debt securities. In addition,
the Operating Partnership (the "Common OP
Unitholders") receive an allocation of net income which is based on their
respective ownership percentage of the Operating Partnership which is shown on
the Consolidated Financial Statements as Minority Interests - Common OP Units.
As of December 31, 2003, the Minority Interests - Common OP Units represented
5,312,387may issue units of limited partnership interest ("OP
Units") which are
convertible intoto finance acquisitions. We believe that an equivalent number of shares of the Company's common stock.
The issuance of additional shares of common stock or common OP Units changes the
respective ownership ofstructure that
includes the Operating Partnership for bothwill permit us to acquire additional
Properties in transactions that may defer all or a portion of the Minority
Interestssellers' tax
consequences.
When evaluating potential acquisitions, we consider such factors as:
- The replacement cost of the Property,
- The geographic area and type of Property,
- The location, construction quality, condition and design of the
Company.
NOTE 2Property,
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BasisThe current and projected cash flow of Consolidation
The Company consolidates its majority owned subsidiaries in which it
hasthe Property and the ability to
control the operationsincrease cash flow,
- The potential for capital appreciation of the subsidiaries.Property,
- The Company
doesterms of tenant leases, including the potential for rent
increases,
- The potential for economic growth and the tax and regulatory
environment of the community in which the Property is located,
- The potential for expansion of the physical layout of the Property and
the number of sites and/or pads,
- The occupancy and demand by customers for Properties of a similar type
in the vicinity and the customers' profile,
- The prospects for liquidity through sale, financing or refinancing of
the Property, and
- The competition from existing Properties and the potential for the
construction of new Properties in the area.
When evaluating potential dispositions, we consider such factors as:
- The ability to sell the Property at a price that we believe will
provide an appropriate return for our stockholders,
- Our desire to exit certain non-core markets and recycle the capital
into core markets, and
- Whether the Property meets our current investment criteria.
When investing capital we consider all potential uses of the capital
including returning capital to our stockholders. As a result, during 1999 and
2000 we implemented our stock repurchase program, and our Board of Directors
continues
5
to review the conditions under which we will repurchase our stock. These
conditions include, but are not consolidate entitieslimited to, market price, balance sheet
flexibility, other opportunities and capital requirements. On January 16, 2004
we paid a special dividend of $8.00 per share using proceeds from a
recapitalization (see Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financing Activities).
PROPERTY EXPANSIONS
Several of our Properties have available land for expanding the number of
sites available to be utilized by our customers. Development of these sites
("Expansion Sites") is predicated by local market conditions and permitted by
zoning and other applicable laws. When justified, development of Expansion Sites
allows us to leverage existing facilities and amenities to increase the income
generated from the Properties. Where appropriate, facilities and amenities may
be upgraded or added to certain Properties to make those Properties more
attractive in their markets. Our acquisition philosophy has included the desire
to own Properties with respect to which it does not have sole
control over the major decisions. All inter-company transactionspotential Expansion Site development, and we have been
eliminatedsuccessful in consolidation.acquiring a number of such Properties. Examples of these
Properties include the 1993 acquisition of The Company'sHeritage with potential
development of approximately 288 Expansion Sites, the 1994 acquisition of Bulow
Plantation with potential development of approximately 725 Expansion Sites, the
1997 acquisition of Golf Vista Estates with potential development of
approximately 88 Expansion Sites, the 1999 acquisition of Coquina Crossing with
potential development of approximately 300 Expansion Sites, and the 2001
acquisitions were all accountedof Grand Island and The Lakes at Countrywood with combined
potential development of approximately 224 Expansion Sites. In 2004 we acquired
several Properties with potential Expansion Sites, including O'Connell's with
approximately 350 Expansion Sites, Monte Vista with 418 Expansion Sites and
Viewpoint with 566 Expansion Sites. In addition, included in the purchase of the
Thousand Trails Properties are 3,000 acres available for as purchasesexpansion.
Approximately 40 of our Properties have expansion potential. In 2005, we
expect to commence development of approximately 750 Expansion Sites within five
of these Properties. As of December 31, 2004, we had approximately 815 Expansion
Sites available for occupancy in accordance with Accounting Principles Board Opinion No.
16 "Business Combinations" for those transactions initiated before June 30,
200126 of the Properties. We filled 112 Expansion
Sites in 2004 and expect to fill an additional 150 Expansion Sites in accordance with Statement of Financial Accounting Standards No.
141 ("SFAS No. 141") "Business Combinations" for those transactions
completed after June 30, 2001.
In accordance with SFAS 141,2005.
LEASES
At our Properties, a typical lease entered into between the customer and
the Company allocatesfor the purchase pricerental of a site is for a month-to-month or year-to-year
term, renewable upon the consent of both parties or, in some instances, as
provided by statute. These leases are cancelable, depending on applicable law,
for non-payment of rent, violation of Property rules and regulations or other
specified defaults. Non-cancelable long-term leases, with remaining terms
ranging up to ten years, are in effect at certain sites within 37 of the
Properties. Some of these leases are subject to rental rate increases based on
the Consumer Price Index ("CPI"), in some instances taking into consideration
certain floors and ceilings and allowing for pass-throughs of certain items such
as real estate taxes, utility expenses and capital expenditures. Generally,
market rate adjustments are made on an annual basis. At resort-oriented
Properties, many annual and seasonal customers generally prepay for their stay.
Many resort customers will also leave deposits to land, land improvements, buildingreserve a site for the
following year.
REGULATIONS AND INSURANCE
General. Our Properties are subject to various laws, ordinances and
if determinedregulations, including regulations relating to be material, intangibles,recreational facilities such as
swimming pools, clubhouses and other common areas. We believe that each Property
has the necessary permits and approvals to operate.
Rent Control Legislation. At certain of our Properties, state and local
rent control laws, principally in California, limit our ability to increase
rents and to recover increases in operating expenses and the costs of capital
improvements. Enactment of such laws has been considered from time to time in
other jurisdictions. We presently expect to continue to maintain Properties, and
may purchase additional Properties, in markets that are either subject to rent
control or in which rent-limiting legislation exists or may be enacted. For
example, Florida has enacted a law that generally provides that rental increases
must be reasonable. Also, certain jurisdictions in California in which we own
Properties limit rent increases to changes in the CPI or some percentage
thereof. As part of our effort to realize the value of above, below and at-market
leases and origination costs associatedour Properties subject to
restrictive regulation, we have initiated lawsuits against several
municipalities imposing such regulation in an attempt to balance the interests
of our stockholders with the in-place leases.interests of our customers (see Item 3 - Legal
Proceedings).
Insurance. We depreciatebelieve that the amount allocatedProperties are covered by adequate fire,
flood, property, earthquake and business interruption insurance (where
appropriate) provided by reputable companies and with commercially reasonable
deductibles and limits. Due to land improvements, building and other
intangible assets over their estimated useful lives, which generally range
from three to thirty years. The valuesthe lack of available commercially reasonable
coverage, we are self-insured for terrorist incidents, except at certain
Properties where terrorist insurance coverage is required by debt covenants. We
6
believe our insurance coverage is adequate based on our assessment of the aboverisks
to be insured, the probability of loss and below market leasesthe relative cost of available
coverage. We have obtained insurance insuring good title to the Properties in an
aggregate amount that we believe to be adequate. Approximately 70 Florida
Properties suffered damage from the four hurricanes that struck Florida during
August and September 2004. As of December 31, 2004, total expenditures
approximated $7 million. Approximately $1 million has been charged to operations
as non-recoverable. The remaining portion is included in other assets as a
receivable from insurance providers. The Company expects to incur additional
expenditures to complete the work necessary to restore these Properties to their
pre-hurricanes condition. As of February 18, 2005, approximately $6 million of
these claims have been submitted for reimbursement.
INDUSTRY
We believe that modern properties similar to ours provide an opportunity
for increased cash flows and appreciation in value. These may be achieved
through increases in occupancy rates and rents, as well as expense controls,
expansion of existing Properties and opportunistic acquisitions, for the
following reasons:
- Barriers to Entry: We believe that the supply of new properties will
be constrained due to barriers to entry. The most significant barrier
has been the difficulty of securing zoning from local authorities.
This has been the result of (i) the public's historically poor
perception of manufactured housing, and (ii) the fact that properties
generate less tax revenue because the homes are amortizedtreated as personal
property (a benefit to the homeowner) rather than real property.
Another factor that creates substantial barriers to entry is the
length of time between investment in a property's development and recorded as either an increase (in the
caseattainment of below
market leases) or a decrease (instabilized occupancy and the casegeneration of above market leases) to rental
income over the remaining termrevenues. The
initial development of the associated lease. The value
associated with in-place leasesinfrastructure may take up to two or three
years. Once a property is amortized over the expected term, which
includesready for occupancy, it may be difficult to
attract customers to an estimated probability of lease renewal.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, Consolidation of Variable Interest Entities
("FIN 46"). The objective of this Interpretation isempty property. Substantial occupancy levels
may take several years to provide guidance on
howachieve.
- Industry Consolidation: According 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 the company's consolidated financial
statements. A company that holds variable interests in an entity will need
to consolidate such entity if the company absorbs a majority of the VIE's
expected losses or receives a majority of the entity's expected residual
returns if they occur, or both.
The provisions of FIN 46 apply to the Company upon initial involvement
with the respective entity for transactions created after January 31, 2003.
The adoption of FIN 46 in 2003 had no effect on the Company in 2003. The
provisions of FIN 46 and related revised interpretations apply no later
than the end of the first interim reporting period ending March 15, 2004
(March 31, 2004) for entities created before February 1, 2003. The Company
is currently evaluating and assessing the impact of FIN 46 and the related
revised interpretations on entities created before February 1, 2003.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally acceptedvarious industry reports, there
are approximately 65,000 properties in the United States, requiresand
approximately 6.0% or approximately 4,000 of the properties have more
than 200 sites and would be considered investment-grade. We believe
that this relatively high degree of fragmentation provides us, as a
national organization with experienced management and substantial
financial resources, the opportunity to purchase additional
properties.
- Customer Base: We believe that properties tend to achieve and maintain
a stable rate of occupancy due to the following factors: (i) customers
typically own their own homes, (ii) properties tend to foster a sense
of community as a result of amenities such as clubhouses and
recreational and social activities, (iii) since moving a Site Set home
from one property to another involves substantial cost and effort,
customers often sell their home in-place (similar to site-built
residential housing) with no interruption of rental payments to us.
- Lifestyle Choice: According to the Recreational Vehicle Industry
Association nearly 1 in 12 United States vehicle-owning households
owns an RV. The 80 million people born from 1945 to 1964 or "baby
boomers" make estimatesup the fastest growing segment of this market. We
believe that this population segment, seeking an active lifestyle,
will provide opportunities for future cash flow growth for the
Company. Current RV owners, once finished with the more active RV
lifestyle, will seek more permanent retirement or vacation
establishments. The Site Set housing choice has become an increasingly
popular housing alternative for retirement, second-home, and
assumptions"empty-nest" living. According to a Fannie Mae survey, the baby-boom
generation will constitute 18% of the U.S. population within the next
30 years and more than 32 million people will reach age 55 within the
next ten years. Among those individuals who are nearing retirement
(age 40 to 54), approximately 33% plan on moving upon retirement.
We believe that affect the reported amountshousing choices in our properties are especially
attractive to such individuals throughout this lifestyle cycle. Our
Properties offer an appealing amenity package, close proximity to
local services, social activities, low maintenance and a secure
environment. In fact, many of assetsour Properties allow for this cycle to
occur within a single Property.
- Construction Quality: Since 1976, all factory built housing has been
required to meet stringent Federal standards, resulting in significant
increases in quality. The Department of Housing and liabilitiesUrban
Development's ("HUD") standards for Site Set housing construction
quality are the only Federally regulated standards governing housing
quality of any type in the United States. Site Set homes produced
since 1976 have received a "red and disclosuresilver" government seal certifying
that they were built in compliance with the Federal code. The code
regulates Site Set home design and construction, strength and
durability, fire resistance and energy
7
efficiency, and the installation and performance of contingent assetsheating, plumbing,
air conditioning, thermal and liabilitieselectrical systems. In newer homes, top
grade lumber and dry wall materials are common. Also, manufacturers
are required to follow the same fire codes as builders of site-built
structures. In addition, although Resort Cottages do not come under
the same regulation, many of the manufacturers of Site Set homes also
produce Resort Cottages with many of the same quality standards.
- Comparability to Site-Built Homes: The Site Set housing industry has
experienced a trend towards multi-section homes. Many modern Site Set
homes are longer (up to 80 feet, compared to 50 feet in the 1960's)
and wider than earlier models. Many such homes have vaulted ceilings,
fireplaces and as many as four bedrooms, and closely resemble
single-family ranch style site-built homes.
- Second Home Demographics: According to the National Association of
Realtors ("NAR"), sales of second homes have risen almost 54.5% since
1989. There were approximately 9.2 million second homes owned in 2003
and approximately 6% of all home sales each year are second homes. The
NAR study found that 48% of people who own a second home own either a
cabin or Site Set home. Approximately 76% of vacation home owners
prefer to be near an ocean, river or lake; 38% close to mountains or
other natural attractions, and 37% in a specific vacation area. In
looking ahead NAR believes that baby boomers are still in their peak
earning years, and the leading edge of their generation is approaching
retirement. As they continue to have the financial wherewithal to
purchase second homes as a vacation property, investment opportunity,
or perhaps as a retirement retreat, those baby boomers will continue
to drive the market for second-homes. It is likely that over the next
decade we will continue to see historically high levels of second home
sales.
AVAILABLE INFORMATION
We file reports electronically with the Securities and Exchange Commission
("SEC"). The public may read and copy any materials we file with the SEC at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-9
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Segments
We manage all our operationsSEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The
public may obtain information 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 manufactured
home communities.the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The following table identifies our five largest marketsSEC maintains an Internet site that
contains reports, proxy information and providesstatements, and other information
regarding issuers that file electronically with the SEC at http://www.sec.gov.
We maintain an Internet site with information about the Company and hyperlinks
to our Communities and Resorts including
Communities owned in joint ventures.
NUMBER OF PERCENT OF PERCENT OF TOTAL PROPERTY
MAJOR MARKET PROPERTIES TOTAL SITES TOTAL SITES OPERATING REVENUES
- ------------ ---------- ----------- ----------- -------------------------
Florida 52 23,366 45.3% 40.8%
California 25 6,229 12.0% 20.1%
Arizona 21 5,930 11.5% 8.5%
Colorado 10 3,452 6.7% 8.2%
Delaware 7 2,238 4.3% 4.1%
Other 27 10,500 20.2% 18.3%
- ---------- --- ------ ----- -----
Total 142 51,715 100.0% 100.0%
========== === ====== ===== =====
Our largest Property, Bay Indies, located in Venice, Florida,
accountedfilings with the SEC at http://www.mhchomes.com. Requests for approximately 3.0%copies of
our total property operating revenuesfilings with the SEC and other investor inquiries should be directed to:
Investor Relations Department
Equity Lifestyle Properties, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Phone: 1-800-247-5279
e-mail: investor_relations@mhchomes.com
8
ITEM 2. PROPERTIES
GENERAL
Our Properties provide attractive amenities and common facilities that
create a comfortable and attractive home for our customers, with most offering a
clubhouse, a swimming pool, laundry facilities and cable television service.
Many also offer additional amenities such as sauna/whirlpool spas, golf courses,
tennis, shuffleboard and basketball courts, exercise rooms and various social
activities such as concerts. Since most of our customers generally rent our
sites on a long-term basis, it is their responsibility to maintain their homes
and the year endedsurrounding area. It is our role to ensure that customers comply with
our Property policies and to provide maintenance of the common areas, facilities
and amenities. We hold periodic meetings with our Property management personnel
for training and implementation of our strategies. The Properties historically
have had, and we believe they will continue to have, low turnover and high
occupancy rates.
PROPERTY PORTFOLIO
As of December 31, 2003. The operation2004, we owned or had an ownership interest in a
portfolio of manufactured home
communities segment comprised approximately 97%, 97.8% and 97.2% of total
property operating revenues for275 Properties located throughout the years ended December 31, 2003, 2002 and
2001, respectively. The operation of manufactured home communities segment
comprised approximately 93.5% and 92.2% of total assets at December 31,
2003 and 2002, respectively.United States containing
101,231 residential sites.
The distribution of theour Properties throughout the United States reflects
our belief that geographic diversification helps insulate the portfolio from
regional economic influences. We intend to target new acquisitions in or near
markets where theour Properties are located and will also consider acquisitions of
propertiesProperties outside such markets. (d) Inventory
Inventory consists of new and used manufactured homes, is stated at
the lower of cost or market after considerationRefer to Note 3(c) of the N.A.D.A. (National
Automobile Dealers Association) Manufactured Housing Appraisal GuideNotes to Consolidated
Financial Statements contained in this Form 10-K.
Bay Indies located in Venice, Florida and the current market valueWestwinds located in San Jose,
California each accounted for approximately 2.6% of each home included in the manufactured home
inventory. Inventory salesour total property operating
revenues and resale revenues are recognized when
the home sale is closed. Resale revenues are stated net of commissions paid
to employees of $893,000 for the year ended December 31, 2003.
(e)2004.
The following table sets forth certain information relating to the
Properties we owned as of December 31, 2004, categorized by our major markets
(excluding the Thousand Trails Properties and Properties owned through joint
ventures).
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/04 12/31/04 12/31/04 12/31/03(C) 12/31/04 12/31/03(C)
-------- --------------------- -------- --------- --------- ----------- -------- -----------
FLORIDA
EAST COAST:
Breezy Hill RV Pompano Beach FL 762 430 100.0% -- $5,031 --
Bulow RV Flagler Beach FL 352 122 100.0% -- $3,169 --
Bulow Plantation Flagler Beach FL 276 276 97.8% 97.8% $4,200 $3,948
Carefree Cove Ft. Lauderdale FL (a) 164 164 92.1% -- $5,520 --
Carriage Cove Daytona Beach FL 418 418 92.8% 94.3% $4,824 $4,716
Coquina Crossing St Augustine FL 450 450 89.1% (b) 97.2% (b) $4,308 $4,092
Coral Cay Margate FL 819 819 89.5% 89.4% $5,532 $5,460
Countryside Vero Beach FL 646 646 92.0% 98.0% $4,272 $4,092
Heritage Plantation Vero Beach FL 436 436 88.5% 94.3% $4,608 $4,416
Highland Wood RV Pompano Beach FL 148 69 100.0% -- $3,823 --
Holiday Village Vero Beach FL 128 128 48.4% 68.8% $3,852 $3,756
Holiday Village Ormond Beach FL 301 301 87.4% 88.0% $4,116 $4,068
Indian Oaks Rockledge FL 208 208 100.0% 99.5% $3,456 $3,288
Lakewood Village Melbourne FL 349 349 87.7% 92.8% $4,800 $4,728
Lazy Lakes Sugar Loaf FL (a) 100 26 100.0% -- $5,871 --
Lighthouse Pointe Port Orange FL 433 433 88.0% 89.1% $4,188 $3,984
Maralago Cay Lantana FL 602 602 93.5% 92.7% $5,520 $5,292
Park City West Ft. Lauderdale FL (a) 363 363 99.7% -- $4,260 --
Pickwick Port Orange FL 432 432 99.8% 99.8% $4,260 $4,176
Sunshine Holiday Ft. Lauderdale FL (a) 269 269 100.0% -- $4,908 --
Sunshine Holiday RV Ft. Lauderdale FL (a) 149 123 100.0% -- $4,514 --
Sunshine Holiday Ormond Beach FL (a) 349 30 100.0% -- $3,403 --
Sunshine Key Big Pine Key FL (a) 409 0 -- -- -- --
Sunshine Travel Vero Beach FL (a) 300 170 100.0% -- $3,009 --
The Meadows Palm Beach Gardens FL 379 379 88.7% 85.5% $4,848 $4,632
9
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/04 12/31/04 12/31/04 12/31/03(C) 12/31/04 12/31/03(C)
-------- ---------------------- -------- --------- --------- ----------- -------- -----------
CENTRAL:
Coachwood Colony Leesburg FL (a) 202 202 96.5% -- $2,976 --
Grand Island Grand Island FL 307 307 66.1% 68.7% $3,864 $3,744
Lake Magic - Encore Clermont FL (a) 471 59 100.0% -- $2,933 --
Mid-Florida Lakes Leesburg FL 1,226 1,226 82.5% 84.4% $4,584 $4,548
Oak Bend Ocala FL 262 262 87.8% 87.4% $3,768 $3,672
Sherwood Forest Kissimmee FL 754 754 94.8% 96.0% $4,464 $4,260
Villas at Spanish Oaks Ocala FL 459 459 87.1% 87.1% $4,104 $4,008
Sherwood Forest RV Kissimmee FL 512 152 100.0% -- $4,542 --
Southernaire Mt. Dora FL (a) 108 108 94.4% -- $3,420 --
Southern Palms Eustis FL 950 406 100.0% -- $2,755 --
Tropical Palms Kissimmee FL (a) 541 0 -- -- -- --
GULF COAST (TAMPA/NAPLES):
Barrington Hills Hudson FL (a) 392 264 100.0% -- $2,138 --
Bay Indies Venice FL 1,309 1,309 96.7% 96.3% $5,232 $4,656
Bay Lake Estates Nokomis FL 228 228 96.1% 94.7% $5,244 $5,124
Buccaneer N. Ft. Myers FL 971 971 96.9% 98.1% $4,584 $4,416
Country Place New Port Richey FL 515 515 99.8% 99.6% $3,408 $3,336
Crystal Isles Crystal River FL (a) 260 13 100.0% -- $2,072 --
Down Yonder Largo FL 362 362 97.0% 98.6% $5,088 $4,836
East Bay Oaks Largo FL 328 328 95.7% 94.2% $4,884 $4,740
Eldorado Village Largo FL 227 227 95.6% 91.6% $4,908 $4,824
Fort Myers Beach Resort Fort Myers FL (a) 306 103 100.0% -- $4,344 --
Glen Ellen Clearwater FL 106 106 86.8% 85.8% $4,320 $3,936
Gulf Air Resort Fort Myers FL (a) 246 163 100.0% -- $3,819 --
Gulf View Punta Gorda FL (a) 206 36 100.0% -- $3,500 --
Hacienda Village New Port Richey FL 505 505 96.8% 96.6% $4,080 $3,840
Harbor Lakes Port Charlotte FL (a) 528 252 100.0% -- $3,395 --
Harbor View New Port Richey FL 471 471 99.6% 98.9% $2,736 $2,676
Hillcrest Clearwater FL 279 279 79.6% 79.6% $4,596 $4,296
Holiday Ranch Largo FL 150 150 88.0% 88.7% $4,536 $4,440
Lake Fairways N. Ft. Myers FL 896 896 99.8% 99.6% $4,872 $4,668
Lake Haven Dunedin FL 379 379 81.5% 83.6% $5,304 $4,968
Lakes at Countrywood Plant City FL 424 424 91.7% 93.4% $3,264 $3,156
Manatee Bradenton FL (a) 415 230 100.0% -- $3,332 --
Meadows at Countrywood Plant City FL 799 799 91.5% (b) 98.4% (b) $3,768 $3,660
Oaks at Countrywood Plant City FL 168 168 70.2% 72.0% $3,324 $3,300
Pasco Lutz FL (a) 255 157 100.0% -- $2,992 --
Pine Lakes N. Ft. Myers FL 584 584 100.0% 100.0% $5,820 $5,580
Pioneer Village N. Ft. Myers FL (a) 733 398 100.0% -- $3,175 --
Royal Coachman Nokomis FL (a) 546 389 100.0% -- $4,677 --
Silk Oak Clearwater FL 180 180 85.0% 87.2% $4,596 $4,404
Silver Dollar Odessa FL (a) 385 366 100.0% -- $3,496 --
Terra Ceia Palmetto FL (a) 203 145 100.0% -- $2,533 --
The Heritage N. Ft. Myers FL 455 455 95.4% 91.2% $4,224 $4,008
Toby's Arcadia FL 379 289 100.0% -- $1,831 --
Topics Spring Hill FL (a) 230 159 100.0% -- $2,259 --
Vacation Village Largo FL (a) 293 192 100.0% -- $3,461 --
Windmill Manor Bradenton FL 292 292 94.2% 93.8% $4,716 $4,584
Windmill Village N. Ft. Myers FL 491 491 93.3% 95.5% $4,056 $3,948
Winds of St. Armands No Sarasota FL 471 471 95.5% 95.8% $4,788 $4,476
Winds of St. Armands So Sarasota FL 306 306 99.7% 99.7% $4,728 $4,632
Sixth Avenue Zephyrhills FL (a) 134 134 93.3% -- $2,436 --
Shangri La Largo FL (a) 160 160 93.1% -- $4,428 --
------ ------ ---- ----- ------ ------
TOTAL FLORIDA MARKET 31,601 25,924 93.7% 93.2% $4,297 $4,343
------ ------ ---- ----- ------ ------
10
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/04 12/31/04 12/31/04 12/31/03(C) 12/31/04 12/31/03(C)
-------- ---------------------- -------- --------- --------- ----------- -------- -----------
CALIFORNIA
NORTHERN CALIFORNIA:
California Hawaiian San Jose CA 418 418 97.4% 98.1% $ 8,628 $8,376
Colony Park Ceres CA 186 186 94.1% 93.0% $ 5,112 $4,632
Concord Cascade Pacheco CA 283 283 98.2% 99.3% $ 6,924 $6,792
Contempo Marin San Rafael CA 396 396 98.5% 98.7% $ 7,884 $7,812
Coralwood Modesto CA 194 194 99.5% 99.0% $ 6,180 $5,484
Four Seasons Fresno CA 242 242 84.7% 76.9% $ 3,492 $3,324
Laguna Lake San Luis Obispo CA 290 290 98.6% 99.7% $ 4,848 $4,536
Monte del Lago Castroville CA 310 310 98.4% 97.7% $ 7,608 $7,008
Quail Meadows Riverbank CA 146 146 98.6% 100.0% $ 5,688 $4,968
Royal Oaks Visalia CA 149 149 82.6% 81.9% $ 3,816 $3,588
DeAnza Santa Cruz Santa Cruz CA 198 198 96.5% 98.5% $ 8,124 $6,864
Sea Oaks Los Osos CA 125 125 97.6% 96.8% $ 5,364 $5,076
Sunshadow San Jose CA 121 121 97.5% 100.0% $ 8,268 $7,944
Tahoe Valley Lake Tahoe CA (a) 413 0 -- -- -- --
Westwinds (4 San Jose CA 723 723 96.1% 98.5% $ 9,420 $9,024
Properties)
Village of the Four San Jose CA (a) 271 271 98.5% -- $ 8,148 --
Seasons
SOUTHERN CALIFORNIA:
Date Palm Country Club Cathedral City CA 538 538 96.5% 94.2% $ 8,916 $8,640
Date Palm RV Cathedral City CA 140 0 -- -- -- --
Lamplighter Spring Valley CA 270 270 99.3% 98.5% $10,824 $8,556
Meadowbrook Santee CA 338 338 98.2% 97.6% $ 8,412 $7,632
Pacific Dunes Ranch Oceana CA (a) 215 3 -- -- -- --
Rancho Mesa El Cajon CA 158 158 95.6% 99.4% $ 8,424 $7,428
Rancho Valley El Cajon CA 140 140 100.0% 100.0% $10,092 $8,496
Royal Holiday Hemet CA 179 179 60.3% 64.2% $ 3,876 $3,672
Santiago Estates Sylmar CA 300 300 99.0% 98.7% $ 8,580 $8,136
Las Palmas Rialto CA (a) 136 136 100.0% -- $ 4,440 --
Parque La Quinta Rialto CA (a) 166 166 99.4% -- $ 4,452 --
------ ----- ----- ----- ------- ------
TOTAL CALIFORNIA MARKET 7,045 6,280 95.8% 95.6% $ 7,494 $7,096
------ ----- ----- ----- ------- ------
ARIZONA
Apollo Village Phoenix AZ 236 236 78.8% 80.9% $ 5,100 $4,992
Araby Yuma AZ 337 274 100.0% -- $ 2,446 --
The Highlands Mesa AZ 273 273 89.4% 85.3% $ 6,240 $5,976
Cactus Gardens Yuma AZ (a) 430 269 100.0% -- $ 1,767 --
Carefree Manor Phoenix AZ 128 128 72.7% 76.6% $ 4,332 $4,260
Casa del Sol #1 Peoria AZ 245 245 78.4% 77.6% $ 5,904 $5,748
Casa del Sol #2 Glendale AZ 239 239 74.5% 77.4% $ 6,204 $6,024
Casa del Sol #3 Glendale AZ 236 236 80.9% 85.6% $ 6,336 $6,000
Central Park Phoenix AZ 293 293 84.6% 88.1% $ 5,124 $5,112
Countryside Apache AZ 560 260 100.0% -- $ 2,706 --
Desert Paradise Yuma AZ (a) 260 85 100.0% -- $ 1,789 --
Desert Skies Phoenix AZ 164 164 93.3% 91.5% $ 4,464 $4,236
Fairview Manor Tucson AZ (c) 235 235 80.0% 82.6% $ 4,288 $4,296
Foothill Yuma AZ 180 72 100.0% -- $ 1,956 --
Golden Sun Apache Junction AZ 329 190 100.0% -- $ 2,758 --
Hacienda de Valencia Mesa AZ 364 364 75.3% 74.7% $ 5,040 $4,944
Monte Vista Mesa AZ (a) 832 752 100.0% -- $ 5,144 --
Palm Shadows Glendale AZ 294 294 78.6% 80.6% $ 4,860 $4,716
Paradise Sun City AZ (a) 950 815 100.0% -- $ 3,377 --
Sedona Shadows Sedona AZ 197 197 97.5% 93.4% $ 5,148 $4,692
Suni Sands Yuma AZ (a) 336 176 100.0% -- $ 2,097 --
Sunrise Heights Phoenix AZ 199 199 73.4% 79.9% $ 5,064 $4,908
The Mark Mesa AZ 410 410 55.1% 61.0% $ 4,992 $4,920
The Meadows Tempe AZ (a) 391 391 75.4% 74.4% $ 5,820 $5,568
Viewpoint Mesa AZ 1,928 1,470 100.0% -- $ 4,068 --
Whispering Palms Phoenix AZ 116 116 91.4% 90.5% $ 3,792 $3,792
------ ----- ----- ----- ------- ------
TOTAL ARIZONA MARKET 10,162 8,383 89.5% 79.6% $ 4,390 $5,110
------ ----- ----- ----- ------- ------
11
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/04 12/31/04 12/31/04 12/31/03(C) 12/31/04 12/31/03(C)
-------- --------------------- -------- --------- --------- ----------- -------- -----------
COLORADO
Bear Creek Sheridan CO 122 122 95.1% 95.1% $5,892 $5,652
Cimarron Broomfield CO 327 327 91.7% 93.9% $5,796 $5,568
Golden Terrace Golden CO 265 265 88.7% 91.7% $6,360 $6,144
Golden Terrace South Golden CO 80 80 80.0% 85.0% $6,144 $6,036
Golden Terrace South RV Golden CO (a) 80 0 -- -- -- --
Golden Terrace West Golden CO 316 316 88.3% 93.4% $6,204 $6,120
Hillcrest Village Aurora CO 601 601 79.9% 88.6% $6,096 $5,880
Holiday Hills Denver CO 735 735 87.8% 92.3% $5,880 $5,808
Holiday Village Co. Springs CO 240 240 86.3% 90.4% $6,108 $5,928
Pueblo Grande Pueblo CO 251 251 93.6% 94.4% $3,840 $3,732
Woodland Hills Denver CO 434 434 82.7% 88.0% $5,496 $5,472
----- ----- ----- ---- ------ ------
TOTAL COLORADO MARKET 3,451 3,371 86.6% 87.7% $5,800 $5,664
----- ----- ----- ---- ------ ------
NORTHEAST
Aspen Meadows Rehoboth DE 200 200 99.0% 99.5% $4,284 $3,456
Camelot Meadows Rehoboth DE 302 302 98.3% 99.0% $3,948 $3,480
Mariners Cove Millsboro DE 376 376 93.1% 91.2% $5,844 $5,088
McNicol Rehoboth DE 93 93 100.0% 98.9% $3,816 $3,516
Sweetbriar Rehoboth DE 146 146 96.6% 94.5% $3,924 $2,952
Waterford Bear DE 731 731 94.5% 95.3% $5,196 $5,076
Whispering Pines Lewes DE 392 392 87.8% 87.2% $3,816 $3,780
Goose Creek Newport NC (a) 598 553 100.0% -- $2,802 --
Twin Lakes Chocowinity NC (a) 400 315 100.0% -- $1,967 --
Waterway Cedar Point NC (a) 336 327 100.0% -- $2,656 --
Greenwood Village Manorville NY 512 512 100.0% 99.2% $5,460 $5,136
Green Acres Breinigsville PA 595 595 93.8% 93.8% $5,616 $5,424
Spring Gulch New Holland PA (a) 420 60 100.0% -- $3,543 --
Meadows of Chantilly Chantilly VA 500 500 88.8% 88.8% $7,836 $7,248
----- ----- ----- ---- ------ ------
TOTAL NORTHEAST MARKET 5,601 5,102 95.7% 94.1% $4,660 $4,961
----- ----- ----- ---- ------ ------
MIDWEST
Five Seasons Cedar Rapids IA 390 390 73.1% 73.1% $3,408 $3,312
Holiday Village Sioux City IA 519 519 57.6% 65.7% $3,108 $2,904
Golf Vista Estates Monee IL 408 408 97.5% 95.9% $5,748 $5,292
O'Connell's Amboy IL (a) 668 336 100.0% -- $2,099 --
Willow Lake Estates Elgin IL 617 617 83.3% 90.1% $8,604 $8,328
Forest Oaks Chesterton IN 227 227 63.9% 71.8% $4,428 $3,960
Lakeside New Carlisle IN (a) 95 65 100.0% -- $2,413 --
Oak Tree Village Portage IN 361 361 80.9% 86.7% $4,296 $4,104
Windsong Indianapolis IN 268 268 51.5% 57.8% $3,972 $3,840
Creekside Wyoming MI 165 165 81.2% 87.3% $4,957 $4,884
Caledonia Caledonia WI (a) 247 0 -- -- -- --
Fremont Fremont WI (a) 325 0 -- -- -- --
Yukon Trails Lyndon Station WI (a) 214 0 -- -- -- --
----- ----- ----- ---- ------ ------
TOTAL MIDWEST MARKET 4,504 3,356 77.6% 79.5% $4,730 $4,843
----- ----- ----- ---- ------ ------
NEVADA, UTAH, NEW MEXICO
Del Rey Albuquerque NM 407 407 59.2% 67.1% $4,524 $4,488
Bonanza Las Vegas NV 353 353 63.7% 68.0% $6,108 $5,808
Boulder Cascade Las Vegas NV 299 299 76.9% 76.9% $5,556 $5,352
Cabana Las Vegas NV 263 263 95.4% 93.5% $5,520 $5,364
Flamingo West Las Vegas NV 258 258 99.6% 94.6% $6,132 $5,532
Villa Borega Las Vegas NV 293 293 83.3% 82.9% $5,688 $5,448
All Seasons Salt Lake City UT 121 121 89.3% 93.4% $4,620 $4,440
Westwood Village Farr West UT 314 314 93.6% 95.2% $3,576 $3,360
----- ----- ----- ---- ------ ------
TOTAL NEVADA, UTAH,
NEW MEXICO MARKET 2,308 2,308 80.1% 81.8% $5,217 $4,984
----- ----- ----- ---- ------ ------
12
TOTAL TOTAL ANNUAL ANNUAL
NUMBER NUMBER OF SITE SITE ANNUAL ANNUAL
OF SITES ANNUAL OCCUPANCY OCCUPANCY RENT RENT
LOCATION AS OF SITES AS OF AS OF AS OF AS OF
PROPERTY CITY, STATE 12/31/04 12/31/04 12/31/04 12/31/03(C) 12/31/04 12/31/03(C)
-------- ------------------ -------- --------- --------- ----------- -------- -----------
NORTHWEST
Casa Village Billings MT 490 490 85.5% 85.9% $3,648 $3,648
Falcon Wood Village Eugene OR 183 183 88.5% 90.7% $4,968 $4,836
Mt. Hood Welches OR 436 52 100.0% -- $3,858 --
Quail Hollow Fairview OR 137 137 92.7% 92.7% $6,300 $6,084
Shadowbrook Clackamas OR 156 156 95.5% 94.2% $6,324 $6,156
Kloshe Illahee Federal Way WA 258 258 96.1% 97.7% $7,548 $7,188
------ ------ ----- ---- ------ ------
TOTAL NORTHWEST MARKET 1,660 1,276 90.7% 90.9% $5,246 $5,164
------ ------ ----- ---- ------ ------
TEXAS
Country Sunshine Weslaco TX (a) 390 211 100.0% -- $2,223 --
Fun n Sun RV Park San Benito TX 1,435 606 100.0% -- $2,507 --
Lakewood Harlingen TX (a) 301 112 100.0% -- $1,622 --
Paradise Park RV Resort Harlingen TX (a) 563 331 100.0% -- $2,422 --
Paradise South Mercedes TX (a) 493 174 100.0% -- $1,732 --
Southern Comfort Weslaco TX (a) 403 340 100.0% -- $2,251 --
Sunshine RV Harlingen TX (a) 1,027 418 100.0% -- $3,009 --
Tropic Winds Harlingen TX 531 33 100.0% -- $2,921 --
------ ------ ----- ---- ------ ------
TOTAL TEXAS MARKET 5,143 2,225 100.0% -- $2,424 --
------ ------ ----- ---- ------ ------
GRAND TOTAL ALL MARKETS 71,475 58,225 91.8% 90.5% $4,784 $5,027
====== ====== ===== ==== ====== ======
(a) Represents Properties acquired in 2004.
(b) The process of filling Expansion Sites at these Properties is ongoing. A
decrease in occupancy may reflect development of additional Expansion
Sites.
(c) Decrease due to unbundling of utilities
(d) Annual rent for 2003 Resort Cottage and RV sites excluded.
13
ITEM 3. LEGAL PROCEEDINGS
DEANZA SANTA CRUZ
The customers of DeAnza Santa Cruz Mobile Estates, a Property located in
Santa Cruz, California, brought several actions opposing fees and charges in
connection with water service at the Property. As a result of one action, the
Company rebated approximately $36,000 to the customers. The DeAnza Santa Cruz
Homeowners Association ("HOA") then proceeded to a jury trial alleging these
"overcharges" entitled them to an award of punitive damages. In January 1999, a
jury awarded the HOA $6.0 million in punitive damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damages claim. The HOA's attorney made a motion asking for an award of
attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company appealed this award. On July 13, 2004, the
California Court of Appeal affirmed the award of attorney's fees in favor of the
HOA's attorney.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's stockholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their homes in the
form of an inflated purchase price that cannot be attributed to the value of the
home being sold. As a result, in the Company's view, the Company loses the value
of its asset and the selling tenant leaves the Property with a windfall premium.
The Company has discovered through the litigation process that certain
municipalities considered condemning the Company's Properties at values well
below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to stockholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
In connection with such efforts, the Company announced it has entered into
a settlement agreement with the City of Santa Cruz, California and that,
pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's Property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the CPI. The
settlement agreement benefits the Company's stockholders by allowing them to
receive the value of their investment in this Property through vacancy decontrol
while preserving annual CPI based rent increases in this age restricted
Property.
The Company has filed two lawsuits in Federal court against the City of San
Rafael, challenging its rent control ordinance on constitutional grounds. The
Company believes that one of those lawsuits was settled by the City agreeing to
amend the ordinance to permit adjustments to market rent upon turnover. The City
subsequently rejected the settlement agreement. The Court initially found the
settlement agreement was binding on the City, but then reconsidered and
determined to submit the claim of breach of the settlement agreement to a jury.
In October 2002, the first case against the City went to trial, based on both
breach of the settlement agreement and the constitutional claims. A jury found
no breach of the settlement agreement; the Company then filed motions asking the
Court to rule in its favor on that claim, notwithstanding the jury verdict. The
Court has postponed decision on those motions and on the constitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the
14
constitutional claims, then the Company has pending claims seeking a declaration
that it can close the Property and convert it to another use.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("CMHOA"), a 396
site Property in San Rafael, California, sued the Company in December 2000 over
a prior settlement agreement on a capital expenditure pass-through after the
Company sued the City of San Rafael in October 2000 alleging its rent control
ordinance is unconstitutional. In the Contempo Marin case, the CMHOA prevailed
on a motion for summary judgment on an issue that permits the Company to collect
only $3.72 out of a monthly pass-through amount of $7.50 that the Company
believes had been agreed to by the CMHOA in a settlement agreement. On May 23,
2004, the California Court of Appeal affirmed the trial court's order dismissing
the Company's claims against the City of San Rafael. The trial court has set a
trial date in the second quarter of 2005 on the CMHOA's remaining claims for
damages. The Company intends to vigorously defend this matter. The Company
believes that such lawsuits will be a consequence of the Company's efforts to
change rent control since tenant groups actively desire to preserve the premium
value of their homes in addition to the discounted rents provided by rent
control. The Company has determined that its efforts to rebalance the regulatory
environment despite the risk of litigation from tenant groups are necessary not
only because of the $15 million annual subsidy to tenants, but also because of
the condemnation risk.
Similarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and other
property owners. However, the Court allowed the City to continue to enforce a
rent control ordinance that predated the two invalid ordinances (the "prior
ordinance"). As a result of the judgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and the prior ordinances and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance been
continually in effect. The City of Santee appealed the judgment. The court of
appeal and California Supreme Court refused to stay enforcement of these rent
adjustments pending appeal. After the City was unable to obtain a stay, the City
and the tenant association each sued the Company in separate actions alleging
the rent adjustments pursuant to the judgment violate the prior ordinance (Case
Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments,
refunds of amounts paid, and penalties and damages in these separate actions. On
January 25, 2005, the California Court of Appeal reversed the judgment in part
and affirmed it in part with a remand. The Court of Appeal affirmed that one
ordinance was unlawfully adopted and therefore void and that the second
ordinance contained unconstitutional provisions. However, the Court ruled the
City had the authority to cure the issues with the first ordinance
retroactively. On remand the trial court is directed to decide the issue of
damages to the Company which the Company believes is consistent with the Company
receiving the economic benefit of invalidating one of the ordinances and also
consistent with the Company's position that it is entitled to market rent and
not merely a higher amount of regulated rent. The Company will petition the
Supreme Court of California for review of certain aspects of this decision. The
Company intends to vigorously defend the two new lawsuits. In addition, the
Company has sued the City of Santee in Federal court alleging all three of the
ordinances are unconstitutional under the Fifth Amendment to the United States
Constitution because they fail to substantially advance a legitimate state
interest. Thus, it is the Company's position that the ordinances are subject to
invalidation as a matter of law in the Federal court action. Separately, the
Federal District Court granted the City's Motion for Summary Judgment in the
Company's Federal Court lawsuit. This decision was based not on the merits, but
on procedural grounds, including that the Company's claims were moot given its
success in the state court case. The Company intends to appeal this ruling and
believes the outcome will be affected by the cases currently before the Ninth
Circuit and United States Supreme Court.
Moreover, in July 2004, the Ninth Circuit Court of Appeal decided the case
of Cashman v. City of Cotati, a Property owner's challenge to the City's rent
control ordinance, and stated that a rent control ordinance that does not on its
face provide for a mechanism to prevent the capture of a premium is
unconstitutional, as a matter of law, absent sufficient externalities rendering
a premium unavailable. This reasoning supports the legal position the Company
has put forth in its opposition to rent control in general and vacancy control
in particular. The City of Cotati has petitioned the Ninth Circuit for rehearing
and that petition is pending. In addition, in October 2004, the United States
Supreme Court granted certiorari in State of Hawaii vs. Chevron USA, Inc., a
Ninth Circuit Court of Appeal case that upholds the standard that a regulation
must substantially advance a legitimate state purpose in order to be
constitutionally viable. The case was argued before the United States Supreme
Court on February 22, 2005. The ultimate outcome of these cases will guide the
Company's continued efforts to realize the value of its Properties which are
subject to rent control and the Company's efforts to achieve a level of
regulatory fairness in rent control jurisdictions.
15
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. In
addition, to the extent any such proceedings or audits relate to newly acquired
Properties, the Company considers any potential indemnification obligations of
sellers in favor of the Company.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matter to a vote of security holders during the three
months ended December 31, 2004.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
The following table sets forth, for the period indicated, the high and low
sale prices for the Company's common stock as reported by The New York Stock
Exchange under the trading symbol ELS.
Return of
Distributions Capital
Close High Low Declared GAAP Basis(a)
------ ------ ------ ------------- -------------
2004
1st Quarter $35.30 $37.90 $28.94 $0.0125 $0.00
2nd Quarter 33.19 35.35 28.49 0.0125 0.00
3rd Quarter 33.24 34.34 31.10 0.0125 0.05
4th Quarter 35.75 36.52 32.88 0.0125 0.01
2003
1st Quarter $29.60 $30.86 $27.40 $0.4950 $0.17
2nd Quarter 35.11 35.80 29.56 0.4950 0.00
3rd Quarter 39.18 39.80 35.11 0.4950 0.29
4th Quarter 37.65 41.92 36.70 8.0000(b) 8.03
(a) Represents distributions per share in excess of net income per share-basic
on generally accepted accounting principles in the United States ("GAAP")
basis and is not the same as return of capital on a tax basis.
(b) On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used
proceeds from the $501 million borrowing in October 2003 to pay the special
distribution on January 16, 2004. The special cash dividend was reflected
on stockholders' 2004 1099-DIV issued in January 2005.
The number of beneficial holders of the Company's common stock at December 31,
2004 was approximately 5,455.
ISSUER PURCHASES OF EQUITY SECURITIES
None.
18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
on a historical basis. The historical operating data for the four years ended
December 31, 2003 have been derived from the historical financial statements of
the Company; however, they have been restated to reflect adjustments that are
further explained in Note 2 of the Notes to Consolidated Financial Statements
contained in this Form 10-K. The following information should be read in
conjunction with all of the financial statements and notes thereto included
elsewhere in this Form 10-K.
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands, except for per share and property data)
(1) YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001
2004 (Restated) (Restated) (Restated) 2000
--------- ---------- ---------- ---------- ----------
PROPERTY OPERATIONS:
Community base rental income ....................... $ 210,790 $ 196,919 $ 194,640 $ 190,982 $185,023
Resort base rental income .......................... 54,845 11,780 9,146 5,748 7,414
Utility and other income ........................... 24,893 20,150 19,684 20,381 19,357
--------- --------- --------- --------- --------
Property operating revenues ..................... 290,528 228,849 223,470 217,111 211,794
Property operating and maintenance ................. 94,955 64,996 62,843 60,807 57,973
Real estate taxes .................................. 23,679 18,917 17,827 16,882 16,407
Property management ................................ 12,852 9,373 9,292 8,984 8,690
--------- --------- --------- --------- --------
Property operating expenses (exclusive
of depreciation shown separately below) ...... 131,486 93,286 89,962 86,673 83,070
--------- --------- --------- --------- --------
Income from property operations .............. 159,042 135,563 133,508 130,438 128,724
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ........... 47,636 36,606 33,537 -- --
Cost of inventory home sales ....................... (41,833) (31,767) (27,183) -- --
--------- --------- --------- --------- --------
Gross profit from inventory home sales ....... 5,803 4,839 6,354 -- --
Brokered resale revenues, net ...................... 2,186 1,724 1,592 -- --
Home selling expenses .............................. (8,708) (7,360) (7,664) -- --
Ancillary services revenues, net ................... 2,782 216 522 -- --
--------- --------- --------- --------- --------
Income (loss) from home sales operations &
other ........................................ 2,063 (581) 804 -- --
OTHER INCOME (EXPENSES):
Interest income .................................... 1,391 1,695 967 639 1,009
Equity in income of affiliates ..................... -- -- -- 1,811 2,408
Income from other investments (2) .................. 3,475 956 316 383 150
General and administrative ......................... (9,243) (8,060) (8,192) (6,687) (6,423)
Rent control initiatives ........................... (2,412) (2,352) (5,698) (2,358) --
Interest and related amortization (3) .............. (91,922) (58,402) (50,729) (51,305) (53,280)
Depreciation on corporate assets ................... (1,657) (1,240) (1,277) (1,243) (1,139)
Depreciation on real estate assets and other
costs ........................................... (48,862) (37,265) (34,826) (33,540) (33,201)
--------- --------- --------- --------- --------
Total other income (expenses) ................ (149,230) (104,668) (99,439) (92,300) (90,476)
Income before minority interests,
equity in income of unconsolidated joint
ventures, loss on extinguishment of debt,
gain on sale of property and discontinued
operations ................................... 11,875 30,314 34,873 38,138 38,248
(Income) allocated to Common OP Units .............. (936) (3,860) (4,708) (7,216) (7,968)
(Income) allocated to Perpetual Preferred OP ....... (11,284) (11,252) (11,252) (11,252) (11,252)
Units
Equity in income of unconsolidated joint
ventures ........................................ 3,739 340 235 282 8
--------- --------- --------- --------- --------
Income before loss on extinguishment of
debt, gain on sale of properties and other,
and discontinued operations .................. 3,394 15,542 19,148 19,952 19,036
--------- --------- --------- --------- --------
Loss on the extinguishment of debt ................. -- -- -- -- (1,041)
Gain on sale of properties and other ............... 638 -- -- 8,168 12,053
--------- --------- --------- --------- --------
Income from continuing operations ............ 4,032 15,542 19,148 28,120 30,048
--------- --------- --------- --------- --------
DISCONTINUED OPERATIONS:
Discontinued Operations ............................ 26 1,043 3,287 3,203 3,090
Depreciation on discontinued operations ............ (32) (135) (484) (605) (698)
Gain on sale of discontinued properties and other .. -- 10,826 13,014 -- --
Minority interests on discontinued operations ...... -- (2,144) (3,078) (521) (495)
--------- --------- --------- --------- --------
Income (loss) from discontinued operations.... (6) 9,590 12,739 2,077 1,897
--------- --------- --------- --------- --------
NET INCOME AVAILABLE FOR COMMON SHARES ....... $ 4,026 $ 25,132 $ 31,887 $ 30,197 $ 31,945
========= ========= ========= ========= ========
19
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(Amounts in thousands, except for per share and property data)
(1) AS OF DECEMBER 31,
--------------------------------------------------------------
2003 2002 2001
2004 (Restated) (Restated) (Restated) 2000
---------- ---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ............................ $ 0.18 $ 0.71 $ 0.89 $ 1.34 $ 1.40
Income from discontinued operations .......................... $ 0.00 $ 0.43 $ 0.59 $ 0.10 $ 0.09
Net income available for Common Shares ....................... $ 0.18 $ 1.14 $ 1.48 $ 1.44 $ 1.49
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ............................ $ 0.17 $ 0.69 $ 0.87 $ 1.31 $ 1.37
Income from discontinued operations .......................... $ 0.00 $ 0.42 $ 0.57 $ 0.09 $ 0.10
Net income available for Common Shares ....................... $ 0.17 $ 1.11 $ 1.44 $ 1.40 $ 1.47
Distributions declared per Common Share outstanding (3) ...... $ 0.05 $ 9.485 $ 1.90 $ 1.78 $ 1.66
Weighted average Common Shares outstanding - basic ........... 22,849 22,077 21,617 21,036 21,469
Weighted average Common OP Units outstanding ................. 6,067 5,342 5,403 5,466 5,592
Weighted average Common Shares outstanding - fully diluted ... 29,465 28,002 27,632 27,010 27,408
BALANCE SHEET DATA:
Real estate, before accumulated depreciation (4) ............. $2,035,790 $1,309,705 $1,296,007 $1,238,138 $1,218,176
Total assets ................................................. 1,886,289 1,463,507 1,154,794 1,099,447 1,104,304
Total mortgages and loans (3) ................................ 1,653,051 1,076,183 760,233 708,857 719,684
Minority interests ........................................... 134,771 124,634 166,889 170,675 171,271
Stockholders' equity (3) ..................................... 31,844 (2,528) 171,175 173,264 168,095
OTHER DATA:
Funds from operations (5) .................................... $ 54,448 $ 58,479 $ 62,695 $ 64,599 $ 63,807
Net cash flow:
Operating activities ...................................... $ 46,733 $ 75,163 $ 80,176 $ 80,708 $ 68,001
Investing activities ...................................... $ (366,654) $ (598) $ (72,973) $ (23,067) $ 23,102
Financing activities ...................................... $ (514) $ 243,905 $ (1,287) $ (59,134) $ (94,932)
Total Properties (at end of period) .......................... 275 142 142 149 154
Total sites (at end of period) ............................... 101,231 52,349 51,582 50,663 51,304
(1) See the Consolidated Financial Statements of the Company included elsewhere
herein. Certain 2003, 2002, 2001, and 2000 amounts have been reclassified
to conform to the 2004 financial presentation. Such reclassifications have
no effect on the operations or equity as originally presented.
Net Income for the years ended December 31, 2003, 2002 and 2001 have been
restated (see Note 2 of the Notes to Consolidated Financial Statements
contained in this Form 10-K) to reflect a change in the Company's
accounting policy with regards to its rent control initiatives. The Company
received a comment letter from the SEC with regard to prior filings. These
issues were outlined in our press release dated March 4, 2005. The issues
have been resolved and resulted in this restatement.
(2) On November 10, 2004, we acquired KTTI Holding Company, Inc., owner of 57
Properties and approximately 3,000 acres of vacant land, for $160 million
("Thousand Trails Transaction"). These Properties are leased to Thousand
Trails, the largest operator of membership-based campgrounds in the United
States. The Company has provided a long-term lease of the real estate
(excluding the vacant land) to Thousand Trails, which will continue to
operate the Properties for the benefit of its approximately 108,000 members
nationwide. The Properties are located in 16 states (primarily in the
western and southern United States) and British Columbia, and contain
17,911 sites. The lease will generate $16 million in rental income to the
Company on an absolute triple net basis, subject to annual escalations of
3.25%. As of December 31, 2004, approximately $2.3 million represents
income for November 10, 2004 through December 31, 2004.
20
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(continued)
(3) On October 17, 2003, we closed 49 mortgage loans collateralized by 51
Properties (the "Recap") providing total proceeds of approximately $501
million at a weighted average interest rate of 5.84% and with a weighted
average maturity of approximately 9 years. Approximately $170 million of
the proceeds were used to repay amounts outstanding on the Company's line
of credit and term loan. Approximately $225 million was used to pay a
special distribution of $8.00 per share on January 16, 2004. The remaining
funds were used for investment purposes in 2004. The Recap resulted in
increased interest and amortization expense and the special distribution
resulted in decreased stockholder's equity.
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its
assets to MHC Trust, a newly formed Maryland real estate investment trust,
including the Company's entire partnership interest in the Operating
Partnership. This restructuring resulted in a step-up in the Company's tax
basis in its assets, generating future depreciation deductions, which in
turn will reduce the Company's future distribution requirements. This
provides the Company with greater financial flexibility and greater growth
potential (see Note 5 of the Notes to Consolidated Financial Statements
contained in this Form 10-K).
(4) We believe that the book value of the Properties, which reflects the
historical costs of such real estate assets less accumulated depreciation,
is less than the current market value of the Properties.
(5) Funds from Operations ("FFO") is a non-GAAP financial measure. The Company
believes that FFO, as defined by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT"), to be an
appropriate measure of performance for an equity REIT. While FFO is a
relevant and widely used measure of operating performance for equity REITs,
it does not represent cash flow from operations or net income as defined by
GAAP, and it should not be considered as an alternative to these indicators
in evaluating liquidity or operating performance.
FFO is defined as net income, computed in accordance with GAAP, excluding
gains or losses from sales of Properties, plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect FFO on the same
basis. The Company believes that FFO is helpful to investors as one of
several measures of the performance of an equity REIT. The Company further
believes that by excluding the effect of depreciation, amortization and
gains or losses from sales of real estate, all of which are based on
historical costs and which may be of limited relevance in evaluating
current performance, FFO can facilitate comparisons of operating
performance between periods and among other equity REITs. Investors should
review FFO, along with GAAP net income and cash flow from operating
activities, investing activities and financing activities, when evaluating
an equity REIT's operating performance. The Company computes FFO in
accordance with standards established by NAREIT, which may not be
comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than we do. Investors should review FFO,
along with GAAP net income and cash flow from operating activities,
investing activities and financing activities, when evaluating an equity
REIT's operating performance. FFO does not represent cash generated from
operating activities in accordance with GAAP, nor does it represent cash
available to pay distributions and should not be considered as an
alternative to net income, determined in accordance with GAAP, as an
indication of our financial performance, or to cash flow from operating
activities, determined in accordance with GAAP, as a measure of our
liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to make cash distributions.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-K. The following discussion may
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which reflect management's current
views with respect to future events and financial performance. Such
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the effects of future events on the Company's
financial performance; the adverse impact of external factors such as inflation
and consumer confidence; interest rates; and the risks associated with real
estate ownership.
2004 ACCOMPLISHMENTS
- Invested in 135 Properties with approximately 50,000 sites.
- Increased presence in Florida and Arizona markets.
- Increased home sales volumes and profitability.
- Changed our name from Manufactured Home Communities, Inc. to Equity
Lifestyle Properties, Inc., symbolizing our focus on
lifestyle-oriented customers.
- Developed relationships with leading brand names such as Encore and
Thousand Trails, creating a larger customer resource base.
OVERVIEW AND OUTLOOK
Occupancy in our Properties as well as our ability to increase rental rates
directly affect revenues. Our revenue streams are predominantly derived from
customers renting our sites on a long-term basis.
We have approximately 58,200 annual sites with average annual revenue of
approximately $4,400 per site. We have 7,200 seasonal sites, which are leased to
customers generally for 3 to 6 months, for which we expect to collect rent in
the range of $1,700 to $1,800. We also have 6,000 transient sites, occupied by
customers who lease on a short-term basis, for which we expect to collect annual
rent in the range of $2,000 to $2,100. We expect to service 60,000 customers
with these sites. There is significant demand for these sites. However, we
consider this revenue stream to be our most volatile. It is subject to weather
conditions, gas prices, and other factors affecting the marginal RV customer's
vacation and travel preferences. Finally, we have approximately 17,900 Thousand
Trails sites for which we receive ground rent of $16 million annually. This rent
is classified in Other Income in the Consolidated Statements of Operations. We
have interests in Properties owning approximately 11,800 sites for which revenue
is classified as Equity in Income from Unconsolidated Joint Ventures in the
Consolidated Statements of Operations.
22
PROPERTY ACQUISITIONS, JOINT VENTURES AND DISPOSITIONS
The following chart lists the Properties or portfolios acquired, invested
in, or sold since January 1, 2003:
PROPERTY TRANSACTION DATE SITES
- -------- ------------------ -------
TOTAL SITES AS OF JANUARY 1, 2003...................... 52,349
PROPERTY OR PORTFOLIO (# OF PROPERTIES IN PARENTHESES):
Toby's.............................................. December 3, 2003 379
Araby Acres......................................... December 15, 2003 337
Foothill Village ................................... December 15, 2003 180
O'Connell's ........................................ January 15, 2004 668
Spring Gulch........................................ January 30, 2004 420
Paradise............................................ February 3, 2004 950
Twin Lakes.......................................... February 18, 2004 400
Lakeside............................................ February 19, 2004 95
Diversified Portfolio (10).......................... February 5, 2004 2,567
NHC Portfolio (28) ................................. February 17, 2004 11,311
Viewpoint .......................................... May 3, 2004 1,928
Cactus Gardens ..................................... May 12, 2004 430
Monte Vista ........................................ May 13, 2004 832
GE Portfolio (5) ................................... May 14, 2004 1,155
Yukon Trails ....................................... September 8, 2004 214
Caledonia .......................................... November 4, 2004 247
Thousand Trails (57) ............................... November 10, 2004 17,911
Fremont ............................................ December 30, 2004 325
JOINT VENTURES:
Lake Myers.......................................... December 18, 2003 425
Pine Haven.......................................... January 21, 2004 625
Twin Mills.......................................... January 27, 2004 501
Indian Wells........................................ February 17, 2004 350
Plymouth Rock....................................... February 10, 2004 609
Mesa Verde.......................................... May 18, 2004 345
Winter Garden....................................... May 18, 2004 350
Arrowhead........................................... August 20, 2004 377
Sun Valley.......................................... September 10, 2004 265
Appalachian......................................... October 26, 2004 357
Robin Hill.......................................... November 5, 2004 270
Round Top........................................... December 22, 2004 319
MEZZANINE INVESTMENTS (11) ............................ February 3, 2004 5,054
DISPOSITIONS:
Independence Hill................................... June 6, 2003 (203)
Brook Gardens....................................... June 6, 2003 (424)
Pheasant Ridge...................................... June 30, 2003 (101)
Lake Placid......................................... May 28, 2004 (408)
Manatee (Joint Venture)............................. September 1, 2004 (290)
EXPANSION SITE DEVELOPMENT AND OTHER:
Sites added (reconfigured) in 2003 ................. (35)
Sites added (reconfigured) in 2004 ................. 147
-------
TOTAL SITES AS OF DECEMBER 31, 2004 ................... 101,231
=======
23
RESTATEMENT OF FINANCIAL STATEMENTS
During 2004, the Company changed the way it accounted for costs incurred in
pursuing certain rent control initiatives. As a result, the Company has restated
its Consolidated Financial Statements for the years ended December 31, 2003,
2002 and 2001 to expense the costs of the initiatives in the year in which they
were incurred because the previous method of accounting for the costs was
determined to be incorrect. The Company had historically classified these costs,
primarily legal, in other assets. To the extent the Company's efforts to
effectively change the use and operations of the Properties were successful, the
Company capitalized the costs to land improvements as an increase in the
established value of the revised project and depreciated them over 30 years. To
the extent these efforts were not successful, the costs would have been
expensed.
See Note 2 to the Consolidated Financial Statements of this report for a
summary of the effects of these changes on the Company's consolidated balance
sheets as of December 31, 2003 and consolidated statements of operations for the
years ended December 31, 2003, 2002 and 2001. The accompanying Management's
Discussion and Analysis gives effect to these corrections. The significance of
the increase in expenses due to this change is not necessarily determinable in
future periods and depend on future rulings of the United States Supreme Court.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles ("GAAP"), which require us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and the related disclosures. We believe that the
following critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
In accordance with the Statement of Financial Accounting Standards No. 141
("SFAS No. 141"), we allocate the purchase price of Properties we acquire to net
tangible and identified intangible assets acquired based on their fair values.
In making estimates of fair values for purposes of allocating purchase price, we
utilize a number of sources, including independent appraisals that may be
available in connection with the acquisition or financing of the respective
property and other market data. We also consider information obtained about each
property as a result of our due diligence, marketing and leasing activities in
estimating the fair value of the tangible and intangible assets acquired.
We periodically evaluate our long-lived assets, including our investments
in real estate, for impairment indicators. Our judgments regarding the existence
of impairment indicators are based on factors such as operational performance,
market conditions and legal factors. Future events could occur which would cause
us to conclude that impairment indicators exist and an impairment loss is
warranted.
Real estate is recorded at cost less accumulated depreciation. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
assets. We use a 30-year estimated life for buildings acquired and structural
and land improvements, a ten-to-fifteen-year estimated life for building
upgrades and a three-to-seven-year estimated life for furniture, fixtures and
equipment. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred and significant renovations and improvements that improve
the asset and extend the useful life of the asset are capitalized and then expensed over their
estimated useful life. However, the useful lives, salvage value, and customary
depreciation method used for land improvements and other significant assets may
significantly and materially overstate the depreciation of the underlying assets
and therefore understate the net income of the Company.
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R")
- - an interpretation of ARB 51. The objective of FIN 46R is to provide guidance
on how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate such
entity if the company absorbs a majority of the entity's expected losses or
receives a majority of the entity's expected residual returns if they occur, or
both (i.e., the primary beneficiary). The Company will apply FIN 46R to all
types of entity ownership (general and limited partnerships and corporate
interests).
The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of such
entities. In addition, the FASBCompany will apply the provisions of FIN 46R to all
new entities in the future. The Company also consolidates entities in which it
has a controlling direct or indirect voting interest. The equity method of
accounting is currently reviewingapplied to entities in which the Company does not have a
24
controlling direct or indirect voting interest, but can exercise influence over
the entity with respect to its operations and major decisions. The cost method
is applied when (i) the investment is minimal (typically less than 5%) and (ii)
the Company's investment is passive.
In applying the provisions of FIN 46R, the Company determined that its
$29.7 million investment in preferred equity interests (the "Mezzanine
Investment") in six entities controlled by Diversified Investments, Inc.
("Diversified") (see Liquidity and Capital Resources - Investing Activities) is
a VIE; however, the Company concluded that it is not the primary beneficiary. As
such, the adoption of this pronouncement had no effect on the Company's
financial statements.
The valuation of financial instruments under Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS No. 107") and Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133") requires us to make estimates and judgments that affect the fair value
of the instruments. Where possible, we base the fair values of our financial
instruments, including our derivative instruments, on listed market prices and
third party quotes. Where these are not available, we base our estimates on
other factors relevant to the financial instrument.
Prior to January 1, 2003 we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees", based
upon the intrinsic value method. This method results in no compensation expense
for options issued with an exercise price equal to or exceeding the market value
of the common stock on the date of grant. Effective January 1, 2003, we elected
to account for our stock-based compensation in accordance with SFAS No. 123 and
its amendment ("SFAS No. 148"), "Accounting for Stock Based Compensation", which
will result in compensation expense being recorded based on the fair value of
the stock options and other equity awards issued. SFAS No. 148 provides three
possible transition methods for changing to the fair value method. We have
elected to use the modified-prospective method. This method requires that we
recognize stock-based employee compensation cost from the beginning of the
fiscal year in which the recognition provisions are first applied as if the fair
value method had been used to account for all employee awards granted, or
settled, in fiscal years beginning after December 15, 1994. The following table
illustrates the effect on net income and earnings per share as if the fair value
method was applied to all outstanding and unvested awards in each period
presented (amounts in thousands, except per share data):
2003 2002
2004 (Restated) (Restated)
------- ---------- ----------
Net income available for Common
Shares as reported ................... $ 4,026 $25,132 $31,887
Add: Stock-based compensation
expense included in net income as
reported ............................. 2,899 2,139 2,185
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards .... (2,899) (2,139) (2,086)
------- ------- -------
Pro forma net income available for
Common Shares ........................ $ 4,026 $25,132 $31,986
======= ======= =======
Pro forma net income per Common
Share - Basic ........................ $ 0.18 $ 1.14 $ 1.48
======= ======= =======
Pro forma net income per Common
Share - Fully Diluted ................ $ 0.17 $ 1.11 $ 1.44
======= ======= =======
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements with any unconsolidated
investments or joint ventures that we believe have or are reasonably likely to
have a material effect on our financial condition, results of operations,
liquidity or capital resources.
25
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO YEAR ENDED DECEMBER 31, 2003
Since December 31, 2002, the gross investment in real estate increased from
$1,296 million to $2,036 million as of December 31, 2004, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 52,349 as of
December 31, 2003 to 101,231 as of December 31, 2004.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio (excludes RV and Resort Cottage
sites, and Properties owned through unconsolidated joint ventures, as well as
the sites of Properties acquired or sold during 2003 and 2004) and the Total
Portfolio for the years ended December 31, 2004 and 2003.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE / % INCREASE / %
(dollars in thousands) 2004 2003 (DECREASE) CHANGE 2004 2003 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- ------ -------- -------- ---------- ------
Community base rental income ...... $203,141 $197,174 $5,967 3.0% $210,790 $196,919 $13,871 7.0%
Resort base rental income ......... -- -- -- -- 54,845 11,780 43,065 365.6%
Utility and other income .......... 19,547 19,289 258 1.3% 24,893 20,150 4,743 23.5%
-------- -------- ------ ---- -------- -------- ------- -----
Property operating revenues .... 222,688 216,463 6,225 2.9% 290,528 228,849 61,679 27.0%
Property operating and
maintenance (1) ................ 60,799 58,253 2,546 4.4% 94,955 64,996 29,959 46.1%
Real estate taxes ................. 18,967 17,994 973 5.4% 23,679 18,917 4,762 25.2%
Property management ............... 8,974 8,866 108 1.2% 12,852 9,373 3,479 37.1%
-------- -------- ------ ---- -------- -------- ------- -----
Property operating expenses .... 88,740 85,113 3,627 4.3% 131,486 93,286 38,200 40.9%
-------- -------- ------ ---- -------- -------- ------- -----
Income from property operations ... $133,948 $131,350 $2,598 2.0% $159,042 $135,563 $23,479 17.3%
======== ======== ====== ==== ======== ======== ======= =====
Site and Occupancy Information (2):
Average total sites ............... 43,112 43,134 (22) (0.1%) 44,554 43,134 1,420 3.3%
Average occupied sites ............ 38,730 39,363 (633) (1.6%) 40,143 39,363 780 2.0%
Average Occupancy % ............... 89.8% 91.3% (1.5%) (1.5%) 90.1% 91.3% (1.2%) (1.2%)
Monthly base rent per site ........ $ 436.65 $ 416.89 $19.76 4.7% $ 437.58 $ 416.89 $ 20.69 5.0%
Total sites
As of December 31, ............. 43,168 43,143 25 0.1% 45,121 43,143 1,978 4.6%
Total occupied sites
As of December 31, ............. 38,508 38,946 (438) (1.1%) 40,409 38,946 1,463 3.8%
(1) The effect of the 3rd quarter 2004, insurance reserve of approximately $1
million relating to the Florida storms has been removed from the Core
Portfolio for comparative purposes.
(2) Site and occupancy information excludes all Resort Cottage and RV sites,
Properties owned through unconsolidated joint ventures as well as the sites
of Properties acquired or sold during 2003 and 2004.
PROPERTY OPERATING REVENUES
The 3.0% increase in Community base rental income for the Core Portfolio
reflects a 4.7% increase in monthly base rent per site combined with a 1.6%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher utility expenses. Total Portfolio operating revenues
increased due to current year acquisitions (see Note 6 of the Notes to
Consolidated Financial Statements contained in this Form 10-K).
26
RESULTS OF OPERATIONS (CONTINUED)
PROPERTY OPERATING EXPENSES
The 4.4% increase in property operating and maintenance expense for the
Core Portfolio is due primarily to increases in payroll expense, administrative
expense, repair and maintenance expense. The 5.4% increase in Core Portfolio
real estate taxes is generally due to higher property assessments on certain
Properties. Property management expense for the Core Portfolio, which reflects
costs of managing the Properties and is estimated based on a percentage of
Property operating revenues, increased by 1.2% due to increases in payroll costs
and computer expenses, but remains at approximately 4% of revenue. Total
Portfolio operating expenses increased due to our current year acquisitions.
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2004 and 2003.
HOME SALES OPERATIONS
-----------------------------------------
(dollars in thousands) 2004 2003 VARIANCE % CHANGE
-------- -------- -------- --------
Gross revenues from new home sales $ 43,470 $ 33,512 $ 9,958 29.7%
Cost of new home sales .............. (38,216) (29,064) (9,152) 31.5%
-------- -------- ------- -------
Gross profit from new home sales .... 5,254 4,448 806 18.1%
Gross revenues from used home sales 4,166 3,094 1,072 34.6%
Cost of used home sales ............. (3,617) (2,703) (914) 33.8%
-------- -------- ------- -------
Gross profit from used home sales ... 549 391 158 40.4%
Brokered resale revenues, net ....... 2,186 1,724 462 26.8%
Home selling expenses ............... (8,708) (7,360) (1,348) 18.3%
Ancillary services revenues, net .... 2,782 216 2,566 1,188.0%
-------- -------- ------- -------
Income from home sales operations ... $ 2,063 $ (581) $ 2,644 455.1%
======== ======== ======= =======
HOME SALES VOLUMES:
New home sales ................... 517 458 59 12.9%
Used home sales .................. 362 189 173 91.5%
Brokered home resales ............ 1,424 1,102 322 29.2%
New home sales gross profit reflects a 12.9% increase in sales volume
combined with an increase in average selling price of approximately $11,000 per
home or approximately 15% due to higher quality of homes. Used home sales gross
profit reflects an increase in gross margin on used home sales and an increase
in volume. Brokered resale revenues reflects increased resale volumes. The 18.3%
increase in home selling expenses primarily reflects increases in insurance cost
and other expenses. The increase in ancillary service revenue relates primarily
to income from property amenities at our newly acquired Properties.
OTHER INCOME AND EXPENSES
The increase in other expenses reflects an increase in interest expense
resulting from the Recap borrowing in October 2003 (see Note 10 of the Notes to
Consolidated Financial Statements contained in this Form 10-K) and additional
debt assumed in the 2004 acquisitions, an increase in depreciation on real
estate assets related to the 2004 acquisitions, and increased general and
administrative expense due to increased payroll. This is partially offset by
income from other investments that includes $2.3 million of lease income from
the Thousand Trails ground lease entered into on November 10, 2004.
27
RESULTS OF OPERATIONS (CONTINUED)
EQUITY IN INCOME OF UNCONSOLIDATED JOINT VENTURES
During 2004, we invested in preferred equity interests, the Mezzanine
Investment, in six entities containing 11 Properties and 5,054 sites. Our
average return on the Mezzanine Investment accrues at a rate of 10% per annum.
We also invested in 11 separate joint ventures (see Liquidity and Capital
Resources - Investing Activities). These investments contributed to the increase
in equity in income from unconsolidated joint ventures.
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002
Since December 31, 2001, the gross investment in real estate increased from
$1,238 million to $1,310 million as of December 31, 2003, due primarily to the
aforementioned acquisitions and dispositions of Properties during the period.
The total number of sites owned or controlled increased from 50,663 as of
December 31, 2001 to 51,715 as of December 31, 2003.
The following table summarizes certain financial and statistical data for
the Property Operations for the Core Portfolio and the Total Portfolio for the
years ended December 31, 2003 and 2002.
CORE PORTFOLIO TOTAL PORTFOLIO
----------------------------------------- ------------------------------------------
INCREASE / % INCREASE / %
(dollars in thousands) 2003 2002 (DECREASE) CHANGE 2003 2002 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- ------ --------- -------- ---------- ------
Community base rental income ......... $191,655 $185,766 $5,889 3.2% $196,919 $194,640 $ 2,279 1.2%
Resort base rental income ............ 256 154 102 66.2% 11,780 9,146 2,634 28.8%
Utility and other income ............. 18,764 18,458 306 1.7% 20,150 19,684 466 2.4%
-------- -------- ------ ---- -------- -------- ------- ----
Property operating revenues ....... 210,675 204,378 6,297 3.1% 228,849 223,470 5,379 2.4%
Property operating and
maintenance ....................... 56,535 54,510 2,025 3.7% 64,996 62,843 2,153 3.4%
Real estate taxes .................... 17,278 16,338 940 5.8% 18,917 17,827 1,090 6.1%
Property management .................. 8,629 8,498 131 1.5% 9,373 9,292 81 0.9%
-------- -------- ------ ---- -------- -------- ------- ----
Property operating expenses ....... 82,442 79,346 3,096 3.9% 93,286 89,962 3,324 3.7%
-------- -------- ------ ---- -------- -------- ------- ----
Income from property operations ...... $128,233 $125,032 $3,201 2.6% $135,563 $133,508 $ 2,055 1.5%
======== ======== ====== ==== ======== ======== ======= ====
Site and Occupancy Information (1):...
Average total sites .................. 41,570 41,578 (8) 0.0% 43,134 43,627 (493) (1.1%)
Average occupied sites ............... 37,893 38,594 (701) (1.8%) 39,363 40,467 (1,104) (2.7%)
Occupancy % .......................... 91.2% 92.8% (1.6%) (1.7%) 91.3% 92.8% (1.5%) (1.6%)
Monthly base rent per site ........... $ 421.49 $ 401.11 $20.38 5.1% $ 416.89 $ 400.82 $ 16.07 4.0%
Total sites
As of December 31, ................ 41,580 41,590 (10) 0.0% 43,143 43,178 (35) (0.1%)
Total occupied sites
As of December 31, ................ 37,479 38,346 (867) (2.3%) 38,946 39,736 (790) (2.0%)
(1) Site and occupancy information excludes Resort Cottage and RV sites,
Properties owned through unconsolidated joint ventures and the sites of
Properties acquired or sold during 2002 and 2003.
PROPERTY OPERATING REVENUES
The 3.2% increase in Community base rental income for the Core Portfolio
reflects a 5.1% increase in monthly base rent per site combined with a 1.9%
decrease in average occupied sites. The increase in utility and other income for
the Core Portfolio is due primarily to increases in utility income, which
resulted from higher expenses for these items.
28
RESULTS OF OPERATIONS (CONTINUED)
PROPERTY OPERATING EXPENSES
The 3.7% increase in property operating and maintenance expense for the Core
Portfolio is due primarily to increases in insurance and other expenses, utility
expense, and repair and maintenance expense, administrative expenses and payroll
expense. The 5.8% increase in Core Portfolio real estate taxes is generally due
to higher property assessments on certain Properties. Property management
expense for the Core Portfolio, which reflects costs of managing the Properties
and is estimated based on a percentage of Property operating revenues, increased
by 1.5% due to increases in payroll costs and computer expenses.
HOME SALES OPERATIONS
The following table summarizes certain financial and statistical data for
the Home Sales Operations for the years ended December 31, 2003 and 2002.
HOME SALES OPERATIONS
-------------------------------------------
INCREASE /
(dollars in thousands) 2003 2002 (DECREASE) % CHANGE
- ---------------------- -------- -------- ---------- --------
Gross revenues from new home sales .... $ 33,512 $ 30,618 $ 2,894 9.5%
Cost of new home sales ................ (29,064) (24,689) 4,375 17.7%
-------- -------- ------- ------
Gross profit from new home sales ...... 4,448 5,929 (1,481) (25.0%)
Gross revenues from used home sales ... 3,094 2,919 175 6.0%
Cost of used home sales ............... (2,703) (2,494) 209 8.4%
-------- -------- ------- ------
Gross profit from used home sales ..... 391 425 (34) (8.0%)
Brokered resale revenues, net ......... 1,724 1,592 132 8.3%
Home selling expenses ................. (7,360) (7,664) (304) (4.0%)
Ancillary services revenues, net ...... 216 522 (306) (58.6%)
-------- -------- ------- ------
Income from home sales operations ..... $ (581) $ 804 $(1,385) (172.3%)
======== ======== ======= ======
HOME SALES VOLUMES:
New home sales ..................... 458 420 38 9.0%
Used home sales .................... 189 182 7 3.8%
Brokered home resales .............. 1,102 986 116 11.8%
New home sales gross profit reflects a 9.0% increase in sales volume
combined with a 6.1% decrease in the gross margin. The average selling price of
new homes remained steady year over year. Used home sales gross profit reflects
a decrease in gross margin on used home sales, partially offset by an increase
in volume. Brokered resale revenues reflect increased resale volumes. The 4.0%
decrease in home selling expenses primarily reflects reductions in advertising
expenses.
OTHER INCOME AND EXPENSES
In October 2003, we received approximately $501 million from the Recap. The
cash received from the Recap was used to pay down our Line of Credit and pay off
our Term Loan, with the remainder placed in short-term investments to be used
for payment of a special distribution in January 2004 and for future
acquisitions. As a result, interest income increased reflecting additional
interest earned on short-term investments with an average balance of $273
million. The decrease in general and administrative expense is due to decreased
professional fees and public company costs, partially offset by increased
payroll costs and banking expenses. Rent control initiatives decreased by $3.4
million due to lower costs relating to the DeAnza Santa Cruz and Contempo Marin
Properties. Interest and related amortization increased due to the Recap and the
payment of approximately $3 million to unwind the 2001 Swap (hereinafter
defined), partially offset by decreased interest rates during the period. The
weighted average outstanding debt balances for the years ended December 31, 2003
and 2002 were approximately $800 million and $731.8 million, respectively. The
effective interest rate was 6.4% and 6.8% per annum for the years ended December
31, 2003 and 2002, respectively.
29
RESULTS OF OPERATIONS (CONTINUED)
The increase in income from other investments was due to the restructuring
of the Company's investment in Wolverine Property Investment Limited Partnership
(the "College Heights Joint Venture" or the "Venture"), a joint venture with
Wolverine Investors, LLP, effective September 1, 2002. The Venture included 18
Properties with 3,581 sites. The results of operations of the College Heights
Joint Venture prior to restructuring were included with the results of the
Company due to the Company's voting equity interest and control over the
Venture. Pursuant to the restructuring, the Company sold its general partnership
interest, sold all of the Company's voting equity interest and reduced the
Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site Property in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve included in other assets.
Income of approximately $1.0 million and $0.2 million has been recorded in
income from other investments for the years ended December 31, 2003 and 2002
respectively.
LIQUIDITY AND CAPITAL RESOURCES
INFLATION
Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide us with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risks of inflation to the Company.
LIQUIDITY
As of December 31, 2004, the Company had $5.3 million in cash and cash
equivalents and $44.2 million available on its line of credit. The Company
expects to meet its short-term liquidity requirements, including its
distributions, generally through its working capital, net cash provided by
operating activities and availability under the existing line of credit. The
Company expects to meet certain long-term liquidity requirements such as
scheduled debt maturities, property acquisitions and capital improvements by
long-term collateralized and uncollateralized borrowings including borrowings
under its existing line of credit and the issuance of debt securities or
additional equity securities in the Company, in addition to net cash provided by
operating activities. The table below summarizes cash flow activity for the
twelve months ended December 31, 2004, 2003 and 2002 (dollars in thousands).
FOR THE TWELVE MONTHS ENDED
DECEMBER 31,
-----------------------------------
2003 2002
2004 (Restated) (Restated)
--------- ---------- ----------
Cash provided by operating activities $ 46,733 $ 75,163 $ 80,176
Cash (used in) provided by investing activities (366,654) (598) (72,973)
Cash (used in) provided by financing activities (514) 243,905 (1,287)
--------- -------- --------
Net (decrease) increase in cash $(320,435) $318,470 $ 5,916
========= ======== ========
OPERATING ACTIVITIES
Net cash provided by operating activities decreased $28.5 million for the
year ended December 31, 2004. This decrease reflects increased interest expense
as a result of the Recap in October, 2003 and increases in working capital,
partially offset by increases in property operating income as discussed in
"Results of Operations" above. Net cash provided by operating activities
decreased $5 million for the year ended December 31, 2003 from $80.2 million in
2002. This was primarily due to an increase in working capital.
30
INVESTING ACTIVITIES
Net cash used in investing activities reflects the impact of the following
investing activities:
ACQUISITIONS
During the year ended December 31, 2004, we acquired 111 Properties (see
Note 6 of the Notes to Consolidated Financial Statements contained in this Form
10-K). The combined investment in real estate for these 111 Properties was
approximately $703 million and was funded with monies held in short-term
investments, debt assumed of $352 million which includes a mark-to-market
adjustment of $10.4 million, new financing of $124 million, and borrowings from
our Line of Credit. Included in the above as previously described are 57
Properties purchased as part of the Thousand Trails Transaction; the income
related to this transaction is classified as income from other investments on
the Consolidated Statements of Operation.
We assumed inventory of approximately $1.2 million, other assets of $4.9
million, rents received in advance of approximately $13.6 million and other
liabilities of approximately $5.8 million in connection with the 2004
acquisitions. The Company also issued common OP units for value of approximately
$32.2 million.
During 2003, we acquired three Properties at a purchase price of $11.8
million. The acquisitions were funded with monies held in short-term investments
and debt assumed of $4.6 million. The acquisitions included the assumption of
liabilities of approximately $0.7 million. Also during 2003, we acquired a
parcel of land adjacent to one of our Properties for approximately $0.1 million.
During 2002, we acquired eleven Properties at a purchase price of $101.6
million. The acquisitions were funded with borrowings on our Line of Credit and
the assumption of $47.9 million of mortgage debt, which includes a $3.0 million
mark-to-market adjustment. In addition, we purchased adjacent land and land
improvements for several Properties for approximately $0.6 million.
DISPOSITIONS
During the year ended December 31, 2004, we sold one Property located in
Lake Placid, Florida for a selling price of $3.4 million, with net proceeds of
$0.8 million received in July 2004. No gain or loss on disposition was
recognized in the period. The operating results have been reflected in
discontinued operations. In addition, we sold approximately 1.4 acres of land in
Montana for a gain and net proceeds of $0.6 million.
During 2003, we sold three Properties for proceeds of $27.1 million and a
gain of $10.8 million. Proceeds from the sales were used to repay amounts on our
Line of Credit.
During 2002, we effectively sold 17 Properties as part of a restructuring
of the College Heights Venture (hereinafter defined). In addition, we sold
Camelot Acres, a 319 site Property in Burnsville, Minnesota, for approximately
$14.2 million.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity interests (the "Mezzanine Investment") in six entities
controlled by Diversified Investments, Inc. ("Diversified"). These entities own
in the aggregate 11 Properties, containing 5,054 sites. Approximately $11.7
million of the Mezzanine Investment accrues at a per annum average rate of 10%,
with a minimum pay rate of 6.5%, payable quarterly, and approximately $17.9
million of the Mezzanine Investment accrues at a per annum average rate of 11%,
with a minimum pay rate of 7%, payable quarterly. To the extent the minimum pay
rates on the respective Mezzanine Investments are not achieved, the accrual
rates increase to 12% and 13% per annum, respectively. The Company can acquire
these Properties in the future at capitalization rates of between 8% and 8.5%,
beginning in 2006. In addition, the Company has invested approximately $1.4
million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Company's Consolidated
Balance Sheet as of December 31, 2004.
During the year ended December 31, 2004, the Company invested approximately
$4.1 million in 11 joint ventures. The Company can acquire these Properties in
the future at capitalization rates of between 8% and 8.5%, beginning in 2006.
31
INVESTING ACTIVITIES (CONTINUED)
In addition, the Company recorded approximately $3.7 million, $0.3 million
and $0.2 million of net income from joint ventures (net of depreciation) in the
years ended December 31, 2004, 2003 and 2002 respectively, and received
approximately $5.2 million, $0.8 million and $0.6 million in distributions from
such joint ventures for the year ended December 31, 2004, 2003 and 2002
respectively. Included in such distributions for the year ended December 31,
2004 is $2.5 million return of capital, of which $0.5 million exceeded the
Company's basis and thus was recorded in income from unconsolidated joint
ventures and other.
OTHER INVESTMENTS
Effective September 1, 2002, the Company restructured its investment in the
College Heights Joint Venture. The Venture included 18 Properties with 3,581
sites. The results of operations of the College Heights Joint Venture prior to
restructuring were included with the results of the Company due to the Company's
voting equity interest and control over the Venture. Pursuant to the
restructuring, the Company sold its general partnership interest, sold all of
the Company's voting equity interest and reduced the Company's total investment
in the College Heights Joint Venture. As consideration for the sale, the Company
retained sole ownership of Down Yonder, a 361 site Property in Clearwater,
Florida, received cash of approximately $5.2 million and retained preferred
limited partnership interests of approximately $10.3 million, recorded net of a
$2.4 million reserve included in other assets. Income of approximately $0.9
million, $1.0 million and $0.2 million has been recorded in income from other
investments for the years ended December 31, 2004, 2003 and 2002 respectively.
CAPITAL IMPROVEMENTS
Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $13.7 million, $11.9 million
and $13.4 million for the years ended December 31, 2004, 2003 and 2002
respectively. Site development costs were approximately $13.0 million, $9.0
million and $10.4 million for the years ended December 31, 2004, 2003 and 2002
respectively, and represent costs to develop expansion sites at certain of the
Company's Properties and costs for improvements to sites when a smaller used
home is replaced with a larger new home. Corporate costs such as computer
hardware, office furniture and office improvements were $0.4 million, $0.1
million and $0.7 million for the years ended December 31, 2004, 2003 and 2002
respectively.
FINANCING ACTIVITIES
Net cash used in financing activities reflects the impact of the following:
EQUITY TRANSACTIONS
In order to qualify as a REIT for federal income tax purposes, the Company
must distribute 90% or more of its taxable income (excluding capital gains) to
its stockholders. The following distributions have been declared and paid to
common stockholders and minority interests since January 1, 2002.
DISTRIBUTION FOR THE QUARTER STOCKHOLDER RECORD
AMOUNT PER SHARE ENDING DATE PAYMENT DATE
- ---------------- ------------------ ------------------ ----------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$8.00 December 31, 2003 January 8, 2004 January 16, 2004
$0.0125 March 31, 2004 March 26, 2004 April 9, 2004
$0.0125 June 30, 2004 June 25, 2004 July 9, 2004
$0.0125 September 30, 2004 September 24, 2004 October 8, 2004
$0.0125 December 31, 2004 December 31, 2004 January 14, 2005
32
FINANCING ACTIVITIES (CONTINUED)
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million Recap in October 2003 to pay the special distribution on
January 16, 2004. The special cash dividend is reflected on stockholders' 2004
1099-DIV issued in January 2005.
In connection with the $501 million Recap and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in the Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company recognized $180 million of taxable income as a result
of its contribution, as opposed to a nontaxable reduction of the Company's tax
basis in its interest in the Operating Partnership. This restructuring resulted
in a step-up in the Company's tax basis in its assets, generating future
depreciation deductions, which in turn will reduce the Company's future
distribution requirements. This provides the Company with greater financial
flexibility and greater growth potential. The Company intends to continue to
qualify as a REIT under the Code, with its assets consisting of interests in MHC
Trust. MHC Trust, in turn, also intends to qualify as a real estate investment
trust under the Code and will continue to be the general partner of the
Operating Partnership. On May 1, 2004, in connection with the restructuring, MHC
Trust sold cumulative preferred stock to a limited number of unaffiliated
investors.
During the twelve months ended December 31, 2004, in connection with 2004
acquisitions the Company issued 1.2 million common OP Units valued at $36.7
million of which approximately $28.7 million has been classified as paid-in
capital. On December 21, 2004 we redeemed 126,765 common OP Units for
approximately $4.5 million of which approximately $3.5 million has been
classified as paid-in capital.
The Operating Partnership paid distributions of 9.0% per annum on the $125
million of Series D Cumulative Redeemable Perpetual Preferred Units ("Preferred
Units"). Distributions on the Preferred Units were paid quarterly on the last
calendar day of each quarter beginning September 30, 1999. The Company expects
to continue to make regular quarterly distributions and has set its 2005
distribution to common stockholders at $0.10 per share per annum.
MORTGAGES AND CREDIT FACILITIES
We have two unsecured lines of credit of $110 million and $50 million which
bear interest at a per annum rate of London Interbank Offered Rate ("LIBOR")
plus 1.65%. Throughout the year ended December 31, 2004, the Company borrowed
$135.8 million and paid down $20 million on its line of credit. On November 10,
2004, in connection with the Thousand Trails Transaction, we secured a $120
million three-year term loan at LIBOR plus 1.75%. In December 2004, we fixed
$180 million of this variable debt for one year with a weighted average per
annum interest rate of 4.7%.
During the twelve months ended December 31, 2004, the Company assumed
mortgage and other debt of approximately $157 million, which was recorded at
fair market value with the related premium being amortized over the life of the
loan using the effective interest rate. The Company borrowed an additional $194
million of mortgage debt for other acquisitions. The mortgages bear interest at
weighted average rates ranging from 5.14% to 5.81% per annum, and mature at
various dates through November 1, 2027.
In 2003, the Company initiated the Recap as a result of its belief in the
stability of its cash flow from property operations and the attractive financing
terms available to borrowers such as the Company in the secured debt markets. In
conducting its evaluation of the use of proceeds from the Recap, the Company's
Board of Directors believed that to the extent no attractive alternative use was
available, a distribution to stockholders should occur. In late 2003, the
Company identified acquisition targets which would use approximately $100
million of the $325 million in net proceeds resulting from the Recap. In
December 2003, the Company's Board of Directors declared a distribution of
approximately $225 million ($8 per share). During 2004, the Company identified
additional acquisitions and has funded such acquisitions primarily with secured
and unsecured borrowings.
33
FINANCING ACTIVITIES (CONTINUED)
The Recap and subsequent borrowings in connection with acquisitions have
significantly increased the Company's outstanding debt. The interest and
principal payments required under these debt agreements materially increase the
Company's future contractual payment obligations. As of December 31, 2004, the
outstanding debt balance was $1,653 million. In future years, the Company
expects to pay annual interest and principal amortization under current
obligations of approximately $114 million (not including the impact of scheduled
maturities) compared to $57 million in 2003. In light of these increased cash
flow requirements, the Company has reduced its annual dividend to common
stockholders from approximately $44 million in 2003 to approximately $1 million
in 2004. In addition, the Company expects its cash from operations to increase
significantly in 2005 compared to 2003 due to the cash generated by
newly-acquired Properties. To the extent cash flow from the Properties does not
meet the Company's expectations, the Company's Board of Directors increases the
annual dividend significantly, or the Company is required to make significant
unexpected capital improvements or other payments, the Company's financial
flexibility and ability to meet scheduled obligations could be negatively
impacted. With respect to maturing debt, the Company has staggered the
maturities of our long-term mortgage debt over an average of approximately 6
years, with no more than $330 million in principal maturities coming due in any
single year. The Company believes that it will be able to refinance its maturing
debt obligations on a secured or unsecured basis; however, to the extent the
Company is unable to refinance its debt as it matures, it believes that it will
be able to repay such maturing debt from asset sales and/or the proceeds from
equity issuances. With respect to any refinancing of maturing debt, the
Company's future cash flow requirements could be impacted by significant changes
in interest rates or other debt terms, including required amortization payments.
In October 2003, we unwound an interest rate swap ("2001 Swap") agreement
at a cost of approximately $3 million, which is included in interest and related
amortization in 2003 in the accompanying Consolidated Statements of Operations.
The 2001 swap effectively fixed LIBOR on $100 million of our floating rate debt
at approximately 3.7% per annum for the period October 2001 through August 2004.
The terms of the 2001 Swap required monthly settlements on the same dates
interest payments were due on the debt. In accordance with SFAS No. 133, the
2001 Swap was reflected at market value.
On April 17, 2003, we entered into an agreement to refinance and increase
the "Bay Indies Mortgage", a $44.5 million note, from approximately $21.9
million to $45 million. Under the new agreement, the Bay Indies Mortgage bears
interest at 5.69% per annum, amortizes over 25 years and matures April 17, 2013.
The net proceeds were used to pay down the Company's Line of Credit in April
2003. Also during the year ended December 31, 2003, mortgage notes payable on
four other Properties were repaid totaling approximately $23.5 million using
proceeds from borrowings on the Company's Line of Credit.
During the year ended December 31, 2002, as part of the purchase of RSI, in
a non-cash transaction, we assumed a $12.5 million note payable ("Conseco
Financing Note"), collateralized by our home inventory. The Conseco Financing
Note was repaid at a discount during 2002 using proceeds from our Line of
Credit. In addition, we repaid a maturing mortgage note in the amount of $1.1
million and $2.1 million of other unsecured notes payable using proceeds from
our Line of Credit.
Certain of the Company's mortgage and credit agreements contain covenants
and restrictions including restrictions as to the ratio of secured or unsecured
debt versus encumbered or unencumbered assets, the ratio of fixed
charges-to-earnings before interest, taxes, depreciation and amortization
("EBITDA"), limitations on certain holdings and other restrictions.
34
FINANCING ACTIVITIES (CONTINUED)
As of December 31, 2004, we were subject to certain contractual payment
obligations as described in the table below (dollars in thousands):
CONTRACTUAL
OBLIGATIONS TOTAL 2005 2006(2) 2007(3) 2008 2009 THEREAFTER
----------- ---------- ------- -------- -------- -------- ------- ----------
Long Term
Borrowings (1) $1,643,672 $18,742 $169,770 $432,350 $203,903 $70,558 $748,349
Weighted average
interest rates... 6.10% --- 4.36% 6.43% 5.55% 6.58% 6.20%
(1) Balance excludes net premiums and discounts of $9.4 million.
(2) Includes Line of Credit repayment in 2006 of $115,800. We have an option to
extend this maturity for one year to 2007.
(3) Includes a Term Loan repayment in 2007 of $105,600. We have an option to
extend this maturity for two successive years to 2009.
Included in the above table are certain capital lease obligations totaling
approximately $7.0 million. These agreements expire June 2009 and are paid
semi-annually.
In addition, the Company leases land under non-cancelable operating leases
at certain of the Properties expiring in various years from 2022 to 2032 with
terms which include minimum rent to be paid throughout the year plus additional
rents calculated as a percentage of gross revenues. For the twelve months ended
December 31, 2004 and 2003, ground lease expense was approximately $1.6 million
and $1.6 million respectively. Minimum future rental payments under the ground
leases are approximately $1.6 million for each of the next five years and
approximately $23.5 million thereafter.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") is a non-GAAP financial measure. We believe
FFO, as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), to be an appropriate measure of performance
for an equity REIT. While FFO is a relevant and widely used measure of operating
performance for equity REITs, it does not represent cash flow from operations or
net income as defined by GAAP, and it should not be considered as an alternative
to these indicators in evaluating liquidity or operating performance.
FFO is defined as net income, computed in accordance with GAAP, excluding
gains or losses from sales of Properties, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint ventures
are calculated to reflect FFO on the same basis. We believe that FFO is helpful
to investors as one of several measures of the performance of an equity REIT. We
further believe that by excluding the effect of depreciation, amortization and
costgains or losses from sales of real estate, all of which are based on historical
costs and which may be of limited relevance in evaluating current performance,
FFO can facilitate comparisons of operating performance between periods and
among other equity REITs. Investors should review FFO, along with GAAP net
income and cash flow from operating activities, investing activities and
financing activities, when evaluating an equity REIT's operating performance. We
compute FFO in accordance with standards established by NAREIT, which may not be
comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than we do. FFO does not represent cash generated
from operating activities in accordance with GAAP, nor does it represent cash
available to pay distributions and should not be considered as an alternative to
net income, determined in accordance with GAAP, as an indication of our
financial performance, or to cash flow from operating activities, determined in
accordance with GAAP, as a measure of our liquidity, nor is it indicative of
funds available to fund our cash needs, including our ability to make cash
distributions.
35
FINANCING ACTIVITIES (CONTINUED)
The following table presents a calculation of FFO for the years ended
December 31, 2004, 2003 and 2002 (amounts in thousands):
2003 2002
2004 (Restated) (Restated)
------- ---------- ----------
COMPUTATION OF FUNDS FROM OPERATIONS:
Net income available for Common Shares ......................... $ 4,026 $ 25,132 $ 31,887
Income allocated to Common OP Units ............................ 936 6,004 7,786
Depreciation on real estate assets and other costs ............. 48,862 37,265 34,826
Depreciation expense included in discontinued operations ....... 32 135 484
Depreciation expense included in equity in income from
joint ventures .............................................. 1,230 769 726
Gain on sale of Properties and other ........................... (638) (10,826) (13,014)
------- -------- --------
Funds from operations available for Common Shares ........... $54,448 $ 58,479 $ 62,695
======= ======== ========
Weighted average Common Shares outstanding - fully diluted ..... 29,465 28,002 27,632
======= ======== ========
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our earnings, cash flows and fair values relevant to financial
instruments are dependent on prevailing market interest rates. The primary
market risk we face is long-term indebtedness, which bears interest at fixed and
variable rates. The fair value of our long-term debt obligations is affected by
changes in market interest rates. At December 31, 2004, approximately 97% or
approximately $1.6 billion of our outstanding debt had fixed interest rates,
which minimizes the market risk until the debt matures. For each increase in
interest rates of 1% (or 100 basis points), the fair value of the total
outstanding debt would decrease by approximately $93.1 million. For each
decrease in interest rates of 1% (or 100 basis points), the fair value of the
total outstanding debt would decrease by approximately $98.8 million.
At December 31, 2004, approximately 3% or approximately $56 million of our
outstanding debt was short-term and at variable rates. Earnings are affected by
increases and decreases in market interest rates on this debt. For each
increase/decrease in interest rates of 1% (or 100 basis points), our earnings
and cash flows would increase/decrease by approximately $538,000 annually.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1 of this
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, maintain a system of disclosure
controls and procedures, designed to provide reasonable assurance that
information the Company is required to disclose in the reports that the Company
files under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms.
As mentioned in the Form 8-K filed on March 4, 2005, the Company received a
comment letter from the SEC staff raising questions regarding how the Company
accounted for costs incurred in pursuing certain rent control initiatives.
Management discussed this issue with its independent auditors and the Company's
Audit Committee of the Board of Directors ("Audit Committee"). Based on such
discussions management has changed its accounting policy to expense such costs
in the year incurred and restated prior period financial statements as discussed
in Note 2 to the financial statements because the previous method of accounting
for these costs has been determined to be incorrect.
The Company's rent control initiatives date back prior to 2001. During
2001, given a significant expansion of the rent control initiatives, the
accounting for such costs was closely analyzed by management and discussed with
our independent auditors. The initiatives involved efforts of the Company to
realize the value of certain of its Properties subject to rent control, as more
fully discussed in Note 17. The initiatives included efforts to remove the
operations of certain Properties from existing rent regulation or to ultimately
close the Properties if the existing rent regulation remained.
At that time the Company concluded that removal of the existing rent
regulation or Property closures would constitute a "formal plan" and that such
plan represented a "change in use" under Statement of Financial Accounting
Standards No. 67 "Accounting for Costs and Initial Rental Operations of Real
Estate Projects" ("SFAS No. 67") and costs were capitalized on that basis. These
financial statements were audited by our independent auditors and the auditors
provided unqualified opinions in prior periods.
After the discussions among the Company, its Audit Committee and its
independent auditors in March 2005, the term "change in use" was no longer
interpreted to cover a change in regulation. In addition, as part of its
initiative, the Company was not willing to commit to close the Properties and
would accept other outcomes that allowed the Company to realize the value of its
Properties short of park closure (which is a "change in use"). As a result the
Company determined that it was not committed to a "formal plan" that reflected a
"change of use" under SFAS No. 67.
The Company's management with the participation of the Chief Executive
Officer and the Chief Financial Officer has evaluated the effectiveness of the
Company's disclosure controls and procedures as of December 31, 2004 in light of
this restatement. Based on that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were not effective at the reasonable assurance level as
of December 31, 2004. However, based on this evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that, as of such date,
the controls over the accounting policy regarding the capitalization of costs
incurred in pursuing rent control initiatives is the only area in which the
disclosure controls and procedures were not operating effectively at the
reasonable assurance level.
Prior to receipt of SEC comments the issue of the capitalization of costs
incurred in pursuing rent control initiatives was identified by the Company as
an accounting issue. While the Company concluded its disclosure controls and
procedures were not operating effectively as of December 31, 2004, management
believes 1) it closely analyzed the application of SFAS No. 67 to its situation
and this issue was discussed with its Audit Committee and it was considered by
its independent auditors in prior audits, 2) there was no authoritative
literature existing with respect to this issue that was not considered by the
Company or its Audit Committee, and 3) until the comments were received from the
SEC staff and subsequent discussion with its independent auditors, the
application of SFAS No. 67 and the Company's interpretation of "formal plan" and
"change in use" were believed to be appropriate. Lastly, the Company believes
its disclosure regarding these transactions and costs was highlighted in its
disclosure and taken in total during the relevant periods provided users with
meaningful and useful information on which to base investment decisions.
37
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
To remediate the material weakness in the Company's internal control over
financial reporting, subsequent to year end the Company has implemented
additional review procedures over the selection and monitoring of the
application and interpretation of accounting principles affecting the costs
incurred in pursuing rent control initiatives.
There were no material changes to the Company's internal changes over
financial reporting during the fourth quarter.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for all industriesestablishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under Securities Exchange Act of 1934. The Company's internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control
over financial reporting as of December 31, 2004. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
In performing this assessment, management reviewed the Company's accounting for
costs incurred in pursuing rent control initiatives. As a result of this review,
management concluded that the Company's controls over the application and
interpretation of accounting principles affecting the capitalization of these
costs were incorrect, and, as a result, management has determined that expenses
were understated over the last several years. The Audit Committee and the Board
of Directors and management determined to restate certain of the Company's
previously issued financial statements to reflect the correct costs incurred in
pursuing rent control initiatives, as explained in Note 2 to the consolidated
financial statements.
Management evaluated the effects of this restatement on the Company's assessment
of its internal control over financial reporting and concluded that the control
deficiency relating to the implementation and interpretation of GAAP as they
relate to the capitalization of costs in pursuing rent control initiatives
represented a material weakness. As a result of this material weakness,
management has concluded that, as of December 31, 2004, the Company's internal
control over financial reporting was not effective based on the criteria set
forth by COSO in Internal Control-Integrated Framework. A material weakness in
internal control over financial reporting is a control deficiency (within the
meaning of the Public Company Accounting Oversight Board ("PCAOB") Auditing
Standard No. 2), or combination of control deficiencies, that results in there
being more than a remote likelihood that a material misstatement of the annual
or interim financial statements will not be prevented or detected. PCAOB
Auditing Standard No. 2 identifies a number of circumstances that, because of
their likely significant negative effect on internal control over financial
reporting, are to be regarded as at least significant deficiencies as well as
strong indicators that a material weakness exists, including the restatement of
previously issued financial statements to reflect the correction of a
misstatement.
The Company's independent registered public accounting firm has issued an
attestation report on management's assessment of the Company's internal control
over financial reporting. That report appears on page F-2 of the Consolidated
Financial Statements.
ITEM 9B. OTHER INFORMATION
None.
38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein pursuant to Item 401 and
Item 405 of Regulation S-K is contained under the captions "Election of
Directors," "Election of Directors - Committees of the Board; Meetings" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for the Company's 2005 Annual Meeting of Stockholders
to be held on May 10, 2005 (the "2005 Proxy Statement") and such information is
incorporated herein by reference.
In addition, the information required to be set forth herein pursuant to
Item 406 of Regulation S-K is contained under the caption "Election of Directors
- - Corporate Governance" in the 2005 Proxy Statement regarding the Company's
written Guidelines on Corporate Governance and the Company's Business Ethics and
Conduct Policy is incorporated herein by reference.
ITEMS 11, 12, 13 AND 14.
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required by Item 11, Item 12, Item 13 and Item 14 will be
contained in the 2005 Proxy Statement, and thus this Part has been omitted in
accordance with General Instruction G(3) to Form 10-K.
39
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
1. Financial Statements
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
2. Financial Statement Schedules
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
3. Exhibits:
2(a) Admission Agreement between Equity Financial and Management Co.,
Manufactured Home Communities, Inc. and MHC Operating Partnership.
3.1(g) Amended and Restated Articles of Incorporation of Manufactured Home
Communities, Inc. effective May 21, 1999.
3.2(n) Articles of Amendment of Articles of Incorporation of Manufactured
Home Communities, Inc., effective May 13, 2003.
3.3(m) Articles of Amendment to Articles of Incorporation of Manufactured
Home Communities, Inc., effective November 16, 2004.
3.4(n) Amended Bylaws of Manufactured Home Communities, Inc. dated
December 31, 2003.
4 Not applicable
9 Not applicable
10.1(a) Agreement of Limited Partnership of MHC Financing Limited
Partnership
10.2(b) Agreement of Limited Partnership of MHC Lending Limited Partnership
10.3(c) Agreement of Limited Partnership of MHC-Bay Indies Financing
Limited Partnership
10.4(c) Agreement of Limited Partnership of MHC-De Anza Financing Limited
Partnership
10.5(d) Second Amended and Restated MHC Operating Limited Partnership
Agreement of Limited Partnership, dated March 15, 1996
10.6(f) Agreement of Limited Partnership of MHC Financing Limited
Partnership Two
10.7(a) Revolving Credit Note made by Realty Systems, Inc. to Equity
Financial and Management Co.
10.8(a) Assignment to MHC Operating Limited Partnership of Revolving Credit
Note made by Realty Systems, Inc. to Equity Financial and
Management Co.
10.9(a) Loan and Security Agreement between Realty Systems, Inc. and MHC
Operating Limited Partnership
10.10(e) Form of Manufactured Home Communities, Inc. 1997 Non-Qualified
Employee Stock Purchase Plan.
10.11(i) Manufactured Home Communities, Inc. 1992 Stock Option and Stock
Award Plan.
10.12(g) $265,000,000 Mortgage Note dated December 12,1997
10.13(h) $110,000,000 Amended, Restated and Consolidated Promissory Note
(DeAnza Mortgage) dated June 28, 2000
10.14(h) $15,750,000 Promissory Note Secured by Leasehold Deed of Trust
(Date Palm Mortgage) dated July 13, 2000
10.15(j) $50,000,000 Promissory Note secured by Leasehold Deeds of Trust
(Stagecoach Mortgage) dated December 2, 2001.
10.16(k) Loan Agreement dated October 17, 2003 between MHC Sunrise Heights,
L.L.C., as Borrower, and Bank of America, N.A., as Lender.
10.16.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.16.
10.17(k) Form of Loan Agreement dated October 17, 2003 between MHC
Countryside L.L.C., as Borrower, and Bank of America, N.A., as
Lender.
10.17.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.17.
10.18(k) Form of Loan Agreement dated October 17, 2003 between MHC Creekside
L.L.C., as Borrower, and Bank of America, N.A., as Lender.
10.18.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.18.
10.19(k) Form of Loan Agreement dated October 17, 2003 between MHC Golf
Vista Estates L.L.C., as Borrowers, and Bank of America, N.A., as
Lender.
10.19.1(k) Schedule identifying substantially identical agreements to Exhibit
No. 10.19.
10.20(l) Agreement of Plan of Merger (Thousand Trails), dated August 2, 2004
10.21(l) Amendment No. 1 to Agreement of Plan of Merger (Thousand Trails),
dated September 30, 2004
40
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (CONTINUED)
10.22(l) Amendment No. 2 to Agreement of Plan of Merger (Thousand Trails),
dated November 9, 2004
10.23(l) Thousand Trails Lease Agreement, dated November 10, 2004
10.24(l) $120 million Term Loan Agreement dated November 10, 2004
10.25(l) Fifth Amended and Restated Credit Agreement ($110 million Revolving
Facility) dated November 10, 2004
10.26(l) First Amended and Restated Loan Agreement dated November 10, 2004
11 Not applicable
12(n) Computation of Ratio of Earnings to Fixed Charges
13 Not applicable
14(n) Manufactured Home Communities, Inc. Business Ethics and Conduct
Policy, dated March 2004
15 Not applicable
16 Not applicable
17 Not applicable
18 Not applicable
19 Not applicable
20 Not applicable
21(n) Subsidiaries of the registrant
22 Not applicable
23(n) Consent of Independent Auditors
24.1(n) Power of Attorney for Joseph B. McAdams dated March 1, 2005
24.2(n) Power of Attorney for Howard Walker dated February 28, 2005
24.3(n) Power of Attorney for Thomas E. Dobrowski dated March 1, 2005
24.4(n) Power of Attorney for Gary Waterman dated March 1, 2005
24.5(n) Power of Attorney for Donald S. Chisholm dated March 1, 2005
24.6(n) Power of Attorney for Sheli Z. Rosenberg dated March 1, 2005
25 Not applicable
26 Not applicable
31.1(n) Certification of Chief Financial Officer Pursuant To Section 302 of
the Sarbanes-Oxley Act Of 2002
31.2(n) Certification of Chief Executive Officer Pursuant To Section 302 of
the Sarbanes-Oxley Act Of 2002
32.1(n) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
32.2(n) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
The following documents are incorporated herein by reference.
(a) Included as an exhibit to the Company's Form S-11 Registration Statement,
File No. 33-55994.
(b) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1993.
(c) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1994.
(d) Included as an exhibit to the Company's Report on Form 10-Q for the quarter
ended June 30, 1996.
(e) Included as Exhibit A to the Company's definitive Proxy Statement dated
March 28, 1997, relating to Annual Meeting of Stockholders held on May 13,
1997.
(f) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 1997.
(g) Included as an exhibit to the Company's Form S-3 Registration Statement,
filed November 12, 1999 (SEC File No. 333-90813).
(h) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 2000.
(i) Included as Appendix A to the Company's Definitive Proxy Statement dated
March 30, 2001
(j) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 2002.
(k) Included as an exhibit to the Company's Report on Form 10-K dated December
31, 2003.
(l) Included as an exhibit to the Company's Report on Form 8-K dated November
16, 2004
(m) Included as an exhibit to the Company's Report on Form 8-K dated November
22, 2004
(n) Filed herewith.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EQUITY LIFESTYLE PROPERTIES, INC.,
a Maryland corporation
Date: March 28, 2005 By: /s/ Thomas P. Heneghan
-------------------------------------
Thomas P. Heneghan
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 28, 2005 By: /s/ Michael B. Berman
-------------------------------------
Michael B. Berman
Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
42
EQUITY LIFESTYLE PROPERTIES, INC. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in June 2001the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Thomas P. Heneghan President, Chief Executive March 28, 2005
- ------------------------------ Officer and Director *Attorney-in-Fact
Thomas P. Heneghan
/s/ Michael B. Berman Vice President, Treasurer March 28, 2005
- ------------------------------ and Chief Financial Officer
Michael B. Berman *Attorney-in-Fact
/s/ Samuel Zell Chairman of the Board March 28, 2005
- ------------------------------
Samuel Zell
*Sheli Z. Rosenberg Director March 28, 2005
- ------------------------------
Sheli Z. Rosenberg
*Donald S. Chisholm Director March 28, 2005
- ------------------------------
Donald S. Chisholm
*Thomas E. Dobrowski Director March 28, 2005
- ------------------------------
Thomas E. Dobrowski
*Howard Walker Vice-Chairman of the Board March 28, 2005
- ------------------------------
Howard Walker
*Joseph B. McAdams Director March 28, 2005
- ------------------------------
Joseph B. McAdams
*Gary Waterman Director March 28, 2005
- ------------------------------
Gary Waterman
43
INDEX TO FINANCIAL STATEMENTS
EQUITY LIFESTYLE PROPERTIES, INC.
PAGE
-----------
Report of Independent Registered Public Accounting
Firm on Internal Controls over Financial Reporting ............ F-2
Report of Independent Registered Public Accounting Firm .......... F-3
Consolidated Balance Sheets as of December 31, 2004 and 2003 ..... F-4
Consolidated Statements of Operations for the years
ended December 31, 2004, 2003 and 2002 ........................ F-5 and F-6
Consolidated Statements of Other Comprehensive Income
for the years ended December 31, 2004, 2003 and 2002 .......... F-6
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 2004, 2003 and 2002 ... F-7
Consolidated Statements of Cash Flows for the years
ended December 31, 2004, 2003 and 2002 ........................ F-8
Notes to Consolidated Financial Statements ....................... F-9
Schedule II - Valuation and Qualifying Accounts .................. S-1
Schedule III - Real Estate and Accumulated Depreciation .......... S-2
Certain schedules have been omitted as they are not applicable to the Company.
F-1
Report of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting
The Board of Directors and Stockholders of Equity Lifestyle Properties, Inc.
We have audited management's assessment, included in the accompanying
Report of Management on Internal Control over Financial Reporting, that Equity
Lifestyle Properties, Inc. (Equity Lifestyle Properties) did not maintain
effective internal control over financial reporting as of December 31, 2004,
because of the effect of a material weakness due to inadequate controls over the
capitalization of certain costs, based on criteria established in Internal
Control--Integrated Framework issued FASB Exposure Draft, "Accountingby the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Equity Lifestyle
Properties' management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of Equity Lifestyle
Properties' internal control over financial reporting based on our audit.
We conducted our audit in Interimaccordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and Annual Financial
Statementsperform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for Certain Costsour
opinion.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and Activities Relatedthe preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
Property, Plantthe maintenance of records that, in reasonable detail, accurately and Equipment",fairly
reflect the implementationtransactions and dispositions of which, if issued,the assets of Equity Lifestyle
Properties; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
Equity Lifestyle Properties are being made only in accordance with
authorizations of management and directors of Equity Lifestyle Properties; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of Equity Lifestyle Properties'
assets that could also have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included in
management's assessment. As described in the notes to the Company's 2004
financial statements, Equity Lifestyle Properties restated previously issued
financial statements to correct for errors related to the improper
capitalization of certain costs associated with changing rent control
restrictions. In connection with its assessment of internal control over
financial reporting as of December 31, 2004, management determined that Equity
Lifestyle Properties' procedures and controls over the interpretation and
implementation of generally accepted accounting principles as they relate to the
capitalization of these costs were inadequate, and concluded that this
deficiency represented a material weakness in internal control over financial
reporting. This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the financial
statements as of December 31, 2004 and 2003 and for each of the three years in
the period ended December 31, 2004, and this report does not affect our report
dated March 24, 2005 on those financial statements.
In our opinion, management's assessment that Equity Lifestyle Properties,
Inc. did not maintain effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on the COSO
control criteria. Also, in our opinion, because of the effect of the material
weakness described above on the achievement of the objectives of the control
criteria, Equity Lifestyle Properties, Inc. has not maintained effective
internal control over financial reporting as of December 31, 2004, based on the
COSO control criteria.
ERNST & YOUNG LLP
Chicago, Illinois
March 24, 2005
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Equity Lifestyle Properties, Inc.
Lifestyle Properties, Inc. ("Equity Lifestyle Properties", formerly known as
Manufactured Home Communities, Inc.) as of December 31, 2004 and 2003, and the
related consolidated statements of operations, other comprehensive income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2004. Our audits also included the financial
statement schedules listed in the Index at Item 15(1) and (2). These financial
statements and the schedules are the responsibility of Equity Lifestyle
Properties' management. Our responsibility is to express an opinion on these
financial statements and the schedules based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Equity
Lifestyle Properties at December 31, 2004 and 2003, and the consolidated results
of operations. Total depreciationits operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the
Company has restated its financial statements as of December 31, 2003 and for
each of the two years in the period then ended relating to expense recognition
for certain legal costs.
As discussed in Note 3 to the consolidated financial statements, in 2003
Equity Lifestyle Properties changed its method of accounting for stock-based
employee compensation.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Equity
Lifestyle Properties, Inc. and subsidiaries' internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 24, 2005
expressed an unqualified opinion on management's assessment of the effectiveness
of internal control over financial reporting and an adverse opinion on the
effectiveness of internal control over financial reporting.
Chicago, Illinois
February 24, 2005
F-3
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
(AMOUNTS IN THOUSANDS)
DECEMBER 31,
DECEMBER 31, 2003
2004 (Restated)
------------ ------------
ASSETS
Investment in real estate:
Land ........................................................... $ 470,587 $ 282,803
Land improvements .............................................. 1,438,923 905,785
Buildings and other depreciable property ....................... 126,280 121,117
---------- ----------
2,035,790 1,309,705
Accumulated depreciation ....................................... (322,867) (272,497)
---------- ----------
Net investment in real estate ............................... 1,712,923 1,037,208
Cash and cash equivalents ......................................... 5,305 325,740
Notes receivable .................................................. 13,290 11,551
Investment in joint ventures ...................................... 43,583 10,770
Rents receivable, net ............................................. 1,469 2,385
Deferred financing costs, net ..................................... 16,162 14,164
Inventory ......................................................... 50,654 31,604
Prepaid expenses and other assets ................................. 42,903 30,085
---------- ----------
TOTAL ASSETS ................................................... $1,886,289 $1,463,507
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ......................................... $1,417,251 $1,076,183
Unsecured line of credit ....................................... 115,800 --
Unsecured term loan ............................................ 120,000 --
Accounts payable and accrued expenses .......................... 36,146 27,928
Accrued interest payable ....................................... 8,894 5,978
Rents received in advance and security deposits ................ 21,135 6,616
Distributions payable .......................................... 448 224,696
---------- ----------
TOTAL LIABILITIES ........................................... 1,719,674 1,341,401
Commitments and contingencies
Minority interest - Common OP Units and other ..................... 9,771 (366)
Minority interest - Perpetual Preferred OP Units .................. 125,000 125,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
10,000,000 shares authorized; none issued ................... -- --
Common stock, $.01 par value
50,000,000 shares authorized; 22,937,192 and 22,563,348
shares issued and outstanding for 2004 and 2003, respectively 224 222
Paid-in capital ................................................ 294,304 263,066
Deferred compensation .......................................... (166) (494)
Distributions in excess of accumulated earnings ................ (262,518) (265,322)
---------- ----------
Total stockholders' equity (deficit) ........................ 31,844 (2,528)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $1,886,289 $1,463,507
========== ==========
The accompanying notes are an integral part of the financial statements.
F-4
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002
2004 (Restated) (Restated)
--------- ---------- ----------
PROPERTY OPERATIONS:
Community base rental income ............................ $ 210,790 $ 196,919 $194,640
Resort base rental income ............................... 54,845 11,780 9,146
Utility and other income ................................ 24,893 20,150 19,684
--------- --------- --------
Property operating revenues .......................... 290,528 228,849 223,470
Property operating and maintenance ...................... 94,955 64,996 62,843
Real estate taxes ....................................... 23,679 18,917 17,827
Property management .................................... 12,852 9,373 9,292
--------- --------- --------
Property operating expenses (exclusive of
depreciation shown separately below) ................ 131,486 93,286 89,962
--------- --------- --------
Income from property operations ...................... 159,042 135,563 133,508
HOME SALES OPERATIONS:
Gross revenues from inventory home sales ................ 47,636 36,606 33,537
Cost of inventory home sales ............................ (41,833) (31,767) (27,183)
--------- --------- --------
Gross profit from inventory home sales ............... 5,803 4,839 6,354
Brokered resale revenues, net ........................... 2,186 1,724 1,592
Home selling expenses ................................... (8,708) (7,360) (7,664)
Ancillary services revenues, net ........................ 2,782 216 522
--------- --------- --------
Income (loss) from home sales operations & other ..... 2,063 (581) 804
OTHER INCOME (EXPENSES):
Interest income ......................................... 1,391 1,695 967
Income from other investments ........................... 3,475 956 316
General and administrative .............................. (9,243) (8,060) (8,192)
Rent control initiatives ................................ (2,412) (2,352) (5,698)
Interest and related amortization ....................... (91,922) (58,402) (50,729)
Depreciation on corporate assets ........................ (1,657) (1,240) (1,277)
Depreciation on real estate assets and other costs ...... (48,862) (37,265) (34,826)
--------- --------- --------
Total other income (expenses) ........................ (149,230) (104,668) (99,439)
Income before minority interests, equity in income of
unconsolidated joint ventures, gain on sale of
properties and other and discontinued operations .. 11,875 30,314 34,873
Income allocated to Common OP Units ..................... (936) (3,860) (4,708)
Income allocated to Perpetual Preferred OP Units ........ (11,284) (11,252) (11,252)
Equity in income of unconsolidated joint ventures ....... 3,739 340 235
--------- --------- --------
Income before gain on sale of properties and other
and discontinued operations ....................... 3,394 15,542 19,148
--------- --------- --------
Gain on sale of properties and other .................... 638 -- --
--------- --------- --------
Income from continuing operations .................... 4,032 15,542 19,148
--------- --------- --------
DISCONTINUED OPERATIONS:
Discontinued operations ................................. 26 1,043 3,287
Depreciation on discontinued operations ................. (32) (135) (484)
Gain on sale of properties and other .................... -- 10,826 13,014
Minority interests on discontinued operations ........... -- (2,144) (3,078)
--------- --------- --------
Income (loss) from discontinued operations ........... (6) 9,590 12,739
--------- --------- --------
NET INCOME AVAILABLE FOR COMMON SHARES ............ $ 4,026 $ 25,132 $ 31,887
========= ========= ========
The accompanying notes are an integral part of the financial statements
F-5
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002
2004 (Restated) (Restated)
------- ---------- ----------
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations ......................... $ 0.18 $ 0.71 $ 0.89
Income from discontinued operations ....................... $ 0.00 $ 0.43 $ 0.59
======= ======= =======
Net income available for Common Shares .................... $ 0.18 $ 1.14 $ 1.48
======= ======= =======
EARNINGS PER COMMON SHARE - FULLY DILUTED:
Income from continuing operations ......................... $ 0.17 $ 0.69 $ 0.87
======= ======= =======
Income from discontinued operations ....................... $ 0.00 $ 0.42 $ 0.57
======= ======= =======
Net income available for Common Shares .................... $ 0.17 $ 1.11 $ 1.44
======= ======= =======
Distributions declared per Common Share outstanding ....... $ 0.05 $ 9.485 $ 1.90
======= ======= =======
Tax status of Common Shares distributions paid
during the year:
Ordinary income ........................................... $ 1.05 $ 0.68 $ 1.50
======= ======= =======
Long-term capital gain .................................... $ 4.82 $ 0.57 $ --
======= ======= =======
Unrecaptured section 1250 gain ............................ $ 2.17 $ 0.16 $ --
======= ======= =======
Return of capital ......................................... $ -- $ 0.55 $ 0.37
======= ======= =======
Weighted average Common Shares outstanding - basic ........... 22,849 22,077 21,617
======= ======= =======
Weighted average Common Shares outstanding - fully diluted ... 29,465 28,002 27,632
======= ======= =======
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2003 2002
2004 (Restated) (Restated)
------ ---------- ----------
Net income available for Common Shares........................... $4,026 $25,132 $31,887
Net unrealized holding gains (losses) on derivative
instruments................................................ -- 4,498 (4,987)
------ ------- -------
Net other comprehensive income available for Common Shares.... $4,026 $29,630 $26,900
====== ======= =======
The accompanying notes are an integral part of the financial statements
F-6
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2003 2002
2004 (Restated) (Restated)
--------- ---------- ----------
PREFERRED STOCK, $.01 PAR VALUE $ -- $ -- $ --
========= ========= ========
COMMON STOCK, $.01 PAR VALUE
Balance, beginning of year .............................................. $ 222 $ 218 $ 215
Issuance of Common Stock through restricted stock grants ............. -- -- 1
Exercise of options .................................................. 2 4 2
--------- --------- --------
Balance, end of year .................................................... $ 224 $ 222 $ 218
========= ========= ========
PAID - IN CAPITAL
Balance, beginning of year .............................................. $ 263,066 $ 256,394 $245,827
Issuance of Common Stock for employee notes .......................... -- -- --
Conversion of OP Units to Common Stock ............................... 155 343 227
Issuance of Common Stock through exercise of options ................. 3,058 6,323 5,782
Issuance of Common Stock through restricted stock grants ............. -- -- 2,709
Issuance of Common Stock through employee stock purchase plan ........ 2,735 3,254 2,512
Compensation expense related to stock options and restricted stock ... 2,571 611 --
Transition adjustment - FAS 123 ...................................... -- (1,047) --
Adjustment for Common OP Unitholders
in the Operating Partnership ...................................... 22,719 (2,812) (663)
--------- --------- --------
Balance, end of year .................................................... $ 294,304 $ 263,066 $256,394
========= ========= ========
DEFERRED COMPENSATION
Balance, beginning of year .............................................. $ (494) $ (3,069) $ (4,062)
Issuance of Common Stock through restricted stock grants ............. -- -- (2,709)
Transition adjustment - FAS 123 ...................................... -- 1,047 --
Recognition of deferred compensation expense ......................... 328 1,528 3,702
--------- --------- --------
Balance, end of year .................................................... $ (166) $ (494) $ (3,069)
========= ========= ========
EMPLOYEE NOTES
Balance, beginning of year .............................................. $ -- $ (2,713) $ (3,841)
Principal payments ................................................... -- 2,713 1,128
--------- --------- --------
Balance, end of year .................................................... $ -- $ -- $ (2,713)
========= ========= ========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED COMPREHENSIVE EARNINGS
Balance, beginning of year .............................................. $(265,322) $ (79,655) $(64,875)
Net income ........................................................... 4,026 25,132 31,887
Other comprehensive income:
Unrealized holding (losses) gains on derivative instruments ....... -- 4,498 (4,987)
--------- --------- --------
Comprehensive income ........................................... 4,026 29,630 26,900
--------- --------- --------
Distributions ........................................................ (1,222) 215,297 (41,680)
--------- --------- --------
Balance, end of year .................................................... $(262,518) $(265,322) $(79,655)
========= ========= ========
The accompanying notes are an integral part of the financial statements
F-7
EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(AMOUNTS IN THOUSANDS)
2003 2002
2004 (Restated) (Restated)
--------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 4,026 $ 25,132 $ 31,887
Adjustments to reconcile net income to cash provided by operating activities:
Income allocated to minority interests ...................................... 12,220 17,256 19,038
Gain on sale of Properties and other ........................................ (638) (10,826) (13,014)
Depreciation expense ........................................................ 51,703 39,403 37,094
Amortization expense ........................................................ 2,203 5,031 963
Debt premium amortization expense ........................................... (1,317) -- --
Equity in income of affiliates and joint ventures ........................... (4,969) (1,042) (957)
Amortization of deferred compensation and other ............................. 2,899 2,139 3,930
Increase in provision for uncollectable rents receivable .................... 1,182 821 941
Changes in assets and liabilities:
Change in rents receivable .................................................. 281 (1,469) (1,186)
Change in inventory ......................................................... (17,855) 1,846 1,887
Change in prepaid expenses and other assets ................................. (9,772) (43) (2,113)
Change in accounts payable and accrued expenses ............................. 5,963 (3,055) 1,471
Change in rents received in advance and security deposits ................... 807 (30) 235
--------- --------- --------
Net cash provided by operating activities ...................................... 46,733 75,163 80,176
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of rental properties ............................................... (310,893) (6,836) (56,531)
Proceeds from dispositions of assets ........................................... 671 27,170 14,171
Distributions from (investment in) joint ventures and other .................... (27,642) 1,535 (7,149)
Proceeds from restructuring of College Heights venture, net .................... -- -- 4,647
Purchase of RSI ................................................................ -- -- (675)
Cash received in acquisition of RSI ............................................ -- -- 839
Collections (funding) of notes receivable ...................................... (1,708) (1,507) (3,784)
Improvements:
Improvements - corporate .................................................... (444) (72) (681)
Improvements - rental properties ............................................ (13,663) (11,912) (13,377)
Site development costs ...................................................... (12,975) (8,976) (10,433)
--------- --------- --------
Net cash (used in) investing activities ........................................ (366,654) (598) (72,973)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock options and employee stock purchase plan ............... 6,221 9,581 8,296
Distributions to Common Stockholders, Common OP Unitholders
and Perpetual Preferred OP Unitholders ...................................... (237,074) (65,687) (58,314)
Collection of principal payments on employee notes ............................. -- 2,713 1,128
Line of credit:
Proceeds .................................................................... 135,800 53,000 82,000
Repayments .................................................................. (20,000) (137,750) (13,500)
Acquisition Financing .......................................................... 124,300 -- --
Repayment of term loan ......................................................... -- (100,000) --
Refinancing - net proceeds (repayments) ........................................ 3,288 501,057 (16,096)
Principal payments ............................................................. (8,848) (4,844) (4,217)
Debt issuance costs ............................................................ (4,201) (14,165) (584)
--------- --------- --------
Net cash provided by (used in) financing activities ............................ (514) 243,905 (1,287)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents .............................. (320,435) 318,470 5,916
Cash and cash equivalents, beginning of year ...................................... 325,740 7,270 1,354
--------- --------- --------
Cash and cash equivalents, end of year ............................................ $ 5,305 $ 325,740 $ 7,270
========= ========= ========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest ............................................ $ 88,883 $ 52,396 $ 46,097
========= ========= ========
The accompanying notes are an integral part of the financial statements.
F-8
EQUITY LIFESTYLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Equity Lifestyle Properties, Inc. (formerly Manufactured Home Communities,
Inc.), together with MHC Operating Limited Partnership (the "Operating
Partnership") and other consolidated subsidiaries ("Subsidiaries"), are referred
to herein as the "Company", "ELS", "we", "us", and "our". We believe that we
have qualified for taxation as a real estate investment trust ("REIT") for
federal income tax purposes since our taxable year ended December 31, 1993. We
plan to continue to meet the requirements for taxation as a REIT. Many of these
requirements, however, are highly technical and complex. We cannot, therefore,
guarantee that we have qualified or will qualify in the future as a REIT. The
determination that we are a REIT requires an analysis of various factual matters
that may not be totally within our control and we cannot provide any assurance
that the Internal Revenue Service ("IRS") will agree with our analysis. For
example, to qualify as a REIT, at least 95% of our gross income must come from
sources that are itemized in the REIT tax laws. We are also required to
distribute to stockholders at least 90% of our REIT taxable income excluding
capital gains. The fact that we hold our assets through the Operating
Partnership and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or inadvertent mistake could jeopardize our REIT
status. Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible, for us to remain qualified as a REIT. We do not believe, however,
that any pending or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. Even if the Company qualifies for
taxation as a REIT, the Company is subject to certain state and local taxes on
its income and property and Federal income and excise taxes on its undistributed
income.
The operations of the Company are conducted primarily through the Operating
Partnership. The Company contributed the proceeds from its initial public
offering and subsequent offerings to the Operating Partnership for a general
partnership interest. In 2004, the general partnership interest was $39.4 million, $37.3 millioncontributed
to MHC Trust (see Note 5). The financial results of the Operating Partnership
and $36.0 millionthe Subsidiaries are consolidated in the Company's consolidated financial
statements. In addition, since certain activities, if performed by the Company,
may not be qualifying REIT activities under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has formed taxable REIT subsidiaries as
defined in the Code to engage in such activities.
Several Properties acquired during 2004 are wholly owned by taxable REIT
subsidiaries of the Company. In addition, Realty Systems, Inc. ("RSI") is a
wholly owned taxable REIT subsidiary of the Company that, doing business as
Carefree Sales, is engaged in the business of purchasing, selling and leasing
homes that are located in Properties owned and managed by the Company. Carefree
Sales also provides brokerage services to customers at such Properties.
Typically, customers move from a Property but do not relocate their homes.
Carefree Sales may provide brokerage services, in competition with other local
brokers, by seeking buyers for the homes. Carefree Sales also leases inventory
homes to prospective customers with the expectation that the tenant eventually
will purchase the home. Subsidiaries of RSI also lease from the Operating
Partnership certain real property within or adjacent to certain Properties
consisting of golf courses, pro shops, stores and restaurants.
The limited partners of the Operating Partnership (the "Common OP
Unitholders") receive an allocation of net income which is based on their
respective ownership percentage of the Operating Partnership which is shown on
the Consolidated Financial Statements as Minority Interests - Common OP Units.
As of December 31, 2004, the Minority Interests - Common OP Units represented
6,340,805 units of limited partnership interest ("OP Units") which are
convertible into an equivalent number of shares of the Company's common stock.
The issuance of additional shares of common stock or common OP Units changes the
respective ownership of the Operating Partnership for both the Minority
Interests and the Company.
F-9
EQUITY LIFESTYLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS
During 2004, the Company changed the way it accounted for costs incurred in
pursuing certain rent control initiatives. As a result, the Company has restated
its Consolidated Financial Statements for the years ended December 31, 2003,
2002, and 2001 respectively.to expense the costs of the initiatives in the year in which they
were incurred because the previous method of accounting for the costs was
determined to be incorrect. The Company had historically classified these costs,
primarily legal, in other assets. To the extent the Company's efforts to
effectively change the use and operations of the Properties were successful, the
Company capitalized the costs to land improvements as an increase in the
established value of the revised project and depreciated them over 30 years. To
the extent these efforts were not successful, the costs would have been
expensed.
Following is a summary of the effects of these changes on the Company's
Consolidated Balance Sheets as of December 31, 2003, 2002 and 2001 and the
Company's Consolidated Statements of Operations for the years ended December 31,
2003, 2002 and 2001 (amounts in thousands):
Consolidated Balance Sheet
-----------------------------------------
As Previously
As of December 31, 2003 Reported Adjustments As Restated
- ----------------------- ------------- ----------- -----------
Land improvements............................... $911,176 $(5,391) $905,785
Prepaid expenses and other assets............... 35,102 (5,017) 30,085
Minority interest - Common OP Units and other... 1,716 (2,082) (366)
Total stockholders' equity...................... 5,798 (8,326) (2,528)
As of December 31, 2002
- -----------------------
Land improvements............................... $893,839 $ -- $893,839
Prepaid expenses and other assets............... 35,884 (8,056) 27,828
Minority interest - Common OP Units and other... 43,501 (1,612) 41,889
Total stockholders' equity...................... 177,619 (6,444) 171,175
As of December 31, 2001
- -----------------------
Land improvements............................... $855,296 $ -- $855,296
Prepaid expenses and other assets............... 18,612 (2,358) 16,254
Minority interest - Common OP Units and other... 46,147 (472) 45,675
Total stockholders' equity...................... 175,150 (1,886) 173,264
Consolidated Statements of Operations
-----------------------------------------
As Previously
Year ended December 31, 2003 Reported Adjustments As Restated
- ---------------------------- ------------- ----------- -----------
Rent control initiatives.................... $ -- $(2,352) $(2,352)
Income allocated to Common OP Units......... (4,330) 470 (3,860)
Net income available for Common Shares...... 27,014 (1,882) 25,132
Earnings per Common Share - Basic........... 1.22 (.08) 1.14
Earnings per Common Share - Fully Diluted... 1.20 (.09) 1.11
Year ended December 31, 2002
- ----------------------------
Rent control initiatives.................... $ -- $(5,698) $(5,698)
Income allocated to Common OP Units......... (5,848) 1,140 (4,708)
Net income available for Common Shares...... 36,445 (4,558) 31,887
Earnings per Common Share - Basic........... 1.69 (.21) 1.48
Earnings per Common Share - Fully Diluted... 1.64 (.20) 1.44
Year ended December 31, 2001
- ----------------------------
Rent control initiatives.................... $ -- $(2,358) $(2,358)
Income allocated to Common OP Units......... (7,688) 472 (7,216)
Net income available for Common Shares...... 32,083 (1,886) 30,197
Earnings per Common Share - Basic........... 1.53 (.09) 1.44
Earnings per Common Share - Fully Diluted... 1.49 (.09) 1.40
F-10
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
The Company consolidates its majority-owned subsidiaries in which it
has the ability to control the operations of the subsidiaries and all
variable interest entities with respect to which the Company is the primary
beneficiary. All inter-company transactions have been eliminated in
consolidation. The Company's acquisitions were all accounted for as
purchases in accordance with Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141").
In December 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46R, Consolidation of Variable Interest Entities
("FIN 46R") - an interpretation of ARB 51. The objective of FIN 46R is to
provide guidance on how to identify a variable interest entity ("VIE") and
determine when the assets, liabilities, non-controlling interests, and
results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interests
in an entity will need to consolidate such entity if the company absorbs a
majority of the entity's expected losses or receives a majority of the
entity's expected residual returns if they occur, or both (i.e., the
primary beneficiary). The Company will apply FIN 46R to all types of entity
ownership (general and limited partnerships and corporate interests).
The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of
such entities. In addition, the Company will apply the provisions of FIN
46R to all new entities in the future. The Company also consolidates
entities in which it has a controlling direct or indirect voting interest.
The equity method of accounting is applied to entities in which the Company
does not have a controlling direct or indirect voting interest, but can
exercise influence over the entity with respect to its operations and major
decisions. The cost method is applied when (i) the investment is minimal
(typically less than 5%) and (ii) the Company's investment is passive.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(c) Segments
We manage all our operations on a property-by-property basis. Since
each Property has similar economic and operational characteristics the
Company has one reportable segment, which is the operation of land lease
Properties. The distribution of the Properties throughout the United States
reflects our belief that geographic diversification helps insulate the
portfolio from regional economic influences. We intend to target new
acquisitions in or near markets where the Properties are located and will
also consider acquisitions of Properties outside such markets. The
following table identifies our five largest markets by number of sites and
provides information regarding our Properties (excludes Properties owned
through Joint Ventures).
PERCENT OF TOTAL
MAJOR NUMBER OF PERCENT OF PROPERTY OPERATING
MARKET PROPERTIES TOTAL SITES TOTAL SITES REVENUES
- ---------- ---------- ----------- ----------- ------------------
Florida 77 32,451 36.3% 43.5%
California 44 12,865 14.4% 18.2%
Arizona 27 10,514 11.8% 10.4%
Texas 15 7,200 8.0% 2.3%
Washington 13 3,076 3.4% 0.6%
Other 71 23,280 26.1% 25.0%
--- ------ ----- -----
Total 247 89,386 100.0% 100.0%
=== ====== ===== =====
F-11
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Inventory
Inventory consists of new and used Site Set homes, is stated at the
lower of cost or market after consideration of the N.A.D.A. (National
Automobile Dealers Association) Manufactured Housing Appraisal Guide and
the current market value of each home included in the home inventory.
Inventory sales revenues and resale revenues are recognized when the home
sale is closed. Resale revenues are stated net of commissions paid to
employees of $1,163,000 and $893,000 for the years ended December 31, 2004
and 2003, respectively.
(e) Real Estate
(continued)In accordance with SFAS No. 141, we allocate the purchase price of
Properties we acquire to net tangible and identified intangible assets
acquired based on their fair values. In making estimates of fair values for
purposes of allocating purchase price, we utilize a number of sources,
including independent appraisals that may be available in connection with
the acquisition or financing of the respective property and other market
data. We also consider information obtained about each property as a result
of our due diligence, marketing and leasing activities in estimating the
fair value of the tangible and intangible assets acquired.
Real estate is recorded at cost less accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. We use a 30-year estimated life for buildings
acquired and structural and land improvements, a ten-to-fifteen-year
estimated life for building upgrades and a three-to-seven-year estimated
life for furniture, fixtures and equipment. The values of the above and
below market leases are amortized and recorded as either an increase (in
the case of below market leases) or a decrease (in the case of above market
leases) to rental income over the remaining term of the associated lease.
The value associated with in-place leases is amortized over the expected
term, which includes an estimated probability of lease renewal.
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred, and significant renovations and improvements that
improve the asset and extend the useful life of the asset are capitalized
and then expensed over their estimated useful life. However the useful
lives, salvage value, and customary depreciation method used for land
improvements and other significant assets may significantly and materially
overstate the depreciation of the underlying assets and therefore
understate the net income of the Company.
We evaluate our Properties for impairment when conditions exist which
may indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a Property over the anticipated holding period is less
than its carrying value. Upon determination that a permanent impairment has
occurred, the applicable Property is reduced to fair value.
For the year
ended December 31, 2003, permanent impairment conditions did not exist at
any of our Properties. For propertiesProperties 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. In August 2001, the FASB issuedThe Company accounts for its
Properties held for disposition in accordance with Statement of Financial
Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets" which is
effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 during 2002 and we have shown separately as
discontinued operations in all periods presented. Accordingly, the results of
operations for all assets sold duringor held for sale after January 1, 2003 and 2002 or assetshave
been classified as real
estate held for disposition as of December 31, 2003 and 2002. The gain on
sale of discontinued operations for 2003 and 2002 is included in the gain
on sale of properties and other.
Certain costs, primarily legal costs, relative to our efforts to
effectively change the use and operations of several Properties subject to
rent control (see Note 17) are currently classified in other assets. These
costs, to the extent these efforts are successful, are capitalized to the
extent of the established value of the revised project and included in the
net investment in real estate for the appropriate Properties (see Note 5).
To the extent these efforts are not successful, these costs will be
expensed. In addition, we capitalize certain costs, primarily legal costs,
related to entering into lease agreements which govern the terms under
which we may enter into leases with individual tenants and which are
expensed over the term of the lease agreement.all periods presented.
(f) Cash and Cash Equivalents
We consider all demand and money market accounts and certificates of
deposit with a maturity, when purchased, of three months or less to be cash
equivalents.
F-12
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Notes Receivable
Notes receivable generally are stated at their outstanding unpaid
principal balances net of any deferred fees or costs on originated loans,
or unamortized discounts or premiums net of a valuation allowance. Interest
income is accrued on the unpaid principal balance. Discounts or premiums
are amortized to income using the interest method. In certain cases we
finance the salesales of homes to our residentscustomers (referred to as "Chattel
Loans") which loans are secured by the homes. The valuation allowance for
the Chattel Loans is calculated based on a comparison of the outstanding
principal balance of each note compared to the N.A.D.A. value and the
current market value of the underlying manufactured home collateral.
(h) Investments in Joint Ventures
Investments in unconsolidated 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
because we do not have control overwhereby the activitiescost of an investment is adjusted for the Company's share of
the investees. Our net equity investment is reflected on the
consolidated balance sheets, and the consolidated statements of operations
include our share ofin net income or loss from the unconsolidated joint
ventures. Any differencedate of acquisition and reduced
by distributions received. The income or loss of each entity is allocated
in accordance with the provisions of the applicable operating agreements.
The allocation provisions in these agreements may differ from the ownership
interests held by each investor. Differences between the carrying amount of
these investments
on our consolidated balance sheetthe Company's investment in the respective entities and the historical costCompany's share
of the underlying equity of such unconsolidated entities are amortized over
the respective lives of the underlying assets, as applicable.
In applying the provisions of FIN 46R (see Basis of Consolidation,
above), the Company determined that its Mezzanine Investment is depreciateda VIE;
however, the Company concluded that it is not the primary beneficiary. As
such, the adoption of this pronouncement had no effect on the Company's
financial statements.
(i) Insurance Claims
The Properties are covered against fire, flood, property, earthquake,
wind storm and business interruption by insurance policies containing
various deductible requirements and coverage limits. Recoverable costs are
classified in other assets as an adjustmentincurred. Proceeds are applied against the
asset when received. Costs relating to capital items are treated in
accordance with the Company's capitalization policy. The book value of the
original capital item is written off in the replacement period. Insurance
proceeds relating to the capital costs will be recorded as income from unconsolidated joint
ventures generally over 30 years.
F-11
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)in the
period they are received.
(j) Fair Value of Financial Instruments
The Company's financial instruments include short-term investments,
notes receivable, accounts receivable, accounts payable, other accrued
expenses, mortgage notes payable and interest rate hedge arrangements. The
fair values of all financial instruments, including notes receivable, were
not materially different from their carrying values at December 31, 20032004
and 2002.
(j)2003.
(k) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing. The costs are being amortized over the terms of the
respective loans on a level yield basis. Unamortized deferred financing
fees are written-off when debt is retired before the maturity date. Upon
amendment of the Line of Credit, unamortized deferred financing fees are
accounted for in accordance with EITF No. 98-14, "Debtor's Accounting for
Changes in Line-of-Credit or Revolving-Debt Arrangements." Accumulated
amortization for such costs was $2.7$4.9 million and $2.4$2.7 million at December
31, 2004 and 2003, and 2002, respectively.
(k)F-13
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Revenue Recognition
The Company accounts for leases with its customers as operating
leases. Rental income attributable to leases is recorded when earned from
tenants.recognized over the term of the respective lease
or the length of a customer's stay, the majority of which are for a term of
not greater than one year. We will reserve for receivables when we believe
the ultimate collection is less than probable. Our provision for
uncollectable rents receivable was $827,000approximately $1.0 million as of
December 31, 20032004 and $700,000$0.8 million as of December 31, 2002.2003. Income from
home sales is recognized when the earnings process is complete. The
earnings process is complete when the home has been delivered, the
purchaser has accepted the home and title has transferred.
(l)(m) Minority Interests
Net income is allocated to Common OP Unitholders based on their
respective ownership percentage of the Operating Partnership. An ownership
percentage is represented by dividing the number of Common OP Units held by
the Common OP Unitholders (5,312,387(6,340,805 and 5,359,9275,312,387 at December 31, 20032004 and
2002,2003, respectively) by OP Units and shares of Common Stock outstanding.
Issuance of additional shares of Common Stock or Common OP Units changes
the percentage ownership of both the Minority Interests and the Company.
Due in part to the exchange rights (which provide for the conversion of
Common OP Units into shares of Common Stock on a one-for-one basis), such
transactions and the proceeds therefromthere from are treated as capital
transactions and result in an allocation between stockholders' equity and
Minority Interests to account for the change in the respective percentage
ownership of the underlying equity of the Operating Partnership.
On September 30, 1999, the Operating Partnership completed a $125
million private placement of 9.0% Series D Cumulative Perpetual Preferred
Units ("POP Units") with two institutional investors. The POP Units, which
are callable by the Company after five years, have no stated maturity or
mandatory redemption, have no voting rights and are not convertible into OP
Units or Common Stock. Income is allocated to the POP Units at a preferred
rate per annum of 9.0% on the original capital contribution of $125
million. Costs related to the placement of $3.1 million were recorded as a
reduction to additional paid-in capital.
F-12
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)(n) Income Taxes
Due to the structure of the Company as a REIT, the results of
operations contain no provision for Federal income taxes. However, the
Company may be subject to certain state and local income, excise or
franchise taxes. We paid state and local taxes of approximately $88,000,
$56,000 $20,000 and $50,000$20,000 during the years ended December 31, 2004, 2003 2002 and
2001,2002, respectively. In addition, taxable income from non-REIT activities
managed through taxable REIT subsidiaries is subject to federal, state and
local income taxes. As of December 31, 2003,2004, net investment in real estate
and notes receivable had a Federal tax basis of approximately $743.3$1,386
million and $27.6$13.3 million, respectively.
(n)(o) Derivative Instruments and Hedging Activities
We recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings.
(o)(p) Reclassifications
Certain 20022003 and 20012002 amounts have been reclassified to conform to the
20032004 financial presentation. Such reclassifications have no effect on the
operations or equity as originally presented.
(p)(q) Stock Compensation
Prior to January 1, 2003, we accounted for our stock compensation in
accordance with APB No. 25, "Accounting for Stock Issued to Employees",
based upon the intrinsic value method. This method results in no
compensation expense for options issued with an exercise price equal to or
exceeding the market value of the Common Stock on the date of grant.
Effective January 1, 2003, we elected to account for our stock compensation
in accordance with SFAS No. 123 and its amendment (SFAS No. 148),
"Accounting for Stock Based Compensation", which resulted in compensation
expense being recorded based on the fair value of the stock options and
other equity awards issued (see Note 14).
F-14
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 34 - EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128") defines the calculation
of basic and fully diluted earnings per share. Basic and fully diluted earnings
per share are based on the weighted average shares outstanding during each year
and basic earnings per share excludes any dilutive effects of options, warrants
and convertible securities. The conversion of OP Units has been excluded from
the basic earnings per share calculation. The conversion of an OP Unit to a
share of Common Stock has no material effect on earnings per common share.
F-13
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EARNINGS PER COMMON SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2004, 2003 2002, and 20012002 (amounts
in thousands):
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002
20012004 (Restated) (Restated)
------- ------- ----------------- ----------
NUMERATORS:
INCOME FROM CONTINUING OPERATIONS:
Income from continuing operations - basic ........... $17,424 $23,706 $30,006................ $ 4,032 $15,542 $19,148
Amounts allocated to dilutive securities ............ 4,330 5,848 7,688................. 936 3,860 4,708
------- ------- -------
Income from continuing operations - fully diluted ... $21,754 $29,554 $37,694........ $ 4,968 $19,402 $23,856
======= ======= =======
INCOME FROM DISCONTINUED OPERATIONS:
Income from discontinued operations - basic ....................... $ (6) $ 9,590 $12,739 $ 2,077
Amounts allocated to dilutive securities ............................. -- 2,144 3,078 521
------- ------- -------
Income from discontinued operations - fully diluted..diluted ...... $ (6) $11,734 $15,817 $ 2,598
======= ======= =======
NET INCOME AVAILABLE FOR COMMON SHARES:
Net income available for Common Shares - basic ...... $27,014 $36,445 $32,083........... $ 4,026 $25,132 $31,887
Amounts allocated to dilutive securities ............ 6,474 8,926 8,209................. 936 6,004 7,786
------- ------- -------
Net income available for Common Shares - fully diluted ............................................ $33,488 $45,371 $40,292$ 4,962 $31,136 $39,673
======= ======= =======
DENOMINATOR:
Weighted average Common Shares
outstanding - basic ....................................... 22,849 22,077 21,617 21,036
Effect of dilutive securities:
Redemption of Common OP Units for Common Shares ................. 6,067 5,342 5,403 5,466
Employee stock options and restricted shares ....................... 549 583 612 508
------- ------- -------
Weighted average Common Shares
outstanding - fully diluted ......................................................................... 29,465 28,002 27,632 27,010
======= ======= =======
F-15
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 45 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS
The following table presents the changes in the Company's outstanding
Common Stock for the years ended December 31, 2004, 2003 2002 and 20012002 (excluding OP
Units of 6,340,805, 5,312,387 5,359,927 and 5,426,3745,359,927 outstanding at December 31, 2004,
2003 2002 and 2001,2002, respectively):
2004 2003 2002 2001
---------- ---------- ----------
Shares outstanding at January 1, ....................................................... 22,563,348 22,093,240 21,562,343 21,064,785
Common Stock issued through conversion of OP Units .............. 95,769 47,540 66,447 87,956
Common Stock issued through exercise of options .................... 196,834 302,526 282,959 387,115
Common Stock issued through stock grants .................................. -- 35,000 108,341 57,000
Common Stock issued through Employee Stock Purchase Plan ... 81,241 85,042 73,150 98,987
Common Stock repurchased and retired ................... --- --- (133,500)....................... -- -- --
---------- ---------- ----------
Shares outstanding at December 31, ................................................... 22,937,192 22,563,348 22,093,240 21,562,343
========== ========== ==========
As of December 31, 20032004 and 2002,2003, the Company's percentage ownership of the
Operating Partnership was approximately 78.5% and 80%., respectively. The
remaining approximately 21.5% and 20%, respectively, is owned by the Common OP
Unitholders.
F-14
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
On September 30, 1999, the Operating Partnership completed a $125 million
private placement of 9.0% Series D Cumulative Perpetual Preferred Units ("POP
Units") with two institutional investors. The POP Units, which are callable by
the Company after five years, have no stated maturity or mandatory redemption.
The Operating Partnership pays distributions of 9.0% per annum on the $125
million of POP Units. Distributions on the POP Units are paid quarterly on the
last calendar day of each quarter.
The following distributions have been declared and/orand paid to common
stockholders and Minority Interests since January 1, 2001:2002:
DISTRIBUTION FOR THE QUARTER SHAREHOLDER RECORD
AMOUNT PER SHARE ENDING RECORD DATE PAYMENT DATE
- ---------------- ------------------ ------------------ ----------------
$0.4450 March 31, 2001 March 30, 2001 April 13, 2001
$0.4450 June 30, 2001 June 29, 2001 July 13, 2001
$0.4450 September 30, 2001 September 28, 2001 October 12, 2001
$0.4450 December 31, 2001 December 28, 2001 January 11, 2002
- -----------------------------------------------------------------------------------------
$0.4750 March 31, 2002 March 29, 2002 April 12, 2002
$0.4750 June 30, 2002 June 28, 2002 July 12, 2002
$0.4750 September 30, 2002 September 27, 2002 October 11, 2002
$0.4750 December 31, 2002 December 27, 2002 January 10, 2003
- -----------------------------------------------------------------------------------------
$0.4950 March 31, 2003 March 28, 2003 April 11, 2003
$0.4950 June 30, 2003 June 27, 2003 July 11, 2003
$0.4950 September 30, 2003 September 26, 2003 October 10, 2003
$8.00 December 31, 2003 January 8, 2004 January 16, 2004
$0.0125 March 31, 2004 March 26, 2004 April 9, 2004
$0.0125 June 30, 2004 June 25, 2004 July 9, 2004
$0.0125 September 30, 2004 September 24, 2004 October 8, 2004
$0.0125 December 31, 2004 December 31, 2004 January 14, 2005
On December 12, 2003, we declared a one-time special distribution of $8.00
per share payable to stockholders of record on January 8, 2004. We used proceeds
from the $501 million borrowing in October 2003 to pay the special distribution
on January 16, 2004. The special cash dividend will bewas reflected on stockholders'
2004 1099-DIV to be issued in January 2005.
In connection with the $501 million borrowing and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company
F-16
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMON STOCK AND OTHER EQUITY RELATED TRANSACTIONS (CONTINUED)
recognized $180 million of taxable income as a result of its contribution, as
opposed to a nontaxable reduction of the Company's tax basis in its interest in
the Operating Partnership. This restructuring resulted in a step-up in the
Company's tax basis in its assets, generating future depreciation deductions,
which in turn will reduce the Company's future distribution requirements. The
Company intends to continue to qualify as a REIT under the Code, with its assets
consisting of interests in MHC Trust. MHC Trust, in turn, intends to also
qualify as a real estate investment trust under the Code and will be the general
partner of the Operating Partnership. On May 1, 2004, in connection with the
restructuring, MHC Trust sold cumulative preferred stock to a limited number of
unaffiliated investors.
The Company adopted, effective July 1, 1997, the 1997 Non-Qualified
Employee Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, certain employees
and directors of the Company may each annually acquire up to $250,000 of Common
Stock of the Company. The aggregate number of shares of Common Stock available
under the ESPP shall not exceed 1,000,000, subject to adjustment by the
Company's Board of Directors. The Common Stock may be purchased monthly at a
price equal to 85% of the lesser of: (a) the closing price for a share of Common
Stock on the last day of the offering period; and (b) the closing price for a
share of Common Stock on the first day of the offering period. Shares of Common
Stock issued through the ESPP for the years ended December 31, 2004, 2003 and
2002 were 80,955, 82,943 and 2001 were 82,943, 71,107, and 96,485, respectively.
F-15
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -6- INVESTMENT IN REAL ESTATE
Land improvements consist primarily of improvements such as grading,
landscaping and infrastructure items such as streets, sidewalks or water mains.
Depreciable property consists of permanent buildings in the Properties such as
clubhouses, laundry facilities, maintenance storage facilities, and furniture,
fixtures and equipment.
All acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statements of operations from the dates of acquisition. We
acquired all of these Properties from unaffiliated third parties. During the
three years ended December 31, 2004, the Company acquired the following
Properties (amounts in millions, except site information):
1) During the year ended December 31, 2001,2004, we acquired the following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
------------ ---------------------------- ------------------ ----------- ------ ------ ------
ACQUISITIONS:
January 15, 2004 O'Connell's Amboy, IL 668 $ 6.6 $ 5.0 $ 1.6
January 30, 2004 Spring Gulch New Holland, PA 420 6.4 4.8 1.6
February 3, 2004 Paradise Mesa, AZ 950 25.7 20.0 5.7
February 18, 2004 Twin Lakes Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside New Carlisle, IN 95 1.7 -- 1.7
February 5, 2004 Diversified Portfolio Various 2,567 64.0 41.6 20.9
February 17, 2004 NHC Portfolio (a) Various 11,311 235.0 159.0 69.0
May 3, 2004 Viewpoint Mesa, AZ 1,928 81.3 44.0 37.3
May 12, 2004 Cactus Gardens Yuma, AZ 430 7.9 4.9 3.0
May 13, 2004 Monte Vista Mesa, AZ 832 45.8 23.0 22.8
May 14, 2004 GE Portfolio Various 1,155 52.9 37.7 15.2
September 8, 2004 Yukon Trails Lyndon Station, WI 214 2.2 -- 2.2
November 10, 2004 Thousand Trail Portfolio (b) Various 17,911 161.8 120.0 42.2
November 4, 2004 Caledonia Caledonia, WI 247 1.5 -- 1.5
December 30, 2004 Fremont Fremont, WI 325 5.7 4.3 1.4
a) On February 17, 2004, the Company acquired 93% of PAMI entities'
interests in 28 Properties. On July 1, 2004, the Company acquired the
remaining minority interest of the PAMI entities for a combination of
$1.0 million in cash and common OP units. On December 20, 2004, the
Company redeemed the common OP Units for $4.5 million.
F-17
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED)
b) On November 10, 2004 the Company provided a long-term lease of the
real estate to Thousand Trails, which will continue to operate the
Properties for its members. The lease will generate $16 million of
income to the Company on an absolute triple net basis subject to
annual escalations of 3.25%. The initial term of the lease is 15
years, with two Florida
Properties, totaling 730 sites, for an aggregate purchase pricefive-year renewal options.
In connection with the 2004 acquisitions and not reflected in the table
above the Company acquired inventory of approximately $17.3$1.2 million, other
assets of $4.9 million, rents received in advance of approximately $13.6
million and completed the sale of seven Properties, totaling 1,281 sites,
in Kansas, Missouri and Oklahoma, for a total sale priceother liabilities of approximately $17.4$5.8 million. A gainThe Company
also issued common OP Units for value of $8.1 millionapproximately $32.2 million.
Additional equity was recorded onfunded through our line of credit and funds from
operations.
2) During the sale. In addition,year ended December 31, 2003, we terminated a lease to a third-party operator foracquired the campground and RV resort
facilities atfollowing
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
------------ ----------- ----------- ----------- ------ ---- ------
ACQUISITIONS:
December 3, 2003 Toby's Arcadia, FL 379 $4.3 $ -- $4.3
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2 2.5
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4 0.4
The acquisitions were funded with monies held in short-term investments.
The acquisitions included the Property known as Bulow Plantation in Flagler Beach, Florida,
and assumed operationassumption of these facilities directly.liabilities of approximately
$0.6 million. Also during 2001,2003, we finalizedacquired a settlement agreement whereby we received $10.8 million in proceeds
relatedparcel of land adjacent to
the saleone of a Property in Indiana.our Properties for approximately $0.1 million.
3) During the year ended December 31, 2002, we acquired the eleven Properties
listed in the table below.following
Properties:
REAL NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES ESTATE DEBT EQUITY
------------ ------------------- ------------------- ----------- ------ ----- ------
ACQUISITIONS:
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ -- $ 7.2
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1 7.4
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1 3.2
July 31, 2002 Countryside Apache Junction, AZ 560 7.5 -- 7.5
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1 3.3
July 31, 2002 Breezy Hill Pompano Beach, FL 762 20.5 10.5 10.0
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5 1.4
August 7, 2002 Tropic Winds Harlingen, TX 531 4.9 -- 4.9
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9 2.3
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2 6.6
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5 --
The acquisitions were funded with borrowings on our Line of Credit and the
assumption of $47.9 million of mortgage debt, which includes a $3.0 million
discount mark-to-market adjustment. In addition, we purchased adjacent land
and land improvements for several Properties for approximately $559,000.
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ------------- ------------------- ------------------- ----- ------------ ------------
($ millions) ($ millions)
March 12, 2002 Mt. Hood Village Welches, OR 450 $ 7.2 $ ---
July 10, 2002 Harbor View Village New Port Richey, FL 471 15.5 8.1
July 31, 2002 Golden Sun Apache Junction, AZ 329 6.3 3.1
July 31, 2002 Countryside Apache Junction, AZ 560 7.5 ---
July 31, 2002 Holiday Village Ormond Beach, FL 301 10.4 7.1
July 31, 2002 Breezy Hill Pompano Beach, FL 762 20.5 10.5
August 14, 2002 Highland Woods Pompano Beach, FL 148 3.9 2.5
August 7, 2002 Tropic Winds Harlingen, TX 531 4.9 ---
October 1, 2002 Silk Oak Lodge Clearwater, FL 180 6.2 3.9
December 18, 2002 Hacienda Village New Port Richey, FL 519 16.8 10.2
December 31, 2002 Glen Ellen Clearwater, FL 117 2.4 2.5
----- ------ -----
TOTALS 4,368 $101.6 $47.9
===== ====== =====
Also during 2002, we effectively sold 17 Properties as part of a
restructuring$0.6
million.
During the three years ended December 31, 2004 the Company disposed of the
College Heights Joint Venture discussed hereinafter.following Properties. The operating results have been reflected in
discontinued operations.
1) During the year ended December 31, 2004, we sold one Property located
in Lake Placid, Florida for a selling price of $3.4 million, with net
proceeds of $0.8 million received in July 2004. No gain or loss on
disposition was recognized in the period. In addition, we sold
Camelot Acres,approximately 1.4 acres of land in Montana for a 319 site Property in Burnsville, Minnesota,
for approximately $14.2gain and net proceeds
of $0.6 million.
F-18
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVESTMENT IN REAL ESTATE (CONTINUED)
2) During the year ended December 31, 2003, we sold the three propertiesProperties
listed in the table below. Proceeds from the sales were used to repay
amounts on the Company's Line of Credit.
TOTAL DISPOSITION GAIN ON
DATE DISPOSED PROPERTY LOCATION SITES PRICE SALE
- ------------- ----------------- -------------- ----- ------------ ------------
($ millions) ($ millions)
June 6, 2003 Independence Hill Morgantown, WV 203 $ 3.9 $ 2.8$2.8
June 6, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1
June 6,30, 2003 Brook Gardens Hamburg, NY 424 17.8 4.1
June 30, 2003 Pheasant Ridge Mount Airy, MD 101 5.4 3.9
--- ----- -----
728 $27.1 $10.8
=== ===== =====
F-16
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN REAL ESTATE (CONTINUED)
In December, 2003, we acquired three Resort Properties listed in the table
below. The acquisitions were funded with monies held in short-term investments.
The acquisitions included the assumption of liabilities of approximately
$650,000.3) Also during 2003,2002, we acquiredeffectively sold 17 Properties as part of a
parcelrestructuring of land adjacent to one of our
Propertiesthe College Heights Joint Venture discussed
hereinafter. In addition, we sold Camelot Acres, a 319 site Property
in Burnsville, Minnesota, for approximately $97,000.$14.2 million.
The following table illustrates the effect on net income and earnings per
share if the Company had consummated the acquisitions during the year ended
December 2004 and 2003 on January 1, 2004 and 2003, respectively (amounts in
thousands, except per share data):
TOTAL PURCHASE DEBT
DATE ACQUIRED PROPERTY LOCATION SITES PRICE ASSUMED
- ------------- ----------- ----------- ----- ------------ ------------
($ millions) ($ millions)Pro Forma Information (unaudited): FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003
-------- --------
December 3, 2003 Toby's Arcadia, FL 379 $4.3 $---
December 15, 2003 Araby Acres Yuma, AZ 337 5.7 3.2
December 15, 2003 Foothill Yuma, AZ 180 1.8 1.4Property operating revenues ................. $307,477 $297,845
======== ========
Income from continuing operations ........... $ 7,088 $ 20,381
======== ========
Net income available for Common Shares ...... $ 7,114 $ 30,166
======== ========
Earnings per Common Share - Basic:
Income from continuing operations ........ $ 0.31 $ 0.92
Net income available for Common Shares.... $ 0.31 $ 1.36
Earnings per Common Share - Fully Diluted:
Income from continuing operations ........ $ 0.30 $ 0.92
Net income available for Common Shares ... $ 0.30 $ 1.34
All acquisitions have been accounted for utilizing the purchase method of
accounting and, accordingly, the results of operations of acquired assets are
included in the statements of operations from the dates of acquisition. We
acquired all of these Properties from unaffiliated third parties.
During the years ended December 31, 2003 and 2002, we capitalized
approximately $1.5 million and $5.7 million of costs, respectively, primarily
legal costs, relative to our efforts to effectively change the use and
operations of several Properties which are currently recorded in other assets.
These costs will be expensed if management determines these efforts will not be
successful. Due to the successful settlement of litigation related to one
Property, DeAnza Santa Cruz, we reclassified approximately $5.3 million of these
costs to land improvements and will depreciate these costs over 30 years (see
Note 17).
We actively seek to acquire additional Properties and currently are engaged
in negotiations relating to the possible acquisition of a number of Properties.
At any time these negotiations are at varying stages which may include contracts
outstanding to acquire certain propertiesProperties which are subject to satisfactory
completion of our due diligence review (see Note 18).review.
F-19
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 67 - INVESTMENT IN JOINT VENTURES
On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity interests (the "Mezzanine Investment") in six entities
controlled by Diversified Investments, Inc. ("Diversified"). These entities own
in the aggregate 11 Properties, containing 5,054 sites. Approximately $11.7
million of the Mezzanine Investment accrues at a per annum average rate of 10%,
with a minimum per annum pay rate of 6.5%, payable quarterly, and approximately
$17.9 million of the Mezzanine Investment accrues at a per annum average rate of
11%, with a minimum pay rate of 7%, payable quarterly. To the extent the minimum
pay rates on the respective Mezzanine Investments are not achieved, the accrual
rates increase to 12% and 13% per annum, respectively. The Company can acquire
these Properties in the future at capitalization rates of between 8% and 8.5%,
beginning in 2006. In addition, the Company has invested approximately $1.4
million in the Diversified entities managing these 11 Properties, which is
included in prepaid expenses and other assets on the Company's Consolidated
Balance Sheet as of December 31, 2004.
During the year ended December 31, 2004, the Company invested approximately
$4.1 million with Diversified in 11 separate property-owning entities. The
Company can acquire these Properties in the future at capitalization rates of
between 8% and 8.5%, beginning in 2006.
The Company recorded approximately $2.1$3.7 million, $1.3$0.3 million, and $971,000$0.2
million of net income from joint ventures, net of $1.2 million, $0.8 million and
$0.7 million depreciation, in the years ended December 31, 2004, 2003 2002 and 2001,2002,
respectively; and received approximately $1.5$5.2 million, $0.8 million and $607,000$0.6
million in distributions from joint ventures in the years ended December 31,
2004, 2003, and 2002 respectively. Due to the Company's inability to control the
joint ventures, the Company accounts for its investment in the joint ventures
using the equity method of accounting.
The following is a summary of the Company's investments in unconsolidated joint
ventures:
NUMBER OF ECONOMIC INVESTMENT AS OF INVESTMENT AS OF
PROPERTY LOCATION OF SITES INTEREST (a)(A) DEC. 31, 2004 DEC. 31, 2003
DEC. 31, 2002
- -------- -------------- ----------------- ------------ ---------------- ----------------
(in thousands) (in thousands)
Trails West .......................... Tucson, AZ 503 50% $ 1,731 $ 1,752
$ 1,917
Plantation ........................... Calimesa, CA 385 50% 3,032 2,825
2,861
Manatee .............................. Bradenton, FL 290-- 90% -- 45
631
Home ................................. Hallandale, FL 136 90% -- 1,082 1,092
Villa del Sol ........................ Sarasota, FL 207 90% 630 654
726
Voyager .............................. Tucson, AZ ---767 25% 3,010 4,412
4,463
Preferred Interests in College Heights --- 17% 8,058 7,944
-----Mezzanine Investments Various 5,054 -- 31,207 --
Indian Wells Indio, CA 350 30% 271 --
Diversified Investments Various 4,443 25% 3,702 --
------ ------- -------
1,521 $18,828 $19,634
=====11,845 $43,583 $10,770
====== ======= =======
(a) The percentages shown approximate the Company's economic interest. The
Company's legal ownership interest may differ.
F-17F-20
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 67 - INVESTMENT IN JOINT VENTURES (CONTINUED)
UNCONSOLIDATED REAL ESTATE JOINT VENTURE (CONTINUED)
Effective September 1, 2002, the Company restructured its investment in
Wolverine Property Investment Limited Partnership (the "College Heights Joint
Venture" or the "Venture"), a joint venture with Wolverine Investors, LLP.FINANCIAL INFORMATION
The Venture included 18 Properties with 3,581 sites. The results of operationsfollowing tables represent combined summarized financial information of the
College Heights Joint Venture prior to restructuring were included with the
results of the Company due to the Company's voting equity interest and control
over the Venture. Pursuant to the restructuring, the Company sold its general
partnership interest, sold all of the Company's voting equity interest and
reduced the Company's total investment in the College Heights Joint Venture. As
consideration for the sale, the Company retained sole ownership of Down Yonder,
a 361 site Community in Clearwater, Florida, received cash of approximately $5.2
million and retained preferred limited partnership interests of approximately
$10.3 million, recorded net of a $2.4 million reserve. The continuing preferred
limited partnership interests will be accounted for using the equity method and
reported as an investment in aunconsolidated real estate joint venture.
NOTE 7 - ACQUISITIONventures.
BALANCE SHEETS AS OF REALTY SYSTEMS, INC.
On January 1, 2002, the Company purchased all of the common stock of Realty
Systems, Inc. ("RSI"). The Company previously owned the non-voting preferred
stock of RSI and had notes receivable from RSI which were recorded as an
investment in affiliate. The Company purchased the common stock of RSI from
Equity Group Investments, Inc., controlled by Samuel Zell, Chairman of the Board
of Directors of the Company, for approximately $675,000. As a result of this
acquisition, the Company owns and controls RSI and consolidates the financial
results of RSI with those of the Company. Prior to the purchase of the common
stock of RSI, we accounted for our investment in RSI using the equity method and
classified the investment as investment in and advances to affiliates.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition:DECEMBER 31,
(amounts in2004 2003
-------------- --------------
(in thousands) (in thousands)
ASSETS
Buildings andReal estate, net $183,480 $49,899
Other assets 22,646 4,723
-------- -------
TOTAL ASSETS 206,126 54,622
======== =======
LIABILITIES
Mortgage debt & other depreciable property..loans $152,682 39,253
Other liabilities 13,485 8,393
Partner's equity 39,959 6,976
-------- -------
TOTAL LIABILITIES AND EQUITY 206,126 54,622
======== =======
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------
2004 2003
-------------- --------------
(in thousands) (in thousands)
Rentals $ 6,656
Cash and cash equivalents ................ 839
Notes receivable ......................... 4,772
Investment in joint ventures ............. 200
Inventory ................................ 35,524
Prepaid27,941 $ 9,632
Other Income 5,390 2,241
-------- -------
TOTAL REVENUES 33,331 11,873
EXPENSES
Operating expenses and other assets ........ 2,724$ 16,454 $ 6,709
Interest 7,558 2,852
Other Income & Expenses 2,672 203
Depreciation & Amortization 10,165 676
-------- Total assets acquired .................. 50,715
LIABILITIES
Other notes payable ...................... (12,862)
Accounts payable and accrued expenses .... (2,718)
Accrued interest payable ................. (73)-------
TOTAL EXPENSES 36,849 10,440
-------- Total liabilities assumed .............. (15,653)
Conversion of previous investment ........ (34,387)-------
-------- Cash paid for common equity interest .....-------
NET (LOSS) INCOME ($ 3,518) $ (675)1,433
======== =======
F-21
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES RECEIVABLE
At December 31, 20032004 and 2002,2003, the Company had approximately $11.6$13.3 million
and $10.0$11.6 million in notes receivable, respectively. On December 28, 2000, the
Company, in connection with the Voyager Joint Venture, entered into an agreement
to loan $3.0 million to certain principals of Meadows Management Company. The
notes are collateralized with a combination of Common OP Units and partnership
interests in this and other joint ventures. The notes bear interest at prime
plus 0.5% per annum, require quarterly interest only payments and mature on
December 31, 2011. The outstanding balance on these notes as of December 31,
20032004 is $1.6$0.4 million.
F-18
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES RECEIVABLE (CONTINUED)
The Company has approximately $9.9$12.9 million in Chattel Loans receivable,
which yield interest at a per annum average rate of approximately 9.9%9.0%, have an
average term and amortization of 5 to 15 years, require monthly principal and
interest payments and are collateralized by manufactured homes at certain of the Properties.
NOTE 9 - EMPLOYEE NOTES RECEIVABLE
As of December 31, 2002,2004 and 2003, the Company had employee notes receivable
of $0 million. During 2003, approximately $2.7 million whichof notes receivable were
repaid in 2003.repaid. These notes were collateralized by shares of the Company's Common Stock
and are presented as a reduction of Stockholders' Equity.
NOTE 10 - LONG-TERM BORROWINGS
As of December 31, 20032004 and December 31, 2002,2003, the Company had outstanding
mortgage indebtedness of approximately $1,076$1,417 million and $575.4$1,076 million,
respectively, encumbering 114165 and 66114 of the Company's Properties, respectively.
As of December 31, 20032004 and December 31, 2002,2003, the carrying value of such
Properties was approximately $1,653 million and $1,124 million, and $720 million, respectively.
The outstanding mortgage indebtedness as of December 31, 2003 consists of:
-MORTGAGE DEBT OUTSTANDING
- Approximately $501.4$499.2 million of mortgage debt ("Mortgage Debt")(the Recap) consisting
of 49 loans collateralized by 51 Properties beneficially owned by
separate legal entities that are subsidiariesSubsidiaries of the Company, which we
closed on October 17, 2003 (the "Recap").2003. Of this Mortgage Debt, $177.9$166.1 million
bears interest at 5.35% per annum and matures November 1, 2008; $71.1$80.6
million bears interest at 5.72% per annum and matures November 1,
2010; $79.1 million bears interest at 6.02% per annum and matures
November 1, 2013; and $173.3$173.4 million bears interest at 6.33% per annum
and matures November 1, 2015. The Mortgage Debt amortizes over 30
years.
-
- A $265.0 million mortgage note (the "$265 Million Mortgage")
collateralized by 28 Properties beneficially owned by MHC Financing
Limited Partnership. The $265 Million Mortgage has a maturity date of
January 2, 2028 and bears interest at 7.015% per annum. There is no
principal amortization until February 1, 2008, after which principal
and interest are to be paid from available cash flow and the interest
rate will be reset at a rate equal to the then 10-year U.S. Treasury
obligations plus 2.0%. The $265 Million Mortgage is presented net of a
settled hedge of $3.0 million (net of accumulated amortization of
$357,000)$466,969), which is being amortized into interest expense over the
life of the loan.
- - A $91.4$90.5 million mortgage note (the "DeAnza Mortgage") collateralized
by 6 Properties beneficially owned by MHC-DeAnza Financing Limited
Partnership. The DeAnza Mortgage bears interest at a rate of 7.82% per
annum, amortizes beginning August 1, 2000 over 30 years and matures
July 1, 2010.
- - A $48.9$48.4 million mortgage note (the "Stagecoach Mortgage")
collateralized by 7 Properties beneficially owedowned by MHC Stagecoach
L.L.C. The Stagecoach Mortgage bears interest at a rate of 6.98% per
annum, amortizes beginning September 1, 2001 over 10 years and matures
September 1, 2011.
F-22
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM BORROWINGS (CONTINUED)
- A $44.5$43.7 million mortgage note (the "Bay Indies Mortgage")
collateralized by one Property beneficially owned by MHC Bay Indies,
L.L.C. On April 17,
2003, we entered into an agreement to refinance and increase the Bay Indies
Mortgage from approximately $21.9 million to $45 million. Under the new
agreement, theThe Bay Indies Mortgage bears interest at a rate of 5.69% per
annum, amortizes beginning April 17, 2003 over 25 years and matures
April 17,May 1, 2013.
F-19
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM BORROWINGS (CONTINUED)
- A $15.3$15.2 million mortgage note (the "Date Palm Mortgage")
collateralized by one Property beneficially owned by MHC Date Palm,
L.L.C. The Date Palm Mortgage bears interest at a rate of 7.96% per
annum, amortizes beginning August 1, 2000 over 30 years and matures
July 1, 2010.2010
- Approximately $112.2$457.9 million of mortgage debt on 2071 other various Properties,
which was recorded at fair market value with the related discount or
premium being amortized over the life of the loan using the effective
interest rate.rate method. Scheduled maturities for the outstanding
indebtedness are at various dates through November 30, 2020,1, 2027, and fixed
interest rates range from 6.5%5.16% to 9.3%8.55% per annum. Included in this
debt, the Company has a $2.4 million loan recorded to account for a
direct financing lease entered into in May 1997. In addition, $4.6Approximately $157
million of this debt was assumed in the acquisition of three28 Properties induring
the twelve months ended December 2003 (see Note 5).
We have31, 2004.
UNSECURED TERM LOAN OUTSTANDING
- The Company entered into a Term Loan agreement, pursuant to which it
borrowed $120 million, on an unsecured Linebasis, at LIBOR plus 1.75% per
annum. The loan will be due and payable on November 10, 2007, unless
this initial maturity date is extended by the borrower for an
additional two years upon satisfaction of Creditcertain conditions. Proceeds
from this debt were used to acquire KTTI Holding Company, Inc. as part
of the Thousand Trails transaction.
UNSECURED LINES OF CREDIT OUTSTANDING
- The Company entered into a $110 million facility with a group of banks
(the "Line of
Credit") with a total facility of $110 million,in December 2003, bearing interest at the London
Interbank Offered Rate ("LIBOR")LIBOR plus 1.65% per annum that
matures on August 9, 2006. We
pay a quarterly fee on the average unused amount of the total facility equal2006, which can be extended for an additional
year to 0.15% of such amount. In October, 2003, all amounts outstanding on the Line of
Credit were repaid with proceeds from the Recap.2007. As of December 31, 2003, $1102004, $35.7 million was available
under the Credit Agreement.this facility.
- The Line of Credit hadCompany entered into a total$50 million facility of $150 million prior to amendmentwith Wells Fargo Bank
in December, 2003.
We had a $100 million unsecured term loan (the "Term Loan") with a group of
banks withMay 2004, bearing interest only payable monthly at LIBOR plus 1.375%.1.65% per annum that
matures on May 4, 2006, which can be extended for an additional year
to 2007. As of December 31, 2004, $8.5 million was available under
this facility.
In October, 2003,December 2004, we paid off the Term Loan with proceeds from the Recap.
On October 29, 2001, we entered into an interest rate swap agreement (the
"2001 Swap"), effectively fixing LIBOR on $100fixed $180 million of ourthis floating rate debt at approximately 3.7%for 1
year with a weighted average rate of 4.7% per annum for the period October 2001 through August 2004.
The terms of the 2001 Swap required monthly settlements on the same dates
interest payments were due on the debt. In accordance with SFAS No. 133 as
herein defined, the 2001 Swap was reflected at market value. In November, 2003,
we unwound the 2001 Swap at a cost of approximately $3 million, which is
included in interest and related amortization in 2003 in the accompanying
Consolidated Statements of Operations.annum.
Aggregate payments of principal on long-term borrowings for each of the
next five years and thereafter are as follows (amounts in thousands):
YEAR AMOUNT
- -------------------------------------- ----------
20042005 $ --
2005 6,47818,742
2006 17,409169,770
2007 265,113432,350
2008 200,908203,903
2009 70,558
Thereafter 586,371748,349
Net unamortized premiums and discounts 179,379
----------
Total $1,076,296$1,653,051
==========
F-20F-23
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - LEASE AGREEMENTS
The leases entered into between the tenantcustomer and the Company for the rental
of a site are generally month-to-month or for a period of one to ten years,
renewable upon the consent of the parties or, in some instances, as provided by
statute. Non-cancelable long-term leases are in effect at certain sites within
approximately 2537 of the Properties. Rental rate increases at these Properties
are primarily a function of increases in the Consumer Price Index, taking into
consideration certain floors and ceilings. Additionally, periodic market rate
adjustments are made as deemed necessary.appropriate. Future minimum rents are scheduled
to be received under non-cancelable tenant leases at December 31, 20032004 as
follows (amounts in thousands):
YEAR AMOUNT
- -------------- --------
2004 46,415
2005 48,112$ 50,916
2006 38,75052,062
2007 31,79443,537
2008 22,25331,983
2009 19,106
Thereafter 20,70844,149
--------
Total $208,032$241,753
========
NOTE 12 - GROUND LEASES
The Company leases land under non-cancelable operating leases at certain of
the Properties expiring in various years from 2022 to 20312032 with terms which
require twelve12 equal payments per year plus additional rents calculated as a
percentage of gross revenues. For the years ended December 31, 2004, 2003 2002 and
2001,2002, ground lease rent was approximately $1.6 million per year. Minimum future
rental payments under the ground leases are approximately $1.6 million for each
of the next five years and approximately $26.3$23.5 million thereafter.
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES
Equity Group Investments, Inc. ("EGI"), an entity controlled by Mr. Samuel
Zell, Chairman of the Company's Board of Directors, and certain of its
affiliates have provided services such as administrative support and investor
relations. Fees paid to EGI and its affiliates amounted to approximately $0,
$300 $1,000 and $2,000$1,000 for the years ended December 31, 2004, 2003 2002 and 2001,2002,
respectively. There were no significant amounts due to these affiliates as of
December 31, 20032004 and 2002,2003, respectively.
Certain related entities, affiliated with Mr. Zell, have provided services
to the Company. These entities include, but are not limited to, The Riverside
Agency, Inc. which provided insurance brokerage services and Two North Riverside
Plaza Joint Venture Limited Partnership from which the Company leases office
space. Fees paid to these entities amounted to approximately $412,000, $404,000
$645,000
and $454,000$645,000 for the years December 31, 2004, 2003 2002 and 2001,2002, respectively.
Amounts due to these affiliatesentities were approximately $32,000$0 and $52,000$32,000 as of December
31, 2004 and 2003, and 2002, respectively. In addition, duringDuring 2003, we paid $25,000 to J. Green & Co.,
L.L.C. for services provided by Mr. Berman, the Company's current Chief
Financial Officer, prior to his employment by the Company.
Related party agreements or fee arrangements are generally for a term of
one year and approved by independent members of the Company's Board of
Directors.
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS
The Company's Stock Option and Stock Award Plan (the "Plan") was adopted in
December 1992 and amended and restated from time to time, most recently
effective March 23, 2001. Pursuant to the Plan, officers, directors, employees
and consultants of the Company are offered the opportunity (i) to acquire shares
of Common Stock through the grant of stock options ("Options"), including
non-qualified stock options and, for key employees, incentive stock options
within the meaning of Section 422 of the Internal Revenue Code; and (ii) to be
awarded shares of Common Stock ("Restricted Stock Grants"), subject to
conditions and restrictions determined by the Compensation, Nominating, and
Corporate Governance Committee of the Company's Board of Directors (the
"Compensation Committee"). The Compensation Committee will determine the
F-24
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
vesting schedule, if any, of each Option and the term, which term shall not
exceed ten years from the date of grant. As to the Options that have been
granted through December 31, 20032004 to officers, employees and consultants,
generally, one-third are exercisable one year after
F-21
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED) the initial grant, one-third
are exercisable two years following the date such Options were granted and the
remaining one-third are exercisable three years following the date such Options
were granted. A maximum of 6,000,000 shares of Common Stock are available for
grant under the Plan and no more than 250,000 shares may be subject to grants to
any one individual in any calendar year.
Grants under the Plan are made by the Compensation Committee, which
determines the individuals eligible to receive awards, the types of awards, and
the terms, conditions and restrictions applicable to any award. In addition, the
terms of two specific types of awards are contemplated under the Plan:
- The first type of award is a grant of Options or Restricted Stock
Grants of Common Stock made to each member of the Board at the meeting
held immediately after each annual meeting of the Company's
stockholders. Generally, if the director elects to receive Options,
the grant will cover 10,000 shares of Common Stock at an exercise
price equal to the fair market value on the date of grant. If the
director elects to receive a Restricted Stock Grant of Common Stock,
he or she will receive an award of 2,000 shares.shares of Common Stock.
Exercisability or vesting with respect to either type of award will be
with respect to one-third of the award after six months, two-thirds of
the award after one year, and the full award after two years.
- The second type of award is a grant of Common Stock in lieu of 50% of
their bonus otherwise payable to individuals with a title of Vice
President or above. A recipient can request that the Compensation
Committee pay a greater or lesser portion of the bonus in shares of
Common Stock.
Prior to 2003, we accounted for our stock compensation in accordance with
APB No. 25, "Accounting for Stock Issued to Employees", based upon the intrinsic
value method. This method results in no compensation expense for Options issued
with an exercise price equal to or exceeding the market value of the Common
Stock on the date of grant. Effective January 1, 2003, we elected to account for
our stock-based compensation in accordance with SFAS No. 123 and its amendment
(SFAS No. 148), "Accounting for Stock Based Compensation", which will result in
compensation expense being recorded based on the fair value of the Options and
other equity awards issued. SFAS No. 148 provides three possible transition
methods for changing to the fair value method. We have elected to use the
modified-prospective method. This method requires that we recognize stock-based
employee compensation cost from the beginning of the fiscal year in which the
recognition provisions are first applied as if the fair value method had been
used to account for all employee awards granted, or settled in fiscal years
beginning after December 15, 1994. The following table illustrates the effect on
net income and earnings per share as if the fair value method was applied to all
outstanding and unvested awards in each period presented (amounts in thousands,
except per share data):
2003 2002
20012004 (Restated) (Restated)
------- ------- ----------------- ----------
Net income available for Common Shares
as reported ................ $27,014 $36,445 $32,083............................. $ 4,026 $25,132 $31,887
Add: Stock-based compensation expense
included in net income as reported ................................ 2,899 2,139 2,185 2,549
Deduct: Stock-based compensation
expense determined under the fair
value based method for all awards..awards ....... (2,899) (2,139) (2,086) (2,203)
------- ------- -------
Pro forma net income available for
Common Shares ..................... $27,014 $36,544 $32,429........................... $ 4,026 $25,132 $31,986
======= ======= =======
Pro forma net income per Common Share
- Basic ...................................................... $ 1.220.18 $ 1.691.14 $ 1.541.48
======= ======= =======
Pro forma net income per Common Share
- Fully Diluted ...................................... $ 1.200.17 $ 1.651.11 $ 1.501.44
======= ======= =======
F-22F-25
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -14- STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Restricted Stock Grants
In 1998, the Company awarded 233,500 Restricted Stock Grants to certain
members of management of the Company. These Restricted Stock Grants vested over
five years, but may be restricted for a period of up to ten years depending upon
certain performance benchmarks tied to increases in funds from operations being
met. The fair market value of these Restricted Stock Grants of approximately
$5.7 million as of the date of grant was treated in 1998 as deferred
compensation and amortized in accordance with their vesting. The Company
recognized compensation expense of approximately $722,000, $1.1 million and $2.0
million related to these Restricted Stock Grants in 2003, 2002, and 2001,
respectively. The balance of unamortized deferred compensation related to these
Restricted Stock Grants is $0 as of December 31, 2003.
In 1999, the Company awarded 65,000 Restricted Stock Grants to certain
members of senior management of the Company. These Restricted Stock Grants
vested over three years with one-half vesting in 1999. The fair market value of
these Restricted Stock Grants of approximately $1.5 million as of the date of
grant was treated in 1999 as deferred compensation and amortized in accordance
with their vesting. The Company recognized compensation expense of approximately
$0, $0, and $386,000 related to these Restricted Stock Grants in 2003, 2002, and
2001, respectively. The balance of unamortized deferred compensation related to
these Restricted Stock Grants is $0 as of December 31, 2003.
In 2000, the Company awarded 69,750 Restricted Stock Grants to certain
members of senior management of the Company. These Restricted Stock Grants
vested over three years with one-half vesting in 2000. The fair market value of
these Restricted Stock Grants of approximately $1.9 million as of the date of
grant was treated in 2000 as deferred compensation and amortized in accordance
with their vesting. The Company recognized compensation expense of approximately
$0, $478,000, and $478,000 related to these Restricted Stock Grants in 2003,
2002, and 2001, respectively. The balance of unamortized deferred compensation
related to these Restricted Stock Grants is $0 as of December 31, 2003.
In 2001, the Company awarded 43,000 Restricted Stock Grants to certain
members of management of the Company. These Restricted Stock Grants vest over
five years, but may be restricted for a period of up to ten years depending upon
certain performance benchmarks tied to increases in funds from operations being
met. The fair market value of these Restricted Stock Grants of approximately
$1.2 million as of the date of grant was treated in 2001 as deferred
compensation and amortized in accordance with their vesting. The Company
recognized compensation expense of approximately $167,000, $239,000 and $239,000
related to these Restricted Stock Grants in 2003, 2002 and 2001, respectively.
The balance of unamortized deferred compensation related to these Restricted
Stock Grants is approximately $335,000 as of December 31, 2003.
In 2002, the Company awarded 69,750 Restricted Stock Grants for 69,750 shares of
Common Stock to certain members of senior management of the Company. These
Restricted Stock Grants vest over three years, but may be restricted for a
period of up to ten years depending upon certain performance benchmarks tied to
increases in funds from operations being met. The fair market value of these
Restricted Stock Grants of approximately $2.2 million as of the date of grant
was treated in 2002 as deferred compensation and amortized in accordance with
their vesting.
In 2004, the Company awarded Restricted Stock Grants for 135,000 shares of
Common Stock to certain members of senior management of the Company. These
Restricted Stock Grants vest over three years, but may be restricted for a
period of up to ten years depending upon certain performance benchmarks tied to
increases in funds from operations being met. The fair market value of these
Restricted Stock Grants was approximately $5.0 million as of the date of grant
and is recorded as compensation expense and paid in capital over the three year
vesting period.
In 2004, 2003 and 2002, the Company awarded Restricted Stock Grants for
40,000, 35,000 and 16,000 shares of Common Stock, respectively, to directors
with a fair market value of approximately $1,386,000, $733,000 and $376,000 in
2004, 2003 and 2002, respectively.
The Company recognized compensation expense of approximately $380,000$2.7, $1.8 and
$1.4$1.5 million related to these Restricted Stock Grants in 2004, 2003 and 2002
respectively. The balance of unamortized deferred compensation related to these Restricted
Stock Grants is $0 as of December
31, 2003.
In2004 and 2003 2002,was approximately $0.2 and 2001, the Company awarded 35,000, 16,000, and 16,000
Restricted Stock Grants, respectively, to directors with a fair market value of
approximately $733,000, $376,000 and $302,000 in 2003, 2002 and 2001$0.5 million, respectively. The Company recognized compensation expense of approximately
$470,000 related to these Restricted Stock Grants in 2003. The balance of
unamortized deferred compensation related to the 2002 and 2001 Restricted Stock
Grants is $125,000 and $0, respectively, as of December 31, 2003.
F-23
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
Stock Options
The fair value of each grant is estimated on the grant date using the
Black-Scholes model. The following table includes the assumptions that were made
and the estimated fair values:
ASSUMPTION 2004 2003 2002
2001
------- ----------- -----------
(pro forma)- ---------- --------- -------- ----------
(pro forma)
Dividend yield 5.6 6.3 6.3............................ 5.9% 5.6% 6.3%
Risk-free interest rate 3.5 3.5 5.5................... 4.7% 3.5% 3.5%
Expected life 5............................. 10 years 5 years 5 years
Expected volatility .14 .19 .20
- ---------------------------------------------------------------------------------------------------------....................... 16% 14% 19%
--------- -------- --------
Estimated Fair Value of Options Granted $40,600 $37,432 $428,861... $ 57,000 $ 40,600 $ 37,432
F-26
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK OPTION PLAN AND STOCK GRANTS (CONTINUED)
In January 2004, approximately 1.2 million options were repriced in
connection with the special dividend paid on January 16, 2004 (see Note 5). A
summary of the Company's stock option activity, and related information for the
years ended December 31, 2004, 2003 2002 and 20012002 follows:
WEIGHTED AVERAGE
SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS SHARE
-------------- ------------------
Balance at December 31, 2000 2,107,871 $22.30
Options granted .......... 177,150 30.03
Options exercised ........ (387,115) 19.98
Options canceled ......... (69,558) 25.04
---------
Balance at December 31, 2001 1,828,348 23.44
Options granted .......... 20,000 33.55
Options exercised ........ (282,959) 20.48
Options canceled ......... (49,492) 24.94
-------------------
Balance at December 31, 2002 1,515,897 24.08
Options granted .......... 20,000 32.67
Options exercised ........ (302,526) 21.06
Options canceled ......... (9,437) 25.60
-------------------
Balance at December 31, 2003 1,223,934 24.95
=========Options granted 1,212,367 17.28
Options exercised (195,737) 15.47
Options canceled (1,194,568) 25.04
----------
Balance at December 31, 2004 1,045,996 17.74
==========
The following table summarizes information regarding Options outstanding at
December 31, 2003:2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------------------------------------------------------ --------------------------
WEIGHTED
AVERAGE
OUTSTANDING WEIGHTED
RANGE OF EXERCISE CONTRACTUAL WEIGHTED AVERAGE AVERAGE
RANGE OF EXERCISE
PRICES OPTIONS LIFE (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------------ --------------------------- --------- --------------- ---------------- --------- --------------
$15.63$7.62 to $21.38 183,500 2.4 $18.85 183,500 $18.85
$22.00$14.00 169,467 1.6 $11.88 169,467 $11.88
$15.69 to $24.38 412,737 4.7 $23.55 412,737 $23.55
$25.06$18.99 680,475 4.4 $17.38 680,475 $17.38
$22.65 to $26.99 446,443 5.4 $26.23 446,443 $26.23
$30.65 to $33.55 181,254 8.1 $31.19 112,958 $31.11$31.53 196,054 7.4 $24.06 176,052 $23.47
--------- --- ------ --------- ------
1,223,934 5.1 $24.95 1,155,638 $24.581,045,996 4.5 $17.74 1,025,994 $17.51
========= === ====== ========= ======
As of December 31, 2004, 2003 and 2002, and 2001, 2,148,5241,942,025 shares, 2,194,0872,119,152 shares,
and 2,250,3452,166,686 shares remained available for grant, respectively; of these
1,036,853,861,525 shares, 1,071,8531,038,853 shares, and 1,157,6031,073,853 shares, respectively, remained
available for Restricted Stock Grants.
F-24
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - PREFERRED STOCK
The Company's Board of Directors is authorized under the Company's charter,
without further stockholder approval, to issue, from time to time, in one or
more series, 10,000,000 shares of $.01 par value preferred stock (the "Preferred
Stock"), with specific rights, preferences and other attributes as the Board may
determine, which may include preferences, powers and rights that are senior to
the rights of holders of the Company's Common Stock. However, under certain
circumstances, the issuance of preferred stock may require stockholder approval
pursuant to the rules and regulations of The New York Stock Exchange. As of
December 31, 20032004 and 2002,2003, no Preferred Stock was issued by the Company.
F-27
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SAVINGS PLAN
The Company has a qualified retirement plan, with a salary deferral feature
designed to qualify under Section 401 of the Code (the "401(k) Plan"), to cover
its employees and those of its Subsidiaries, if any. The 401(k) Plan permits
eligible employees of the Company and those of any Subsidiary to defer up to 19%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, the Company will match dollar-for-dollar the participant's
contribution up to 4% of the participant's eligible compensation.
In addition, amounts contributed by the Company will vest, on a prorated
basis, according to the participant's vesting schedule. After five years of
employment with the Company, the participants will be 100% vested for all
amounts contributed by the Company. Additionally, a discretionary profit sharing
component of the 401(k) Plan provides for a contribution to be made annually for
each participant in an amount, if any, as determined by the Company. All
employee contributions are 100% vested. The Company's contribution to the 401(k)
Plan was approximately $545,271, $240,000, $248,000, and $353,000,$248,000, for the years ended
December 31, 2004, 2003, 2002, and 2001,2002, respectively.
The Company has established a supplemental executive retirement plan (the
"SERP") to provide certain officers and directors an opportunity to defer a
portion of their eligible compensation in order to save for retirement and for
the education of their children. The SERP is restricted to investments in
Company common shares, certain marketable securities that have been specifically
approved, or cash equivalents. In accordance with EITF 97-14 "Accounting for
Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested", the deferred compensation liability represented in the SERP
and the securities issued to fund such deferred compensation liability are
consolidated by the Company on the balance sheet. Assets held in the SERP are
included in other assets and are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings. Company
shares held in the SERP are classified in stockholders equity due to the
inability of the Company to repurchase these shares.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
DEANZA SANTA CRUZ
The residentscustomers of DeAnza Santa Cruz Mobile Estates, a Property located in
Santa Cruz, California, brought several actions opposing fees and charges in
connection with water service at the Property. As a result of one action, the
Company rebated approximately $36,000 to the residents.customers. The DeAnza Santa Cruz
Homeowners Association ("HOA") then proceeded to a jury trial alleging these
"overcharges" entitled them to an award of punitive damages. In January 1999, a
jury awarded the HOA $6.0 million in punitive damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damagedamages claim. The HOA's attorney has made a motion asking for an award of
attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company has appealed this award. On July 13, 2004, the
California Court of Appeal affirmed the award and has not
accrued forof attorney's fees in favor of the
amount in its consolidated financial statements.
F-25
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)HOA's attorney.
OTHER CALIFORNIA RENT CONTROL LITIGATION
As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. This regulatory feature, called vacancy control, allows tenants to
sell their homes for a premium representing the value of the future discounted
rent-controlled rents. In the Company's view, such regulation results in a
transfer of the value of the Company's shareholders'stockholders' land, which would otherwise
be reflected in market rents, to tenants upon the sales of their
F-28
EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
homes in the form of an inflated purchase price that cannot be attributed to the
value of the home being sold. As a result, in the Company's view, the Company
loses the value of its asset and the selling tenant leaves the CommunityProperty with a
windfall premium. The Company has discovered through the litigation process that
certain municipalities considered condemning the Company's CommunitiesProperties at values
well below the value of the underlying land. In the Company's view, a failure to
articulate market rents for sites governed by restrictive rent control would put
the Company at risk for condemnation or eminent domain proceedings based on
artificially reduced rents. Such a physical taking, should it occur, could
represent substantial lost value to shareholders.stockholders. The Company is cognizant of
the need for affordable housing in the jurisdictions, but asserts that
restrictive rent regulation with vacancy control does not promote this purpose
because the benefits of such regulation are fully capitalized into the prices of
the homes sold. The Company estimates that the annual rent subsidy to tenants in
these jurisdictions is approximately $15 million. In a more well-balancedwell balanced
regulatory environment, the Company would receive market rents that would
eliminate the subsidy and homes would trade at or near their intrinsic value.
In connection with such efforts, the Company recently announced it has entered into
a settlement agreement with the City of Santa Cruz, California and that,
pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's propertyProperty from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the Consumer
Price Index ("CPI").CPI. The
settlement agreement benefits the Company's shareholdersstockholders by allowing them to
receive the value of their investment in this CommunityProperty through vacancy decontrol
while preserving annual CPI based rent increases in this age restricted
Property.
The Company has filed two lawsuits in Federal court against the City of San
Rafael, challenging its rent control ordinance on constitutional grounds. The
Company believes that one of those lawsuits was settled by the City agreeing to
amend the ordinance to permit adjustments to market rent upon turnover. The City
subsequently rejected the settlement agreement. The Court initially found the
settlement agreement was binding on the City, but then reconsidered and
determined to submit the claim of breach of the settlement agreement to a jury.
In October 2002, the first case against the City went to trial, based on both
breach of the settlement agreement and the constitutional claims. A jury found
no breach of the settlement agreement; the Company then filed motions asking the
Court to rule in its favor on that claim, notwithstanding the jury verdict. The
Court has postponed decision on those motions and on the constitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the constitutional claims, then the Company
has pending claims seeking a declaration that it can close the Property and
convert it to another use.
The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("CMHOA"), a 396
site Property in San Rafael, California, sued the Company in December 2000 over
a prior settlement agreement on a capital expenditure pass-through after the
Company sued the City of San Rafael in October 2000 alleging its rent control
ordinance is unconstitutional. In the Contempo Marin case, the CMHOA prevailed
on a motion for summary judgment on an issue that permits the Company to collect
only $3.72 out of a monthly pass-through amount of $7.50 that the Company
believes had been agreed to by the CMHOA in a settlement agreement. On May 23,
2004, the California Court of Appeal affirmed the trial court's order dismissing
the Company's claims against the City of San Rafael. The trial court has set a
trial date in the second quarter of 2005 on the CMHOA's remaining claims for
damages. The Company intends to vigorously defend this matter, which has been stayed pending a related state
court appeal by the Company of an order dismissing its claims against the City
of San Rafael.matter. The Company
believes that such lawsuits will be a consequence of the Company's efforts to
change rent control since tenant groups actively desire to preserve the premium
value of their homes in addition to the discounted rents provided by rent
control. The Company has determined that its efforts to rebalance the regulatory
environment despite the risk of litigation from tenant groups are necessary not
only because of the $15 million annual subsidy to tenants, but also because of
the condemnation risk.
ELLENBURG COMMUNITIESSimilarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and certain other
parties entered intoproperty owners. However, the Court allowed the City to continue to enforce a
settlement agreementrent control ordinance that predated the two invalid ordinances (the "Settlement""prior
ordinance"), which was approved by the Los Angeles County Superior Court
in April 2000. The Settlement resolved substantially all. As a result of the litigationjudgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and appeals involving the Ellenburg Properties,prior ordinances and transactions arising outto 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 Settlement closed on May 22, 2000. Onlyjudgment. The court of
appeal and California Supreme Court refused to stay enforcement of these rent
adjustments pending appeal. After the appeal of one entity remained, the
outcome of whichCity was not expectedunable to materially affect the Company.
F-26obtain a
F-29
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
ELLENBURG COMMUNITIES (CONTINUED)
In connection withstay, the Ellenburg Acquisition, on September 8, 1999,
Ellenburg Fund 20 ("Fund 20") filed a cross complaint inCity and the Ellenburg
dissolution proceeding againsttenant association each sued the Company in separate
actions alleging the rent adjustments pursuant to the judgment violate the prior
ordinance (Case Nos. GIE 020887 and certainGIE 020524). They seek to rescind the rent
adjustments, refunds of its affiliates
alleging causes of action for fraudamounts paid, and other claimspenalties and damages in connection with the
Ellenburg Acquisition. The Company subsequently successfully had the cross
complaint against the Company and its affiliates dismissed with prejudice by the
California Superior Court. However, Fund 20 appealed. Although this appeal was
one not resolved by the Settlement,these
separate actions. On January 25, 2005, the California Court of Appeal dismissed
Fund 20's substantive appeals on March 13, 2003 as moot. Fund 20 petitionedreversed
the California Supremejudgment in part and affirmed it in part with a remand. The Court of Appeal
affirmed that one ordinance was unlawfully adopted and therefore void and that
the second ordinance contained unconstitutional provisions. However, the Court
ruled the City had the authority to review this decision which review was denied.
In October 2001, Fund 20 suedcure the issues with the first ordinance
retroactively. On remand the trial court is directed to decide the issue of
damages to the Company and certain of its affiliates
again, this time in Alameda County, California making substantially the same
allegations. The Company obtained an injunction preventing the case from
proceeding until the Fund 20 appeal is decided and other related proceedings in
Arizona (from which the Company has already been dismissedbelieves is consistent with prejudice) are
concluded.the Company
receiving the economic benefit of invalidating one of the ordinances and also
consistent with the Company's position that it is entitled to market rent and
not merely a higher amount of regulated rent. The Company obtained a court order enjoining Fund 20 from proceeding
with its Alameda County action.
In February, 2004,will petition the
Company entered into a settlement agreement with
Fund 20 resolving all remaining matters at no cost to the Company and with
mutual releases.
COUNTRYSIDE AT VERO BEACHSupreme Court of California for review of certain aspects of this decision. The
Company has received letters dated June 17, 2002 and August 26, 2002
from Indian River County ("County"), claiming thatintends to vigorously defend the Company currently owes
sewer impact fees in the amount of approximately $518,000 with respect to the
Property known as Countryside at Vero Beach, located in Vero Beach, Florida,
purportedly under the terms of an agreement between the County and a prior owner
of the Property.two new lawsuits. In response,addition, the
Company has advisedsued the CountyCity of Santee in Federal court alleging all three of the
ordinances are unconstitutional under the Fifth Amendment to the United States
Constitution because they fail to substantially advance a legitimate state
interest. Thus, it is the Company's position that these feesthe ordinances are no longer due and owingsubject to
invalidation as a resultmatter of a 1996 settlement agreement betweenlaw in the County andFederal court action. Separately, the
prior owner ofFederal District Court granted the Property, providing for the payment of
$150,000 to the County to discharge any further obligation for the payment of
impact or connection fees for sewer service at the Property. The Company paid
this settlement amount (with interest) to the County in connection with the
Company's acquisition of the Property. Accordingly, the Company believes that
the County's claims are without merit.
DELAWARE DECLARATORY JUDGMENT ACTION
In April 2002, the Company entered into a Stipulation and Consent Order to
Cease and Desist (the "Consent Order") with the State of Delaware (the "State").
The Consent Order resolved various issues raised by the State concerning the
terms of a new lease form used or proposed for use by the Company at certain of
its Properties in Delaware. Among other provisions, the Consent Order
contemplated that the Company would work with the State to develop and implement
a new lease form for use in Delaware. The Consent Order expressly provided that
nothing contained therein would preclude the Company from seeking declaratory
relief from a court as to the legality or enforceability of any provisions which
the Company might wish to incorporate in future leases.
Throughout the summer of 2002, the Company's Delaware legal counsel engaged
in dialogue with representatives of the State concerning various matters,
including the lease provisions to which the State had objected but which the
Company wished to incorporate in future leases. Through this process, it became
apparent that the parties could not reach agreement as to the legality or
enforceability of the proposed lease provisions, and that the Company would need
to seek declaratory relief from a court in order to resolve the matter, as
contemplated by the Consent Order. Accordingly, on August 29, 2002, the Company
filed a Petition for Declaratory Judgment and Other Relief (as amended, the
"Petition") in Sussex County, Delaware Superior Court (the "Court").
F-27
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
DELAWARE DECLARATORY JUDGMENT ACTION (CONTINUED)
In response to the filing of the Petition, on October 1, 2002, the State
filed its Answer to Petition for Declaratory and Other Relief, and Counterclaims
for Civil Enforcement and Contempt (as amended, "Answer and Counterclaim") with
the Court. In the Answer and Counterclaim, the State sought, inter alia,
restitution, statutory penalties, investigative costs and attorneys' fees under
the Delaware Mobile Home Lots and Leases Act, the Consumer Fraud Act, the
Uniform Deceptive Trade Practices Act and the Delaware Consumer Contracts law,
and separately sought a finding of contempt and related contempt penalties for
alleged violations of the Consent Order.
The Company filed a Motion to Dismiss Respondents' Counterclaims with the
Court on October 29, 2002, and the State filed aCity's Motion for Summary Judgment within the
Company's Federal Court lawsuit. This decision was based not on the merits, but
on procedural grounds, including that the Company's claims were moot given its
success in the state court case. The Company intends to appeal this ruling and
believes the outcome will be affected by the cases currently before the Ninth
Circuit and United States Supreme Court.
Moreover, in July 2004, the Ninth Circuit Court of Appeal decided the case
of Cashman v. City of Cotati, a Property owner's challenge to the City's rent
control ordinance, and stated that a rent control ordinance that does not on its
face provide for a mechanism to prevent the capture of a premium is
unconstitutional, as a matter of law, absent sufficient externalities rendering
a premium unavailable. This reasoning supports the legal position the Company
has put forth in its opposition to rent control in general and vacancy control
in particular. The City of Cotati has petitioned the Ninth Circuit for rehearing
and that petition is pending. In addition, in October 2004, the United States
Supreme Court granted certiorari in State of Hawaii vs. Chevron USA, Inc., a
Ninth Circuit Court of Appeal case that upholds the standard that a regulation
must substantially advance a legitimate state purpose in order to be
constitutionally viable. The case was argued before the United States Supreme
Court on November 15, 2002. On December 30, 2002,February 22, 2005. The ultimate outcome of these cases will guide the
Company filed a
First Amended Petition for Declaratory Judgment and Other Relief withCompany's continued efforts to realize the Court,
and on January 31, 2003, the State filed an Amended Answer and Counterclaim with
the Court.
On August 29, 2003, the Court issued its decision disposing of all pending
claims in the litigation except one. Specifically, the Court held, inter alia,
that (i) the Company may eliminate the rent cap formula from existing leases at
certain of its Delaware Properties as the leases come up for renewal, (ii)
certain lease provisions proposed by the Company may not be implemented or
enforced under applicable state law, (iii) the change in water supplier at one
of the Properties did not violate the leases at such Property, (iv) the Company
did not violate the Consent Order by filing the Petition, and (v) the Company
did not violate any state statutes as alleged by the State.
The August 29, 2003 decision left open the issue of whether the Company had
violated the Consent Order by continuing to use the disputed lease form (but not
enforce the provisions at issue) at onevalue of its Properties following entrywhich are
subject to rent control and the Company's efforts to achieve a level of
the
Consent Order (the Company believed that it had no choice but to continue to use
this lease form until the State had approved a new form for use at the Property
as contemplated by the Consent Order). On October 3, 2003, the Court issued its
final order, finding that continued use of the disputed lease form, as to new
tenants but not as to renewal tenants, following entry of the Consent Order
constituted a violation thereof, and assessing a civil penaltyregulatory fairness in the amount of
$5,000.
On November 3, 2003, the State filed a Notice of Appeal with the Supreme
Court of the State of Delaware, appealing a portion of the Court's order denying
the State's Motion for Summary Judgment. The State's appeal is limited to the
single issue of whether the Company has the right to eliminate "rent cap"
provisions contained in certain existing leases upon automatic renewal of the
leases in accordance with Delaware law. The appeal has been fully briefed, and
oral argument in the matter is scheduled for March 16, 2004.
On November 14, 2003, the State filed a motion for Stay Pending Appeal with
the Court, and on December 3, 2003, the Company filed its response opposing the
motion. On December 16, 2003, the Court issued its order on the motion, holding
that the Company may proceed to issue notices of default to tenants who fail to
pay the full amount of their current rental obligations, but may not initiate
eviction proceedings against such tenants until April 1, 2004, and may not
enforce any such eviction order until the Supreme Court rules on the appeal.rent control jurisdictions.
OTHER
The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. F-28In
addition, to the extent any such proceedings or audits relate to newly acquired
Properties, the Company considers any potential indemnification obligations of
sellers in favor of the Company.
F-30
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUBSEQUENT EVENTS
Since December 31, 2003, we invested in 30 Properties as listed in the
table below. The combined investment in these 30 properties was approximately
$137.6 million and was funded with monies held in short-term investments and
additional debt. (amounts in millions, except for total sites)
PURCHASE NET
CLOSING DATE PROPERTY LOCATION TOTAL SITES PRICE DEBT EQUITY
------------ -------- -------- ----------- -------- ----- ------
ACQUISITIONS:
January 15, 2004 O'Connell's(a) Amboy, IL 668 $ 6.6 $ 5.0 $1.6
January 30, 2004 Spring Gulch(b) New Holland, PA 420 6.0 4.8 1.2
February 3, 2004 Paradise(c) Mesa, AZ 950 25.0 20.0 5.0
February 18, 2004 Twin Lakes(d) Chocowinity, NC 400 5.2 3.8 1.4
February 19, 2004 Lakeside(e) New Carlisle, IN 95 1.7 --- 1.7
February 5, 2004 Shangri La Largo, FL 160 (f) 4.5 (f)
February 5, 2004 Terra Ceia Palmetto, FL 203 (f) 2.6 (f)
February 5, 2004 Southernaire Mt. Dora, FL 134 (f) 2.1 (f)
February 5, 2004 Sixth Avenue Zephryhills, FL 140 (f) 2.3 (f)
February 5, 2004 Suni Sands Yuma, AZ 336 (f) 3.2 (f)
February 5, 2004 Topic's Spring Hill, FL 230 (f) 2.2 (f)
February 5, 2004 Coachwood Colony Leesburg, FL 200 (f) 4.3 (f)
February 5, 2004 Waterway Cedar Point, NC 336 (f) 6.3 (f)
February 5, 2004 Desert Paradise Yuma, AZ 260 (f) 1.5 (f)
February 5, 2004 Goose Creek Newport, NC 598 (f) 12.6 (f)
MEZZANINE INVESTMENTS(g):
February 3, 2004 Fiesta Grande I & II Casa Grande, AZ 767 --- --- 3.7
February 3, 2004 Tropical Palms North Ft. Myers, FL 297 --- --- 1.9
February 3, 2004 Island Vista Estates North Ft. Myers, FL 617 --- --- 4.6
February 3, 2004 Foothills West Casa Grande, AZ 188 --- --- 1.5
February 3, 2004 Capri Yuma, AZ 300 --- --- 2.1
February 3, 2004 Casita Verde Casa Grande, AZ 192 --- --- 1.2
February 3, 2004 Rambler's Rest Venice, FL 647 --- --- 6.2
February 3, 2004 Venture In Show Low, AZ 389 --- --- 2.4
February 3, 2004 Scenic Asheville, NC 224 --- --- 1.2
February 3, 2004 Clerbrook Clermont, FL 1,255 --- --- 3.9
February 3, 2004 Inlet Oaks Murrells Inlet, SC 178 --- --- 1.0
JOINT VENTURES(h):
December 18, 2003 Lake Myers Mocksville, NC 425 --- --- 0.4
January 21, 2004 Pine Haven Ocean View, NJ 625 --- --- 0.4
January 27, 2004 Twin Mills Howe, IN 501 --- --- 0.2
February 10, 2004 Plymouth Rock Elkhart Lake, WI 609 --- --- 0.4
(a) Property was purchased from O'Connell's Holding Corp. and O'Connell's, Inc.
(b) Property was purchased from Spring Gulch, Inc.
(c) Property was purchased from PRVR Limited Partnership.
(d) Property was purchased from Twin Lakes Land, LLC and Twin Lakes Camping
Resort, LLC.
(e) Property was purchased from Don-Bar Family Limited Partnership.
(f) The portfolio was acquired for a total purchase price of $62 million and
$20.4 million of net equity. The transaction was funded partially through
loans obtained on the individual properties as shown in the table.
(g) On February 3, 2004, the Company invested approximately $29.7 million in
preferred equity in six entities controlled by Diversified Investments,
Inc. ("Diversified"). In addition, the Company has invested approximately
$1.4 million in the Diversified entities managing these properties.
(h) The Company invested approximately $1.4 million with Diversified in four
separate entities, each controlling a Property.
F-29
MANUFACTURED HOME COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is unaudited quarterly data for 20032004 and 20022003 (amounts in
thousands, except for per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
20032004 3/31 6/30 9/30 12/31
---- ------- ------- ------- ----------------- ---------- ---------- ----------
(Restated) (Restated) (Restated) (Restated)
Total revenues(a) ................................................. $64,569 $66,760 $68,760 $71,066revenues (a)....................................... $80,320 $86,844 $89,425 $96,378
Income from continuing operations(a) ..............................operations (a).................... $ 7,3804,495 $ 5,112481 $ 5,200(864) $ (268)(80)
Income from discontinued operations(a) ............................operations (a).................. $ 29415 $ 9,288(21) $ 8-- $ --
Net income (loss) available to common shareholders ................stockholders....... $ 7,674 $14,4004,510 $ 5,208460 $ (268)(864) $ (80)
Weighted average Common Shares outstanding - Basic ................ 21,918 22,027 22,114 22,247Basic....... 22,674 22,737 22,829 22,906
Weighted average Common Shares outstanding - Diluted .............. 27,276 27,371 27,458 27,568Diluted..... 27,986 28,655 29,335 29,360
Net income (loss) per Common Share outstanding - Basic ............Basic... $ .350.20 $ .650.02 $ .24(0.04) $ (.01)(0.00)
Net income (loss) per Common Share outstanding -
Diluted ..........Diluted............................................... $ .340.19 $ .640.02 $ .23(0.04) $ (.01)(0.00)
(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
20022003 3/31 6/30 9/30 12/31
---- -------- ------- ------- ----------------- ---------- ---------- ----------
(Restated) (Restated) (Restated) (Restated)
Total revenues(a) .................................................. $63,222 $64,414 $65,223 $68,508revenues (a)....................................... $64,569 $66,760 $68,760 $71,066
Income from continuing operations(a) ...............................operations (a).................... $ 6,5846,969 $ 5,9524,709 $ 5,0804,578 $ 6,090(714)
Income from discontinued operations(a) .............................operations (a).................. $ 531294 $ 4869,288 $ 1,632 $10,0908 $ --
Net income (loss) available to common shareholders ........................stockholders....... $ 7,1157,263 $13,997 $ 6,4384,586 $ 6,712 $16,180(714)
Weighted average Common Shares outstanding - Basic ................. 21,433 21,563 21,676 21,794Basic....... 21,918 22,027 22,114 22,247
Weighted average Common Shares outstanding - Diluted ............... 27,508 27,664 27,693 27,678Diluted..... 27,276 27,371 27,458 27,568
Net income (loss) per Common Share outstanding - Basic ....................Basic... $ 0.33 $ 0.300.64 $ 0.310.21 $ 0.74(0.03)
Net income (loss) per Common Share outstanding -
Diluted ..................Diluted.............................................. $ 0.32 $ 0.290.62 $ 0.300.20 $ 0.73(0.03)
(a) Amounts may differ from previously disclosed amounts due to
reclassification of discontinued operations.
F-30F-31
SCHEDULE II
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 20032004
ADDITIONS
-----------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO TO OTHER END OF
OF PERIOD INCOME ACCOUNTS DEDUCTIONS(1) PERIOD
---------- ---------- ------------------ ------------- ----------
For the year ended December 31, 2001:
Allowance for doubtful accounts ................. $300,000 $426,579 $--- ($426,579) $300,000
For the year ended December 31, 2002:
Allowance for doubtful accounts .................accounts...... $300,000 $940,565 $---$ 940,565 $ -- ($540,565) $700,000$ 700,000
For the year ended December 31, 2003:
Allowance for doubtful accounts .................accounts...... $700,000 $820,822 $---$ 820,822 $ -- ($693,822) $ 827,000
For the year ended December 31, 2004:
Allowance for doubtful accounts...... $827,000 $1,182,000 ($145,000) ($834,000) $1,030,000
(1) Deductions represent tenant receivables deemed uncollectible.
S-1
SCHEDULE III
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20032004
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- -------------------------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- ------------------------------------------------------------------------------------------------------------------------------- -------------------- ------------ ------ ----------- ---- -----------
Apollo Village ........... Phoenix AZ 4,0093,997 932 3,219 0 515578
Araby Acres .............. Yuma AZ 3,2503,222 1,440 4,345 0 012
The Highlands at Brentwood Mesa AZ 10,910 1,997 6,024 0 526738
Cactus Gardens Yuma AZ 4,849 1,992 5,984 0 12
Carefree Manor ........... Phoenix AZ 3,3983,394 706 3,040 0 219222
Casa del Sol #1 .......... Peoria AZ 10,44510,629 2,215 6,467 0 8741,235
Casa del Sol #2 .......... Glendale AZ 9,8279,983 2,103 6,283 0 604928
Casa del Sol #3 .......... Glendale AZ 11,18811,015 2,450 7,452 0 334375
Central Park ............. Phoenix AZ 5,1395,103 1,612 3,784 0 584641
Countryside .............. Phoenix AZ 3,7873,737 2,056 6,241 0 171206
Desert Paradise Yuma AZ 1,452 666 2,011 0 4
Desert Skies ............. Phoenix AZ 5,046 792 3,126 0 185296
Fairview Manor ........... Tucson AZ 5,1145,048 1,674 4,708 0 1,113
Foothill ................. Yuma AZ 1,350 459 1,402 0 016
Golden Sun ............... Scottsdale AZ 3,0292,976 1,678 5,049 0 2748
Hacienda De Valencia ..... Mesa AZ 5,6766,063 833 2,701 0 1,6592,123
Monte Vista Mesa AZ 22,844 11,402 34,355 0 157
Palm Shadows ............. Glendale AZ 8,4808,471 1,400 4,218 0 368391
Paradise Sun City AZ 19,813 6,414 19,263 0 56
Sedona Shadows ........... Sedona AZ 2,5212,465 1,096 3,431 0 391538
Suni Sands Yuma AZ 3,172 1,249 3,759 0 7
Sunrise Heights .......... Phoenix AZ 5,636 1,000 3,016 0 369413
The Mark ................. Mesa AZ 8,9438,826 1,354 4,660 6 793846
The Meadows .............. Tempe AZ 12,06012,436 2,613 7,887 0 5331,103
Viewpoint Mesa AZ 43,703 24,890 56,340 0 99
Whispering Palms ......... Phoenix AZ 3,219 670 2,141 0 161182
California Hawaiian ...... San Jose CA 27,44926,968 5,825 17,755 0 1,5321,581
Colony Park .............. Ceres CA 5,826 890 2,837 0 262319
Concord Cascade .......... Pacheco CA 5,2915,411 985 3,016 0 8401,047
Contempo Marin ........... San Rafael CA 25,66925,233 4,787 16,379 0 2,3182,376
Coralwood ................ Modesto CA 6,200 0 5,047 0 245276
Date Palm Country Club ... Cathedral City CA 15,34015,194 4,138 14,064 (23) 2,755-23 3,416
Date Palm ................ Cathedral City CA 0 0 216 0 2647
Four Seasons ............. Fresno CA 0 756 2,348 0 199245
Laguna Lake .............. San Luis Obispo CA 5,1284,916 2,845 6,520 0 241
Lamplighter .............. Spring Valley CA 3,806 633 2,201 0 648
Meadowbrook .............. Santee CA 0 4,345 12,528 0 1,277
Monte del Lago ........... Castroville CA 7,845 3,150 9,469 0 1,026
Quail Meadows ............ Riverbank CA 5,280 1,155 3,469 0 259
Nicholson Plaza .......... San Jose CA 0 0 4,512 0 53
Rancho Mesa .............. El Cajon CA 9,600 2,130 6,389 0 204252
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------04
-------------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- --------------------------------------------------------------------------------------------------------------------------------- -------------------- ------ ----------- ------ ------------ -----------
Apollo Village ........... Phoenix AZ 932 3,734 4,666 (1,163)3,797 4,729 (1,302) 1994
Araby Acres .............. Yuma AZ 1,440 4,345 5,785 (12)4,357 5,797 (158) 2003
The Highlands at Brentwood Mesa AZ 1,997 6,550 8,547 (2,315)6,762 8,759 (2,566) 1993
Cactus Gardens Yuma AZ 1,992 5,996 7,988 (102) 2004
Carefree Manor ........... Phoenix AZ 706 3,259 3,965 (683)3,262 3,968 (803) 1998
Casa del Sol #1 .......... Peoria AZ 2,215 7,341 9,556 (1,355)7,702 9,917 (1,587) 1996
Casa del Sol #2 .......... Glendale AZ 2,103 6,887 8,990 (1,248)7,211 9,314 (1,458) 1996
Casa del Sol #3 .......... Glendale AZ 2,450 7,786 10,236 (1,448)7,827 10,277 (1,722) 1998
Central Park ............. Phoenix AZ 1,612 4,368 5,980 (2,781)4,425 6,037 (2,947) 1983
Countryside .............. Phoenix AZ 2,056 6,412 8,468 (284)6,447 8,503 (510) 2002
Desert Paradise Yuma AZ 666 2,015 2,681 (63) 2004
Desert Skies ............. Phoenix AZ 792 3,311 4,103 (693)3,422 4,214 (809) 1998
Fairview Manor ........... Tucson AZ 1,674 5,821 7,495 (1,122)(1,352) 1998
Foothill ................. Yuma AZ 459 1,402 1,861 (4)1,418 1,877 (52) 2003
Golden Sun ............... Scottsdale AZ 1,678 5,076 6,754 (229)5,097 6,775 (407) 2002
Hacienda De Valencia ..... Mesa AZ 833 4,360 5,193 (2,248)4,824 5,657 (2,475) 1984
Monte Vista Mesa AZ 11,402 34,512 45,914 (766) 2004
Palm Shadows ............. Glendale AZ 1,400 4,586 5,986 (1,667)4,609 6,009 (1,837) 1993
Paradise Sun City AZ 6,414 19,319 25,733 (592) 2004
Sedona Shadows ........... Sedona AZ 1,096 3,822 4,918 (835)3,969 5,065 (979) 1997
Suni Sands Yuma AZ 1,249 3,766 5,015 (116) 2004
Sunrise Heights .......... Phoenix AZ 1,000 3,385 4,385 (1,104)3,429 4,429 (1,227) 1994
The Mark ................. Mesa AZ 1,360 5,453 6,813 (1,691)5,506 6,866 (1,892) 1994
The Meadows .............. Tempe AZ 2,613 8,420 11,033 (2,787)8,990 11,603 (3,091) 1994
Viewpoint Mesa AZ 24,890 56,439 81,329 (1,096) 2004
Whispering Palms ......... Phoenix AZ 670 2,302 2,972 (493)2,323 2,993 (580) 1998
California Hawaiian ...... San Jose CA 5,825 19,287 25,112 (4,206)19,336 25,161 (4,884) 1997
Colony Park .............. Ceres CA 890 3,099 3,989 (776)3,156 4,046 (899) 1998
Concord Cascade .......... Pacheco CA 985 3,856 4,841 (2,317)4,063 5,048 (2,467) 1983
Contempo Marin ........... San Rafael CA 4,787 18,697 23,484 (5,712)18,755 23,542 (6,419) 1994
Coralwood ................ Modesto CA 0 5,292 5,292 (1,149)5,323 5,323 (1,350) 1997
Date Palm Country Club ... Cathedral City CA 4,115 16,819 20,934 (5,038)17,480 21,595 (5,722) 1994
Date Palm ................ Cathedral City CA 0 242 242 (85)263 263 (100) 1994
Four Seasons ............. Fresno CA 756 2,547 3,303 (566)2,593 3,349 (665) 1997
Laguna Lake .............. San Luis Obispo CA 2,845 6,761 9,606 (1,461) 1998
Lamplighter .............. Spring Valley CA 633 2,849 3,482 (1,739) 1983
Meadowbrook .............. Santee CA 4,345 13,805 18,150 (2,587) 1998
Monte del Lago ........... Castroville CA 3,150 10,495 13,645 (2,213) 1997
Quail Meadows ............ Riverbank CA 1,155 3,728 4,883 (712) 1998
Nicholson Plaza .......... San Jose CA 0 4,565 4,565 (970) 1997
Rancho Mesa .............. El Cajon CA 2,130 6,593 8,723 (1,223)6,772 9,617 (1,693) 1998
S-2
SCHEDULE III
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- --------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------------------------------------------------------------------------------------------------
Rancho Valley El Cajon CA 3,668 685 1,902 0 769
Royal Holiday Hemet CA 0 778 2,643 0 270
Royal Oaks Visalia CA 0 602 1,921 0 274
DeAnza Santa Cruz Santa Cruz CA 10,456 2,103 7,201 0 5,514
Santiago Estates Sylmar CA 16,205 3,562 10,767 0 633
Sea Oaks Los Osos CA 0 871 2,703 0 243
Sunshadow San Jose CA 0 0 5,707 0 129
Westwinds (4 properties) San Jose CA 0 0 17,616 0 4,988
Bear Creek Sheridan CO 4,880 1,100 3,359 0 209
Cimarron Broomfield CO 4,653 863 2,790 0 604
Golden Terrace Golden CO 4,245 826 2,415 0 643
Golden Terrace South Golden CO 2,400 750 2,265 0 548
Golden Terrace West Golden CO 8,432 1,694 5,065 0 955
Hillcrest Village Aurora CO 10,581 1,912 5,202 289 2,277
Holiday Hills Denver CO 14,856 2,159 7,780 0 3,652
Holiday Village CO Co. Springs CO 3,536 567 1,759 0 909
Pueblo Grande Pueblo CO 1,890 241 1,069 0 419
Woodland Hills Denver CO 7,499 1,928 4,408 0 2,391
Aspen Meadows Rehoboth Beach DE 5,620 1,148 3,460 0 192
Camelot Meadows Rehoboth Beach DE 7,400 527 2,058 1,251 3,643
Mariners Cove Millsboro DE 16,452 990 2,971 0 3,393
McNicol Rehoboth Beach DE 2,710 563 1,710 0 58
Sweetbriar Rehoboth Beach DE 3,040 498 1,527 0 268
Waterford Estates Bear DE 30,954 5,250 16,202 0 479
Whispering Pines Lewes DE 9,871 1,536 4,609 0 911
Maralago Cay Lantana FL 21,600 5,325 15,420 0 2,613
Bay Indies Venice FL 44,524 10,483 31,559 10 3,054
Bay Lake Estates Nokomis FL 3,708 990 3,390 0 875
Breezy Hill Pompano Beach FL 10,281 5,510 16,555 0 46
Buccaneer N. Ft. Myers FL 13,902 4,207 14,410 0 1,085
Bulow Village Resort Flagler Beach FL 0 0 228 0 37
Bulow Village Flagler Beach FL 10,404 3,637 949 0 5,106
Carriage Cove Daytona Beach FL 8,084 2,914 8,682 0 756
Coral Cay Margate FL 20,195 5,890 20,211 0 2,518
Coquina St Augustine FL 0 5,286 5,545 0 5,276
Meadows at Countrywood Plant City FL 18,292 4,514 13,175 0 2,575
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ----------------------------------------------------------------------------------------------------------------------
Rancho Valley El Cajon CA 685 2,671 3,356 (1,524) 1983
Royal Holiday Hemet CA 778 2,913 3,691 (497) 1998
Royal Oaks Visalia CA 602 2,195 2,797 (470) 1997
DeAnza Santa Cruz Santa Cruz CA 2,103 12,715 14,818 (2,366) 1994
Santiago Estates Sylmar CA 3,562 11,400 14,962 (2,317) 1998
Sea Oaks Los Osos CA 871 2,946 3,817 (616) 1997
Sunshadow San Jose CA 0 5,836 5,836 (1,259) 1997
Westwinds (4 properties) San Jose CA 0 22,604 22,604 (4,951) 1997
Bear Creek Sheridan CO 1,100 3,568 4,668 (705) 1998
Cimarron Broomfield CO 863 3,394 4,257 (2,128) 1983
Golden Terrace Golden CO 826 3,058 3,884 (1,751) 1983
Golden Terrace South Golden CO 750 2,813 3,563 (611) 1997
Golden Terrace West Golden CO 1,694 6,020 7,714 (3,184) 1986
Hillcrest Village Aurora CO 2,201 7,479 9,680 (4,535) 1983
Holiday Hills Denver CO 2,159 11,432 13,591 (6,672) 1983
Holiday Village CO Co. Springs CO 567 2,668 3,235 (1,462) 1983
Pueblo Grande Pueblo CO 241 1,488 1,729 (904) 1983
Woodland Hills Denver CO 1,928 6,799 8,727 (2,272) 1994
Aspen Meadows Rehoboth Beach DE 1,148 3,652 4,800 (762) 1998
Camelot Meadows Rehoboth Beach DE 1,778 5,701 7,479 (1,119) 1998
Mariners Cove Millsboro DE 990 6,364 7,354 (2,594) 1987
McNicol Rehoboth Beach DE 563 1,768 2,331 (350) 1998
Sweetbriar Rehoboth Beach DE 498 1,795 2,293 (427) 1998
Waterford Estates Bear DE 5,250 16,681 21,931 (2,679) 1996
Whispering Pines Lewes DE 1,536 5,520 7,056 (2,638) 1998
Maralago Cay Lantana FL 5,325 18,033 23,358 (3,579) 1997
Bay Indies Venice FL 10,493 34,613 45,106 (10,939) 1994
Bay Lake Estates Nokomis FL 990 4,265 5,255 (1,287) 1994
Breezy Hill Pompano Beach FL 5,510 16,601 22,111 (735) 2002
Buccaneer N. Ft. Myers FL 4,207 15,495 19,702 (4,795) 1994
Bulow Village Resort Flagler Beach FL 0 265 265 (31) 2001
Bulow Village Flagler Beach FL 3,637 6,055 9,692 (1,170) 1994
Carriage Cove Daytona Beach FL 2,914 9,438 12,352 (1,955) 1998
Coral Cay Margate FL 5,890 22,729 28,619 (6,732) 1994
Coquina St Augustine FL 5,286 10,821 16,107 (1,155) 1999
Meadows at Countrywood Plant City FL 4,514 15,750 20,264 (2,949) 1998
S-3
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------ -------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------------------------------------------------------------------------------------------------
Country Place New Port Richey FL 8,500 663 0 18 7,095
Country Side North Vero Beach FL 17,347 3,711 11,133 0 1,597
Down Yonder Largo FL 7,776 2,652 7,981 0 53
East Bay Oaks Largo FL 5,532 1,240 3,322 0 499
Eldorado Village Largo FL 3,910 778 2,341 0 458
Glen Ellen Clearwater FL 2,440 627 1,882 0 22
Grand Island Grand Island FL 0 1,723 5,208 125 1,711
Hacienda Village New Port Richey FL 10,028 4,362 13,088 0 192
Harbor View New Port Richey FL 8,053 4,045 12,146 0 48
Heritage Village Vero Beach FL 13,520 2,403 7,259 0 631
Highland Wood Pompano Beach FL 2,408 1,043 3,130 0 4
Hillcrest Clearwater FL 4,297 1,278 3,928 0 647
Holiday Ranch Largo FL 3,835 925 2,866 0 191
Holiday Village FL Vero Beach FL 0 350 1,374 0 132
Holiday Village Ormond Beach FL 7,049 2,610 7,837 0 62
Indian Oaks Rockledge FL 4,449 1,089 3,376 0 712
Lake Fairways N. Ft. Myers FL 30,460 6,075 18,134 35 1,376
Lake Haven Dunedin FL 7,862 1,135 4,047 0 2,011
Lakewood Village Melbourne FL 9,818 1,862 5,627 0 557
Lighthouse Pointe Port Orange FL 12,701 2,446 7,483 23 816
Mid-Florida Lakes Leesburg FL 21,815 5,997 20,635 0 4,284
Oak Bend Ocala FL 5,772 850 2,572 0 850
Pickwick Port Orange FL 10,438 2,803 8,870 0 474
Pine Lakes N. Ft. Myers FL 31,464 6,306 14,579 21 5,311
Sherwood Forest Kissimmee FL 27,355 4,852 14,596 0 3,531
Sherwood Forest Resort Kissimmee FL 0 2,870 3,621 568 1,287
Silk Oak Clearwater FL 3,854 1,670 5,028 0 36
Southern Palms Eustis FL 5,727 2,169 5,884 0 1,471
Spanish Oaks Ocala FL 7,164 2,250 6,922 0 847
Oaks at Countrywood Plant City FL 1,318 1,111 2,513 (265) 1,325
The Heritage N. Ft. Myers FL 9,791 1,438 4,371 346 3,030
The Lakes at Countrywood Plant City FL 9,711 2,377 7,085 0 753
The Meadows, FL Palm Beach FL 6,106 3,229 9,870 0 1,088
Gardens
Toby's Arcadia FL 0 1,093 3,280 0 0
Windmill Manor Bradenton FL 8,022 2,153 6,125 0 1,058
Windmill Village - Ft. Myers N. Ft. Myers FL 8,835 1,417 5,440 0 1,226
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ----------------------------------------------------------------------------------------------------------------------
Country Place New Port Richey FL 681 7,095 7,776 (2,539) 1986
Country Side North Vero Beach FL 3,711 12,730 16,441 (2,709) 1998
Down Yonder Largo FL 2,652 8,034 10,686 (359) 1998
East Bay Oaks Largo FL 1,240 3,821 5,061 (2,438) 1983
Eldorado Village Largo FL 778 2,799 3,577 (1,746) 1983
Glen Ellen Clearwater FL 627 1,904 2,531 (70) 2002
Grand Island Grand Island FL 1,848 6,919 8,767 (621) 2001
Hacienda Village New Port Richey FL 4,362 13,280 17,642 (476) 2002
Harbor View New Port Richey FL 4,045 12,194 16,239 (542) 2002
Heritage Village Vero Beach FL 2,403 7,890 10,293 (2,492) 1994
Highland Wood Pompano Beach FL 1,043 3,134 4,177 (139) 2002
Hillcrest Clearwater FL 1,278 4,575 5,853 (1,023) 1998
Holiday Ranch Largo FL 925 3,057 3,982 (638) 1998
Holiday Village FL Vero Beach FL 350 1,506 1,856 (336) 1998
Holiday Village Ormond Beach FL 2,610 7,899 10,509 (354) 2002
Indian Oaks Rockledge FL 1,089 4,088 5,177 (905) 1998
Lake Fairways N. Ft. Myers FL 6,110 19,510 25,620 (5,849) 1994
Lake Haven Dunedin FL 1,135 6,058 7,193 (3,060) 1983
Lakewood Village Melbourne FL 1,862 6,184 8,046 (1,984) 1994
Lighthouse Pointe Port Orange FL 2,469 8,299 10,768 (1,730) 1998
Mid-Florida Lakes Leesburg FL 5,997 24,919 30,916 (7,209) 1994
Oak Bend Ocala FL 850 3,422 4,272 (1,110) 1993
Pickwick Port Orange FL 2,803 9,344 12,147 (1,831) 1998
Pine Lakes N. Ft. Myers FL 6,327 19,890 26,217 (5,887) 1994
Sherwood Forest Kissimmee FL 4,852 18,127 22,979 (3,404) 1998
Sherwood Forest Resort Kissimmee FL 3,438 4,908 8,346 (877) 1998
Silk Oak Clearwater FL 1,670 5,064 6,734 (184) 2002
Southern Palms Eustis FL 2,169 7,355 9,524 (1,381) 1998
Spanish Oaks Ocala FL 2,250 7,769 10,019 (2,551) 1993
Oaks at Countrywood Plant City FL 846 3,838 4,684 (549) 1998
The Heritage N. Ft. Myers FL 1,784 7,401 9,185 (2,191) 1993
The Lakes at Countrywood Plant City FL 2,377 7,838 10,215 (766) 2001
The Meadows, FL Palm Beach FL 3,229 10,958 14,187 (1,695) 1999
Gardens
Toby's Arcadia FL 1,093 3,280 4,373 (9) 2003
Windmill Manor Bradenton FL 2,153 7,183 9,336 (1,350) 1998
Windmill Village - Ft. Myers N. Ft. Myers FL 1,417 6,666 8,083 (4,108) 1983
S-4
SCHEDULE III
MANUFACTURED HOME COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20032004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------- -------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- -------------------------------------------------------------------------------------------------------------------------------------------- ----------------- ------------ ----- ------------- ----- -------------
WindsLamplighter Spring Valley CA 3,761 633 2,201 0 675
Las Palmas Rialto CA 3,807 1,295 3,866 0 20
Meadowbrook Santee CA 0 4,345 12,528 0 1,522
Monte del Lago Castroville CA 7,673 3,150 9,469 0 1,464
Quail Meadows Riverbank CA 5,280 1,155 3,469 0 293
Nicholson Plaza San Jose CA 0 0 4,512 0 72
Pacific Dunes Ranch California CA 6,025 1,940 5,632 0 27
Central Coast
Parque La Quinta Rialto CA 5,105 1,799 5,450 0 -45
Rancho Mesa El Cajon CA 9,600 2,130 6,389 0 249
Rancho Valley El Cajon CA 3,624 685 1,902 0 794
Royal Holiday Hemet CA 0 778 2,643 0 374
Royal Oaks Visalia CA 0 602 1,921 0 281
DeAnza Santa Cruz Santa Cruz CA 6,871 2,103 7,201 0 317
Santiago Estates Sylmar CA 16,205 3,562 10,767 0 769
Sea Oaks Los Osos CA 0 871 2,703 0 267
Sunshadow San Jose CA 0 0 5,707 0 137
Tahoe Valley Campground Lake Tahoe CA 2,246 1,357 4,071 0 12
Village of St. Armands North
(fka Windmill North) Sarasota FL 8,589 1,523 5,063Four Seasons San Jose CA 15,332 5,229 15,714 0 1,272
Winds of St. Armands18
Westwinds (4 properties) San Jose CA 0 0 17,616 0 5,116
Bear Creek Sheridan CO 4,880 1,100 3,359 0 248
Cimarron Broomfield CO 4,541 863 2,790 0 584
Golden Terrace Golden CO 4,246 826 2,415 0 720
Golden Terrace South (fka Windmill South) Sarasota FL 5,486 1,106 3,162Golden CO 2,400 750 2,265 0 751
Five Seasons Cedar Rapids IA617
Golden Terrace West Golden CO 8,328 1,694 5,065 0 1,053 3,4361,011
Hillcrest Village Aurora CO 10,504 1,912 5,202 289 2,397
Holiday Hills Denver CO 14,746 2,159 7,780 0 5583,819
Holiday Village IA Sioux City IACO Co. Springs CO 3,471 567 1,759 0 313 3,744912
Pueblo Grande Pueblo CO 1,867 241 1,069 0 457
Golf Vistas Monee IL 14,593 2,843 4,719432
Woodland Hills Denver CO 7,390 1,928 4,408 0 5,415
Willow Lake2,407
Aspen Meadows Rehoboth Beach DE 5,620 1,148 3,460 0 338
Camelot Meadows Rehoboth Beach DE 7,304 527 2,058 1,251 3,719
Mariners Cove Millsboro DE 16,452 990 2,971 0 3,909
McNicol Rehoboth Beach DE 2,710 563 1,710 0 72
Sweetbriar Rehoboth Beach DE 3,040 498 1,527 0 377
Waterford Estates Elgin IL 21,365 6,138 21,033Bear DE 30,954 5,250 16,202 0 3,107
Forest Oaks (fka Burns
Harbor) Chesterton IN614
Whispering Pines Lewes DE 9,871 1,536 4,609 0 916 2,909 0 1,672
Oak Tree Village Portage IN 4,507 0 0 569 3,554
Windsong Indianapolis IN 0 1,482 4,480 0 167
Creekside Wyoming MI 3,760 1,109 3,646 0 40
Casa Village Billings MT 11,040 1,011 3,109 181 2,421
Del Rey Albuquerque NM 0 1,926 5,800 0 721
Bonanza Las Vegas NV 4,742 908 2,643 0 787
Boulder Cascade Las Vegas NV 8,980 2,995 9,020 0 794
Cabana Las Vegas NV 9,363 2,648 7,989 0 259
Flamingo West Las Vegas NV 10,788 1,730 5,266 0 1,201
Villa Borega Las Vegas NV 7,170 2,896 8,774 0 273
Greenwood Village Manorville NY 17,698 3,667 9,414 484 3,433
Falcon Wood Village Eugene OR 5,200 1,112 3,426 0 164
Quail Hollow Fairview OR 0 0 3,249 0 161
Shadowbrook Clackamas OR 6,320 1,197 3,693 0 125
Mt. Hood Village Welches OR 0 1,817 5,733 0 (308)
Green Acres Breinigsville PA 13,839 2,680 7,479 0 2,502
Fun n Sun San Benito TX 0 2,533 0 417 9,609
Tropic Winds Harlingen TX 0 1,221 3,809 0 82
All Seasons Salt Lake City UT 3,491 510 1,623 0 207
Westwood Village Farr West UT 7,591 1,346 4,179 0 1,107
Meadows of Chantilly Chantilly VA 27,284 5,430 16,440 0 3,091
Kloshe Illahee Federal Way WA 6,222 2,408 7,286 0 2091,005
Gross Amount Carried
at Close of
Period 12/31/03
------------------------------04
----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ---------------------------------------------------------------------------------------------------------------------------------------------- ----------------- ----- ----------- ------ ------------ -----------
WindsLamplighter Spring Valley CA 633 2,876 3,509 (1,853) 1983
Las Palmas Rialto CA 3,886 5,181 (76) 2004
Meadowbrook Santee CA 4,345 14,050 18,395 (3,073) 1998
Monte del Lago Castroville CA 3,150 10,933 14,083 (2,612) 1997
Quail Meadows Riverbank CA 1,155 3,762 4,917 (844) 1998
Nicholson Plaza San Jose CA 0 4,584 4,584 (1,126) 1997
Pacific Dunes Ranch California CA 1,940 5,659 7,599 (178) 2004
Central Coast
Parque La Quinta Rialto CA 1,799 5,405 7,204 (197) 2004
Rancho Mesa El Cajon CA 2,130 6,638 8,768 (1,453) 1998
Rancho Valley El Cajon CA 685 2,696 3,381 (1,633) 1983
Royal Holiday Hemet CA 778 3,017 3,795 (606) 1998
Royal Oaks Visalia CA 602 2,202 2,804 (554) 1997
DeAnza Santa Cruz Santa Cruz CA 2,103 7,518 15,012 (2,553) 1994
Santiago Estates Sylmar CA 3,562 11,536 15,098 (2,710) 1998
Sea Oaks Los Osos CA 871 2,970 3,841 (720) 1997
Sunshadow San Jose CA 0 5,844 5,844 (1,464) 1997
Tahoe Valley Campground Lake Tahoe CA 1,357 4,083 5,440 (124) 2004
Village of St. Armands North
(fka Windmill North) Sarasota FL 1,523 6,335 7,858 (3,680)Four Seasons San Jose CA 5,229 15,732 20,961 (349) 2004
Westwinds (4 properties) San Jose CA 0 22,732 22,732 (5,844) 1997
Bear Creek Sheridan CO 1,100 3,607 4,707 (833) 1998
Cimarron Broomfield CO 863 3,374 4,237 (2,227) 1983
Winds of St. ArmandsGolden Terrace Golden CO 826 3,135 3,961 (1,868) 1983
Golden Terrace South (fka Windmill South) Sarasota FL 1,106 3,913 5,019 (2,296)Golden CO 750 2,882 3,632 (717) 1997
Golden Terrace West Golden CO 1,694 6,076 7,770 (3,399) 1986
Hillcrest Village Aurora CO 2,201 7,599 9,800 (4,843) 1983
Five Seasons Cedar Rapids IA 1,053 3,994 5,047 (1,065) 1998Holiday Hills Denver CO 2,159 11,599 13,758 (7,158) 1983
Holiday Village IA Sioux City IA 313 4,201 4,514 (2,400) 1986
Golf Vistas Monee IL 2,843 10,134 12,977 (1,753) 1997
Willow LakeCO Co. Springs CO 567 2,671 3,238 (1,583) 1983
Pueblo Grande Pueblo CO 241 1,501 1,742 (968) 1983
Woodland Hills Denver CO 1,928 6,815 8,743 (2,522) 1994
Aspen Meadows Rehoboth Beach DE 1,148 3,798 4,946 (894) 1998
Camelot Meadows Rehoboth Beach DE 1,778 5,777 7,555 (1,318) 1998
Mariners Cove Millsboro DE 990 6,880 7,870 (2,868) 1987
McNicol Rehoboth Beach DE 563 1,782 2,345 (410) 1998
Sweetbriar Rehoboth Beach DE 498 1,904 2,402 (496) 1998
Waterford Estates Elgin IL 6,138 24,140 30,278 (7,160) 1994
Forest Oaks (fka Burns
Harbor) Chesterton IN 916 4,581 5,497 (1,693) 1993
Oak Tree Village Portage IN 569 3,554 4,123 (1,613) 1987
Windsong Indianapolis IN 1,482 4,647 6,129 (1,118)Bear DE 5,250 16,816 22,066 (3,037) 1996
Whispering Pines Lewes DE 1,536 5,614 7,150 (2,844) 1998
Creekside Wyoming MI 1,109 3,686 4,795 (763) 1998
Casa Village Billings MT 1,192 5,530 6,722 (2,865) 1983
Del Rey Albuquerque NM 1,926 6,521 8,447 (2,365) 1993
Bonanza Las Vegas NV 908 3,430 4,338 (2,091) 1983
Boulder Cascade Las Vegas NV 2,995 9,814 12,809 (1,961) 1998
Cabana Las Vegas NV 2,648 8,248 10,896 (2,648) 1994
Flamingo West Las Vegas NV 1,730 6,467 8,197 (1,861) 1994
Villa Borega Las Vegas NV 2,896 9,047 11,943 (1,945) 1997
Greenwood Village Manorville NY 4,151 12,847 16,998 (2,156) 1998
Falcon Wood Village Eugene OR 1,112 3,590 4,702 (772) 1997
Quail Hollow Fairview OR 0 3,410 3,410 (737) 1997
Shadowbrook Clackamas OR 1,197 3,818 5,015 (863) 1997
Mt. Hood Village Welches OR 1,817 5,425 7,242 (377) 2002
Green Acres Breinigsville PA 2,680 9,981 12,661 (4,718) 1988
Fun n Sun San Benito TX 2,950 9,609 12,559 (1,707) 1998
Tropic Winds Harlingen TX 1,221 3,891 5,112 (176) 2002
All Seasons Salt Lake City UT 510 1,830 2,340 (421) 1997
Westwood Village Farr West UT 1,346 5,286 6,632 (1,161) 1997
Meadows of Chantilly Chantilly VA 5,430 19,531 24,961 (6,053) 1994
Kloshe Illahee Federal Way WA 2,408 7,495 9,903 (1,582) 1997
S-5S-3
SCHEDULE III
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20032004
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
-------------------- ---------------------------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- ----------------------------------------------------------------------------------------------------------------------------------------------- ------------------- ------------ ------ ----------- ---- -----------
Realty Systems, Inc.Maralago Cay Lantana FL 21,600 5,325 15,420 0 3,073
Barrington Hills Port Richey FL 3,220 1,145 3,437 0 0
Bay Indies Venice FL 43,662 10,483 31,559 10 3,482
Bay Lake Estates Nokomis FL 3,807 990 3,390 0 951
Breezy Hill Pompano Beach FL 10,065 5,510 16,555 0 112
Buccaneer N. Ft. Myers FL 14,140 4,207 14,410 0 1,183
Bulow Village Resort Flagler Beach FL 0 0 4,191
Management Business228 0 56
Bulow Village Flagler Beach FL 10,268 3,637 949 0 4365,458
Carefree Cove Fort Lauderdale FL 4,777 1,741 5,170 0 8,973
-------------------------------------------------------------
$1,076,184 $278,748 $850,290 $4,055 $182,003
-============================================================79
Carriage Cove Daytona Beach FL 8,010 2,914 8,682 0 788
Coachwood Leesburg FL 4,238 1,607 4,822 0 19
Coral Cay Margate FL 20,874 5,890 20,211 0 3,129
Coquina St Augustine FL 0 5,286 5,545 0 8,856
Meadows at Countrywood Plant City FL 18,273 4,514 13,175 0 3,869
Country Place New Port Richey FL 8,346 663 0 18 7,106
Country Side North Vero Beach FL 17,328 3,711 11,133 0 1,663
Crystal Isles Crystal River FL 2,832 926 2,787 0 5
Down Yonder Largo FL 7,707 2,652 7,981 0 69
East Bay Oaks Largo FL 5,493 1,240 3,322 0 563
Eldorado Village Largo FL 3,946 778 2,341 0 563
Fort Myers Beach Resort Fort Myers Beach FL 4,428 1,493 4,480 0 1
Glen Ellen Clearwater FL 2,395 627 1,882 0 26
Grand Island Grand Island FL 0 1,723 5,208 125 2,606
Gulf Air Resort Fort Myers Beach FL 4,021 1,609 4,830 0 13
Gulf View Punta Gorda FL 1,698 717 2,158 0 3
Hacienda Village New Port Richey FL 9,842 4,362 13,088 0 454
Harbor Lakes Port Charlotte FL 8,997 3,384 10,154 0 17
Harbor View New Port Richey FL 7,932 4,045 12,146 0 54
Heritage Village Vero Beach FL 13,520 2,403 7,259 0 690
Highland Wood Pompano Beach FL 2,358 1,043 3,130 0 10
Hillcrest Clearwater FL 4,236 1,278 3,928 0 750
Holiday Ranch Largo FL 3,785 925 2,866 0 227
Holiday Village FL Vero Beach FL 0 350 1,374 0 139
Holiday Village Ormond Beach FL 6,972 2,610 7,837 0 121
Indian Oaks Rockledge FL 4,389 1,089 3,376 0 728
Lake Fairways N. Ft. Myers FL 30,460 6,075 18,134 35 1,443
Gross Amount Carried
at Close of
Period 12/31/03
--------------------------------04
-----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- ------------------------------------------------------------------------------------------------------------------------------------------------- ------------------- ------ ----------- ------ ------------ -----------
Maralago Cay Lantana FL 5,325 18,493 23,818 (4,258) 1997
Barrington Hills - Sunburst Port Richey FL 1,145 3,437 4,582 (105) 2004
Bay Indies Venice FL 10,493 35,041 45,534 (12,148) 1994
Bay Lake Estates Nokomis FL 990 4,341 5,331 (1,455) 1994
Breezy Hill Pompano Beach FL 5,510 16,667 22,177 (1,294) 2002
Buccaneer N. Ft. Myers FL 4,207 15,593 19,800 (5,350) 1994
Bulow Village Resort Flagler Beach FL 0 284 284 (51) 2001
Bulow Village Flagler Beach FL 3,637 6,407 10,044 (1,391) 1994
Carefree Cove Fort Lauderdale FL 1,741 5,249 6,990 (119) 2004
Carriage Cove Daytona Beach FL 2,914 9,470 12,384 (2,292) 1998
Coachwood Leesburg FL 1,607 4,841 6,448 (148) 2004
Coral Cay Margate FL 5,890 23,340 29,230 (7,538) 1994
Coquina St Augustine FL 5,286 14,401 19,687 (1,571) 1999
Meadows at Countrywood Plant City FL 4,514 17,044 21,558 (3,540) 1998
Country Place New Port Richey FL 681 7,106 7,787 (2,834) 1986
Country Side North Vero Beach FL 3,711 12,796 16,507 (3,154) 1998
Crystal Isles - Encore Crystal River FL 926 2,792 3,718 (85) 2004
Down Yonder Largo FL 2,652 8,050 10,702 (631) 1998
East Bay Oaks Largo FL 1,240 3,885 5,125 (2,579) 1983
Eldorado Village Largo FL 778 2,904 3,682 (1,850) 1983
Fort Myers Beach Resort Fort Myers Beach FL 1,493 4,481 5,974 (137) 2004
Glen Ellen Clearwater FL 627 1,908 2,535 (135) 2002
Grand Island Grand Island FL 1,848 7,814 9,662 (868) 2001
Gulf Air Resort - Sunburst Fort Myers Beach FL 1,609 4,843 6,452 (148) 2004
Gulf View - Encore Punta Gorda FL 717 2,161 2,878 (66) 2004
Hacienda Village New Port Richey FL 4,362 13,542 17,904 (922) 2002
Harbor Lakes - Encore Port Charlotte FL 3,384 10,171 13,555 (310) 2004
Harbor View New Port Richey FL 4,045 12,200 16,245 (954) 2002
Heritage Village Vero Beach FL 2,403 7,949 10,352 (2,769) 1994
Highland Wood Pompano Beach FL 1,043 3,140 4,183 (243) 2002
Hillcrest Clearwater FL 1,278 4,678 5,956 (1,195) 1998
Holiday Ranch Largo FL 925 3,093 4,018 (747) 1998
Holiday Village FL Vero Beach FL 350 1,513 1,863 (389) 1998
Holiday Village Ormond Beach FL 2,610 7,958 10,568 (621) 2002
Indian Oaks Rockledge FL 1,089 4,104 5,193 (1,051) 1998
Lake Fairways N. Ft. Myers FL 6,110 19,577 25,687 (6,537) 1994
S-4
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------- ------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
- --------------------------- ------------------ ------------ ----- ----------- ---- -----------
Lake Haven Dunedin FL 8,109 1,135 4,047 0 2,384
Lake Magic Orlando FL 2,818 1,595 4,793 0 45
Lakewood Village Melbourne FL 9,818 1,862 5,627 0 716
Lazy Lakes Florida Keys FL 2,048 816 2,449 0 3
Lighthouse Pointe Port Orange FL 12,535 2,446 7,483 23 894
Manatee Sarasota North FL 5,244 2,300 6,903 0 20
Mid-Florida Lakes Leesburg FL 22,639 5,997 20,635 0 5,070
Oak Bend Ocala FL 5,772 850 2,572 0 866
Park City West Fort Lauderdale FL 7,613 4,187 12,561 0 11
Pasco Tampa North FL 3,072 1,494 4,484 0 2
Pickwick Port Orange FL 10,280 2,803 8,870 0 490
Pine Lakes N. Ft. Myers FL 31,055 6,306 14,579 21 5,447
Pioneer Village N. Ft. Myers FL 10,379 4,116 12,353 0 39
Royal Coachman Nokomis FL 15,140 5,321 15,978 0 19
Shangri La Largo FL 4,496 1,730 5,200 0 36
Sherwood Forest Kissimmee FL 27,103 4,852 14,596 0 3,775
Sherwood Forest Resort Kissimmee FL 0 2,870 3,621 568 1,409
Silk Oak Clearwater FL 3,771 1,670 5,028 0 65
Silver Dollar Odessa FL 9,171 4,107 12,431 0 67
Sixth Ave Zephryhills FL 2,260 839 2,518 0 8
Southernaire Mt. Dora FL 2,092 798 2,395 0 10
Southern Palms Eustis FL 5,652 2,169 5,884 0 1,531
Spanish Oaks Ocala FL 7,008 2,250 6,922 0 877
Sunshine Key Florida Keys FL 16,522 5,273 15,822 0 23
Sunshine Holiday Daytona Beach FL 6,667 2,001 6,004 0 15
Sunshine Holiday RV & MHP Fort Lauderdale FL 8,509 3,099 9,286 0 18
Sunshine Travel Vero Beach FL 4,404 1,603 4,813 0 31
Oaks at Countrywood Plant City FL 1,300 1,111 2,513 -265 1,475
Terra Ceia Palmetto FL 2,528 967 2,905 0 15
The Heritage N. Ft. Myers FL 9,663 1,438 4,371 346 3,317
The Lakes at Countrywood Plant City FL 9,712 2,377 7,085 0 862
The Meadows, FL Palm Beach
Gardens FL 6,049 3,229 9,870 0 1,145
Toby's Arcadia FL 3,391 1,093 3,280 0 17
Topics RV Spring Hill FL 2,235 853 2,568 0 2
Tropical Palms Kissimmee FL 19,595 5,677 17,071 0 127
Vacation Village St. Petersburg FL 2,528 1,315 3,946 0 3
Gross Amount Carried
at Close of
Period 12/31/04
-----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
- --------------------------- ------------------ ----- ----------- ------ ------------ -----------
Lake Haven Dunedin FL 1,135 6,431 7,566 (3,292) 1983
Lake Magic Orlando FL 1,595 4,838 6,433 (146) 2004
Lakewood Village Melbourne FL 1,862 6,343 8,205 (2,212) 1994
Lazy Lakes Florida Keys FL 816 2,452 3,268 (75) 2004
Lighthouse Pointe Port Orange FL 2,469 8,377 10,846 (2,033) 1998
Manatee Sarasota North FL 2,300 6,923 9,223 (211) 2004
Mid-Florida Lakes Leesburg FL 5,997 25,705 31,702 (8,117) 1994
Oak Bend Ocala FL 850 3,438 4,288 (1,243) 1993
Park City West Fort Lauderdale FL 4,187 12,572 16,759 (384) 2004
Pasco Tampa North FL 1,494 4,486 5,980 (137) 2004
Pickwick Port Orange FL 2,803 9,360 12,163 (2,160) 1998
Pine Lakes N. Ft. Myers FL 6,327 20,026 26,353 (6,580) 1994
Pioneer Village N. Ft. Myers FL 4,116 12,392 16,508 (377) 2004
Royal Coachman Nokomis FL 5,321 15,997 21,318 (488) 2004
Shangri La Largo FL 1,730 5,236 6,966 (159) 2004
Sherwood Forest Kissimmee FL 4,852 18,371 23,223 (4,055) 1998
Sherwood Forest Resort Kissimmee FL 3,438 5,030 8,468 (1,101) 1998
Silk Oak Clearwater FL 1,670 5,093 6,763 (355) 2002
Silver Dollar Odessa FL 4,107 12,498 16,605 (376) 2004
Sixth Ave Zephryhills FL 839 2,526 3,365 (91) 2004
Southernaire Mt. Dora FL 798 2,405 3,203 (74) 2004
Southern Palms Eustis FL 2,169 7,415 9,584 (1,690) 1998
Spanish Oaks Ocala FL 2,250 7,799 10,049 (2,834) 1993
Sunshine Key Florida Keys FL 5,273 15,845 21,118 (483) 2004
Sunshine Holiday Daytona Beach FL 2,001 6,019 8,020 (183) 2004
Sunshine Holiday RV & MHP Fort Lauderdale FL 3,099 9,304 12,403 (180) 2004
Sunshine Travel Vero Beach FL 1,603 4,844 6,447 (147) 2004
Oaks at Countrywood Plant City FL 846 3,988 4,834 (698) 1998
Terra Ceia Palmetto FL 967 2,920 3,887 (90) 2004
The Heritage N. Ft. Myers FL 1,784 7,688 9,472 (2,475) 1993
The Lakes at Countrywood Plant City FL 2,377 7,947 10,324 (1,049) 2001
The Meadows, FL Palm Beach
Gardens FL 3,229 11,015 14,244 (2,089) 1999
Toby's Arcadia FL 1,093 3,297 4,390 (120) 2003
Topics RV Spring Hill FL 853 2,570 3,423 (79) 2004
Tropical Palms Kissimmee FL 5,677 17,198 22,875 (500) 2004
Vacation Village St. Petersburg FL 1,315 3,949 5,264 (121) 2004
S-5
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs
Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
------------------- ------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- ----------------- ------------ ----- ----------- ---- -----------
Windmill Manor Bradenton FL 7,958 2,153 6,125 0 1,137
Windmill Village - Ft. Myers N. Ft. Myers FL 8,700 1,417 5,440 0 1,260
Winds of St. Armands North
(fka Windmill North) Sarasota FL 8,842 1,523 5,063 0 1,663
Winds of St. Armands South
(fka Windmill South) Sarasota FL 5,464 1,106 3,162 0 830
Five Seasons Cedar Rapids IA 0 1,053 3,436 0 679
Holiday Village, IA Sioux City IA 0 313 3,744 0 520
Golf Vistas Monee IL 14,577 2,843 4,719 0 5,948
O'Connell's Amboy IL 4,955 1,658 4,974 0 148
Willow Lake Estates Elgin IL 22,129 6,138 21,033 0 3,816
Forest Oaks
(fka BurnsHarbor) Chesterton IN 0 916 2,909 0 1,740
Lakeside New Carlisle IN 0 426 1,281 0 12
Oak Tree Village Portage IN 4,476 0 0 569 3,607
Windsong Indianapolis IN 0 1,482 4,480 0 192
Creekside Wyoming MI 3,760 1,109 3,646 0 113
Casa Village Billings MT 11,040 1,011 3,109 157 3,471
Waterway RV Resort Cedar Point NC 6,226 2,392 7,185 0 3
Goose Creek Resort Newport NC 12,491 4,612 13,848 0 814
Twin Lakes Chocowinity NC 3,739 1,719 3,361 0 19
Del Rey Albuquerque NM 0 1,926 5,800 0 727
Bonanza Las Vegas NV 4,861 908 2,643 0 984
Boulder Cascade Las Vegas NV 8,871 2,995 9,020 0 1,136
Cabana Las Vegas NV 9,245 2,648 7,989 0 301
Flamingo West Las Vegas NV 10,647 1,730 5,266 0 1,273
Villa Borega Las Vegas NV 7,011 2,896 8,774 0 592
Greenwood Village Manorville NY 17,468 3,667 9,414 484 3,542
Falcon Wood Village Eugene OR 5,200 1,112 3,426 0 213
Quail Hollow Fairview OR 0 0 3,249 0 226
Shadowbrook Clackamas OR 6,320 1,197 3,693 0 165
Mt. Hood Village Welches OR 0 1,817 5,733 0 -302
Green Acres Breinigsville PA 13,908 2,680 7,479 0 2,817
Spring Gulch New Holland PA 4,819 1,593 4,795 0 6
Country Sunshine Weslaco TX 2,266 627 1,881 0 5
Fun n Sun San Benito TX 0 2,533 0 417 9,828
Lakewood Harlingen TX 1,227 325 979 0 2
Gross Amount Carried
at Close of
Period 12/31/04
-----------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- ----------------- ----- ----------- ------ ------------ -----------
Windmill Manor Bradenton FL 2,153 7,262 9,415 (1,603) 1998
Windmill Village - Ft. Myers N. Ft. Myers FL 1,417 6,700 8,117 (4,379) 1983
Winds of St. Armands North
(fka Windmill North) Sarasota FL 1,523 6,726 8,249 (3,936) 1983
Winds of St. Armands South
(fka Windmill South) Sarasota FL 1,106 3,992 5,098 (2,443) 1983
Five Seasons Cedar Rapids IA 1,053 4,115 5,168 (1,222) 1998
Holiday Village, IA Sioux City IA 313 4,264 4,577 (2,553) 1986
Golf Vistas Monee IL 2,843 10,667 13,510 (2,126) 1997
O'Connell's Amboy IL 1,658 5,122 6,780 (173) 2004
Willow Lake Estates Elgin IL 6,138 24,849 30,987 (8,048) 1994
Forest Oaks
(fka Burns Harbor) Chesterton IN 916 4,649 5,565 (1,912) 1993
Lakeside New Carlisle IN 426 1,293 1,719 (40) 2004
Oak Tree Village Portage IN 569 3,607 4,176 (1,772) 1987
Windsong Indianapolis IN 1,482 4,672 6,154 (1,278) 1998
Creekside Wyoming MI 1,109 3,759 4,868 (896) 1998
Casa Village Billings MT 1,168 6,580 7,748 (3,130) 1983
Waterway RV Resort Cedar Point NC 2,392 7,188 9,580 (221) 2004
Goose Creek Resort Newport NC 4,612 14,662 19,274 (437) 2004
Twin Lakes Chocowinity NC 1,719 3,380 5,099 (105) 2004
Del Rey Albuquerque NM 1,926 6,527 8,453 (2,602) 1993
Bonanza Las Vegas NV 908 3,627 4,535 (2,238) 1983
Boulder Cascade Las Vegas NV 2,995 10,156 13,151 (2,315) 1998
Cabana Las Vegas NV 2,648 8,290 10,938 (2,936) 1994
Flamingo West Las Vegas NV 1,730 6,539 8,269 (2,092) 1994
Villa Borega Las Vegas NV 2,896 9,366 12,262 (2,266) 1997
Greenwood Village Manorville NY 4,151 12,956 17,107 (2,609) 1998
Falcon Wood Village Eugene OR 1,112 3,639 4,751 (902) 1997
Quail Hollow Fairview OR 0 3,475 3,475 (861) 1997
Shadowbrook Clackamas OR 1,197 3,858 5,055 (1,004) 1997
Mt. Hood Village Welches OR 1,817 5,431 7,248 (564) 2002
Green Acres Breinigsville PA 2,680 10,296 12,976 (5,077) 1988
Spring Gulch New Holland PA 1,593 4,801 6,394 (163) 2004
Country Sunshine Weslaco TX 627 1,886 2,513 (57) 2004
Fun n Sun San Benito TX 2,950 9,828 12,778 (2,123) 1998
Lakewood Harlingen TX 325 981 1,306 (30) 2004
S-6
SCHEDULE III
EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Costs Capitalized
Subsequent to
Initial Cost to Acquisition
Company (Improvements)
---------------------- --------------------
Depreciable Depreciable
Real Estate Location Encumbrances Land Property Land Property
----------- -------------------- ------------ -------- ----------- ------ -----------
Paradise Park Rio Grande Valley TX 5,430 1,568 4,705 0 4
Paradise South Mercedes TX 1,619 448 1,345 0 5
Southern Comfort Weslaco TX 2,590 1,108 3,323 0 2
Sunshine RV Harlingen TX 4,792 1,494 4,484 0 3
Tropic Winds Harlingen TX 0 1,221 3,809 0 101
All Seasons Salt Lake City UT 3,491 510 1,623 0 211
Westwood Village Farr West UT 7,493 1,346 4,179 0 1,163
Meadows of Chantilly Chantilly VA 27,494 5,430 16,440 0 3,781
Kloshe Illahee Federal Way WA 6,084 2,408 7,286 0 277
Caledonia Caledonia WI 0 376 1,127 0 0
Freemont Freemont WI 4,300 1,432 4,296 0 0
Yukon Trails Lyndon Station WI 0 547 1,629 0 13
Thousand Trails 0 48,537 113,253 0 0
Realty Systems, Inc. 0 4,191 4,191 0 0 0 4,632
Management Business 0 0 436 0 9,424
--------- -------- ---------- ------ --------
1,417,251 $466,556 $1,361,519 $4,031 $203,684
========= ======== ========== ====== ========
Gross Amount Carried
at Close of
Period 12/31/04
-----------------------------------
Depreciable Accumulated Date of
Real Estate Location Land Property Total Depreciation Acquisition
----------- -------------------- -------- ----------- ---------- ------------ -----------
Paradise Park Rio Grande Valley TX 1,568 4,709 6,277 (144) 2004
Paradise South - Encore Mercedes TX 448 1,350 1,798 (41) 2004
Southern Comfort Weslaco TX 1,108 3,325 4,433 (102) 2004
Sunshine RV - Encore Harlingen TX 1,494 4,487 5,981 (137) 2004
Tropic Winds Harlingen TX 1,221 3,910 5,131 (329) 2002
All Seasons Salt Lake City UT 510 1,834 2,344 (491) 1997
Westwood Village Farr West UT 1,346 5,342 6,688 (1,369) 1997
Meadows of Chantilly Chantilly VA 5,430 20,221 25,651 (6,764) 1994
Kloshe Illahee Federal Way WA 2,408 7,563 9,971 (1,846) 1997
Caledonia Caledonia WI 376 1,127 1,503 0 2004
Freemont Freemont WI 1,432 4,296 5,728 0 2004
Yukon Trails Lyndon Station WI 547 1,642 2,189 (10) 2004
Thousand Trails 48,537 113,253 161,790 (629) 2004
Realty Systems, Inc. 0 4,632 4,632 (2) 2002
Management Business 0 9,409 9,409 (8,349)9,860 9,860 (10,359) 1990
------------------------------------------------
$282,803 $1,032,293 1,301,505-------- ---------- ---------- --------
$470,587 $1,565,203 $2,035,790 ($272,497)
================================================322,867)
======== ========== ========== ========
NOTES:
(1) For depreciable property, the Company uses a 30-year estimated life for
buildings acquired and structural and land improvements, a ten-to-fifteen
year estimated life for building upgrades and a three-to-seven year
estimated life for furniture and fixtures.
(2) The schedule excludes Properties in which the Company has a non-controlling
joint venture interest and accounts for using the equity method of
accounting.
(3) The balance of furniture and fixtures included in the total amounts was
approximately $21.3 million as of December 31, 2003.2004.
(4) The aggregate cost of land and depreciable property for Federal income tax
purposes was approximately $1.2$2.0 billion, as of December 31, 2003.2004.
(5) All Properties were acquired, except for Country Place Village, which was
constructed.
S-6S-7
SCHEDULE III
MANUFACTURED HOME COMMUNITIES,EQUITY LIFESTYLE PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20032004
(AMOUNTS IN THOUSANDS)
The changes in total real estate for the years ended December 31, 2004, 2003 2002 and
20012002 were as follows:
2004 2003 2002 2001
---------- ---------- ----------
Balance, beginning of year .................... $1,309,705 $1,296,007 $1,238,138
$1,218,176
Acquisitions(1) .........................Acquisitions (1) .......... 702,538 12,116 107,138
17,770
Improvements ............................. 20,960.............. 27,082 15,569 24,491
23,188
Dispositions(2)Dispositions and other ...............other..... (3,535) (13,987) (73,760) (20,996)
---------- ---------- ----------
Balance, end of year ....................... $1,315,096......... $2,035,790 $1,309,705 $1,296,007 $1,238,138
========== ========== ==========
(1) Acquisitions for the year ended December 31, 20022004 include the non-cash
assumption by the Company of $47.9$347 million of mortgage debt.
(2) Dispositions and other for 2003 includes non-cash capitalization of legal
fees of $5.3 million related to DeAnza Santa Cruz (see Note 5).
The changes in accumulated depreciation for the years ended December 31, 2004,
2003 2002 and 20012002 were as follows:
2004 2003 2002 2001
-------- -------- --------
Balance, beginning of year ....................... $272,497 $238,098 $211,878
$181,580
Depreciation expense .............................. 51,703 39,409 37,188 35,205
Dispositions and other .......................... (1,333) (5,010) (10,968) (4,907)
-------- -------- --------
Balance, end of year ................................... $322,867 $272,497 $238,098 $211,878
======== ======== ========
S-7
S-8